S-1 1 d153461ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on October 4, 2021.

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Solo Brands, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   3949   87-1360865
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

1070 S. Kimball Ave. Suite 121

Southlake, TX 76092

(817) 900-2664

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

John Merris

Chief Executive Officer

Solo Brands, Inc.

1070 S. Kimball Ave. Suite 121

Southlake, TX 76092

(817) 900-2664

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Ian D. Schuman, Esq.
John H. Chory, Esq.

Adam J. Gelardi, Esq.
Latham & Watkins LLP
1271 Avenue of the Americas

New York, NY 10020-1300
Telephone: (212) 906-1200
Fax: (212) 751-4864

  Thomas Holden, Esq.
Ropes & Gray LLP
3 Embarcadero Center
San Francisco, CA 94111-4006
Telephone: (415) 315-2355
Fax: (415) 315-4823

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

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 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum

aggregate
offering price(1)(2)

 

Amount of

registration fee

Class A Common Stock, $0.001 par value per share

  $100,000,000   $9,270

 

 

 

(1)   Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)   Includes the offering price of shares of Class A Common Stock that may be sold if the over-allotment option to purchase additional shares of Class A Common Stock granted by the Registrant to the underwriters is exercised. See “Underwriting.”

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

Subject to completion

Preliminary Prospectus dated October 4, 2021

PROSPECTUS

            Shares

 

 

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Class A Common Stock

 

 

This is the initial public offering of shares of Class A Common Stock of Solo Brands, Inc. We are offering                 shares of our Class A Common Stock.

Prior to this offering, there has been no public market for our Class A Common Stock. The estimated initial public offering price is between $                 and $                 per share. We expect to list our Class A Common Stock on the New York Stock Exchange, or NYSE, under the symbol “DTC.”

We will use the net proceeds that we receive from this offering to purchase from Solo Stove Holdings, LLC, which we refer to as Holdings, newly-issued common membership interests of Holdings which we refer to as the LLC Interests. There is no public market for the LLC Interests. The purchase price for the LLC Interests will be equal to the initial public offering price of our Class A Common Stock, less the underwriting discounts and commissions referred to below. We intend to cause Holdings to use the net proceeds it receives from us in connection with this offering as described in “Use of Proceeds.” Simultaneously with this offering, certain of the indirect owners of membership interests in Holdings, whom we refer to as Former LLC Owners, will exchange their indirect ownership interests for shares of Class A Common Stock, and other holders of membership interests in Holdings, whom we refer to as the Continuing LLC Owners, will retain their membership interests in Holdings.

This offering is being conducted through what is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies undertaking an initial public offering. The Up-C approach provides the existing owners with the tax treatment of continuing to own interests in a pass-through structure and provides potential future tax benefits for both the public company and the existing owners when they ultimately redeem their pass-through interests for shares of Class A common stock or cash from the sale of newly issued shares of Class A common stock.

We will have two classes of common stock outstanding after this offering: Class A Common Stock and Class B Common Stock. Each share of Class A Common Stock and Class B Common Stock entitles its holder to one vote on all matters presented to our stockholders generally. Immediately following this offering, all of our Class B Common Stock will be held by the Continuing LLC Owners, on a one-to-one basis with the number of LLC Interests they own for a purchase price equal to the aggregate par value of such shares of Class B Common Stock. Immediately following this offering, the holders of our Class A Common Stock issued in this offering collectively will hold     % of the economic interests in us and     % of the voting power in us, the Former LLC Owners, through their ownership of Class A Common Stock, collectively will hold     % of the economic interests in us and     % of the voting power in us, and the Continuing LLC Owners, through their ownership of all of the outstanding Class B Common Stock, collectively will hold no economic interest in us and the remaining     % of the voting power in us. We will be a holding company, and upon consummation of this offering and the application of proceeds therefrom, our principal asset will be the LLC Interests we purchase from Holdings and acquire directly from the Continuing LLC Owners and indirectly from the Former LLC Owners, representing an aggregate     % economic interest in Holdings. The remaining     % economic interest in Holdings will be owned by the Continuing LLC Owners through their ownership of LLC Interests.

We will be the sole managing member of Holdings. We will operate and control all of the business and affairs of Holdings and, through Holdings and its subsidiaries, conduct our business.

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

Investing in shares of our Class  A Common Stock involves risks that are described in the “Risk Factors” section beginning on page 31 of this prospectus.

 

 

 

       Per Share        Total      

Public offering price

     $                      $              

Underwriting discounts (1)

     $                      $              

Proceeds, before expenses, to us

     $                      $              

 

(1)   See “Underwriting” for additional information regarding underwriting compensation.

At our request, an affiliate of BofA Securities, Inc., a participating underwriter, has reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus for sale to some of our directors, officers, employees, distributors, dealers, business associates and related persons through a reserved share program. For additional information, see the section titled “Certain Relationships and Related Party Transactions” or “Underwriting”.

We have granted the underwriters an over-allotment option for a period of 30 days to purchase up to                  additional shares of Class A Common Stock.

 

 

 

Neither the Securities and Exchange Commission, or the SEC, nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares against payment in New York, New York on                 , 2021.

 

BofA Securities    J.P. Morgan    Jefferies
Citigroup   Credit Suisse   Piper Sandler   William Blair
Fifth Third Securities   Academy Securities   C.L. King & Associates

The date of this prospectus is                 , 2021.


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TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1  

THE OFFERING

     17  

RISK FACTORS

     31  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     71  

USE OF PROCEEDS

     72  

DIVIDEND POLICY

     73  

TRANSACTIONS

     74  

CAPITALIZATION

     78  

DILUTION

     79  

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

     82  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     94  

BUSINESS

     115  

MANAGEMENT

     135  

EXECUTIVE COMPENSATION

     141  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     157  

PRINCIPAL STOCKHOLDERS

     165  

DESCRIPTION OF CAPITAL STOCK

     167  

DESCRIPTION OF INDEBTEDNESS

     174  

SHARES ELIGIBLE FOR FUTURE SALE

     176  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

     178  

UNDERWRITING

     182  

LEGAL MATTERS

     192  

EXPERTS

     192  

WHERE YOU CAN FIND MORE INFORMATION

     192  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of Class A Common Stock offered by this prospectus, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date regardless of the time of its delivery or of any sale of shares of Class A common stock. Our business, results of operations, financial condition, and prospects may have changed since that date.

For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or the possession or distribution of this prospectus or any free writing prospectus in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A Common Stock and the distribution of this prospectus and any such free writing prospectus outside the United States.

 

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BASIS OF PRESENTATION

In connection with the closing of this offering, we will effect certain organizational transactions. Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the consummation of the organizational transactions and this offering, which we refer to collectively as the “Transactions.” See “Transactions” for additional information regarding the Transactions.

On May 3, 2021, Holdings acquired 60% of the voting equity interests in Oru Kayak, Inc. (“Oru”), and an option to purchase the remaining 40% of voting equity interests in Oru upon a liquidity event at the option of Holdings, for total net cash paid of $25.4 million (the “Oru Acquisition”). On August 2, 2021, Holdings acquired International Surf Ventures, Inc. (“Isle”) for approximately $24.8 million in cash, subject to working capital adjustments and completion of the determination of total purchase consideration (the “Isle Acquisition”). On September 1, 2021, Holdings acquired Chubbies, Inc. (“Chubbies”) for approximately $129.5 million in net consideration provided, subject to the finalization of the estimated total purchase consideration and net assets acquired (the “Chubbies Acquisition” and together with the Oru Acquisition and the Isle Acquisition, the “Acquisitions” and each an “Acquisition”). See the Notes to the audited and unaudited financial statements of Holdings included elsewhere in this prospectus for more information regarding the Acquisitions.

As used in this prospectus, unless the context otherwise requires, references to:

 

   

“we,” “us,” “our,” the “Company,” “Solo Stove,” “Solo Brands, Inc.” and similar references refer: (i) following the consummation of the Transactions, including this offering, to Solo Brands, Inc., and, unless otherwise stated, all of its subsidiaries, including Solo Stove Holdings, LLC, which we refer to as “Holdings,” and, unless otherwise stated, all of its subsidiaries, and (ii) on or prior to the completion of the Transactions, including this offering, to Holdings and, unless otherwise stated, all of its subsidiaries. In each case, such references include the companies acquired in the Acquisitions from the date of the applicable Acquisition. Unless otherwise indicated, (i) information presented for a period entirely preceding an Acquisition does not give effect to the consummation of such Acquisition and reflects only the subsidiaries and brands owned prior to such Acquisition and (ii) information presented for a period following an Acquisition or during which an Acquisition occurred includes the impact of the Acquisition from the date of such Acquisition.

 

   

“Continuing LLC Owners” refers to Original LLC Owners who will continue to own LLC Interests (as defined below) after the Transactions and who may, following the consummation of this offering, exchange their LLC Interests for shares of our Class A Common Stock or a cash payment as described in “Certain relationships and related party transactions—Holdings LLC Agreement,” in each case, together with a cancellation of the same number of its shares of Class B Common Stock.

 

   

“Former LLC Owners” refers to all of the Original LLC Owners (excluding the Continuing LLC Owners) who will exchange their indirect ownership interests in Holdings for shares of our Class A Common Stock and cash in connection with the consummation of this offering.

 

   

“LLC Interests” refer to a single class of common membership interests of Holdings.

 

   

“Original LLC Owners” refer to the direct and certain indirect owners of Holdings, collectively, prior to the Transactions.

Following completion of the Transactions, we will be a holding company and the sole managing member of Holdings and our principal asset will be LLC Interests of Holdings. The issuer, Solo Brands, Inc., was formed on June 23, 2021. Holdings is the predecessor of the issuer for financial reporting purposes. Accordingly, this prospectus contains the historical financial statements of Holdings. As we will have no other interest in any operations other than those of Holdings and its subsidiaries, the historical consolidated financial information included in this prospectus is that of Holdings and its subsidiaries. As Solo Brands, Inc. has no business transactions or activities to date and had no assets or liabilities during the periods presented, the historical

 

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financial statements of this entity are not included in this prospectus. Following completion of this offering, the reporting entity for purposes of periodic reporting will be Solo Brands, Inc.

Frontline Advance, LLC (dba Solo Stove) was formed as a limited liability company in the state of Texas on June 10, 2011. Effective as of August 20, 2021, the name of Frontline Advance, LLC was changed to Solo DTC Brands, LLC. Solo DTC Brands, LLC is referred to by this new name throughout this prospectus, even when referring to events or periods pre-dating this change of name. While operating as a limited liability company from 2011 to 2019, Solo Stove had two owners, or the Founders, which together owned 100% of the outstanding membership interest. For all periods, the operations of the Company are conducted through Solo DTC Brands, LLC.

Pursuant to the membership interest purchase agreement, or 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 DTC Brands, LLC from the Founders for a total consideration of $52.3 million. The remaining interests were retained by the Founders and other employees who acquired interest as part of the 2019 Agreement.

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, or the 2020 Agreement, dated October 9, 2020, Holdings acquired 100% of the outstanding units of Solo DTC Brands, LLC. As a result, Solo DTC 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, or collectively, the Summit Partners, acquired an effective 58.82% of Holdings for total consideration of $273.1 million. The remaining units were retained by the Founders, SS Acquisitions, Inc., and other employees as part of the 2020 Agreement.

The period from January 1, 2019, through September 23, 2019, reflects the historical cost basis of accounting that existed prior to the 2019 Agreement. This period is referred to as the “Predecessor.” The period from September 24, 2019, through December 31, 2019, and the period from January 1, 2020, through October 8, 2020, is referred to as “Intermediate Successor.” The Intermediate Successor period reflects the costs and activities as well as the recognition of assets and liabilities at their fair values pursuant to the election of push-down accounting as of the consummation of the 2019 Agreement.

The period from October 9, 2020, through December 31, 2020, is referred to as “Successor.” The Successor period reflects the costs and activities as well as the recognition of assets and liabilities of the Company at their fair values pursuant to the election of push-down accounting as of the consummation of the 2020 Agreement. Due to the application of acquisition accounting, the election of push-down accounting, and the conforming of significant accounting policies, the results of the consolidated financial statements for the Predecessor, Intermediate Successor, and Successor periods are not comparable.

For the purpose of discussing the recent financial results we have combined the Predecessor and Intermediate Successor for fiscal year 2019 and the Intermediate Successor and Successor for fiscal year 2020, which are prepared on a different accounting basis, and simply added together the two related periods. The combination does not comply with the accounting principles generally acceptable in the United States, or GAAP, or with the rules for pro forma presentation.

The consolidated financial statements contained herein have been prepared in accordance with GAAP.

The unaudited pro forma financial information of Solo Brands, Inc. presented in this prospectus has been derived by the application of pro forma adjustments to the historical consolidated financial statements of Holdings and its subsidiaries included elsewhere in this prospectus. These pro forma adjustments give effect to the Transactions as described in “Transactions,” including the completion of this offering and the Chubbies Acquisition. The unaudited pro forma consolidated balance sheet as of June 30, 2021 gives effect to the Transactions and the Chubbies Acquisition as if they had occurred on that date. The unaudited pro forma

 

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consolidated statements of operations for the year ended December 31, 2020 have been prepared to illustrate the effects of the Transactions and the Chubbies Acquisition as if they occurred on January 1, 2020. See “Unaudited Pro Forma Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the pro forma financial information included in this prospectus.

Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

 

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TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This prospectus includes our trademarks and trade names that we own or license, such as SOLO STOVE, SOLO BRANDS, SOLO STOVE with flame logo, SOLO BRANDS with flame logo and our flame logo, CHUBBIES, ISLE and ORU KAYAK. This prospectus also includes trademarks, trade names and service marks that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this prospectus appear without any “” or “®” symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

MARKET AND INDUSTRY DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate is based on information from P.J. Solomon, or the International Casual Furnishings Association, Cowen or Ducker. Other information concerning our industry and the markets in which we operate is based on independent industry and research organizations, other third-party sources (including industry publications, surveys and forecasts), and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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PROSPECTUS SUMMARY

The following summary highlights information contained elsewhere in this prospectus. This summary is not complete and may not contain all the information you should consider before investing in our Class A Common Stock. You should read this entire prospectus carefully, including the risks of investing in our Class A Common Stock discussed under the heading “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and the financial statements and related notes included elsewhere in this prospectus before making an investment decision.

This offering is being conducted through what is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies undertaking an initial public offering. The Up-C approach provides the existing owners with the tax treatment of continuing to own interests in a pass-through structure and provides potential future tax benefits for both the public company and the existing owners when they ultimately redeem their pass-through interests for shares of Class A common stock or cash from the sale of newly issued shares of Class A common stock.

Our Mission

We aim to help the customers in our communities live a good life by inspiring moments that create lasting memories. When we are at our best, our products serve as the centerpiece of awesome experiences and unlock nostalgia for past ones. We own and operate premium authentic lifestyle brands with ingenious products we market and deliver by leveraging our Direct-To-Consumer (“DTC”) platform. 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.

Who We Are

Solo Brands is a large, rapidly growing DTC platform that operates four premium outdoor lifestyle brands—Solo Stove, Oru Kayak (“Oru”), ISLE Paddle Boards (“ISLE”), and Chubbies apparel. Our brands develop innovative products and market them directly to customers primarily through e-commerce channels. Our platform is led by our largest brand, Solo Stove, which was founded in 2011 by two brothers seeking to bring family together in the outdoors. Our founders combined their passion for e-commerce with their love of the outdoors to create a digitally-native platform to market the revolutionary Solo Stove Lite (“Lite”), an ultralight portable backpacking camp stove that can boil water in under 10 minutes using just twigs, sticks, and leaves. Solo Stove followed the success of the Lite with the launch of its iconic, stainless steel, virtually smokeless fire pits in 2016. We pioneered a new product category that has helped foster a loyal community of enthusiasts and furthers our efforts to bring people together. Since we launched our fire pit product, Solo Stove has grown at a compounded annual growth rate of 132% from 2016 through the twelve-month period ended June 30, 2021.

Since its inception in 2011, Solo Stove’s growth and free cash flow allowed us to make significant investments in our global supply chain and bring fulfillment, research and development, sales and marketing, and customer service in-house. This infrastructure provides an authentic end-to-end customer experience, expedited delivery nationwide, greater cost efficiencies, and redundancy in manufacturing. It also laid the groundwork for a scalable DTC platform which, coupled with the acquisitions of Oru, ISLE, and Chubbies in 2021, led to the formation of Solo Brands.

Our “plug and play” digital DTC platform provides distinct competitive advantages, including an attractive financial profile and a unique ability to acquire and operate outdoor brands that broaden our product assortment and share our values of authenticity, product quality, and community. Through our DTC model, we develop a direct connection with our customers, receive real-time feedback that informs our product development roadmap

 

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and digital marketing decisions, and enhance our brands. This deep connection with our customers helps to drive an attractive return on marketing spend and positions us to capitalize on a significant runway of future expansion. We believe that our DTC platform creates a flywheel effect of rapid growth, scalability, and robust free cash flow generation which, in turn, enables us to re-invest in product innovation, strategic acquisitions, marketing and global infrastructure.

Platform Designed to Create Outdoor and Backyard Heroes

We created a category with the introduction of our lightweight, virtually smokeless fire pit. We built on that success with additional high-quality products designed to reach a broad community of customers and turn everyday people into outdoor and backyard heroes. Our real-time customer feedback loop, culture of innovation, and management track record of scaling digitally-native brands enables us to design and offer products that meet evolving customer needs, share resources, cross-market, and reduce expenses across our brands.

Our diverse products include:

 

 

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Recent Financial Results

Solo Brands’ compelling financial model is underpinned by strong sales growth, industry-leading profitability, and robust free cash flow generation. Our scalable digital platform, diversified product portfolio, and culture of innovation have enabled us to reach an expanding community of passionate customers and generate financial growth and profitability ahead of industry peers.

During our fiscal year 2020, we achieved the following results on a pro forma basis, giving effect to the Transactions and the Chubbies Acquisition as if they had occurred on January 1, 2020:

 

   

Net sales of $         million;

 

   

Net loss of $         million;

 

   

Gross margin of         % of net sales;

 

   

Adjusted Net Income of $         million;

 

   

Adjusted EBITDA of $         million; and

 

   

Adjusted EBITDA margin of         % of net sales.

 

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During our fiscal year 2020, individual brand net sales for each of our currently owned brands were $133 million for Solo Stove, $44 million for Chubbies, $21 million for ISLE, and $12 million for Oru. In the case of each of Chubbies, ISLE and Oru, these net sales were generated prior to our acquisition of the brand.

Through the first six months of our fiscal year 2021, we achieved the following results on a pro forma basis, giving effect to the Transactions and the Chubbies Acquisition as if they had occurred on January 1, 2020:

 

   

Net sales of $         million;

 

   

Net loss of $         million;

 

   

Gross margin of         % of net sales;

 

   

Adjusted Net Income of $         million;

 

   

Adjusted EBITDA of $         million; and

 

   

Adjusted EBITDA margin of         % of net sales.

Through the first six months of our fiscal year 2021, individual brand net sales for each of our currently owned brands amounted to $152 million for Solo Stove, $50 million for Chubbies, $12 million for ISLE, and $11 million for Oru. In the case of each of Chubbies and ISLE, these net sales were generated prior to our acquisition of the brand. In the case of Oru, this figure includes net sales generated both prior to and following our acquisition of the brand.

For additional information, including a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures and a description of the adjustments and assumptions underlying the pro forma financial information, see “Summary Historical, Combined Historical and Pro Forma Financial Data” and “Unaudited Pro Forma Consolidated Financial Information.”

 

 

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Our Competitive Strengths

A Leading Digitally-Native DTC Lifestyle Disruptor

We go-to-market with a digital-first strategy that prioritizes a direct connection with customers through e-commerce channels. Our brands generate the vast majority of sales directly through their own websites. In fiscal year 2020 our currently owned brands’ websites accounted for 84% of Solo Brands sales. We supplement

 

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our website channel via relationships with select third-party e-commerce marketplaces, such as Amazon. Together, these DTC channels generated 92% of Solo Brands fiscal year 2020 sales.

Our DTC model enables us to communicate directly with our customers, which provides real-time customer insights, control of pricing and brand messaging, and helps cultivate a loyal following. This focus on DTC goes hand-in-hand with our data-driven sales and marketing engine that leverages the power of consumer information, including intent trends, purchasing history, and direct contact via email and text messaging. Our expertise with data and our expansive digital infrastructure position us as an agile, fast-moving leader in the DTC lifestyle marketplace. The power of real-time information allows us to rapidly adapt to changing customer preferences, drives our culture of innovation, and enhances our customer acquisition strategy. This constant feedback loop supports a shortened innovation timeline which is designed to enable us to acquire and retain customers efficiently and deliver disruptive products to the market faster than competitors who primarily rely on strategic retail channels.

Our digital leadership differentiates Solo Brands in the DTC outdoor products market, where brick and mortar retail has traditionally constituted the main sales channel. We value our relationships with retailers, but we do not rely on them to connect with our customers. Our brands are positioned to leverage the full potential of our DTC model. We believe our mix of revenue generated in our DTC channels is unique within the outdoor products industry and provides us with significant advantages relative to our competitors.

Product Excellence and Leading Product Development Capabilities

Disruptive innovation is a core tenet of the Solo Brands platform. Our products have received numerous awards and received thousands of 5-star reviews. For instance, Solo Stove’s backpacking stove was a 2013 and 2014 “Gear of the Year” winner by sectionhiker.com and 50campfires.com, respectively. The Bonfire fire pit was awarded the “Best Fire Pit” by Popular Mechanics in 2021, and the Grill was awarded the “Best of What’s New Award” in the home category by Popular Science in 2020. Oru has won multiple awards for its ground-breaking origami kayak including the 2014 Edison Award and 2020 Outdoor Retailer Innovation Award, and ISLE’s Versa Rigid paddle board was awarded the “Best Buy” award from outdoorgearlab.com in 2021. Our products have also been highlighted by a number of media outlets including Shark Tank, Time, Men’s Journal, Gear Patrol, Backpacker, Paddling Magazine, Gear Junkie, Fox and Friends, the Wall Street Journal, and numerous other blogs and review sites.

Across our brands, we provide customers with uncompromising product quality, design, and performance. This has enabled us to offer a diverse range of DTC lifestyle products across price points and usage occasions, including fire pits, grills, recreational products, lifestyle apparel, consumables, and accessories. We aim to deliver superior quality and performance standards in each new category that we enter, while emphasizing ease-of-use in our design philosophy. To support our pipeline of new products, we are aggressively pursuing and actively managing our intellectual property to protect our investment in product innovation.

Solo Brands’ revolutionary product offering is designed to attract new customers to our platform and drive repeat purchases through continuous innovation. A thorough internal ideation process and feedback from our customers underpin our meticulous approach to design and product testing, which we believe allows us to deliver uncompromising quality.

We have built a product development organization and supply chain that enables us to design, prototype, and launch products quickly. Our rapid new product launches have quickly contributed to our overall

 

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performance—for example, in fiscal year 2020, approximately 18% of Solo Brands revenue was generated from products launched in 2019.

Passionate and Emotional Connection with our Community of Customers

We help our customers create memorable, communal experiences. Our customers trust our brands’ commitment to improve the way they live. This authentic, two-way relationship creates a tremendously loyal community of customers.

We connect with our installed base of more than 2.3 million customers through authentic brand messaging which drives traffic to our brands’ websites and amplifies our shared community. Our currently owned brands together generated nearly 42 million unique site visits at their respective websites in fiscal year 2020 and have organically achieved more than 4.5 million followers on social media. Our community engages enthusiastically on social media, creating posts that prominently feature our products as the centerpiece of their experiences.

Our customers act as our most impactful brand advocates. They purchase our products and share them with friends, family, and neighbors, driving strong word-of-mouth referrals. For the year-to-date period ended June 30, 2021, 45% of new customers were introduced to Solo Stove by a friend or family member. This personal recommendation strengthens the broader Solo Brands community and reinforces our authenticity. We also deliver a differentiated customer service experience which includes free shipping and expedited delivery to the contiguous United States that further fuels our exceptional brand satisfaction and loyalty amongst our customers.

Scalable Infrastructure to Support Growth

We have built a scalable, global supply chain to deliver exceptional customer experience and capture profit margin that would otherwise be shared with third party logistic providers. We have made significant investments in our supply chain infrastructure, fulfillment, customer service and information technology, designed to drive improved customer service, expedited delivery, process efficiencies, reduced operating costs, and rapid integration of new digitally-native lifestyle brand acquisitions.

We operate three strategically located warehouse facilities throughout the United States, as well as a fourth located in Rotterdam, Netherlands. We are currently expanding our largest fulfilment center—located at our global headquarters near Dallas, Texas. This expansion will increase our warehouse capacity and further support the rapid growth of our platform. We have also continued to diversify our qualified third-party manufacturing base and now have manufacturing partners in multiple countries that provide redundancy across our core products.

We plan to replicate our successful U.S. DTC fulfilment model as we expand internationally and expect to maintain delivery standards similar to those we currently employ in the United States. This fulfilment experience has been a competitive advantage for Solo Brands in the United States and we anticipate that our steadfast commitment to providing this experience will continue distinguishing our platform as we expand internationally.

 

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Highly Attractive Financial Profile

We have an attractive, scalable financial model that delivers a rare combination of rapid growth, industry-leading profitability, and strong free cash flow generation.

On a pro forma basis giving effect to the Transactions and the Chubbies Acquisition as if they had occurred on January 1, 2020, Solo Brands generated sales of $             million in fiscal year 2020, a net loss of $             million and a gross margin of     % of net sales. During the same time period, Solo Brands’ pro forma Adjusted EBITDA was $             million, and our pro forma Adjusted EBITDA margin was     % of net sales. Through the first six months of fiscal year 2021, on a pro forma basis giving effect to the Transactions and the Chubbies Acquisition as if they had occurred on January 1, 2020, Solo Brands generated sales of $             million, a net loss of $             million, and a gross margin of     % of net sales. During the same time period, Solo Brands’ pro forma Adjusted EBITDA was $             million, and our pro forma Adjusted EBITDA margin was     % of net sales. Our strong profitably is underpinned by a high Average Order Value, or AOV, superior unit economics, attractive return on marketing spend, and a strong repeat purchase rate which represented approximately 36% of total website orders for our currently owned brands during fiscal year 2020, led by our Chubbies brand, which generated a repeat purchase rate of 47.9%. For additional information, including a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures and a description of the adjustments and assumptions underlying the pro forma financial information, see “Summary Historical, Combined Historical and Pro Forma Financial Data” and “Unaudited Pro Forma Consolidated Financial Information”.

Solo Brands’ strong profitability, coupled with our asset-light business model and low working capital requirements, drives robust free cash flow generation which provides us the flexibility to reinvest in our platform and to expand our community of customers and our product offering.

Experienced and Culture-Driven Leadership Team

Solo Brands has built an experienced management team, led by President and Chief Executive Officer John Merris, who brings a strong track-record of building high-performing teams and brands. John’s personal experience growing up on a ranch and his love of the outdoors perfectly aligns with the mission established by our founders. Under the guidance of John and our broader management team, Solo Brands has grown rapidly and significantly enhanced its product portfolio, customer reach, and brand engagement.

We continue to invest in our people, adding key management personnel and DTC experts to our platform to accelerate our profitable growth. As an acquirer of choice, we also benefit from the acquisition of talent which we believe adds expertise and helps us accelerate the growth of newly acquired brands, strengthen and complement our existing leadership team, and leverage the sharing of best practices across the platform.

We are fueled by a set of core attributes that guide our daily activity—Boldly Entrepreneurial, Customer>Company>Self, Results Oriented, Responsibility, Trust and Autonomy, Positivity, and Be The Good. These tenets create a culture of accountability—to each other, to the Solo Brands’ mission to Create Good, and to our community of customers.

Our Growth Strategies

We intend to grow sales and profitability through the following growth strategies:

Increase U.S. Brand Awareness

At Solo Brands, we own and operate premium, innovative outdoor lifestyle brands that enjoy strong customer loyalty driven by their disruptive product offering and brand authenticity. Despite the rapid growth of

 

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our brands, we believe there is substantial whitespace for them to grow organically given their low market penetration. As we drive brand awareness across our portfolio by leveraging our marketing engine and customer word-of-mouth referrals, we believe we can increase household penetration and expand our community of brand loyalists.

Our digitally-native platform and highly effective marketing model enable us to leverage the power of proprietary customer insights derived from our customer database to increase our brand reach efficiently. These customer insights inform our digital marketing decisions and help drive a world class return on marketing spend. We have a multi-faceted marketing strategy to capture market whitespace by engaging with customers across social media, online video streaming, Over-The-Top, or OTT Television, Linear Television, and podcasts. We continue to see opportunities to engage our community of loyal enthusiasts, cross-market, and drive further growth through word-of-mouth referrals. We believe that we can leverage our strengths in data and technology to capitalize on our substantial market whitespace better than our competitors.

While we participate in a broad range of categories, our Solo Stove, Oru, and ISLE brands primarily participate in the massive and growing global outdoor recreation industry. According to P.J. Solomon, consumption in the U.S. Sporting Goods and Outdoor Recreation Category grew 18% to approximately $220 billion, from 2019 to 2020, and is expected to continue growing. For example, for our Solo Stove brand, we believe the core U.S. addressable residential market is 76 million detached single-family households. Today, our U.S. penetration is less than 1% of this addressable residential market, representing a substantial growth opportunity with increased brand awareness. In addition to residential use, Solo Stove products are perfect complements to visits to the park, lake, or beach, or other outdoor activities, or as part of the ambiance in hospitality locations, such as hotels and restaurants, giving us significant room for continued growth and further expanding our addressable market.

Our Oru and ISLE brands operate in the attractive and rapidly growing U.S. paddle sports market, which based on a market study conducted by Ducker, generated estimated retail sales approaching $1 billion in 2020. Despite Oru and ISLE’s rapid growth, their combined fiscal year 2020 revenue represented approximately 3% of this market. We believe this low market penetration rate demonstrates the substantial runway these brands have under our ownership.

Our Chubbies brand operates in the expansive U.S. online clothing and accessories market, which represents a market size of $124 billion based on estimated 2020 sales according to Cowen. Since its founding in 2011, Chubbies has grown net sales from $2.4 million to $44.1 million from 2012 to 2020 representing a compounded annual growth rate of 43.8%. As part of the Solo Brands platform, we have significant room to expand the Chubbies brand reach.

Product Innovation and Category Creation Expands our Community of Customers

We have a history of disrupting markets by introducing and scaling innovative products and technologies across a growing list of categories. From the virtually smokeless fire-pit, to the portable inflatable paddle board, to the folding kayak and high-performance apparel, we have strengthened our product portfolio to meet evolving customer demands. Our innovation strategy is two-pronged: introduce fundamentally innovative and disruptive franchise products, and support those franchise products with a range of new accessories. For example, in fiscal year 2020, we launched the Grill, which was complemented by a range of accessories that included the Stand, Carry Case, and Grill Tools. In the first half of fiscal year 2021, we launched the Handle, which attaches to our fire pits for easy carrying; the Station, an outdoor fire pit and firewood storage solution; and the Hub, a fire pit insert that allows for a variety of cooking methods over the fire. Our Oru brand features a flagship line of lightweight, foldable kayaks. The Oru technology was developed over a decade of relentless testing and design and delivers a customer experience unlike any other kayak product in the market. The product design is

 

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lightweight, portable and folds into a small package that appeals to space conscious customers. In late 2019, Oru launched the Inlet, which is Oru’s lightest, most portable, and easiest-to-assemble folding kayak to date. It is designed for recreational kayaking on flat water and is targeted for the growing recreational kayaking market.

Real-time, direct engagement with our community of customers informs our innovation pipeline. Customer requests inspired the successful design and launch of our most popular fire pit in 2016 and they have similarly informed our launches of other accessories. Our proprietary customer insights enhance our ability to launch and scale new products with high confidence, while driving attractive repeat purchasing behavior. As we continue to enhance our product offering with customization options, accessories, and consumables, we believe customer engagement will continue to increase and further enhance customer Life-Time-Value, or LTV.

We have a robust new product pipeline that we are excited to bring to market in the near- and medium-term, which we expect to drive new and repeat purchase occasions across a rapidly expanding addressable market.

Complementary Acquisitions that Leverage Our Platform’s Infrastructure and Expand Our TAM

We acquire complementary brands that we believe we can optimize through our digital marketing and supply chain platform while we broaden our product assortment. Our scalable supply chain and fulfillment operation allows our brands to deliver an exceptional end-to-end experience to our customers in a cost-effective manner.

Our disciplined acquisition strategy focuses on profitable, rapidly growing digitally-native brands with disruptive product offerings. We seek opportunities where our proprietary platform can drive scale and customer engagement. In turn, these brands broaden our customer reach, expand our product offering, and provide new technologies and capabilities. In addition, these acquisitions enable us to add talented personnel to our leadership team to help execute our growth strategy.

We believe Solo Brands has established itself as an acquirer of choice, providing differentiated advantages through our DTC platform. In addition, we believe our experience growing the Solo Stove brand over the last several years and track-record of partnering with founders and entrepreneurs will be attractive to future brands, which we believe we can integrate to optimize their potential and customer reach, enhance our business model, and drive sustainable and profitable growth. The seamless integration of brands on our platform also helps drive customer engagement and purchase occasions across our brands. In addition, our asset-light business model drives substantial free cash flow generation for investment in new opportunities that further expand our diversification and total addressable market (“TAM”).

Strategic Channel Expansion

Our digitally-native platform is our primary sales channel. We also pursue wholesale distribution opportunities carefully and selectively when we see opportunities to add incremental reach to our owned digital channels. Certain retailers with whom we have partnered allow us to provide additional marketing and purchase opportunities for our customers looking for an in-person, tactile experience. We continue to align with retail partners that support our brand image and share our passion and dedication for innovative, high quality products of uncompromising design and performance.

We see significant whitespace to leverage growing demand in the corporate channel, which grew rapidly in fiscal year 2020. Customization capabilities, including laser etching, provide attractive opportunities for our corporate business.

 

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International Expansion

In fiscal year 2020, U.S.-based customers accounted for more than 95% of our sales; however, we engage with a global audience. Despite higher shipping prices, international customers still order product directly from our U.S. website and foreign distributors consistently contact us in hopes of doing business in their markets. We see substantial opportunity to increase our international sales by replicating our U.S. go-to-market strategy. We plan to leverage our digitally-native expertise to provide convenient, cost-effective access to our products on a direct basis.

We have invested in an international team, led by a Vice President of International Development, and fulfillment infrastructure in the Netherlands to serve Europe, which includes a 72,000 square foot warehouse facility, local personnel, marketing that drives customers to European websites offering our products direct to consumers in their native languages, and customer service. In 2021, we launched operations in Canada and are targeting further international expansions in the near- and medium-term. We strive to provide our international customers with the same brand experience and highly responsive service levels that our U.S.-based customers have come to love.

Over the next three years, we plan to enter targeted geographies directly where we have identified similar DTC lifestyle and communal market dynamics as in the United States, including near-term and medium-term focuses on Europe and Australia. We intend to continue to explore establishing direct operations in additional new markets, including Africa, Asia-Pacific, the Middle East and South America, where we currently serve customers through international distributors.

Our Industry and Opportunity

We design products to serve the expanding Solo Brands community throughout their daily lives, whether at home, on the go, or in the outdoors, spanning multiple usage occasions and across all seasons. Our category participation is diverse and our innovative, premium products enjoy broad appeal. Our current product offering extends into several categories, including outdoor living, outdoor cooking, outdoor recreation, and lifestyle apparel. While we participate in a broad range of categories, our Solo Stove, Oru, and ISLE brands primarily participate in the massive and growing global outdoor recreation industry, a sector with an expansive user demographic that increasingly includes younger users and spans ethnicities and genders. According to P.J. Solomon, consumption in the U.S. Sporting Goods and Outdoor Recreation Category grew 18% to approximately $220 billion, from 2019 to 2020, and is expected to continue growing. Our Chubbies brand primarily participates in the U.S. online clothing and accessories category, a growing market estimated to be $124 billion based on 2020 sales according to Cowen.

Throughout our history, we have organically expanded the served portion of our addressable market opportunity through continuous innovation and expansion of our product assortment. We have also expanded our addressable market opportunity through the acquisitions of disruptive DTC lifestyle brands. Our recent acquisitions of Oru and ISLE expand our served market opportunity into the U.S. paddle sports market, a highly attractive, rapidly growing sub-segment of the outdoor recreation industry generating estimated retail sales approaching $1 billion in 2020 based on a market study conducted by Ducker. Both these brands are growing at a rapid pace; however, we believe that Oru’s and ISLE’s combined fiscal year 2020 revenue represented approximately 3% of this attractive market. In addition to category size, we consider our market opportunity in terms of the number of addressable customers who may have interest in the Solo Brands product offering with our current products and price points.

For example, we believe just Solo Stove’s addressable customers alone total approximately 164 million households, comprised of 76 million and 88 million detached single family households in the United States and

 

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in our other current, near-term and medium-term planned international markets, respectively. This figure does not account for a large number of households living in apartments, townhouses, and motorhomes, who we believe also may become customers, and it excludes many others who may become customers of Solo Brands’ broader product offering. In addition to household use, Solo Stove products are perfect complements to visits to the park, lake, or beach, or other outdoor activities, or as part of the ambiance in hospitality locations, such as hotels and restaurants.

We aim to continue expanding our addressable market opportunity and growing our brand penetration by leveraging our culture of innovation across our platform.

Shifts in Consumer Behavior Providing Tailwinds for Solo Brands

Increasing Participation in Outdoor Leisure and Recreation

We believe humans are inherently drawn to life in the outdoors. Yet, most consumers spend a vast majority of their lives indoors, a long-term dynamic which has been intensified by the sweeping expansion in digital socialization and commerce. Digital device fatigue and growing awareness of the discernible benefits of time outdoors for physical and mental health are driving spending on products and services that cater to outdoor activities, including outdoor living, camping, hiking, adventuring and sports, among others. This has translated into consistent year-over-year growth of the outdoor recreation industry both in the United States and globally and through economic cycles. Since 2000, the outdoor recreation industry has delivered growth in 18 out of 20 years and has consistently outpaced GDP growth, based on research from P.J. Solomon. Additionally, the COVID-19 pandemic has further solidified consumer interest in the outdoors and our products, with 90% of consumers indicating increased appreciation for outdoor spaces and 58% planning to invest in their outdoor living spaces in 2021, according to a survey conducted in January 2021 by the International Casual Furnishings Association.

Reverse Urbanization Driving Outdoor Leisure and Recreation Spending

Reverse urbanization has been underway in many parts of America over the past decade. Americans are increasingly moving out of higher cost of living urban cities and towards more affordable, more outdoor friendly suburban areas, based on data published by the two largest domestic moving companies. Residential and suburban areas tend to have greater access and closer proximity to outdoor spaces and public grounds, increased automobile and recreational vehicle ownership and lower cost infrastructure for sports and outdoor activities. The long-term reverse urbanization trend accelerated during 2020 and we believe it will continue to be prevalent in a post-pandemic environment where virtual work environments have become mainstream.

Expanding Desire for Experiences and Community

We believe that many of today’s consumers would prefer to spend their money on products and services that provide experiences and create gatherings of friends, families, and communities than on products and services that do not. We believe that consumer preferences have been shifting away from material items and toward experiences for some time, and that the COVID-19 pandemic has intensified the increase in demand for at-home and outdoor experiences, with families spending more time together and creating memorable moments.

Increasing Spending Power and Home Buying of Digital-First Generations

Our products appeal broadly across many demographics, and particularly with younger consumers. Young consumers (ages 18 to 44) accounted for approximately 50% of Solo Brands website traffic during 2020. Millennials (ages 25 to 40) and Generation Z consumers (ages 9 to 24) represented approximately $1 trillion of

 

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spending power in the United States in 2020. Millennials are in their peak home buying and consumption years, with an estimated 72 million consumers between the ages of 25 and 40 according to U.S. census data. It is estimated that Millennials currently make up 38% of homebuyers and that proportion is expected to increase over the next few years.

Furthermore, we believe that post-baby boomer generations, inclusive of Generation X (ages 41 to 56), Millennials and Generation Z, shop through digital channels, the distribution channels through which a substantial majority of our net sales are generated, more than prior generations. Within the outdoor and leisure recreation category, the e-commerce segment experienced the highest year-over-year growth in 2020 at 65%, according to P.J. Solomon. We believe that over the next 10+ years, the shift toward online shopping and digitally-native brands will continue to disrupt traditional brick and mortar, as well as traditional consumer products. Solo Brands is well positioned to expand its platform to include strong DTC brands that have built large and loyal followers by creating emotional connections between their customers, products, and their brand. We believe this will strengthen our platform of powerful brands with unified synergies across digital marketing, warehousing, fulfillment, and supply chain.

Summary of the Transactions

Prior to the consummation of this offering and the organizational transactions described below, the Original LLC Owners were the only owners of Holdings. Solo Brands, Inc. was incorporated as a Delaware corporation on June 23, 2021 to serve as the issuer of the Class A Common Stock offered hereby.

In connection with the closing of this offering, we will consummate the following organizational transactions:

 

   

we will amend and restate the amended and restated limited liability company agreement of Holdings, effective as of the completion of this offering, or the Holdings LLC Agreement, to, among other things, (i) provide for LLC Interests that will be a single class of common membership interests in Holdings, (ii) recapitalize all of the existing membership interests in Holdings into LLC Interests and (iii) appoint Solo Brands, Inc. as the sole managing member of Holdings;

 

   

we will amend and restate Solo Brands, Inc.’s certificate of incorporation to, among other things, (i) provide for Class A Common Stock and Class B Common Stock, each share of which entitles its holders to one vote per share on all matters presented to Solo Brands, Inc.’s stockholders and (ii) issue shares of Class B Common Stock to the Continuing LLC Owners, on a one-to-one basis with the number of LLC Interests they own for a purchase price equal to the aggregate par value of such shares of Class B common Stock;

 

   

Solo Brands, Inc. will issue                 shares of Class A Common Stock to the purchasers in this offering (or                 shares of Class A Common Stock if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock);

 

   

Solo Brands, Inc. will use all of the net proceeds from this offering (including any net proceeds received upon exercise of the underwriters’ option to purchase additional shares of Class A Common Stock) to acquire LLC Interests from Holdings at a purchase price per interest equal to the initial public offering price per share of Class A Common Stock, less underwriting discounts and commissions;

 

   

the Former LLC Owners will exchange their indirect ownership interests in Holdings for shares of Class A Common Stock on a one-to-one basis, representing (i) approximately     % of the combined voting power of all of Solo Brands, Inc.’s common stock (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock) and (ii) approximately     % of the economic interest in the business of Holdings and its subsidiaries (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock), indirectly through Solo Brands, Inc.’s ownership of LLC Interests;

 

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Holdings will use the proceeds from the sale of LLC Interests to Solo Brands, Inc. as described in “Use of Proceeds;”

 

   

the Continuing LLC Owners will continue to own the LLC Interests they received in exchange for their existing membership interests in Holdings, which LLC Interests, following this offering, will be redeemable, at their election, for newly-issued shares of Class A Common Stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A Common Stock for each LLC Interest redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the Holdings LLC Agreement; provided that, at Solo Brands, Inc.’s election, Solo Brands, Inc. may effect a direct exchange of such Class A Common Stock or such cash for such LLC Interests. Shares of Class B Common Stock will be cancelled on a one-for-one basis if we, at the election of the Continuing LLC Owners, redeem or exchange their LLC Interests pursuant to the terms of the Holdings LLC Agreement; and

 

   

Solo Brands, Inc. will enter into (i) a tax receivable agreement, or the Tax Receivable Agreement, with the Continuing LLC Owners, (ii) a stockholders agreement, or the Stockholders Agreement, with            and (iii) a registration rights agreement, or the Registration Rights Agreement, with the Original LLC Owners.

Upon the consummation of this offering, the Continuing LLC Owners will own (x)            shares of Solo Stove’s Class B Common Stock (which will not have any liquidation or distribution rights), representing approximately     % of the combined voting power of all of Solo Stove’s common stock (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock) and (y)             LLC Interests, representing approximately     % of the economic interest in the business of Holdings and its subsidiaries (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock).

We refer to the foregoing transactions collectively as the “Transactions.” For more information regarding our structure after the completion of the Transactions, including this offering, see “Transactions.”

Immediately following this offering, Solo Brands, Inc. will be a holding company and its principal asset will be the LLC Interests it purchases from Holdings and acquires directly from the Continuing LLC Owners and indirectly from the Former LLC Owners. As the sole managing member of Holdings, Solo Brands, Inc. will operate and control all of the business and affairs of Holdings and, through Holdings and its subsidiaries, conduct our business. Accordingly, Solo Brands, Inc. will have the sole voting interest in, and control the management of, Holdings. As a result, we will consolidate Holdings in our consolidated financial statements and will report a non-controlling interest related to the LLC Interests held by the Continuing LLC Owners on our consolidated financial statements.

See “Description of Capital Stock” for more information about our certificate of incorporation and the terms of the Class A Common Stock and Class B Common Stock. See “Certain Relationships and Related Party Transactions” for more information about (i) the Holdings LLC Agreement, including the terms of the LLC Interests and the redemption right of the Continuing LLC Owners; (ii) the Tax Receivable Agreement; (iii) the Registration Rights Agreement; and (iv) the Stockholders Agreement. Under the Stockholders Agreement, any increase or decrease in the size of our board of directors or any committee, and any amendment to our organizational documents, will in each case require the approval of                , for so long as they collectively own at least                % of the total shares of our Class A Common Stock owned by them as of the date this offering is consummated, and will also require the approval of                and its affiliates, for so long as                and its affiliates own at least                % of the total shares of our Class B Common Stock owned by them as of the date this offering is consummated.

 

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The diagram below depicts our organizational structure after giving effect to the Transactions, including this offering, assuming no exercise by the underwriters of their option to purchase additional shares of Class A Common Stock.

 

 

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(1)   Includes the following:

This offering is being conducted through what is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies undertaking an initial public offering. The Up-C approach provides the existing owners with the tax treatment of continuing to own interests in a pass-through structure and provides potential future tax benefits for both the public company and the existing owners when they ultimately redeem their pass-through interests for shares of Class A common stock or cash from the sale of newly issued shares of Class A common stock.

 

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Tax Receivable Agreement

Upon the closing of the Transactions, Solo Brands, Inc. will be a party to the Tax Receivable Agreement with the Continuing LLC Owners and Holdings. Under the Tax Receivable Agreement, Solo Brands, Inc. generally will be required to make cash payments to the Continuing LLC Owners equal to 85% of the tax benefits, if any, that Solo Brands, Inc. actually realizes, or in certain circumstances is deemed to realize, as a result of (1) increases in Solo Brands, Inc.’s proportionate share of the tax basis of the assets of Holdings resulting from (a) any future redemptions or exchanges of LLC Interests by the Continuing LLC Owners for Solo Brands, Inc. Class A common stock or cash pursuant to the Holdings LLC Agreement as described under “Certain Relationships and Related Party Transactions—Holdings LLC Agreement,” or (b) certain distributions (or deemed distributions) by Holdings and (2) certain other tax benefits arising from payments under the Tax Receivable Agreement. Although Solo Brands, Inc. will retain 15% of such tax benefits, this and other aspects of our organizational structure may adversely impact the future trading market for the Class A Common Stock. No such payments will be made to any holders of Solo Brands, Inc. Class A common stock unless such holders are also Continuing LLC Owners.

The amount of the cash payments that Solo Brands, Inc. will be required to make under the Tax Receivable Agreement may be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement, we expect that the reduction in tax payments for us associated with the tax attributes described above would aggregate to approximately $         over         years from the date of this offering based on an initial public offering price of $ per share of our Class A common stock, which is the midpoint of the price range set forth on the front cover of this prospectus, and assuming all future sales of LLC Interests in exchange for our Class A common stock would occur on the one-year anniversary of this offering at such price. In this scenario, we estimate that we would be required to pay the Continuing LLC Owners         % of such amount, or $         , over the         -year period from the date of this offering. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreement payments by us will be determined in part by reference to the market value of our Class A common stock at the time of the sale and the prevailing tax rates applicable to us over the life of the tax receivable agreement and will generally be dependent on us generating sufficient future taxable income to realize the benefit. See “Certain Relationships and Related Party Agreements—Tax Receivable Agreement.” Payments under the Tax Receivable Agreement are not conditioned on the Continuing LLC Owners’ ownership of our shares after this offering. Any payments made by Solo Brands, Inc. to the Continuing LLC Owners under the Tax Receivable Agreement will not be available for reinvestment in the business and will generally reduce the amount of cash that might have otherwise been available to Solo Brands, Inc. and its subsidiaries. To the extent Solo Brands, Inc. is unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Furthermore, Solo Brands, Inc.’s future obligations to make payments under the Tax Receivable Agreement could make Solo Brands, Inc. and its subsidiaries a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that are the subject of the Tax Receivable Agreement.

For more information, see “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

Summary of risks associated with our business

We are subject to several risks, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, results of operations, financial condition, and cash flows. You should

 

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carefully consider the risks discussed in the section entitled “Risk Factors,” including the following risks, before investing in our Class A Common Stock:

 

   

Our business depends on maintaining and strengthening our brand and generating and maintaining ongoing demand for our products, and a significant reduction in such demand could harm our results of operations;

 

   

If we are unable to successfully design and develop new products, our business may be harmed;

 

   

We may acquire or invest in other companies, which could divert our management’s attention, result in dilution to our stockholders, and otherwise disrupt our operations and harm our results of operations;

 

   

Our recent growth rates may not be sustainable or indicative of future growth and we may not be able to effectively manage our growth;

 

   

If we are unable to successfully obtain and enforce protection for our trademarks and patents, our ability to compete in the market could be harmed;

 

   

Our business could be harmed if we are unable to accurately forecast demand for our products or our results of operations;

 

   

Our marketing strategy of associating our brand and products with outdoor, group activities may not be successful with existing and future customers;

 

   

If we fail to attract new customers in a cost-effective manner, our business may be harmed;

 

   

Our net sales and profits depend on the level of customer spending for our products, which is sensitive to general economic conditions and other factors;

 

   

The COVID-19 pandemic or other pandemics could adversely affect our business, sales, financial condition, results of operations and cash flows, and our ability to access current or obtain new lending facilities;

 

   

The markets in which we compete are highly competitive and we could lose our market position;

 

   

Competitors have imitated and will likely continue to imitate our products. If we are unable to protect or preserve our brand image and proprietary rights, our business may be harmed;

 

   

We rely on third-party manufacturers and problems with, or the loss of, our suppliers or an inability to obtain raw materials could harm our business and results of operations;

 

   

Our business relies on cooperation of our suppliers, but not all relationships include written exclusivity agreements. If they produce similar products for our competitors, it could harm our results of operations;

 

   

Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase our costs;

 

   

If we fail to timely and effectively obtain shipments of products from our manufacturers and deliver products to our retail partners and customers, our business and results of operations could be harmed;

 

   

Our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, uncertain or inconsistent interpretation and enforcement of legal requirements or differing views of personal privacy rights, which may have a material adverse effect on our reputation, business, financial condition and results of operations; and

 

   

Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

 

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Corporate information

Solo Brands, Inc., the issuer of the Class A Common Stock in this offering, was incorporated in Delaware on June 23, 2021. Solo Stove Holdings, LLC was organized in Delaware as a limited liability company on October 6, 2020. Our principal executive offices are located at 1070 S. Kimball Ave. Suite 121, Southlake, TX 76092. Our telephone number is (817) 900-2664. Our corporate website is www.solostove.com. The information contained on or that can be accessed through our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus or in deciding whether to purchase our Class A Common Stock.

Implications of being an emerging growth company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to:

 

   

reduced obligations with respect to financial data, including presenting only two years of audited financial statements and only two years of selected financial data, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, in the registration statement on Form S-1 of which this prospectus is a part;

 

   

reduced disclosure obligations regarding executive compensation;

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act; and

 

   

exemptions from the requirements of holding a non-binding advisory vote on executive compensation and the requirement to obtain stockholder approval of any golden parachute payments not previously approved.

We may take advantage of these exemptions until the last day of our fiscal year following the fifth anniversary of the completion of this offering or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest to occur of (1) the last day of the fiscal year in which we have more than $1.07 billion in annual gross revenue; (2) the date we qualify as a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, or the Exchange Act; (3) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities held by non-affiliates; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

 

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THE OFFERING

 

Issuer

Solo Brands, Inc.

 

Class A Common Stock offered hereby

                shares (or                 shares if the underwriters exercise in full their option to purchase additional shares).

 

Underwriters’ option to purchase additional shares of Class A Common Stock

 
                 shares.

 

Class A Common Stock to be issued to Former LLC Owners

                shares.

 

Class A Common Stock to be outstanding immediately after this offering

                shares (or                 shares if the underwriters exercise in full their option to purchase additional shares).

 

Class B Common Stock to be outstanding immediately after this offering

                shares, all of which will be owned by the Continuing LLC Owners.

 

Voting Rights

Holders of our Class A Common Stock and Class B Common Stock will vote together as a single class on all matters presented to stockholders for their vote or approval, except as otherwise required by law. Each share of Class A Common Stock and Class B Common Stock will entitle its holder to one vote per share on all such matters. See “Description of Capital Stock.”

 

Voting power held by purchasers in this offering

    % (or     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock).

 

Voting power held by the Former LLC Owners

    % (or     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock).

 

Voting power held by all holders of Class A Common Stock after giving effect to this offering

    % (    or %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock).

 

Voting power held by all holders of Class B Common Stock after giving effect to this offering

    % (or     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock).

 

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Ratio of shares of Class A common stock to LLC Interests

Our amended and restated certificate of incorporation and the Holdings LLC Agreement will require that we at all times maintain a ratio of one LLC Interest owned by us for each outstanding share of Class A common stock (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities) and that Holdings at all times maintain a one-to-one ratio between the number of shares of Class A Common Stock issued by us and the number of LLC Interests owned by us, as well as a one-to-one ratio between the number of shares of Class B Common Stock owned by the Continuing LLC Owners and the number of LLC Interests owned by the Continuing LLC Owners. This construct is intended to result in the Continuing LLC Owners having a voting interest in Solo Brands, Inc. that is substantially the same as the Continuing LLC Owners’ percentage economic interest in Holdings. The Continuing LLC Owners will own all of our outstanding Class B Common Stock.

 

Reserved Share Program

At our request, an affiliate of BofA Securities, Inc., a participating underwriter, has reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus for sale to some of our directors, officers, employees, distributors, dealers, business associates and related persons. If these persons purchase reserved shares it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $            million (or approximately $            million if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock), assuming an initial public offering price of $            per share (the midpoint of the price range listed on the cover page of this prospectus).

 

  We intend to use the net proceeds that we receive from this offering (including any net proceeds from the underwriters’ exercise of their option to purchase additional shares of Class A Common Stock) to purchase              LLC Interests from Holdings at a purchase price per interest equal to the initial public offering price per share of Class A Common Stock less underwriting discounts and commissions.

 

 

We intend to cause Holdings to use such proceeds for general corporate purposes, including the repayment of certain indebtedness. We may also use a portion of the net proceeds to acquire or invest in businesses, products, services or technologies; however, we do not

 

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have agreements or commitments for any material acquisitions or investments at this time. See “Use of Proceeds.”

 

Redemption rights of holders of LLC Interests

The Continuing LLC Owners, from time to time following the offering, may require Holdings to redeem all or a portion of their LLC Interests for newly-issued shares of Class A Common Stock on a one-for-one basis or to the extent there is cash available from a secondary offering, a cash payment equal to the volume weighted average market price of one share of our Class A Common Stock for each LLC Interest redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the Holdings LLC Agreement; provided that, in the event of such a redemption request, at Solo Brands, Inc.’s election, it may effect a direct exchange of such Class A Common Stock or such cash for such LLC Interests in lieu of such a redemption. See “Certain Relationships and Related Party Transactions—Holdings LLC Agreement.” Shares of our Class B Common Stock will be cancelled on a one-for-one basis if we, following any redemption request from the Continuing LLC Owners, redeem or exchange their LLC Interests pursuant to the terms of the Holdings LLC Agreement.

 

Registration Rights Agreement

Pursuant to the Registration Rights Agreement, we will, subject to the terms and conditions thereof, agree to register the resale of the shares of our Class A Common Stock that are issuable to the Continuing LLC Owners upon redemption or exchange of their LLC Interests and the shares of our Class A Common Stock that are issued to the Former LLC Owners in connection with the Transactions. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

 

Dividend policy

We do not anticipate declaring or paying any cash dividends on our Class A Common Stock for the foreseeable future. See “Dividend Policy.”

 

Tax Receivable Agreement

We will enter into the Tax Receivable Agreement with Holdings and the Continuing LLC Owners, which will provide for the payment by us to the Continuing LLC Owners of 85% of the amount of tax benefits, if any, that we actually realize (or in some circumstances are deemed to realize based on certain calculations using certain assumptions) as a result of (i) increases in our proportionate share of the tax basis of the assets of Holdings resulting from (a) any future redemptions or exchanges of LLC Interests by the Continuing LLC Owners, as described above under “—The Offering—Redemption Rights of Holders of LLC Interests” and (b) certain distributions (or deemed distributions) by Holdings and (ii) certain other tax benefits arising from payments under the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

 

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Stockholders Agreement

Pursuant to the Stockholders Agreement,            will hold Class A Common Stock and Class B Common Stock representing approximately     % of the combined voting power of all of our common stock. Until such time as                own less than     % of the total shares of our Class A Common Stock owned by them as of the date this offering is consummated, and            owns less than     % of the total shares of our Class B Common Stock owned by them as of the date this offering is consummated, or the Stockholders Agreement is otherwise terminated in accordance with its terms, the parties to the Stockholders Agreement will agree to                                                                                                                                                 . See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”

 

Risk Factors

Investing in shares of our Class A Common Stock involves a high degree of risk. See “Risk Factors” for a discussion of factors you should carefully consider before investing in shares of our Class A Common Stock.

 

NYSE Symbol

“DTC”

The number of shares of Class A Common Stock to be outstanding after this offering is based on the membership interests of Holdings outstanding as of                     , 2021, and excludes:

 

   

shares of Class A Common Stock reserved for issuance under our 2021 Incentive Award Plan, or the Plan, as described in “Executive Compensation—New Incentive Arrangements”, consisting of (i)            shares of Class A Common Stock issuable upon the exercise of options to purchase shares of Class A Common Stock granted on the date of this prospectus to our directors and certain employees, including the named executive officers, in connection with this offering as described in “Executive Compensation—Director Compensation” and “Executive Compensation—New Equity Awards,” and (ii)            additional shares of Class A Common Stock reserved for future issuance (exclusive of the additional shares available for issuance under the Plan pursuant to the annual increase each calendar year beginning in              and ending in             , as described in “Executive Compensation—New Incentive Arrangements”);

 

   

shares of Class A Common Stock reserved for issuance under our Employee Stock Purchase Plan as described in “Executive Compensation—New Incentive Arrangements”; and

 

   

shares of Class A Common Stock reserved as of the closing date of this offering for future issuance upon redemption or exchange of LLC Interests by the Continuing LLC Owners.

Unless otherwise indicated, this prospectus assumes:

 

   

the completion of the organizational transactions as described in “Transactions;”

 

   

no exercise by the underwriters of their option to purchase additional shares of Class A Common Stock;

 

   

the shares of Class A Common Stock are offered at $             per share (the midpoint of the price range listed on the cover page of this prospectus);

 

   

no exercise of outstanding options after                     , 2021; and

 

   

no purchase of Class A Common Stock by certain of our directors, officers, employees, distributors, dealers, business associates and related persons designated by us through the reserved share program described under “Certain Relationships and Related Party Transactions” and “Undertaking”.

 

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SUMMARY HISTORICAL, COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA

The following tables present the summary historical, combined historical and pro forma financial data for Holdings and its subsidiaries for the periods and at the dates indicated. Holdings is the predecessor of the issuer, Solo Brands, Inc., for financial reporting purposes. The summary statements of operations and statement of cash flows data is presented for the periods from January 1, 2019 through September 23, 2019 (“Predecessor”), from September 24, 2019 through December 31, 2019 (“Intermediate Successor”), from January 1, 2020 through October 8, 2020 (“Intermediate Successor”) and from October 9, 2020 through December 31, 2020 (“Successor”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this prospectus for a presentation of statements of operations combining these periods into fiscal year 2019 and fiscal year 2020. For the purpose of discussing the recent financial results we have combined the Predecessor and Intermediate Successor for fiscal year 2019 and the Intermediate Successor and Successor for fiscal year 2020, which are prepared on a different accounting basis, and simply added together the two related periods. This combination is a non-GAAP presentation and does not comply with the rules for pro forma presentation. See “Basis of Presentation.” The summary balance sheet data as of December 31, 2019 and 2020 are derived from the Holdings audited financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the six months ended June 30, 2020 and 2021 and the summary consolidated balance sheet data as of June 30, 2021 are derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations. You should read this data together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information under the captions “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical and combined historical results are not necessarily indicative of our future results and results of interim periods are not necessarily indicative of results for the entire year.

The summary unaudited pro forma consolidated financial data of Solo Brands, Inc. presented below have been derived from our unaudited pro forma consolidated financial information included elsewhere in this prospectus. The summary unaudited pro forma consolidated financial information as of and for the year ended December 31, 2020 gives effect to the Transactions, including the consummation of this offering and the use of proceeds therefrom, as described in “Our Organizational Structure” and “Use of Proceeds,” and to the Chubbies Acquisition, as if all such transactions had occurred on January 1, 2020, in the case of the statements of operations and statement of cash flows data, and as of June 30, 2021, in the case of the balance sheet data. The unaudited pro forma consolidated financial information includes various estimates which are subject to material change and may not be indicative of what our operations or financial position would have been had this offering and the other transactions taken place on the dates indicated, or that may be expected to occur in the future. See “Unaudited Pro Forma Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the summary unaudited pro forma consolidated financial information.

 

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The summary historical data of Solo Brands, Inc. have not been presented as Solo Brands, Inc. has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this section.

 

    Predecessor,
Historical
    Intermediate
Successor,
Historical
    Intermediate
Successor,
Historical
    Successor,
Historical
    Intermediate
Successor,
Historical
    Successor,
Historical
    Solo Brands,
Inc.,
Pro Forma
    Solo Brands,
Inc.,
Pro Forma
 
(in thousands, except per
share and share amounts)
  Period from
January 1,
2019 through
September 23,
2019
    Period from
September 24,
2019 through
December 31,
2019
    Period from
January 1,
2020 through
October 8,
2020
    Period from
October 9,
2020
through
December 31,
2020
    Six Months
ended
June 30,
2020
    Six Months
ended
June 30,
2021
    Year ended
December 31,
2020
    Six Months
ended
June 30,
2021
 

Consolidated statements of operations data:

               

Net sales

  $ 19,544     $ 20,308     $ 72,576     $ 60,852     $ 37,457     $ 157,816     $                   $                

Cost of goods sold

    5,496       11,720       23,275       23,183       12,833       51,652      

Gross profit

    14,048       8,588       49,301       37,669       24,624       106,164      

Operating expenses

               

Selling, general and administrative expenses

    8,357       8,012       21,499       18,515       10,941       48,396      

Depreciation and amortization expenses

    13       810       2,387       3,285       1,524       7,905      

Other operating expenses

    29,861       4,248       39,203       22,538       6       2,610      

Total operating expenses

    38,231       13,070       63,089       44,338       12,471       58,911      

Income (loss) from operations

    (24,183     (4,482     (13,788     (6,669     12,153       47,253      

Non-operating expenses

               

Interest expense

    (6     525       1,700       1,507       868       5,117      

Other non-operating expenses

    338       15       319       121       78       2      

Total non-operating expenses

    332       (540     2,019       1,628       946       5,119      

Income (loss) before income taxes

    (24,515     (5,022     (15,807     (8,297     11,207       42,134      

Income tax expense

    3             78       21       —         172      

Net income (loss)

  $ (24,518   $ (5,022   $ (15,885   $ (8,318   $ 11,207     $ 41,962     $       $    

Less: net income (loss) attributable to noncontrolling interest

    —         —         —         —         —         229      

Net income (loss) attributable to Solo Stove Holdings, LLC

  $ (24,518   $ (5,022   $ (15,885   $ (8,318   $ 11,207     $ 41,733     $       $    

New income (loss) per unit

               

Basic

  $ *     $ (0.06   $ (0.20   $ (0.02   $ 0.14     $ 0.10     $       $    

Diluted

  $ *     $ (0.06   $ (0.20   $ (0.02   $ 0.14     $ 0.10     $       $    

Weighted average units outstanding:

               

Basic

    *       78,106       78,639       425,000       78,547       425,000      

Diluted

    *       78,106       78,639       425,000       78,547       425,000      

 

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*   The Predecessor period does not show Net income (loss) per unit as the Company had two Founders, which each owned one share of the Company during such period. Thus, the calculation of Net income (loss) per unit is not applicable for the Predecessor period.

 

     Predecessor,
Historical
    Intermediate
Successor,
Historical
    Intermediate
Successor,
Historical
    Successor,
Historical
    Intermediate
Successor,
Historical
    Successor,
Historical
 
(dollars in thousands)    Period from
January 1,
2019 through
September 23,
2019
    Period from
September 24,
2019 through
December 31,
2019
    Period from
January 1,
2020 through
October 8,
2020
    Period from
October 9,
2020 through
December 31,
2020
    Six Months
ended
June 30,
2020
    Six Months
ended
June 30,
2021
 

Consolidated statements of cash flows data:

            

Net cash provided by (used in):

            

Operating activities

   $ (425   $ (19,392   $ 27,087     $ 5,592     $ 15,933     $ (6,931

Investing activities

     (77     (52,350     (661     (273,441     (376     (20,946

Financing activities

     (2,785     76,767       (19,530     300,602       (2,012     3,006  

 

    Predecessor,
Historical
    Intermediate
Successor,
Historical
    Intermediate
Successor,
Historical
    Successor,
Historical
    Intermediate
Successor,
Historical
    Successor,
Historical
    Solo Brands,
Inc.,
Pro Forma
    Solo Brands,
Inc.,
Pro Forma
 
(dollars in thousands)   Period from
January 1,
2019 through
September 23,
2019
    Period from
September 24,
2019 through
December 31,
2019
    Period from
January 1,
2020 through
October 8,
2020
    Period from
October 9,
2020 through
December 31,
2020
    Six Months
Ended
June 30,
2020
    Six Months
Ended
June 30,
2021
    Year ended
December 31,
2020
    Six Months
ended
June 30,
2021
 

Other financial measures:

               

Net sales by sales channel

               

DTC.

  $ 17,048     $ 18,965     $ 65,701     $ 56,986     $ 33,539     $ 133,411     $                 $              

Wholesale

    2,496       1,343       6,875       3,866       3,918       24,405      

Gross profit

  $ 14,048     $ 8,588     $ 49,301     $ 37,669     $ 24,624     $ 106,164     $                 $              

Gross margin

    71.9     42.3     67.9     61.9     65.7     67.3                                  

Adjusted gross profit(1)

  $ 14,048     $ 13,860     $ 51,165     $ 43,443     $ 26,341     $ 107,569     $                 $              

Adjusted gross profit margin(1)(2)

    71.9     68.2     70.5     71.4     70.3     68.2                                  

Net income (loss)

  $ (24,518   $ (5,022   $ (15,885   $ (8,318   $ 11,207     $ 41,962     $                 $              

Adjusted Net Income(1)

    5,334       5,644       27,800       23,652       14,618       54,216      

Adjusted EBITDA(1)

  $ 5,344     $ 6,177     $ 29,659     $ 25,217     $ 15,525     $ 59,661     $                 $              

Adjusted EBITDA margin(1)(3)

    27.3     30.4     40.9     41.4     41.4     37.8                                  

 

     As of June 30, 2021  
(dollars in thousands)    Successor,
Historical
     Solo Brands,
Inc., Pro Forma
 

Consolidated balance sheet data:

     

Cash and cash equivalents

   $ 7,882      $              

Total assets

     598,827     

Total liabilities

     235,007     

Accumulated deficit

     33,415     

Total liabilities and members’ equity

     598,827     

 

(1)  

We define Adjusted EBITDA as net income (loss) before interest expense, income taxes and depreciation and amortization expenses, adjusted for one-time transaction costs related to change in control transactions and this offering, acquisition related costs, changes in fair value of contingent earn-out liability, inventory fair value write-up, and management fees. We define Adjusted Net Income as net income (loss), adjusted for amortization of intangible assets recognized from change in control transactions, one-time transaction costs related to

 

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change in control transactions and this offering, acquisition related costs, changes in fair value of contingent earn-out liability, inventory fair value write-up, and management fees. We excluded the amortization expense of intangible assets related to the change in control events; however, we included the revenue generated, in part, by such intangible assets. We define Adjusted gross profit as gross profit adjusted for fair value write-up of inventory as a result of change in control events in 2019 and 2020. We use Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, Adjusted gross profit, and Adjusted gross profit margin, non-GAAP financial measures, because we believe they are useful indicators of our operating performance. Our management uses these non-GAAP measures principally as measures of our operating performance and believes that these non-GAAP measures are useful to our investors because they are frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. Our management also uses these non-GAAP measures for planning purposes, including the preparation of our annual operating budget and financial projections.

None of these non-GAAP measures is a measurement of financial performance under GAAP. These non-GAAP measures should not be considered in isolation or as a substitute for a measure of our liquidity or operating performance prepared in accordance with GAAP and are not indicative of net income (loss) from continuing operations as determined under U.S. GAAP. In addition, these non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. These non-GAAP financial measures have limitations that should be considered before using these measures to evaluate our liquidity or financial performance. Some of these limitations are as follows:

These non-GAAP measures exclude certain tax payments that may require a reduction in cash available to us; do not reflect our cash expenditures, or future requirements, for capital expenditures (including capitalized software developmental costs) or contractual commitments; do not reflect changes in, or cash requirements for, our working capital needs; do not reflect the cash requirements necessary to service interest or principal payments on our debt; and exclude certain purchase accounting adjustments related to acquisitions.

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

The following tables reconcile gross profit to Adjusted gross profit for the periods presented.

 

    Predecessor,
Historical
    Intermediate
Successor,
Historical
    Intermediate
Successor,
Historical
    Successor,
Historical
    Six Months Ended
June 30,
    Change  
(dollars in thousands)   Period from
January 1,
2019 through
September 23,
2019
    Period from
September 24,
2019 through
December 31,
2019
    Period from
January 1,
2020 through
October 8,
2020
    Period from
October 9,
2020 through
December 31,
2020
    2020
(Intermediate
Successor)
    2021
(Successor)
    $     %  

Gross profit

  $ 14,048     $ 8,588     $ 49,301     $ 37,669     $ 24,624     $ 106,164     $ 81,540       331.1

Less: Fair-value write-up of inventory from change in control transactions

    —         (5,272     (1,864     (5,774     1,717       1,405       (312     (18.2 )% 

Adjusted gross profit

    14,048       13,860       51,165       43,443       26,341       107,569       81,228       308.4

Adjusted gross profit margin (Adjusted gross profit as a % of net sales)

    71.9     68.2     70.5     71.4     70.3     68.2       (2.1 )% 

 

    Solo Brands,
Inc.,
Pro Forma
  Solo Brands,
Inc.,
Pro Forma
  Combined     Change  
(dollars in thousands)   Year ended
December 31,
2020
  Six Months
ended
June 30,
2021
  Fiscal Year
Ended
December  31,

2019
    Fiscal Year
Ended
December  31,

2020
    $     %  

Gross profit

  $                   $                     $22,636       $86,970       $64,334       284.2%  

Less: Fair-value write-up of inventory from change in control transactions

        (5,774)       (7,638)       (2,366)       44.9%  

Adjusted gross profit

        27,908       94,608       66,700       239.0%  

Adjusted gross profit margin (Adjusted gross profit as a % of net sales) .

                  %                   %     70.0%       70.9%         0.9%  

 

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The following table reconciles Net income (loss) to Adjusted net income (loss).

 

    Predecessor,
Historical
    Intermediate
Successor,
Historical
    Intermediate
Successor,
Historical
    Successor,
Historical
    Six Months Ended  
(dollars in thousands)   Period from
January 1,
2019 through
September 23,
2019
    Period from
September 24,
2019 through
December 31,
2019
    Period from
January 1,
2020 through
October 8,
2020
    Period from
October 9,
2020 through
December 31,
2020
    June 30, 2020
(Intermediate
Successor)
     June 30, 2021
(Successor)
 

Net income (loss)

  $ (24,518   $ (5,022   $ (15,885   $ (8,318   $ 11,207      $ 41,962  

Amortization expense(a)

    —         802       2,306       3,248       1,485        7,749  

Transaction costs(b)

    29,852       3,343       39,265       3,466       6        1,147  

Acquisition related costs(c)

    —         210       —         409       78        1,303  

Changes in fair value of contingent earn-out liability

    —         903       —         19,073       —          —    

Inventory fair value write-up(d)

    —         5,272       1,864       5,774       1,717        1,405  

Management fees(e)

    —         136       250       —         125        —    

Unit based compensation expense

    —         —         —         —         —          490  

Business expansion expense(f)

    —         —         —         —         —          160  

Adjusted Net Income

  $ 5,334     $ 5,644     $ 27,800     $ 23,652     $ 14,618      $ 54,216  

 

    Solo Brands,
Inc.,
Pro Forma
  Solo Brands,
Inc.,
Pro Forma
  Combined  
(dollars in thousands)   Year ended
December 31,
2020
  Six Months
ended
June 30,
2021
  Fiscal Year
Ended
December 31,
2019
    Fiscal Year
Ended
December 31,
2020
 

Net income (loss)

  $                   $                   $ (29,540   $ (24,203

Amortization expense(a)

        802       5,554  

Transaction costs(b)

        33,195       42,731  

Acquisition related costs(c)

        210       409  

Changes in fair value of contingent earn-out liability

        903       19,073  

Inventory fair value write-up(d)

        5,272       7,638  

Management fees(e)

        136       250  

Unit based compensation expense

        —         —    

Business expansion expense(f)

        —         —    

Adjusted Net Income

  $                   $                   $ 10,978     $ 51,452  

 

  (a)   Represents amortization of intangible assets recognized related to change in control events.
  (b)   Represents transaction costs, including transaction bonuses and professional service fees related to the previous change in control events and this offering.
  (c)   Represents non-recurring transaction expenses, primarily third-party professional fees, associated with acquisitions into new or complementary product lines, including the Oru acquisition.
  (d)   Represents write-up of inventory associated with push down accounting for change in control events.
  (e)   Represents monitoring fees paid pursuant to a monitoring agreement with Bertram Capital. The monitoring agreement was terminated on October 8, 2020 in connection with 2020 change in control event.
  (f)   Represents costs for expansion into new international and domestic markets.

 

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The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:

 

    Predecessor,
Historical
    Intermediate
Successor,
Historical
    Intermediate
Successor,
Historical
    Successor,
Historical
    Six Months Ended  
(dollars in thousands)   Period from
January 1,
2019 through
September 23,
2019
    Period from
September 24,
2019 through
December 31,
2019
    Period from
January 1,
2020 through
October 8,
2020
    Period from
October 9,
2020 through
December 31,
2020
    June 30, 2020
(Intermediate
Successor)
    June 30, 2021
(Successor)
 

Net income (loss)

  $ (24,518   $ (5,022   $ (15,885   $ (8,318   $ 11,207     $ 41,962  

Adjustments:

           

Interest expense

    (6     525       1,700       1,507       868       5,117  

Income tax expense

    3       —         78       21       —         172  

Depreciation and amortization expense

    13       810       2,387       3,285       1,524       7,905  

Transaction costs(a)

    29,852       3,343       39,265       3,466       6       1,147  

Acquisition related costs(b)

    —         210       —         409       78       1,303  

Changes in fair value of contingent earn-out liability

    —         903       —         19,073       —         —    

Inventory fair value write-up(c)

    —         5,272       1,864       5,774       1,717       1,405  

Management fees(d)

    —         136       250       —         125       —    

Unit based compensation expense

    —         —         —         —         —         490  

Business expansion expense(e)

    —         —         —         —         —         160  

Adjusted EBITDA

  $ 5,344     $ 6,177     $ 29,659     $ 25,217     $ 15,525     $ 59,661  

Net sales

  $ 19,544     $ 20,308     $ 72,576     $ 60,852     $ 37,457     $ 157,816  

Adjusted EBITDA margin

    27.3     30.4     40.9     41.4     41.4     37.8

 

     Solo Brands,
Inc.,
Pro Forma
    Solo Brands,
Inc.,
Pro Forma
    Combined  
(dollars in thousands)    Year ended
December 31,
2020
    Six Months
ended
June 30,
2021
    Fiscal Year Ended
December 31, 2019
    Fiscal Year Ended
December 31, 2020
 

Net income (loss)

     $                       $                     $ (29,540   $ (24,203

Adjustments:

        

Interest expense

         519       3,207  

Income tax expense

         3       99  

Depreciation and amortization expense

         823       5,672  

Transaction costs(a)

         33,195       42,731  

Acquisition related costs(b)

         210       409  

Changes in fair value of contingent earn-out liability

         903       19,073  

Inventory fair value write-up(c)

         5,272       7,638  

Management fees(d)

         136       250  

Unit based compensation expense

         —         —    

Business expansion expense(e)

         —         —    

Adjusted EBITDA

     $                       $                     $ 11,521     $ 54,876  

Net sales

     $                       $                     $ 39,852     $ 133,428  

Adjusted EBITDA margin

                                               28.9     41.1

 

  (a)   Represents transaction costs including transaction bonuses and professional service fees related to the previous change in control events and this offering.
  (b)   Represents transaction expenses that we do not believe are reflective of our ongoing operations, primarily professional service fees associated with acquisitions into new or complementary product lines, including the Oru acquisition, as described in Note 16 to the audited financial statements of Holdings included elsewhere in this prospectus.
  (c)   Represents write-up of inventory associated with push down accounting for change in control events.
  (d)   Represents monitoring fees paid pursuant to a monitoring agreement to Bertram Capital. The monitoring agreement was terminated on October 8, 2020 in connection with the 2020 change in control event.
  (e)   Represents costs for expansion into new international and domestic markets.

 

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(2)   We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.

 

(3)   We define Adjusted gross profit margin as adjusted gross profit divided by net sales.

 

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Table of Contents

SUMMARY FINANCIAL AND OTHER DATA OF CHUBBIES, INC.

The following tables present summary historical financial data of Chubbies, Inc. Chubbies, Inc.’s financial statements as of and for the year ended January 30, 2021 have been prepared in accordance with U.S. GAAP. The summary historical financial data for the year ended January 30, 2021 have been derived from Chubbies, Inc.’s historical financial statements included elsewhere in this prospectus. The summary statements of operations data for the six months ended July 31, 2021 and the summary balance sheet data as of July 31, 2021 are derived from Chubbies, Inc.’s unaudited interim financial statements included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as the audited financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations.

The information set forth below is only a summary. You should read the following information together with Chubbies, Inc.’s financial data included elsewhere in this prospectus. The summary historical data presented below constitutes historical financial data of Chubbies, Inc. Chubbies, Inc.’s historical financial information may not be indicative of the future performance of Chubbies or the combined company following the Chubbies Acquisition.

 

     Year Ended January 30,     Six Months Ended July 31,  
     2021     2021  
           (unaudited)  
     (in thousands)  

Statements of Operations Data:

    

Net Sales

   $ 44,065     $ 49,885  

Cost of Sales

     15,947       14,399  
  

 

 

   

 

 

 

Gross Profit

     28,118       35,486  
  

 

 

   

 

 

 

Operating Expenses:

     23,560       24,242  
  

 

 

   

 

 

 

Income from operations

     4,558       11,244  
  

 

 

   

 

 

 

Other income (expense)

    

Interest expense, net

     (309     (55

Other income, net

     1       1  

Gain on forgiveness of Paycheck Protection Program Loan

           1,561  
  

 

 

   

 

 

 

Total other expense

     (308     1,507  
  

 

 

   

 

 

 

Income before income taxes

     4,250       12,751  

Provision for income taxes (income tax benefit)

     (1,461     2,669  
  

 

 

   

 

 

 

Net income

   $ 5,711     $ 10,082  
  

 

 

   

 

 

 

 

     As of
July 31, 2021
 
     (unaudited)  
     (in thousands)  

Balance Sheet Data:

  

Cash and cash equivalents

   $ 19,719  

Total assets

   $ 35,374  

Total liabilities

   $ 14,986  

Additional paid-in capital

   $ 15,094  

Retained earnings

   $ 5,293  

Total stockholders’ equity

   $ 20,388  

 

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Table of Contents

The following table presents a reconciliation of Chubbies stand-alone net income to Adjusted EBITDA for the periods presented:

 

      Fiscal Year
Ended
    Six Months
Ended
 

(in thousands)

   January 30, 2021     July 31, 2021  

Net income

   $ 5,711     $ 10,082  

Adjustments:

    

Interest expense

     311       70  

Income tax expense

     (1,461     2,669  

Depreciation and amortization expense

     166       89  

Transaction costs(a)

     104       40  

Employee compensation expense(b)

     636       223  

Corporate relocation costs

     645       138  
  

 

 

   

 

 

 

Adjusted EBITDA

   $ 6,112     $ 13,311  
  

 

 

   

 

 

 

Net sales

   $ 44,065     $ 49,885  

Adjusted EBITDA margin

     13.9     26.7

 

(a)   Represents transaction costs including professional service fees.
(b)   Represents employee compensation expense and severance from restructurings.

The following table reconciles Chubbies stand-alone net income to Adjusted net income for the periods presented:

 

      Fiscal Year
Ended
    Six Months
Ended
 

(in thousands)

   January 30, 2021     July 31, 2021  

Net income

   $ 5,711     $ 10,082  

Adjustments:

    

Amortization expense(b)

     121       61  

Transaction costs(a)

     104       40  

Employee compensation expense(d)

     636       223  

Corporate relocation costs

     645       138  

Tax impact of adjusting items(c)

     (346     (106
  

 

 

   

 

 

 

Adjusted Net Income

   $ 6,871     $ 10,438  
  

 

 

   

 

 

 

 

(a)   Represents transaction costs including professional service fees.
(b)   Represents amortization of intangible assets.
(c)   Represents the tax impact of adjustments calculated at a federal statutory rate of 23%.
(d)   Represents employee compensation expense and severance from restructurings.

 

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RISK FACTORS

Investing in our Class A Common Stock involves a high degree of risk. These risks include, but are not limited to, those described below, each of which may be relevant to an investment decision. You should carefully consider the risks described below, together with all of the other information in this prospectus, including our financial statements and related notes, before investing in our Class A Common Stock. The realization of any of these risks could adversely affect our business, results of operations and financial condition. In that event, the trading price and value of our Class A Common Stock could decline, and you may lose part or all of your investment. Please also see “Special Note Regarding Forward-Looking Statements.”

Risks Related to our Business and Industry

Our business depends on maintaining and strengthening our brand and generating and maintaining ongoing demand for our products, and a significant reduction in such demand could harm our results of operations.

We have developed a strong and trusted brand that we believe has contributed significantly to the success of our business, and we believe our continued success depends on our ability to maintain and grow the value and reputation of Solo Brands. Maintaining, promoting and positioning our brand and reputation will depend on, among other factors, the success of our product offerings, quality assurance, marketing and merchandising efforts, the reliability and reputation of our supply chain, our ability to grow and capture share of the outdoor lifestyle category, and our ability to provide a consistent, high-quality consumer experience. We have made substantial investments in these areas in order to maintain and enhance our brand and these experiences, but such investments may not be successful. Any negative publicity, regardless of its accuracy, could materially adversely affect our business. For example, our business depends in part on our ability to maintain a strong community of engaged customers and social media influencers. We may not be able to maintain and enhance a loyal customer base if we receive customer complaints, negative publicity or otherwise fail to live up to consumers’ expectations, which could materially adversely affect our business, operating results and growth prospects.

The growing use of social and digital media by us, our consumers and third parties increases the speed and extent that information or misinformation and opinions can be shared. Negative publicity about us, our brand or our products on social or digital media could seriously damage our brand and reputation. For example, consumer perception could be influenced by negative media attention regarding any consumer complaints about our products, our management team, ownership structure, sourcing practices and supply chain partners, employment practices, ability to execute against our mission and values, and our products or brand, such as any advertising campaigns or media allegations that challenge the sustainability of our products and our supply chain, or that challenge our marketing efforts regarding the quality of our products, which could have an adverse effect on our business, brand and reputation. Similar factors or events could impact the success of any brands or products we introduce in the future.

Our company image and brand are very important to our vision and growth strategies, particularly our focus on being a “good company” and operating consistent with our mission and values. We will need to continue to invest in actions that support our mission and values and adjust our offerings to appeal to a broader audience in the future in order to sustain our business and to achieve growth, and there can be no assurance that we will be able to do so. If we do not maintain the favorable perception of our company and our brand, our sales and results of operations could be negatively impacted. Our brand and company image is based on perceptions of subjective qualities, and any incident that erodes the loyalty of our consumers, customers, suppliers or manufacturers, including adverse publicity or a governmental investigation or litigation, could significantly reduce the value of our brand and significantly damage our business, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.

If we are unable to successfully design and develop new products, our business may be harmed.

Our fire pits made up 92% of our total revenue in the year ended December 31, 2020. Our future growth depends in part on our ability to expand sales of our other existing products and to introduce new and enhanced

 

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products. The success of our new and enhanced products depends on many factors, including anticipating consumer preferences, finding innovative solutions to consumer problems, differentiating our products from those of our competitors, and maintaining the strength of our brand while also expanding our brand beyond the categories of products we currently sell. The design and development of our products is costly and we typically have several products in development at the same time. If we misjudge or fail to anticipate consumer preferences or there are problems in the design or quality of our products, or delays in product introduction, our brand, business, financial condition, and results of operations could be harmed.

Our recent growth rates may not be sustainable or indicative of future growth and we may not be able to effectively manage our growth.

We have expanded our operations rapidly, especially over the last few years. Net sales increased $93.6 million, or 234.8%, to $133.4 million in 2020, compared to $39.9 million in 2019. This increase was primarily driven by an increase in total orders year over year. We had 157,312 orders in 2019 and 486,120 orders in 2020, representing a 209% increase year over year. The average order size increased by 8.3%, to $274.47 per order in 2020 from $253.33 per order in 2019. The increase in the number of orders was primarily due to our digital marketing strategy and by increased demand for outdoor recreation and leisure lifestyle products. However, our historical growth rates are likely not sustainable or indicative of future growth. We believe that our continued revenue growth will depend upon, among other factors:

 

   

Increasing U.S. brand awareness;

 

   

Our ability to obtain adequate protections for our intellectual property;

 

   

Impacts of the COVID-19 pandemic and its aftermath;

 

   

Product innovation to expand our total addressable market;

 

   

Complementary acquisitions; and

 

   

International expansion.

Disruptions related to the COVID-19 pandemic affected our business; however, this negative impact was offset by two positive results of the pandemic. First, COVID-19 helped create a surge in consumer interest for outdoor living and outdoor recreation. Second, it created a mass acceleration in online shopping that has continued through today, increasing our DTC sales. These trends may not hold true in the future.

We have a limited history operating our business at its current scale. As a result of our growth, our employee headcount and the scope and complexity of our business have increased substantially, and we are continuing to implement policies and procedures that we believe are appropriate for a company of our size and in preparation for operating as a new public company. Our management team does not have substantial tenure working together. In the future, we may expand into new product categories with which we do not have any experience. We may experience difficulties as we continue to implement changes to our business and related policies and procedures to keep pace with our recent growth and, if our operations continue to grow at a rapid pace, in managing such growth and building the appropriate processes and controls in the future. Continued growth may increase the strain on our resources, and we could experience operating difficulties, including difficulties in sourcing, logistics, recruiting, maintaining internal controls, marketing, designing innovative products, and meeting consumer needs. If we do not adapt to meet these evolving challenges, the strength of our brand may erode, the quality of our products may suffer, we may not be able to deliver products on a timely basis to our customers, and our corporate culture may be harmed.

In addition, we expect to make significant investments in our research and development and sales and marketing organizations, expand our operations and infrastructure both domestically and internationally, design and develop new products, and enhance our existing products with newly developed products and through acquisitions. If our sales do not increase at a sufficient rate to offset these increases in our operating expenses, our profitability may decline in future periods.

 

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Our business could be harmed if we are unable to accurately forecast demand for our products or our results of operations.

To ensure adequate inventory supply, we forecast inventory needs and often place orders with our manufacturers before we receive firm orders from our retail partners or customers and we may not be able to do so accurately. If we fail to accurately forecast demand, we may experience excess inventory levels or a shortage of product and delays in delivering to our retail partners and through our DTC channel, particularly due to uncertainty related to the duration and impact of the evolving COVID-19 pandemic.

In the last quarter of 2020 demand increased significantly causing delay in product shipments and customer complaints, which was compounded by disruptions in the supply chain as a result of the COVID-19 pandemic and backlogs in the shipping industry. Although we have increased manufacturer production to account for increased seasonal demands, if we again underestimate the demand for our products, our manufacturers may not be able to scale quickly enough to meet demands, and this could result in delays in the shipment of our products and our failure to satisfy demand, as well as damage to our reputation and retail partner relationships. If we overestimate the demand for our products, we could face inventory levels in excess of demand, which could result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would harm our gross margins. In addition, failure to accurately predict the level of demand for our products could cause a decline in sales and harm our results of operations and financial condition. Factors that may impact our ability to forecast demand for our products include the evolving COVID-19 pandemic, shifting consumer trends, increased competition and our limited operating experience.

In addition, we may not be able to accurately forecast our results of operations and growth rate. Forecasts may be particularly challenging as we expand into new markets and geographies, and develop and market new products. Our historical sales, expense levels, and profitability may not be an appropriate basis for forecasting future results, particularly due to uncertainty related to the duration and impact of the evolving COVID-19 pandemic.

Failure to accurately forecast our results of operations and growth rate could cause us to make incorrect operating decisions and we may not be able to adjust in a timely manner. Consequently, actual results could be materially lower than anticipated. Even if the markets in which we compete expand, we cannot assure you that our business or profitability will grow at similar rates, if at all.

Our marketing strategy of associating our brand and products with outdoor, group activities may not be successful with existing and future customers.

We believe that we have been successful in marketing our products by associating our brand and products with outdoor activities to be experienced with family and friends. To sustain long-term growth, we must not only continue to successfully promote our products to consumers who identify with or aspire to these activities, as well as to individuals who value the differentiated function, high quality, and specialized design of our products, but also promote new products with which we may not have experience and attract more customers to our existing products. If we fail to successfully market and sell our products to our existing customers or expand our customer base, our sales could decline or we may be unable to grow our business.

If we fail to attract new customers in a cost-effective manner, our business may be harmed.

A large part of our success depends on our ability to attract new customers in a cost-effective manner. We have made, and may continue to make, significant investments in attracting new customers through increased advertising spends on social media, radio, podcasts, and targeted email communications. Marketing campaigns can be expensive and may not result in the cost-effective acquisition of customers. Further, as our brand becomes more widely known, future marketing campaigns may not attract new customers at the same rate as past campaigns and the cost of acquiring new customers may increase over time. If we are unable to attract new customers, or fail to do so in a cost-effective manner, our business may be harmed.

 

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Our growth depends, in part, on expanding into additional consumer markets, and we may not be successful in doing so.

We believe that our future growth depends not only on continuing to provide our current customers with new products, but also continuing to enlarge our customer base. The growth of our business will depend, in part, on our ability to continue to expand in the United States, as well as into international markets. We are investing significant resources in these areas, and although we hope that our products will gain popularity, we may face challenges that are different from those we currently encounter, including competitive, merchandising, distribution, hiring, and other difficulties. We may also encounter difficulties in attracting customers due to a lack of consumer familiarity with or acceptance of our brand, or a resistance to paying for premium products, particularly in international markets. In addition, although we are investing in sales and marketing activities to further penetrate newer regions, including expansion of our dedicated sales force, we may not be successful. If we are not successful, our business and results of operations may be harmed.

Our net sales and profits depend on the level of customer spending for our products, which is sensitive to general economic conditions and other factors.

Our products are discretionary items for customers. Therefore, the success of our business depends significantly on economic factors and trends in consumer spending. There are a number of factors that influence consumer spending, including actual and perceived economic conditions, consumer confidence, disposable consumer income, consumer credit availability, unemployment, and tax rates in the markets where we sell our products. Consumers also have discretion as to where to spend their disposable income and may choose to purchase other items or services. As global economic conditions continue to be volatile, and economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to declines. Any of these factors could harm discretionary consumer spending, resulting in a reduction in demand for our products, decreased prices, increased costs to make sales, and harm to our business and results of operations. Moreover, consumer purchases of discretionary items, such as our products, tend to decline during recessionary periods when disposable income is lower or during other periods of economic instability or uncertainty, which may slow our growth more than we anticipate. A downturn in the economies in markets in which we sell our products, particularly in the United States, may materially harm our sales, profitability, and financial condition.

The COVID-19 pandemic or other pandemics could adversely affect our business, sales, financial condition, results of operations and cash flows, and our ability to access current or obtain new lending facilities.

Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States, and has been declared a pandemic by the World Health Organization. In 2020, we saw tailwinds in our business and adoption of our products driven by the COVID-19 pandemic, as individuals and families spent more time at home or enjoying the outdoors together as a result of quarantine measures with alternative time to pursue alternative recreational and leisure activities. These tailwinds and trends could moderate or reverse over time, including as a result of the reopening of the economy and lessening of restrictions on movement and travel and related to social distancing. In addition, the COVID-19 pandemic and preventative measures taken to contain or mitigate such have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas and significant disruption in the financial markets both globally and in the United States, which could lead to a decline in discretionary spending by consumers, and in turn impact, possibly materially, our business, sales, financial condition and results of operations. Potential impacts include, but are not limited to:

 

   

disruption to our third-party manufacturing partners, suppliers, and other vendors, including the effects of facility closures, reductions in operating hours, labor shortages, and real time changes in operating procedures, including for additional cleaning and disinfection procedures; for example, during the height of the COVID-19 pandemic, we were sold out of many of our products as a result of limitations on our ability to obtain additional products from suppliers;

 

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inhibition of word-of-mouth referrals as a result of consumers spending more time at home and limiting social gatherings outside of their households; for example, because the COVID-19 pandemic required social distancing and restricted people from leaving their homes, in March 2020 word-of-mouth referrals only accounted for 26% of solostove.com orders. As the pandemic restrictions have softened, we have seen referral rates at more normalized levels. In March 2021 word-of-mouth referrals accounted for 45% of solostove.com orders - a 70% year-over-year increase;

 

   

significant disruption of global financial markets, which could have a negative impact on our ability to access capital in the future; and

 

   

an inability to operate our fulfillment centers and thereby ship product to customers which would severely impact our ability to generate revenue.

The COVID-19 pandemic has significantly impacted the global supply chain, with restrictions and limitations on related activities causing disruption and delay. These disruptions and delays have strained certain domestic and international supply chains, which have affected and could continue to negatively affect the flow or availability of certain products. Increased demand for online purchases of products impacted our fulfillment operations, resulting in delays in delivering products to our customers, in particular at the end of 2020.

Additional outbreaks of COVID-19, or any resurgence of existing outbreaks, and the requirements to take action to help limit the spread of the illness, could impact our ability to carry out our business as usual and may materially adversely impact global economic conditions, our business, results of operations, cash flows and financial condition. The extent of the impact of COVID-19 on our business and financial results will depend on future developments, including the duration and severity of the outbreak (including the severity and transmission rates of new variants of the virus that causes COVID-19) within the markets in which we operate, the timing, distribution, rate of public acceptance and efficacy of vaccines and other treatments, the related impact on consumer confidence and spending, the effect of governmental regulations imposed in response to the pandemic and the extent to which consumers modify their behavior as social distancing and related precautions are lifted, all of which are highly uncertain and ever-changing. The sweeping nature of the COVID-19 pandemic makes it extremely difficult to predict how our business and operations will be affected in the longer run. However, the likely overall economic impact of the pandemic could be viewed as highly negative to the general economy. Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic or its aftermath, could materially increase our costs, negatively impact our sales and damage our results of operations and liquidity, possibly to a significant degree. The duration of any such impacts cannot be predicted.

To the extent the COVID-19 pandemic or its aftermath adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

The markets in which we compete are highly competitive and we could lose our market position.

The markets in which we compete are highly competitive, typically with low barriers to entry. The number of competing companies continues to increase. Competition in these product markets is based on a number of factors including product quality, performance, durability, availability, styling, brand image and recognition, and price. Our competitors may be able to develop and market similar products that compete with our products, sell their products for lower prices, offer their products for sale in more areas, adapt to changes in consumers’ needs and preferences more quickly, devote greater resources to the design, sourcing, distribution, marketing, and sale of their products, or generate greater brand recognition than us. In addition, as we expand into new areas and new product categories we will continue to face, different and, in some cases, more formidable competition. Many of our competitors and potential competitors have significant competitive advantages, including learning from our experiences and taking advantage of new product popularity, greater financial strength, larger research and development teams, larger marketing budgets, and more distribution and other resources than we do. Some of our competitors may aggressively discount their products or offer other attractive sales terms in order to gain market share, which could result in pricing pressures, reduced profit margins, or lost market share. If we are not able to

 

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overcome these potential competitive challenges, effectively market our current and future products, and otherwise compete effectively against our current or potential competitors, our prospects, results of operations, and financial condition could be harmed.

Competitors have imitated and will likely continue to imitate our products. If we are unable to protect or preserve our brand image and proprietary rights, our business may be harmed.

We attempt to protect our intellectual property rights, both in the United States and in foreign countries, through a combination of patent, trademark, copyright, design, and trade secret laws, as well as licensing, assignment, and confidentiality agreements with our employees, consultants, suppliers, manufacturers. While it is our policy to protect and defend our intellectual property, we cannot be sure that the actions we have taken to establish and protect our trademarks and other proprietary rights will be adequate to protect us, or that any of our intellectual property will not be challenged or held invalid or unenforceable.

Our success depends in large part on our brand image and, in particular, on the strength of our Solo Stove, Chubbies, Isle, Oru and logo trademarks. We rely on trademark protection to protect our brands, and we have registered or applied to register many of these trademarks. While we have registered or applied to register our material trademarks in the United States and several other markets, we have not registered all of our marks in all of the jurisdictions in which we currently conduct or intend to conduct business. Further, even if we seek to register these trademarks, we cannot be sure that our trademark applications will be successful, and they could be challenged or opposed by third parties. In the event that our trademarks are successfully challenged and we lose the rights to use those trademarks, we could be forced to rebrand our products, requiring us to devote resources to advertising and marketing new brands.

In addition, we rely on design patents, as well as registered designs, to protect our products and designs. We have also applied for, and expect to continue to apply for, utility patent and design protection relating to proprietary aspects of existing and proposed products. We cannot be sure that any of our patent or design applications will result in issued patents or registered designs, or that any patents issued as a result of our patent applications will be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Third parties may challenge, the validity and enforceability of certain of our patents, including through patent office ex parte reexamination, inter partes review or post-grant proceedings. Regardless of outcome, such challenges may result in substantial legal expenses and diversion of management’s time and attention from our other business operations. In some instances, our patent claims could be substantially narrowed or declared invalid or unenforceable. Any significant adverse finding by a patent office or adverse verdict of a court as to the validity, enforceability, or scope of certain of our patents could adversely affect our competitive position and otherwise harm our business.

We regard our intellectual property rights as critical to our success. We regularly monitor for infringement, and we employ third-party watch services in support of these efforts. Nevertheless, the steps we take to protect our proprietary rights against infringement or other violation may be inadequate and we may experience difficulty in effectively limiting the unauthorized use of our patents, trademarks, trade dress, and other intellectual property and proprietary rights worldwide. As our business continues to expand, our competitors have imitated, and will likely continue to imitate, our product designs and branding, which could harm our business and results of operations. In addition, our use of third party suppliers and manufacturers presents a risk of counterfeit goods entering the marketplace. Because our products are manufactured overseas in countries where counterfeiting is more prevalent, and we intend to increase our sales overseas over the long term, we may experience increased copying of our products. Certain foreign countries do not protect intellectual property rights as fully as they are protected in the United States and, accordingly, intellectual property protection may be limited or unavailable in some foreign countries where we choose to do business. It may therefore be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries, which could diminish the value of our brands or products and cause our competitive position and growth to suffer.

 

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As we develop new products and seek to expand internationally, we will continue to incur greater costs in connection with securing patents, trademarks, copyrights, and other intellectual property rights. This increased intellectual property activity will also increase our costs to monitor and enforce our intellectual property rights. While we actively develop and protect our intellectual property rights, there can be no assurance that we will be adequately protected in all countries in which we conduct our business or that we will prevail when defending our patent, trademark, and proprietary rights. If difficulties arise securing such rights or protracted litigation is necessary to enforce such rights, our business and financial condition could be harmed.

Additionally, we could incur significant costs and management distraction in pursuing claims to enforce our intellectual property rights through litigation, and defending any alleged counterclaims. If we are unable to protect or preserve the value of our patents, trade dress, trademarks, copyrights, or other intellectual property rights for any reason, or if we fail to maintain our brand image due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brand and reputation could be damaged and our business may be harmed.

We may be subject to liability if we infringe upon the intellectual property rights of third parties and have increased costs protecting our intellectual property rights.

Third parties may sue us for alleged infringement of their proprietary rights. The party claiming infringement might have greater resources than we do to pursue its claims, and we could be forced to incur substantial costs and devote significant management resources to defend against such litigation, even if the claims are meritless and even if we ultimately prevail. Also third parties may make infringement claims against us that relate to technology developed and owned by one of our manufacturers for which our manufacturers may or may not indemnify us. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual obligations and determining the scope of these obligations could require additional litigation. If the party claiming infringement were to prevail, we could be forced to modify or discontinue our products, pay significant damages, or enter into expensive royalty or licensing arrangements with the prevailing party, any of which could have a material adverse effect on our business, financial condition and results of operations. Further, we cannot guarantee that a license from the prevailing party would be available on acceptable terms, or at all.

We rely on third-party manufacturers and problems with, or the loss of, our suppliers or an inability to obtain raw materials could harm our business and results of operations.

Our products are produced by third-party manufacturers. We face the risk that these third-party manufacturers may not produce and deliver our products on a timely basis, or at all. We have experienced, and will likely continue to experience, operational difficulties with our manufacturers, including as a result of the COVID-19 pandemic, and we may face similar or unknown operational difficulties or other risks with respect to future manufacturers, including with respect to new products. These difficulties include reductions in the availability of production capacity, errors in complying with product specifications and regulatory and customer requirements, insufficient quality control, failures to meet production deadlines, failure to achieve our product quality standards, increases in costs of manufacturing and materials, and manufacturing or other business interruptions. The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or damage to their operations caused by fire, terrorist attack, riots, natural disaster, public health issues such as the current COVID-19 pandemic (or other future pandemics or epidemics), or other events. The failure of any manufacturer to perform to our expectations could result in supply shortages or delays for certain products and harm our business. If we develop new products with significantly increased or new manufacturing requirements, otherwise experience significantly increased demand, or need to replace an existing manufacturer due to lack of performance, we may be unable to supplement or replace our manufacturing capacity on a timely basis or on terms that are acceptable to us, which may increase our costs, reduce our margins, and harm our ability to deliver our products on time. Additionally, we do not have long-term agreements in place with most of our third-party manufacturers, and such manufacturers could decide to stop working with us, which would require us to identify and qualify new manufacturers. For certain of our products,

 

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it may take a significant amount of time to identify and qualify a manufacturer that has the capability and resources to produce our products to our specifications in sufficient volume and satisfy our service and quality control standards.

The capacity of our manufacturers to produce our products is also dependent upon the availability of raw materials. Our manufacturers may not be able to obtain sufficient supply of raw materials, which could result in delays in deliveries of our products by our manufacturers or significantly increased costs. Any shortage of raw materials or inability of a manufacturer to produce or ship our products in a timely manner, or at all, could impair our ability to ship orders of our products in a cost-efficient, timely manner and could cause us to miss the delivery requirements of our customers. As a result, we could experience cancellations of orders, refusals to accept deliveries, or reductions in our prices and margins, any of which could harm our financial performance, reputation, and results of operations.

We also depend on a limited number of third-party manufacturers for the sourcing of our products. We currently have 34 manufacturing partners located in various locations, including China, India, Vietnam and Mexico. The majority of our camp stoves and fire pits are currently made in China between three of our manufacturers, with additional limited production in India and Vietnam. We have attempted to increase manufacturing capacity and diversity by contracting with manufacturers outside of China as well, but new suppliers outside of China have not yet ramped up supply and may not be able to do so. As a result of this concentration in our supply chain, our business and operations would be negatively affected if any of our key manufacturers or suppliers were to experience significant disruption affecting the price, quality, availability, or timely delivery of products or were to refuse to supply us. The partial or complete loss of these manufacturers or suppliers, or a significant adverse change in our relationship with any of these manufacturers or suppliers, could result in lost sales, added costs, and distribution delays that could harm our business and customer relationships.

Our business relies on cooperation of our suppliers, but not all relationships include written exclusivity agreements, which means that they could produce similar products for our competitors. If they produce similar products for our competitors, it could harm our results of operations.

With all of our suppliers and manufacturers, we face the risk that they may fail to produce and deliver supplies or our products on a timely basis, or at all, or comply with our quality standards. In addition, they may decide to raise prices in the future, which would increase our costs and harm our margins. Those with whom we have executed supply contracts may still breach these agreements, and we may not be able to enforce our rights under these agreements or may incur significant costs attempting to do so. As a result, we cannot predict our ability to obtain supplies and finished products in adequate quantities, of required quality and at acceptable prices from our suppliers and manufacturers in the future. Any one of these risks could harm our ability to deliver our products on time, or at all, damage our reputation and our relationships with our retail partners and customers, and increase our product costs thereby reducing our margins.

In addition, we do not have written agreements requiring exclusivity with all of our manufacturers and suppliers. As a result, they could produce similar products for our competitors, some of which could potentially purchase products in significantly greater volume. Further, while certain of our contracts stipulate contractual exclusivity against production of similar products to ours, those suppliers or manufacturers could choose to breach our agreements and work with our competitors. Our competitors could enter into restrictive or exclusive arrangements with our manufacturers or suppliers that could impair or eliminate our access to manufacturing capacity or supplies. Our manufacturers or suppliers could also be acquired by our competitors, and may become our direct competitors, thus limiting or eliminating our access to supplies or manufacturing capacity.

In addition, one of our suppliers holds certain intellectual property covering a small portion of our products in China. Although such products accounted for less than 6% of our U.S. sales in the six months ended June 30, 2021, if that manufacturer decided to end our relationship and/or attempted to revoke or block the production of those products, or began to produce those products for one or more of our competitors, it would likely result in protracted litigation and could harm our other manufacturer relationships, increase our costs, and harm our business, including forcing us to manufacture certain products outside of China.

 

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Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays or increase our costs.

The price and availability of key components used to manufacture our products has been increasing and may continue to fluctuate significantly. In addition, the cost of labor at our third-party manufacturers could increase significantly. For example, manufacturers in China have experienced increased costs in recent years due to shortages of labor and fluctuations of the Chinese Yuan in relation to the U.S. dollar. Additionally, the cost of logistics and transportation fluctuates in large part due to the price of oil, and availability can be limited due to political and economic issues. Any fluctuations in the cost and availability of any of our raw materials or other sourcing or transportation costs could harm our gross margins and our ability to meet customer demand. If we are unable to successfully mitigate a significant portion of these product cost increases or fluctuations, our results of operations could be harmed.

Our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, societal, and political risks associated with those markets.

Our products are manufactured outside of the United States, and we make a limited number of sales of our products outside of the United States. Our reliance on suppliers and manufacturers in foreign markets, as well as our sales in non-U.S. markets, creates risks inherent in doing business in foreign jurisdictions, including: (a) the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions and laws relating to the importation and taxation of goods; (b) weaker protection for intellectual property and other legal rights than in the United States, and practical difficulties in enforcing intellectual property and other rights outside of the United States; (c) compliance with U.S. and foreign laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act, or FCPA, the UK Bribery Act 2010, or the Bribery Act, regulations of the U.S. Office of Foreign Assets Controls, or OFAC, and U.S. anti-money laundering regulations, which prohibit U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business, transacting with persons subject to sanctions in certain countries, as well as engaging in other illegal practices; (d) economic and political instability and acts of terrorism in the countries where our suppliers are located; (e) transportation interruptions or increases in transportation costs; (f) public health crises, such as pandemics and epidemics; and (g) the imposition of tariffs on components and products that we import into the United States or other markets. For example, the ongoing COVID-19 outbreak has resulted in increased travel restrictions, supply chain disruptions, and extended shutdown of certain businesses around the globe. This public health crises or any further political developments or health concerns in markets in which our products are manufactured could result in social, economic and labor instability, adversely affecting the supply of our products and, in turn, our business, financial condition and results of operations. Further, we cannot assure you that our directors, officers, employees, representatives, manufacturers, or suppliers have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our manufacturers, suppliers, or other business partners have not engaged and will not engage in conduct that could materially harm their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, the Bribery Act, OFAC restrictions, or other export control, anti-corruption, anti-money laundering, and anti-terrorism laws, or allegations of such acts, could damage our reputation and subject us to civil or criminal investigations in the United States and in other jurisdictions and related shareholder lawsuits, could lead to substantial civil and criminal, monetary and nonmonetary penalties and could cause us to incur significant legal and investigatory fees, which could harm our business, financial condition, cash flows, and results of operations.

If tariffs or other restrictions are placed on foreign imports or any related counter-measures are taken by other countries, our business and results of operations could be harmed.

Geopolitical uncertainties and events could cause damage or disruption to international commerce and the global economy, and thus could have a material adverse effect on us, our suppliers, logistics providers, manufacturing vendors and customers. Changes in commodity prices may also cause political uncertainty and

 

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increase currency volatility that can affect economic activity. During 2020, the majority of our products that were imported into the United States from China were subject to tariffs that were as high as 25%. The progress and continuation of trade negotiations between the United States and China continues to be uncertain and a further escalation of the trade war remains a possibility. These tariffs have, and will continue to have, an adverse effect on our results of operations and margins. We are unable to predict the magnitude, scope or duration of the imposed tariffs or the magnitude, scope or duration from any relief in increases to such tariffs, or the potential for additional tariffs or trade barriers by the United States, China or other countries, and any strategies we may implement to mitigate the impact of such tariffs or other trade actions may not be successful.

Changes in domestic social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently develop and sell products, and any negative sentiments towards the United States as a result of such changes, could also adversely affect our business. For example, if the United States government withdraws or materially modifies existing or proposed trade agreements, places greater restriction on free trade generally or imposes increases on tariffs on goods imported into the United States, particularly from China, our business, financial condition and results of operations could be adversely affected. In addition, negative sentiments towards the United States among non-U.S. customers and among non-U.S. employees or prospective employees could adversely affect sales or hiring and retention, respectively.

The foreign policies of governments may be volatile, and may result in rapid changes to import and export requirements, customs classifications, tariffs, trade sanctions and embargoes or other retaliatory trade measures that may cause us to raise prices, prevent us from offering products or providing services to particular entities or markets, may cause us to make changes to our operations, or create delays and inefficiencies in our supply chain. Furthermore, if the U.S. government imposes new sanctions against certain countries or entities, such sanctions could sufficiently restrict our ability to market and sell our products and may materially adversely affect our results of operations.

If we fail to timely and effectively obtain shipments of products from our manufacturers and deliver products to our retail partners and customers, our business and results of operations could be harmed.

Our business depends on our ability to source and distribute products in a timely manner. However, we cannot control all of the factors that might affect the timely and effective procurement of our products from our third-party manufacturers and the delivery of our products to our retail partners and customers.

Our third-party manufacturers ship most of our products to our distribution centers in the United States, the largest of which is in Texas. Our large reliance on our distribution center in Texas makes us more vulnerable to natural disasters, weather-related disruptions, accidents, system failures, public health issues such as the recent winter freeze in Dallas, Texas and the COVID-19 pandemic (or other future pandemics or epidemics), or other unforeseen events that could delay or impair our ability to fulfill retailer orders and/or ship merchandise purchased on our website, which could harm our sales. We import our products, and thus we are also vulnerable to risks associated with products manufactured abroad, including, among other things: (a) risks of damage, destruction, or confiscation of products while in transit to our distribution centers; and (b) transportation and other delays in shipments, including as a result of heightened security screening, port congestion, and inspection processes or other port-of-entry limitations or restrictions in the United States. In order to meet demand for a product, we may choose in the future to arrange for additional quantities of the product, if available, to be delivered through air freight, which is significantly more expensive than standard shipping by sea and, consequently, could harm our gross margins. Failure to procure our products from our third-party manufacturers and deliver merchandise to our retail partners and DTC channels in a timely, effective, and economically viable manner could reduce our sales and gross margins, damage our brand, and harm our business.

We also rely on the timely and free flow of goods through open and operational international shipping lanes and ports from our suppliers and manufacturers. Labor disputes or disruptions of shipping lanes, such as the Suez

 

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Canal blockage in 2021, or at ports, our common carriers, or our suppliers or manufacturers could create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or other disruptions during periods of significant importing or manufacturing, potentially resulting in delayed or cancelled orders by customers, unanticipated inventory accumulation or shortages, and harm to our business, results of operations, and financial condition.

In addition, we rely upon independent land-based and air freight carriers for product shipments from our distribution centers to our retail partners and customers who purchase through our DTC channel. We may not be able to obtain sufficient freight capacity on a timely basis or at favorable shipping rates and, therefore, may not be able to receive products from suppliers or deliver products to retail partners or customers in a timely and cost-effective manner.

Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather, public health issues, and increased transportation costs, associated with our third-party manufacturers’ and carriers’ ability to provide products and services to meet our requirements. In addition, if the cost of fuel rises, the cost to deliver products may rise, which could harm our profitability.

Although relatively small, an important portion of our sales and advertising are to our domestic retail partners. We depend in part on our retail partners to display and present our products to customers, and our failure to maintain and further develop our relationships with our domestic retail partners could harm our business.

For 2020, 4.9% of our revenue was generated from sales to our domestic retail partners. Although this is a small percentage, the physical placement of these products at our selected dealers plays an important part in our sales strategy. Our wholesale retail sales are also increasing. These retail partners may decide to emphasize products from our competitors, to redeploy their retail floor space to other product categories, or to take other actions that reduce their purchases and visibility of our products. We do not receive long-term purchase commitments from our retail partners, and orders received are cancellable. Factors that could affect our ability to maintain or expand our sales to these retail partners include: (a) failure to accurately identify the needs of our customers; (b) a lack of customer acceptance of new products or product expansions; (c) unwillingness of our retail partners and customers to attribute premium value to our new or existing products or product expansions relative to competing products; (d) failure to obtain shelf space from our retail partners; (e) new, well-received product introductions by competitors; (f) damage to our relationships with retail partners; (g) delays or defaults on our retail partners’ payment obligations to us; and (h) store closures, decreased foot traffic, recession or other adverse effects resulting from public health crises such as the recent COVID-19 pandemic (or other future pandemics or epidemics).

We cannot assure you that our retail partners will continue to carry our current products or carry any new products that we develop. If we lose any of our key retail partners or any key retail partner reduces its purchases of our existing or new products or its number of stores or operations or promotes products of our competitors over ours, our brand, as well as our results of operations and financial condition, could be harmed. Because we are a premium brand, our sales depend, in part, on retail partners effectively displaying our products, including providing attractive space and point of purchase displays in their stores, and training their sales personnel to sell our products. If our retail partners reduce or terminate those activities, we may experience reduced sales of our products, resulting in lower gross margins, which would harm our results of operations. In addition, any store closures, decreased foot traffic and recession resulting from the COVID-19 pandemic may adversely affect the performance and the financial condition of many of these customers. The foregoing could have a material adverse effect on our business and financial condition.

Insolvency, credit problems or other financial difficulties that could confront our retail partners could expose us to financial risk.

We sell to the large majority of our retail partners on open account terms and do not require collateral or a security interest in the inventory we sell them. Consequently, our accounts receivable with our retail partners are

 

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unsecured. Insolvency, credit problems, or other financial difficulties confronting our retail partners could expose us to financial risk. These actions could expose us to risks if they are unable to pay for the products they purchase from us. Financial difficulties of our retail partners could also cause them to reduce their sales staff, use of attractive displays, number or size of stores, and the amount of floor space dedicated to our products. Any reduction in sales by, or loss of, our current retail partners or customer demand, or credit risks associated with our retail partners, could harm our business, results of operations, and financial condition.

If our independent suppliers, manufacturing partners and retail partners do not comply with ethical business practices or with applicable laws and regulations, our reputation, business, and results of operations would be harmed.

Our reputation and our customers’ willingness to purchase our products depend in part on our suppliers’, manufacturers’, and retail partners’ compliance with ethical employment practices, such as with respect to child labor, wages and benefits, forced labor, discrimination, safe and healthy working conditions, and with all legal and regulatory requirements relating to the conduct of their businesses and, in the case of retail partners, the promotion and sale of our products. We do not exercise control over our suppliers, manufacturers, and retail partners and they may not comply with ethical and lawful business practices. If our suppliers, manufacturers, or retail partners fail to comply with applicable laws, regulations, safety codes, employment practices, human rights standards, quality standards, environmental standards, production practices, or other obligations, norms, or ethical standards, our reputation and brand image could be harmed and we could be exposed to litigation and additional costs that would harm our business, reputation, and results of operations.

We are subject to payment-related risks that may result in higher operating costs or the inability to process payments, either of which could harm our brand, reputation, business, financial condition and results of operations.

For our DTC sales, as well as for sales to certain retail partners, we accept a variety of payment methods, including credit cards, debit cards, electronic funds transfers, electronic payment systems, and gift cards. Accordingly, we are, and will continue to be, subject to significant and evolving regulations and compliance requirements, including obligations to implement enhanced authentication processes that could result in increased costs and liability, and reduce the ease of use of certain payment methods. For certain payment methods, including credit and debit cards, as well as electronic payment systems, we pay interchange and other fees, which may increase over time. We rely on independent service providers for payment processing, including credit and debit cards. If these independent service providers become unwilling or unable to provide these services to us or if the cost of using these providers increases, our business could be harmed. We are also subject to payment card association operating rules and agreements, including data security rules and agreements, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. In particular, we must comply with the Payment Card Industry Data Security Standard, or PCI-DSS, a set of requirements designed to ensure that all companies that process, store or transmit payment card information maintain a secure environment to protect cardholder data. We rely on vendors to handle PCI-DSS matters and to ensure PCI-DSS compliance. Should a vendor be subject to claims of non-compliance, or if our data security systems are breached or compromised, we may be liable for losses incurred by card issuing banks or customers, subject to fines and higher transaction fees, lose our ability to accept credit or debit card payments from our customers, or process electronic fund transfers or facilitate other types of payments. Any failure to comply could significantly harm our brand, reputation, business, financial condition and results of operations. In addition, PCI-DSS compliance may not prevent illegal or improper use of our payment systems or the theft, loss, or misuse of payment card data or transaction information.

We may acquire or invest in other companies, which could divert our management’s attention, result in dilution to our stockholders, and otherwise disrupt our operations and harm our results of operations.

We have recently acquired, and intend in the future to acquire or invest in, other businesses, products, or technologies that we believe could complement or expand our business, enhance our capabilities, or otherwise

 

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offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various costs and expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.

In any future acquisitions, we may not be able to successfully integrate acquired personnel, operations, and technologies, or effectively manage the combined business following the acquisition because of unforeseen complexity or costs. We also may not achieve the anticipated benefits from either past or future acquisitions due to a number of factors, including:

 

   

risks associated with conducting due diligence;

 

   

problems integrating the purchased businesses, products or technologies;

 

   

anticipated and unanticipated costs or liabilities associated with the acquisition;

 

   

inability to achieve anticipated synergies;

 

   

issues maintaining uniform standards, procedures, controls and policies across our brands;

 

   

the diversion of management’s attention from other business concerns;

 

   

the loss of our or the acquired business’s key employees;

 

   

adverse effects on existing business relationships with suppliers, distributors, retail partners and customers;

 

   

risks associated with entering new markets in which we have limited or no experience;

 

   

increased legal, accounting and compliance costs; or

 

   

the issuance of dilutive equity securities, the incurrence of debt, or the use of cash to fund such acquisitions.

In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our results of operations based on this impairment assessment process, which could harm our results of operations.

Our future success depends on the continuing efforts of our management and key employees, and on our ability to attract and retain highly skilled personnel and senior management.

We depend on the talents and continued efforts of our senior management and key employees. The loss of members of our management or key employees may disrupt our business and harm our results of operations. Furthermore, our ability to manage further expansion will require us to continue to attract, motivate, and retain additional qualified personnel. Competition for this type of personnel is intense, and we may not be successful in attracting, integrating, and retaining the personnel required to grow and operate our business effectively. There can be no assurance that our current management team, or any new members of our management team, will be able to successfully execute our business and operating strategies.

Our plans for international expansion may not be successful.

Continued expansion into markets outside the United States is one of our key long-term strategies for the future growth of our business. This expansion requires significant investment of capital and human resources, new business processes and marketing platforms, legal compliance, and the attention of many managers and other employees who would otherwise be focused on other aspects of our business. There are significant costs and risks inherent in selling our products in international markets, including: (a) failure to effectively establish our core brand identity; (b) increased employment costs; (c) increased shipping and distribution costs, which could increase our expenses and reduce our margins; (d) potentially lower margins in some regions; (e) longer

 

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collection cycles in some regions; (f) increased competition from local providers of similar products; (g) compliance with foreign laws and regulations, including taxes and duties, laws governing the marketing and use of e-commerce websites and enhanced data privacy laws and security, rules, and regulations; (h) establishing and maintaining effective internal controls at foreign locations and the associated increased costs; (i) increased counterfeiting and the uncertainty of protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; (j) compliance with anti-bribery, anti-corruption, and anti-money laundering laws, such as the FCPA, the Bribery Act, and OFAC regulations, by us, our employees, and our business partners; (k) currency exchange rate fluctuations and related effects on our results of operations; (l) economic weakness, including inflation, or political instability in foreign economies and markets; (m) compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad; (n) workforce uncertainty in countries where labor unrest is more common than in the United States; (o) business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters, including earthquakes, typhoons, floods, fires, and public health issues, including the outbreak of a pandemic or contagious disease, such as COVID-19, or xenophobia resulting therefrom; (p) the imposition of tariffs on products that we import into international markets that could make such products more expensive compared to those of our competitors; (q) that our ability to expand internationally could be impacted by the intellectual property rights of third parties that conflict with or are superior to ours; (r) difficulty developing retail relationships; and (s) other costs and risks of doing business internationally.

These and other factors could harm our international operations and, consequently, harm our business, results of operations, and financial condition. Further, we may incur significant operating expenses as a result of our planned international expansion, and it may not be successful. We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in new markets. We may also encounter difficulty expanding into international markets because of limited brand recognition, leading to delayed or limited acceptance of our products by customers in these markets, and increased marketing and customer acquisition costs to establish our brand. Accordingly, if we are unable to successfully expand internationally or manage the complexity of our global operations, we may not achieve the expected benefits of this expansion and our financial condition and results of operations could be harmed.

Our business involves the potential for injury, property damage, quality problems, product recalls, product liability and other claims against us, which could affect our earnings and financial condition.

Our Solo Stove products are designed to involve fire. If not properly handled, the fire our products involve poses significant danger for a number of reasons, including the possibility of burns, death, and significant property damage, including as a result of wildfires. As a result of fire or otherwise, if our Solo Stove or other products are defective or misused or if users of our products exercise impaired or otherwise poor judgment in the use of our products, the results could include personal injury to our customers or other third parties, death and significant property damage or destruction, and we could be exposed to significant liability and reputational damage.

As a manufacturer and distributor of consumer products, we are subject to the U.S. Consumer Products Safety Act of 1972, as amended by the Consumer Product Safety Improvement Act of 2008, which empowers the U.S. Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous, and similar laws under foreign jurisdictions. Under certain circumstances, the Consumer Products Safety Commission or a comparable foreign agency could require us to repurchase or recall one or more of our products. Additionally, other laws and agencies regulate certain consumer products we sell in the United States and abroad, and more restrictive laws and regulations may be adopted in the future. Real or perceived quality problems or material defects in our current and future products could also expose us to credit, warranty or other claims. Although we currently have insurance in place, we also face exposure to product liability claims in the event that one of our products is alleged to have resulted in property damage, bodily injury or other adverse effects, and class action lawsuits related to the performance, safety or advertising of our products.

Any such quality issues or defects, product safety concerns, voluntary or involuntary product recall, government investigation, regulatory action, product liability or other claim or class action lawsuit may result in

 

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significant adverse publicity and damage our reputation and competitive position. In addition, real or perceived quality issues, safety concerns or defects could result in a greater number of product returns than expected from customers and our retail partners, and if we are required to remove, or voluntarily remove, one of our products from the market, we may have large quantities of finished products that we cannot sell. In the event of any governmental investigations, regulatory actions, product liability claims or class action lawsuits, we could face substantial monetary judgments or fines and penalties, or injunctions related to the sale of our products.

Although we maintain product liability insurance in amounts that we believe are reasonable, that insurance is, in most cases, subject to large policy premiums for which we are responsible. In addition, we may not be able to maintain such insurance on acceptable terms, if at all, in the future and product liability claims may exceed the amount of insurance coverage. We maintain a limited amount of product recall insurance and may not have adequate insurance coverage for claims asserted in class action lawsuits. As a result, product recalls, product liability claims and other product-related claims could have a material adverse effect on our business, results of operations and financial condition. We devote substantial resources to compliance with governmental and other applicable standards. However, compliance with these standards does not necessarily prevent individual or class action lawsuits, which can entail significant cost and risk. As a result, these types of claims could have a material adverse effect on our business, results of operations and financial condition.

Our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, uncertain or inconsistent interpretation and enforcement of legal requirements or differing views of personal privacy rights, which may have a material adverse effect on our reputation, business, financial condition and results of operations.

We collect, store, process, transmit and use personal data that is sensitive to the Company and its employees, customers and suppliers. A variety of state, federal, and foreign laws, regulations and industry standards apply to the collection, use, retention, protection, disclosure, transfer and other processing of certain types of data, including the California Consumer Privacy Act (the “CCPA”), Canada’s Personal Information Protection and Electronic Documents Act, the General Data Protection Regulation, or GDPR, the UK General Data Protection Regulation, or UK GDPR, and the UK Data Protection Act 2018, or the UK DPA. As we seek to expand our business, we are, and may increasingly become subject to various laws, regulations and standards, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. These laws, regulations and standards are continuously evolving and may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our reputation, business, financial condition and results of operations.

U.S. Privacy Laws

Domestic privacy and data security laws are complex and changing rapidly. Within the United States, many states are considering adopting, or have already adopted, privacy regulations. Such regulations include the CCPA, which came into effect in 2020. The CCPA increases privacy rights for California consumers and imposes obligations on companies that process their personal information. Among other things, the CCPA gives California consumers expanded rights related to their personal information, including the right to access and delete their personal information, receive detailed information about how their personal information is used and shared. The CCPA also provides California consumers the right to opt-out of certain sales of personal information and may restrict the use of cookies and similar technologies for advertising purposes. The CCPA prohibits discrimination against individuals who exercise their privacy rights, and provides for civil penalties for violations enforceable by the California Attorney General as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation. Many of the CCPA’s requirements as applied to personal information of a business’s personnel and related individuals are subject to a moratorium set to expire on January 1, 2023. The expiration of the moratorium may increase our compliance costs and our exposure to public and regulatory scrutiny, costly litigation, fines and penalties. Additionally, in November 2020, California

 

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passed the California Privacy Rights Act (the “CPRA”), which expands the CCPA significantly, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. Many of the CPRA’s provisions will become effective on January 1, 2023. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, and/or result in interruptions or delays in the availability of systems. Most recently, Virginia passed the Virginia Consumer Data Protection Act, applicable to companies collecting personal information of more than 100,000 Virginia residents, which could further impact our compliance burden. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging.

Our communications with our customers are subject to certain laws and regulations, including the Controlling the Assault of Non-Solicited Pornography and Marketing, or CAN-SPAM, Act of 2003, the Telephone Consumer Protection Act of 1991, or TCPA, and the Telemarketing Sales Rule and analogous state laws, that could expose us to significant damages awards, fines and other penalties that could materially impact our business. For example, the TCPA imposes various consumer consent requirements and other restrictions in connection with certain telemarketing activity and other communication with consumers by phone, fax or text message. The CAN-SPAM Act and the Telemarketing Sales Rule and analogous state laws also impose various restrictions on marketing conducted use of email, telephone, fax or text message. As laws and regulations, including FTC enforcement, rapidly evolve to govern the use of these communications and marketing platforms, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties.

In addition, some laws may require us to notify governmental authorities and/or affected individuals of data breaches involving certain personal information or other unauthorized or inadvertent access to or disclosure of such information. We may need to notify governmental authorities and affected individuals with respect to such incidents. For example, laws in all 50 U.S. states may require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach may be difficult and costly. We also may be contractually required to notify consumers or other counterparties of a security breach. Regardless of our contractual protections, any actual or perceived security breach or breach of our contractual obligations could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach.

Non-U.S. Privacy Laws

In Canada, the Personal Information Protection and Electronic Documents Act, or PIPEDA, and various provincial laws require that companies give detailed privacy notices to consumers, obtain consent to use personal information, with limited exceptions, allow individuals to access and correct their personal information, and report certain data breaches. In addition, Canada’s Anti-Spam Legislation, or CASL, prohibits email marketing without the recipient’s consent, with limited exceptions. Failure to comply with PIPEDA, CASL, or provincial privacy or data protection laws could result in significant fines and penalties or possible damage awards.

In the European Economic Area (the EEA), we are subject to the GDPR and in the United Kingdom, or UK, we are subject to the UK data protection regime consisting primarily of the UK GDPR and the UK DPA, in each case in relation to our collection, control, processing, sharing, disclosure and other use of data relating to an identifiable living individual (personal data). The GDPR and national implementing legislation in EEA member states, and the UK regime, impose a strict data protection compliance regime including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); demonstrating that an appropriate legal basis is in place or otherwise exists to justify data processing activities; granting rights for data subjects in regard to their personal data (including data access rights, the right

 

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to be “forgotten” and the right to data portability); introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; defining pseudonymized (i.e., key-coded) data; imposing limitations on retention of personal data; maintaining a record of data processing; and complying with the principal of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit. The GDPR and the UK GDPR imposes substantial fines for breaches and violations (up to the greater of €20 million (or £17.5 million) or 4% of global annual turnover). In addition to the foregoing, a breach of the GDPR or UK GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing of our data, enforcement notices, and/ or assessment notices (for a compulsory audit). We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources, and reputational harm.

Third Party Data Processing and Transfers

We depend on a number of third parties in relation to the operation of our business, a number of which process personal data on our behalf. With each such provider we attempt to mitigate the associated risks of using third parties by performing security assessments and due diligence, entering into contractual arrangements to ensure that providers only process personal data according to our instructions, and that they have sufficient technical and organizational security measures in place. There is no assurance that these contractual measures and our own privacy and security-related safeguards will protect us from the risks associated with the third-party processing, storage and transmission of such information. Any violation of data or security laws by our third party processors could have a material adverse effect on our business and result in the fines and penalties outlined below.

We are also subject to the European Union, or EU, and UK rules with respect to cross-border transfers of personal data from the EEA and the UK to the United States and other jurisdictions that the European Commission/ UK competent authorities do not recognize as having “adequate” data protection laws unless a data transfer mechanism has been put in place. Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA and the UK to the United States. Most recently, in July 2020, the Court of Justice of the EU, or CJEU, limited how organizations could lawfully transfer personal data from the EEA to the United States by invalidating the EU-US Privacy Shield Framework for purposes of international transfers and imposing further restrictions on use of the standard contractual clauses, or SCCs. These restrictions include a requirement for companies to carry out a transfer impact assessment which, among other things, assesses the laws governing access to personal data in the recipient country and considers whether supplementary measures that provide privacy protections additional to those provided under SCCs will need to be implemented to ensure an essentially equivalent level of data protection to that afforded in the EEA. The European Commission issued revised SCCs on 4 June 2021 to account for the decision of the CJEU and recommendations made by the European Data Protection Board. The revised SCCs must be used for relevant new data transfers from September 27, 2021; existing standard contractual clauses arrangements must be migrated to the revised clauses by December 27, 2022. There is some uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on for data transfers to non-EEA entities subject to the GDPR. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results. On June 28, 2021, the European Commission adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from EU member states to the United Kingdom without additional safeguards. However, the UK adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/ extends that decision. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is unclear how UK data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the United Kingdom will be regulated in the long term. These changes will lead to additional costs and increase our overall risk exposure.

 

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Self-Regulatory Industry Standards

In addition to government regulation, privacy advocates and industry groups have proposed, and may propose in the future, self-regulatory standards . These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards. If we fail to comply with these contractual obligations or standards, we may face substantial liability or fines. We expect that there will continue to be new proposed laws and regulations concerning data privacy and security in the United States and other jurisdictions in which we operate. We cannot yet determine the impact such future laws, regulations and standards may have on our business or operations.

Consumer Protection Laws and FTC Enforcement

We make public statements about our use and disclosure of personal information through our privacy policies that are posted on our websites. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices.

In addition, the FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Our failure to take any steps perceived by the FTC as appropriate to protect consumers’ personal information may result in claims by the FTC that we have engaged in unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act. State consumer protection laws provide similar causes of action for unfair or deceptive practices for alleged privacy, data protection and data security violations.

We rely on a variety of marketing techniques and practices to sell our products and to attract new customers and consumers, and we are subject to various current and future data protection laws and obligations that govern marketing and advertising practices. Governmental authorities continue to evaluate the privacy implications inherent in the use of third-party “cookies” and other methods of online tracking for behavioral advertising and other purposes, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools. In particular, we are subject to evolving EU and UK privacy laws on cookies and e-marketing. In the EU and the UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive are highly likely to be replaced by an EU regulation known as the ePrivacy Regulation which will significantly increase fines for non-compliance. In the EU and the UK, informed consent is required for the placement of a cookie or similar technologies on a user’s device and for direct electronic marketing. The GDPR also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. While the text of the ePrivacy Regulation is still under development, a recent European court decision, regulators’ recent guidance and recent campaigns by a not for profit organization are driving increased attention to cookies and tracking technologies. If regulators start to enforce the strict approach in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities. Additionally, some providers of consumer devices, web browsers and application stores have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, require additional consents, or limit the ability to track user activity, which could if widely adopted result in the use of third-party cookies and other methods of online tracking becoming significantly less effective.

 

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We rely significantly on the use of information technology, as well as those of our third party service providers. Any significant failure, inadequacy, interruption or data security incident of our information technology systems, or those of our third-party service providers, could disrupt our business operations, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.

Information Technology Dependencies

We increasingly rely on information technology systems to market and sell our products, process, transmit and store electronic and financial information, manage a variety of business processes and activities and comply with regulatory, legal and tax requirements. We are increasingly dependent on the reliability and capacity of a variety of information systems to effectively manage our business, process customer orders, and coordinate the manufacturing, sourcing, distribution and sale of our products. We rely on information technology systems to effectively manage, among other things, our digital marketing activities, business data, electronic communications among our personnel, customers, manufacturers and suppliers around the world, supply chain, inventory management, customer order entry and order fulfillment, processing transactions, summarizing and reporting results of operations, human resources benefits and payroll management, compliance with regulatory, legal and tax requirements and other processes and data necessary to manage our business. These information technology systems, most of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Any material disruption of our systems, or the systems of our third-party service providers, could disrupt our ability to track, record and analyze the products that we sell and could negatively impact our operations, shipment of goods, ability to process financial information and transactions, and our ability to receive and process online orders or engage in normal business activities. If our information technology systems suffer damage, disruption or shutdown and we do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.

E-commerce is central to our business. We generate a majority of our sales through our website, solostove.com, which is also a key component of our marketing strategy. We supplement our website through relationships with select third-party e-commerce marketplaces, such as Amazon. As a result, we are vulnerable to website downtime and other technical failures. Our or such third parties’ failure to successfully respond to these risks could reduce e-commerce sales and, in the case of our website, damage our brand’s reputation. The future operation, success and growth of our business depends on streamlined processes made available through information systems, global communications, internet activity and other network processes.

Our information technology systems may be subject to damage or interruption from telecommunications problems, data corruption, software errors, fire, flood, global pandemics and natural disasters, power outages, systems disruptions, system conversions, and/or human error. Our existing safety systems, data backup, access protection, user management and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages.

In addition, we may have to upgrade our existing information technology systems or choose to incorporate new technology systems from time to time in order for such systems to support the increasing needs of our expanding business. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could disrupt or reduce the efficiency of our operations, including through impairment of our ability to leverage our e-commerce channels and fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, acquisition and retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, the introduction of errors or vulnerabilities and other risks and costs of delays or difficulties in transitioning to or integrating new systems

 

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into our current systems. These implementations, modifications and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. Additionally, difficulties with implementing new technology systems, delays in our timeline for planned improvements, significant system failures, or our inability to successfully modify our information systems to respond to changes in our business needs may cause disruptions in our business operations and have a material adverse effect on our business, financial condition and results of operations.    

Further, as part of our normal business activities, we collect and store certain confidential information, including personal information with respect to customers and employees, as well as information related to intellectual property, and the success of our e-commerce operations depends on the secure transmission of confidential and personal data over public networks, including the use of cashless payments. We may share some of this information with third party service providers who assist us with certain aspects of our business. Any failure on the part of us or our third party service providers to maintain the security of this confidential data and personal information, including via the penetration of our network security (or those of our third party service providers) and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation, any or all of which could result in the Company incurring potentially substantial costs. Such events could also result in the deterioration of confidence in the Company by employees, consumers and customers and cause other competitive disadvantages.

Security Incidents

Security incidents compromising the confidentiality, integrity, and availability of our confidential or personal information and our and our third-party service providers’ information technology systems could result from cyber-attacks, computer malware, viruses, social engineering (including spear phishing and ransomware attacks), credential stuffing, supply chain attacks, efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations, errors or malfeasance of our personnel, and security vulnerabilities in the software or systems on which we and our third party service providers rely. Any of these incidents could lead to interruptions or shutdowns of our platform, loss or corruption of data, or unauthorized access to or disclosure of personal data or other sensitive information. Cyberattacks could also result in the theft of our intellectual property. If we gain greater visibility, we may face a higher risk of being targeted by cyberattacks. Advances in computer capabilities, new technological discoveries or other developments may result in cyberattacks becoming more sophisticated and more difficult to detect. We and our third-party service providers may not have the resources or technical sophistication to anticipate or prevent all such cyberattacks. Moreover, techniques used to obtain unauthorized access to systems change frequently and may not be known until launched against us or our third-party service providers. Security breaches can also occur as a result of non-technical issues, including intentional or inadvertent actions by our employees, our third-party service providers, or their personnel.

Moreover, we and our third-party service providers may be more vulnerable to such attacks in remote work environments, which have increased in response to the COVID-19 pandemic. As techniques used by cyber criminals change frequently, a disruption, cyberattack or other security breach of our information technology systems or infrastructure, or those of our third-party service providers, may go undetected for an extended period and could result in the theft, transfer, unauthorized access to, disclosure, modification, misuse, loss or destruction of our employee, representative, customer, vendor, consumer and/or other third-party data, including sensitive or confidential data, personal information and/or intellectual property. We cannot guarantee that our security efforts will prevent breaches or breakdowns of the Company’s or its third-party service providers’ information technology systems. In addition, our information systems are a target of cyberattacks and although the incidents that we have experienced to date have not had a material effect. If we or our third party service providers suffer, or are believed to have suffered, a material loss or disclosure of personal or confidential information as a result of an actual or potential breach of our information technology systems, we may suffer reputational, competitive and/or business harm, incur significant costs and be subject to government investigations, litigation, fines and/or

 

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damages, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows. Moreover, while we maintain cyber insurance that may help provide coverage for these types of incidents, we cannot assure you that our insurance will be adequate to cover costs and liabilities related to these incidents.

In addition, any such access, disclosure or other loss or unauthorized use of information or data, whether actual or perceived, could result in legal claims or proceedings, regulatory investigations or actions, and other types of liability under laws that protect the privacy and security of personal information, including federal, state and foreign data protection and privacy regulations, violations of which could result in significant penalties and fines in the United States, Canada, EU and UK. In addition, although we seek to detect and investigate all data security incidents, security breaches and other incidents of unauthorized access to our information technology systems and data can be difficult to detect and any delay in identifying such breaches or incidents may lead to increased harm and legal exposure of the type described above.

Our business may be adversely affected if we are unable to provide our customers a cost-effective platform that is able to respond and adapt to rapid changes in technology.

The number of people who access the Internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as notebooks and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few years. The smaller screen size, functionality, and memory associated with some alternative devices may make the use of our sites and purchasing our products more difficult. The versions of our sites developed for these devices may not be compelling to consumers. In addition, it is time consuming and costly to keep pace with rapidly changing and continuously evolving technology. In 2020, 55% of orders were placed from a mobile device. However, we cannot be certain that our mobile applications or our mobile-optimized sites will be successful in the future.

As existing mobile devices and platforms evolve and new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in adjusting and developing applications for changed and alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such applications. If we are unable to attract consumers to our websites through these devices or are slow to develop a version of our websites that is more compatible with alternative devices or a mobile application, we may fail to capture a significant share of consumers, which could materially and adversely affect our business.

Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet, e-commerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy, data protection, data security, anti-spam, content protection, electronic contracts and communications, consumer protection, website accessibility, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the Internet as many of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e-commerce. It is possible that general business regulations and laws, or those specifically governing the Internet or e-commerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot be sure that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our sites by

 

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consumers and suppliers and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. In addition, it is possible that governments of one or more countries or territories may seek to censor content available on our sites or may even attempt to completely block access to our sites. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more countries or territories, our ability to retain or increase our customer base may be adversely affected, and we may not be able to maintain or grow our net sales and expand our business as anticipated.

We depend on cash generated from our operations to support our growth, and we may need to raise additional capital, which may not be available on terms acceptable to us or at all.

We primarily rely on cash flow generated from our sales to fund our current operations and our growth initiatives. As we expand our business, we will need significant cash from operations to purchase inventory, increase our product development, expand our manufacturer and supplier relationships, pay personnel, pay for the increased costs associated with operating as a public company, including acquisitions, expand internationally, and to further invest in our sales and marketing efforts. If our business does not generate sufficient cash flow from operations to fund these activities and sufficient funds are not otherwise available from our current or future credit facility, we may need additional equity or debt financing. If such financing is not available to us on satisfactory terms, our ability to operate and expand our business or to respond to competitive pressures would be harmed. Moreover, if we raise additional capital by issuing equity securities or securities convertible into equity securities, your ownership may be diluted. Any indebtedness we incur may subject us to covenants that restrict our operations and will require interest and principal payments that would create additional cash demands and financial risk for us.

Our indebtedness may limit our ability to invest in the ongoing needs of our business and if we are unable to comply with the covenants in our current Credit Facility, our liquidity and results of operations could be harmed.

On May 12, 2021, we entered into a Credit Agreement among Solo DTC Brands, LLC, Solo Stove Intermediate, LLC, JPMorgan Chase Bank, N.A., and the Lenders and L/C Issuers party thereto (as subsequently amended on June 2, 2021 and September 1, 2021, the “Credit Facility”). As of June 30, 2021 we had $186 million outstanding under the Credit Facility. The Credit Facility is jointly and severally guaranteed by Holdings and any future subsidiaries that execute a joinder to the guaranty and related collateral agreements, or the Guarantors. The Credit Facility is also secured by a first priority lien on substantially all of our assets and the assets of the Guarantors, in each case subject to certain customary exceptions. We may, from time to time, incur additional indebtedness under the Credit Facility. See “Description of Indebtedness.”

The Credit Facility places certain conditions on us, including that it:

 

   

requires us to utilize a portion of our cash flow from operations and dispositions of assets to make payments on our indebtedness, reducing the availability of our cash flow to fund working capital, capital expenditures, development activity, return capital to our stockholders, and other general corporate purposes;

 

   

increases our vulnerability to adverse economic or industry conditions;

 

   

limits our flexibility in planning for, or reacting to, changes in our business or markets;

 

   

makes us more vulnerable to increases in interest rates, as borrowings under the Credit Facility bear interest at variable rates;

 

   

limits our ability to obtain additional financing in the future for working capital or other purposes; and

 

   

could place us at a competitive disadvantage compared to our competitors that have less indebtedness.

 

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The Credit Facility places certain limitations on our ability to incur additional indebtedness. However, subject to the qualifications and exceptions in the Credit Facility, we may incur substantial additional indebtedness under that facility. The Credit Facility also places certain limitations on our ability to enter into certain types of transactions, financing arrangements and investments, to make certain changes to our capital structure, and to guarantee certain indebtedness, among other things. The Credit Facility also places certain restrictions on the payment of dividends and distributions and certain management fees. These restrictions limit or prohibit, among other things, and in each case, subject to certain customary exceptions, our ability to: (a) pay dividends on, redeem or repurchase our stock, or make other distributions; (b) incur or guarantee additional indebtedness; (c) sell stock in our subsidiaries; (d) create or incur liens; (e) make acquisitions or investments; (f) transfer or sell certain assets or merge or consolidate with or into other companies; (g) make certain payments or prepayments of indebtedness subordinated to our obligations under the Credit Facility; and (h) enter into certain transactions with our affiliates.

The Credit Facility requires us to comply with certain covenants, including financial covenants regarding our Total Net Leverage Ratio and Interest Coverage Ratio. Fluctuations in a Total First Lien Net Leverage Ratio may increase our interest expense. Failure to comply with these covenants, failure to make payment when due, certain other provisions of the Credit Facility, or the occurrence of a change of control, could result in an event of default and an acceleration of our obligations under the Credit Facility or other indebtedness that we may incur in the future.

If such an event of default and acceleration of our obligations occurs, the lenders under the Credit Facility would have the right to foreclose against the collateral we granted to them to secure such indebtedness, which consists of substantially all of our assets. If the debt under the Credit Facility were to be accelerated, we may not have sufficient cash or be able to sell sufficient collateral to repay this debt, which would immediately and materially harm our business, results of operations, and financial condition. The threat of our debt being accelerated in connection with a change of control could make it more difficult for us to attract potential buyers or to consummate a change of control transaction that would otherwise be beneficial to our stockholders.

In connection with our preparation of our financial statements, we identified a material weakness in our internal control over financial reporting. Any failure to maintain effective internal control over financial reporting could harm us.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. During the preparation of our financial statements for 2020, we identified a material weakness in our internal control over financial reporting. We noted that certain transaction related expenses related to the change of control transactions in 2020 and 2019 were not recorded in our financial statements. Also, the assessment of the expenses or additional consideration lacked proper evaluation. Under standards established by the PCAOB, a deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or personnel, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. The PCAOB defines a material weakness as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented, or detected and corrected, on a timely basis. The PCAOB defines a significant deficiency as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of a registrant’s financial reporting.

We have implemented measures designed to improve our internal control over financial reporting to address the underlying causes of this material weakness, including: increasing the quality and expanding the number of people in our accounting department, completing a significant number of the identified required remediation activities to improve general controls and implementing a new ERP system that should allow for more timely

 

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identification of reporting matters. While we are working to remediate the material weakness in as timely and efficient a manner as possible, at this time we cannot provide an estimate of costs expected to be incurred in connection with this remediation, nor can we provide an estimate of the time it will take to complete this remediation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.

In accordance with the provisions of the JOBS Act, we and our independent registered public accounting firm were not required to, and did not, perform an evaluation of our internal control over financial reporting as of December 30, 2020, in accordance with the provisions of Section 404 of the Sarbanes-Oxley Act. Accordingly, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act after the completion of this offering.

Additional material weaknesses or significant deficiencies may be identified in the future. If we identify such issues or if we are unable to produce accurate and timely financial statements, our stock price may decline and we may be unable to maintain compliance with the NYSE listing standards.

Our results of operations are subject to seasonal and quarterly variations, which could cause the price of our common stock to decline.

We believe that our sales include a seasonal component. Historically, our net sales have been highest in our second and fourth quarters, with the first quarter typically generating the lowest sales. However, fluctuations in our quarterly operating results and the price of our common stock may be particularly pronounced in the current economic environment due to the uncertainty caused by the current COVID-19 pandemic and its potential future impact on consumer spending patterns, as well as the impacts of the reopening of the economy and lessening of restrictions on movement and travel. For example, starting in the second quarter of 2020, we saw tailwinds driven by the COVID-19 pandemic as individuals and families were quarantined at home with time to pursue alternative recreational and leisure activities.

Our annual and quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including, among other things, the timing of the introduction of and advertising for our new products and those of our competitors and changes in our product mix. Variations in weather conditions may also harm our quarterly results of operations. In addition, we may not be able to adjust our spending in a timely manner to compensate for any unexpected shortfall in our sales. As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our results of operations between different quarters within a single fiscal year, or the same quarters of different fiscal years, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of our future performance. In the event that any seasonal or quarterly fluctuations in our net sales and results of operations result in our failure to meet our forecasts or the forecasts of the research analysts that may cover us in the future, the market price of our common stock could fluctuate or decline.

If our goodwill, other intangible assets, or fixed assets become impaired, we may be required to record a charge to our earnings.

We may be required to record future impairments of goodwill, other intangible assets, or fixed assets to the extent the fair value of these assets falls below their book value. Our estimates of fair value are based on assumptions regarding future cash flows, gross margins, expenses, discount rates applied to these cash flows, and current market estimates of value. Estimates used for future sales growth rates, gross profit performance, and other assumptions used to estimate fair value could cause us to record material non-cash impairment charges, which could harm our results of operations and financial condition.

 

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We are subject to credit risk.

We are exposed to credit risk primarily on our accounts receivable. We provide credit to our retail partners in the ordinary course of our business. While we believe that our exposure to concentrations of credit risk with respect to trade receivables is mitigated by limiting our retail partners to well-known businesses, we nevertheless run the risk of our retail partners not being able to meet their payment obligations, particularly in a future economic downturn. If a material number of our retail partners were not able to meet their payment obligations, our results of operations could be harmed.

Risks Related to Our Organizational Structure and the Tax Receivable Agreement

Solo Brands, Inc.’s sole material asset after the completion of the Transactions will be its interest in Holdings, and, accordingly, it will depend on distributions from Holdings to pay its taxes and expenses, including payments under the Tax Receivable Agreement. Holdings’ ability to make such distributions may be subject to various limitations and restrictions.

Upon the consummation of the Transactions, Solo Brands, Inc. will be a holding company and will have no material assets other than its ownership in Holdings. As such, Solo Brands, Inc. will have no independent means of generating revenue or cash flow, and its ability to pay taxes and operating expenses or declare and pay dividends in the future, if any, will be dependent upon the financial results and cash flows of Holdings and its subsidiaries, and distributions Solo Brands, Inc. receives from Holdings. There can be no assurance that Holdings and its subsidiaries will generate sufficient cash flow to distribute funds to Solo Brands, Inc., or that applicable state law and contractual restrictions, including negative covenants in any debt agreements of Holdings or its subsidiaries (including the Credit Facility), will permit such distributions. The terms of Holdings’ or its subsidiaries’ current and future debt instruments or other agreements may restrict the ability of Holdings to make distributions to Solo Brands, Inc. or of Holdings’ subsidiaries to make distributions to Holdings.

Holdings will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of LLC Interests, including Solo Brands, Inc. Accordingly, Solo Brands, Inc. will incur income taxes on its allocable share of any net taxable income of Holdings. Under the terms of the Holdings LLC Agreement, Holdings will be obligated, subject to various limitations and restrictions, including with respect to any debt agreements (including the Credit Facility), to make tax distributions to holders of LLC Interests, including Solo Brands, Inc. In addition to tax expenses, Solo Brands, Inc. will also incur expenses related to its operations, including payments under the Tax Receivable Agreement, which could be substantial. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.” Solo Brands, Inc. intends, as its sole manager, to cause Holdings to make cash distributions to the owners of LLC Interests in an amount sufficient to (i) fund all or part of such owners’ tax obligations in respect of taxable income allocated to such owners and (ii) cover Solo Brands, Inc.’s operating expenses, including payments under the Tax Receivable Agreement. However, Holdings’ ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions under contracts or agreements to which Holdings is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering Holdings insolvent. Further, under certain circumstances, the existing covenants under the Credit Facility regarding tax distributions may not permit Holdings or its subsidiaries to make the full amount of tax distributions contemplated under the Holdings LLC Agreement unless another exception to such covenants is available; and there can be no assurance that any such other exception will be available. If Solo Brands, Inc. does not have sufficient funds to pay tax or other liabilities or to fund its operations, it may have to borrow funds, which could materially adversely affect its liquidity and financial condition and subject it to various restrictions imposed by any such lenders. To the extent that Solo Brands, Inc. is unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Solo Brands, Inc.’s failure to make any payment required under the Tax Receivable Agreement (including any accrued and unpaid interest) within 90 calendar days of the date on which the payment is required to be made will constitute a material breach of a material

 

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obligation under the Tax Receivable Agreement, which will terminate the Tax Receivable Agreement and accelerate future payments thereunder, unless the applicable payment is not made because (i) Holdings is prohibited from making such payment under the terms of the Tax Receivable Agreement or the terms governing certain of its indebtedness or (ii) Holdings does not have, and despite using commercially reasonable efforts cannot obtain, sufficient funds to make such payment. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” and “ —Certain Relationships and Related Party Transactions—Holdings LLC Agreement.” In addition, if Holdings does not have sufficient funds to make distributions, its ability to declare and pay cash dividends will also be restricted or impaired.

Under the Holdings LLC Agreement, Holdings will, from time to time, make distributions in cash to its equityholders (including Solo Brands, Inc.) pro rata, in amounts at least sufficient to cover the taxes on their allocable share of taxable income of Holdings (subject to the limitations and restrictions described above, including under the Credit Facility). As a result of (i) potential differences in the amount of net taxable income allocable to Solo Brands, Inc. and to Holdings’s other equityholders, (ii) the lower tax rates currently applicable to corporations as opposed to individuals, and (iii) the favorable tax benefits that Solo Brands, Inc. anticipates from any purchase of LLC Interests from the Continuing LLC Owners in connection with the Transactions and future redemptions or exchanges of LLC Interests by the Continuing LLC Owners for Solo Brands, Inc. Class A common stock or cash pursuant to the Holdings LLC Agreement, tax distributions payable to Solo Brands, Inc. may be in amounts that exceed its actual tax liabilities with respect to the relevant taxable year, including its obligations under the Tax Receivable Agreement. Solo Brands, Inc.’s board of directors will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, the payment of other expenses or dividends on Solo Brands, Inc.’s stock, although Solo Brands, Inc. will have no obligation to distribute such cash (or other available cash) to its stockholders.

Except as otherwise determined by Solo Brands, Inc. as the sole manager of Holdings, no adjustments to the exchange ratio for LLC Interests and corresponding shares of Solo Brands, Inc. Class A common stock will be made as a result of any cash distribution by Solo Brands, Inc. or any retention of cash by Solo Brands, Inc. To the extent Solo Brands, Inc. does not distribute such excess cash as dividends on its Solo Brands, Inc. Class A common stock, it may take other actions with respect to such excess cash—for example, holding such excess cash or lending it (or a portion thereof) to Holdings, which may result in shares of Solo Brands, Inc. Class A common stock increasing in value relative to the value of LLC Interests. The Continuing LLC Owners may benefit from any value attributable to such cash balances if they acquire shares of Solo Brands, Inc. Class A common stock in exchange for their LLC Interests, notwithstanding that such holders may previously have participated as holders of LLC Interests in distributions by Holdings that resulted in such excess cash balances.

The Tax Receivable Agreement will require Solo Brands, Inc. to make cash payments to the Continuing LLC Owners in respect of certain tax benefits to which Solo Brands, Inc. may become entitled, and no such payments will be made to any holders of Solo Brands, Inc. Class A common stock unless such holders are also Continuing LLC Owners. The payments Solo Brands, Inc. will be required to make under the Tax Receivable Agreement may be substantial.

Upon the closing of the Transactions, Solo Brands, Inc. will be a party to the Tax Receivable Agreement with the Continuing LLC Owners and Holdings. Under the Tax Receivable Agreement, Solo Brands, Inc. generally will be required to make cash payments to the Continuing LLC Owners equal to 85% of the tax benefits, if any, that Solo Brands, Inc. actually realizes, or in certain circumstances is deemed to realize, as a result of (1) increases in Solo Brands, Inc.’s proportionate share of the tax basis of the assets of Holdings resulting from (a) any future redemptions or exchanges of LLC Interests by the Continuing LLC Owners for Solo Brands, Inc. Class A common stock or cash pursuant to the Holdings LLC Agreement as described under “Certain Relationships and Related Party Transactions—Holdings LLC Agreement,” or (b) certain distributions (or deemed distributions) by Holdings and (2) certain other tax benefits arising from payments under the Tax Receivable Agreement. No such payments will be made to any holders of Solo Brands, Inc. Class A common stock unless such holders are also Continuing LLC Owners.

 

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The amount of the cash payments that Solo Brands, Inc. will be required to make under the Tax Receivable Agreement may be substantial. Assuming no material changes in the relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the tax receivable agreement, we expect that the reduction in tax payments for us associated with the tax attributes described above would aggregate to approximately $             over                    years from the date of this offering based on an initial public offering price of $            per share of our Class A common stock, which is the midpoint of the price range set forth on the front cover of this prospectus, and assuming all future sales of LLC Interests in exchange for our Class A common stock would occur on the one-year anniversary of this offering at such price. In this scenario, we estimate that we would be required to pay the Continuing LLC Owners    % of such amount, or $            , over the                    -year period from the date of this offering. The actual amounts may materially differ from these hypothetical amounts, as potential future reductions in tax payments for us and tax receivable agreement payments by us will be determined in part by reference to the market value of our Class A common stock at the time of the sale and the prevailing tax rates applicable to us over the life of the tax receivable agreement and will generally be dependent on us generating sufficient future taxable income to realize the benefit. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.” Payments under the Tax Receivable Agreement are not conditioned on the Continuing LLC Owners’ ownership of our shares after this offering. Any payments made by Solo Brands, Inc. to the Continuing LLC Owners under the Tax Receivable Agreement will not be available for reinvestment in the business and will generally reduce the amount of cash that might have otherwise been available to Solo Brands, Inc. and its subsidiaries. To the extent Solo Brands, Inc. is unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Furthermore, Solo Brands, Inc.’s future obligations to make payments under the Tax Receivable Agreement could make Solo Brands, Inc. and its subsidiaries a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that are the subject of the Tax Receivable Agreement. For more information, see “Certain Relationships and Related Party Transactions.”

The actual amount and timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing LLC Owners, the price of shares of Solo Brands, Inc. Class A common stock at the time of any exchange, the extent to which such exchanges are taxable, the amount of gain recognized by the Continuing LLC Owners, the amount and timing of the taxable income Holdings generates in the future, and the tax rates and laws then applicable. Our organizational structure, including the Tax Receivable Agreement, confers certain tax benefits upon the Continuing LLC Owners that may not benefit Class A Common Stockholders to the same extent as they will benefit the Continuing LLC Owners.

Our organizational structure, including the Tax Receivable Agreement, confers certain tax benefits upon the Continuing LLC Owners that may not benefit the holders of our Class A Common Stock to the same extent as they will benefit the Continuing LLC Owners. We will enter into the Tax Receivable Agreement with Holdings and the Continuing LLC Owners that will provide for our payment to the Continuing LLC Owners of    % of the amount of tax benefits, if any, that we actually realize (or in some circumstances are deemed to realize) as a result of (i) increases in the tax basis of assets of Holdings resulting from (a) any future redemptions or exchanges of LLC Interests described under “Certain Relationships and Related Party Transactions—Holdings LLC Agreement—LLC Interest Redemption Right,” and (b) certain distributions (or deemed distributions) by Holdings and (ii) certain other tax benefits arising from payments under the Tax Receivable Agreement. Although Solo Brands, Inc. will retain 15% of such tax benefits, this and other aspects of our organizational structure may adversely impact the future trading market for the Class A Common Stock.

In certain cases, future payments under the Tax Receivable Agreement to the Continuing LLC Owners may be accelerated or significantly exceed the actual benefits Solo Brands, Inc. realizes in respect of the tax attributes subject to the Tax Receivable Agreement.

The Tax Receivable Agreement provides that if (i) Solo Brands, Inc. materially breaches any of its material obligations under the Tax Receivable Agreement, (ii) certain mergers, asset sales, other forms of business

 

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combinations, or other changes of control were to occur, or (iii) Solo Brands, Inc. elects an early termination of the Tax Receivable Agreement, then Solo Brands, Inc.’s future obligations, or its successor’s future obligations, under the Tax Receivable Agreement to make payments thereunder would accelerate and become due and payable, based on certain assumptions, including an assumption that Solo Brands, Inc. would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement, and an assumption that, as of the effective date of the acceleration, any Continuing LLC Owner that has LLC Interests not yet exchanged shall be deemed to have exchanged such LLC Interests on such date, even if Solo Brands, Inc. does not receive the corresponding tax benefits until a later date when the LLC Interests are actually exchanged.

As a result of the foregoing, Solo Brands, Inc. would be required to make an immediate cash payment equal to the estimated present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, based on certain assumptions, which payment may be made significantly in advance of the actual realization, if any, of those future tax benefits and, therefore, Solo Brands, Inc. could be required to make payments under the Tax Receivable Agreement that are greater than the specified percentage of the actual tax benefits it ultimately realizes. In addition, to the extent that Solo Brands, Inc. is unable to make payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid. Solo Brands, Inc.’s failure to make any payment required under the Tax Receivable Agreement (including any accrued and unpaid interest) within 90 calendar days of the date on which the payment is required to be made will constitute a material breach of a material obligation under the Tax Receivable Agreement, which will terminate the Tax Receivable Agreement and accelerate future payments thereunder, unless the applicable payment is not made because (i) Holdings is prohibited from making such payment under the terms of the Tax Receivable Agreement or the terms governing certain of its indebtedness or (ii) Holdings does not have, and despite using commercially reasonable efforts cannot obtain, sufficient funds to make such payment. In these situations, Solo Brands, Inc.’s obligations under the Tax Receivable Agreement could have a substantial negative impact on Solo Brands, Inc.’s liquidity and could have the effect of delaying, deferring, or preventing certain mergers, asset sales, other forms of business combinations, or other changes of control. There can be no assurance that Holdings will be able to fund or finance Solo Brands, Inc.’s obligations under the Tax Receivable Agreement.

Solo Brands, Inc. will not be reimbursed for any payments made to the Continuing LLC Owners under the Tax Receivable Agreement in the event that any tax benefits are disallowed.

Payments under the Tax Receivable Agreement will be based on the tax reporting positions that Solo Brands, Inc. determines, and the IRS or another tax authority may challenge all or part of the tax basis increases or other tax benefits Solo Brands, Inc. claims, as well as other related tax positions it takes, and a court could sustain any such challenge. In addition, Solo Brands, Inc. will not be reimbursed for any cash payments previously made to the Continuing LLC Owners under the Tax Receivable Agreement in the event that any tax benefits initially claimed by Solo Brands, Inc. and for which payment has been made to the Continuing LLC Owners are subsequently challenged by a taxing authority and are ultimately disallowed. Instead, any excess cash payments made by Solo Brands, Inc. to the Continuing LLC Owners will be netted against any future cash payments that Solo Brands, Inc. might otherwise be required to make to the Continuing LLC Owners under the terms of the Tax Receivable Agreement. However, Solo Brands, Inc. might not determine that it has effectively made an excess cash payment to the Continuing LLC Owners for a number of years following the initial time of such payment, and, if any of its tax reporting positions are challenged by a taxing authority, Solo Brands, Inc. will not be permitted to reduce any future cash payments under the Tax Receivable Agreement until any such challenge is finally settled or determined. Moreover, the excess cash payments Solo Brands, Inc. previously made under the Tax Receivable Agreement could be greater than the amount of future cash payments against which Solo Brands, Inc. would otherwise be permitted to net such excess. The applicable U.S. federal income tax rules for determining applicable tax benefits Solo Brands, Inc. claims are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with Solo Brands, Inc.’s tax reporting positions. As a result, payments could be made under the Tax Receivable Agreement in excess of the tax savings

 

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that Solo Brands, Inc. actually realizes in respect of the tax attributes with respect to the Continuing LLC Owners that are the subject of the Tax Receivable Agreement.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition.

We are subject to taxes by the U.S. federal, state, local and foreign tax authorities, and our tax liabilities will be affected by the allocation of expenses to differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

   

changes in the valuation of our deferred tax assets and liabilities;

 

   

expected timing and amount of the release of any tax valuation allowances;

 

   

tax effects of equity-based compensation;

 

   

changes in tax laws, regulations or interpretations thereof; or

 

   

future earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated earnings in countries where we have higher statutory tax rates.

In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, local and foreign taxing authorities. Outcomes from these audits could adversely affect our business, results of operations and financial condition.

Additionally, tax authorities at the foreign, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in e-commerce. New or revised foreign, federal, state or local tax regulations or court decisions may subject us or our customers to additional sales, income and other taxes. There is also uncertainty over sales tax liability as a result of the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc., which held that states could impose sales tax collection obligations on out-of-state sellers even if those sellers lack any physical presence within the states imposing the sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after the publication of Wayfair) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state sellers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws. While we do not expect the Court’s decision to have a significant impact on our business, other new or revised taxes and, in particular, sales taxes, VAT and similar taxes could increase the cost of doing business online and decrease the attractiveness of selling products over the internet. New taxes and rulings could also create significant increases in internal costs necessary to capture data and collect and remit taxes.

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended, or the 1940 Act, as a result of our ownership of Holdings, applicable restrictions could make it impractical for us to continue our business as contemplated and could adversely affect our business, results of operations and financial condition.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.

As the sole managing member of Holdings, we will control and operate Holdings. On that basis, we believe that our interest in Holdings is not an “investment security” as that term is used in the 1940 Act. However, if we

 

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were to cease participation in the management of Holdings, our interest in Holdings could be deemed an “investment security” for purposes of the 1940 Act.

We and Holdings intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could adversely affect our business, results of operations and financial condition.

Solo Brands, Inc. is controlled by the Original LLC Owners, whose interests may differ from those of our public stockholders.

Immediately following this offering and the application of net proceeds from this offering, the Original LLC Owners will control approximately     % of the combined voting power of our common stock through their ownership of both Class A Common Stock and Class B Common Stock. The Original LLC Owners will, for the foreseeable future, have the ability to substantially influence us through their ownership position over corporate management and affairs, and will be able to control virtually all matters requiring stockholder approval. The Original LLC Owners are able to, subject to applicable law, and the voting arrangements described in “Certain Relationships and Related Party Transactions,” elect a majority of the members of our board of directors and control actions to be taken by us and our board of directors, including amendments to our certificate of incorporation and bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of our assets. The directors so elected will have the authority, subject to the terms of our indebtedness and applicable rules and regulations, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. It is possible that the interests of the Original LLC Owners may in some circumstances conflict with our interests and the interests of our other stockholders, including you. For example, the Continuing LLC Owners may have different tax positions from us, especially in light of the Tax Receivable Agreement that could influence our decisions regarding whether and when to dispose of assets, whether and when to incur new or refinance existing indebtedness, and whether and when Solo Brands, Inc. should terminate the Tax Receivable Agreement and accelerate its obligations thereunder. In addition, the determination of future tax reporting positions and the structuring of future transactions may take into consideration the Continuing LLC Owners’ tax or other considerations, which may differ from the considerations of us or our other stockholders. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

Risks Related to this Offering and Ownership of our Class A Common Stock

Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could adversely affect our business and stock price.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal controls over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. However, as an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report

 

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that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to the operation of our business. Additionally, when evaluating our internal controls over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify any material weaknesses in our internal controls over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal controls over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A Common Stock could be adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

We will incur increased costs as a result of becoming a public company and in the administration of our organizational structure.

As a public company, we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act and related rules implemented by the SEC. Following the completion of this offering, we will incur ongoing periodic expenses in connection with the administration of our organizational structure. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. In estimating these costs, we took into account expenses related to insurance, legal, accounting, and compliance activities, as well as other expenses not currently incurred. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

Immediately following the consummation of this offering, the Continuing LLC Owners will have the right to have their LLC Interests redeemed pursuant to the terms of the Holdings LLC Agreement, which may dilute the owners of the Class A Common Stock.

After this offering, we will have an aggregate of             shares of Class A Common Stock authorized but unissued, including approximately             shares of Class A Common Stock issuable upon redemption of LLC Interests that will be held by the Continuing LLC Owners. Holdings will enter into the Holdings LLC Agreement and, subject to certain restrictions set forth therein and as described elsewhere in this prospectus, the Continuing LLC Owners will be entitled to have their LLC Interests redeemed for shares of our Class A Common Stock. We also intend to enter into the Registration Rights Agreement pursuant to which the shares of Class A Common Stock issued to the Continuing LLC Owners upon redemption of their LLC Interests and the shares of Class A Common Stock issued to the Former LLC Owners in connection with the Transactions will be eligible for resale, subject to certain limitations set forth therein. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

 

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We cannot predict the size of future issuances of our Class A Common Stock or the effect, if any, that future issuances and sales of shares of our Class A Common Stock may have on the market price of our Class A common stock. Sales or distributions of substantial amounts of our Class A Common Stock, including shares issued in connection with an acquisition, or the perception that such sales or distributions could occur, may cause the market price of our Class A Common Stock to decline.

If you purchase shares of Class A Common Stock in this offering, you will incur immediate and substantial dilution.

Dilution is the difference between the offering price per share and the pro forma net tangible book value per share of our Class A Common Stock immediately after the offering. The price you pay for shares of our Class A Common Stock sold in this offering is substantially higher than our pro forma net tangible book value per share immediately after this offering. If you purchase shares of Class A Common Stock in this offering, you will incur immediate and substantial dilution in the amount of $                per share based upon an assumed initial public offering price of $                 per share (the midpoint of the price range listed on the cover page of this prospectus). In addition, you may also experience additional dilution, or potential dilution, upon future equity issuances to investors or to our employees and directors under our stock option plan and any other equity incentive plans we may adopt. As a result of this dilution, investors purchasing shares of Class A Common Stock in this offering may receive significantly less than the full purchase price that they paid for the stock purchased in this offering in the event of liquidation. See “Dilution.”

We do not know whether a market will develop for our Class A Common Stock or what the market price of our Class A Common Stock will be and as a result it may be difficult for you to sell your shares of our Class A Common Stock.

There has been no prior public market for our common stock. An active market may not develop or be sustainable, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock was determined through negotiations between us and the underwriters and may vary from the market price of our common stock following the completion of this offering. An active or liquid market in our common stock may not develop upon completion of this offering or, if it does develop, it may not be sustainable. In the absence of an active trading market for our common stock, you may not be able to resell any shares you hold at or above the initial public offering price or at all. We cannot predict the prices at which our common stock will trade.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our Class A Common Stock, the price of our Class A Common Stock could decline.

The trading market for our Class A Common Stock will rely in part on the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or securities analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our Class A Common Stock could decline. If one or more of these analysts cease to cover our Class A Common Stock, we could lose visibility in the market for our stock, which in turn could cause our Class A Common Stock price to decline.

We expect that the price of our Class A Common Stock will fluctuate substantially and you may not be able to sell the shares you purchase in this offering at or above the offering price.

The initial public offering price for the shares of our Class A Common Stock sold in this offering is determined by negotiation between the representatives of the underwriters and us. This price may not reflect the

 

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market price of our Class A Common Stock following this offering. In addition, the market price of our Class A Common Stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:

 

   

the volume and timing of sales of our products;

 

   

the introduction of new products or product enhancements by us or our competitors;

 

   

disputes or other developments with respect to our or others’ intellectual property rights;

 

   

our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products on a timely basis;

 

   

product liability claims or other litigation;

 

   

quarterly variations in our growth, profitability or results of operations, or those of our competitors;

 

   

media exposure of our products or our competitors;

 

   

announcement or expectation of additional equity or debt financing efforts;

 

   

additions or departures of key personnel;

 

   

issuance of new or updated research or reports by securities analysts;

 

   

failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;

 

   

changes in governmental regulations or in reimbursement;

 

   

changes in earnings estimates or recommendations by securities analysts; and

 

   

general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.

In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may significantly affect the market price of our Class A Common Stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our Class A Common Stock shortly following this offering. If the market price of shares of our Class A Common Stock after this offering does not ever exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.

In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business.

Substantial future sales of our Class A Common Stock, or the perception in the public markets that these sales may occur, may depress our stock price.

Sales of substantial amounts of our Class A Common Stock in the public market after this offering, or the perception that these sales could occur, could adversely affect the price of our Class A Common Stock and could impair our ability to raise capital through the sale of additional shares. Upon the closing of this offering, we will have                 shares of Class A Common Stock outstanding (or                 if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock) and                 shares of Class A Common Stock that would be issuable upon redemption or exchange of LLC Interests authorized but unissued. The shares of Class A Common Stock offered in this offering will be freely tradable without restriction under the Securities Act, except for any shares of our common stock that may be held or acquired by our directors, executive officers

 

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and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.

The remaining outstanding                 shares of Class A Common Stock held by the Former LLC Owners will be subject to certain restrictions on sale. We and each of our executive officers and directors and the Original LLC Owners, which collectively will hold     % of our outstanding capital stock (including shares of Class A Common Stock issuable upon redemption or exchange of LLC Interests) upon the closing of this offering, have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of common stock or securities convertible into or exchangeable for (including the LLC Interests), or that represent the right to receive, shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives on behalf of the underwriters. See “Underwriting.” All of our shares of common stock outstanding as of the date of this prospectus (and shares of Class A Common Stock issuable upon redemption or exchange of LLC Interests) may be sold in the public market by existing stockholders following the expiration of the applicable lock-up period, subject to applicable limitations imposed under federal securities laws.

We also intend to enter into the Registration Rights Agreement pursuant to which the shares of Class A Common Stock issued upon redemption or exchange of LLC Interests held by the Continuing LLC Owners and the shares of Class A Common Stock issued to the Former LLC Owners in connection with the Transactions will be eligible for resale, subject to certain limitations set forth therein. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of Class A Common Stock subject to outstanding options and Class A Common Stock issued or issuable under our stock plans. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market following the expiration of the applicable lock-up period.

See “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling shares of our common stock after this offering.

In the future, we may also issue additional securities if we need to raise capital, which could constitute a material portion of our then-outstanding shares of common stock.

We have broad discretion over the use of the net proceeds from this offering and it is possible that we will not use them effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering. Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these proceeds effectively could adversely affect our business, results of operations and financial condition. Pending their use, we may invest our proceeds in a manner that does not produce income or that loses value. Our investments may not yield a favorable return to our investors and may negatively impact the price of our Class A Common Stock.

 

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Taking advantage of the reduced disclosure requirements applicable to “emerging growth companies” may make our Class A Common Stock less attractive to investors.

The JOBS Act provides that, so long as a company qualifies as an “emerging growth company,” it will, among other things:

 

   

be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting;

 

   

be exempt from the “say on pay” and “say on golden parachute” advisory vote requirements of the Dodd-Frank Wall Street Reform and Customer Protection Act, or the Dodd-Frank Act;

 

   

be exempt from certain disclosure requirements of the Dodd-Frank Act relating to compensation of its executive officers and be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act; and

 

   

be permitted to provide a reduced level of disclosure concerning executive compensation and be exempt from any rules that have been adopted by the Public Company Accounting Oversight Board requiring a supplement to the auditor’s report on the financial statements or that may be adopted requiring mandatory audit firm rotations.

We are an “emerging growth company,” as defined in the JOBS Act, and we could be an emerging growth company for up to five years following the completion of this offering. For as long as we continue to be an emerging growth company, we may choose to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies. We currently intend to take advantage of the reduced disclosure requirements regarding executive compensation. We have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 107(b) of the JOBS Act. We could be an emerging growth company for up to five years after this offering and will continue to be an emerging growth company unless our total annual gross revenues are $1.07 billion or more, we have issued more than $1 billion in non-convertible debt in the past three years or we become a “large accelerated filer” as defined in the Exchange Act. If we remain an “emerging growth company” after this offering, we may take advantage of other exemptions, including the exemptions from the advisory vote requirements and executive compensation disclosures under the Dodd-Frank Act and the exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act. We cannot predict if investors will find our Class A Common Stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our Class A Common Stock. Also, as a result of our intention to take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us as long as we qualify as an “emerging growth company,” our financial statements may not be comparable to those of companies that fully comply with regulatory and reporting requirements upon the public company effective dates.

We do not currently expect to pay any cash dividends.

We do not anticipate declaring or paying any cash dividends to holders of our Class A Common Stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance our growth. Any determination to pay cash dividends in the future will be at the sole discretion of our board of directors, subject to limitations under applicable law and may be discontinued at any time. In addition, our ability to pay cash dividends is currently restricted by the terms of our Credit Facility. Therefore, you are not likely to receive any dividends on your Class A Common Stock for the foreseeable future, and the success of an investment in our Class A Common Stock will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of our Class A Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Our Class A Common Stock may not appreciate in value or even maintain the price at which our stockholders have purchased our Class A Common Stock. Investors seeking cash dividends should not purchase our Class A Common Stock.

 

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In addition, our operations are currently conducted entirely through Holdings and its subsidiaries and our ability to generate cash to meet our debt service obligations or to make future dividend payments, if any, is highly dependent on the earnings and the receipt of funds from Holdings and its subsidiaries via dividends or intercompany loans.

Our amended and restated certificate of incorporation will, to the extent permitted by applicable law, contain provisions renouncing our interest and expectation to participate in certain corporate opportunities identified or presented to certain of our Original LLC Owners.

Certain of the Original LLC Owners are in the business of making or advising on investments in companies and these Original LLC owners may hold, and may, from time to time in the future, acquire interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or the business of our suppliers. Our amended and restated certificate of incorporation will provide that, to the fullest extent permitted by law, none of the Original LLC Owners or any director who is not employed by us or his or her affiliates will have any duty to refrain from engaging in a corporate opportunity in the same or similar lines of business as us. The Original LLC Owners may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. As a result, these arrangements could adversely affect our business, results of operations, financial condition or prospects if attractive business opportunities are allocated to any of the Original LLC Owners instead of to us. See “Description of Capital Stock—Corporate Opportunities.”

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A Common Stock, which could depress the price of our Class A Common Stock.

Our amended and restated certificate of incorporation will authorize us to issue one or more series of preferred stock. Our board of directors will have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our Class A Common Stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discourage bids for our Class A Common Stock at a premium to the market price, and materially and adversely affect the market price and the voting and other rights of the holders of our Class A Common Stock.

Anti-takeover provisions in our governing documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and depress the market price of our common stock.

Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain or will contain provisions that could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Among others, our amended and restated certificate of incorporation and amended and restated bylaws will include the following provisions:

 

   

authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;

 

   

establishing a classified board of directors so that not all members of our board of directors are elected at one time;

 

   

the removal of directors only for cause;

 

   

prohibiting the use of cumulative voting for the election of directors;

 

   

limiting the ability of stockholders to call special meetings or amend our bylaws;

 

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requiring all stockholder actions to be taken at a meeting of our stockholders; and

 

   

establishing advance notice and duration of ownership requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, or the DGCL, which prevents interested stockholders, such as certain stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations unless (i) prior to the time such stockholder became an interested stockholder, the board approved the transaction that resulted in such stockholder becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in such stockholder becoming an interested stockholder, the interested stockholder owned 85% of the common stock or (iii) following board approval, the business combination receives the approval of the holders of at least two-thirds of our outstanding common stock not held by such interested stockholder. Because we have “opted out” of Section 203 of the DGCL in our amended and restated certificate of incorporation, the statute will not apply to business combinations involving us.

Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of delaying, preventing or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

 

   

any derivative action or proceeding brought on our behalf;

 

   

any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees, or stockholders to us or our stockholders;

 

   

any action asserting a claim arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation and bylaws; and

 

   

any action asserting a claim governed by the internal affairs doctrine.

Furthermore, our amended and restated certificate of incorporation will also provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended (Securities Act). However, these provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

 

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Any person purchasing or otherwise acquiring or holding any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds more favorable for disputes with us or with our directors, officers, other employees or agents, or our other stockholders, which may discourage such lawsuits against us and such other persons, or may result in additional expense to a stockholder seeking to bring a claim against us. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, results of operations and financial condition.

General Risk Factors

We may become involved in legal or regulatory proceedings and audits.

Our business requires compliance with many laws and regulations, including labor and employment, sales and other taxes, customs, data privacy, data security, and consumer protection laws and ordinances that regulate retailers generally and/or govern the importation, promotion, and sale of merchandise, and the operation of e-commerce and warehouse facilities. Failure to comply with these laws and regulations could subject us to lawsuits and other proceedings, and could also lead to damage awards, fines, and penalties. We may become involved in a number of legal proceedings and audits, including government and agency investigations, and consumer, employment, tort, and other litigation. The outcome of some of these legal proceedings, audits, and other contingencies could require us to take, or refrain from taking, actions that could harm our operations or require us to pay substantial amounts of money, harming our financial condition and results of operations. Additionally, we may pursue legal action of our own to protect our business interests. Prosecuting or defending against these lawsuits and proceedings may be necessary, which could result in substantial costs and diversion of management’s attention and resources, harming our business, financial condition, and results of operations. Any pending or future legal or regulatory proceedings and audits could harm our business, financial condition, and results of operations.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

In connection with this offering, we will become subject to the periodic reporting requirements of the Securities Exchange Act of 1934, or Exchange Act. We are designing our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures, no matter how well-conceived and operated, can provide reasonable, but not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by individuals or groups of persons or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements in our public reports due to error or fraud may occur and not be detected.

Our business is subject to the risk of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by problems such as terrorism, cyberattacks, or failure of key information technology systems.

Our business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, criminal acts, and similar events. For example, a significant natural disaster, such as an earthquake, fire, or flood, could harm our business, results of

 

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operations, and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Our corporate offices and primary distribution center is located in Texas, a state that frequently experiences floods and storms. In addition, the facilities of our suppliers and where our manufacturers produce our products are located in parts of Asia that frequently experience typhoons and earthquakes. Acts of terrorism and public health crises, such as the COVID-19 pandemic (or other future pandemics or epidemics), could also cause disruptions in our or our suppliers’, manufacturers’, and logistics providers’ businesses or the economy as a whole. We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting Texas or other locations where we have operations or store significant inventory. Our servers and those belonging to our vendors may also be vulnerable to computer viruses, criminal acts, denial-of-service attacks, ransomware, and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, or loss of critical data. As we rely heavily on our information technology and communications systems and the Internet to conduct our business and provide high-quality customer service, these disruptions could harm our ability to run our business and either directly or indirectly disrupt our suppliers’ or manufacturers’ businesses, which could harm our business, results of operations, and financial condition.

Changes in applicable tax regulations or in their implementation could negatively affect our business and financial results.

Changes in tax law may adversely affect our business or financial condition. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the 2017 Tax Act, which significantly reformed the Internal Revenue Code of 1986, as amended. A growing portion of our earnings are earned from sales outside the United States. Changes to the taxation of certain foreign earnings resulting from the 2017 Tax Act, along with the state tax impact of these changes and potential future cash distributions, may have an adverse effect on our effective tax rate. Furthermore, changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. Although the accounting for the impact of the 2017 Tax Act has been completed, we are continuing to monitor ongoing changes and ruling updates to the 2017 Tax Act. There can be no assurance that further changes in the 2017 Tax Act will not materially and adversely affect our effective tax rate, tax payments, financial condition and results of operations.

As part of Congress’s response to the COVID-19 pandemic, the Families First Coronavirus Response Act, commonly referred to as the FFCR Act, was enacted on March 18, 2020, and the Coronavirus Aid, Relief, and Economic Security Act, commonly referred to as the CARES Act, was enacted on March 27, 2020. Both contain numerous tax provisions. Regulatory guidance under the 2017 Tax Act, the FFCR Act and the CARES Act is and continues to be forthcoming, and such guidance could ultimately increase or lessen impact of these laws on our business and financial condition. It is also possible that Congress could enact additional legislation in connection with the COVID-19 pandemic, some of which could have an impact on our Company. In addition, it is uncertain if and to what extent various states will conform to the 2017 Tax Act, the FFCR Act or the CARES Act.

In addition, the U.S. government, state governments, and foreign jurisdictions may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate and the imposition of minimum taxes. The likelihood of these changes being enacted or implemented is unclear. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect or change significantly, our results of operations could be harmed.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial

 

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statements, and related notes included elsewhere in this prospectus. These estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity and the amount of sales and expenses that are not readily apparent from other sources. Our results of operations may be harmed if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, and could result in a decline in our stock price.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements about:

 

   

our ability to maintain and strengthen our brand and generate and maintain ongoing demand for our products;

 

   

our ability to successfully design and develop new products;

 

   

our ability to identify, acquire and successfully integrate other businesses, products or technologies;

 

   

our ability to obtain and enforce protection for our patents and trademarks;

 

   

our ability to effectively sustain and manage our growth;

 

   

our ability to accurately forecast demand for our products and our results of operations;

 

   

our ability to compete effectively in the outdoor and recreation market and protect our brand;

 

   

our ability to attract new customers in a cost-effective manner;

 

   

our ability to expand into additional consumer markets, and our success in doing so;

 

   

our expectations regarding the COVID-19 pandemic and its aftermath, as restrictions ease and vaccinations accelerate;

 

   

problems with, or loss of, our third-party contract manufacturers and suppliers, or an inability to obtain raw materials;

 

   

fluctuations in the cost and availability of raw materials, equipment, labor, and transportation and subsequent manufacturing delays or increased costs;

 

   

the success of our international expansion plans;

 

   

our ability to attract and retain skilled personnel and senior management, and to maintain the continued efforts of our management and key employees; and

 

   

the other risks identified in this prospectus including, without limitation, those under the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”

Forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Factors that may cause actual results to differ materially from current expectations include, among other things, those described in the section entitled “Risk Factors” and elsewhere in this prospectus. Potential investors are urged to consider these factors carefully in evaluating these forward-looking statements. These forward-looking statements speak only as of the date of this prospectus. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks and other information we describe in the reports we will file from time to time with the SEC after the date of this prospectus.

 

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USE OF PROCEEDS

We estimate the net proceeds from this initial public offering of shares of Class A Common Stock will be approximately $             million, or $             million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) the net proceeds to us by approximately $             million, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds to us from this offering to purchase                  LLC Interests from Holdings at a purchase price per LLC Interest equal to the initial public offering price per share of Class A Common Stock less the underwriting discounts and commissions.

We intend to cause Holdings to use such proceeds, after deducting estimated offering expenses, to repay $30.0 million of the Summit Notes and, the remainder, for general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in businesses, products, services or technologies; however, we do not have agreements or commitments for any material acquisitions or investments at this time. The Summit Notes bear interest at a rate of 12% per annum, with principal due on October 9, 2026. The Summit Notes are also subject to mandatory prepayment, plus accrued interest and related mandatory prepayment premium, upon the

occurrence of certain liquidity events described in the Summit Note Agreement, including this offering.

We will use the net proceeds we receive pursuant to any exercise of the underwriters’ option to purchase additional shares of Class A Common Stock to purchase additional LLC Interests from Holdings to maintain the one-to-one ratio between the number of shares of Class A Common Stock issued by us and the number of LLC Interests owned by us. We intend to cause Holdings to use any such proceeds it receives for general corporate purposes.

As of the date of this prospectus, since we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering, our management will have broad discretion over the use of any net proceeds from this offering that are to be applied for general corporate purposes. Pending the use of the proceeds from this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment grade securities, certificates of deposit or governmental securities.

 

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DIVIDEND POLICY

We do not anticipate declaring or paying any cash dividends to holders of our Class A Common Stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the growth of our business or conduct other corporate purposes. If we decide to pay cash dividends in the future, the declaration and payment of such dividends will be at the sole discretion of our board of directors and may be discontinued at any time. Holders of our Class B Common Stock are not entitled to participate in any dividends declared by our board of directors. In determining the amount of any future dividends, our board of directors will take into account any legal or contractual limitations, our actual and anticipated future earnings, cash flow, debt service and capital requirements and other factors that our board of directors may deem relevant. In addition, our ability to pay cash dividends is currently restricted by the terms of our Credit Facility. We are a holding company, and substantially all of our operations are carried out by Holdings and its subsidiaries, and therefore we will only be able to pay dividends from funds we receive from Holdings. Our ability to pay dividends may also be restricted by the terms of any future credit agreement or any future debt or preferred equity securities of us or our subsidiaries.

 

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TRANSACTIONS

Existing organization

Prior to the consummation of this offering and the organizational transactions described below, the Original LLC Owners are the only owners of Holdings. Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, generally is not subject to any U.S. federal entity-level income taxes (with the exception of certain subsidiaries that are subject to entity-level income taxes). Rather, taxable income or loss is included in the U.S. federal income tax returns of Holdings’s members.

Solo Brands, Inc. was incorporated as a Delaware corporation on June 23, 2021 to serve as the issuer of the Class A Common Stock offered hereby.

Transactions

In connection with the closing of this offering, we will consummate the following organizational transactions, which we refer to as the “Transactions”:

 

   

we will amend and restate the Holdings LLC Agreement, to, among other things, (i) provide for LLC Interests that will be a single class of common membership interests in Holdings, (ii) recapitalize all of the existing membership interests in Holdings into LLC Interests and (iii) appoint Solo Brands, Inc. as the sole managing member of Holdings;

 

   

we will amend and restate Solo Brands, Inc.’s certificate of incorporation to, among other things, (i) provide for Class A Common Stock and Class B Common Stock, each share of which entitles its holders to one vote per share on all matters presented to Solo Brands, Inc.’s stockholders and (ii) issue shares of Class B Common Stock to the Continuing LLC Owners, on a one-to-one basis with the number of LLC Interests they own for a purchase price equal to the aggregate par value of such shares of Class B common Stock;

 

   

Solo Brands, Inc. will issue                 shares of Class A Common Stock to the purchasers in this offering (or                 shares of Class A Common Stock if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock) in exchange for net proceeds of approximately $                 million (or approximately $             million if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock), assuming the shares are offered at $             per share (the midpoint of the price range listed on the cover page of this prospectus), after deducting underwriting discounts and commissions but before offering expenses;

 

   

Solo Brands, Inc. will use all of the net proceeds from this offering (including any net proceeds received upon exercise of the underwriters’ option to purchase additional shares of Class A Common Stock) to acquire LLC Interests from Holdings at a purchase price per interest equal to the initial public offering price per share of Class A Common Stock, less underwriting discounts and commissions;

 

   

Holdings will use the proceeds from the sale of LLC Interests to Solo Brands, Inc. as described in “Use of Proceeds;”

 

   

the Former LLC Owners will exchange their indirect ownership interests in Holdings for shares of Class A Common Stock on a one-to-one basis, representing (i) approximately     % of the combined voting power of all of Solo Brands, Inc.’s common stock (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock) and (ii) approximately     % of the economic interest in the business of Holdings and its subsidiaries (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock), indirectly through Solo Brands, Inc.’s ownership of LLC Interests;

 

   

the Continuing LLC Owners will continue to own the LLC Interests they received in exchange for their existing membership interests in Holdings; and

 

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Solo Brands, Inc. will enter into (i) the Tax Receivable Agreement with the Continuing LLC Owners, (ii) the Stockholders Agreement with                and (iii) the Registration Rights Agreement with the Original LLC Owners who, upon the consummation of this offering, will own                 shares of Solo Stove’s Class A and Class B Common Stock (which will not have any liquidation or distribution rights).

Organizational structure following this offering

Immediately following the completion of the Transactions, including this offering:

 

   

Solo Brands, Inc. will be a holding company and the principal asset of Solo Brands, Inc. will be LLC Interests of Holdings;

 

   

Solo Brands, Inc. will be the sole managing member of Holdings and will control the business and affairs of Holdings and its subsidiaries;

 

   

Solo Brands, Inc.’s amended and restated certificate of incorporation and the Holdings LLC Agreement will require that we and Holdings at all times maintain a one-to-one ratio between the number of shares of Class A Common Stock issued by us and the number of LLC Interests owned by us, as well as a one-to-one ratio between the number of shares of Class B Common Stock owned by the Continuing LLC Owners and the number of LLC Interests owned by the Continuing LLC Owners;

 

   

Solo Brands, Inc. will own LLC Interests representing     % of the economic interest in Holdings (or     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock);

 

   

the purchasers in this offering (i) will own                 shares of Class A Common Stock, representing approximately     % of the combined voting power of all of Solo Brands, Inc.’s common stock (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock), (ii) will own     % of the economic interest in Solo Brands, Inc. (or     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock) and (iii) through Solo Brands, Inc.’s ownership of LLC Interests, indirectly will hold (applying the percentages in the preceding clause (ii) to Solo Brands, Inc.’s percentage economic interest in Holdings) approximately     % of the economic interest in Holdings (or     % if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock);

 

   

the Former LLC Owners (i) will own                 shares of Class A Common Stock, representing approximately     % of the combined voting power of all of Solo Brands, Inc.’s common stock (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock), (ii) will own     % of the economic interest in Solo Brands, Inc. (or     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock) and (iii) through Solo Brands, Inc.’s ownership of LLC Interests, indirectly will hold (applying the percentages in the preceding clause (ii) to Solo Brands, Inc.’s percentage economic interest in Holdings) approximately     % of the economic interest in Holdings (or     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock);

 

   

the Continuing LLC Owners will own (i) through their ownership of Class B Common Stock, approximately     % of the voting power in Solo Brands, Inc. (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock) and (ii) LLC Interests, representing     % of the economic interest in Holdings (or     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock). Following the offering, each LLC Interest held by the Continuing LLC Owners will be redeemable, at their election, for newly-issued shares of Class A Common Stock on a one-for-one basis or a cash payment equal to a volume weighted average market price of one share of Class A Common Stock for each LLC Interest redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the Holdings LLC Agreement; provided that, in the event of such a redemption request, at Solo Brands, Inc.’s election, Solo Brands, Inc. may effect a direct exchange of such Class A Common

 

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Stock or such cash for such LLC Interests in lieu of such a redemption. Shares of Class B Common Stock will be cancelled on a one-for-one basis if we, following any redemption request from the Continuing LLC Owners, redeem or exchange their LLC Interests pursuant to the terms of the Holdings LLC Agreement. See “Certain Relationships and Related Party Transactions— Holdings LLC Agreement;” and

 

   

Solo Brands, Inc. will enter into (i) the Tax Receivable Agreement with the Continuing LLC Owners, (ii) the Stockholders Agreement with                 and (iii) the Registration Rights Agreement with the Original LLC Owners. Upon the consummation of this offering, the Continuing LLC Owners will own (x)                  shares of Solo Stove’s Class B Common Stock (which will not have any liquidation or distribution rights), representing approximately     % of the combined voting power of all of Solo Brands, Inc.’s common stock (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock) and (y) LLC Interests, representing approximately     % of the economic interest in the business of Holdings and its subsidiaries (or approximately     %, if the underwriters exercise in full their option to purchase additional shares of Class A Common Stock), representing both a direct interest through the Continuing LLC Owners’ ownership of LLC Interests and an indirect interest through the Former LLC Owners’ ownership of Class A Common Stock.

Immediately following this offering, Solo Brands, Inc. will be a holding company and our principal asset will be the LLC Interests we purchase from Holdings and acquire directly from the Continuing LLC Owners and indirectly from the Former LLC Owners. As the sole managing member of Holdings, Solo Brands, Inc. will operate and control all of the business and affairs of Holdings and, through Holdings and its subsidiaries, conduct our business. Accordingly, we will have the sole voting interest in, and control the management of, Holdings. As a result, Solo Brands, Inc. will consolidate Holdings in our consolidated financial statements and will report a non-controlling interest related to the LLC Interests held by the Continuing LLC Owners on our consolidated financial statements. Solo Brands, Inc. will have a board of directors and executive officers, but will have no employees. The functions of all of our employees are expected to reside at or under Holdings.

See “Description of Capital Stock” for more information about our certificate of incorporation and the terms of the Class A Common Stock and Class B Common Stock. See “Certain Relationships and Related Party Transactions” for more information about (i) the Holdings LLC Agreement, including the terms of the LLC Interests and the redemption right of the Continuing LLC Owners; (ii) the Tax Receivable Agreement; (iii) the Registration Rights Agreement; and (iv) the Stockholders Agreement. Under the Stockholders Agreement, any increase or decrease in the size of our board of directors or any committee, and any amendment to our organizational documents, will in each case require the approval of                , for so long as they collectively own at least    % of the total shares of our Class A Common Stock owned by them as of the date this offering is consummated, and will also require the approval of                and its affiliates, for so long as                and its affiliates own at least    % of the total shares of our Class B Common Stock owned by them as of the date this offering is consummated.

 

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The diagram below depicts our organizational structure after giving effect to the Transactions, including this offering, assuming no exercise by the underwriters of their option to purchase additional shares of Class A Common Stock:

 

 

LOGO

 

 

(1)   Includes the following:

This offering is being conducted through what is commonly referred to as an “Up-C” structure, which is often used by partnerships and limited liability companies undertaking an initial public offering. The Up-C approach provides the existing owners with the tax treatment of continuing to own interests in a pass-through structure and provides potential future tax benefits for both the public company and the existing owners when they ultimately redeem their pass-through interests for shares of Class A common stock or cash from the sale of newly issued shares of Class A common stock.

 

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CAPITALIZATION

The following table sets forth the cash and cash equivalents and capitalization as of June 30, 2021:

 

   

of Holdings and its subsidiaries on an actual basis; and

 

   

of Solo Brands, Inc. and its subsidiaries on a pro forma basis to give effect to the Acquisitions, the Transactions, including our issuance and sale of                 shares of Class A Common Stock in this offering at an assumed initial public offering price of $             per share, the midpoint of the price range listed on the cover page of this prospectus, after (i) deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the application of the proceeds from the offering, each as described under “Use of Proceeds.”

You should read this information together with the financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the headings “Prospectus Summary—Summary Historical, Combined Historical and Pro Forma Financial Data,” “Transactions,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

     As of June 30, 2021  
     Holdings, actual     Solo Brands, Inc.
pro forma(1)
 
     (in thousands, except share and per share data)  

Cash and cash equivalents

   $ 7,882     $                                     
  

 

 

   

 

 

 

Long-term indebtedness:

    

Credit Facility(2)

     186,000    

Summit Notes(3)

     30,000    

Debt issuance costs

     (3,225  

Stockholders’ equity (deficit):

    

Class A common stock, par value $             per share; no shares authorized, issued and outstanding, actual;             shares authorized,                 shares issued and outstanding, Solo Brands, Inc. pro forma

     —      

Class B Common Stock, par value $             per share; no shares authorized, issued and outstanding, actual;             shares authorized,                 shares issued and outstanding, Solo Brands, Inc. pro forma

     —      

Class A units

     212,605    

Class B units

     101,761    

Incentive units

     490    

Members’ equity

     —      

Accumulated other comprehensive (loss) income

     —      

Additional paid-in capital

     —      

Retained earnings (accumulated deficit)

     33,415    

Non-controlling interest in subsidiary

     15,549    

Total members’ equity, actual; stockholders’ equity pro forma

     363,820    
  

 

 

   

 

 

 

Total capitalization

   $ 576,595     $    
  

 

 

   

 

 

 

 

(1)   A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the midpoint of the price range listed on the cover page of this prospectus, would increase (decrease) the pro forma amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $            million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(2)   As of June 30, 2021, there was $         outstanding under our Credit Facility (excluding letters of credit) and $         in outstanding letters of credit. See “Description of Indebtedness”.
(3)   As of June 30, 2021, there was $30 million aggregate principal amount of Summit Notes outstanding. See “Description of Indebtedness”.

 

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DILUTION

The Continuing LLC Owners will maintain their LLC Interests in Holdings after the Transactions. Because the Continuing LLC Owners do not own any Class A Common Stock or have any right to receive distributions from Solo Stove, we have presented dilution in pro forma net tangible book value per share after this offering assuming the Continuing LLC Owners had their LLC Interests redeemed or exchanged for newly-issued shares of Class A Common Stock on a one-for-one basis (rather than for cash), and the cancellation for no consideration of all of its shares of Class B Common Stock (which are not entitled to distributions from Solo Brands, Inc.), in order to more meaningfully present the dilutive impact on the investors in this offering. We refer to the assumed redemption or exchange of all LLC Interests owned by the Continuing LLC Owners for shares of Class A Common Stock as described in the previous sentence as the “Assumed Redemption.” We also note that the effect of the Assumed Redemption is to increase the assumed number of shares of Class A Common Stock outstanding before the offering, thereby decreasing the pro forma net tangible book value per share before the offering and correspondingly increasing the dilution per share to new Class A Common Stock investors.

Dilution is the amount by which the offering price paid by the purchasers of the Class A Common Stock in this offering exceeds the pro forma net tangible book value per share of Class A Common Stock after the offering. Holdings’s net tangible book value as of June 30, 2021 was $                 million. Net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A Common Stock deemed to be outstanding at that date.

If you invest in our Class A Common Stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma net tangible book value per share of our Class A Common Stock after this offering.

Pro forma net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A Common Stock, after giving effect to the Chubbies Acquisition, the Transactions, including this offering, and the Assumed Redemption. Our pro forma net tangible book value as of June 30, 2021 would have been approximately $                 million, or $             per share of Class A Common Stock. This amount represents an immediate increase in pro forma net tangible book value of $                 per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $             per share to new investors purchasing shares of Class A Common Stock in this offering. We determine dilution by subtracting the pro forma net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of Class A Common Stock. The following table illustrates this dilution:

 

Assumed initial public offering price per Class A share

  $                

Pro forma net tangible book value per share as of June 30, 2021 before this offering(1)

 

Increase in pro forma net tangible book value per share attributable to investors in this offering

 

Pro forma net tangible book value per share after this offering

 

Dilution per share to new Class A Common Stock investors

  $    

 

(1)   The computation of pro forma net tangible book value per share as of June 30, 2021 before this offering is set forth below:

 

Numerator:

  

Book value of tangible assets

   $                

Less: total liabilities

  
  

 

 

 

Pro forma net tangible book value(a)

   $    
  

 

 

 

Denominator:

  

Shares of Class A Common Stock outstanding immediately prior to this offering and after Assumed Redemption

  
  

 

 

 

Pro forma net tangible book value per share

   $    
  

 

 

 

 

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(a)   Gives pro forma effect to the Acquisitions, the Transactions (other than this offering) and the Assumed Redemption.

If the underwriters exercise their option to purchase additional shares of our Class A Common Stock in full in this offering, the pro forma net tangible book value after the offering would be $                 per share, the increase in pro forma net tangible book value per share to existing stockholders would be $                 and the dilution per share to new investors would be $                 per share, in each case assuming an initial public offering price of $                 per share, which is the midpoint of the price range listed on the cover page of this prospectus.

The following table summarizes, as of June 30, 2021 after giving effect to this offering, the Acquisitions, the Transactions and the differences between the Original LLC Owners and new investors in this offering with regard to:

 

   

the number of shares of Class A Common Stock purchased from us by investors in this offering and the number of shares issued to the Original LLC Owners after giving effect to the Assumed Redemption,

 

   

the total consideration paid to us in cash by investors purchasing shares of Class A Common Stock in this offering and by the Original LLC Owners, and

 

   

the average price per share of Class A Common Stock that such Original LLC Owners and new investors paid.

 

   

The calculation below is based on an assumed initial public offering price of $                 per share, which is the midpoint of the price range listed on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares purchased     Total consideration     Average
price per
share
 
     Number      Percent     Amount      Percent  

Original LLC Owners

               $                             $                

New investors

            

Total

        100   $          100   $    

Except as otherwise indicated, the discussion and the tables above assume no exercise of the underwriters’ option to purchase additional shares of Class A Common Stock. The number of shares of our Class A Common Stock outstanding after this offering as shown in the tables above is based on the membership interests of Holdings outstanding as of June 30, 2021, and excludes:

 

   

shares of Class A Common Stock reserved for future issuance under the Plan, as described in “Executive CompensationNew Incentive Arrangements,” consisting of (i)                  shares of Class A Common Stock issuable upon the exercise of options to purchase shares of Class A Common Stock granted on the date of this prospectus to our directors and certain employees, including the named executive officers, in connection with this offering, as described in “Executive Compensation—Director Compensation” and “Executive Compensation—New Equity Awards,” and (ii)                  additional shares of Class A Common Stock reserved for future issuance (exclusive of the additional shares available for issuance under the Plan pursuant to the annual increase each calendar year beginning in                  and ending in                  , as described in “Executive Compensation—New Incentive Arrangements”);

 

   

                shares of Class A Common Stock reserved for issuance under our Employee Stock Purchase Plan, as described in “Executive Compensation—New Incentive Arrangements;” and

 

   

                shares of Class A Common Stock reserved as of the closing date of this offering for future issuance upon redemption or exchange of LLC Interests by the Continuing LLC Owners.

Unless otherwise indicated, this prospectus assumes:

 

   

the completion of the organizational transactions as described in “Transactions;”

 

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no exercise by the underwriters of their option to purchase additional shares of Class A Common Stock;

 

   

the shares of Class A Common Stock are offered at $                 per share (the midpoint of the price range listed on the cover page of this prospectus); and

 

   

no exercise of outstanding options after June 30, 2021.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following statements set forth unaudited pro forma consolidated financial data for Solo Brands, Inc. as of June 30, 2021, for the six months ended June 30, 2021, and for the year ended December 31, 2020. The unaudited pro forma consolidated balance sheet as of June 30, 2021, gives effect to the events described below as if they had occurred on that date. The unaudited pro forma consolidated statement of operations for the six months ended June 30, 2021, has been prepared to illustrate the effects of the events described below as if they had occurred on January 1, 2020. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2020, has been prepared to illustrate the effects of the events described below as if they occurred on January 1, 2020. The unaudited pro forma consolidated financial statements have been developed by applying pro forma adjustments to the historical audited consolidated financial statements of Solo Stove Holdings, LLC as of and for the year ended December 31, 2020, the historical unaudited consolidated financial statements of Solo Stove Holdings, LLC as of and for the six months ended June 30, 2021, and the historical unaudited financial statements of Chubbies, Inc. as of and for the six months ended July 31, 2021, and the historical audited financial statements of Chubbies, Inc. as of and for the year ended January 30, 2021, all of which are included elsewhere in this prospectus. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with these unaudited pro forma consolidated financial statements.

Solo Brands, Inc. was incorporated on June 23, 2021, and has no business transactions, activities, assets, or liabilities to date. Therefore, its historical financial information is not shown in a separate column in the unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statement of operations.

The pro forma adjustments related to the purchase price accounting adjustments of Chubbies, Inc. and related debt transactions, which we refer to as Chubbies, Inc. PPA and Related Financing, are described in the notes to the unaudited pro forma consolidated financial information listed as Chubbies, Inc. PPA and Related Financing adjustments.

The pro forma adjustments related to the Transactions are described in the notes to the unaudited pro forma consolidated financial information and principally include the result of the Transactions described elsewhere within this prospectus.

The pro forma adjustments related to the use of proceeds from this offering, which we refer to as Use of Proceeds, are described in the notes to the unaudited pro forma consolidated financial information and principally include those items listed within the “Use of Proceeds” section of this prospectus.

The pro forma adjustments related to the acquisition by Summit Partners as described within the Solo Stove Holdings, LLC audited consolidated financial statements included within this prospectus, which we refer to as Summit Partners Acquisition, are described in the notes to the unaudited pro forma consolidated financial information.

Except as otherwise indicated, the unaudited pro forma consolidated financial information presented assumes no exercise by the underwriters of their option to purchase additional shares of Class A Common Stock from us.

Solo Stove Holdings, LLC has been, and following the Transactions will continue to be, treated as a partnership for U.S. federal income tax purposes and, as such, is generally not, apart from certain subsidiaries, subject to any U.S. federal entity-level income taxes. Rather, taxable income or loss is included in the U.S. federal income tax returns of Solo Stove Holdings, LLC’s members, including following this offering, Solo Brands, Inc. will be subject to U.S. federal, state, and local income tax with respect to its allocable share of any taxable income of Solo Stove Holdings, LLC.

 

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As described in greater detail under “Certain Relationships and Related Party Transactions—Tax Receivable Agreement,” in connection with the closing of this offering, we will enter into the Tax Receivable Agreement with the Continuing LLC Owners that will provide for the payment to it by Solo Brands, Inc. of 85% of the amount of tax benefits, if any, that Solo Brands, Inc. actually realizes (or in some circumstances is deemed to realize) as a result of (i) increases in the tax basis of assets of Solo Stove Holdings, LLC resulting from (a) any future redemptions or exchanges of LLC Interests described under “Certain Relationships and Related Party Transactions—Holdings LLC Agreement—LLC Interest Redemption Right,” and (b) certain distributions (or deemed distributions) by Solo Stove Holdings, LLC and (ii) certain other tax benefits arising from payments under the Tax Receivable Agreement. Due to the uncertainty in the amount and timing of future redemptions or exchanges of LLC Interests by the Continuing LLC Owners, the unaudited pro forma consolidated financial information assumes that no redemptions or exchanges of LLC Interests have occurred. Therefore no increases in tax basis in Solo Stove Holdings, LLC’s assets or other tax benefits that may be realized thereunder have been assumed in the unaudited pro forma consolidated financial information. However, if the Continuing LLC Owners were to exchange or redeem all of their LLC Interests, we would recognize a deferred tax asset of approximately $                million and a related liability for payments under the Tax Receivable Agreement of approximately $                million, assuming, among other factors, (i) all exchanges occurred on the same day; (ii) a price of $                per share of Class A Common Stock (which is the midpoint of the price range set forth on the cover of this prospectus), (iii) a constant corporate tax rate of    %; (iv) we will have sufficient taxable income to fully utilize the tax benefits; (v) Solo Stove Holdings, LLC is able to fully depreciate or amortize its assets; and (vi) no material changes in tax law. For each 5% increase (decrease) in the price per share of Class A Common Stock (and therefore the value of the LLC Interests exchanged by the Continuing LLC Owners), our deferred tax asset would increase (decrease) by approximately $                million and the related liability for payments under the Tax Receivable Agreement would increase (decrease) by approximately $                million, assuming that the corporate tax rate remains the same. These amounts are estimates and have been prepared for informational purposes only. The actual amount of deferred tax assets and related liabilities that we will recognize will differ based on, among other things, the timing of the redemptions or exchanges, the price of our shares of Class A Common Stock at the time of the redemptions or exchanges and the tax rates then in effect.

The Tax Receivable Agreement provides that if (i) we materially breach any of our material obligations, (ii) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur, or (iii) we elect an early termination of the Tax Receivable Agreement, then our obligations, or our successor’s obligations, under the Tax Receivable Agreement, would accelerate and become payable based on certain assumptions, generally calculated with reference to the present value of all of the tax benefit payments that would be required to be paid by us to the Continuing LLC Owners under the Tax Receivable Agreement. The calculation of such cash payment would be based on certain assumptions, including, among others (i) that the Continuing LLC Owners’ LLC Interests that have not been exchanged are deemed exchanged, in general, for the market value of our Class A Common Stock that would be received by the Continuing LLC Owners if such LLC Interests had been exchanged at the time of termination, (ii) we will have sufficient taxable income in each future taxable year to fully realize all potential tax savings, (iii) the tax rates for future years will be those specified in the law as in effect at the time of termination and (iv) certain non-amortizable assets are deemed disposed of within specified time periods. In addition, the present value of such tax benefit payments is discounted at a rate equal to the lesser of (i)     % per annum, compounded annually and (ii) LIBOR plus 100 basis points. Assuming that the market value of our Class A Common Stock was to be equal to $                , the midpoint of the price range set forth on the cover of this prospectus and that LIBOR was to be    %, we estimate that the aggregate amount of these termination payments would be approximately $                million if we were to exercise our termination right immediately following this offering.

The pro forma adjustments are based upon available information and methodologies that are factually supportable and directly related to the Chubbies, Inc. PPA and Related Financing, Transactions, Use of Proceeds, and Summit Partners Acquisition and are presented for illustrative purposes only. The unaudited pro forma consolidated financial information includes various estimates which are subject to material change and may not

 

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be indicative of what our operations or financial position would have been had the Transactions, including this offering, taken place on the dates indicated, or that may be expected to occur in the future.

We expect to incur additional annual expenses related to these steps and, among other things, additional directors’ and officers’ liability insurance, director fees, fees to comply with the reporting requirements of the SEC, transfer agent fees, hiring of additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have not included any pro forma adjustments relating to these costs.

The pro forma financial information should be read in conjunction with “Risk Factors,” “Summary Historical and Unaudited Pro Forma Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and related notes included elsewhere in this prospectus.

Description of the Transactions and Basis of Presentation

On September 1, 2021, the Company acquired Chubbies, Inc. pursuant to an Agreement dated September 1, 2021. The Company obtained 100 percent of the voting equity interests in Chubbies, Inc. The Company acquired Chubbies, Inc. to expand its consumer product offering.

The unaudited pro forma condensed consolidated financial information was prepared in accordance with Article 11 of Regulation S-X, as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” and present the pro forma financial condition and results of operations of the Company based upon the historical financial information after giving effect to the Transactions and related adjustments set forth in the notes to the unaudited pro forma condensed consolidated financial information.

The unaudited pro forma condensed consolidated financial information presented assumes no exercise by the underwriters of their option to purchase additional shares of Class A common stock. In addition, the unaudited pro forma condensed consolidated financial information does not reflect any cost savings, operating synergies or revenue enhancements that the consolidated company may achieve as a result of the Transactions.

Summit Acquisition

The Summit Acquisition was accounted for under the acquisition method in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”), with Summit Partners treated as the accounting acquirer. In accordance with ASC 805, the assets acquired and liabilities assumed have been measured at fair value based on various estimates and methodologies, including the income and market approaches. These estimates are based on key assumptions related to the Summit Acquisition, including reviews of publicly disclosed information for other acquisitions in the industry, historical experience of the Company, data that was available through the public domain and unobservable inputs, such as the due diligence reviews and historical financial information of the acquiree business.

For purposes of measuring the estimated fair value of the tangible and intangible assets acquired and the liabilities assumed, the Company has applied the guidance in Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”), which establishes a framework for measuring fair value. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

Under ASC 805, acquisition related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.

 

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Chubbies, Inc. Financing Adjustments

On September 1, 2021, the Company entered into a credit agreement to secure a term loan with a bank (the “Term Loan”) in an initial aggregate principal amount of $100 million to fund the Chubbies acquisition. The Term Loan matures in May 2026.

We refer to the entry into the Term Loan, as well as other purchase price accounting entries discussed below, as the Chubbies PPA and Related Financing adjustments.

Reorganization Transactions and Offering Transactions

The Company is offering shares of Class A common stock in this offering at an assumed initial public offering price of $             per share, which is equal to the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriter discounts and commissions. Solo Brands, Inc. intends to use $             million of the net proceeds from this offering to acquire newly issued Units from Solo Stove Holdings, LLC. Solo Brands, Inc. intends to cause Solo Stove Holdings, LLC to use these proceeds for general corporate purposes. Subsequently, Solo Brands, Inc. intends to use the remaining net proceeds from this offering to purchase or redeem outstanding equity interests from its pre-IPO owners, as described under “Organizational Structure—Offering Transactions.”

Immediately following this offering, and as a result of the Reorganization Transactions, Solo Brands, Inc. will be a holding company, and its sole material asset will be a controlling equity interest in Solo Stove Holdings, LLC. As a result of the Reorganization and Offering Transactions, Solo Brands, Inc. will own approximately     % of the economic interest in Solo Stove Holdings, LLC, but will have 100% of the voting power and will control the management of Solo Stove Holdings, LLC. As the general partner of Solo Stove Holdings, LLC, Solo Brands, Inc. will operate and control all of the business and affairs of Solo Stove Holdings, LLC and its subsidiaries and will have the obligation to absorb losses and receive benefits from Solo Stove Holdings, LLC. The Reorganization Transactions, whereby Solo Brands, Inc. will begin to consolidate Solo Stove Holdings, LLC in its consolidated financial statements, will be accounted for as a reorganization of entities under common control. As a result, the consolidated financial statements of Solo Brands, Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of Solo Stove Holdings, LLC.

For a complete description of the Reorganization Transactions, see section entitled “Organizational Structure” included elsewhere in this prospectus.

 

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Solo Brands, Inc.

Unaudited pro forma consolidated balance sheet

As of June 30, 2021

 

(In thousands)

  Solo Stove
Holdings, LLC
Historical
    Chubbies,
Inc.
Historical(1)
    Chubbies,
Inc. PPA
and
Related
Financing

(Note 1)
          Transactions
(Note 2)
          Offering
Adjustments
(Note 3)
          Solo Brands,
Inc. Pro
Forma
 

ASSETS

                 

Current assets

                 

Cash and cash equivalents

  $ 7,882     $ 19,719     $ (12,338     1A     $                     $                     3A     $                

Accounts receivable, net

    14,889       2,209                    

Inventory

    48,578       10,999       12,893       1C            

Prepaid expenses and other current assets

    2,014       692                    

Due from stockholders

          287       (287     1E            
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total current assets

    73,363       33,906       268              

Non-current assets

                 

Property and equipment, net

    3,055       386                    

Intangible assets, net

    217,119       44       51,642       1D            

Goodwill

    305,029             73,575       1B            

Deferred tax assets

          920       (920         2A        

Other non-current assets

    261       118                    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total non-current assets

    525,464       1,468       124,297              
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total assets

  $ 598,827     $ 35,374     $ 124,565       $         $         $    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

LIABILITIES AND STOCKHOLDERS’ AND MEMBERS’ EQUITY

                 

Current liabilities

                 

Accounts payable

  $ 4,849     $ 2,009     $       $         $         $    

Accrued expenses and other current liabilities

    6,544       12,963       21,289       1F            

Deferred revenue

    3,728                          
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total current liabilities

    15,121       14,972       21,289              

Non-current liabilities

                 

Long-term debt, net

    212,775             99,100       1I             3A    

Deferred tax liability

    6,793             12,632       1G            

TRA liability

                          2B        

Other non-current liabilities

    318       14                    
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total non-current liabilities

    219,886       14       111,732              

Commitments and contingencies

                             

Stockholders’ and members’ equity

                 

Class A common stock

                              3A    

Common stock

          1       (1     1E            

Class A units

    212,605                       2A        

Class B units

    101,761             29,075       1H            

Incentive units

    490                          

Additional paid-in capital

          15,094       (15,094     1E        

2A

2B

 

 

      3A    

Retained earnings

    33, 415       5,293       (22,436    

1E

1F

 

 

         

Noncontrolling interest

    15,549                       2A        
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total stockholders’ and members’ equity

    363,820       20,388       (8,456            
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total liabilities and stockholders’ and members’ equity

  $ 598,827