Q1 2025 Solo Brands Inc Earnings Call

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Speaker Change: I would now like to turn the conference over to Mark Anderson Senior Director Treasury and Investor Relations. Please go ahead.

Speaker Change: Thank you and good morning, everyone. We appreciate you joining us for the solar brands Conference call to review the first quarter of 2025 results Joy.

Speaker Change: Joining me on the call today are the company's interim President and Chief Executive Officer, John Larson, and Chief Financial Officer, Laura Coffey.

Speaker Change: This call is being webcast and can be accessed through the investors portion of our website at investors thought solo brands Dot com.

Speaker Change: Today's conference call will be recorded please be advised that any time sensitive information may no longer be accurate as of <unk>.

Speaker Change: Any replay or transcript reading data.

Speaker Change: I would also like to remind you that the statements in today's discussion that are not historical facts, including statements about expectations future events.

Speaker Change: Performance debt restructure and illiquidity negotiations with lenders turnaround efforts strategic transformation goals and future growth are forward looking statements and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Speaker Change: Forward looking statements by their nature are uncertain and outside of the company's control.

Speaker Change: Actual results may differ materially from those expressed or implied.

Speaker Change: Please refer to today's earnings press release, or our disclosures on forward looking statements.

These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.

Speaker Change: Hello brands assumes no obligation to publicly update or revise any forward looking statements.

Speaker Change: Management will refer to non-GAAP measures and reconciliation to the nearest GAAP measures are included at the end of our earnings release.

Speaker Change: Finally, the earnings release has been furnished to the SEC on form 8-K.

John Larsen: Now I would like to turn the call over to John Larsen.

John Larsen: Good morning, and thank you all for joining us and reviewing celebrants first quarter results.

John Larsen: Today I'll start by addressing the NYSE trading suspension and briefly comment on our debt restructuring progress there.

John Larsen: Then Laura will report on first quarter results and provide an update on our tariff mitigation plans.

John Larsen: Lastly, I will return to discuss our profit focused transformation plan.

First concerning the NYSE suspension announcement last month, we recently appeal the N Y S sees determination and have a plan to regain compliance. If we are successful we expect that the NYSE trading suspension on our common stock will be lifted.

John Larsen: Trading of our common stock is currently conducted through the OTC markets under the ticker symbol D. T C b.

John Larsen: We believe that the planned actions to improve our results will position us to resume our NYSE listing.

John Larsen: We are also working closely with the lenders under our credit agreement along with our advisors to address several brands that structure is.

John Larsen: As part of our restructuring plan, we have developed an operational financial plans for both near and long term that are expected to drive profitability and cash flow improvements.

John Larsen: We will update you on some of these initiatives today.

John Larsen: As we navigate the transition I am encouraged by our progress in efforts to leverage our entrepreneurial culture at Soma brands for building and scaling our outdoor lifestyle portfolio.

John Larsen: My optimism about the business is growing as we execute initiatives and begin to achieve milestones and our multi year strategic plans.

John Larsen: Turning to first quarter results. We are pleased to report that Chubby segment results were strong.

John Larsen: First quarter sales of our Chevy's brand grew 43, 9% with the segment EBITDA margin expanded to 26, 5% of sales.

<unk> has built a close knit community of customer advocates and loyal fans, who love the products customer service and customer experience that this brand delivers.

John Larsen: As expected sales in the solar stuff segment declined primarily in response to our elimination of extensive discounting and promotion in our DTC channel.

John Larsen: I will discuss this more in a moment.

John Larsen: Even after implementing these changes our consolidated bottom line results in Q1 for solo brands exceeded last year for both February and March.

John Larsen: This gives us confidence that our profitability focus is beginning to yield results.

John Larsen: Our broader vision is to fuel our brands by delivering new innovative products and a differentiated experience to further transform onetime customers into.

John Larsen: It's a lifelong customers.

John Larsen: The board and management are aligned and the team is working diligently to improve the near term and long term business trajectory.

John Larsen: After Laura walks through the detailed financial analysis, I will return to discuss key strategic initiatives.

John Larsen: Laura.

Laura Coffey: Thank you John and good morning, everyone.

Laura Coffey: Before I walk through the first quarter results I want to cover trade policy developments, including tariff update.

Laura Coffey: Tariffs are having a significant impact on our industry and our business.

Laura Coffey: While tariffs did not impact our first quarter result, we have taken proactive steps to offset incremental costs that are expected to affect us starting in the second quarter.

Laura Coffey: First we are diversifying our manufacturing footprint, where possible and reducing our reliance on China sourced products, starting with our June one production.

Laura Coffey: This includes expanding to suppliers and lower tariff countries, where feasible and we are beginning to explore near shore options and U S production alternatives.

Laura Coffey: We are also taking some pricing actions that John will discuss further in a moment.

Laura Coffey: Finally, as we mentioned during our last earnings call. We have identified and are starting to implement significant performance improvement efficiency and cost reduction initiatives.

Laura Coffey: The improved financial performance and mitigate tariffs.

Laura Coffey: The first quarter's total net sales were $77 3 million down nine 5% from the prior year.

Laura Coffey: As John mentioned Chevy segment sales grew by 43, 9% contributing to an incremental 13 million in sales this quarter through a combination of expansion at retail and an increased indirect to consumer or DTC channel sales.

Laura Coffey: The solar segment sales were down $25 3 million, which more than offset sales increases at chubby.

Laura Coffey: <unk> segment sales declined from prior year as expected based on planned realignment with retail partners to leverage a coordinated promotional approach.

Laura Coffey: A lack of new product.

Laura Coffey: Launch is also impactful this does result, which John will discuss.

Laura Coffey: As well as our strategic partner initiatives to address channel pricing and our decision to eliminate low profit relationships at retail.

Laura Coffey: During the first quarter, we generated adjusted gross profit of $42 8 million or 55, 4% of net sales.

Laura Coffey: <unk> to 59, 5% for the prior year quarter.

Laura Coffey: Gross margin pressure was primarily due to channel mix shifts between retail and D. T C sale that impacted margins in the quarter compared to the prior year.

Laura Coffey: Selling general and administrative expenses were 39 million in the quarter down $9 4 million compared to last year's first quarter.

Laura Coffey: The execution of our initiatives decreased SG&A, which primarily consisted of lower advertising and marketing spend as well as low lower variable cost associated with D. T C sales.

Laura Coffey: We also recorded five.

Ive point $8 million in one time restructuring contract termination and impairment charges in the quarter as we implemented strategic initiatives every sizing our operating structure.

Laura Coffey: Based on our strategic work, our first quarter GAAP net loss was significantly reduced to 12.2 million.

Laura Coffey: Down over 65% from the fourth quarter.

Laura Coffey: The adjusted net loss was $4 7 million, excluding after tax restructuring and nonrecurring charges.

Laura Coffey: Adjusted EBITDA for the quarter was $3 5 million with a margin of four 5% of net sales compared to last year's first quarter, a $4 3 million or 5% of net sales.

Laura Coffey: Please refer to our earnings release for reconciliation tables to the most comparable GAAP measure.

Laura Coffey: Turning to the company's financial position and balance sheet, we continue to manage working capital closely and ended the quarter with inventories at a $103 1 million down from $108 6 million at fiscal year end 2024.

Laura Coffey: As of March 31st cash and cash equivalents were 206 million and total debt total outstanding debt classified as current with $427 9 million.

Laura Coffey: As we discussed last quarter, we expect to report noncompliance with certain financial covenants under the credit agreement that governs our term loan and revolver.

As such we continue to report a going concern disclaimer and our Form 10-Q filed today.

Laura Coffey: We continue to follow a conservative capital allocation strategy, which includes careful cash management to execute our transformation plan.

Laura Coffey: We're taking actions to create stability in 2025 with no planned acquisition.

John: With that I would like to turn it back to John.

John Larsen: Thank you Laura.

John: Early in the first quarter search teams were launched to help execute a disciplined transformation of our company.

John: These teams will responsible for identifying opportunities and mitigating risks to help ensure the delivery of our financial objectives.

John: The first team was focused on organizational design.

John: We told you last quarter about our head count reductions in January and we made further cuts in April.

John: We also eliminated open positions adjusted our bonus structure and suspended our four one K match until further notice.

John: These are hard but necessary decisions.

John: We have also continued to work on right sizing our facilities and distribution footprint.

John: A second team was focused on marketing effectiveness, we have eliminated several large legacy marketing programs from last year.

John: We are also focused on our return on AD spend as a critical metric.

Speaker Change: Our marketing team led by our CMO Liz Van Zara is incorporating a contribution margin analysis model to inform our return on AD spend targets.

Speaker Change: In addition, we are actively eliminating unprofitable sponsorships.

Speaker Change: As you can tell we are working to directly tie our marketing investments to profit generation and will adjust as appropriate.

Speaker Change: Our 13 was focused on pricing strategies, we are aware that conflicts arose in the solar sold retail channel due to our heavy promotional approach in our DTC channel last year.

Speaker Change: We have now revised our promotional calendar, so that our DTC channel and retail partners are fully aligned.

Speaker Change: Although this significantly impacted solo stoves direct to consumer results. This was a necessary change to align our direct to consumer strategy with our key retail partners.

Speaker Change: In addition, we are implementing a strategic repricing of our portfolio, where warranted and terminating low profit retail programs.

Speaker Change: Our fourth team was focused on product innovation.

Speaker Change: We believe that product innovation plays a critical role in our strategy. While Chubb is in water sports have continued to innovate with some great new products. We are excited to share that we have stepped up the innovation in our Soho store division with five new products launching this year beginning with the introduction of our new windshield forty-seven cooler.

Speaker Change: Hitting the markets this week.

Speaker Change: We anticipate these new product launches to ramp up this summer with more visible financial impact is expected in Q4.

Speaker Change: With these premium brand launches, we will be intentionally less promotional.

Speaker Change: We also plan to bring our best strategic retail partners into the newness by way of some exceptional exclusive products in the future.

Speaker Change: We are tracking and reviewing the companys aggressive profit focused initiatives weekly and recognize that measuring our progress is critically important.

Speaker Change: Also we expect that establishing consistent repeatable processes will enhance and accelerate operational efficiencies today and in the future.

Speaker Change: We will amplify new product launches with thoughtful marketing spend to generate sustainable returns.

Speaker Change: This is a metrics based mindset that we anticipate will drive improving profitability at solo brands.

Speaker Change: We are still in the early innings, but our vision is clear.

Speaker Change: We have adjusted our business approach and culture to deliver improved bottom line results.

Speaker Change: As we execute our measured value accretive initiatives, we expect to stabilize our performance in the second half of the year.

Speaker Change: Since we are working with our lenders on addressing the company's debt structure, we know that a Q&A session would require us to say no comment a lot. So we are holding off answering investor questions until he can speak about the details.

Speaker Change: Thank you for continuing to follow our company and taking this journey with US we look forward to providing operational and financial updates on the company as we progress have a great day.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: Okay.