Full Year 2022 Net Sales Grew 9% to $612 Million Dollars

Company Announces Omnichannel Initiatives for 2023

Ended the Quarter with an Improved Inventory Position; Up 9% Year over Year, Down 8% Sequentially

a.k.a. Brands Holding Corp. (NYSE: AKA), a brand accelerator of next generation fashion brands, today announced financial results for the fourth quarter and full year ended December 31, 2022.

Results for the Fourth Quarter

  • Net sales decreased 18.3% to $149.1 million, compared to $182.4 million in the fourth quarter of 2021; a decrease of 13% in Constant Currency1.
  • Net loss was $(173.9) million or $(1.35) per share in the fourth quarter of 2022, compared to net income of $0.0 million or $0.00 per share in the fourth quarter of 2021, and (28.9%) of net sales. Included in this loss was a non-cash impairment charge of $173.8 million.
  • Net loss, as adjusted2 was $(3.4) million, or $(0.03) per share in the fourth quarter of 2022, compared to net income, as adjusted of $4.3 million or $0.03 per share in the fourth quarter of 2021.
  • Adjusted EBITDA2 was $6.1 million, or 4.1% of net sales, compared to $16.1 million, or 8.8% of net sales in the fourth quarter of 2021.

Results for Fiscal 2022

  • Net sales increased 8.8% to $611.7 million, compared to $562.2 million in 2021 or decreased 0.3% pro forma2 adjusting for the acquisition of Culture Kings.
  • Net loss was $(176.7) million or $(1.37) per share in 2022, compared to net loss attributable to a.k.a. Brands Holding Corp. of $(6.0) million or $(0.06) per share in 2021, and (116.6%) of net sales.
  • Net loss, as adjusted2 was $(5.7) million, or $(0.04) per share in 2022, compared to net income, as adjusted2 of $14.2 million or $0.15 per share in 2021.
  • Adjusted EBITDA2 was $31.9 million, or 5.2% of net sales, compared to $62.4 million, or 11.1% of net sales in 2021.

“I want to recognize our brands and teams for their unwavering dedication in 2022 in the face of external pressures and a dynamic environment,” said Jill Ramsey. “As we went through the quarter, we saw lower marketing effectiveness given the highly promotional environment, and we made the strategic decision to reduce our spend compared to last year in an effort to balance growth and profit. Additionally, as we aggressively tightened our inventory in the second half of the year, there were fewer new styles in our women’s brands during the peak holiday selling period. These decisions, combined with the macroeconomic pressures, impacted our performance in the quarter but enabled us to protect the integrity and durability of our brands and business model for the long term.”

“As we look ahead, we remain laser focused on strengthening the foundation of our brands and business. The omnichannel initiatives we announced today, including the opening of our first Princess Polly store in Southern California in the back half of the year and testing wholesale, set the stage for continued growth and profitability. We remain firmly committed to building great next-generation brands for the long-term, and I am confident that we have tremendous runway ahead of us,” concluded Ramsey.

The Company also announced today that Jill Ramsey, chief executive officer, will be taking time to work through unforeseen medical issues. Jill will remain as active in the business as her health allows and will remain on the Board. During this time, Ciaran Long, chief financial officer, will serve as acting chief executive officer on an interim basis.

Recent Business Highlights

  • Culture Kings store in Las Vegas has exceeded expectations in revenue and brand building activities since opening in November and pleased with the positive impact on U.S. online sales.
  • Princess Polly continues to refine their TikTok strategy, which is now a top performing channel in terms of ROI, and saw a nearly 40% increase in followers in fiscal 2022.
  • Petal & Pup continues to improve their marketing efficiency with the introduction of five new channels in the back half of the year, including CTV and TikTok.
  • mnml is now a top ten performing brand on Culture Kings’ website and in the Las Vegas store.
  • Subsequent to quarter end the company sold Rebdolls back to its founder in an effort to focus on brands with greater scale that can fully benefit from the a.k.a. business model.

Omnichannel Initiatives

As a.k.a. Brands builds durable, next-generation brands for the long term, the Company will be testing wholesale and brick and mortar initiatives in 2023. As part of these initiatives, the Company announced:

  • Princess Polly has signed a wholesale agreement with PacSun to carry up to 50 styles online and in 15 stores beginning this month, with a broader rollout to follow.
  • Princess Polly will pilot a store in California in the back half of the year.
  • Petal & Pup is testing wholesale and omnichannel initiatives and recently launched on Target Marketplace.
  • The Company is in active discussions with other wholesale partners within the U.S. and internationally for all of the brands in its portfolio.

Fourth Quarter Financial Details

  • Net sales decreased 18.3% to $149.1 million, compared to $182.4 million in the fourth quarter of 2021. The decrease was driven by a 14% decrease in the number of orders processed and 8% decrease in the average order value during the quarter. The decrease in the number of orders and average order value were primarily driven by lower marketing spend and a lower mix of full priced items sold.
  • Gross margin was 52.8% in the fourth quarter of 2022, versus 54.6% in the same period last year. The 180 basis point decline in gross margin rate was largely the result of a lower mix of full priced items sold partially offset by a $3.7 million non-cash purchase accounting charge in the prior year associated with the Culture Kings and mnml acquisitions.
  • Selling expenses were $39.0 million, compared to $45.5 million in the fourth quarter of 2021. Selling expenses were 26.2% of net sales, compared to 24.9% of net sales in the fourth quarter of 2021. The increase was primarily due to fixed cost deleverage partially offset by improvements on outbound shipping and labor productivity.
  • Marketing expenses were $15.4 million, compared to $21.5 million in the fourth quarter of 2021. Marketing expenses were 10.3% of net sales, compared to 11.8% of net sales in the fourth quarter of 2021. The lower marketing expense as a percentage of sales was due to a strategic decision to pull back on marketing spend given the marketing investment inefficiency in a highly promotional environment.
  • General and administrative (“G&A”) expenses were $26.1 million, compared to $27.3 million in the fourth quarter of 2021. G&A expenses were 17.5% of net sales, compared to 14.9% of net sales in the fourth quarter of 2021. The increase in G&A expenses as a percent of net sales was primarily due to lower sales in the fourth quarter of 2022.
  • Adjusted EBITDA2 was $6.1 million, or 4.1% of net sales, compared to $16.1 million, or 8.8% of net sales in the fourth quarter of 2021.

Full year 2022 financial details are included in the Company’s Form 10-K for the twelve months ended December 31, 2022.

Balance Sheet and Cash Flow

  • Cash and cash equivalents at the end of the fourth quarter totaled $46.3 million compared to $38.8 million at the end of the fourth quarter of 2021.
  • Inventory at the end of the fourth quarter totaled $126.5 million, compared to $115.8 million at the end of the fourth quarter of 2021. Inventory decreased $10.4 million, or 8%, from the end of the third quarter of 2022.
  • Debt at the end of the fourth quarter totaled $143.6 million, compared to $108.8 million at the end of the fourth quarter of 2021. The Company drew $25.0 million on its revolving credit facility in the first quarter of 2022 and drew $15.0 million on its revolving credit facility in October 2022.
  • Cash flow from operations for the twelve months ended December 31, 2022 was $(0.3) million, compared to $24.0 million for the twelve months ended December 31, 2021.

Outlook

For the full year fiscal 2023, the Company expects:

  • Net sales between $570 million and $600 million
  • Adjusted EBITDA3 between $35 million and $37 million
  • Weighted average diluted share count of 130 million
  • Capital expenditures of approximately $8 million to $10 million

For the first quarter of 2023, the Company expects:

  • Net sales between $113 million and $116 million
  • Adjusted EBITDA3 between $1.5 million and $1.8 million
  • Weighted average diluted share count of 130 million

The above outlook is based on several assumptions, including but not limited to, foreign exchange rates remaining at the current levels and a continued promotional environment. See “Forward-Looking Statements” for additional information.

Conference Call

A conference call to discuss the Company’s fourth quarter and full year 2022 results is scheduled for March 9, 2023, at 4:30 p.m. ET. Those who wish to participate in the call may do so by dialing (877) 858-5495 (or (201) 689-8853 for international callers). The conference call will also be webcast live at https://ir.aka-brands.com in the Events and Presentations section. A recording will be available shortly after the conclusion of the call. To access the replay, please dial (877) 660-6853 (or (201) 612-7415 for international callers), conference ID 13735655. An archive of the webcast will be available on a.k.a. Brands’ investor relations website.

Use of Non-GAAP Financial Measures and Other Operating Metrics

In addition to results determined in accordance with accounting principles generally accepted in the United States of America (GAAP), management utilizes certain non-GAAP performance measures such as net income (loss), as adjusted, net income (loss) per share, as adjusted, Adjusted EBITDA, Adjusted EBITDA margin and pro forma net sales for purposes of evaluating ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance. See additional information at the end of this release regarding non-GAAP financial measures.

About a.k.a. Brands

a.k.a. Brands is a brand accelerator of next generation fashion brands. Each brand in the a.k.a. portfolio targets a distinct Gen Z and millennial audience, creates authentic and inspiring social content and offers quality exclusive merchandise. a.k.a. Brands leverages its next-generation retail platform to help each brand accelerate its growth, scale in new markets and enhance its profitability. Current brands in the a.k.a. Brands portfolio include Princess Polly, Culture Kings, mnml and Petal & Pup.

Certain statements made in this release are “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements.

These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company’s control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements.

Important factors, among others, that may affect actual results or outcomes include the effects of geopolitical, economic and market conditions, including heightened inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, the impact of the COVID-19 pandemic, challenges in the supply chain and any disruptions in European economies as a result of the conflict in Ukraine on our operations, customer demand and our supplier's ability to meet our needs; risks related to doing business in China; our ability to anticipate rapidly-changing consumer preferences in the apparel, footwear and accessories industries; our ability to acquire new customers, retain existing customers or maintain average order value levels; the effectiveness of our marketing and our level of customer traffic; merchandise return rates; our ability to manage our inventory effectively; our success in identifying brands to acquire, integrate and manage on our platform; our ability to expand into new markets; the global nature of our business; interruptions in or increased costs of shipping and distribution, which could affect our ability to deliver our products to the market; our use of social media platforms and influencer sponsorship initiatives, which could adversely affect our reputation or subject us to fines or other penalties; fluctuating operating results; the inherent challenges in measuring certain of our key operating metrics, and the risk that real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business; the potential for tax liabilities that may increase the costs to our consumers; our ability to attract and retain highly qualified personnel, including key members of our leadership team; fluctuations in wage rates and the price, availability and quality of raw materials and finished goods, which could increase costs; foreign currency fluctuations; and other risks and uncertainties set forth in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Forward-Looking Statements” in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2023. a.k.a. Brands does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

a.k.a. BRANDS HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share data) (unaudited)

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net sales

$

149,126

 

 

$

182,423

 

 

$

611,738

 

 

$

562,191

 

Cost of sales

 

70,379

 

 

 

82,891

 

 

 

274,491

 

 

 

254,527

 

Gross profit

 

78,747

 

 

 

99,532

 

 

 

337,247

 

 

 

307,664

 

Operating expenses:

 

 

 

 

 

 

 

Selling

 

39,002

 

 

 

45,486

 

 

 

166,070

 

 

 

144,345

 

Marketing

 

15,429

 

 

 

21,525

 

 

 

66,730

 

 

 

58,120

 

General and administrative

 

26,086

 

 

 

27,266

 

 

 

102,700

 

 

 

88,816

 

Goodwill impairment

 

173,786

 

 

 

 

 

 

173,786

 

 

 

 

Total operating expenses

 

254,303

 

 

 

94,277

 

 

 

509,286

 

 

 

291,281

 

Income (loss) from operations

 

(175,556

)

 

 

5,255

 

 

 

(172,039

)

 

 

16,383

 

Other expense, net:

 

 

 

 

 

 

 

Interest expense

 

(2,556

)

 

 

(1,164

)

 

 

(7,043

)

 

 

(9,485

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

(10,924

)

Other expense

 

503

 

 

 

(591

)

 

 

(1,532

)

 

 

(1,213

)

Total other expense, net

 

(2,053

)

 

 

(1,755

)

 

 

(8,575

)

 

 

(21,622

)

Income (loss) before income taxes

 

(177,609

)

 

 

3,500

 

 

 

(180,614

)

 

 

(5,239

)

Benefit from (provision for) income tax

 

3,713

 

 

 

(3,477

)

 

 

3,917

 

 

 

(852

)

Net income (loss)

 

(173,896

)

 

 

23

 

 

 

(176,697

)

 

 

(6,091

)

Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

123

 

Net income (loss) attributable to a.k.a. Brands Holding Corp.

$

(173,896

)

 

$

23

 

 

$

(176,697

)

 

$

(5,968

)

Net income (loss) per share

 

 

 

 

 

 

 

Basic

$

(1.35

)

 

$

0.00

 

 

$

(1.37

)

 

$

(0.06

)

Diluted

$

(1.35

)

 

$

0.00

 

 

$

(1.37

)

 

$

(0.06

)

Weighted average shares outstanding

 

 

 

 

 

 

 

Basic

 

128,873,269

 

 

 

128,334,709

 

 

 

128,716,710

 

 

 

93,231,377

 

Diluted

 

128,873,269

 

 

 

128,334,709

 

 

 

128,716,710

 

 

 

93,231,377

 

 

a.k.a. BRANDS HOLDING CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)

 

December 31, 2022

 

December 31, 2021

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

46,319

 

 

$

38,832

 

Restricted cash

 

2,054

 

 

 

2,186

 

Accounts receivable

 

3,231

 

 

 

2,663

 

Inventory, net

 

126,533

 

 

 

115,783

 

Prepaid income taxes

 

6,089

 

 

 

4,059

 

Prepaid expenses and other current assets

 

13,378

 

 

 

20,809

 

Total current assets

 

197,604

 

 

 

184,332

 

Property and equipment, net

 

28,958

 

 

 

14,657

 

Operating lease right-of-use assets

 

37,317

 

 

 

26,415

 

Intangible assets, net

 

76,105

 

 

 

98,287

 

Goodwill

 

167,731

 

 

 

363,305

 

Deferred tax assets

 

1,070

 

 

 

 

Other assets

 

853

 

 

 

850

 

Total assets

$

509,638

 

 

$

687,846

 

Liabilities and stockholders’ equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

20,903

 

 

$

25,088

 

Accrued liabilities

 

39,806

 

 

 

53,375

 

Sales returns reserve

 

3,968

 

 

 

6,887

 

Deferred revenue

 

11,421

 

 

 

11,344

 

Operating lease liabilities, current

 

6,643

 

 

 

5,721

 

Current portion of long-term debt

 

5,600

 

 

 

5,600

 

Total current liabilities

 

88,341

 

 

 

108,015

 

Long-term debt

 

138,049

 

 

 

103,182

 

Operating lease liabilities

 

34,404

 

 

 

21,370

 

Other long-term liabilities

 

1,483

 

 

 

1,333

 

Deferred income taxes

 

284

 

 

 

2,920

 

Total liabilities

 

262,561

 

 

 

236,820

 

Stockholders’ equity:

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

129

 

 

 

129

 

Additional paid-in capital

 

460,660

 

 

 

453,807

 

Accumulated other comprehensive loss

 

(45,185

)

 

 

(11,080

)

Retained earnings (accumulated deficit)

 

(168,527

)

 

 

8,170

 

Total stockholders’ equity

 

247,077

 

 

 

451,026

 

Total liabilities and stockholders’ equity

$

509,638

 

 

$

687,846

 

 

a.k.a. BRANDS HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

 

Twelve Months Ended December 31,

 

 

2022

 

 

 

2021

 

Cash flows from operating activities:

 

 

 

Net loss

$

(176,697

)

 

$

(6,091

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

Depreciation expense

 

6,156

 

 

 

2,694

 

Amortization expense

 

14,192

 

 

 

14,016

 

Amortization of inventory fair value adjustment

 

707

 

 

 

15,908

 

Amortization of debt issuance costs

 

647

 

 

 

596

 

Non-cash interest expense

 

 

 

 

11

 

Loss on extinguishment of debt

 

 

 

 

10,924

 

Lease incentives

 

1,722

 

 

 

361

 

Non-cash operating lease expense

 

9,779

 

 

 

6,246

 

Equity-based compensation

 

6,730

 

 

 

8,043

 

Deferred income taxes, net

 

(4,064

)

 

 

(11,951

)

Goodwill impairment

 

173,786

 

 

 

 

Changes in operating assets and liabilities, net of effects of acquisitions:

 

 

 

Accounts receivable

 

(602

)

 

 

(858

)

Inventory

 

(16,257

)

 

 

(32,131

)

Prepaid expenses and other current assets

 

6,134

 

 

 

(11,543

)

Accounts payable

 

(1,888

)

 

 

6,038

 

Income taxes payable

 

(2,442

)

 

 

(9,329

)

Accrued liabilities

 

(7,419

)

 

 

26,678

 

Returns reserve

 

(2,678

)

 

 

3,091

 

Deferred revenue

 

267

 

 

 

7,197

 

Lease liabilities

 

(8,392

)

 

 

(5,932

)

Net cash provided by operating activities

 

(319

)

 

 

23,968

 

Cash flows from investing activities:

 

 

 

Acquisition of businesses, net of cash acquired

 

(5,321

)

 

 

(249,302

)

Purchase of noncontrolling interest

 

 

 

 

(20,198

)

Purchases of intangible assets

 

(247

)

 

 

(841

)

Purchases of property and equipment

 

(19,746

)

 

 

(7,734

)

Net cash used in investing activities

 

(25,314

)

 

 

(278,075

)

Cash flows from financing activities:

 

 

 

Proceeds from initial public offering, net of issuance costs

 

 

 

 

96,863

 

Payments of costs related to initial public offering

 

(1,142

)

 

 

 

Proceeds from line of credit, net of issuance costs

 

40,000

 

 

 

34,150

 

Repayment of line of credit

 

 

 

 

(42,204

)

Proceeds from issuance of debt, net of issuance costs

 

(121

)

 

 

254,134

 

Repayment of debt

 

(5,600

)

 

 

(155,762

)

Taxes paid related to net share settlement of equity awards

 

(104

)

 

 

 

Proceeds from issuances under equity-based compensation plans

 

227

 

 

 

 

Proceeds from issuance of units

 

 

 

 

82,669

 

Net cash provided by financing activities

 

33,260

 

 

 

269,850

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(272

)

 

 

(1,824

)

Net increase in cash, cash equivalents and restricted cash

 

7,355

 

 

 

13,919

 

Cash, cash equivalents and restricted cash at beginning of period

 

41,018

 

 

 

27,099

 

Cash, cash equivalents and restricted cash at end of period

$

48,373

 

 

$

41,018

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

Cash and cash equivalents

$

46,319

 

 

$

38,832

 

Restricted cash

 

2,054

 

 

 

2,186

 

Total cash, cash equivalents and restricted cash

$

48,373

 

 

$

41,018

 

 

a.k.a. BRANDS HOLDING CORP. KEY OPERATING AND FINANCIAL METRICS (unaudited)

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Gross margin

 

53

%

 

 

55

%

 

 

55

%

 

 

55

%

Net income (loss) (in thousands)

$

(173,896

)

 

$

23

 

 

$

(176,697

)

 

$

(6,091

)

Net income (loss) margin

 

(117

)%

 

 

%

 

 

(29

)%

 

 

(1

)%

Adjusted EBITDA2 (in thousands)

$

6,093

 

 

$

16,129

 

 

$

31,872

 

 

$

62,431

 

Adjusted EBITDA2 margin

 

4

%

 

 

9

%

 

 

5

%

 

 

11

%

Key Operational Metrics and Regional Sales

   

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

(metrics in millions, except AOV; sales in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

Key Operational Metrics

 

 

 

 

 

 

 

Active customers4

 

3.8

 

 

 

3.7

 

 

3.8

 

 

 

3.7

Active customers across a.k.a. Brands4,5

 

3.8

 

 

 

3.7

 

 

3.8

 

 

 

3.7

Average order value

$

77

 

 

$

84

 

$

82

 

 

$

86

Average order value across a.k.a. Brands5

$

77

 

 

$

84

 

$

82

 

 

$

87

Number of orders

 

1.9

 

 

 

2.2

 

 

7.4

 

 

 

6.5

Number of orders across a.k.a. Brands5

 

1.9

 

 

 

2.2

 

 

7.4

 

 

 

7.0

 

 

 

 

 

 

 

 

Sales by Region (actual)

 

 

 

 

 

 

 

U.S.

$

70,860

 

 

$

79,558

 

$

312,977

 

 

$

270,028

Australia

 

60,552

 

 

 

76,400

 

 

226,929

 

 

 

218,563

Rest of world

 

17,714

 

 

 

26,465

 

 

71,832

 

 

 

73,600

Total

$

149,126

 

 

$

182,423

 

$

611,738

 

 

$

562,191

Year-over-year growth

 

(18.3

)%

 

 

 

 

8.8

%

 

 

Year-over-year growth on a constant currency basis1

 

(13.0

)%

 

 

 

 

13.3

%

 

 

Active Customers

We view the number of active customers as a key indicator of our growth, the value proposition and consumer awareness of our brand, and their desire to purchase our products. In any particular period, we determine our number of active customers by counting the total number of unique customer accounts who have made at least one purchase in the preceding 12-month period, measured from the last date of such period.

Average Order Value

We define average order value (“AOV”) as net sales in a given period divided by the total orders placed in that period. AOV may fluctuate as we expand into new categories or geographies or as our assortment changes.

a.k.a. BRANDS HOLDING CORP. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (in thousands, except per share data) (unaudited)

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are key performance measures that management uses to assess our operating performance. Because adjusted EBITDA and Adjusted EBITDA margin facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes.

We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business. We expect Adjusted EBITDA margin to increase over the long-term as we continue to scale our business and achieve greater leverage in our operating expenses.

We calculate Adjusted EBITDA as net income (loss) adjusted to exclude: interest and other expense; provision for income taxes; depreciation and amortization expense; equity-based compensation expense; costs to establish or relocate distribution centers; transaction costs; costs related to severance from headcount reductions; goodwill and intangible asset impairment; sales tax penalties; and one-time or non-recurring items, and Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net income (loss). Adjusted EBITDA is considered a non-GAAP financial measure under the SEC’s rules because it excludes certain amounts included in net income (loss), the most directly comparable financial measure calculated in accordance with GAAP.

A reconciliation of non-GAAP Adjusted EBITDA to net income (loss) for the three and twelve months ended December 31, 2022 and 2021 is as follows:

 

Three Months Ended December 31,

 

Twelve Months Ended December 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net income (loss)

$

(173,896

)

 

$

23

 

 

$

(176,697

)

 

$

(6,091

)

Add (deduct):

 

 

 

 

 

 

 

Total other expense, net

 

2,053

 

 

 

1,755

 

 

 

8,575

 

 

 

21,622

 

Provision for (benefit from) income tax

 

(3,713

)

 

 

3,477

 

 

 

(3,917

)

 

 

852

 

Depreciation and amortization expense

 

4,975

 

 

 

5,374

 

 

 

20,348

 

 

 

16,710

 

Equity-based compensation expense

 

2,282

 

 

 

1,329

 

 

 

6,730

 

 

 

8,043

 

Inventory step-up amortization expense

 

 

 

 

3,657

 

 

 

707

 

 

 

15,908

 

Distribution relocation costs

 

 

 

 

 

 

 

1,302

 

 

 

 

Transaction costs

 

 

 

 

514

 

 

 

140

 

 

 

5,387

 

Severance

 

15

 

 

 

 

 

 

306

 

 

 

 

Goodwill impairment

 

173,786

 

 

 

 

 

 

173,786

 

 

 

 

Sales tax penalties

 

591

 

 

 

 

 

 

592

 

 

 

 

Adjusted EBITDA

$

6,093

 

 

$

16,129

 

 

$

31,872

 

 

$

62,431

 

Net income (loss) margin

 

(116.6

)%

 

 

%

 

 

(28.9

)%

 

 

(1.1

)%

Adjusted EBITDA margin

 

4.1

%

 

 

8.8

%

 

 

5.2

%

 

 

11.1

%

Net Income Attributable to a.k.a. Brands Holding Corp., As Adjusted (or Net Loss, As Adjusted) and Net Income (Loss) Per Share, As Adjusted

Net income attributable to a.k.a. Brands Holding Corp., as adjusted (or net loss, as adjusted) and net income (loss) per share, as adjusted are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in net income (loss) attributable to a.k.a. Brands Holding Corp. (or net loss) and net income (loss) per share calculated in accordance with GAAP, the most directly comparable financial measures calculated in accordance with GAAP. Management believes that net income attributable to a.k.a. Brands Holding Corp., as adjusted (or net loss, as adjusted) and net income (loss) per share, as adjusted are meaningful measures to share with investors because they better enable comparison of the performance with that of the comparable period. In addition, net income attributable to a.k.a. Brands Holding Corp., as adjusted (or net loss, as adjusted) and net income (loss) per share, as adjusted afford investors a view of what management considers a.k.a.’s core earnings performance and the ability to make a more informed assessment of such core earnings performance with that of the prior year.

We have calculated net loss, as adjusted and net loss per share, as adjusted for the three and twelve months ended December 31, 2022 by adjusting net loss and net loss per share for the following:

  1. Inventory step-up amortization expense resulting from the acquisition of mnml;
  2. Impairment recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units, which is a result of the worsening economic trends, including continued inflation and rising interest rates, as well as unfavorable demand due to a gradual customer shift from primarily online shopping to a mix of online and physical store shopping; and
  3. The tax benefit related to the finalization of Australia tax basis allocation pertaining to the inventory and intangibles included in the purchase of the Culture Kings non-controlling interest, as well as an intra-entity transfer of intellectual property rights.

A reconciliation of non-GAAP net loss, as adjusted to net loss, as well as the resulting calculation of net loss per share, as adjusted for the three and twelve months ended December 31, 2022 are as follows:

 

Three Months Ended

December 31, 2022

 

Twelve Months Ended

December 31, 2022

Net loss

$

(173,896

)

 

$

(176,697

)

Adjustments:

 

 

 

Inventory step-up amortization expense

 

 

 

 

707

 

Goodwill impairment

 

173,786

 

 

 

173,786

 

Tax benefit - Culture Kings change in tax basis of inventory and intangibles; intra-entity transfer of intellectual property rights

 

(3,263

)

 

 

(3,263

)

Tax effects of adjustments

 

 

 

 

(212

)

Net loss, as adjusted

$

(3,373

)

 

$

(5,679

)

Net loss per share, as adjusted

$

(0.03

)

 

$

(0.04

)

Weighted-average shares, diluted

 

128,873,269

 

 

 

128,716,710

 

We have calculated net income attributable to a.k.a. Brands Holding Corp, as adjusted and net income per share, as adjusted for the three and twelve months ended December 31, 2021 by adjusting net income (loss), net loss per share and net loss attributable to noncontrolling interests, as applicable, for the following:

  1. Inventory step-up amortization expense resulting from the acquisition of Culture Kings;
  2. Equity-based compensation expense related to performance-based awards that vested upon IPO;
  3. Loss on extinguishment of debt; and
  4. Removal of the tax effect of non-deductible incentive units.

A reconciliation of non-GAAP net income, as adjusted to net income (loss) attributable to a.k.a. Brands Holding Corp., as well as the resulting calculation of net income per share, as adjusted for the three and twelve months ended December 31, 2021 are as follows:

 

Three Months Ended

December 31, 2021

 

Twelve Months Ended

December 31, 2021

Net income (loss) attributable to a.k.a. Brands Holding Corp.

$

23

 

 

$

(5,968

)

Adjustments:

 

 

 

Inventory step-up amortization expense

 

3,657

 

 

 

15,908

 

Equity-based compensation expense related to performance-based awards

 

 

 

 

4,903

 

Loss on extinguishment of debt

 

 

 

 

10,924

 

Tax expense - removal of the tax effect of non-deductible incentive units

 

1,689

 

 

 

1,689

 

Tax effects of adjustments

 

(1,097

)

 

 

(9,521

)

Net income, as adjusted

$

4,272

 

 

$

17,935

 

 

 

 

 

Net loss attributable to noncontrolling interests

$

 

 

$

123

 

Adjustments:

 

 

 

Inventory step-up amortization expense

 

 

 

 

(5,513

)

Tax effects of adjustment

 

 

 

 

1,654

 

Net income attributable to noncontrolling interests, as adjusted

$

 

 

$

(3,736

)

 

 

 

 

Net income, as adjusted

$

4,272

 

 

$

17,935

 

Net loss attributable to noncontrolling interests, as adjusted

 

 

 

 

(3,736

)

Net income attributable to a.k.a. Brands Holding Corp., as adjusted

$

4,272

 

 

$

14,199

 

Net income per share, as adjusted

$

0.03

 

 

$

0.15

 

Weighted-average shares, diluted

 

128,334,709

 

 

 

93,231,377

 

Pro Forma Net Sales

Pro forma net sales is considered a non-GAAP financial measure under the SEC’s rules. We believe that pro forma net sales is useful information for investors as it provides a better understanding of sales performance, and relative changes therein, on a comparable basis. We calculate pro forma net sales as net sales including the historical net sales relating to the pre-acquisition periods of Culture Kings, assuming that the Company acquired Culture Kings at the beginning of the period presented. Pro forma net sales is not necessarily indicative of what the actual results would have been if the acquisition had in fact occurred on the date or for the periods indicated nor does it purport to project net sales for any future periods or as of any date. A reconciliation of non-GAAP pro forma net sales to net sales, which is the most directly comparable financial measure calculated in accordance with GAAP, for certain periods is as follows:

 

Twelve Months Ended December 31, 2022

 

Twelve Months Ended December 31, 2021

 

Growth Rate

 

Actual

 

Actual

 

Culture Kings

 

Pro Forma

 

Actual

 

Pro Forma

U.S.

$

312,977

 

$

270,028

 

$

7,735

 

$

277,763

 

15.9

%

 

12.7

%

Australia

 

226,929

 

 

218,563

 

 

36,000

 

 

254,563

 

3.8

%

 

(10.9

)%

Rest of world

 

71,832

 

 

73,600

 

 

7,464

 

 

81,064

 

(2.4

)%

 

(11.4

)%

Total

$

611,738

 

$

562,191

 

$

51,199

 

$

613,390

 

8.8

%

 

(0.3

)%

 

Three Months Ended December 31, 2021

 

Three Months Ended December 31, 2020

 

Growth Rate

 

Actual

 

Actual

 

Culture Kings

 

Pro Forma

 

Actual

 

Pro Forma

U.S.

$

79,558

 

$

42,098

 

$

3,563

 

$

45,661

 

89.0

%

 

74.2

%

Australia

 

76,400

 

 

22,070

 

 

45,940

 

 

68,010

 

246.2

%

 

12.3

%

Rest of world

 

26,465

 

 

6,613

 

 

7,150

 

 

13,763

 

300.2

%

 

92.3

%

Total

$

182,423

 

$

70,781

 

$

56,653

 

$

127,434

 

157.7

%

 

43.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2022

 

Three Months Ended December 31, 2020

 

Two-year Growth Rate

 

Actual

 

Actual

 

Culture Kings

 

Pro Forma

 

Actual

 

Pro Forma

U.S.

$

70,860

 

$

42,098

 

$

3,563

 

$

45,661

 

68.3

%

 

55.2

%

Australia

 

60,552

 

 

22,070

 

 

45,940

 

 

68,010

 

174.4

%

 

(11.0

)%

Rest of world

 

17,714

 

 

6,613

 

 

7,150

 

 

13,763

 

167.9

%

 

28.7

%

Total

$

149,126

 

$

70,781

 

$

56,653

 

$

127,434

 

110.7

%

 

17.0

%

 

Twelve Months Ended

December 31, 2021

 

Twelve Months Ended December 31, 2020

 

Growth Rate

 

Pro Forma

 

Actual

 

Culture Kings

 

Pro Forma

 

Actual

 

Pro Forma

U.S.

$

277,763

 

$

125,179

 

$

12,968

 

$

138,147

 

115.7

%

 

101.1

%

Australia

 

254,563

 

 

67,850

 

 

134,318

 

 

202,168

 

222.1

%

 

25.9

%

Rest of world

 

81,064

 

 

22,887

 

 

21,846

 

 

44,733

 

221.6

%

 

81.2

%

Total

$

613,390

 

$

215,916

 

$

169,132

 

$

385,048

 

160.4

%

 

59.3

%

________________________ 1 In order to provide a framework for assessing the performance of our underlying business, excluding the effects of foreign currency rate fluctuations, we compare the percent change in the results from one period to another period using a constant currency methodology wherein current and comparative prior period results for our operations reporting in currencies other than U.S. dollars are converted into U.S. dollars at constant exchange rates (i.e., the rates in effect on December 31, 2021, which was the last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods.

2 See additional information at the end of this release regarding key operating and financial metrics and non-GAAP financial measures.

3 The Company has not provided a quantitative reconciliation of its Adjusted EBITDA outlook to a GAAP net income outlook because it is unable, without making unreasonable efforts, to project certain reconciling items. These items include, but are not limited to, future equity-based compensation expense, income taxes, interest expense and transaction costs. These items are inherently variable and uncertain and depend on various factors, some of which are outside of the Company’s control or ability to predict. See additional information at the end of this release regarding non-GAAP financial measures.

4 Trailing twelve months.

5 Metrics “across a.k.a. Brands” assume we owned Culture Kings for all periods presented.

 

Investor Contact investors@aka-brands.com

Media Contact media@aka-brands.com

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