What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-03-07 compared with 2023-03-09 · 206 added, 185 removed, 415 unchanged (49% of the section changed)

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Our fiscal year ends on December 31.

Brands is a brand accelerator of fashion brands for the next generation.

Each brand in the a.k.a.

portfolio is customer-led, curates quality exclusive merchandise, creates authentic and inspiring social content and targets a distinct Gen Z and Millennial audience.

Brands leverages its next-generation operating model to help each brand accelerate its growth, scale in new markets and enhance its profitability.

We founded a.k.a.

with a focus on Millennial and Gen Z audiences who primarily find inspiration for fashion on social media.

On September 29, 2023, we effected a one-for-12 reverse stock split of our common stock (the "Reverse Stock Split").

As a result of the Reverse Stock Split, every twelve shares of our outstanding common stock was consolidated into one share.

Accordingly, all per share values have been adjusted as necessary to reflect the Reverse Stock Split for all prior periods presented.

Refer to Note 14, "Stockholders’ Equity," in the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

Brands is a portfolio of next-generation fashion brands for the next generation of consumers.

We seek to leverage our industry expertise and operational synergies to accelerate our brands so they can grow faster, reach broader audiences, achieve greater scale and enhance their profitability.

We believe we are disrupting the status quo and pioneering a new approach to fashion.

was founded with a focus on Millennial and Gen Z audiences who primarily find inspiration for fashion on social media.

We have since built a portfolio of next-generation brands with distinct fashion offerings and consumer followings:

• In July 2018, we acquired Princess Polly, an Australian fashion brand focusing on fun, trendy dresses, tops, shoes and accessories with slim fit, body-confident and trendy fashion designs.

• In July 2018, we acquired Princess Polly, a fashion brand focusing on fun, trendy dresses, tops, shoes and accessories with slim fit, body-confident and trendy fashion designs.

The brand targets a female customer between the ages of 15 and 25.

• In August 2019, we acquired Petal & Pup, an Australian fashion brand offering an assortment of trendy, flattering and feminine styles and dresses for special occasions.

• In August 2019, we acquired Petal & Pup, a fashion brand offering an assortment of trendy, flattering and feminine styles and dresses for special occasions.

The brand targets female customers typically in their twenties or thirties, with more than 70% of customers between the ages of 25 and 34.

• In March 2021, we acquired Culture Kings, an Australia-based premium online retailer of streetwear apparel, footwear, headwear and accessories.

We acquired the remaining noncontrolling interest in tandem with our IPO.

The brand targets male consumers between the ages of 18 and 35 who are fashion conscious, highly social and digitally focused.

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Brands” basis assumes we also owned Culture Kings for all periods presented.

We also owned Rebdolls for all periods shown, but subsequently sold the brand back to its original owner in February 2023.

Our annual financial results discussed below represent the consolidated results of Princess Polly, Petal & Pup and Rebdolls for all years shown, results of Culture Kings’ operations from the date of their acquisition, March 31, 2021, and results of mnml’s operations from the date of their acquisition, October 14, 2021.

We also owned Rebdolls for all periods shown prior to March 2023, when we sold the brand back to its original owner.

Our annual financial results discussed below represent the consolidated results of Princess Polly and Petal & Pup for all years shown, the results of Rebdolls for all periods shown prior to March 2023, the results of Culture Kings’ operations from the date of its acquisition on March 31, 2021, and the results of mnml’s operations from the date of its acquisition on October 14, 2021.

Across a.k.a.

Brands for 2022, we attracted over 3.8 million active customers (a 3% increase from 2021), received 7.4 million orders (a 14% increase from 2021) and had an average order value of $82.

Brands for 2023, we attracted over 3.7 million active customers, received approximately 6.8 million orders and had an average order value of $80.

Initial Public Offering

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Goodwill Impairment

As part of the annual goodwill impairment test conducted in the fourth quarter of 2022, the Company determined that the carrying value of its Culture Kings and Rebdolls reporting units exceeded their fair values and recorded a total non-cash goodwill impairment charge of $173.8 million during the year ended December 31, 2022.

As of December 31, 2022, $60.0 million of goodwill related to Culture Kings remained, while the goodwill related to Rebdolls was fully impaired.

The worsening economic trends in the fourth quarter of 2022, including continued inflation and rising interest rates, as well as unfavorable demand due to changing customer preferences towards a mix of online and physical store shopping led the Company to lower its forecasts and expectations for the Culture Kings and Rebdolls brands, driving the reduction in their fair values.

In August 2023, due to elevated interest rates and unfavorable demand in Australia, we reduced our earnings forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

This reduction was identified as a triggering event and a subsequent quantitative test concluded that the carrying value of the Culture Kings and Petal & Pup reporting units exceeded their fair values as of August 31, 2023.

As a result, we recorded a non-cash goodwill impairment charge of $68.5 million during the third quarter of 2023.

As of December 31, 2023, $11.3 million of goodwill related to Petal & Pup remained on our balance sheet, while the goodwill related to Culture Kings was fully impaired.

Key Operating and Financial Metrics

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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.

We view the number of active customers as a key indicator of our growth, our value proposition, 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.

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Key Financial Metrics

The following table sets forth our key GAAP and non-GAAP financial metrics for for each period presented:

The following table sets forth our key GAAP and non-GAAP financial metrics for each period presented:

Year Ended December 31,

(dollars in thousands)

2023 2022 2021

55 % 55 % 55%

Net income (loss) (in thousands)

$ (98,886) $ (176,697) $ (6,091)

Net income (loss) margin

Net loss margin

(18) % (29) % (1)%

Adjusted EBITDA (in thousands)

Adjusted EBITDA

$ 13,790 $ 31,872 $ 62,431

Adjusted EBITDA margin

5 % 11 % 14 %

Net cash provided by operating activities (in thousands)

Net cash provided by (used in) operating activities

$ 33,426 $ (319) $ 23,968

Free cash flow (in thousands)

Free Cash Flow

$ 27,456 $ (20,065) $ 16,234

Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow are non-GAAP measures.

See “Non-GAAP Financial Measures” for information regarding our use of Adjusted EBITDA, Adjusted EBITDA margin and free cash flow and their reconciliation to net income (loss), net income (loss) margin and net cash provided by operating activities, respectively.

See “Non-GAAP Financial Measures” below for information regarding our use of Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow and their reconciliation to net income (loss), net income (loss) margin and net cash provided by (used in) operating activities, respectively.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we monitor the following supplemental non-GAAP financial measures to evaluate our operating performance, identify trends, formulate financial projections and make strategic decisions on a consolidated basis.

Accordingly, we believe that non-GAAP financial information, when taken collectively, may provide useful supplemental information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.

Accordingly, we believe that non-GAAP financial information may provide useful supplemental information to investors and others in understanding and evaluating our results of operations in the same manner as our management team.

The non-GAAP financial measures are presented for supplemental informational purposes only.

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interest and other expense;

provision for income taxes;

benefit from or provision for income taxes;

depreciation and amortization expense;

equity-based compensation expense;

inventory step-up amortization expense, distribution center relocation costs;

inventory step-up amortization expense;

distribution center relocation costs;

transaction costs;

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sales tax penalties;

and one-time or non-recurring items, and Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales.

Adjusted EBITDA does not represent net income or cash flow from operating activities as it is defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs.

insured losses, net of any recoveries;

and one-time or non-recurring items.

We calculate Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales.

Adjusted EBITDA does not represent net income (loss) or cash flow from or used in operating activities as it is defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs.

Because other companies may calculate EBITDA and Adjusted EBITDA differently than we do, Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

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• any costs related to sales tax penalties;

• any insured losses, net of recoveries;

• any non-routine legal matters;

• any amortization expense associated with fair value adjustments from purchase price accounting, including intangibles or inventory step-up;

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Year Ended December 31,

In thousands 2022 2021 2020

Net income (loss) $ (176,697) $ (6,091) $ 14,805

(dollars in thousands)

2023 2022 2021

$ (98,886) $ (176,697) $ (6,091)

Add (deduct):

Total other expense, net 13,556 8,575 21,622

Provision for income tax (3,917) 852 6,850

(Benefit from) provision for income tax

1,921 (3,917) 852

Depreciation and amortization expense 19,141 20,348 16,710

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Inventory step-up amortization expense — 707 15,908

Distribution center relocation costs 1,302 — —

Transaction costs — 140 5,387

Severance 306 — —

Goodwill impairment 68,524 173,786 —

Sales tax penalties 592 — —

Non-routine items*

1,894 2,200 —

Adjusted EBITDA $ 13,790 $ 31,872 $ 62,431

Net income (loss) margin (29) % (1) % 7 %

Net loss margin

(18) % (29) % (1) %

Adjusted EBITDA margin 3 % 5 % 11 %

*Non-routine items include costs to establish or relocate distribution centers;

severance from headcount reductions;

sales tax penalties;

insured losses, net of recoveries;

and non-routine legal matters.

Free Cash Flow

We calculate Free Cash Flow as net cash (used in) provided by operating activities reduced by purchases of property and equipment.

We calculate Free Cash Flow as net cash provided by (used in) operating activities reduced by purchases of property and equipment.

Management believes Free Cash Flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash.

There are limitations related to the use of Free Cash Flow as an analytical tool, including that other companies may calculate Free Cash Flow differently, which reduces its usefulness as a comparative measure, and Free Cash Flow does not reflect our future contractual commitments nor does it represent the total residual cash flow for a given period.

The following table presents a reconciliation of Free Cash Flow to net cash (used in) provided by operating activities, the most directly comparable financial measure prepared in accordance with GAAP:

The following table presents a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable financial measure prepared in accordance with GAAP:

Year Ended December 31,

(dollars in thousands)

2023 2022 2021

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

$ 33,426 $ (319) $ 23,968

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$ 27,456 $ (20,065) $ 16,234

Our Free Cash Flow has fluctuated over time primarily as a result of timing of inventory purchases to support our rapid growth.

While we have strong long-term relationships with our manufacturers, we usually pay for our inventory in advance.

This supports our test and repeat buying model and helps with our ability to move new designs we receive from our suppliers into production and then into inventory in as few as 30 to 45 days.

Our operating model requires a low level of capital expenditure.

For the twelve months ended December 31, 2022, Free Cash Flow decreased by $(36.3) million compared to Free Cash Flow for the twelve months ended December 31, 2021.

This was attributable primarily to increased capital expenditures, the timing of payments and a decrease in net income after adjusting for non-cash items, partially offset by a smaller build of inventory compared to the prior year.

The increased capital expenditures was driven by the build-out of Culture Kings’ new store in Las Vegas.

Our Free Cash Flow has fluctuated over time primarily as a result of timing of inventory purchases, purchases of property and equipment and fluctuations in earnings.

Our operating model requires a low level of capital expenditures.

For the twelve months ended December 31, 2023, net cash provided by operating activities increased by $33.7 million compared to net cash used in operating activities for the twelve months ended December 31, 2022.

This was attributable primarily to a decrease in inventory compared to the prior period, which was driven by reduced inventory buying and sell-through of aged inventory, partially offset by lower earnings.

For the twelve months ended December 31, 2023, Free Cash Flow increased by $47.5 million compared to Free Cash Flow for the twelve months ended December 31, 2022.

This was attributable primarily to a decrease in inventory compared to the prior period, which was driven by reduced inventory buying and sell-through of aged inventory, and a reduction in purchases of property and equipment, partially offset by lower earnings.

The reduction in purchases of property and equipment in 2023 was primarily due to the build-out of the Culture Kings Las Vegas store in 2022.

Factors Affecting Our Performance

Macroeconomic Environment

The macroeconomic environment in which we operate has been, and we anticipate will continue to be, pressured by events and conditions worldwide.

Inflationary pressures on consumers globally and our supply chain, shifts in global spending in anticipation of a potential economic slowdown or recession, increasing labor rates and a slower-than-expected recovery from the economic impacts of the COVID-19 pandemic in Australia have pressured our net sales.

Additionally, lower return on marketing investments, a higher than historical competitive promotional environment and higher merchandise returns, all stemming from the pressures previously identified, led to reduced operating income and Adjusted EBITDA performance, as well as increased inventories and impairment to the goodwill associated with the Culture Kings and Rebdolls reporting units.

The macroeconomic environment in which we operate has been and, we anticipate, will continue to be pressured by adverse conditions worldwide.

Inflationary pressures on consumers globally, particularly on our Australian customers, and our supply chain, rising interest rates and shifts in global spending in anticipation of a potential economic slowdown or recession have pressured our net sales.

Additionally, lower return on marketing investments, increasing labor rates, a higher-than-historical competitive promotional environment and higher merchandise returns, all stemming from the pressures previously identified, led to reduced operating income and Adjusted EBITDA performance, as well as impairment to the goodwill associated with Culture Kings and Petal & Pup.

Consequently, our business and results of operations, including earnings and cash flows, could continue to be adversely impacted, including as a result of:

• decreased consumer confidence and consumer spending and consumption habits, including spending for the merchandise that we sell and shifting to more in-store retail experiences, and negative trends in consumer purchasing patterns due to inflationary pressures and changes in consumers’ disposable income, credit availability and debt levels;

• disruption to the supply chain affecting production, distribution and other logistical issues, including port closures and shipping backlogs;

• challenges filling staffing requirements at our headquarters and distribution centers;

• challenges filling staffing requirements at our stores, corporate headquarters and distribution centers;

• increased materials and procurement costs as a result of scarcity or increased prices of commodities and raw materials.

All of these factors have contributed and may continue to contribute to reduced orders, increased merchandise returns, higher discounts, lower net sales, lower gross margins, reduced effectiveness of marketing, increased inventories and goodwill impairment, and it is possible that future annual or interim impairment tests could result in additional impairment charges.

Brand Awareness

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Our methods to acquire customers have evolved and will need to continue evolving in response to changes in shopping behaviors, content consumption, costs to advertise and developments in technology.

As a result of macroeconomic pressures, we reduced certain of our marketing efforts, which may result in acquiring customers at slower rates.

Failure to continue attracting customers efficiently and profitably would adversely impact our profitability and operating results.

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Impact of COVID-19

In fiscal year 2022, the COVID-19 pandemic continued to impact our business and results of operations.

In the first half of 2022, certain of our supply chain partners, including third party manufacturers, logistics providers and other vendors experienced delays and shut-downs due to the COVID-19 pandemic, which delayed shipments of products and increased our cost of goods due to more expensive air freight rates.

In the second half of 2022, we started to experience some reductions in air freight costs, the impact of which we expect will be realized in the Company’s cost of goods sold during 2023.

In the second half of 2022, we started to experience reductions in air freight costs (which had increased in the first half of 2022 as a result of vendor delays and shutdowns due to the COVID-19 pandemic), the impact of which has been and will continue to be realized in the Company’s cost of goods sold during 2023 and 2024.

We continue to monitor vendor and manufacturer shipping times and other potential disruptions in our supply chain and implement mitigation plans as necessary.

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As a result, our Company’s net sales and operating income will continue to be affected by changes in the U.S.

dollar against international currencies, but predominantly against the Australian dollar.

dollar against international currencies, predominantly against the Australian dollar.

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 in this Annual Report on Form 10-K using a constant currency methodology wherein current and comparative prior period results for our operations reporting in currencies other than U.S.

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(in thousands)

2023 2022 2021

Net sales $ 546,258 $ 611,738 $ 562,191

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Total operating expenses 383,689 509,286 291,281

Income (loss) from operations (172,039) 16,383 22,140

(Loss) income from operations

(83,409) (172,039) 16,383

Other expense, net:

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(13,556) (8,575) (21,622)

Income (loss) before income taxes (180,614) (5,239) 21,655

Benefit from (provision for) income tax 3,917 (852) (6,850)

Net income (loss) (176,697) (6,091) 14,805

Net loss (income) attributable to noncontrolling interests

Net income (loss) attributable to a.k.a.

Loss before income taxes

(96,965) (180,614) (5,239)

(Provision for) benefit from income tax

(1,921) 3,917 (852)

(98,886) (176,697) (6,091)

Net loss attributable to noncontrolling interests

Net loss attributable to a.k.a.

Brands Holding Corp.

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70 % 83 % 52 %

Income (loss) from operations

(Loss) income from operations

(15 %) (28 %) 3 %

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(2 %) (1%) (4%)

Income (loss) before income taxes

Loss before income taxes

(18 %) (30 %) (1 %)

Benefit from (provision for) income tax 1 % —% (3%)

Net income (loss) (29 %) (1 %) 7 %

Net loss (income) attributable to noncontrolling interests

Net income (loss) attributable to a.k.a.

(Provision for) benefit from income tax

(18 %) (29 %) (1 %)

Net loss attributable to noncontrolling interests

Net loss attributable to a.k.a.

Brands Holding Corp.

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$ 546,258 $ 611,738

Net sales increased by $49.5 million, or 9%, in 2022 compared to 2021.

The overall increase in net sales was primarily driven by a 14% increase in the number of orders we processed in 2022 compared to 2021, driving an increase in net sales of $76.0 million.

A decrease in our average order value of 5%, from $86 in 2021 to $82 in 2022, partially offset the increase in net sales by $26.4 million.

The increase in the number of orders was largely driven by the acquisition of Culture Kings on March 31, 2021, the acquisition of mnml in October of 2021 and growth of Princess Polly in the U.S.

The decrease in our average order value was primarily due to the impact of foreign currency, higher return rates and incremental promotional activity.

On a constant currency basis, net sales and average order value for 2022 would have increased 13% and been flat, respectively.

Net sales for 2022 include the operations of Culture Kings and mnml, or $269.6 million of net sales, while 2021 includes the operations of Culture Kings and mnml, or $208.0 million of net sales, from the date of their acquisitions.

Net sales decreased by $65.5 million, or 11%, in 2023 compared to 2022.

The overall decrease in net sales was primarily driven by an 8% decrease in the number of orders we processed in 2023 compared to 2022, which drove a decrease in net sales of $49.7 million, and a decrease in our average order value of 2%, from $82 in 2022 to $80 in 2023, which drove a decrease in net sales of $15.8 million.

The decrease in the number of orders and average order value were primarily due to adverse macroeconomic conditions in Australia and New Zealand.

On a constant currency basis, net sales and average order value for 2023 would have decreased 9% and 1%, respectively, as compared to 2022.

Cost of Sales

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Percent of net sales

Cost of sales increased by $20.0 million, or 8%, in 2022 compared to 2021.

This increase was primarily driven by a 14% increase in the total number of orders in 2022, as compared to 2021, which includes the impact of the operations of Culture Kings and mnml, or $132.0 million of cost of sales, while 2021 includes the impact of the operations of Culture Kings, or $114.7 million of cost of sales, from the date of their acquisitions.

While cost of sales as a percent of net sales was flat in 2022 compared to 2021, the impact of the fair value adjustment to inventory acquired in the Culture Kings acquisition of $15.9 million, included in 2021, was offset by a change in the mix of products sold due to the acquisition of Culture Kings, as Culture Kings inventory has higher average costs.

Cost of sales decreased by $28.5 million, or 10%, in 2023 compared to 2022.

This decrease was primarily driven by an 8% decrease in the total number of orders in 2023, as compared to 2022, a decrease in our average order value of 2% and lower inbound air freight costs, partially offset by a higher merchandise return rate.

While cost of sales as a percent of net sales was flat in 2023 compared to 2022, cost of sales as a percent of net sales would have increased due to targeted discounting in Culture Kings Australia and a higher merchandise return rate if not offset by lower inbound air freight costs.

Years Ended December 31,

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Gross margin 55 % 55 %

Gross profit increased by $29.6 million, or 10%, in 2022 compared to 2021.

This increase was primarily driven by the significant increase in net sales.

While gross margin was flat in 2022 compared to 2021, the impact of the fair value adjustment to inventory acquired in the Culture Kings acquisition of $15.9 million, included in 2021, was offset by a change in the mix of products sold due to the acquisition of Culture Kings, as Culture Kings inventory has lower average gross margins.

Gross profit decreased by $37.0 million, or 11%, in 2023 compared to 2022.

This decrease was primarily driven by the 11% decrease in net sales, as well as a higher merchandise return rate.

These impacts were partially offset by lower air freight expense.

While gross margin was flat in 2023 compared to 2022, gross margin would have decreased due to targeted discounting in Culture Kings Australia and a higher merchandise return rate, if not offset by lower inbound air freight costs.

Selling Expenses

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Percent of net sales

Selling expenses increased by $21.7 million, or 15%, in 2022 compared to 2021.

This increase was driven by the 14% increase in the number of orders shipped in 2022 compared to 2021, which includes the operations of Culture Kings and mnml, or $71.6 million of selling expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $48.0 million of selling expenses, from the date of their acquisitions.

The increase in selling expenses as a percentage of net sales was primarily due to increased costs for distribution facilities and stores, the 5% decrease in our average order value and a $1.3 million charge related to a relocation of distribution centers for Culture Kings and mnml.

Selling expenses decreased by $16.8 million, or 10%, in 2023 compared to 2022.

This decrease was driven by the 8% decrease in the number of orders shipped in 2023 compared to 2022, and operational efficiencies in distribution, fulfillment and outbound shipping.

Marketing Expenses

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Marketing expenses increased by $2.2 million, or 3%, in 2023 compared to 2022.

The increase in marketing expenses was driven by the inclusion of the operations of Culture Kings and mnml, or $31.4 million of marketing expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $23.6 million of marketing expenses, from the date of their acquisitions.

The increase in marketing expenses as a percentage of net sales was primarily due to reduced effectiveness of our marketing channels at driving traffic to our websites, and the inclusion of mnml, which had a higher rate of advertising spend as compared to some of our other brands.

The increase in marketing expenses was driven by additional marketing spend due to reduced marketing effectiveness, particularly in Australia.

The increase in marketing expenses as a percentage of net sales was primarily due to lower net sales in 2023 compared to 2022.

General and Administrative Expenses

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Percent of net sales 18 % 17 %

General and administrative expenses increased by $13.9 million, or 16%, in 2022 compared to 2021.

The increase was primarily driven by a $18.3 million increase in salaries and related benefits related to increases in our headcount across functions to support business growth and $3.7 million in additional insurance costs.

Partially offsetting these increases was a $5.8 million decrease in professional fees, including transaction costs, and a $1.3 million decrease in equity-based compensation, due to vesting of performance-based incentive units upon the Company’s IPO in 2021.

General and administrative expenses for 2022 include the operations of Culture Kings and mnml, or $32.8 million of general and administrative expenses, while 2021 includes the impact of the operations of Culture Kings and mnml, or $20.3 million of general and administrative expenses, from the date of their acquisitions.

The increase in general and administrative expenses as a percentage of net sales resulted primarily from additional salaries and related benefits, as well as additional insurance costs.

General and administrative expenses decreased by $5.7 million, or 6%, in 2023 compared to 2022.

The decrease was primarily driven by a $2.7 million decrease in intangible amortization, a $2.1 million decrease in wages and benefits and a $1.5 million decrease in insurance costs.

A $1.2 million increase in professional fees partially offset these decreases.

The increase in general and administrative expenses as a percentage of net sales resulted primarily from lower net sales in 2023 compared to 2022.

Goodwill Impairment

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Percent of net sales 13 % 28 %

Goodwill impairment was $173.8 million in 2022 and recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.

As of December 31, 2022, $60.0 million of goodwill related to Culture Kings remained, while the goodwill related to Rebdolls was fully impaired.

The worsening economic trends in the fourth quarter of 2022, 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 led the Company to lower its forecasts and expectations for the Culture Kings and Rebdolls brands, driving the reduction in their fair values.

Goodwill impairment decreased by $105.3 million, or 61%, in 2023 compared to 2022.

Goodwill impairment in 2023 was recognized on the goodwill recorded from the acquisitions of the Culture Kings and Petal & Pup reporting units.

Goodwill impairment in 2022 was recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.

In August 2023, due to elevated interest rates and unfavorable demand in Australia, we reduced our earnings forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

As of December 31, 2023, the goodwill related to Culture Kings was fully impaired, while $11.3 million of the goodwill related to Petal & Pup remained on our balance sheet.

Other Expense, net

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Interest expense $ (11,165) $ (7,043)

Loss on extinguishment of debt — (10,924)

Other expense (2,391) (1,532)

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Percent of net sales

Other expense, net decreased by $13.0 million in 2022 compared to 2021 primarily due to the 2021 loss on extinguishment of debt resulting from the early payment and termination of our previous term debt, revolver and senior secured notes, as well as a decrease in interest expense in 2022 from more favorable rates related to borrowings under our senior secured credit facility compared to our previous term debt, revolver and senior secured notes in 2021.

Benefit from (Provision for) Income Tax

Other expense, net increased by $5.0 million in 2023 compared to 2022 primarily due to $4.1 million in additional interest expense from rising interest rates on our variable rate debt.

(Provision for) Benefit from Income Tax

Years Ended December 31,

Benefit from (provision for) income tax $ 3,917 $ (852)

(Provision for) benefit from income tax

$ (1,921) $ 3,917

Percent of net sales — % 1 %

Effective tax rate 2 % (2 %)

Benefit from (provision for) income tax changed by $4.8 million, or 560% in 2022 compared to 2021.

This change was driven primarily by the finalization of Australia tax basis allocation pertaining to the inventory and intangibles included in the purchase of the Culture Kings noncontrolling interest, as well as an intra-entity transfer of certain intellectual property rights related to the Culture Kings’ brands to one of our subsidiaries in the U.S., aligning the ownership of these rights with our evolving business.

The change in our effective tax rate is primarily driven by the impairment recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.

Provision for income tax increased by $5.8 million, or 149%, in 2023 compared to 2022.

This increase was primarily due to the increase in the valuation allowance on the net deferred tax assets in Australia.

Comparison of the Years Ended December 31, 2022 and 2021

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The overall increase in net sales was primarily driven by a 14% increase in the number of orders we processed in 2022 compared to 2021, driving an increase in net sales of $76.0 million.

Additionally, an increase in our average order value of 15%, from $75 in 2020 to $86 in 2021 also contributed $32.2 million to the overall increase in net sales.

The increase in the number of orders was largely driven by the acquisition of Culture Kings on March 31, 2021 and growth of Princess Polly in the U.S.

The increase in our average order value was primarily due to the implementation of targeted price increases at Princess Polly and Petal & Pup.

On a constant currency basis, net sales and average order value for 2021 would have increased 154% and 13%, respectively.

Net sales for 2021 include the operations of Culture Kings and mnml, or $208.0 million of net sales, from the date of their acquisitions, March 31, 2021 and October 14, 2021, respectively.

A decrease in our average order value of 5%, from $86 in 2021 to $82 in 2022, partially offset the increase in net sales by $26.4 million.

The increase in the number of orders was largely driven by the acquisition of Culture Kings on March 31, 2021, the acquisition of mnml in October of 2021 and growth of Princess Polly in the U.S.

The decrease in our average order value was primarily due to the impact of foreign currency, higher return rates and incremental promotional activity.

On a constant currency basis, net sales and average order value for 2022 would have increased 13% and been flat, respectively.

Cost of Sales

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Cost of sales increased by $20.0 million, or 8%, in 2022 compared to 2021.

This increase was primarily driven by a 126% increase in the total number of orders in 2021, as compared to 2020, which includes the impact of the operations of Culture Kings and mnml, or $114.7 million of cost of sales, from the date of their acquisitions, March 31, 2021 and October 14, 2021, respectively.

The increase in cost of sales as a percentage of net sales was primarily due to the $15.9 million impact from the fair value increase in inventory acquired in the Culture Kings and mnml acquisitions, which will disproportionately increase cost of sales until the inventory is completely sold through, and higher air freight expense.

As of December 31, 2021, $0.7 million of impact from the fair value increase in inventory acquired in the mnml acquisition remains in inventory and will impact cost of sales in the first quarter of 2022.

Years Ended December 31,

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This increase was primarily driven by the significant increase in net sales.

The decrease in gross margin was primarily due to the $15.9 million impact from the fair value increase in inventory acquired in the Culture Kings and mnml acquisitions, which disproportionately increases cost of sales until it is completely sold through, higher air freight expense and inclusion of Culture Kings, partially offset by the implementation of targeted price increases at Princess Polly and Petal & Pup.

Culture Kings has a lower mix of exclusive products compared to our overall portfolio.

Exclusive products have a higher gross margin compared to other products we sell.

Selling Expenses

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Selling expenses increased by $21.7 million, or 15%, in 2022 compared to 2021.

This increase was driven by the 126% increase in the number of orders shipped in 2021 compared to 2020, which includes the operations of Culture Kings and mnml, or $48.0 million of selling expenses, from the date of their acquisitions, March 31, 2021 and October 14, 2021, respectively.

The decrease in selling expenses as a percentage of net sales was due to a higher percentage of Culture Kings’ sales from customers in Australia, where our products ship at a cheaper rate.

Shipping to customers in the U.S., whether from Australia or from a facility in the U.S., is more expensive on average due to distance or shipping upgrades.

Marketing Expenses

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Marketing expenses increased by $8.6 million, or 15%, in 2022 compared to 2021.

The increase in marketing expenses was driven by the inclusion of the operations of Culture Kings and mnml, or $23.6 million of marketing expenses, from the date of their acquisitions, March 31, 2021 and October 14, 2021, respectively, and increased marketing investment to acquire customers and retain existing customers to generate higher net sales.

The increase in marketing expenses as a percentage of net sales was primarily due to Culture Kings’ higher rate of advertising spend as they tested new marketing opportunities, as well as incremental holiday advertising spend across our brands.

General and Administrative Expenses

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General and administrative expenses increased by $13.9 million, or 16%, in 2022 compared to 2021.

The increase was primarily driven by the inclusion of the operations of Culture Kings and mnml, or $20.3 million of general and administrative expenses, from the date of their acquisitions, March 31, 2021 and October 14, 2021, respectively.

Additionally, there was a $15.4 million increase in salaries and related benefits and equity-based compensation expense related to increases in our headcount across functions to support business growth, $5.4 million in transaction costs and $5.3 million in additional professional service fees.

Finally, increases in D&O insurance and depreciation contributed to the increase.

The increase in general and administrative expenses as a percentage of net sales resulted primarily from additional salaries and related benefits and equity-based compensation expense from corporate hires as well as additional professional service fees.

The increase in general and administrative expenses as a percentage of net sales resulted primarily from additional salaries and related benefits, as well as additional insurance costs.

Goodwill Impairment

Years Ended December 31,

Goodwill impairment $ 173,786 $ —

Percent of net sales 28 % — %

Goodwill impairment was $173.8 million in 2022 and recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.

As of December 31, 2022, $60.0 million of goodwill related to Culture Kings remained on our balance sheet, while the goodwill related to Rebdolls was fully impaired.

Other Expense, net

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Percent of net sales

Other expense, net increased by $21.1 million in 2021 compared to 2020 primarily due to the loss on extinguishment of debt resulting from the early payment and termination of our previous term debt, revolver and senior secured notes, as well as an increase in interest expense related to the senior secured notes, prior to their repayment, and the new term loan.

Provision for income tax

Benefit from (Provision for) Income Tax

Years Ended December 31,

Provision for income tax $ (852) $ (6,850)

Benefit from (provision for) income tax

$ 3,917 $ (852)

Percent of net sales 1 % — %

Effective tax rate 2 % 16 %

Provision for income tax decreased by $6.0 million, or 88% in 2021 compared to 2020.

This decrease was due to a reduction in our income before income taxes, which was driven primarily by the loss on extinguishment of debt resulting from the early payment and termination of our previous term debt, revolver and senior secured notes, as well as an increase in interest expense related to such debt prior to its repayment.

The change in effective tax rate from 2020 is primarily due to the impact of permanent differences, the most significant of which was non-deductible stock-based compensation related to incentive units.

Benefit from (provision for) income tax changed by $4.8 million, or 560%, in 2022 compared to 2021.

The change in our effective tax rate is primarily driven by the impairment recognized on the goodwill recorded from the acquisitions of the Culture Kings and Rebdolls reporting units.

Quarterly Results of Operations

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Income (loss) before income taxes 2,178 (5,167) (16) (177,609) (10,436) (4,712) (73,688) (8,129)

Benefit from (provision for) income tax (767) (939) 4,331 (3,477) (653) 955 (98) 3,713

Net income (loss) 1,790 2,189 (10,093) 23 1,525 (4,212) (114) (173,896)

Net income (loss) attributable to noncontrolling interests

(318) 242 199 — — — — —

Net income (loss) attributable to a.k.a.

Brands Holding Corp.

(Provision for) benefit from income tax

(653) 955 (98) 3,713 883 (328) 3,278 (5,754)

Net income (loss) 1,525 (4,212) (114) (173,896) (9,553) (5,040) (70,410) (13,883)

Three Months Ended

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Income (loss) before income taxes 1 % (3 %) — % (119 %) (9 %) (3 %) (52 %) (5 %)

Benefit from (provision for) income tax (1%) (1%) 3% (2%) —% 1% —% 2%

Net income (loss) 3 % 1 % (6 %) — % 1 % (3 %) — % (117 %)

Net income (loss) attributable to noncontrolling interests

— % — % — % — % — % — % — % — %

Net income (loss) attributable to a.k.a.

Brands Holding Corp.

(Provision for) benefit from income tax

—% 1% —% 2% 1% —% 2% (4%)

Net income (loss) 1 % (3 %) — % (117 %) (8 %) (4 %) (50 %) (9 %)

Quarterly Trends and Seasonality

Net Sales, Cost of Sales and Gross Profit

Historically, such as seen throughout 2021, net sales had generally increased sequentially quarter-to-quarter as we made acquisitions (Culture Kings on March 31, 2021 and mnml on October 14, 2021) and launched our brands in the U.S.

(Princess Polly, Petal & Pup and Culture Kings), all while successfully gaining and retaining customers.

However, in 2022, our net sales were impacted by foreign currency exchange rates, inflationary pressures on consumers globally and our supply chain, shifts in global spending in anticipation of a potential economic slowdown or recession, increasing labor rates and a slower-than-expected recovery from the economic impacts of the COVID-19 pandemic in Australia.

Our quarterly cost of sales and gross profit have fluctuated quarter-to-quarter primarily due to the quarterly fluctuations in net sales, mix of inventory between private label and third-party products and the impact from the amortization of the fair value increases in inventory acquired in the Culture Kings and mnml acquisitions.

Our net sales are impacted by foreign currency exchange rates, inflationary pressures on consumers globally and our supply chain, shifts in global spending in anticipation of a potential economic slowdown or recession, increasing labor rates and a slower-than-expected recovery from the economic downturn in Australia.

Our quarterly cost of sales and gross profit have fluctuated quarter-to-quarter primarily due to the quarterly fluctuations in net sales and the mix of inventory between private label and third-party products.

Operating Expenses

Selling expenses have fluctuated quarter-to-quarter primarily due to fluctuations in shipping and fulfillment costs.

Drivers of these fluctuations include the Company’s mix of air and sea freight, increases or decreases in number of orders, as well as generally increasing labor rates in fulfillment over time.

Drivers of these fluctuations include our mix of air and sea freight, increases or decreases in number of orders, as well as generally increasing labor rates in fulfillment over time.

Marketing expenses have generally increased sequentially quarter-to-quarter as we have continued to scale our marketing efforts together with the growth of our business, or to drive growth in our business.

General and administrative expenses have fluctuated quarter-to-quarter, with such fluctuations primarily driven by the timing of transaction costs, increases in our headcount to support business growth and certain one-time stock-based compensation expenses related to the IPO that occurred in the third quarter of 2021.

General and administrative expenses have fluctuated quarter-to-quarter, with such fluctuations primarily driven by the increases in our headcount to support business growth.

Historically, we have achieved our largest quarterly sales in the fourth fiscal quarter.

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Three Months Ended

In thousands Mar 31,

(in thousands)

Net income (loss) $ 1,525 $ (4,212) $ (114) $ (173,896) $ (9,553) $ (5,040) $ (70,410) $ (13,883)

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Inventory step-up amortization expense 707 — — — — — — —

Distribution center relocation costs — — — — — 1,291 12 —

Transaction costs 11 90 39 — — — — —

Severance — — — — — — 291 15

Goodwill impairment — — — 173,786 — — 68,524 —

Sales tax penalties — — — — — — — 591

Non-routine items*

— 1,291 303 606 1,361 145 270 119

Adjusted EBITDA $ 10,652 $ 5,891 $ 9,236 $ 6,093 $ 2,186 $ 5,568 $ 4,697 $ 1,339

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Adjusted EBITDA margin 7 % 4 % 6 % 4 % 2 % 4 % 3 % 1 %

*Non-routine items include costs to establish or relocate distribution centers;

severance from headcount reductions;

sales tax penalties;

insured losses, net of recoveries;

and non-routine legal matters.

Liquidity and Capital Resources

As of December 31, 2023, our principal sources of liquidity were cash and cash equivalents totaling $21.9 million, our revolving line of credit and our term loan accordion provision.

Our cash equivalents primarily consist of money market funds.

As of December 31, 2023, most of our cash was held for working capital purposes.

We had historically financed our operations and capital expenditures primarily through cash flows generated by operations, the incurrence of debt and through the issuance of equity.

We have historically financed our operations and capital expenditures primarily through cash flows generated by operations, the incurrence of debt and through the issuance of equity.

We believe that our existing cash, together with cash generated from operations and available borrowing capacity under our credit facilities and lines of credit, will be sufficient to meet our anticipated cash needs for the next 12 months.

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Senior Secured Credit Facility

In connection with the IPO, we entered into a senior secured credit facility inclusive of a $100.0 million term loan and a $50.0 million revolving line of credit, with an option of up to $50.0 million in additional term loan through an accordion provision.

We used borrowings under this credit facility, together with a portion of the proceeds from the IPO, to repay the Fortress Credit Facilities in full.

As of December 31, 2022, the Company owed a combined $105.2 million in term loan and accordion borrowings, as well as $40.0 million borrowed under the revolving line of credit.

In connection with the IPO, we entered into a senior secured credit facility comprised of a $100.0 million term loan and a $50.0 million revolving line of credit, with an option of up to $50.0 million in an additional term loan through an accordion provision.

We used borrowings under this credit facility, together with a portion of the proceeds from the IPO, to repay our previous debt in full.

As of December 31, 2023, we owed a combined $94.5 million in term loan and accordion borrowings.

As of December 31, 2023, there were no amounts outstanding under the revolving line of credit.

The term loan requires us to make amortized annual payments of 5.0% during the first and second years, 7.5% during the third and fourth years and 10.0% during the fifth year with the balance of the loan due at maturity.

Borrowings under the term loan accrue interest at a benchmark rate plus an applicable margin dependent upon our net leverage ratio.

The revolving line of credit accrues interest at a benchmark rate plus an applicable margin dependent upon our net leverage ratio.

Borrowings under the term loan accrue interest at a benchmark rate (Term SOFR, as defined in the credit agreement for the senior secured credit facility (the “Credit Agreement”)) plus an applicable margin dependent upon our net leverage ratio, as defined in the Credit Agreement.

The revolving line of credit, when used, also accrues interest at a benchmark rate plus an applicable margin dependent upon our net leverage ratio, as defined in the Credit Agreement.

The highest interest rates under the agreement for both the term loan and revolving line of credit occur at a net leverage ratio of greater than 2.75x, yielding an interest rate of a benchmark rate plus 3.25%.

The accordion provision allows us to borrow additional amounts of term loan at terms to be agreed upon at the time of issuance, but on substantially the same basis as the original term loan.

As of December 31, 2022, principal payments of our term loan and accordion for the next twelve months are anticipated to total $5.6 million.

As part of our entering into the senior secured credit facility, we are subject to certain financial covenant ratios and certain annual mandatory prepayment terms based on excess cash flows, as defined by the credit agreement, based on our net leverage ratio for years beginning with the fiscal year ending December 31, 2022.

If we are unable to comply with certain financial covenant ratios and terms requiring mandatory prepayment based on a percentage of excess cash flows, our long-term liquidity position may be adversely impacted.

As of December 31, 2023, principal payments of our term loan and accordion for the next twelve months are anticipated to total $3.3 million, which reflects the impact of early prepayments made in 2023.

Under the senior secured credit facility, we are subject to certain financial covenant ratios and certain annual mandatory prepayment terms based on excess cash flows, as defined in the Credit Agreement, based on our net leverage ratio.

If we are unable to comply with certain financial covenant ratios, which include provisions that are not precisely defined and are subject to interpretation, and terms requiring mandatory prepayment based on a percentage of excess cash flows, our long-term liquidity position may be adversely impacted.

Furthermore, the variable interest rates associated with our senior secured credit facility could result in interest payments that are higher than anticipated.

We were in compliance with all debt covenants as of December 31, 2023, and expect to be in compliance beyond 12 months, although our ability to meet these financial ratios and tests can be affected by the interpretation of certain provisions within our Credit Agreement, macro economic factors and the seasonality of our business, which is more concentrated in the third and fourth fiscal quarters .

Refer to Note 8, “Debt,” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K for additional information regarding our senior secured credit facility.

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Additionally, we plan to incur capital expenditures of approximately $10.0 to $12.0 million in 2024.

This reflects the investments in infrastructure and technology in addition to the opening of new stores.

This reflects the opening of new stores, as well as investments in infrastructure and technology.

Historical Cash Flows

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2023 2022 2021

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

$ 33,426 $ (319) $ 23,968

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(6,031) (25,314) (278,075)

Net cash provided by financing activities

Net cash (used in) provided by financing activities

(52,829) 33,260 269,850

Net Cash (Used In) Provided by Operating Activities

Cash (used in) provided by operating activities consists primarily of net income (loss) adjusted for certain non-cash items, including depreciation, amortization, equity-based compensation, the effect of changes in working capital and other activities.

In 2022, net cash provided by operating activities decreased $24.3 million.

This was attributable primarily to timing of payments and a decrease in net income after adjusting for non-cash items, partially offset by a lower build of inventory compared to the prior year.

Net Cash Provided by (Used in) Operating Activities

Cash provided by (used in) operating activities consists primarily of net income (loss) adjusted for certain non-cash items, including depreciation, amortization, equity-based compensation, the effect of changes in working capital and other activities.

In 2023, net cash provided by operating activities increased $33.7 million.

This was attributable primarily to an increase in net income after adjusting for non-cash items.

These increases were partially offset by an increase in inventory to support our growth and expansion in both the U.S.

and Australia markets.

In 2022, net cash provided by operating activities decreased $24.3 million.

This was attributable primarily to timing of payments and a decrease in earnings after adjusting for non-cash items, partially offset by a lower build of inventory compared to the prior year.

Net Cash Used in Investing Activities

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In 2023, net cash used in investing activities decreased $19.3 million.

This was attributable to a reduction in purchases of property and equipment and the cash paid from holdbacks in the prior period related to the mnml acquisition.

The purchases of property and equipment in the prior year were primarily due to the build-out of the Culture Kings Las Vegas store.

In 2022, net cash used in investing activities decreased $252.8 million.

This was attributable to the acquisition of Culture Kings in March 2021, the purchase of the Petal & Pup noncontrolling interest in September 2021 and the acquisition of mnml in October 2021.

The impact of this prior year activity was partially offset by purchases of property and equipment, which was driven by the build-out of the Culture Kings Las Vegas store.

In 2021, net cash used in investing activities increased $275.7 million.

This was attributable to the acquisition of Culture Kings in March 2021, the purchase of the Petal & Pup noncontrolling interest in September 2021 and the acquisition of mnml in October 2021.

Net Cash Provided by Financing Activities

Our financing activities have historically consisted of cash proceeds received from the issuance of borrowings, cash used to pay down borrowings, cash received in exchange for partner units and cash received from the sale of our common stock in the IPO.

Net Cash (Used in) Provided by Financing Activities

Our financing activities have historically consisted of cash proceeds received from the issuance of borrowings, cash used to pay down borrowings, cash received from the sale of our common stock in the IPO and cash used to repurchase shares.

In 2023, net cash used in financing activities increased $86.1 million.

This was primarily attributable to the combined $50.7 million in principal payments, net of borrowings, on our senior secured credit facility in 2023 and the $34.4 million in borrowings, net of repayments, under our senior secured credit facility in 2022.

In 2022, net cash provided by financing activities decreased $236.6 million.

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The impact of these proceeds in 2021 was partially offset by proceeds from the line of credit in 2022.

In 2021, net cash provided by financing activities increased $268.6 million.

This was primarily attributable to the proceeds received from debt issuances and the IPO, as well as proceeds from the issuance of partner units to acquire Culture Kings in March 2021.

These proceeds were partially offset by repayments of certain borrowings and, specifically related to the IPO, underwriters’ discounts and commission.

Share Repurchase Program

On May 25, 2023, the Company’s board of directors approved the Share Repurchase Program, authorizing the Company to repurchase up to $2.0 million of shares of the Company’s common stock.

Subsequently, in 2023, the Company’s board of directors approved an additional repurchase capacity under the Share Repurchase Program of $3.0 million of shares of the Company’s common stock.

The timing of any repurchases by the Company and the actual number of shares repurchased are at the Company’s discretion, and, in deciding when to repurchase shares and the amount of shares to repurchase, the Company will consider available liquidity, general market and economic conditions, alternate uses for the capital and other factors.

Share repurchases may be made from time to time through a Rule 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements.

The Share Repurchase Program may be suspended or discontinued at any time and has no expiration date.

All repurchased shares under the Share Repurchase Program will be retired.

During the year ended December 31, 2023, the Company repurchased 319,486 shares of its common stock under the Share Repurchase Program for $2.1 million, at an average price of $6.71 per share.

Critical Accounting Estimates

We believe that the following accounting estimates involve a high degree of judgment and complexity.

Refer to Note 2, “Significant Account Policies,” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a description of our significant accounting policies.

Refer to Note 2, “Significant Accounting Policies,” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a description of our significant accounting policies.

The preparation of our financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes.

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Revenue Recognition

Our primary source of revenues is from sales of fashion apparel primarily through our digital platforms and stores.

We determine revenue recognition through the following steps in accordance with Topic 606:

Our primary sources of revenues are from sales of fashion apparel primarily through our digital platforms, stores, third-party marketplaces and, when applicable, shipping revenue.

We determine revenue recognition through the following steps in accordance with the Financial Accounting Standards Board’s Revenue from Contracts with Customers (Topic 606) :

• identification of the contract, or contracts, with a customer;

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Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

As part of the annual goodwill impairment test conducted in the fourth quarter of 2022, the Company determined that the carrying value of its Culture Kings and Rebdolls reporting units exceeded their fair values as of October 31, 2022 and recorded a non-cash goodwill impairment charge of $173.8 million during the year ended December 31, 2022.

As of December 31, 2022, $60.0 million of goodwill related to Culture Kings remained, while the goodwill related to Rebdolls was fully impaired.

No goodwill or intangible asset impairment was recorded for the year ended December 31, 2021.

Additionally, as of the testing date, the estimated fair value of the mnml reporting unit exceeded the carrying value by 7% and the carrying value of the related goodwill was $30.0 million.

In August 2023, due to elevated interest rates and unfavorable demand in Australia, the Company reduced its forecasts and expectations for the Culture Kings and Petal & Pup reporting units.

As a result, the Company recorded a non-cash goodwill impairment charge of $68.5 million during the third quarter of 2023.

As of December 31, 2023, $11.3 million of goodwill related to Petal & Pup remained on the Company’s balance sheet, while the goodwill related to Culture Kings was fully impaired.

Additionally, as of August 31, 2023, the estimated fair value of the mnml reporting unit exceeded the carrying value by 1.4%, and the carrying value of the related goodwill was $30.0 million.

Holding all other assumptions used in the fair value measurement of the mnml reporting unit constant, a 2% increase in the selected discount rate would result in impairment.

No additional impairment was identified as part of the annual goodwill impairment test conducted in the fourth quarter of 2023.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are recorded net on the face of the balance sheet.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis