What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-08 · 108 added, 102 removed, 106 unchanged (66% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

During the second quarter of 2024, we amended and restated our Original ABL Facility which resulted in a restated $175.0 million revolving credit facility and a new $50.0 million term facility.

During the first nine months of 2024, we amended and restated our Original ABL Facility which resulted in a restated $175.0 million revolving credit facility and a new $50.0 million term facility.

The proceeds from this transaction were used to retire our existing senior secured term loan facility with TCW Asset Management Company, LLC as of April 26, 2024.

This transaction resulted in an expense of $2.6 million, consisting of a loss on extinguishment of term debt in the amount of $1.1 million and a $1.5 million prepayment penalty, which are included in Interest Expense and Other - net within the Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024.

See Note 10 - Long Term Debt to the Unaudited Condensed Consolidated Financial Statements for further information regarding our long-term debt.

During the first quarter of 2023, we divested the Servus brand.

The gain of approximately $1.3 million on the sale of the Servus brand was recorded within Interest Expense and Other - net in the Unaudited Condensed Consolidated Statements of Operations for the six months ended June 30, 2023.

Following the sale of the Servus brand, we manufactured Servus product on behalf of the buyer, pursuant to a transition services agreement.

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In 2023, we were also awarded a new multi-year contract with the U.S.

Military pursuant to which we will produce and ship a minimum numbers of pairs to the U.S.

Military pursuant to which we will produce and ship a minimum number of pairs to the U.S.

Military through 2026, with the option to extend.

2 unchanged sentences

Military under this multi-year contract.

SECOND QUARTER 2024 FINANCIAL HIGHLIGHTS COMPARED TO SECOND QUARTER 2023

Net sales decreased 1.6% to $98.3 million from the year ago quarter;

Operating income increased 104.7% to $4.5 million from the year ago quarter;

Inventory decreased 20.0% to $175.0 million as of June 30, 2023;

Total debt decreased 31.3% to $152.4 million as of June 30, 2024.

FIRST HALF OF 2024 FINANCIAL HIGHLIGHTS COMPARED TO FIRST HALF OF 2023

Net sales increased 40 basis points to $211.2 million from the year ago period;

Gross margin increased 20 basis points to 38.9% for the six months ending June 30, 2024;

Operating income increased 965 basis points to $12.5 million from the year ago period.

During the three and six months ended June 30, 2024, compared to the same periods last year, our Wholesale segment sales decreased while our Retail segment sales increased, particularly driven by an increase in our branded e-Commerce website sales.

Additionally, our Contract Manufacturing segment sales increased despite a decrease in private label contract sales during the three and six months ended June 30, 2024 due to the aforementioned newly awarded contract with the U.S.

These factors combined with an uptick in Wholesale gross margin resulted in increased gross margin for both the three and six months ended June 30, 2024 compared to the prior year periods.

As a result of cost saving measures and operational efficiencies from strategic restructuring initiatives implemented over the past year, we also saw a reduction in operating expenses as a percentage of net sales.

The decline in operating expenses coupled with increased margin led to increased operating income for both the three and six months ended June 30, 2024 compared to the prior year periods.

THIRD QUARTER 2024 FINANCIAL HIGHLIGHTS COMPARED TO THIRD QUARTER 2023

Net sales decreased 8.8% to $114.6 million;

Gross margin increased 110 basis points to 38.1% ;

Inventory decreased 11.8% to $171.8 million as of September 30, 2024 ;

Total debt decreased 29.7% to $150.3 million as of September 30, 2024 .

YEAR TO DATE 2024 FINANCIAL HIGHLIGHTS COMPARED TO YEAR TO DATE 2023

Net sales decreased 3.0% to $325.7 million;

Gross margin increased 60 basis points to 38.6% for the;

Operating income as a percentage of net sales increased 80 basis points to $22.6 million.

During the three and nine months ended September 30, 2024, compared to the same periods last year, our Wholesale segment sales decreased, due to certain nonrecurring sales, while our Retail segment sales increased, due to an increase in sales under our Lehigh CustomFit platform.

Additionally, our Contract Manufacturing segment sales increased despite a decrease in private label contract sales during the three and nine months ended September 30, 2024, due to the U.S.

Military contract awarded in the fourth quarter of 2023.

These factors combined with an increase in Wholesale gross margin resulted in an overall increase in gross margin for both the three and nine months ended September 30, 2024 compared to the prior year perio ds.

RESULTS OF OPERATIONS

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

Income from operations

Second quarter net sales decreased 1.6% to $98.3 million compared with $99.8 million in the second quarter of 2023.

The change in net sales was attributable to a $3.2 million decrease in Wholesale net sales, a $1.0 million increase in Retail net sales and a $0.6 million increase in Contract Manufacturing net sales.

Gross margin in the second quarter of 2024 was $38.0 million, or 38.7% of net sales, compared to $37.6 million, or 37.6% of net sales, for the same period last year.

The 110-basis point increase in gross margin as a percentage of net sales was due to an increase of 200-basis points in Wholesale gross margin as well as a higher percentage of Retail net sales, which carry higher gross margins than our Wholesale and Contract Manufacturing segments.

Operating expenses were $33.5 million, or 34.1% of net sales, for the second quarter of 2024 compared to $35.4 million, or 35.4% of net sales, for the same period a year ago.

The decrease in operating expense as a percentage of net sales was largely attributable to the restructuring and savings achieved from the cost-saving initiatives implemented in 2023.

Income from operations for the second quarter of 2024 was $4.5 million, or 4.6% of net sales compared to $2.2 million or 2.2% of net sales for the same period a year ago.

The increase in income from operations was primarily driven by an increase in gross margin in the current year period combined with a decrease in operating expenses.

Net sales for the six months ended June 30, 2024 increased 0.4% to $211.2 million from $210.3 million for the six months ended June 30, 2023.

Wholesale segment sales decreased $3.5 million, Retail segment sales increased $1.9 million and Contract Manufacturing segment sales increased $2.4 million during the first half of the year compared to the prior year period.

The decrease in Wholesale sales for the six months ended June 30, 2024 was mainly attributable to the sales of Servus brand in March 2023.

Gross margin in the second half of 2024 and 2023 was $82.1 million, or 38.9% of net sales and $81.3 million, or 38.7% of net sales, respectively.

The increase in gross margin as a percent of sales was mainly attri butable to increased Retail net sales which carry higher gross margins than the Wholesale and Contract Manufacturing segments.

Operating expenses for the six months ended June 30, 2024 were $69.7 million, or 33.0% of net sales, compared to $75.0 million, or 35.7% of net sales for the six months ended June 30, 2023 .

The reduction in operating expenses as a percentage of net sales during the six months ended June 30, 2024 compared to the year ago period was largely attributable to the restructuring and savings achieved from the cost-saving initiatives implemented in 2023.

Income from operations for the

June 30, 2024

was $12.5 million or 5.9% of net sales compared to $6.4 million or 3.0% of net sales for the same period a year ago.

The increase in income from operations was primarily driven by an increase in gross margin in the current year period combined with a reduction in operating expenses.

Three Months Ended June 30, 2024 compared to Three Months Ended June 30, 2023

Net sales decreased 8.8% to $114.6 million in the third quarter of 2024 compared to $125.6 million in the third quarter of 2023.

The decline in net sales for the quarter ended September 30, 2024 over the prior year period was attributable to a decrease in Wholesale net sales, partially offset by an increase in Retail and Contract Manufacturing net sales.

Gross margin in the third quarter of 2024 was $43.6 million, or 38.1% of net sales, compared to $46.5 million, or 37.0% of net sales, for the same period last year.

The increase in gross margin as a percentage of net sales was due to Wholesale product mix as well as a higher percentage of Retail net sales, which carry higher gross margins than our Wholesale and Contract Manufacturing segments.

Operating expenses for the three months ended September 30, 2024 were $33.6 million, or 29.3% of net sales, compared to $32.3 million, or 25.7% of net sales, for the three months ended September 30, 2023 .

The increase in operating expenses in the third quarter of 2024 compared to the third quarter of 2023 was primarily attributable to incremental brand building and advertising programs to support future growth.

Income from operations for the third quarter of 2024 was $10.1 million, or 8.8% of net sales, compared to $14.3 million, or 11.3% of net sales, for the same period a year ago.

The decrease in income from operations was primarily driven by a decrease in net sales and increase in operating expenses offset by an increase in gross margin in the current year period.

Net sales decreased 3.0% to $325.7 million for the nine months ended September 30, 2024 compared to $335.9 million for the nine months ended September 30, 2023.

The decline in net sales in the current year over the prior year period was attributable to a decrease in Wholesale net sales, partially offset by an increase in Retail and Contract Manufacturing net sales.

Gross margin for the nine months ended September 30, 2024 was $125.8 million or 38.6% of net sales compared to $127.9 million or 38.1% of net sales for the nine months ended September 30, 2023.

Operating expenses for the nine months ended September 30, 2024 were $103.3 million, or 31.7% of net sales, compared to $107.2 million, or 31.9% of net sales, for the prior year period.

The decrease in operating expenses as a percentage of sales for the nine months ended September 30, 2024 was primarily due to restructuring and cost-savings achieved from initiatives implemented during the first half of 2023.

Income from operations for the first nine months of 2024 was $22.6 million, or 6.9% of net sales, compared to $20.6 million, or 6.2% of net sales, for the same period a year ago.

The increase in income from operations was primarily driven by a decrease in operating expenses and an increase in gross margin as a percent of net sales in the current year period.

Three Months Ended September 30, 2024 compared to Three Months Ended September 30, 2023

Three Months Ended

September 30,

($ in thousands)

1 unchanged sentence

Total Net Sales

Wholesale net sales for the three months ended June 30, 2024 were $68.3 million compared to $71.5 million for the three months ended June 30, 2023 .

The decline in sales from the year-ago period was mainly attributable to non-recurring commercial military sales to a single customer in the second quarter of 2023, which did not occur again in the current year period.

Retail net sales for the three months ended June 30, 2024 were $26.1 million compared to $25.1 million for the three months ended June 30, 2023 .

The increase in Retail net sales for the second quarter of 2024 was due to continued growth in our e-commerce business as we focused on targeted marketing efforts, primarily through digital marketing.

This led to increased brand awareness and allowed us to engage more directly with consumers, which resulted in increased traffic on our branded websites and increased sales for the three months ended June 30, 2024 compared to the prior year period.

Contract Manufacturing net sales for the three months ended June 30, 2024 were $3.9 million compared to $3.3 million for the three months ended June 30, 2023 .

Wholesale net sales for the three months ended September 30, 2024 were $84.0 million compared to $99.7 million for the three months ended September 30, 2023 .

The decrease in net sales in the current year period was attributed to non-recurring sales following the change to a distributor model in Canada in November 2023 and temporarily elevated commercial military footwear sales to a single customer throughout 2023.

In addition to the aforementioned non-recurring sales, the decrease in Wholesale sales can be attributed to a more mild climate in the third quarter of 2024 compared to the prior year quarter as well as lean inventory on some key styles in the current period.

Re tail net sales for the three months ended September 30, 2024 were $26.8 million compared to $24.5 million for the three months ended September 30, 2023 .

The increase in Retail net sales for the third quarter of 2024 was due to increased sales in our Lehigh CustomFit platform as a result of completing a realignment of our sales organization which allowed us to expand our customer base and increase offerings to current customers.

Contract Manufacturing net sales for the three months ended September 30, 2024 were $3.8 million compared to $1.4 million for the three months ended September 30, 2023 .

The increase was due to a multi-year contract awarded with the U.S.

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Three Months Ended

September 30,

($ in thousands)

4 unchanged sentences

Total Margin $'s

Wholesale gross margin for the three months ended June 30, 2024 was $25.4 million, or 37.3% of net sales, compared to $25.2 million, or 35.2% of net sales, for the three months ended June 30, 2023 .

The increase in Wholesale gross margin was due to product mix as well as improved efficiencies at our manufacturing facilities and lower costs from our sourced factories over the last six months due to increased production.

Retail gross margin for the three months ended June 30, 2024 was $12.2 million, or 46.9% of net sales, compared to $12.2 million, or 48.7% of net sales for the three months ended June 30, 2023 .

The decrease in gross margin as a percent of sales was mainly attri butable to product mix as combined with enhanced promotional efforts on our branded e-Commerce websites as we aim to optimize our inventory levels.

Contract Manufacturing gross margin for the three months ended June 30, 2024 was $0.4 million, or 9.6% of net sales, compared to $0.2 million, or 5.4% of net sales for the three months ended June 30, 2023 .

Wholesale gross margin for the three months ended September 30, 2024 was $31.5 million, or 37.5% of net sales, compared to $34.6 million, or 34.7% of net sales, for the three months ended September 30, 2023.

T he higher Wholesale gross margins in the third quarter of 2024 compared to the third quarter 2023 was attributable to lower promotional activity in the current year period as well as opportunistic sales to certain international and key wholesale partners in the third quarter of 2023, which contributed to lower gross margins in the prior year period.

Retail gross margin for the three months ended September 30, 2024 was $11.7 million, or 43.6% of net sales, compared to $11.8 million, or 48.0% of net sales, for the three months ended September 30, 2023 .

The decrease in gross margin as a percent of net sales was attri butable to our Lehigh CustomFit platform having a higher percentage of total retail sales than our e-commerce branded websites, which carry lower margin than our branded e-commerce websites.

Contract Manufacturing gross margin for the three months ended September 30, 2024 was $0.4 million, or 12.0% of net sales, compared to $0.2 million, or 11.5% of net sales, for the three months ended September 30, 2023 .

The increase in gross margin was driven by increased sales to the U.S.

1 unchanged sentence

Three Months Ended

September 30,

($ in thousands)

1 unchanged sentence

% of Net Sales

Operating expenses for the three months ended June 30, 2024 were $33.5 million or 34.1% of net sales compared to $35.3 million, or 35.4% of net sales for the three months ended June 30, 2023 .

The reduction in operating expenses in the second quarter of 2024 compared to the second quarter of 2023 was attributable to the restructuring and savings achieved from the cost-saving initiatives implemented in 2023.

Operating expenses for the three months ended September 30, 2024 were $33.6 million or 29.3% of net sales compared to $32.3 million, or 25.7% of net sales for the three months ended September 30, 2023 .

Th is increase in operating expenses was primarily attributable to incremental brand building and advertising programs to support future growth.

Three Months Ended

September 30,

($ in thousands)

INTEREST EXPENSE AND OTHER - net

Interest Expense and Other - net for the three months ended June 30, 2024 was $6.1 million compared to $5.6 million in the year ago period.

The increase in interest expense in the current period was due to a $2.6 million term loan extinguishment charge associated with a prepayment penalty and accelerated amortization of deferred financing fees in connection with paying off our term debt, see Note 10 - Long Term Debt to the Unaudited Condensed Consolidated Financial Statement for more information.

Excluding this $2.6 million term loan extinguishment charge, Interest Expense and Other - net, decreased $2.1 million during the three months ended June 30, 2024 compared to the prior year period as a result of lower debt levels and lower interest rates in the second quarter of 2024 compared to the second quarter of 2023.

Interest Expense and Other - net for the three months ended September 30, 2024 was $3.2 million compared to $5.6 million in the year ago period .

The decrease in interest expense was a result of lower debt levels and lower interest rates in the third quarter of 2024 compared to the third quarter of 2023.

The lower interest rates can be attributed to the refinance completed in the second quarter of 2024.

Three Months Ended

September 30,

($ in thousands)

Income Tax (Benefit) Expense

Income Tax Expense

Effective Tax Rate

The increase in our effective tax rate in the second quarter of 2024 compared to the same year ago period was primarily driven by a shift in the mix of the Company's domestic and foreign earnings.

Six Months Ended June 30, 2024 compared to Six Months Ended June 30, 2023

Six Months Ended

The increase in our effective tax rate in the third quarter of 2024 compared to the same year ago period was primarily driven by a shift in the mix of the Company's domestic and foreign earnings.

Nine Months Ended September 30, 2024 compared to Nine Months Ended September 30, 2023

Nine Months Ended

September 30,

($ in thousands)

1 unchanged sentence

Total Net Sales

Wholesale net sales for the six months ended June 30, 2024 were $148.1 million compared to $151.5 million for the six months ended June 30, 2023 .

The decrease in W holesale sales for the six months ended June 30, 2024 was primarily due to the sale of the Servus brand in March 2023 as well as n on-recurring commercial military sales to a single customer in the second quarter of 2023 that were not repeated in the current year period.

Retail net sales for the six months ended June 30, 2024 were $56.5 million compared to $54.6 million for the six months ended June 30, 2023 .

The increase in Retail net sales was primarily due to growth in our e-commerce business as we focused on our targeted marketing efforts, primarily through digital marketing.

This led to increased brand awareness and allowed us to engage more directly with consumers, which resulted in increased traffic on our branded websites and increased sales for the six months ended June 30, 2024 compared to the prior year ago period.

Contract Manufacturing net sales for the six months ended June 30, 2024 were $6.6 million compared to $4.2 million for the six months ended June 30, 2023 .

Wholesale net sales for the nine months ended September 30, 2024 were $232.1 million compared to $251.2 million for the nine months ended September 30, 2023 .

The decline in net sales from the year ago period was primarily due to the sale of the Servus brand in March 2023, the change to our distributor model in Canada in November 2023 and temporarily elevated commercial military footwear sales to a single customer throughout 2023.

Retail net sales for the nine months ended September 30, 2024 were $83.3 million compared to $79.1 million for the nine months ended September 30, 2023 .

T he increase in Retail net sales was due to increased sales in our Lehigh CustomFit platform as we continue to expand our customer base and offerings to current customers.

Additionally, we experienced growth in our e-commerce business during the nine months ended September 30, 2024 as we focused on our targeted marketing efforts, primarily through digital marketing.

This led to increased brand awareness and allowed us to engage more directly with consumers, which resulted in increased traffic on our branded websites and increased sales for the nine months ended September 30, 2024 compared to the prior year ago period.

Contract Manufacturing net sales for the nine months ended September 30, 2024 were $10.3 million compared to $5.5 million for the nine months ended September 30, 2023 .

The increase was due to a multi-year contract awarded with the U.S.

Military in the fourth quarter of 2023.

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

4 unchanged sentences

Total Margin $'s

Wholesale gross margin for the six months ended June 30, 2024 was $54.5 million, or 36.8% of net sales, compared to $54.5 million, or 36.0% of net sales for the six months ended June 30, 2023.

The increase in Wholesale gross margin as a percent of sales was due to the divestiture of the Servus brand in March 2023, which carried lower gross margins than the rest of our product portfolio, as well as product mix.

Wholesale gross margin for the nine months ended September 30, 2024 was $86.0 million, or 37.0% of net sales, compared to $89.1 million, or 35.5% of net sales, for the nine months ended September 30, 2023 .

The increase in Wholesale gross margin as a percent of net sales was due to the divestiture of the Servus brand in March 2023, which carried lower gross margins than the rest of our product portfolio, as well as product mix.

The increase in reported gross margin for the current year period was partially offset by a $1.3 million net tariff refund received in the first quarter of 2023.

Retail gross margin for the six months ended June 30, 2024 was $27.0 million, or 47.8% of net sales, compared to $26.6 million, or 48.7% of net sales for the six months ended June 30, 2023.

The decrease in gross margin as a percent of sales was mainly attri butable to product mix combined with enhanced promotional efforts on our branded e-Commerce websites as we continue to optimize our inventory levels.

Contract Manufacturing gross margin for the six months ended June 30, 2024 was $0.7 million, or 10.4% of net sales, compared to $0.2 million, or 6.0% of net sales for the six months ended June 30, 2024 .

Retail gross margin for the nine months ended September 30, 2024 was $38.7 million, or 46.5% of net sales, compared to $38.4 million, or 48.5% of net sales, for the nine months ended September 30, 2023 .

The decrease in gross margin as a percent of net sales was due to an increase in Lehigh sales as a percent of total Retail sales, which typically carry a lower margin as well as enhanced promotional efforts on our branded e-commerce websites as we continue to optimize our inventory levels.

Contract Manufacturing gross margin for the nine months ended September 30, 2024 was $1.1 million, or 11.0% of net sales, compared to $0.4 million, or 7.3% of net sales, for the nine months ended September 30, 2023 .

T he increase in gross margin was driven by increased sales with the U.S.

Military which carried higher margins than sales private label sales.

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

1 unchanged sentence

% of Net Sales

Operating expenses for the six months ended June 30, 2024 were $69.7 million or 33.0% of net sales compared to $75.0 million, or 35.7% of net sales for the six months ended June 30, 2023 .

The reduction in operating expenses during the six months ended June 30, 2024 compared to the year ago period was primarily attributable to restructuring and cost-savings initiatives implemented in 2023 as well as lower outbound freight costs.

Six Months Ended

Operating expenses for the nine months ended September 30, 2024 were $103.3 million, or 31.7% of net sales, compared to $107.2 million, or 31.9% of net sales, for the nine months ended September 30, 2023 .

The reduction in operating expenses during the nine months ended September 30, 2024 compared to the year ago period was primarily attributable to restructuring and cost-savings initiatives implemented in 2023 as well as lower outbound freight costs.

Nine Months Ended

September 30,

($ in thousands)

INTEREST EXPENSE AND OTHER - net

Interest Expense and Other - net for the six months ended June 30, 2024 increased $0.5 million compared to the six months ended June 30, 2023.

The increase in interest expense in the current period was partially due to a $2.6 million term loan extinguishment charge associated with a prepayment penalty and accelerated amortization of deferred financing fees in connection with paying off our term debt, see Note 10 - Long Term Debt to the Unaudited Condensed Consolidated Financial Statement for more information.

Additionally, for the six months ended June 30, 2023, we recorded a $1.3 million gain within Interest Expense and Other - net resulting from the sale of the Servus brand.

See Note 4 - Sale of Servus Brand and Related Assets for more information.

Taking these items into consideration, the decrease in Interest Expense and Other - net was attributed to lower debt levels and interest rates in current period compared to the same period last year.

Six Months Ended

Interest Expense and Other - net for the nine months ended September 30, 2024 decreased $2.0 million compared to the nine months ended September 30, 2023.

The decrease in Interest Expense and Other - net was mainly attributed to our debt refinance that took place during the second quarter of 2024, as well as lower debt levels and interest rates for the nine months ended September 30, 2024 compared to the prior year ago period.

See Note 10 - Long Term Debt to the Unaudited Condensed Consolidated Financial Statement for more information.

Nine Months Ended

September 30,

($ in thousands)

Income Tax (Benefit) Expense

Income Tax Expense

Effective Tax Rate

The increase in our effective tax rate for the six months ended June 30, 2024 compared to the same year ago period was primarily driven by a shift in the mix of the Company's domestic and foreign earnings.

The increase in our effective tax rate for the nine months ended September 30, 2024 compared to the same year ago period was primarily driven by a shift in the mix of the Company's domestic and foreign earnings.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity has been our income from operations.

During the six months ended June 30, 2024 , our primary use of cash was payments on our credit facilities.

During the nine months ended September 30, 2024 , our primary use of cash was payments on our credit facilities.

Our working capital consists primarily of trade receivables and inventory, offset by short-term debt and accounts payable.

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As a result, balances on our revolving credit facility can fluctuate significantly throughout the year.

Our capital expenditures relate primarily to projects relating to our corporate offices, property, merchandising fixtures, molds and equipment associated with our manufacturing and distribution operations and for information technology.

Capital expenditures were $2.4 million and $2.3 million fo r the six months ended June 30, 2024 and 2023 , respectively.

Our capital expenditures relate primarily to projects relating to our offices, property, merchandising fixtures, molds and equipment associated with our manufacturing and distribution operations and for information technology.

We lease certain machinery, a distribution center in Reno, Nevada, and manufacturing facilities under operating leases that generally provide for renewal options.

2 unchanged sentences

For more information regarding our credit facility see Note 10 - Long Term Debt of our Notes to Unaudited Condensed Consolidated Financial Statements.

Six Months Ended

Nine Months Ended

September 30,

($ in millions)

4 unchanged sentences

Operating Activities.

Net cash provided by operating activities for the six months ended June 30, 2024 and 2023 was $23.9 million and $19.7 million, respectively.

Adjusting for non-cash items, net income provided a cash in-flow of $10.5 million and $2.7 million for the six months ended June 30, 2024 and 2023 , respectively.

The net change in working capital and other assets and liabilities resulted in an increase to cash provided by operating activities of $13.4 million for the six months ended June 30, 2024 compared to an increase of $17.0 million for the six months ended June 30, 2023.

Decreases in accounts receivable provided a source of cash of $13.1 million and $22.5 million for the six months ended June 30, 2024 and 2023 , respectively.

The year-over-year decline in cash generated from accounts receivable was attributed to lower sales during the fourth quarter of 2023 compared to the fourth quarter of 2022.

This reduction in sales led to decreased collections in the subsequent quarter, as there were fewer sales upon which to collect.

An increase in inventory resulted in a use of cash of $5.8 million f or the six months ended June 30, 2024 compared to a decrease of inventory and a source of cash of $10.9 million for the six months ended June 30, 2023 .

The rise in inventory in 2024 was driven by an increase in in-transit inventory at quarter-end as we optimize inventory levels in preparation the second half of the year.

Net cash provided by operating activities for the nine months ended September 30, 2024 and 2023 was $28.4 million and $31.1 million, respectively.

Adjusting for non-cash items, net income provided a cash in-flow of $20.0 m illion and $12.9 million for the nine months ended September 30, 2024 and 2023 , respectively.

The net change in working capital and other assets and liabilities resulted in an increase to cash provided by operating activities of $8.3 million for the nine months ended September 30, 2024 , compared to an increase of $18.3 million for the nine months ended September 30, 2023.

An increase in accounts receivable resulted in a use of cash of $1.2 million and $3.0 million for the nine months ended September 30, 2024 and 2023 , respectively.

The increase in accounts receivable in 2024 and 2023 was due to timing of collections.

An increase in inventory resulted in a use of cash of $2.6 million f or the nine months ended September 30, 2024 compared to a decrease of inventory and a source of cash of $34.5 million for the nine months ended September 30, 2023 .

The rise in inventory in 2024 was driven by an increase in in-transit inventory at quarter-end as we optimize inventory levels in preparation for the fourth quarter and holiday season.

The decrease in inventory in 2023 was a result of efforts to reduce inventory levels to better align our inventory levels with supply needs.

Changes in accounts payable resulted in a source of cash of $7.1 million for the six months ended June 30, 2024 compared to a use of cash of $10.1 million for the six months ended June 30, 2023 .

Changes in accounts payable resulted in a source of cash of $12.4 million for the nine months ended September 30, 2024 compared to a use of cash of $8.4 million for the nine months ended September 30, 2023 .

The change in accounts payable was mainly attributable to the change in purchases resulting in the continuous improvement of our inventory levels and inventory optimization in both years.

Investing Activities.

Net cash used in investing activities for the six months ended June 30, 2024 was $0.4 million, compared to net cash provided by investing activities of $15.6 million for the same period in 2023.

We invested $2.1 million and $1.7 million in capital expenditures for our manufacturing operations and information technology during the six months ended June 30, 2024 and 2023, respectively.

These investments were offset by proceeds from the sale of the Servus brand, totaling $1.7 million in the six months ended June 30, 2024 and $17.3 million in the six months ended June 30, 2023.

Net cash used in investing activities for the nine months ended September 30, 2024 was $1.5 million, compared to net cash provided by investing activities of $14.4 million for the same period in 2023 .

We inve sted $3.2 million and $2.9 mi llion in capital expenditures for our manufacturing operations and information technology during the nine months ended September 30, 2024 and 2023 , respectively.

These investments were offset by proceeds from the sale of the Servus brand, totaling $1.7 million in the nine months ended September 30, 2024 and $17.3 million in the nine months ended September 30, 2023 .

Financing Activities.

Net cash used in financing activities for the six months ended June 30, 2024 and 2023 was $23.8 million and $37.9 million, respectively.

The use of cash primarily related to payments on our revolving credit facility and term debt, which totaled $20.1 million and $35.6 million for the six months ended June 30, 2024 and 2023, respectively.

Net cash used in financing activities for the nine months ended September 30, 2024 and 2023 was $27.7 million and $47.0 million, respectively.

The use of cash primarily related to payments on our revolving credit facility and term debt for the nine months ended September 30, 2024 and 2023 , respectively.

The Company is involved in legal proceedings in the ordinary course of business.

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Words such as “believe,” “anticipate,” “expect,” “will,” “may,” “should,” “intend,” “plan,” “estimate,” “predict,” “potential,” “continue,” “likely,” “would,” “could” and similar expressions are intended to identify forward-looking statements.

Investors are cautioned that forward-looking statements involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail trends, the loss or disruption of our manufacturing and distribution operations, cybersecurity breaches or disruption of our digital systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption “Item 1A, Risk Factors” in our Annual Report on Form 10- K for the year ended December 31, 2023 (filed March 15, 2024) and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (filed May 9, 2024), and other factors detailed from time to time in our filings with the Securities and Exchange Commission.

Investors are cautioned that forward-looking statements involve risk and uncertainties including, without limitations, dependence on sales forecasts, changes in consumer demand, seasonality, impact of weather, competition, reliance on suppliers, risks inherent to international trade, changing retail trends, the loss or disruption of our manufacturing and distribution operations, cybersecurity breaches or disruption of our digital systems, fluctuations in foreign currency exchange rates, economic changes, as well as other factors set forth under the caption “Item 1A, Risk Factors” in our Annual Report on Form 10- K for the year ended December 31, 2023 (filed March 15, 2024) and the Quarterly Reports on Form 10-Q for the quarter ended March 31, 2024 (filed May 9, 2024) and June 30, 2024 (filed August 8, 2024), and other factors detailed from time to time in our filings with the Securities and Exchange Commission.

Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate.

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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-Q

Item 2. Management’s Discussion and Analysis