What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-12 · 102 added, 155 removed, 59 unchanged (81% of the section changed)

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

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 nine months ended September 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 nine months ended September 30, 2023.

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

These sales were recorded within our Contract Manufacturing reporting segment and are not expected to recur on an ongoing basis.

The Servus brand was sold to allow us to focus on our more profitable core brands and allocate resources toward growth and development of additional opportunities with those brands moving forward.

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 number of pairs to the U.S.

Military through 2026, with the option to extend.

The sales under this contract are included in our Contract Manufacturing reporting segment.

The first quarter of 2024 was the first full quarter in which shipments were made to the U.S.

Military under this multi-year contract.

THIRD QUARTER 2024 FINANCIAL HIGHLIGHTS COMPARED TO THIRD QUARTER 2023

Net sales decreased 8.8% to $114.6 million;

BUSINESS OVERVIEW

We are a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Muck, Rocky, Georgia Boot, Durango, Lehigh, XTRATUF, Ranger and the licensed brand Michelin.

Our portfolio of brands is organized into three reportable segments in which our product is distributed:

Wholesale, Retail and Contract Manufacturing.

The reportable segments are targeted around six distinct product lines:

work, outdoor, western, duty, commercial military and military.

We frequently experience significant seasonal fluctuations in our business as many of our footwear products and product lines are used by consumers in adverse weather conditions.

Accordingly, average inventory levels have been highest during the second and third quarters of each year and sales been highest in the last two quarters of the year.

Our Lehigh CustomFit business, which falls under our Retail reporting segment, has had a steady increase in net sales over the past twelve months.

Additionally, as spending among consumers continues to shift to online retailers, we have seen an uptick in our Retail sales through our owned e-Commerce websites and third-party marketplace platforms over the past twelve months as we have increased our online presence.

As such, we have seen a shift in our total sales mix as the growth of our Retail segment outpaces the growth in our Wholesale and Contract Manufacturing segments.

During the first quarter of 2025, we experienced an increase in net sales over the first quarter of 2024.

This increase was attributable to an increase in Retail net sales, partially offset by a decrease in Wholesale net sales.

Overall gross margin improved over the past year, driven by the continued acceleration of growth in our Retail segment, which grew at a faster rate than our Wholesale and Contract Manufacturing segments.

Additionally, for the three months ended March 31, 2025, Wholesale gross margin as a percentage of net sales increased compared to the prior year period, largely due to favorable shifts in product mix, manufacturing efficiencies and strategic sourcing shifts.

Our operating expenses as a percentage of net sales increased in the first quarter of 2025 compared to the first quarter of 2024 due to the increase in Retail sales.

Sales under our Retail segment are generally subject to higher selling and outbound logistics costs relative to those costs incurred under our Wholesale and Contract Manufacturing segments.

In addition to the increased costs associated with Retail sales, we made incremental investments in digital marketing during the three months ended March 31, 2025 to drive sales growth.

Interest expense declined for the three months ending March 31, 2025 compared to the same period in 2024, due to lower interest rates following the refinancing of our debt in April 2024.

Additionally, continued debt repayments over the past twelve months have reduced the outstanding principal balances, further contributing to the decrease in interest expense.

Our inventory increase as of March 31, 2025 compared to March 31, 2024 was a strategic move to place ourselves in a better inventory position for the latter half of 2025 and to accelerate inventory purchases before new tariffs were put in place.

FIRST QUARTER 2025 FINANCIAL HIGHLIGHTS COMPARED TO FIRST QUARTER 2024

Net sales increased 1.1% to $114.1 million

Gross margin increased 210-basis points to 41.2%

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.

Inventory increased 6.3% to $175.5 million

Total debt decreased 17.5% to $128.6 million.

RESULTS OF OPERATIONS

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Three Months Ended

Nine Months Ended

September 30,

($ in thousands)

2 unchanged sentences

Income from operations

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

Net sales increased 1.1% to $114.1 million in the first quarter of 2025 compared to $112.9 million in the first quarter of 2024.

The increase in net sales in the current year quarter compared to the prior year quarter was due to an increase in our Retail reporting segment which was attributable to an increase in both our Lehigh CustomFit business and our director-to-consumer online business.

This increase was offset by a decrease in our Wholesale reporting segment.

Gross margin in the first quarter of 2025 was $47.0 million, or 41.2% of net sales, compared to $44.1 million, or 39.1% of net sales, in the first quarter of 2024.

The increase in gross margin as a percentage of net sales was attributed to an increase in Wholesale gross margins resulting from strategic sourcing shifts, a favorable shift in 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 first quarter of 2025 were $38.3 million, or 33.6% of net sales, compared to $36.2 million, or 32.0% of net sales, for the first quarter of 2024.

The increase in operating expenses as a percentage of net sales, was due to higher selling and outbound logistics costs associated with the increase in Retail sales as well as incremental investments in digital marketing.

Income from operations for the first quarter of 2025 was $8.7 million, or 7.6% of net sales, compared to $8.0 million, or 7.1% of net sales, in the year ago period.

The increase in income from operations was primarily driven by the increase in gross margin for the three months ended March 31, 2025, compared to the year ago period.

Three Months Ended

September 30,

($ in thousands)

1 unchanged sentence

Total Net Sales

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.

Military in the fourth quarter of 2023.

Wholesale net sales for the three months ended March 31, 2025 were $74.8 million compared to $79.8 million for the three months ended March 31, 2024.

The decrease in Wholesale net sales, as anticipated, was due to a blanket commercial military order that elevated sales in the first quarter of 2024.

Additionally, we experienced softness with some of our key Wholesale partners as they reset and repositioned their inventory assortment.

Retail net sales for the three months ended March 31, 2025 were $36.6 million compared to $30.4 million for the three months ended March 31, 2024.

The increase in Retail net sales for the first quarter of 2025 was partially due to increased sales in our Lehigh CustomFit platform.

In the first quarter of 2024, Lehigh completed a realignment of our sales organization, which allowed us to expand our customer base and increase offerings to current customers, positioning Lehigh for long-term term growth starting in the latter half of 2024.

Customer spending has also increased with improved subsidy utilization and increases in average subsidy dollars among Lehigh CustomFit customers in the first quarter of 2025 compared to the first quarter of 2024.

We also experienced an increase in sales through third-party marketplace platforms in the first quarter of 2025 compared to the year ago period due to increased promotions and more competitive pricing on certain products as we continue to optimize our inventory position.

Contract Manufacturing net sales for the three months ended March 31, 2025 and 2024 were $2.7 million.

The consistent sales year-over-year were due to the steady stream of income from the U.S.

Military that was awarded in late 2023.

Three Months Ended

September 30,

($ in thousands)

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Total Margin $'s

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.

Military which carried higher margins than private label sales.

Wholesale gross margin for the three months ended March 31, 2025 was $30.1 m illion, or 40.3% of net sales, compared to $29.0 million, or 36.4% of net sales, for the three months ended March 31, 2024.

The higher Wholesale gross margin in the first quarter of 2025 compared to the first quarter 2024 was attributable to strategic sourcing shifts, a more favorable product mix in the first quarter of 2025 compared to the prior year period as well as the blanket commercial military order in the prior year period that elevated sales but carried a lower gross margin compared to other Wholesale sales.

Retail gross margin for the three months ended March 31, 2025 was $16.7 million, or 45.7% of net sales, compared to $14.8 million, or 48.7% of net sales, for the three months ended March 31, 2024 .

The decrease in gross margin as a percent of net sales was attri butable to a decrease in margin on our e-Commerce and third-party marketplace platforms, driven by increased promotional activity and more competitive pricing as we continued to optimize our inventory position.

Contract Manufacturing gross margin for the three months ended March 31, 2025 was $0.2 million, or 5.8% of net sales, compared to $0.3 million, or 11.7% of net sales, for the three months ended March 31, 2024 .

The decrease in gross margin was driven by reduced economies of scale at our Puerto Rico manufacturing facility.

Three Months Ended

September 30,

($ in thousands)

OPERATING EXPENSES:

General and administrative

Sales and marketing

Depreciation and amortization

Operating Expenses

% of Net Sales

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.

Operating expenses for the three months ended March 31, 2025 were $38.3 million, or 33.6% of net sales compared to $36.2 million, or 32.0% of net sales.

The increase in operating expenses as a percentage of net sales was due to increases in selling and outbound logistics costs associated with a higher volume of Retail sales in the current year period.

Three Months Ended

September 30,

($ in thousands)

INTEREST EXPENSE AND OTHER - net

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.

INTEREST EXPENSE AND OTHER:

Interest expense

Other (income) expense, net

Total Interest Expense and Other

Interest Expense and Other - net for the three months ended March 31, 2025 was $2.4 million compared to $4.7 million in the year ago period.

The decrease in the first quarter of 2025 compared to the prior year period was due to a decrease in interest expense resulting from our debt refinance that occurred April 2024 as well as lower debt levels.

Three Months Ended

September 30,

($ in thousands)

Income Tax Expense

Effective Tax Rate

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)

Contract Manufacturing

Total Net Sales

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.

Nine Months Ended

September 30,

($ in thousands)

GROSS MARGIN:

Wholesale Margin $'s

Retail Margin $'s

Contract Manufacturing Margin $'s

Total Margin $'s

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 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.

Nine Months Ended

September 30,

($ in thousands)

OPERATING EXPENSES

% of Net Sales

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 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 TAXES:

Income Tax Expense

Effective Tax Rate

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.

The decrease in our effective tax rate in the first quarter of 2025 compared to the same year ago period was due to changes in our projected income generated from our international business.

LIQUIDITY AND CAPITAL RESOURCES

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

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

Our principal sources of liquidity are our income from operations, as well as access to the borrowing capacity under our ABL Facility.

We believe that we have sufficient liquidity to support our ongoing operations and to re-invest in our business to drive future growth.

As of March 31, 2025, we maintained cash and cash equivalen ts of $2.6 million and had $53.0 million of availability under our ABL Facility.

Our primary ongoing operating cash flow requirements are for inventory purchases and other working capital needs, capital expenditures and payments on our credit facilities.

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

Our working capital fluctuates throughout the year as a result of our seasonal business cycle and business expansion and is generally lowest in the months of January through March of each year and highest during the months of May through October of each year.

We typically utilize our revolving credit facility to fund our seasonal working capital requirements.

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 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.

We believe that our ABL Facility, coupled with cash generated from operations will provide sufficient liquidity to fund our operations and debt obligations for at least the next twelve months.

Our continued liquidity, however, is contingent upon future operating performance, cash flows and our ability to meet financial covenants under our credit facility.

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

Nine Months Ended

September 30,

Our working capital fluctuates throughout the year as a result of our seasonal business cycle and is generally lowest in the months of January through March of each year and highest during the months of May through October of each year.

Our cash generated from operations throughout the year is typically sufficient to fund our seasonal working capital requirements;

however, we have the ability to borrow on our ABL Facility as needed and, as such, its balance may fluctuate significantly throughout any given year.

In addition to our ABL Facility with outstanding borrowings of $97.7 million as of March 31, 2025, we also have a Term Facility with outstanding borrowings of $33.0 million as of March 31, 2025.

Our ABL Facility and Term Facility require us to maintain a minimum fixed charge coverage ratio, as defined in the agreement.

Additionally, the ABL Facility and Term Facility contain restrictions on the amount of dividend payments and the amount of share repurchases of common stock.

As of March 31, 2025, we were in compliance with such covenants and restrictions under the ABL Facility and Term Facility.

We may utilize portions of our excess cash to prepay certain amounts of long-term debt prior to maturity.

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

We lease certain machinery, equipment, and manufacturing facilities under operating leases that generally provide for renewal options.

As of March 31, 2025, our material cash requirements from known contractual obligations and commitments relate primarily to our long-term debt and operating leases commitments.

See Note 9 - Long-Term Debt to the Unaudited Condensed Consolidated Financial Statement for more information.

Based on our current expectations and forecasts of future earnings, we believe our cash generated from operations will provide sufficient liquidity to fund our operations and debt and lease obligations for the next twelve months and beyond.

Three Months Ended

($ in millions)

4 unchanged sentences

Operating Activities.

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 $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.

Net cash provided by operating activities for the three months ended March 31, 2025 and 2024 was $1.2 million and $17.4 million, respectively.

Adjusting for non-cash items, net income provided a cash in-flow of $8.8 million and $6.7 million for the three months ended March 31, 2025 and 2024 , respectively.

The net change in working capital and other assets and liabilities resulted in cash used by operating activities of $7.6 million for the three months ended March 31, 2025 , compared to an increase in cash provided by operating activities of $10.7 million for the three months ended March 31, 2024 .

An increase in inventory resulted in a use of cash of $8.8 million for the three months ended March 31, 2025 and a source of cash of $4.1 million for the three months ended March 31, 2024.

The increase in inventory for the three months ended March 31, 2025 resulted from inventory purchases during the quarter as a strategic move to accelerate inventory receipts in March to avoid higher tariffs that did not go into effect until April 2025.

The decrease in inventory for the three months ended March 31, 2024 was a result of efforts to optimize inventory levels.

An increase in accounts receivable resulted in the use of cash of $1.9 million for the three months ended March 31, 2025 compared to a decrease in accounts receivable resulting in a source of cash of $6.0 million for the three months ended March 31, 2024.

The increase in accounts receivable for the three months ended March 31, 2025 was a result of timing of payments from customers.

The decrease in accounts receivable for the year ago period resulted from lower sales in the fourth quarter of 2023 and subsequently, lower collections in the period year period.

Investing Activities.

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 .

Net cash used in investing activities for the three months ended March 31, 2025 and 2024 was $0.7 million and $0.3 million, respectively.

The use of cash in both periods was a result of capital expenditures for our manufacturing operations and information technology.

Financing Activities.

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.

Unless otherwise stated, we believe that the likelihood of the resolution being materially adverse to our financial statements is remote and as such have not recorded any contingent liabilities within the accompanying Unaudited Condensed Consolidated Financial Statement.

Net cash used in financing activities for the three months ended March 31, 2025 and 2024 was $1.7 million and $18.5 million, respectively.

The net use of cash primarily related to the payment of dividends for $1.2 million for the three months ended March 31, 2025.

The net use of cash for the three months ended March 31, 2024 related to payments on our revolving facility and term loan.

On February 25, 2025, we announced a share repurchase program of up to $7,500,000 of the Company's outstanding common stock, no par value per share.

We are contingently liable with respect to lawsuits, taxes and various other matters that routinely arise in the normal course of business.

See Note 14 - Commitments and Contingencies of our Unaudited Condensed Consolidated Financial Statements for further discussion of legal matters.

We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities, also known as "Variable Interest Entities." Additionally, we do not have any related party transactions that materially affect the results of operations, cash flow or financial condition.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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 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.

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, 2024 (filed March 17, 2025), 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