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Nov. 9, 2021, 4:21 p.m. EST

10-Q: A.K.A. BRANDS HOLDING CORP.

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements because of various factors, including those set forth in the sections captioned "Risk Factors" and "Forward-Looking Statements" and in other parts of this Quarterly Report on Form 10-Q. Our fiscal year ends on December 31. Overview Established in 2018, a.k.a. Brands is a brand accelerator of direct-to-consumer fashion brands for the next generation. Each brand in the a.k.a. portfolio is customer obsessed, curates quality exclusive merchandise, creates authentic and inspiring social content and targets a distinct Gen Z and Millennial audience. a.k.a. Brands leverages its next-generation retail platform to help each brand accelerate its growth, scale in new markets and enhance its profitability. We founded a.k.a. with a focus on Millennial and Gen Z audiences who primarily shop for fashion on social media. We have since built a portfolio of four high-growth digital brands with distinct fashion offerings and consumer followings: In July 2018, we acquired a controlling interest in Princess Polly, an Australian 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. Princess Polly has successfully expanded in the U.S., growing U.S. sales by 161% in 2020 as compared to 2019. In August 2019, we acquired a controlling interest in Petal & Pup, an Australian fashion brand offering an assortment of trendy, flattering and feminine styles and dresses for special occasions. The brand targets female customers typically in their 20s or 30s, with more than half of customers in the 18-34-year-old age bracket. Since joining a.k.a., Petal & Pup has successfully expanded in the U.S., which was the brand's fastest growing market in 2020. In connection with the reorganization transactions and the IPO, Petal & Pup became our wholly-owned subsidiary. In December 2019, we acquired U.S.-based Rebdolls. The brand offers apparel with a full range of sizes from 0 to 32 and emphasizes size inclusivity. The typical customer is a diverse woman between the ages of 18 and 34. In March 2021, we acquired a controlling interest in Culture Kings, an Australia-based premium online retailer of streetwear apparel, footwear, headwear and accessories. The brand targets male consumers between the ages of 18 and 35 who are fashion conscious, highly social and digitally focused. In connection with the reorganization transactions and the IPO, Culture Kings became our wholly-owned subsidiary. Initial Public Offering In September 2021, we completed an initial public offering (the "IPO"), in which we issued and sold 10,000,000 shares of newly authorized common stock for $11.00 per share for net proceeds of $95.5 million, after deducting underwriting discounts and commissions of $6.6 million, and offering costs of $7.9 million. Table of Contents Key Operating and Financial Metrics Operating Metrics We use the following metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments and assess the near-term and longer-term performance of our business. The following table sets forth our key operating metrics for each period presented: Three Months Ended September 30, Nine Months Ended September 30, (in millions, other than dollar 2021 2020 amounts) 2021 2020 Active customers 3.1 1.3 3.1 1.3 Active customers across a.k.a. 3.1 2.0 3.1 2.0 Brands(1) Average order value $ 89 $ 79 $ 87 $ 74 Average order value across a.k.a. $ 89 $ 84 $ 89 $ 82 Brands(1) Number of orders 1.8 0.8 4.4 2.0 Number of orders across a.k.a. 1.8 1.3 4.9 3.2 Brands(1)

(1) Includes the impact of Culture Kings as if it had been acquired on January 1, 2020. Active Customers







                                                Three Months Ended September 30,           Nine Months Ended September 30,
                                                     2021                2020                  2021                   2020
        Gross margin                                       53%              61  %                       55%              58  %
        Net income (loss) (in thousands)        $  (10,093)          $   7,294          $        (6,114)          $   9,508
        Net income (loss) margin                          (6)%              12  %                      (2)%               7  %
        Adjusted EBITDA (in thousands)          $   18,548           $  12,906          $        46,302           $  19,850
        Adjusted EBITDA margin                          11   %              20  %                    12   %              14  %
        Net cash provided by operating                                                  $            20,631       $   8,972
        activities (in thousands)
        


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, net income margin and net cash provided by operating activities, respectively. See also "Components of Our Results of Operations" for more information.







                                                  Three Months Ended September 30,           Nine Months Ended September 30,
        In thousands                                   2021                2020                  2021                   2020
        Net income (loss)                         $  (10,093)          $   7,294          $        (6,114)          $   9,508
        Add (deduct):
        Total other expense, net                      15,589                 220                   19,867                 390
        Provision for (benefit from) income tax       (4,331)              3,375                   (2,625)              4,399
        Depreciation and amortization expense          4,235               1,602                   11,336               4,719
        Inventory step-up amortization expense         5,985                   -                   12,251                   -
        Equity-based compensation expense              5,582                 415                    6,714                 834
        Transaction costs                              1,581                   -                    4,873                   -
        Adjusted EBITDA                           $   18,548           $  12,906          $        46,302           $  19,850
        Net income (loss) margin                          (6)  %              12  %                    (2)  %               7  %
        Adjusted EBITDA margin                            11   %              20  %                    12   %              14  %
        


Free Cash Flow







                                                                              Nine Months Ended September 30,
                                                                               2021                    2020
        Net cash provided by operating activities                        $      20,631          $            8,972
        Less: purchases of property and equipment                                 (4,715)              (1,003)
        Free cash flow                                                   $      15,916          $            7,969
        


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 30-45 days. Our operating model requires a low level of capital expenditure.







                                                    Three Months Ended September 30,       Nine Months Ended September 30,
        In thousands                                    2021                2020               2021                2020
        Net sales                                   $  161,762          $  63,336          $  379,768          $ 145,135
        Cost of sales                                   75,652             24,831             171,636             61,437
        Gross profit                                    86,110             38,505             208,132             83,698
        Operating expenses:
        Selling                                         40,582             15,707              98,859             39,735
        Marketing                                       15,463              4,602              36,595             11,839
        General and administrative                      28,900              7,307              61,550             17,827
        Total operating expenses                        84,945             27,616             197,004             69,401
        Income from operations                           1,165             10,889              11,128             14,297
        Other expense, net:
        Interest expense                                (4,104)              (103)             (8,320)              (268)
        Loss on extinguishment of debt                 (10,924)                 -             (10,924)                 -
        Other expense, net                                (561)              (117)               (623)              (122)
        Total other expense, net                       (15,589)              (220)            (19,867)              (390)
        Income (loss) before income taxes              (14,424)            10,669              (8,739)            13,907
        Benefit from (provision for) income taxes        4,331             (3,375)              2,625             (4,399)
        Net income (loss)                              (10,093)             7,294              (6,114)             9,508
        Net loss (income) attributable to                  199               (232)                123               (302)
        noncontrolling interests
        Net income (loss) attributable to a.k.a.    $   (9,894)         $   7,062          $   (5,991)         $   9,206
        Brands Holding Corp.
                                                           Three Months Ended September 30,               Nine Months Ended September 30,
                                                             2021                    2020                   2021                    2020
        Net sales                                                100  %                 100  %                  100  %                 100  %
        Cost of sales                                             47  %                  39  %                   45  %                  42  %
        Gross profit                                                 53%                    61%                     55%                    58%
        . . .
        


Nov 09, 2021

COMTEX_396598877/2041/2021-11-09T16:21:14

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