a.k.a. Brands (AKA) - 2023 Q3 - Quarterly Report

Customer Metrics - For the three months ended September 30, 2023, active customers decreased to 3.6 million from 3.8 million in the same period of 2022[89]. - Customer acquisition strategies are evolving in response to changes in shopping behaviors and macroeconomic pressures, which may affect customer growth rates[103]. Financial Performance - Net loss for the three months ended September 30, 2023, was $70.41 million, significantly higher than a net loss of $0.11 million in the same period of 2022[92]. - Net sales decreased by $15.0 million, or 10%, for the three months ended September 30, 2023, primarily due to a 6% decrease in the number of orders and a 5% decrease in average order value[109]. - For the nine months ended September 30, 2023, net sales decreased by $65.3 million, or 14%, primarily due to an 11% decrease in the number of orders processed[118]. - Gross profit decreased by $34.7 million, or 13%, to $223.8 million for the nine months ended September 30, 2023, primarily due to a 14% reduction in net sales[120]. Cost and Expenses - Average order value for the three months ended September 30, 2023, was $81, down from $85 in the same period of 2022[89]. - Gross margin for the three months ended September 30, 2023, was 55%, compared to 56% in the same period of 2022[92]. - Cost of sales decreased by $6.1 million, or 9%, for the three months ended September 30, 2023, driven by lower inbound air freight costs and a reduction in net sales[110]. - Selling expenses decreased by $4.8 million, or 12%, for the three months ended September 30, 2023, due to operational efficiencies in distribution and fulfillment[112]. - Marketing expenses increased by $2.0 million, or 12%, for the three months ended September 30, 2023, attributed to reduced marketing effectiveness in Australia[113]. - General and administrative expenses decreased by $1.5 million, or 6%, for the three months ended September 30, 2023, primarily due to reductions in salaries and benefits[114]. Cash Flow and Liquidity - Free Cash Flow for the nine months ended September 30, 2023, was $12.58 million, a significant improvement from a negative Free Cash Flow of $25.36 million in the same period of 2022[97]. - Net cash provided by operating activities for the nine months ended September 30, 2023, was $18.04 million, compared to net cash used of $11.42 million in the same period of 2022[98]. - As of September 30, 2023, cash and cash equivalents totaled $20.7 million, with liquidity supported by a revolving line of credit and term loan[127]. - Net cash provided by operating activities increased by $29.5 million to $18.0 million, driven by a decrease in inventory[135]. - Net cash used in financing activities decreased by $57.7 million, primarily due to $37.3 million in principal payments on the senior secured credit facility[139]. Impairments and Other Expenses - Goodwill impairment was $68.5 million for the three months ended September 30, 2023, impacting the goodwill from the acquisitions of Culture Kings and Petal & Pup[115]. - Goodwill impairment of $68.5 million was recognized, primarily affecting the Culture Kings and Petal & Pup brands, with $10.6 million of goodwill related to Petal & Pup remaining[124]. - Other expense, net increased by $4.3 million to $10.8 million, primarily due to a $4.0 million increase in interest expense from rising interest rates[125]. Macroeconomic Factors - The company anticipates continued pressure from macroeconomic factors, including inflation and rising interest rates, which may impact net sales and operating income[100]. Internal Controls - The company's disclosure controls and procedures were deemed not effective at the reasonable assurance level as of September 30, 2023, due to identified material weaknesses[149]. - Two material weaknesses were identified in the internal control over financial reporting, which had not been remediated as of September 30, 2023[150]. - The company has taken steps to address material weaknesses, including hiring additional financial reporting personnel and implementing new processes[151]. - The company is still in the process of developing and implementing enhanced processes and procedures to remediate identified weaknesses[153]. - There were no changes in internal control over financial reporting during the period that materially affected the company's internal control[154].