UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-40828

a.k.a. Brands Holding Corp.

(Exact name of registrant as specified in its charter)


Delaware						87-0970919
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

100 Montgomery Street, Suite 1600

San Francisco, California 94104

(Address of principal executive offices, including zip code)

415-295-6085

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

AKA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated Filer

Non-accelerated filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of ~~November 7, 2022,~~May 8, 2023, the registrant had ~~128,815,758~~129,113,108 shares of common stock outstanding.

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a.k.a. BRANDS HOLDING CORP.

FORM 10-Q

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		Page
	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	46
	Condensed Consolidated Balance Sheets	46
	Condensed Consolidated Statements of Income	57
	Condensed Consolidated Statements of Comprehensive Income	68
	Condensed Consolidated Statements of Changes in Stockholders’ Equity ~~Partners' Capital and Redeemable Noncontrolling Interest~~	79
	Condensed Consolidated Statements of Cash Flows	910
	Notes to Condensed Consolidated Financial Statements	1011
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2821
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4131
Item 4.	Controls and Procedures	4232

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	4434
Item 1A.	Risk Factors	4434
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4434
Item 3.	Defaults Upon Senior Securities	4434
Item 4.	Mine Safety Disclosures	4434
Item 5.	Other Information	4434
Item 6.	Exhibits	4535

	Signatures	36

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FORWARD-LOOKING STATEMENTS

All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, or that describe our plans, goals, intentions, objectives, strategies, expectations, beliefs and assumptions, are forward-looking statements. The words “believe,” “may,” “might,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “project,” “plan,” “objective,” “could,” “would,” “should” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. We caution that the forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of known and unknown risks, uncertainties and assumptions that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Factors that could contribute to these differences include, among other things:

•~~the effects of geopolitical,~~ economic downturns and market conditions beyond our control, including ~~heightened inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, the impact~~periods of the COVID-19 pandemic, challenges in the supply chain and any disruptions in European economies as a result of the conflict in Ukraine on our operations, customer demand, and our supplier's ability to meet our needs;inflation;

•~~rapidly-changing~~our ability to regain compliance with the minimum share price listing standard of the New York Stock Exchange (the “NYSE”) within the applicable cure period and our ability in the future to comply with the NYSE listing standards and maintain the listing of our common stock on the NYSE;

•the quality of global financial markets;

•risks related to doing business in China, including changes in the political and economic policies of the Chinese government or in relations between China and the United States;

•rapid changes in consumer preferences in the apparel, footwear and accessories ~~industries;~~industry;

•our ~~failure~~ability to acquire new customers in a cost-effective manner;

•our ability to retain existing customers orand maintain average order value levels;

•the effectiveness of our marketing and our ~~level of~~ability to maintain high customer traffic;

•the rate of merchandise ~~return rates;~~returns;

•our ~~success in identifying~~ability to manage inventory effectively;

•our ability to procure sufficient quantities of third-party merchandise on favorable terms;

•our ability to identify brands to acquire or to integrate and manage on our ~~platform,~~acquisitions and ~~expansion~~investments effectively;

•the effectiveness of our growth strategy;

•our ability to expand into new markets;

•~~the global nature of our business;~~risks related to doing business internationally;

•interruptions in or increased costs of shipping;

•risks related to our direct-to-consumer business model;

•risks related to our use of social media ~~platforms~~ and ~~influencer sponsorship initiatives;~~influencers in marketing, including potential impact to our reputation or regulatory scrutiny;

•~~inherent challenges~~our ability to achieve projected results or to meet the expectations of securities analysts or investors;

•fluctuations in ~~measurement~~our operating results;

•our ability to ~~which certain of~~track our key operating metrics ~~are subject;~~accurately;

•our ability to maintain our corporate integrity or the image and reputation of our brands;

•potential liability for uncollected sales tax ~~liabilities that may increase~~ in certain jurisdictions;

•foreign currency exchange rate fluctuations;

•the ~~costs our consumers would have to pay for our offerings;~~effects of weather conditions, natural disasters or other unexpected events, including global health crises;

•our ability to attract or retain key personnel, manage executive officer succession effectively or hire, develop and ~~retain highly qualified personnel;~~motive key employees;

•risks related to our decentralized brand management structure;

•increases in labor costs or fluctuations in wage rates ~~and~~or the price, availability ~~and~~or quality of raw materials and finished goods;

•risks related to distribution, including expansion of the capacity of our fulfillment centers;

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•our ability to meet stakeholder expectations for ethically- and sustainably-sourced fashion;

•declines in the fair value of intangible assets or of a business unit;

•our ability to comply with changing laws or regulations or contractual or other obligations related to data privacy and security;

•our reliance upon third-party suppliers and manufacturers;

•changes in accounting standards and subjective assumptions, estimates and judgments by management relating to complex accounting matters;

•our and our suppliers’ compliance with laws or regulations regarding consumer protection, promotions, safety or other matters;

•risks related to climate change;

•our ability to comply with changing U.S., Australian or international trade policy, tariff or import/export regulations;

•our reliance on overseas manufacturing and supply partners, including vendors located in jurisdictions presenting an increased risk of bribery and corruption;

•inadequacy, interruption or integration or security failure of our and third parties’ information technology systems;

•security breaches or resulting loss, theft, misuse or unauthorized disclosure or access of customer, supplier or sensitive company information;

•risks related to customer use of mobile devices to shop;

•restrictions or changes to “cookie” technology as a means of tracking consumer behavior;

•third-party claims of infringement, misappropriation or other violation of intellectual property rights;

•our ability to adequately establish, maintain, protect or enforce our intellectual property or proprietary rights, or prevent third parties from making unauthorized use of such rights, such as by counterfeiting of our products;

•risks related to collecting payments from customers;

•system interruptions that impair customer access to our sites or other performance failures in our technology infrastructure;

•the impact of our indebtedness, including future indebtedness, on our business and growth prospects;

•our ability to service our indebtedness;

•limitations on our operations as a result of restrictive covenants in our financing documents;

•our ability to refinance our indebtedness;

•our ability to raise capital or ~~increased costs~~generate cash flows necessary to expand our operations;

•risks related to Summit’s control of ~~shipping~~us;

•volatility in our stock price, including as a result of sales of substantial amounts of our common stock;

•our ability to develop and ~~distribution;~~maintain proper and effective internal control over financial reporting; and

•the other risk factors set forth elsewhere in this ~~report~~Quarterly Report on Form 10-Q and under Item 1A of Part I of ~~the~~our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March ~~1, 2022~~9, 2023 (the ~~“2021~~“2022 Form 10-K”).

Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

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You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or changes in our expectations, unless otherwise required by law.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

(unaudited)

September 30,
2022 December 31,
2021
Assets
Current assets:
Cash and cash equivalents $ 31,114 $ 38,832
Restricted cash 1,946 2,186
Accounts receivable 3,870 2,663
Inventory, net 136,931 115,783
Prepaid income taxes 10,413 4,059
Prepaid expenses and other current assets 16,140 20,809
Total current assets 200,414 184,332
Property and equipment, net 26,263 14,657
Operating lease right-of-use assets 37,770 26,415
Intangible assets, net 78,067 98,287
Goodwill 326,855 363,305
Other assets 889 850
Total assets $ 670,258 $ 687,846
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 33,745 $ 25,088
Accrued liabilities 49,786 53,375
Sales returns reserve 6,150 6,887
Deferred revenue 7,499 11,344
Operating lease liabilities, current 6,034 5,721
Current portion of long-term debt 5,600 5,600
Total current liabilities 108,814 108,015
Long-term debt 124,334 103,182
Operating lease liabilities 35,028 21,370
Other long-term liabilities 1,361 1,333
Deferred income taxes, net 1,022 2,920
Total liabilities 270,559 236,820
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, $0.001 par value; 50,000,000 shares authorized; zero shares issued or outstanding as of September 30, 2022 and December 31, 2021, respectively — —
Common stock, $0.001 par value; 500,000,000 shares authorized; 128,814,790 and 128,647,836 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively 129 129
Additional paid-in capital 458,170 453,807
Accumulated other comprehensive loss (63,969) (11,080)
Retained earnings 5,369 8,170
Total stockholders’ equity 399,699 451,026
Total liabilities and stockholders’ equity $ 670,258 $ 687,846

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~Table of~~ ~~Contents~~

~~a.k.a. BRANDS HOLDING CORP.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF INCOME~~

~~(in thousands, except share and per share amounts)~~

~~(unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net sales $ 155,822 $ 161,762 $ 462,612 $ 379,768
Cost of sales 68,965 75,652 204,112 171,636
Gross profit 86,857 86,110 258,500 208,132
Operating expenses:
Selling 41,450 40,582 127,068 98,859
Marketing 16,532 15,463 51,301 36,595
General and administrative 26,133 28,900 76,614 61,550
Total operating expenses 84,115 84,945 254,983 197,004
Income from operations 2,742 1,165 3,517 11,128
Other expense, net:
Interest expense (1,835) (4,103) (4,487) (8,320)
Loss on extinguishment of debt — (10,924) — (10,924)
Other expense (923) (562) (2,035) (623)
Total other expense, net (2,758) (15,589) (6,522) (19,867)
Loss before income taxes (16) (14,424) (3,005) (8,739)
Benefit from (provision for) income taxes (98) 4,331 204 2,625
Net loss (114) (10,093) (2,801) (6,114)
Net loss attributable to noncontrolling interests — 199 — 123
Net loss attributable to a.k.a. Brands Holding Corp. $ (114) $ (9,894) $ (2,801) $ (5,991)
Net loss per share:
Basic $ 0.00 $ (0.11) $ (0.02) $ (0.07)
Diluted $ 0.00 $ (0.11) $ (0.02) $ (0.07)
Weighted average shares outstanding:
Basic 128,686,319 88,368,709 128,663,950 81,401,682
Diluted 128,686,319 88,368,709 128,663,950 81,401,682

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~Table of~~ ~~Contents~~

~~a.k.a. BRANDS HOLDING CORP.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(in thousands)~~

~~(unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net loss $ (114) $ (10,093) $ (2,801) $ (6,114)
Other comprehensive loss:
Currency translation (28,263) (20,146) (52,889) (31,245)
Total comprehensive loss (28,377) (30,239) (55,690) (37,359)
Comprehensive loss attributable to noncontrolling interests — 6,954 — 10,824
Comprehensive loss attributable to a.k.a. Brands Holding Corp. $ (28,377) $ (23,285) $ (55,690) $ (26,535)


	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	30,224	$	46,319
Restricted cash	2,020		2,054
Accounts receivable	3,309		3,231
Inventory, net	112,496		126,533
Prepaid income taxes	7,088		6,089
Prepaid expenses and other current assets	13,592		13,378
Total current assets	168,729		197,604
Property and equipment, net	27,638		28,958
Operating lease right-of-use assets	39,179		37,317
Intangible assets, net	72,864		76,105
Goodwill	165,335		167,731
Deferred tax assets	917		1,070
Other assets	804		853
Total assets	$	475,466	$	509,638
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	16,544	$	20,903
Accrued liabilities	30,657		39,806
Sales returns reserve	4,944		3,968
Deferred revenue	10,863		11,421

Operating lease liabilities, current	6,466		6,643
Current portion of long-term debt	6,300		5,600
Total current liabilities	75,774		88,341
Long-term debt	126,062		138,049
Operating lease liabilities	36,545		34,404
Other long-term liabilities	1,497		1,483
Deferred income taxes	96		284
Total liabilities	239,974		262,561
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, $0.001 par value; 50,000,000 shares authorized; zero shares issued or outstanding as of March 31, 2023 and December 31, 2022, respectively	—		—
Common stock, $0.001 par value; 500,000,000 shares authorized; 129,089,620 and 128,647,836 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	129		129
Additional paid-in capital	462,553		460,660
Accumulated other comprehensive loss	(49,110)		(45,185)
Accumulated deficit	(178,080)		(168,527)

Total stockholders’ equity	235,492		247,077
Total liabilities and stockholders’ equity	$	475,466	$	509,638

The accompanying notes are an integral part of these condensed consolidated financial statements.

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a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’ EQUITY, PARTNERS’ CAPITAL(1)~~ ~~AND REDEEMABLE NONCONTROLLING INTEREST~~INCOME

(in thousands, except share and ~~unit data)~~per share amounts)

(unaudited)

Common Stock Additional Paid-In Capital

Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholders’ Equity
Shares Amount
Balance as of December 31, 2021 128,647,836 $ 129 $ 453,807 $ (11,080) $ 8,170 $ 451,026
Equity-based compensation — — 1,368 — — 1,368
Cumulative translation adjustment — — — 14,405 — 14,405
Net income — — — — 1,525 1,525
Balance as of March 31, 2022 128,647,836 129 455,175 3,325 9,695 468,324
Equity-based compensation — — 1,494 — — 1,494
Issuance of common stock upon settlement of equity awards, net of shares withheld 21,345 — (32) — — (32)
Cumulative translation adjustment — — — (39,031) — (39,031)
Net loss — — — — (4,212) (4,212)
Balance as of June 30, 2022 128,669,181 129 456,637 (35,706) 5,483 426,543
Equity-based compensation — — 1,586 — — 1,586
Issuance of common stock upon settlement of equity awards, net of shares withheld 145,609 — (53) — — (53)
Cumulative translation adjustment — — — (28,263) — (28,263)
Net loss — — — — (114) (114)
Balance as of September 30, 2022 128,814,790 $ 129 $ 458,170 $ (63,969) $ 5,369 $ 399,699


	Three Months Ended March 31,
	2023		2022
Net sales	$	120,485	$	148,319
Cost of sales	51,985		64,123
Gross profit	68,500		84,196
Operating expenses:
Selling	34,406		40,364
Marketing	14,777		15,705
General and administrative	25,868		24,778
Total operating expenses	75,051		80,847
Income (loss) from operations	(6,551)		3,349
Other expense, net:
Interest expense	(2,851)		(1,259)
Other income (expense)	(1,034)		88
Total other expense, net	(3,885)		(1,171)
Income (loss) before income taxes	(10,436)		2,178
Benefit from (provision for) income taxes	883		(653)
Net income (loss)	$	(9,553)	$	1,525


Net income (loss) per share:
Basic	$	(0.07)	$	0.01
Diluted	$	(0.07)	$	0.01
Weighted average shares outstanding:
Basic	129,040,617		128,647,836
Diluted	129,040,617		128,653,421

The accompanying notes are an integral part of these condensed consolidated financial statements.

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a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’ EQUITY, PARTNERS’ CAPITAL(1)~~ ~~AND REDEEMABLE NONCONTROLLING INTEREST~~COMPREHENSIVE INCOME

(in ~~thousands, except share and unit data)~~thousands)

(unaudited)

Common Stock
Partnership Units(1)
Additional Paid-In Capital

Accumulated Other Comprehensive Income (Loss) Retained Earnings Noncontrolling Interest Total Stockholders’ Equity Redeemable Noncontrolling Interest
Shares Amount Units Amount
Balance as of December 31, 2020 — $ — 114,167,842 $ 108,197 $ 727 $ 5,839 $ 14,138 $ 9,983 $ 138,884 $ —
Issuance of units — — 25,746,282 82,669 — — — — 82,669 —
Noncontrolling interest from purchase of Culture Kings — — — — — — — 142,717
Equity-based compensation — — — 523 — — — 523 —
Cumulative translation adjustment — — — — — (3,444) — (398) (3,842) (1,575)
Net income — — — — — — 1,472 318 1,790 —
Balance as of March 31, 2021 — — 139,914,124 190,866 1,250 2,395 15,610 9,903 220,024 141,142
Equity-based compensation — — — — 609 — — — 609 —
Cumulative translation adjustment — — — — — (3,709) — (137) (3,846) (1,835)
Net income — — — — — — 2,431 253 2,684 (495)
Balance as of June 30, 2021 — — 139,914,124 190,866 1,859 (1,314) 18,041 10,019 219,471 138,812
Purchase of Petal & Pup noncontrolling interest — — — — (10,599) — — (9,599) (20,198) —
Purchase of Culture Kings noncontrolling interest 21,809,804 22 — — 132,256 — — — 132,278 (132,278)
Reorganization transactions 94,780,338 95 (139,914,124) (190,866) 190,771 — — — — —
Issuance of common stock upon initial public offering, net of issuance costs 10,000,000 10 — — 95,472 — — — 95,482 —
Equity-based compensation — — — — 5,582 — — — 5,582 —
Cumulative translation adjustment — — — — — (13,392) — (471) (13,863) (6,283)
Net income (loss) — — — — — — (9,894) 51 (9,843) (251)
Balance as of September 30, 2021 126,590,142 $ 127 — $ — $ 415,341 $ (14,706) $ 8,147 $ — $ 408,909 $ —

~~_________~~

~~(1)Excelerate, L.P. was the predecessor entity to a.k.a. Brands Holding Corp. Refer to Note 1 for additional information.~~


	Three Months Ended March 31,
	2023		2022
Net income (loss)	$	(9,553)	$	1,525
Other comprehensive income (loss):
Currency translation	(3,925)		14,405
Total comprehensive income (loss)	$	(13,478)	$	15,930

The accompanying notes are an integral part of these condensed consolidated financial statements.

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a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY

(in ~~thousands)~~thousands, except share and unit data)

(unaudited)

Nine Months Ended September 30,
2022 2021
Cash flows from operating activities:
Net loss $ (2,801) $ (6,114)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense 4,121 1,705
Amortization expense 11,252 9,631
Amortization of inventory fair value adjustment 707 12,251
Amortization of debt issuance costs 487 448
Loss on extinguishment of debt — 10,924
Lease incentives 1,384 358
Non-cash operating lease expense 7,211 4,568
Equity-based compensation 4,448 6,714
Deferred income taxes, net (2,343) (8,235)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (1,339) (2,280)
Inventory (31,067) (16,446)
Prepaid expenses and other current assets 2,965 (5,877)
Accounts payable 9,430 3,461
Income taxes payable (6,987) (12,279)
Accrued liabilities 641 22,319
Returns reserve (415) 486
Deferred revenue (3,294) 3,351
Lease liabilities (5,817) (4,354)
Net cash (used in) provided by operating activities (11,417) 20,631
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired — (226,228)
Cash paid from holdbacks associated with acquisitions (2,095) —
Purchase of noncontrolling interest — (20,198)
Purchases of intangible assets (164) (661)
Purchases of property and equipment (13,946) (4,715)
Net cash used in investing activities (16,205) (251,802)
Cash flows from financing activities:
Proceeds from initial public offering, net of issuance costs — 98,558
Payments of costs related to initial public offering (1,142) —
Proceeds from line of credit, net of issuance costs 25,000 14,150
Repayment of line of credit — (22,071)
Proceeds from issuance of debt, net of issuance costs (121) 242,735
Repayment of debt (4,200) (154,513)
Taxes paid related to net share settlement of equity awards (84) —
Proceeds from issuance of units — 82,669
Net cash provided by financing activities 19,453 261,528
Effect of exchange rate changes on cash, cash equivalents and restricted cash 211 (830)
Net increase (decrease) in cash, cash equivalents and restricted cash (7,958) 29,527
Cash, cash equivalents and restricted cash at beginning of period 41,018 27,099
Cash, cash equivalents and restricted cash at end of period $ 33,060 $ 56,626
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents $ 31,114 $ 54,449
Restricted cash 1,946 2,177
Total cash, cash equivalents and restricted cash $ 33,060 $ 56,626


	Common Stock			Additional Paid-In Capital	Accumulated Other Comprehensive Loss		Accumulated Deficit				Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2022	129,007,033	$	129		$	460,660	$	(45,185)	$	(168,527)		$	247,077
Equity-based compensation	—	—			1,936		—		—			1,936
Issuance of common stock under employee equity plans, net of shares withheld	82,587	—			(43)		—		—			(43)
Cumulative translation adjustment	—	—			—		(3,925)		—			(3,925)
Net loss	—	—			—		—		(9,553)			(9,553)
Balance as of March 31, 2023	129,089,620	$	129		$	462,553	$	(49,110)	$	(178,080)		$	235,492


	Common Stock			Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)		Retained Earnings				Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2021	128,647,836	$	129		$	453,807	$	(11,080)	$	8,170		$	451,026
Equity-based compensation	—	—			1,368		—		—			1,368
Cumulative translation adjustment	—	—			—		14,405		—			14,405
Net income	—	—			—		—		1,525			1,525
Balance as of March 31, 2022	128,647,836	$	129		$	455,175	$	3,325	$	9,695		$	468,324

The accompanying notes are an integral part of these condensed consolidated financial statements.

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a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	(9,553)	$	1,525
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation expense	2,452		1,163
Amortization expense	2,988		4,054
Amortization of inventory fair value adjustment	—		707
Amortization of debt issuance costs	158		164
Lease incentives	334		—
Loss on disposal of reporting unit	951		—
Non-cash operating lease expense	1,753		2,340
Equity-based compensation	1,936		1,368
Deferred income taxes, net	(9)		(271)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(107)		(808)
Inventory	11,536		(3,132)
Prepaid expenses and other current assets	(602)		(1,759)

Accounts payable	(4,010)		(6,956)
Income taxes payable	(1,120)		(2,127)
Accrued liabilities	(8,463)		(4,937)
Returns reserve	1,026		(1,788)
Deferred revenue	(314)		(2,805)
Lease liabilities	(1,916)		(1,641)

Net cash used in operating activities	(2,960)		(14,903)
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired	—		(2,095)
Purchases of intangible assets	(26)		—
Purchases of property and equipment	(1,854)		(2,608)
Net cash used in investing activities	(1,880)		(4,703)
Cash flows from financing activities:
Payments of costs related to initial public offering	—		(1,142)
Proceeds from line of credit, net of issuance costs	—		25,000
Repayment of line of credit	(10,000)		—
Proceeds from issuance of debt, net of issuance costs	—		(121)
Repayment of debt	(1,400)		(1,400)
Taxes paid related to net share settlement of equity awards	(43)		—


Net cash provided by (used in) financing activities	(11,443)		22,337
Effect of exchange rate changes on cash, cash equivalents and restricted cash	154		(77)
Net increase (decrease) in cash, cash equivalents and restricted cash	(16,129)		2,654
Cash, cash equivalents and restricted cash at beginning of period	48,373		41,018
Cash, cash equivalents and restricted cash at end of period	$	32,244	$	43,672

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	30,224	$	41,166
Restricted cash	2,020		2,506
Total cash, cash equivalents and restricted cash	$	32,244	$	43,672

The accompanying notes are an integral part of these condensed consolidated financial statements.

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a.k.a. BRANDS HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(tabular amounts in thousands, except share, per share data, unit, per unit data, ratios, or as noted)

(unaudited)

Note 1. Organization and Description of Business

a.k.a. Brands Holding Corp. (together with our wholly-owned subsidiaries, collectively, the “Company”), which operates under the name “a.k.a. Brands” or “a.k.a.,” is an online fashion retailer focused on acquiring and accelerating the growth of next-generation, digitally native fashion brands targeting Gen Z and Millennial customers.

The Company is headquartered in San Francisco, California, with buying, studio, marketing, fulfillment and administrative functions primarily in Australia and the United States.

~~Initial Public Offering~~

In September 2021, the Company completed an initial public offering (the “IPO”), in which the Company issued and sold 10,000,000 shares of its newly authorized common stock for $11.00 per share for net proceeds of $95.7 million, after deducting underwriting discounts and commissions of $6.6 million, and offering costs of $7.7 million.

~~Reorganization Transactions~~

~~a.k.a. Brands Holding Corp. was formed as a Delaware corporation on May 20, 2021 to be the issuer of common stock in the IPO.~~Excelerate, L.P. (“Excelerate”), a Cayman limited partnership, and the predecessor entity to a.k.a. Brands Holding Corp., was the holding company of the entities that owned and operated the a.k.a. businesses prior to the IPO. The equity interests of Excelerate, which included the Series A partner units and incentive units, were owned by affiliates of Summit Partners (“Summit”), certain other investors and certain of our executive officers and directors and other members of management.

In connection with the IPO, a reorganization was undertaken to cause Excelerate to become a wholly-owned subsidiary of a.k.a. Brands Holding Corp. Immediately prior to the reorganization, Summit, management and certain other investors exchanged their limited partnership interests in Excelerate for limited partnership interests in New Excelerate, L.P. (“New Excelerate”), and New Excelerate became a limited partner of Excelerate. Immediately prior to the pricing of the IPO, New Excelerate and other Excelerate investors transferred their interests in Excelerate to a.k.a. Brands Holding Corp., in exchange for common stock in a.k.a. Brands Holding Corp (the “New Excelerate Reorganization”). As a result, Excelerate became a wholly-owned subsidiary of a.k.a. Brands Holding Corp.

As a result of the Culture Kings acquisition in March 2021 (refer to Note 3 for additional information on the Culture Kings acquisition), Excelerate indirectly owned 55% of the equity interests in CK Holdings, LP (“CK Holdings”), which owned 100% of the Company’s Culture Kings business prior to the IPO. The remaining 45% of the equity interests in CK Holdings were held by certain minority investors. Immediately following the New Excelerate Reorganization, the Company completed a series of transactions in which the minority investors exchanged their remaining interests in CK Holdings for 21,809,804 newly issued shares of a.k.a. Brands Holding Corp. common stock. The number of shares issued in exchange for the minority interests was determined based on the relative valuations of CK Holdings and consolidated a.k.a. at the time of the IPO.

Excelerate historically owned 66.7% of the equity interests in P&P Holdings, LP (“P&P Holdings”), which operated the Company’s Petal & Pup business prior to the IPO. The remaining 33.3% of the equity interests in P&P Holdings were held by certain minority investors. On August 19, 2021, the Company repurchased approximately 6.0% of the equity held by the P&P minority investors for AUD $5.0 million. In connection with the completion of the IPO, the Company used a portion of the net proceeds from the IPO to fund the acquisition of the remaining 27.3% of the equity interests in P&P Holdings then owned by the P&P minority investors for cash of approximately AUD $22.8 million. Following the completion of this purchase, P&P Holdings ~~became a wholly-owned subsidiary of a.k.a. Brands Holding Corp.~~

~~Refinancing Transactions~~

~~In March 2021,~~ ~~certain subsidiaries of the Company~~ entered into senior secured credit facilities that provided the Company with a $125.0 million senior secured term loan facility and up to $25.0 million aggregate principal in revolving borrowings (the “Fortress Credit Facilities”), and also issued $25.0 million in senior subordinated notes to an affiliate of Summit (the “Summit Notes”) to provide financing for the Company’s acquisition of Culture Kings.

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~~In connection with the IPO,~~ ~~certain subsidiaries of the Company entered into a senior secured credit facility inclusive of a $100 million term loan and a $50 million revolving line of credit. The Company~~ used borrowings under this senior secured credit facility’s term loan, together with a portion of the proceeds from the IPO, to repay the Fortress Credit Facilities and Summit Notes in full and subsequently terminated them. Refer to Note 8 for additional information.

~~Historical Units~~

~~Prior to the IPO, incentive units had been issued to certain directors and members of management. These incentive units had a requirement that such shares could not~~ participate in distributions and earnings of Excelerate, L.P. until after the holders of the Series A partner units received their return of capital plus a specified threshold amount per unit. At no time prior to IPO had such threshold been met. In September 2021, in connection with the IPO, all previous ownership interests in Excelerate, L.P., held by New Excelerate and other Excelerate investors were exchanged for shares of common stock in a.k.a. Brands Holdings Corp. in direct proportion to their respective Series A partner units and incentive units, subject to a reverse split factor of 61.25%. All unit, per unit and related information presented in the accompanying consolidated financial statements have been retroactively adjusted, where applicable, to reflect the impact of the split of units held by New Excelerate investors into a proportionate amount of shares of a.k.a. common stock. The terms of the incentive units remained unchanged and individual holders of such units will only be entitled to participate in the distributions and earnings of New Excelerate once the holders of the Series A partner units receive their return of capital plus a specified threshold amount per unit. However, as New Excelerate was issued shares of common stock in direct proportion to its combined Series A partner units and incentive units, New Excelerate will participate in all distributions and returns of the Company in relation to the total amount of shares of a.k.a. common stock that it holds.

~~Prior to the IPO, a.k.a. used the two-class method in calculating earnings per unit and had not deemed the incentive units to be potentially dilutive because such shares cannot~~ ~~participate in distributions and earnings of the Company until after the Series A units receive their return of capital plus a specified threshold amount per unit, and such threshold had not been met~~. Accordingly, basic and diluted earnings per share presented on the condensed consolidated statements of income for all periods prior to the IPO are the same. Post-IPO, the common stock held by New Excelerate includes shares issued in proportion to the ownership interests in respect to the incentive units. Therefore, the impact of the incentive unit ownership is included in the common stock issued and outstanding after the IPO.

Note 2. Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The Company’s unaudited condensed consolidated interim financial statements have been prepared in accordance with Article 10 of the SEC’s Regulation S-X. As permitted under those rules, certain footnotes or other financial information that are normally required by generally accepted accounting principles in the United States (“GAAP”) can be condensed or omitted. These financial statements have been prepared on the same basis as our annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of our financial information. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, ~~2021~~2022 which are included in the ~~2021~~2022 Form 10-K. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, ~~2022~~2023 or for any other interim period or for any other future year. The accompanying condensed consolidated financial statements include the balances of the Company and all of its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. On an ongoing basis, the Company evaluates items subject to significant estimates and assumptions.

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Revenue Recognition

Revenue is primarily derived from the sale of apparel merchandise through the Company’s online websites and stores and, when applicable, shipping revenue.

Revenue is recognized in an amount that reflects the consideration expected to be received in exchange for products. To determine revenue recognition for contracts with customers in accordance with Revenue from Contracts with Customers (Topic 606), the Company recognizes revenue from the commercial sales of products and contracts by applying the following five steps: (1) identification of the contract, or contracts, with the customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, the Company satisfies its performance obligation. A contract is created with the customer at the time the order is placed by the customer, which creates a single performance obligation. The Company recognizes revenue for its single performance obligation at the time control of the product passes to the customer, which is when the goods are transferred to a third-party common carrier, for purchases through the Company’s online websites, or at point of sale, for purchases in its stores. In addition, the Company has elected to treat shipping and handling as fulfillment activities and not a separate performance obligation.

Net sales from product sales includes shipping charged to the customer and is recorded net of taxes collected from customers, which are recorded in accrued liabilities and are remitted to governmental authorities. Cash discounts earned by the customers at the time of purchase and estimates for sales return allowances are deducted from gross revenue in determining net sales.

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The Company generally provides refunds for goods returned within 30 to 45 days from the original purchase date. A returns reserve is recorded by the Company based on historical refund experience with a corresponding reduction of sales and cost of sales. The returns reserve was ~~$6.2~~$4.9 million and ~~$6.9~~$4.0 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

The following table presents a summary of the Company’s sales return reserve:


~~Balance as of December 31, 2020~~	$	~~3,517~~
~~Returns~~	~~(80,915)~~
~~Allowance~~	~~84,285~~
Balance as of December 31, 2021	$	6,887
Returns	~~(78,929)~~(101,716)
Allowance	~~78,192~~98,797
Balance as of ~~September 30,~~December 31, 2022	3,968
Returns	(20,754)
Allowance	21,730
Balance as of March 31, 2023	$	~~6,150~~4,944

The Company also sells gift cards and issues online credits in lieu of cash refunds or exchanges. Proceeds from the issuance of gift cards and online credits issued are recorded as deferred revenue and recognized as revenue when the gift cards or online credit are redeemed or, upon inclusion in gift card and online credit breakage estimates. Breakage estimates are determined based on prior historical experience.

Revenue recognized in net sales on breakage of gift cards and online credit for both the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021~~2022 was ~~immaterial~~$0.3 million and ~~$0.1~~$0.2 million, respectively. ~~Revenue recognized in net sales on breakage of gift cards and online credit for the~~ ~~nine months ended September 30, 2022~~ ~~and 2021 was $0.1 million for each respective period.~~

The following table presents the disaggregation of the Company’s net sales by geography, based on customer address:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
U.S.	U.S.	$	82,172	$	76,435	$	242,117	$	190,470	U.S.	$	72,626	$	77,668
Australia	Australia	57,943		63,831		166,377		142,163		Australia	35,703		51,895
Rest of world	Rest of world	15,707		21,496		54,118		47,135		Rest of world	12,156		18,756
Total	Total	$	155,822	$	161,762	$	462,612	$	379,768	Total	$	120,485	$	148,319

Segment Information

Operating segments are defined as components of an entity for which separate financial information is available and is regularly reviewed by the Chief Operating Decision Maker in deciding how to allocate resources and in assessing performance. The Company has determined that its ~~five~~four brands are each an operating segment. The Company has aggregated its operating segments into one reportable segment based on the similar nature of products sold, production, merchandising and distribution processes involved, target customers and economic characteristics.

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Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and the allocation of consolidated income taxes to separate financial statements of entities not subject to income tax. The Company adopted this ASU on January 1, 2022, and the adoption did not have a material impact on its condensed consolidated financial statements.

~~New Accounting Pronouncements Not Yet Adopted~~

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The pronouncement and amendments help limit the accounting impact from contract modifications, including hedging relationships, due to the transition from the London Inter-Bank Offered Rate (“LIBOR”) to alternative reference rates that are completed by December 31, 2022. The Company ~~is currently evaluating~~adopted this ASU on December 31, 2022, and the adoption did not have a material impact ~~of this update, but does not expect a significant impact to our~~on its financial results, financial position or cash flows from the transition from LIBOR to alternative reference interest ~~rates, but will continue to monitor the impact of this transition until it is completed.~~rates.

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Note 3. ~~Acquisitions~~Disposals

~~Culture Kings~~Rebdolls

OnIn March 31, 2021, pursuant to a share sale agreement, the Company, through its subsidiary CK Holdings, acquired a 55% ownership stake in Culture Kings. The previous shareholders of Culture Kings retained a 45% noncontrolling interest in Culture Kings by receipt of an equity interest in CK Holdings. The Company recognized goodwill as the excess of the fair value of the total purchase consideration and noncontrolling interests over the net fair value of the identifiable assets acquired and the liabilities assumed. The purchase price consisted of AUD $307.4 million ($235.9 million) in cash consideration and noncontrolling interest with a fair value of AUD $186.0 million ($142.7 million). In connection with the IPO, the Company ~~completed a series of transactions in which the minority investors exchanged their interests in CK Holdings for newly issued shares of a.k.a. Brands Holding Corp. common stock~~.

Culture Kings is focused on street apparel aimed at the young adult age group and has a combination of online sales as well as stores based in Australia and expands the Company’s consumer market to include male consumers and further expansion in the United States.

The following table sets forth the final allocation of the total consideration to the identifiable tangible and intangible assets acquired and liabilities assumed, as of the date of the acquisition, with the excess recorded to goodwill:


~~Purchase consideration:~~
~~Total purchase price, net of cash acquired of $8,831~~	$	~~227,053~~
~~Fair value of noncontrolling interest~~	~~142,717~~
~~Total consideration~~	$	~~369,770~~

~~Identifiable net assets acquired:~~
~~Account receivable, net~~	$	~~625~~
~~Inventory(1)~~	~~62,937~~
~~Prepaid expenses and other current assets~~	~~4,800~~
~~Property and equipment, net~~	~~8,048~~
~~Intangible assets, net(2)~~	~~73,209~~
~~Operating lease right-of-use assets~~	~~24,299~~
~~Accounts payable~~	~~(13,449)~~
~~Deferred revenue~~	~~(141)~~
~~Income taxes payable~~	~~(1,778)~~
~~Other current liabilities~~	~~(2,533)~~
~~Operating lease liabilities~~	~~(24,299)~~
~~Deferred income taxes, net~~	~~(25,439)~~
~~Accrued liabilities, non-current~~	~~(1,058)~~
~~Net assets acquired~~	~~105,221~~
~~Goodwill~~	$	~~264,549~~

The purchase price allocation includes significant judgments, assumptions and estimates to determine the fair value of assets acquired and liabilities assumed. The valuations involving the most significant assumptions, estimates and judgment are:

~~(1)~~Inventory was adjusted by $15.1 million to step up inventory cost to estimated fair value. The fair value of the inventory was determined utilizing the net realizable value method, which was based on the expected selling price of the inventory to customers adjusted for related disposal costs and a profit allowance for the post-acquisition selling effort.

~~(2)The fair value of the acquired intangible assets was determined with the assistance of a valuation specialist and include:~~

Fair Value at Acquisition Date Annual Amortization Expense
Estimated Useful
Life
Brand names $ 68,354 $ 6,835 10 years
Customer relationships 4,855 1,214 4 years
Total $ 73,209

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Brand names are valued using a relief from royalty approach, which estimates the license fee that would need to be paid by Culture Kings if it was deprived of the brand names and domain names, and instead had to pay a license fee for their use. The fair value is the present value of the expected future license fee cash flows.

Customer relationship intangible assets are valued using the multi-period excess earnings method, which is the present value of the projected cash flows that are expected to be generated by the existing intangible asset after reduction by an estimated fair rate of return on contributory assets required to generate the customer relationship revenues. Key assumptions included discounted cash flow, estimated life cycle and customer attrition rates.

Total acquisition costs incurred by the Company in connection with its purchase of Culture Kings, primarily related to third-party legal, accounting and tax diligence fees, were $3.3 million. These costs are recorded in general and administrative expenses in the condensed consolidated statement of income for the year ended December 31, 2021.

Goodwill of $264.5 million, none of which is deductible for tax purposes, represents the excess purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed. The goodwill arising from the acquisition consists largely of anticipated synergies related to combining Culture Kings with the Company’s existing operations.

The fair value of the noncontrolling interest was determined by measuring the fair value of the subsidiaries’ identifiable assets and liabilities at the date of acquisition, adjusted for a discount to factor the non-marketable, noncontrolling holding.

The noncontrolling interest in Culture Kings contained a put right whereby the minority investors could have caused CK Holdings to purchase all of their units at a per unit price equal to six times the EBITDA of CK Holdings, calculated as of the twelve-month period ending on the end of the most recent fiscal quarter. The put right was only exercisable after December 31, 2023. In accordance with ASC 810, ~~Consolidation~~, as this put right was redeemable outside of the Company’s control, the noncontrolling interest was classified outside the permanent equity section of the Company’s consolidated balance sheets prior to the IPO. In connection with the IPO, 2023, the Company completed the sale of its Rebdolls reporting unit back to its founder. Upon close of the transaction, the Company recorded a ~~series~~pre-tax loss of ~~transactions~~$1.0 million in ~~which the CK Holdings minority investors exchanged their interests~~other expense, net in ~~CK Holdings for newly issued shares of a.k.a. Brands Holding Corp. common stock, thereby eliminating the noncontrolling interest classified outside of permanent equity.~~

~~Since the date of acquisition, March 31, 2021, the results of Culture Kings have been included in the Company’s consolidated results. The following amounts are included in the accompanying~~its condensed consolidated statements of income ~~for~~in the ~~three and nine months ended September 30, 2022 and 2021:~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net sales $ 55,324 $ 62,817 $ 158,150 $ 121,075
Net income (loss) 1,425 (3,005) (1,034) (6,434)

~~The unaudited pro forma financial information below is presented to illustrate the estimated effects~~first quarter of fiscal year 2023. As part of the ~~acquisition of Culture Kings and the associated financing as if they had occurred on January 1, 2020:~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net sales $ 155,822 $ 161,762 $ 462,612 $ 430,967
Net income (loss) attributable to a.k.a. Brands Holding Corp. (114) 2,278 (2,801) 12,084
Net income (loss) per share, basic and diluted $ 0.00 $ 0.03 $ (0.02) $ 0.14

~~The pro forma information was prepared using the acquisition method of accounting in accordance with ASC 805,~~ ~~Business Combinations~~. The unaudited pro forma financial information has been prepared for informational purposes only and is not indicative of what the Company’s results of operations would have been had the transactions occurred on January 1, 2020, nor does it project the results of operations of the combined company following the transaction.

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~~mnml~~

~~On October 14, 2021,~~sale, the Company acquired all of the equity interests of Third Estate LLC (“mnml”) for total consideration of $46.1 million, including cash consideration of $28.2 million, net of cash acquired of $0.6 million, and subjectretained an 18% ownership in Rebdolls, but no further rights related to working capital adjustments. The remaining consideration of $17.3 million was paid in the form of 2,057,695 shares of a.k.a. common stock. mnml is an LA-based streetwear brand that offers competitively priced on-trend wardrobe staples. This acquisition allows the Company to continue its growth into the U.S. market and provides opportunities for customer cross-sell.

~~The estimated fair values of assets acquired and liabilities assumed as of the date of the acquisition, are as follows:~~


~~Accounts receivable, net~~	$	68
~~Inventory(1)~~	~~7,321~~
~~Prepaid expenses and other current assets~~	~~1,838~~
~~Other assets~~	15
~~Intangible assets(2)~~	~~14,300~~
~~Accounts payable~~	~~(504)~~
~~Deferred income~~	~~(164)~~
~~Accrued liabilities~~	~~(1,794)~~
~~Assumed loan~~	~~(1,312)~~
~~Sales and use tax liability~~	~~(1,100)~~
~~Deferred income taxes, net~~	~~(3,159)~~
~~Total net assets acquired~~	~~15,509~~
~~Goodwill~~	~~29,990~~
~~Total purchase price, net of cash acquired of $605~~	$	~~45,499~~

The cash purchase consideration is subject to working capital adjustments that will be concluded prior to October 14, 2022. The preliminary purchase price allocation includes significant judgments, assumptions and estimates to determine the fair value of assets acquired and liabilities assumed. The valuations involving the most significant assumptions, estimates and judgment are:

~~(1)Inventory was adjusted by $1.9 million to step up inventory cost to estimated fair value. The fair value of the inventory~~Rebdolls. Such investment was determined ~~utilizing the net realizable~~to have no value, ~~method, which~~as recovery of any amount was ~~based on the expected selling price of the inventory to customers adjusted for related disposal costs and a profit allowance for the post-acquisition selling effort.~~

~~(2)The fair value of the acquired intangible assets was determined with the assistance of a valuation specialist and include:~~


	~~Fair Value at Acquisition Date~~		~~Estimated Useful Life~~
~~Brand name~~	$	~~11,800~~	~~10 years~~
~~Customer relationships~~	~~2,500~~		~~3 years~~
~~Total~~	$	~~14,300~~

The results of operations of mnml are included in the Company’s condensed consolidated statements of income beginning October 14, 2021. Total net sales of $9.6 million and net loss of $0.5 million of mnml are included in the accompanying condensed consolidated statement of income for the three months ended September 30, 2022. Total net sales of $29.6 million and net loss of $0.7 million of mnml are included in the accompanying condensed consolidated statement of income for the nine months ended September 30, 2022. Goodwill of $30.0 million, none of which is deductible for tax purposes, represents the excess purchase price over the estimated fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed. The goodwill arising from the acquisition consists largely of anticipated synergies related to combining with the Company’s existing operations.

Total acquisition costs incurred by the Company in connection with the purchase, primarily related to third-party legal, accounting and tax diligence fees, were $1.3 million. These costs are recorded in general and administrative expenses in the condensed consolidated statement of income during the year ended December 31, 2021.

deemed remote.

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~~Purchase of Noncontrolling Interests~~

Immediately following the New Excelerate Reorganization (as described in Note 1), the Company completed a series of transactions in which the CK Holdings minority investors exchanged their interests in CK Holdings for 21,809,804 newly issued shares of a.k.a. Brands Holding Corp. common stock. The number of shares issued in exchange for the minority interests was determined based on the relative valuations of CK Holdings and the consolidated a.k.a. group at the time of the IPO. This exchange resulted in the elimination of the noncontrolling interest in Culture Kings, with a value of ~~$132.3 million~~, and an increase in additional paid-in capital with a nominal amount recorded as common stock at a value of $0.001 per issued share in the exchange. Following the completion of this transaction, CK Holdings became a wholly-owned subsidiary of a.k.a. Brands Holding Corp.

The Company had historically owned 66.7% of the equity interests in P&P Holdings, which operated the Company’s Petal & Pup business prior to the IPO. The remaining 33.3% of the equity interests in P&P Holdings were held by certain minority investors. On August 19, 2021, the Company repurchased approximately 6.0% of the equity held by the P&P minority investors for AUD $5.0 million. In connection with the completion of the IPO, the Company used a portion of the net proceeds from the IPO to fund the acquisition of the remaining 27.3% of the equity interests in P&P Holdings then owned by the P&P minority investors for cash of approximately AUD $22.8 million. As a result of the transaction, noncontrolling interest of $9.6 million was eliminated and the $10.6 million paid in excess of the noncontrolling interest was recorded as a reduction to additional paid-in capital. Following the completion of this purchase, P&P Holdings ~~became a wholly-owned subsidiary of a.k.a. Brands Holding Corp.~~

Note 4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are comprised of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

Security deposits						Security deposits	$	3,406	$	2,945
Inventory prepayments	Inventory prepayments	$	6,511	$	14,251	Inventory prepayments	3,716		3,067
Other	Other	9,629		6,558		Other	6,470		7,366
Total prepaid expenses and other current assets	Total prepaid expenses and other current assets	$	16,140	$	20,809	Total prepaid expenses and other current assets	$	13,592	$	13,378

Note 5. Property and Equipment, Net

Property and equipment, net is comprised of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Furniture and fixtures	Furniture and fixtures	$	2,236	$	1,305	Furniture and fixtures	$	2,381	$	2,367
Machinery and equipment	Machinery and equipment	3,981		1,595		Machinery and equipment	5,523		5,188
Computer equipment and capitalized software	Computer equipment and capitalized software	5,222		2,638		Computer equipment and capitalized software	6,284		6,015
Leasehold improvements	Leasehold improvements	21,984		12,457		Leasehold improvements	24,651		24,816
Total property and equipment	Total property and equipment	33,423		17,995		Total property and equipment	38,839		38,386
Less accumulated depreciation		(7,160)		(3,338)
Less: accumulated depreciation						Less: accumulated depreciation	(11,201)		(9,428)
Total property and equipment, net	Total property and equipment, net	$	26,263	$	14,657	Total property and equipment, net	$	27,638	$	28,958

Total depreciation expense was ~~$1.4~~$2.5 million and ~~$0.9~~$1.2 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and was $4.1 million and $1.7 million for the nine months ended September 30, 2022 and 2021,~~ respectively. Property and equipment that is fully depreciated as of the last day of a fiscal year is written off during the first quarter of the following year. On January 1, 2022, the Company established a policy to classify all capitalized software, website design and software systems as property and equipment, resulting in a reclassification of such assets and related depreciation and amortization from intangible assets, net, to property and equipment, net.

Note 6. Goodwill

The carrying value of goodwill, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, was ~~$326.9~~$165.3 million and ~~$363.3~~$167.7 million, respectively. No goodwill impairment was recorded during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 or ~~the year ended December 31, 2021.~~

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2022.

The goodwill of the acquired companies is primarily related to expected improvements in technology performance and functionality, as well as sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition. The goodwill of acquired companies is generally not deductible for tax purposes.

The following table summarizes goodwill activity:


Balance as of December 31, ~~2021~~2022	$	~~363,305~~167,731

Changes in foreign currency translation	~~(36,450)~~(2,396)
Balance as of ~~September 30, 2022~~March 31, 2023	$	~~326,855~~165,335

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Note 7. Intangible Assets

The gross amounts and accumulated amortization of acquired identifiable intangible assets with finite useful lives as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, included in intangible assets, net in the accompanying condensed consolidated balance sheets, are as follows:


			September 30, 2022			December 31, 2021					March 31, 2023			December 31, 2022
		Useful life	Weighted Average Amortization Period 2022	2022		Weighted Average Amortization Period 2021	2021			Useful life	Weighted Average Amortization Period 2023	2023		Weighted Average Amortization Period 2022	2022
Customer relationships	Customer relationships	4 years	2.5 years	$	20,910	2.5 years	$	24,516	Customer relationships	4 years	1.8 years	$	21,420	2.0 years	$	21,703
Brands	Brands	10 years	8.4 years	82,746		8.9 years	100,315		Brands	10 years	7.6 years	83,765		7.9 years	84,278
Website design and software system		3 years				2.2 years	1,883
Trademarks	Trademarks	5 years	2.8 years	102		3.3 years	114		Trademarks	5 years	2.0 years	105		2.3 years	107
Total intangible assets	Total intangible assets			103,758			126,828		Total intangible assets			105,290			106,088
Less accumulated amortization				(25,691)			(28,541)
Less: accumulated amortization									Less: accumulated amortization			(32,426)			(29,983)
Total intangible assets, net	Total intangible assets, net			$	78,067		$	98,287	Total intangible assets, net			$	72,864		$	76,105

Amortization of acquired intangible assets with finite useful lives is included in general and administrative expenses and was ~~$3.2~~$3.0 million and ~~$3.7~~$4.1 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively and $11.3 million and $9.9 million for the nine months ended September 30, 2022 and 2021,~~ respectively. Intangible assets that are fully depreciated as of the last day of a fiscal year are written off during the first quarter of the following year. On January 1, 2022, the Company established a policy to classify all capitalized software, website design and software systems as property and equipment, resulting in a reclassification of such assets and related depreciation and amortization from intangible assets, net, to property and equipment, net.

Future estimated amortization expense for acquired identifiable intangible assets is as follows:


		Amortization Expense			Amortization Expense
Year ending December 31:	Year ending December 31:			Year ending December 31:
Remainder of 2022		$	2,726
2023		10,631
Remainder of 2023				Remainder of 2023	$	8,020
2024	2024	10,127		2024	10,240
2025	2025	9,966		2025	9,530
2026	2026	8,270		2026	8,838
2027				2027	8,376
Thereafter	Thereafter	36,347		Thereafter	27,860
Total amortization expense	Total amortization expense	$	78,067	Total amortization expense	$	72,864

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Note 8. Debt

~~Princess Polly Operating Line of Credit~~

The Company’s subsidiary Princess Polly had an operating line of credit (the “Polly Facility”) up to a maximum of $15.4 million, which was guaranteed by Polly Bidco Pty Ltd. and Polly Holdco Pty Ltd, each subsidiaries of the Company (“Princess Polly Group”). The assets of the Princess Polly Group were pledged as security under the Polly Facility.

The Polly Facility was available to make cash draws, procure letters of credit instruments and for the provision of ancillary facilities. The Polly Facility was due November 2021, and was therefore classified as a current liability as of December 31, 2020. As of December 31, 2020, the Company had drawn $6.2 million on the Facility and had $0.8 million drawn in letters of credit which were held as collateral under various custom bonds agreements. The Company repaid the outstanding balances under the Polly Facility in full and terminated it in February 2021.

~~Rebdolls Revolving Line of Credit~~

Rebdolls had a revolving line of credit for a maximum of $0.5 million with Bank of America, N.A. The assets of Rebdolls were pledged as security under this line of credit. As of December 31, 2020, Rebdolls had an outstanding balance of $0.2 million on the revolving line of credit. The Company repaid the outstanding balances under the revolving line of credit in full on February 28, 2021, the date of its maturity, and terminated it.

~~Debt Financing for the Culture Kings Acquisition~~

To fund the acquisition of Culture Kings (refer to Note 3 for additional information), on March 31, 2021, Polly Holdco Pty Ltd. (“Polly Holdco”), a wholly-owned subsidiary of the Company, entered into a debt agreement with a syndicated group, with an affiliate of Fortress Credit Corp as administrative agent, consisting of a $125.0 million term-loan facility and a $25.0 million revolving credit facility.

Polly Holdco also issued $25.0 million in senior subordinated notes to certain debt funds of Summit Partners, a related party of the Company (refer to Note 16 for additional information). The combined term loan and senior subordinated notes provided the Company with $144.1 million, net of loan fees of approximately $5.9 million.

The Company incurred debt issuance costs of $6.9 million, of which $1.0 million related to the revolving credit facility, which were capitalized and included in prepaid and other current assets as deferred financing costs and were being amortized over the life of the facility, or 6 years. The remaining $5.9 million of debt issuance costs relating to the term loan and senior subordinated notes were presented net of the outstanding debt and were being amortized over the life of the outstanding debt, using the effective interest rate method. The Company repaid the term loan, revolving credit facility and senior subordinated notes in full and terminated them in September 2021 in connection with the IPO, as described further below.

Senior Secured Credit Facility

On September 24, 2021, in connection with the closing of the IPO, certain subsidiaries of the Company entered into a senior secured credit facility inclusive of a $100.0 million term loan and a $50.0 million revolving line of credit, as well as an option for additional term loan of up to $50.0 million through an accordion feature. Key terms and conditions of each facility were as ~~follows:~~follows as of March 31, 2023:

•The $100.0 million term loan matures five years after closing and requires the Company to make amortized annual payments of 5.0% during the first and second years, 7.5% during the third and fourth years and 10.0% during the fifth year with the balance of the loan due at maturity. Borrowings under the term loan accrue interest at LIBOR plus an applicable margin dependent upon our net leverage ratio. The highest interest rate under the agreement occurs at a net leverage ratio of greater than 2.75x, yielding an interest rate of LIBOR plus 3.25%.

•The $50.0 million revolving line of credit, which matures five years after closing, accrues interest at LIBOR plus an applicable margin dependent upon our net leverage ratio. The highest interest rate under the agreement occurs at a net leverage ratio of greater than 2.75x, yielding an interest rate of LIBOR plus 3.25%. Additionally, a margin fee of 25-35 basis points is assessed on unused amounts under the revolving line of credit, subject to adjustment based on our net leverage ratio.

•The $50.0 million accordion feature allows the Company to enter into additional term loan borrowings at terms to be agreed upon at the time of issuance, but on substantially the same basis as the original term loan, which includes the requirement to make amortized annual payments at the same cadence as that of the original term loan.

1914

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The senior secured credit facility requires that the Company maintain a maximum total net leverage ratio of 3.50 to 1.00 as of the last day of any fiscal quarter, beginning with the fiscal quarter ended December 31, 2021 through maturity. The senior secured credit facility also requires that the Company maintain a minimum fixed charge coverage ratio of 1.25 to 1.00 as of the last day of any fiscal quarter, beginning with the fiscal quarter ended December 31, 2021 through maturity. In the event that the Company fails to comply with the financial covenant, the Company will have the option to make certain equity contributions, directly or indirectly, to cure any non-compliance with such covenant, subject to certain other conditions and limitations. Beginning with the fiscal year ending December 31, 2022, and continuing annually thereafter, the Company is required to make a mandatory prepayment as a percentage of excess cash flows, as defined by the credit agreement, in the period based on the Company triggering certain net debt leverage ratios. Specifically, a mandatory prepayment of 50% of excess cash flows is required if the Company’s net leverage ratio exceeds 2.75x, and a mandatory prepayment of 25% of excess cash flows is required if the Company’s net leverage ratio is greater than or equal to 2.25x. As of ~~September 30, 2022,~~March 31, 2023, the Company was in compliance with all debt covenants.

~~The~~In February 2023 and March 2023, the Company ~~incurred $2.7~~repaid $6.0 million ~~of debt issuance costs in relation to the senior secured credit facility. Of this, $0.9~~and $4.0 million, relates to the revolving credit facility and is capitalized and included in prepaid and other current assets as deferred financing costs to be amortized over the life of the facility, or five years. The remaining $1.8 million of debt issuance costs relates to the term loan and is presented net of outstanding debt in long-term debt on the balance sheet. Debt issuance costs are amortized over the liferespectively, of the outstanding ~~debt, using~~amount owed under its revolving line of credit.

Effective April 4, 2023, the ~~effective interest rate method.~~

~~In September 2021, the~~ Company ~~used borrowings from the term loan under this~~ modified its senior secured credit facility ~~together with a portion of the proceeds from the IPO,~~under existing contractual provisions to repay in full and terminate the previous term loan, revolving credit facility and senior subordinated notes entered into in March 2021 in relation to the Culture Kings acquisition. As part of the repayment, the Company also paid $4.5 million in prepayment penalties and wrote-off $6.4 million of unamortized debt issuance costs, all of which is included in the lossyield interest based on ~~extinguishment of debt in the condensed consolidated statements of income.~~

~~In October 2021, the Company borrowed $15.0 million under the revolving line of credit at an initial applicable~~Term SOFR interest rate of 3.37% and final payoff due on September 24, 2026. The borrowings on the revolving line of credit were used in the acquisition of mnml. In November 2021, subsequent to the draw on the revolver, the Company borrowed $12.0 million of additional term loan under the accordion feature at substantially the same terms as the original term loan. In December 2021, the borrowings from the accordion feature, along with cash on hand, were used to completely repay the borrowings from the revolving line of credit. In connection with the borrowings under the accordion feature, additional debt issuance costs of $0.3 million were incurred and presented net of outstanding debt in long-term debt on the balance sheet, to be amortized over the life of the accordion, using the effective interest rate ~~method~~.

In January 2022, the Company borrowed $15.0 million under the revolving line of credit at an initial applicable interest rate of 3.52% and final payoff due on September 24, 2026. Additionally, in March 2022, the Company borrowed $10.0 million under the revolving line of credit at an initial applicable interest rate of 3.60% and final payoff due on September 24, 2026.

rates. As of ~~September 30, 2022,~~April 4, 2023, the all-in rate ~~(LIBOR~~(Term SOFR plus the applicable margin) for the Company’s term loan and borrowings under the revolving line of credit was ~~6.42%~~7.92%.

Total Debt and Interest

Outstanding debt consisted of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022

Term loan	Term loan	$	106,550	$	110,750	Term loan	$	103,750	$	105,150
Revolving credit facility	Revolving credit facility	25,000		—		Revolving credit facility	30,000		40,000
Capitalized debt issuance costs	Capitalized debt issuance costs	(1,616)		(1,968)		Capitalized debt issuance costs	(1,388)		(1,501)
Total debt	Total debt	129,934		108,782		Total debt	132,362		143,649
Less current portion		(5,600)		(5,600)
Less: current portion						Less: current portion	(6,300)		(5,600)
Total long-term debt	Total long-term debt	$	124,334	$	103,182	Total long-term debt	$	126,062	$	138,049

Interest expense, which included the amortization of debt issuance costs, totaled ~~$1.8~~$2.9 million and ~~$4.1~~$1.3 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $4.5 million and $8.3 million for the nine months ended September 30, 2022 and 2021,~~ respectively.

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Note 9. Leases

The Company leases office locations, warehouse facilities and stores under various non-cancellable operating lease agreements. The Company’s leases have remaining lease terms of approximately 1 year to 10 years, which represent the non-cancellable periods of the leases and include extension options that the Company determined are reasonably certain to be exercised. The Company excludes from the lease terms any extension options that are not reasonably certain to be exercised, ranging from approximately 6 months to 3 years. Lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms as well as payments for common area maintenance and administrative services. The Company often receives customary incentives from landlords, such as reimbursements for tenant improvements and rent abatement periods, which effectively reduce the total lease payments owed for these leases. Leases are classified as operating or financing at commencement. The Company does not have any material financing leases.

Operating lease right-of-use assets and liabilities on the condensed consolidated balance sheets represent the present value of the remaining lease payments over the remaining lease terms. The Company uses its incremental borrowing rate to calculate the present value of the lease payments, as the implicit rates in the leases are not readily determinable. Operating lease costs consist primarily of the fixed lease payments included in the operating lease liabilities and are recorded on a straight-line basis over the lease terms.

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The Company’s operating lease costs were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Operating lease costs	Operating lease costs	$	2,180	$	1,779	$	6,691	$	3,925	Operating lease costs	$	2,350	$	2,165
Variable lease costs	Variable lease costs	145		102		463		279		Variable lease costs	190		148
Short-term lease costs	Short-term lease costs	91		35		312		85		Short-term lease costs	94		129
Total lease costs	Total lease costs	$	2,416	$	1,916	$	7,466	$	4,289	Total lease costs	$	2,634	$	2,442

The Company does not have any sublease income and the Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants.

Supplemental cash flow information relating to the Company’s operating leases was as follows:


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash paid for operating lease liabilities	Cash paid for operating lease liabilities	$	4,145	$	3,692	Cash paid for operating lease liabilities	$	2,185	$	1,834
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	21,987		2,631		Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	4,360		17,242

Other information relating to the Company’s operating leases was as follows:

September 30,
2022

December 31,
2021

March 31,
2023

December 31,
2022

Weighted-average remaining lease term

7.6 years

6.1 years

Weighted-average remaining lease term

7.1 years

7.4 years

Weighted-average discount rate

4.3%

3.9%

Weighted-average discount rate

4.7%

4.3%

As of ~~September 30, 2022,~~March 31, 2023, the maturities of operating lease liabilities were as follows:

Remainder of 2022 $ 696
2023 9,155
2024 6,419
2025 5,741
2026 4,963
Thereafter 22,174
Total remaining lease payments 49,148
Less: imputed interest 8,086
Total operating lease liabilities 41,062
Less: current portion (6,034)
Long-term operating lease liabilities $ 35,028

~~Table of~~ ~~Contents~~

On January 31, 2022, the Company entered into a lease agreement with Forum Shops, LLC to lease approximately 13,425 square feet of selling space located in the Forum Shops at Caesars Palace. The lease commenced in March 2022 and will require rent payments beginning in November 2022 when the store opens. Base rent payments for the twelve months after the store opens will be approximately $1.7 million and have subsequent annual increases to such cash payments by 3.0% each year through the tenth anniversary of the lease commencement.


Remainder of 2023	$	8,362
2024	8,160
2025	7,363
2026	5,867
2027	4,646
Thereafter	16,685
Total remaining lease payments	51,083
Less: imputed interest	8,072
Total operating lease liabilities	43,011
Less: current portion	(6,466)
Long-term operating lease liabilities	$	36,545

Note 10. Income Taxes

Interim income taxes are based on an estimated annualized effective tax rate applied to the respective quarterly periods, adjusted for discrete tax items in the period in which they occur. Although the Company believes its tax estimates are reasonable, the Company can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in its historical income tax provisions and accruals. Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which the Company makes such determinations.

The Company is subject to income taxes in the United States and Australia. Significant judgment is required in evaluating the Company’s tax positions and determining the provision for income taxes. During the ordinary course of business, the Company considers tax positions for which the ultimate tax determination is uncertain for the purpose of determining whether a reserve is required, despite the Company’s belief that the tax positions are fully supportable. To date the Company has not established a reserve provision because the Company believes that all tax positions are highly certain.

The Company’s provision for income taxes for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 resulted in income tax ~~expense of $0.1 million and a~~ benefit of ~~$0.2 million, respectively.~~$0.9 million. The effective tax rate as a percentage of loss before income taxes for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was ~~-612.5% and 6.8%~~8.5%, ~~respectively,~~ compared to the U.S. federal statutory rate of 21.0%. The lower effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was primarily due to ~~discrete tax adjustments~~non-deductible permanent differences which offset the income tax benefit ~~related~~applied to net loss before income taxes.

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Note 11. Accrued Liabilities

Accrued liabilities consisted of the following:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Accrued salaries and other benefits	Accrued salaries and other benefits	$	8,275	$	11,746	Accrued salaries and other benefits	$	9,733	$	10,569
Accrued freight costs	Accrued freight costs	3,687		9,199		Accrued freight costs	3,739		5,064
Accrued sales taxes	Accrued sales taxes	24,938		20,008		Accrued sales taxes	8,433		15,999
Accrued marketing costs	Accrued marketing costs	4,448		2,543		Accrued marketing costs	4,067		2,566
Accrued professional services	Accrued professional services	2,800		1,698		Accrued professional services	1,279		2,509
Other accrued liabilities	Other accrued liabilities	5,638		8,181		Other accrued liabilities	3,406		3,099
Total accrued liabilities	Total accrued liabilities	$	49,786	$	53,375	Total accrued liabilities	$	30,657	$	39,806

Note 12. Equity-based Compensation

Incentive Plans

2021 Omnibus Incentive Plan

In September 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Omnibus Incentive Plan (the “2021 Plan”) which became effective in connection with the IPO. The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units and other forms of equity and cash compensation. A total of 4,900,269 shares of the Company’s common stock were initially reserved for issuance under the 2021 Plan. The number of shares of common stock reserved and available for issuance under the 2021 Plan automatically ~~increased on January 1, 2022 by 1% of the number of shares of the Company’s common stock outstanding on December 31, 2021, and will continue to automatically increase~~increases each January 1 by 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the compensation committee of the Company’s board of directors.

~~Table~~ As of ~~Contents~~

March 31, 2023, there were 7,476,784 shares reserved for issuance of awards under the 2021 Plan.

2021 Employee Stock Purchase Plan

In September 2021, the Company’s board of directors adopted, and its stockholders approved, the 2021 Employee Stock Purchase Plan (the “ESPP”) which became effective in connection with the IPO. The ESPP authorizes the issuance of shares of the Company’s common stock pursuant to purchase rights granted to employees. The ESPP includes two components: a “Section 423 Component” and a “Non-Section 423 Component.” The Section 423 Component is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code (the “Code”) and will be administered, interpreted and construed in a manner consistent with the requirements of Section 423 of the Code and is limited to employees of the Company located in the United States. The Non-Section 423 Component will be granted pursuant to separate offerings designed to achieve tax, securities laws or other objectives for eligible employees of the Company located outside of the United States.

A total of 1,225,067 shares of the Company’s common stock were initially reserved for issuance under the ESPP. The ~~ESPP provides that the~~ number of shares reserved and available for issuance ~~will~~under the ESPP automatically ~~increase~~increases each January 1 ~~beginning on January 1, 2023,~~ by ~~the lesser of~~ 1% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31, or such lesser number of shares as determined by the compensation committee of the Company’s board of directors. As of March 31, 2023, there were 1,225,067 shares reserved for issuance of awards under the ESPP.

The offering periods of the ESPP ~~will be~~are six months long and are anticipated to be offered twice per year. The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of a share of the Company’s common stock on the first or last day of the offering period, whichever is lower. The fair value of the discount and the look-back period will be estimated using the Black-Scholes option pricing model.

2018 Stock and Incentive Compensation Plan

Prior to the IPO, the 2018 Stock and Incentive Compensation Plan, as amended, (the “2018 Plan”) provided for the issuance of time-based incentive units and performance-based incentive units issued by Excelerate, L.P. (the predecessor entity of a.k.a. Brands Holding Corp.). In connection with the reorganization transactions and the IPO, all of the equity interests in Excelerate, L.P., including outstanding incentive units issued as equity-based compensation under the 2018 Plan, were transferred to New Excelerate, L.P. The incentive units issued under the 2018 Plan participate in distributions from New Excelerate, L.P., but only after investors receive their return of capital plus a specified threshold amount per unit. The total incentive pool size under the plan was 16,475,735 units. The 2018 Plan was terminated in September 2021 in connection with the IPO, but continues to govern the terms of outstanding incentive units that were granted prior to the IPO. No further incentive units will be granted under the 2018 Plan.

~~Upon the expiration, forfeiture, cancellation or withholding~~

Table of units for employee taxes of any incentive units underlying outstanding incentive unit awards granted under the 2018 Plan, an equal number of shares of a.k.a. Brands Holding Corp. common stock will become available for grant under the 2021 Plan that was established in connection with the IPO.Contents

Grant Activity

Stock Options

The 2021 Plan provides for the issuance of incentive and nonqualified stock options. Under the 2021 Plan, the exercise price of a stock option shall not be less than the fair market value of one share of the Company’s common stock on the date of grant. Stock options have a contractual term, or the period during which they are exercisable, not to exceed ten years from the date of grant, and generally vest over time or based on performance. As of ~~September 30, 2022,~~March 31, 2023, all stock option grants have been time-based.

A summary of the Company's time-based stock option activity under the 2021 Plan was as follows:

Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value
Balance as of December 31, 2021 273,026 $ 9.50 9.73 $ —
Granted 234,453 3.97
Exercised — —
Forfeited/Repurchased — —
Balance as of September 30, 2022 507,479 $ 6.95 9.29 $ —
Vested as of September 30, 2022 73,603 8.98

~~Table of~~ ~~Contents~~


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance as of December 31, 2022	507,479	$	6.95	9.04	$	—
Granted	—	—
Exercised	—	—
Forfeited/Repurchased	(20,353)	9.50
Balance as of March 31, 2023	487,126	$	6.84	8.65	$	—
Vested as of March 31, 2023	148,177	$	7.97	8.15	$	—

As of ~~September 30, 2022,~~March 31, 2023, there was ~~$1.5~~$1.1 million of total unrecognized compensation cost related to unvested stock options issued under the 2021 Plan, which is expected to be recognized over a weighted average period of ~~2.8~~2.2 years.

While there were no stock options granted under the 2021 Plan during the three months ended September 30, 2022, the assumptions that the Company used to determine the grant date fair value of stock options granted under the 2021 Plan during the three and nine months ended September 30, 2021 and the nine months ended September 30, 2022 were as follows, presented on a weighted-average basis:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2022 2021
Risk free interest rate 1.00 % 2.96 % 1.00 %
Expected volatility 51.32 % 65.34 % 51.32 %
Expected dividend yield — % — % — %
Expected term 6.08 years 5.85 years 6.08 years

Restricted Stock Units

The 2021 Plan provides for the issuance of restricted stock units (“RSUs”). RSUs issued prior to March 31, 2022 vest over four years while all RSUs issued after that date vest over three years.

A summary of the Company's RSU activity under the 2021 Plan was as follows:


		Number of Shares	Weighted Average Grant Date Fair Value			Number of Shares	Weighted Average Grant Date Fair Value
Balance as of December 31, 2021		915,480	$	10.04
Balance as of December 31, 2022					Balance as of December 31, 2022	4,410,309	$	2.73
Granted	Granted	566,730	4.30		Granted	—	—
Vested	Vested	(207,511)	9.87		Vested	(115,931)	6.64
Forfeited/Repurchased	Forfeited/Repurchased	(153,832)	9.70		Forfeited/Repurchased	(280,354)	2.67
Balance as of September 30, 2022		1,120,867	$	7.22
Balance as of March 31, 2023					Balance as of March 31, 2023	4,014,024	$	2.63

As of ~~September 30, 2022,~~March 31, 2023, there was ~~$7.6~~$9.3 million of total unrecognized compensation cost related to unvested RSUs issued under the 2021 Plan, which is expected to be recognized over a weighted average period of ~~2.8~~2.4 years.

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Incentive Units

The 2018 Plan provided for the issuance of time-based incentive units and performance-based incentive units. Time-based incentive units generally vest over four years. Performance-based incentive units vested upon the satisfaction of the performance condition as described further below.

Time-Based Incentive Partnership Units

The following table summarizes time-based incentive unit activity under the 2018 Plan:


		Number of Units	Weighted Average Grant Date Fair Value		Weighted Average Participation Threshold		Aggregate Intrinsic Value			Number of Units	Weighted Average Grant Date Fair Value		Weighted Average Participation Threshold		Aggregate Intrinsic Value
Balance as of December 31, 2021		5,975,813	$	1.16	$	3.04	$	14,162
Balance as of December 31, 2022									Balance as of December 31, 2022	3,363,856	$	1.43	$	1.55	$	—
Granted	Granted	—	—		—				Granted	—	—		—
Vested	Vested	(1,975,068)	1.22		3.17				Vested	(511,440)	1.35		1.46
Forfeited/Repurchased	Forfeited/Repurchased	(100,646)	0.46		1.83				Forfeited/Repurchased	(16,150)	3.19		1.89
Balance as of September 30, 2022		3,900,099	$	1.29	$	3.00	$	—
Vested as of September 30, 2022		5,337,338
Balance as of March 31, 2023									Balance as of March 31, 2023	2,836,266	$	1.68	$	1.57	$	—
Vested as of March 31, 2023									Vested as of March 31, 2023	6,385,021

As of ~~September 30, 2022,~~March 31, 2023, there was ~~$4.8~~$3.6 million of total unrecognized compensation cost related to unvested time-based incentive units issued under the 2018 Plan, which is expected to be recognized over a weighted average period of ~~2.0~~1.5 years.

~~Table of~~ ~~Contents~~

While there were no time-based incentive units granted under the 2018 Plan during the three and nine months ended September 30, 2022 or during the three months ended September 30, 2021, the assumptions that the Company used to determine the grant date fair value of time-based incentive units during the nine months ended September 30, 2021 were as follows, presented on a weighted-average basis:

~~Nine Months Ended September 30, 2021~~

~~Risk free interest rate~~

~~0.10~~

~~Expected volatility~~

~~45.00~~

~~Expected dividend yield~~

—

~~Expected term~~

~~1.41 years~~

~~Performance-Based Incentive Units~~

Performance-based incentive units vest upon the satisfaction of a performance condition and become exercisable upon the satisfaction of the market condition. The performance condition was satisfied upon the occurrence of the IPO. As it was not deemed probable until it occurred, all compensation expense related to these awards was recognized at the date of IPO. The market condition is satisfied upon the initial investor in Excelerate, L.P. receiving an aggregate return equal to three times its aggregate investment. As of September 30, 2021, all outstanding performance-based incentive units have been fully expensed.

The grant date fair value of the performance-based incentive units was determined using the Black-Scholes option pricing model, modified to allow for vesting only if the value at the distribution date is at or above the performance threshold.

~~ESPP Purchase Rights~~

~~The initial six-month offering period for the ESPP began on June 1, 2022 and will end on November 30, 2022. There were no shares purchased using ESPP purchase rights during the three and nine months ended September 30, 2021 or during the three and nine months ended September 30, 2022.~~

Equity-Based Compensation Expense

The Company recognizes compensation expense in general and administrative expenses within operating expenses in the condensed consolidated statements of income for stock options, RSUs, ESPP purchase rights and time-based incentive units granted prior to the IPO, by amortizing the grant date fair value on a straight-line basis over the expected vesting period to the extent the vesting of the grant is considered probable. The Company ~~recognized compensation expense for performance-based incentive units granted prior to the IPO at the date of IPO. The Company~~ recognizes equity-based award forfeitures in the period such forfeitures occur.

The following table summarizes the Company’s equity-based compensation expense by award type for all Plans:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Stock options $ 146 $ 8 $ 359 $ 8
RSUs 682 52 1,865 52
ESPP purchase rights 110 — 110 —
Time-based incentive units 648 619 2,114 1,751
Performance-based incentive units — 4,903 — 4,903
Total $ 1,586 $ 5,582 $ 4,448 $ 6,714


	Three Months Ended March 31,
	2023		2022
Stock options	$	123	$	122
RSUs	1,028		643
ESPP purchase rights	62		—
Time-based incentive units	723		603
Total	$	1,936	$	1,368

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Note 13. Stockholders’ Equity

Preferred Stock

In connection with the IPO, the Company’s amended and restated certificate of incorporation became effective, which authorized the issuance of 50,000,000 shares of undesignated preferred stock with a par value of $0.001 per share with rights and preferences, including voting rights, designated from time to time by the Company’s board of ~~directors.~~directors. There were no shares of preferred stock issued and outstanding as of March 31, 2023.

Common Stock

The Company has one class of common stock. In connection with the IPO, the Company’s amended and restated certificate of incorporation became effective, which authorized the issuance of 500,000,000 shares of common stock with a par value of $0.001 per share, with one vote per share. Holders of common stock are entitled to receive any dividends as may be declared from time to time by the Company’s board of directors.

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Note 14. Net ~~Loss~~Income (Loss) Per Share

The following table sets forth the computation of basic and diluted net ~~loss~~income (loss) per share and a reconciliation of the weighted average number of shares outstanding:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Numerator:
Net loss attributable to a.k.a. Brands Holding Corp. $ (114) $ (9,894) $ (2,801) $ (5,991)
Denominator:
Weighted-average common shares outstanding, basic and diluted 128,686,319 88,368,709 128,663,950 81,401,682
Net loss per share:
Net loss per share, basic and diluted $ 0.00 $ (0.11) $ (0.02) $ (0.07)

Due to the reorganization transactions as described in Note 1, for periods prior to our IPO in September 2021, a split of units held by New Excelerate investors into a proportionate amount of shares of the Company’s common stock is reflected in the weighted-average common shares outstanding. The Company used the two-class method in calculating net income per share historically, as it related to the outstanding incentive units. However, for all periods prior to the IPO, there were no potentially dilutive securities. Accordingly, basic and diluted earnings per share presented herein and on the condensed consolidated statements of income for all periods prior to the IPO are the same.


	Three Months Ended March 31,
	2023		2022
Numerator:
Net income (loss)	$	(9,553)	$	1,525
Denominator:
Weighted-average common shares outstanding, basic	129,040,617		128,647,836
Dilutive securities:

RSUs	—		5,585

Weighted-average common shares outstanding, diluted	129,040,617		128,653,421
Net income (loss) per share:
Net income (loss) per share, basic	$	(0.07)	$	0.01
Net income (loss) per share, diluted	$	(0.07)	$	0.01

Basic net ~~loss~~income (loss) per share is calculated by dividing net ~~loss attributable to a.k.a. Brands Holding Corp.~~income (loss) for the period by the weighted-average number of shares of common stock for the period. Diluted net ~~loss~~income (loss) per share has been calculated in a manner consistent with that of basic net ~~loss~~income (loss) per share while giving effect to shares of potentially dilutive stock option and RSU grants, as well as ESPP purchase rights, outstanding during the period, if applicable. Due to the net loss ~~attributable to a.k.a. Brands Holding Corp.~~ for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, no potentially dilutive securities had an impact on diluted loss per share for such ~~periods.~~period. For the three months ended March 31, 2023 and 2022, respectively, 1,535,696 and 1,159,131 shares were excluded from the calculation of weighted-average diluted common shares outstanding as they had an anti-dilutive effect.

Note 15. Commitments and Contingencies

Contingencies

The Company records a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company also discloses material contingencies when it believes a loss is not probable but reasonably possible. Accounting for contingencies requires usthe Company to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Although the Company cannot predict with assurance the outcome of any litigation or tax matters, it does not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on the Company’s operating results, financial position or cash flows.

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Indemnifications

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, directors, officers and other parties with respect to certain matters. The Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in the consolidated financial statements.

~~Note 16. Related Party Transactions~~

~~Related Party Debt Financing~~

In connection with the acquisition of Culture Kings (refer to Note 3 for additional information), on March 31, 2021, Polly Holdco, a wholly-owned subsidiary of the Company, issued $25.0 million in senior subordinated notes to an affiliate of Summit, a global investment firm who has a majority ownership interest in the Company. The senior subordinated notes were subsequently paid in full and terminated in connection with the IPO (refer to Note 8 for additional information).

Note ~~17.~~16. Subsequent Events

The Company has evaluated subsequent events occurring through ~~November~~May 10, ~~2022,~~2023, the date that these financial statements were originally available to be issued, and determined the following subsequent event occurred that would require disclosure in these financial statements.

~~Draw on~~Partial Repayment of Revolving Line of Credit

On ~~October 4, 2022,~~May 8, 2023, the Company ~~borrowed $15.0~~repaid $10.0 million ~~under~~of the outstanding balance on its revolving line of ~~credit established as part of its senior secured credit facility effective September 24, 2021.~~credit. The ~~initial applicable interest rate for the borrowings is 6.50% and final payoff~~remaining balance is due on September 24, 2026.

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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-led, 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~~operating model to help each brand accelerate its growth, scale in new markets and enhance its profitability.

We founded a.k.a. with a focus on Millennial and Gen Z audiences who primarily ~~shop~~find inspiration for fashion on social media. We have since built a portfolio of ~~five high-growth digital~~next-generation brands with distinct fashion offerings and consumer followings:

•In July 2018, we acquired Princess Polly, an Australian fashion brand focusing on fun, trendy dresses, tops, shoes and accessories with slim fit, body-confident and trendy fashion designs. The brand targets a female ~~customers~~customer between the ages of 15 and 25. ~~Princess Polly has expanded in the U.S., growing U.S. sales by 80% in 2021 as compared to 2020.~~

•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. ~~We acquired the remaining noncontrolling interest concurrently with our IPO.~~ The brand targets female customers typically in their ~~20s~~twenties or ~~30s,~~thirties, with more than ~~half~~70% of customers ~~in the 18 to 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 2021.~~

•~~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 1825 and 34.

•In March 2021, we acquired ~~a controlling interest in~~ Culture Kings, an ~~Australia-based~~Australia-based premium online retailer of streetwear apparel, footwear, headwear and accessories. ~~We acquired the remaining noncontrolling interest concurrently with our IPO.~~ The brand targets male ~~customers~~consumers between the ages of 18 and 35 who are fashion conscious, highly social and digitally focused.

•In October 2021, we acquired mnml, ~~an LA-based~~a Los Angeles-based streetwear brand that offers competitively priced on-trend wardrobe staples. The brand targets male ~~customers~~consumers between the ages of 18 and 35.

~~While we have owned Princess Polly, Petal & Pup~~We acquired Rebdolls in December 2019 and ~~Rebdolls since before 2020,~~sold it back to its founder in March 2023. Refer to Note 3, “Disposals,” in the Notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information ~~presented hereafter on an “across a.k.a. Brands” basis assumes we also owned Culture Kings for all periods presented.~~regarding our disposition of Rebdolls.

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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 figures) 2022 2021 2022 2021
Active customers 3.8 3.1 3.8 3.1
Active customers across a.k.a. Brands(1)
3.8 3.1 3.8 3.1
Average order value $ 85 $ 89 $ 84 $ 87
Average order value across a.k.a. Brands(1)
$ 85 $ 89 $ 84 $ 89
Number of orders 1.8 1.8 5.5 4.4
Number of orders across a.k.a. Brands(1)
1.8 1.8 5.5 4.9

~~(1) Includes the impact of Culture Kings as if we had owned it for all periods presented.~~


	Three Months Ended March 31,
(in millions, other than dollar figures)	2023		2022
Active customers	3.6		3.8

Average order value	$	80	$	83

Number of orders	1.5		1.8

Active Customers

We view the number of active customers as a key indicator of our growth, the value proposition and consumer awareness of our brand, and their desire to purchase our products. In any particular period, we determine our number of active customers by counting the total number of unique customer accounts who have made at least one purchase in the preceding 12-month period, measured from the last date of such period.

Average Order Value

We define average order value ~~(“AOV”)~~ as net sales in a given period divided by the total orders placed in that period. Average order value may fluctuate as we expand into new categories or geographies or as our assortment changes.

Key Financial Metrics

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

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Gross margin 56% 53 % 56% 55 %
Net loss (in thousands) $ (114) $ (10,093) $ (2,801) $ (6,114)
Net loss margin —% (6) % (1)% (2) %
Adjusted EBITDA (in thousands) $ 9,236 $ 18,547 $ 25,779 $ 46,302
Adjusted EBITDA margin 6 % 11 % 6 % 12 %
Net cash (used in) provided by operating activities (in thousands) $ (11,417) $ 20,631
Free Cash Flow (in thousands) $ (25,363) $ 15,916


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Gross margin	57%			57		%
Net income (loss)	$	(9,553)		$	1,525
Net income (loss) margin	(8)%			1		%
Adjusted EBITDA	$	2,186		$	10,652
Adjusted EBITDA margin	2		%	7		%
Net cash used in operating activities	$	(2,960)		$	(14,903)
Free Cash Flow	$	(4,814)		$	(17,511)

Adjusted EBITDA, Adjusted EBITDA ~~Margin~~margin and Free Cash Flow are non-GAAP measures. See “Non-GAAP Financial Measures” below for information regarding our use of Adjusted EBITDA, Adjusted EBITDA margin and Free Cash Flow and their reconciliation to net income (loss), net income (loss) margin and net cash ~~(used in) provided by~~used in operating activities, respectively. ~~See also “Components of Our Results of Operations” for more information.~~

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Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we monitor ~~the following supplemental~~certain non-GAAP financial measures to evaluate our operating performance, identify trends, formulate financial projections and make strategic decisions on a consolidated basis. Accordingly, we believe that non-GAAP financial information, when taken collectively, may provide useful supplemental information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. The non-GAAP financial measures are presented for supplemental informational purposes only. They should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

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Adjusted EBITDA and Adjusted EBITDA Margin

We calculate Adjusted EBITDA as net income (loss) adjusted to exclude: interest and other expense; provision for income taxes; depreciation and amortization expense; ~~stock-based~~equity-based compensation expense; inventory step-up amortization expense, distribution center relocation costs; transaction costs; costs related to ~~establish or relocate distribution centers;~~severance from headcount reductions; goodwill and intangible asset impairment; sales tax penalties; insured losses, net of any recoveries; and one-time or non-recurring items, and Adjusted EBITDA ~~Margin~~margin as Adjusted EBITDA as a percentage of net ~~income (loss).~~sales. Adjusted EBITDA does not represent net income or cash flow from operating activities as it is defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. Because other companies may calculate EBITDA and Adjusted EBITDA differently than we do, Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA has other limitations as an analytical tool when compared to the use of net income (loss), which is the most directly comparable GAAP financial measure, including that Adjusted EBITDA does not reflect:

•the interest or other expense we incur;

•the provision for or benefit from income tax;

•any attribution of costs to our operations related to our investments and capital expenditures through depreciation and amortization charges;

•any transaction or debt extinguishment costs;

•any costs to establish or relocate distribution centers;

•any costs related to severance from headcount reductions;

•any impairment of goodwill or intangible assets;

•any costs related to sales tax penalties;

•any insured losses, net of recoveries;

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

•the cost of compensation we provide to our employees in the form of equity awards.

The following table reflects a reconciliation of Adjusted EBITDA to net ~~loss~~income (loss) and Adjusted EBITDA ~~Margin~~margin to net ~~loss~~income (loss) margin, the most directly comparable financial measure prepared in accordance with GAAP:

Three Months Ended September 30, Nine Months Ended September 30,
In thousands 2022 2021 2022 2021
Net loss $ (114) $ (10,093) $ (2,801) $ (6,114)
Add:
Total other expense, net 2,758 15,589 6,522 19,867
Provision for (benefit from) income tax 98 (4,331) (204) (2,625)
Depreciation and amortization expense 4,566 4,235 15,373 11,336
Inventory step-up amortization expense — 5,985 707 12,251
Equity-based compensation expense 1,586 5,582 4,448 6,714
Distribution center relocation costs 12 — 1,303 —
Transaction costs 39 1,580 140 4,873
Severance 291 — 291 —
Adjusted EBITDA $ 9,236 $ 18,547 $ 25,779 $ 46,302
Net loss margin — % (6) % (1) % (2) %
Adjusted EBITDA margin 6 % 11 % 6 % 12 %

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	Three Months Ended March 31,
(dollars in thousands)	2023			2022

Net income (loss)	$	(9,553)		$	1,525
Add (deduct):
Total other expense, net	3,885			1,171
Provision for (benefit from) income tax	(883)			653
Depreciation and amortization expense	5,440			5,217
Equity-based compensation expense	1,936			1,368
Inventory step-up amortization expense	—			707

Transaction costs	—			11
Severance	264			—
Sales tax penalties	483			—
Insured losses, net of recovery	614			—
Adjusted EBITDA	$	2,186		$	10,652
Net income (loss) margin	(8)		%	1		%
Adjusted EBITDA margin	2		%	7		%

Free Cash Flow

We calculate Free Cash Flow as net cash ~~(used in) provided by~~used in operating activities reduced by purchases of property and equipment. Management believes Free Cash Flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash. There are limitations related to the use of Free Cash Flow as an analytical tool, including that other companies may calculate Free Cash Flow differently, which reduces its usefulness as a comparative measure, and Free Cash Flow does not reflect our future contractual commitments nor does it represent the total residual cash flow for a given period.

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


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021
Net cash (used in) provided by operating activities		$	(11,417)	$	20,631
(dollars in thousands)						(dollars in thousands)	2023		2022
Net cash used in operating activities						Net cash used in operating activities	$	(2,960)	$	(14,903)
Less: purchases of property and equipment	Less: purchases of property and equipment	(13,946)		(4,715)		Less: purchases of property and equipment	(1,854)		(2,608)
Free Cash Flow	Free Cash Flow	$	(25,363)	$	15,916	Free Cash Flow	$	(4,814)	$	(17,511)

Our Free Cash Flow has fluctuated over time primarily as a result of timing of inventory purchases to support our rapid growth. While we have strong long-term relationships with our manufacturers, we usually pay for our inventory in advance. This supports our test and repeat buying model and helps with our ability to move new designs we receive from our suppliers into production and then into inventory in as few as 30 to 45 days. Our operating model requires a low level of capital expenditure.

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, net cash used in operating activities decreased by $11.9 million compared to net cash used in operating activities for the three months ended March 31, 2022. This was attributable primarily to a decrease in inventory compared to the prior period, which was driven by reduced inventory buying and sell-through of aged inventory.

For the three months ended March 31, 2023, Free Cash Flow ~~decreased~~increased by ~~$41.3~~$12.7 million compared to Free Cash Flow for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. This was attributable primarily to a ~~build-up of~~decrease in inventory ~~timing of payments and an increase in capital expenditures. The build-up of inventory~~compared to the prior period, which was driven by ~~Culture Kings’ growth into the U.S. The increase in capital expenditures was primarily due to the build-out~~reduced inventory buying and sell-through of ~~Culture Kings’ new store in Las Vegas.~~aged inventory.

Factors Affecting Our Performance

Macroeconomic Environment

The macroeconomic environment in which we operate has been and, we anticipate, will continue to be pressured by ~~events and~~adverse conditions worldwide. Inflationary pressures on ~~the consumer~~consumers globally and our supply chain, rising interest rates, shifts in global spending in anticipation of a potential economic slowdown or recession, increasing labor rates and a slower-than-expected recovery from the economic impacts of the COVID-19 pandemic in Australia have pressured our net sales. Further, recent bank failures and the flow-on effects of those events, including systemic pressures, may cause instability in the banking industry or result in failures at other banks or financial institutions to which we or our suppliers may face direct or indirect exposure. Additionally, lower return on marketing investments, a higher than historical competitive promotional environment and higher merchandise returns, all stemming from the pressures previously identified, led to reduced operating income and Adjusted EBITDA performance. Consequently, our business and results of operations, including earnings and cash flows, could continue to be adversely impacted, including as a result of:

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

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

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

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

All of these factors have contributed ~~to,~~ and may continue to contribute to reduced orders, increased ~~product~~merchandise returns, higher discounts, lower net sales, lower gross margins, reduced effectiveness of marketing and increased inventories.

Brand Awareness

Our ability to promote our brands and maintain brand awareness and loyalty is critical to our success. We have a significant opportunity to continue to grow awareness and loyalty to our brands through word of mouth, brand marketing, performance marketing and ~~performance marketing.~~increased store openings in key locations. We plan to continue to invest in performance marketing and increase our investment in brand awareness across our brands, including wholesale and marketplace opportunities, to drive our future growth. Failure to successfully promote our brands and maintain brand awareness would have an adverse impact to our operating results.

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Customer Acquisition

To continue to grow our business profitably, we intend to acquire new customers and retain our existing customers at a reasonable cost. Our methods to acquire customers have evolved and will need to continue evolving in response to changes in shopping behaviors, ~~and~~content consumption, costs to ~~advertise.~~advertise and developments in technology. As a result of macroeconomic pressures on our results of operations, we reduced certain of our marketing efforts, which may result in acquiring customers at slower rates. Failure to continue attracting customers efficiently and profitably would adversely impact our profitability and operating results.

Customer Retention

Our results are driven not only by the ability of our brands to acquire customers, but also by their ability to retain customers and encourage repeat purchases. We monitor retention across our entire customer base. Our brands are at various stages of rolling out and evolving loyalty programs. Failure to retain customers would adversely impact our profitability and operating results.

Impact of COVID-19

~~The COVID-19 pandemic continued~~In the second half of 2022, we started to ~~impact our business and results of operations~~experience reductions in air freight costs (which had increased in the first ~~nine months~~half of ~~fiscal year 2022. Certain~~2022 as a result of ~~our supply chain partners, including third party manufacturers, logistics providers and other vendors have~~ ~~experienced~~vendor delays and ~~shut-downs~~shutdowns due to the COVID-19 ~~pandemic,~~pandemic), the impact of which ~~have delayed shipments of products. As a result,~~ we ~~have increased our use of more expensive air freight, which has increased our~~expect will be realized in the Company’s cost of goods. While we have been able to offset increased shipping prices to some extent, there can be no assurance that we will continue to be able to do so, or that prices for shipping services will not increase to a level that does not permit us to do so, particularly if our supply chain partners continue to be impacted by the COVID-19 pandemic.goods sold during 2023. We continue to monitor ~~these delays~~vendor and ~~shut-downs~~manufacturer shipping times and other potential disruptions in our supply chain and implement mitigation plans as necessary.

Foreign Currency Rate Fluctuations

Our international operations have provided and are expected to continue to provide a significant portion of our Company’s net sales and operating income. As a result, our Company’s net sales and operating income will continue to be affected by changes in the U.S. dollar against international currencies, but predominantly against the Australian dollar. In order to provide a framework for assessing the performance of our underlying business, excluding the effects of foreign currency rate fluctuations, we compare the percent change in the results from one period to another period in this Quarterly Report on Form 10-Q using a constant currency methodology wherein current and comparative prior period results for our operations reporting in currencies other than U.S. dollars are converted into U.S. dollars at constant exchange rates (i.e., the rates in effect on December 31, ~~2021,~~2022, which was the last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods. Such disclosure throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations will be described as “on a constant currency basis.” Volatility in currency exchange rates may impact the results, including net sales and operating income, of the Company in the future.

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Results of Operations

The following tables set forth our results of operations for the periods presented and express the relationship of certain line items as a percentage of net sales for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
In thousands		2022		2021		2022		2021
(in thousands)										(in thousands)	2023		2022
Net sales	Net sales	$	155,822	$	161,762	$	462,612	$	379,768	Net sales	$	120,485	$	148,319
Cost of sales	Cost of sales	68,965		75,652		204,112		171,636		Cost of sales	51,985		64,123
Gross profit	Gross profit	86,857		86,110		258,500		208,132		Gross profit	68,500		84,196
Operating expenses:	Operating expenses:									Operating expenses:
Selling	Selling	41,450		40,582		127,068		98,859		Selling	34,406		40,364
Marketing	Marketing	16,532		15,463		51,301		36,595		Marketing	14,777		15,705
General and administrative	General and administrative	26,133		28,900		76,614		61,550		General and administrative	25,868		24,778
Total operating expenses	Total operating expenses	84,115		84,945		254,983		197,004		Total operating expenses	75,051		80,847
Income from operations		2,742		1,165		3,517		11,128
Income (loss) from operations										Income (loss) from operations	(6,551)		3,349
Other expense, net:	Other expense, net:									Other expense, net:
Interest expense	Interest expense	(1,835)		(4,103)		(4,487)		(8,320)		Interest expense	(2,851)		(1,259)
Loss on extinguishment of debt		—		(10,924)		—		(10,924)
Other expense		(923)		(562)		(2,035)		(623)

Other income (expense)										Other income (expense)	(1,034)		88
Total other expense, net	Total other expense, net	(2,758)		(15,589)		(6,522)		(19,867)		Total other expense, net	(3,885)		(1,171)
Loss before income taxes		(16)		(14,424)		(3,005)		(8,739)
Income (loss) before income taxes										Income (loss) before income taxes	(10,436)		2,178
Benefit from (provision for) income taxes	Benefit from (provision for) income taxes	(98)		4,331		204		2,625		Benefit from (provision for) income taxes	883		(653)
Net loss		(114)		(10,093)		(2,801)		(6,114)
Net loss attributable to noncontrolling interests		—		199		—		123
Net loss attributable to a.k.a. Brands Holding Corp.		$	(114)	$	(9,894)	$	(2,801)	$	(5,991)
Net income (loss)										Net income (loss)	$	(9,553)	$	1,525


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Net sales	Net sales	100	%	100	%	100	%	100	%	Net sales	100	%	100	%
Cost of sales	Cost of sales	44	%	47	%	44	%	45	%	Cost of sales	43	%	43	%
Gross profit	Gross profit	56%		53%		56%		55%		Gross profit	57%		57%
Operating expenses:	Operating expenses:									Operating expenses:
Selling	Selling	27%		25%		27%		26%		Selling	29%		27%
Marketing	Marketing	11%		10%		11%		10%		Marketing	12%		11%
General and administrative	General and administrative	17	%	18	%	17	%	16	%	General and administrative	21	%	17	%
Total operating expenses	Total operating expenses	54	%	53	%	55	%	52	%	Total operating expenses	62	%	55	%
Income from operations		2%		1%		1%		3%
Income (loss) from operations										Income (loss) from operations	(5%)		2%
Other expense, net:	Other expense, net:									Other expense, net:
Interest expense	Interest expense	(1%)		(3%)		(1%)		(2%)		Interest expense	(2%)		(1%)
Loss on extinguishment of debt		—	%	(7	%)	—	%	(3	%)
Other expense		(1	%)	—	%	—	%	—	%

Other income (expense)										Other income (expense)	(1	%)	—	%
Total other expense, net	Total other expense, net	(2	%)	(10	%)	(1	%)	(5	%)	Total other expense, net	(3	%)	(1	%)
Loss before income taxes		—	%	(9	%)	(1	%)	(2	%)
Income (loss) before income taxes										Income (loss) before income taxes	(9	%)	1	%
Benefit from (provision for) income taxes	Benefit from (provision for) income taxes	—	%	3	%	—	%	1	%	Benefit from (provision for) income taxes	1	%	—	%
Net loss		—%		(6%)		(1%)		(2%)
Net loss attributable to noncontrolling interests		—	%	—	%	—	%	—	%
Net loss attributable to a.k.a. Brands Holding Corp.		—%		(6%)		(1%)		(2%)
Net income (loss)										Net income (loss)	(8%)		1%

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Comparison of the Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

Net Sales

Three Months Ended September 30,
2022 2021
Net sales $ 155,822 $ 161,762


	Three Months Ended March 31,
(in thousands)	2023		2022
Net sales	$	120,485	$	148,319

Net sales decreased by ~~$5.9~~$27.8 million, or 4%19%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. The decrease in net sales was primarily driven by a 17% decrease in the number of orders, from 1.8 million in 2022 to 1.5 million in 2023, and a decrease in our average order value of 4%, from ~~$89~~$83 in ~~2021~~2022 to ~~$85~~$80 in ~~2022,~~2023, which was primarily due to changes in foreign currency rates and higher promotional activity. On a constant currency basis, ~~both~~ net sales and average order value for the three months ended ~~September 30, 2022~~March 31, 2023 would have decreased 16% and been flat, respectively.~~The three months ended September 30, 2022 includes the operations of mnml, or $9.6 million of net sales.~~

Cost of Sales


		Three Months Ended September 30,							Three Months Ended March 31,
		2022			2021
(dollars in thousands)								(dollars in thousands)	2023			2022
Cost of sales	Cost of sales	$	68,965		$	75,652		Cost of sales	$	51,985		$	64,123
Percent of net sales	Percent of net sales	44		%	47		%	Percent of net sales	43		%	43		%

Cost of sales decreased by ~~$6.7~~$12.1 million, or 9%19%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. This decrease was primarily driven by ~~a $6.0 million detrimental impact to cost of sales~~the 19% reduction in the three months ended September 30, 2021 from the fair value increase in inventory acquired in the purchase of Culture Kings, and the impact from lower sales in the three months ended September 30, 2022, partially offset by higher inbound air freight costs in the current period. Additionally, the operations of mnml, or $4.1 million of cost of sales, is included in the three months ended September 30, 2022. Cost of sales as a percent of net sales for the three months ended September 30, 2022 decreased primarily due to the impact of the fair value increase in inventory acquired in the purchase of Culture Kings included in the three months ended September 30, 2021, the impact of which was partially offset by higher inbound air freight costs.March 31, 2023.

Gross Profit


		Three Months Ended September 30,							Three Months Ended March 31,
		2022			2021
(dollars in thousands)								(dollars in thousands)	2023			2022
Gross profit	Gross profit	$	86,857		$	86,110		Gross profit	$	68,500		$	84,196
Gross margin	Gross margin	56		%	53		%	Gross margin	57		%	57		%

Gross profit ~~increased~~decreased by ~~$0.7~~$15.7 million, or 1%19%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. This ~~increase~~decrease was primarily due to ~~a $6.0 million detrimental impact to gross profit~~the 19% reduction in the three months ended September 30, 2021 from the fair value increase in inventory acquired in the purchase of Culture Kings, which was partially offset by a detrimental impact from higher promotional activity and higher inbound air freight costs in 2022. Additionally, the operations of mnml, or $5.5 million of gross profit, are included in the three months ended September 30, 2022. Gross marginnet sales for the three months ended September 30, 2022 increased primarily due to the impact of the fair value increase in inventory acquired in the purchase of Culture Kings included in 2021, partially offset by a detrimental impact from higher inbound air freight costs.March 31, 2023.

Selling Expenses


		Three Months Ended September 30,							Three Months Ended March 31,
		2022			2021
(dollars in thousands)								(dollars in thousands)	2023			2022
Selling	Selling	$	41,450		$	40,582		Selling	$	34,406		$	40,364
Percent of net sales	Percent of net sales	27		%	25		%	Percent of net sales	29		%	27		%

Selling expenses ~~increased~~decreased by ~~$0.9~~$6.0 million, or 2%15%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. This ~~increase~~decrease was driven by the ~~operations of mnml, or $2.7 million of selling expenses,~~19% decrease in net sales for the three months ended ~~September 30, 2022, and~~March 31, 2023, partially offset by increased costs for distribution and ~~future~~ store ~~facilities, partially offset by increased usage of lower-cost shipping vendors.~~facilities. The increase in selling expenses as a percentage of net sales was primarily due to increased costs for distribution and ~~future~~ store ~~facilities.~~

~~Table of~~ ~~Contents~~

facilities, as well as the decrease in average order value.

Marketing Expenses


		Three Months Ended September 30,							Three Months Ended March 31,
		2022			2021
(dollars in thousands)								(dollars in thousands)	2023			2022
Marketing	Marketing	$	16,532		$	15,463		Marketing	$	14,777		$	15,705
Percent of net sales	Percent of net sales	11		%	10		%	Percent of net sales	12		%	11		%

Marketing expenses ~~increased~~decreased by ~~$1.1~~$0.9 million, or 7%6%, for the three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. The ~~increase~~decrease in marketing expenses was driven by ~~the operations of mnml, or $1.5 million of~~a slower start to marketing ~~expenses, in~~spend during the three months ended ~~September 30, 2022.~~March 31, 2023 due to the elevated promotional environment in 2023 and a decrease in marketing effectiveness. The increase in marketing expenses as a percentage of net sales was primarily due to ~~reduced effectiveness of our marketing channels at driving traffic to our websites, and~~lower sales volume in the ~~inclusion of mnml, which had a higher rate of advertising spend.~~

~~General and Administrative Expenses~~

Three Months Ended September 30,
2022 2021
General and administrative $ 26,133 $ 28,900
Percent of net sales 17 % 18 %

~~General and administrative expenses decreased by $2.8 million, or 10%, for the three months ended September 30, 2022~~first quarter compared to the same period in 2021. The decrease was driven by a $4.0 million decrease in equity-based compensation, due to vesting of performance-based incentive units upon the Company’s IPO in the three months ended September 30, 2021, a $1.8 million decrease in transaction costs, and a $0.5 million decrease in undercollected sales tax. Partially offsetting these decreases was a $3.1 million increase in salaries and related benefits related to increases in our headcount across functions to support business growth and $0.9 million in additional insurance costs. The decrease in general and administrative expenses as a percentage of net sales resulted primarily from the decrease in equity-based compensation. The three months ended September 30, 2022 includes the operations of mnml, or $1.7 million of general and administrative expenses.

~~Other Expense, Net~~

Three Months Ended September 30,
2022 2021
Other expense, net:
Interest expense $ (1,835) $ (4,103)
Loss on extinguishment of debt — (10,924)
Other expense (923) (562)
Total other expense, net $ (2,758) $ (15,589)
Percent of net sales (2) % (10) %

Other expense, net decreased by $12.8 million for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to the loss on extinguishment of debt in the three months ended September 30, 2021, and a reduction in interest expense related to more favorable rates from our senior secured credit facilities compared to those of our credit facilities in the previouslast year.

~~Benefit From (Provision For) Income Taxes~~

Three Months Ended September 30,
2022 2021
Benefit from (provision for) income taxes $ (98) $ 4,331
Percent of net sales — % 3 %

Benefit from (provision for) income tax increased by $4.4 million, or 102% for the three months ended September 30, 2022 compared to the same period in 2021. This increase was due to a reduction in our income before income taxes.

~~Table of~~ ~~Contents~~

~~Comparison of the Nine Months Ended September 30, 2022 and 2021~~

~~Net Sales~~

Nine Months Ended September 30,
2022 2021
Net sales $ 462,612 $ 379,768

Net sales increased by $82.8 million, or 22%, for the nine months ended September 30, 2022 compared to the same period in 2021. The overall increase in net sales was primarily driven by a 25% increase in the number of orders we processed in 2022 compared to 2021, driving an increase in sales of $95.8 million. A decrease in our average order value of 3%, from $87 in 2021 to $84 in 2022, partially offset the increase in net sales by $12.9 million. The increase in the number of orders was largely driven by the acquisition of Culture Kings on March 31, 2021, the acquisition of mnml in October of 2021 and growth of Princess Polly in the U.S. The decrease in our average order value was primarily due to the impact of foreign currency, higher promotional activity and higher return rates. On a constant currency basis, net sales and average order value for the nine months ended September 30, 2022 would have increased 26% and been flat, respectively. The nine months ended September 30, 2022 includes the operations of Culture Kings and mnml, or $187.7 million of net sales, while the comparable period in 2021 includes two quarters of operations of Culture Kings, or $121.1 million of net sales, from the date of its acquisition.

~~Cost of Sales~~

Nine Months Ended September 30,
2022 2021
Cost of sales $ 204,112 $ 171,636
Percent of net sales 44 % 45 %

Cost of sales increased by $32.5 million, or 19%, for the nine months ended September 30, 2022 compared to the same period in 2021. This increase was primarily driven by a 25% increase in the total number of orders in 2022, as compared to 2021, which includes the impact of the operations of Culture Kings and mnml, or $90.5 million of cost of sales, in the nine months ended September 30, 2022, while the comparable period in 2021 includes the impact of two quarters of operations of Culture Kings, or $69.8 million of cost of sales, from the date of its acquisition. Additionally, higher inbound air freight costs impacted the nine months ended September 30, 2022. Cost of sales as a percent of net sales for the nine months ended September 30, 2022 decreased primarily due to the impact of the fair value increase in inventory acquired in the purchase of Culture Kings included in 2021.

~~Gross Profit~~

Nine Months Ended September 30,
2022 2021
Gross profit $ 258,500 $ 208,132
Gross margin 56 % 55 %

Gross profit increased by $50.4 million, or 24%, for the nine months ended September 30, 2022 compared to the same period in 2021. This increase was primarily driven by a significant increase in net sales, which includes the impact of the operations of Culture Kings and mnml, or $97.3 million of gross profit, in the nine months ended September 30, 2022, while the comparable period in 2021 includes the impact of two quarters of operations of Culture Kings, or $51.3 million of gross profit, from the date of its acquisition. Gross margin for the nine months ended September 30, 2022 increased primarily due to the $12.3 million impact of the fair value increase in inventory acquired in the purchase of Culture Kings included in 2021, partially offset by higher inbound air freight costs.

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Table of Contents

~~Selling Expenses~~

Nine Months Ended September 30,
2022 2021
Selling $ 127,068 $ 98,859
Percent of net sales 27 % 26 %

Selling expenses increased by $28.2 million, or 29%, for the nine months ended September 30, 2022 compared to the same period in 2021. This increase was driven by the 25% increase in the number of orders we processed in 2022 compared to 2021, which includes the impact of the operations of Culture Kings and mmnl. The nine months ended September 30, 2022 includes the operations of Culture Kings and mnml, or $50.6 million of selling expenses, while the comparable period in 2021 includes two quarters of operations of Culture Kings, or $28.8 million of selling expenses, from the date of its acquisition, March 31, 2021. The increase in selling expenses as a percentage of net sales was primarily due a $1.3 million charge related to a change in the third-party fulfillment provider for Culture Kings and mnml and increased costs for distribution and future store facilities.

~~Marketing Expenses~~

Nine Months Ended September 30,
2022 2021
Marketing $ 51,301 $ 36,595
Percent of net sales 11 % 10 %

Marketing expenses increased by $14.7 million, or 40%, for the nine months ended September 30, 2022 compared to the same period in 2021. The increase in marketing expenses was driven by the inclusion of Culture Kings and mnml, and increased marketing spend due to reduced effectiveness of our marketing channels at driving traffic to our websites. The nine months ended September 30, 2022 includes the operations of Culture Kings and mnml, or $22.9 million of marketing expenses, while the comparable period in 2021 includes two quarters of operations of Culture Kings, or $13.1 million of marketing expenses, from the date of its acquisition. The increase in marketing expenses as a percentage of net sales was primarily due to reduced effectiveness of our marketing channels at driving traffic to our websites, and the inclusion of mnml, which had a higher rate of advertising spend as compared to some of our other brands.

General and Administrative Expenses


		Nine Months Ended September 30,							Three Months Ended March 31,
		2022			2021
(dollars in thousands)								(dollars in thousands)	2023			2022
General and administrative	General and administrative	$	76,614		$	61,550		General and administrative	$	25,868		$	24,778
Percent of net sales	Percent of net sales	17		%	16		%	Percent of net sales	21		%	17		%

General and administrative expenses increased by ~~$15.1~~$1.1 million, or ~~24%~~4%, for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. The increase was ~~primarily~~ driven by a ~~$18.1~~$0.6 million increase in salaries and ~~related~~ benefits, ~~related to increases~~a $0.6 million increase in ~~our headcount across functions to support business growth~~equity-based compensation, a $0.5 million increase in sales tax penalties and ~~$3.8~~a $0.5 million increase in ~~additional insurance costs.~~professional fees. Partially offsetting these increases was a ~~$4.7~~$1.1 million decrease in transaction costs and a $2.3 million decrease in equity-based compensation, due to vesting of performance-based incentive units upon the Company’s IPO in the nine months ended September 30, 2021. The nine months ended September 30, 2022 includes the operations of Culture Kings and mnml, or $24.4 million of general and administrative expenses, while the comparable period in 2021 includes two quarters of operations of Culture Kings, or $11.6 million of general and administrative expenses, from the date of its acquisition.intangible amortization. The increase in general and administrative expenses as a percentage of net sales resulted primarily from ~~additional salaries and related benefits, as well as additional insurance costs.~~

~~Table of~~ ~~Contents~~

~~Other Expense, Net~~

Nine Months Ended September 30,
2022 2021
Other expense, net:
Interest expense $ (4,487) $ (8,320)
Loss on extinguishment of debt — (10,924)
Other expense (2,035) (623)
Total other expense, net $ (6,522) $ (19,867)
Percent of net sales (1) % (5) %

~~Other expense,~~lower net ~~decreased by $13.3 million~~sales for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021, primarily due to the loss on extinguishment of debt in 2021, and a reduction in interest~~2022.

Other Expense, Net


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Other expense, net:
Interest expense	$	(2,851)		$	(1,259)

Other expense	(1,034)			88
Total other expense, net	$	(3,885)		$	(1,171)
Percent of net sales	(3)		%	(1)		%

Other expense, ~~related to more favorable rates from our senior secured credit facilities compared to those of our credit facilities in the previous year.~~

~~Benefit From Income Taxes~~

Nine Months Ended September 30,
2022 2021
Benefit from income taxes $ 204 $ 2,625
Percent of net sales — % 1 %

~~Benefit from income tax decreased~~net increased by ~~$2.4~~$2.7 million ~~or 92%~~ for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022, primarily due to $1.5 million in additional interest expense from rising interest rates on our variable rate debt, and a $1.0 million loss recognized on the sale of the Rebdolls reporting unit.

Benefit From (Provision For) Income Taxes


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Benefit from (provision for) income taxes	$	883		$	(653)
Percent of net sales	1		%	—		%

Benefit from (provision for) income tax changed by $1.5 million, or 235% for the three months ended March 31, 2023 compared to the same period in 2022. This ~~decrease~~change was due to a reduction in our income (loss) before income taxes.

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Table of Contents

Liquidity and Capital Resources

As of ~~September 30, 2022,~~March 31, 2023, our principal sources of liquidity were cash and cash equivalents totaling ~~$31.1~~$30.2 million, our revolving line of credit and our term loan accordion provision. ~~Our cash equivalents primarily consist of money market funds.~~

As of ~~September 30, 2022,~~March 31, 2023, most of our cash was held for working capital purposes. We ~~have~~had historically financed our operations and capital expenditures primarily through cash flows generated by operations, ~~private sales of equity securities,~~ the incurrence of debt and ~~more recently, with~~through the issuance of ~~equity in the IPO.~~equity. We believe that our existing cash, together with cash generated from operations and available borrowing capacity under our credit facilities and lines of credit, will be sufficient to meet our anticipated cash needs for the next 12 months. We believe that cash generated from ongoing operations and continued access to debt markets will be sufficient to satisfy our cash requirements beyond 12 months. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We may seek to borrow funds under our credit ~~facilities and lines of credit~~facility or raise additional funds at any time through equity, equity-linked or debt financing arrangements. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section of our ~~2021~~2022 Form 10-K captioned “Risk Factors.” We may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all. The inability to raise capital if needed would adversely affect our ability to achieve our business objectives.

Senior Secured Credit ~~Facilities~~Facility

In connection with the IPO, we entered into a senior secured credit facility inclusive of a $100.0 million term loan and a $50.0 million revolving line of credit, with an option of up to $50.0 million in additional term loan through an accordion provision. We used borrowings under this credit facility, together with a portion of the proceeds from the IPO, to repay the Fortress Credit Facilities in full. As of ~~September 30, 2022,~~March 31, 2023, the Company ~~owes~~owed a combined ~~$106.6~~$103.8 million in term loan and accordion borrowings, as well as ~~$25.0~~$30.0 million borrowed ~~under the revolving line of credit. On October 4, 2022, the Company borrowed an additional $15.0 million~~ under the revolving line of credit. The term loan requires us to make amortized annual payments of 5.0% during the first and second years, 7.5% during the third and fourth years and 10.0% during the fifth year with the balance of the loan due at maturity. Borrowings under the term loan accrue interest at a benchmark rate plus an applicable margin dependent upon our net leverage ratio. The revolving line of credit accrues interest at a benchmark rate plus an applicable margin dependent upon our net leverage ratio. The highest interest rates under the agreement for both the term loan and revolving line of credit occur at a net leverage ratio of greater than 2.75x, yielding an interest rate of a benchmark rate plus 3.25%. The accordion provision allows us to borrow additional amounts of term loan at terms to be agreed upon at the time of issuance, but on substantially the same basis as the original term loan. As of ~~September 30, 2022,~~March 31, 2023, principal payments of our term loan and accordion for the next twelve months are anticipated to total ~~$5.6~~$6.3 million.

~~As part of our entering into~~Under the senior secured credit ~~facilities,~~facility, we are subject to certain financial covenant ratios and certain annual mandatory prepayment terms based on excess cash flows, as defined by the credit agreement, based on our net leverage ~~ratio for years beginning with the fiscal year ending December 31, 2022.~~ratio. If we are unable to comply with certain financial covenant ratios and terms requiring mandatory prepayment based on a percentage of excess cash flows, our long-term liquidity position may be adversely impacted. Furthermore, the variable interest rates associated with our senior secured credit ~~facilities~~facility could result in interest payments that are higher than anticipated.

Refer to Note 8, “Debt,” in the Notes to our condensed consolidated financial statements included ~~elsewhere~~ in this Quarterly Report on Form 10-Q for additional information regarding our senior secured credit ~~facilities.~~facility.

Material Cash Requirements

There have been no significant changes in our material cash requirements from those reported in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our ~~2021~~2022 Form 10-K.

Historical Cash Flows

Nine Months Ended September 30,
2022 2021
Net cash (used in) provided by operating activities $ (11,417) $ 20,631
Net cash used in investing activities
(16,205) (251,802)
Net cash provided by financing activities
19,453 261,528


	Three Months Ended March 31,
(in thousands)	2023		2022
Net cash used in operating activities	$	(2,960)	$	(14,903)
Net cash used in investing activities	(1,880)		(4,703)
Net cash provided by (used in) financing activities	(11,443)		22,337

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Net Cash ~~(Used In) Provided by~~Used In Operating Activities

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

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to the same period in ~~2021,~~2022, net cash ~~(used in) provided by~~used in operating activities decreased ~~$32.0~~by $11.9 million. This was attributable primarily to a ~~build-up of~~decrease in inventory ~~and~~compared to the ~~timing of payments. The build-up of inventory~~prior period, which was ~~primarily~~ driven by ~~Culture Kings’ growth into the U.S.~~reduced inventory buying and sell-through of aged inventory.

Net Cash Used in Investing Activities

Our primary investing activities have consisted of acquisitions to support our overall business growth, and investments in our fulfillment centers and our internally developed software to support our infrastructure, and investments in ~~our flagship and other~~ stores. Purchases of property and equipment may vary from period to period due to timing of the expansion of our operations.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to the same period in ~~2021,~~2022, net cash used in investing activities decreased ~~$235.6~~by $2.8 million. This was attributable to the cash paid from holdbacks in the prior period related to the mnml acquisition, and the purchases of ~~Culture Kings~~property and equipment, which was driven by the expansion of the Company’s operations and retail footprint in ~~March 2021.~~the United States in the prior period.

Net Cash Provided by (Used In) Financing Activities

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

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to the same period in ~~2021,~~2022, net cash ~~provided by~~used in financing activities decreased ~~$242.1~~by $33.8 million. This was primarily attributable to ~~the proceeds received from debt issuances and from the issuance of partner units to acquire Culture Kings in March 2021. Offsetting the 2021 activity is~~ $25.0 million in proceeds from the revolving line of credit in ~~2022.~~2022, and the combined $11.4 million in principal payments on our senior secured credit facility in 2023.

Critical Accounting Estimates

There have been no significant changes in our critical accounting estimates from those reported in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our ~~2021~~2022 Form 10-K.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including interest rate changes and the effects of foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks is set forth below.

Interest Rate Sensitivity

Cash and cash equivalents are held primarily in cash deposits and money market funds. The fair value of our cash and cash equivalents would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term nature of these instruments. Interest on any borrowings incurred under the Company’s revolving line of credit ~~borrowings incurred pursuant to the credit described above~~ would accrue at a floating rate based on a formula tied to certain market rates at the time of ~~incurrence; however, we do not expect that any change in prevailing interest rates will have a material impact on our results of operations.~~incurrence. As of ~~September 30, 2022,~~March 31, 2023, we had approximately ~~$131.6~~$133.8 million in debt outstanding under our senior secured credit facility. Based on the levels of borrowings under our senior secured credit facility at ~~September 30, 2022,~~March 31, 2023, a hypothetical 100 basis point increase or decrease in underlying interest rates would increase or decrease interest expense by approximately $1.3 million. This hypothetical analysis may differ from the actual change in interest expense due to potential changes in interest rates or gross borrowings outstanding under our credit facilities. We do not utilize derivative financial instruments to manage our interest rate risks.

In the event the Federal Reserve continues to raise interest rates to combat inflation, current and future borrowings under our senior secured credit facility would be adversely impacted since borrowings under that facility bear interest at variable rates.

Foreign Currency Risk

We are exposed to fluctuations in currency exchange rates as a result of our operations in countries other than the U.S., principally related to our significant operations in Australia. As of ~~September 30, 2022,~~March 31, 2023, movements in currency exchange rates and the related impact on the translation of the balance sheets resulted in the ~~$52.9~~$3.9 million net loss in the currency translation category of accumulated other comprehensive ~~income (loss)~~loss since December 31, ~~2021.~~2022. A hypothetical 10% increase or decrease in the Australian dollar exchange rate could ~~have resulted~~result in a ~~$43.4~~$7.5 million foreign currency translation fluctuation, which would be recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets.

Additionally, a portion of our sales and costs are earned and incurred, respectively, in USD for subsidiaries that use AUD as their functional currency. These sales and costs generate a foreign currency exposure. Furthermore, we have various assets and liabilities, primarily cash and intercompany receivables and payables, denominated in USD where the functional currency is AUD. These balance sheet items are subject to remeasurement which may create fluctuations in other expense within our condensed consolidated statements of income. For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, movements in currency exchange rates resulted in a net ~~losses~~loss of ~~$0.9~~$0.1 million ~~and $2.1 million, respectively,~~ in other expense.

Continuing increases in interest rates to combat inflation may lead to further strengthening of the U.S. dollar relative to foreign currencies, including the AUD, and may impact our sales and costs further.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our ~~chief executive officer~~Interim Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. This evaluation is performed to determine whether our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our ~~chief executive officer~~Interim Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Due to the material weaknesses described below, our ~~chief executive officer~~Interim Chief Executive Officer and ~~chief financial officer~~Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective at the reasonable assurance level as of ~~September 30, 2022. In light~~March 31, 2023. Nevertheless, based on the performance of ~~this fact, our~~additional procedures by management ~~has performed additional analyses, reconciliations, and other post-closing procedures and~~designed to ensure reliability of financial reporting, the Company’s management has concluded that, notwithstanding the material weaknesses ~~in our internal control over financial reporting,~~described below, the consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, ~~our~~the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with GAAP.

Material Weaknesses

~~As disclosed in our 2021 Form 10-K, we~~We have identified two material weaknesses in the design and operation of our internal control over financial reporting in connection with the preparation of our financial statements, as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, that had not been remediated as of ~~December~~March 31, ~~2021.~~2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. The Company’s management, including our ~~chief executive officer~~Interim Chief Executive Officer and ~~chief financial officer~~Chief Financial Officer concluded that, as of ~~December~~March 31, ~~2021:~~2023:

•We ~~have~~had not sufficiently designed, implemented and documented internal controls at the entity level and across key business and financial processes to allow us to achieve complete, accurate and timely financial reporting.

•We ~~have~~had not designed and implemented controls to maintain appropriate segregation of duties in our manual and information technology-based business processes.

Remediation Status of Material Weaknesses

Material weakness related to the design, implementation and documentation of internal controls at the entity level and across key business and financial processes.

We have taken numerous steps to address the underlying causes of this material weakness. We ~~have~~ hired additional experienced financial reporting personnel and put new processes in place to achieve complete, accurate and timely financial reporting. We ~~have~~ also hired a third-party consulting firm with expertise to help us design, implement and document our internal controls across the organization. We have continued with controls implementation, enhanced documentation and understanding of certain processes and provided additional training to individuals performing and overseeing these processes and controls. We also implemented a monitoring system to provide more timely information on control performance and have increased our oversight capabilities across the company.

Material weakness related to appropriate segregation of duties in our manual and ~~IT-based~~information technology-based business processes.

~~We have~~Last year, we commenced a process to (i) identify key systems and processes that require improved documentation, (ii) implement enhanced standards designed to meet the requirements of the Sarbanes-Oxley Act for segregation of duties, (iii) review the design of applicable internal controls and assess any required amendments and (iv) increase the training of accounting and finance staff in relevant areas.

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While progress has been made to remediate both of the material weaknesses above, as of ~~September 30, 2022,~~March 31, 2023, we ~~are~~were still in the process of developing and implementing the enhanced processes and procedures and testing the operating effectiveness of these improved controls. We provided process and controls training and have incorporated ongoing training and monitoring as part of our overall control environment. We implemented and continue to implement control improvements and have focused on the increased operational effectiveness of our controls. We believe our actions will be effective in remediating the material weaknesses, and we continue to devote significant time and attention to these efforts. In addition, the material weaknesses will not be considered remediated until the applicable remedial processes and procedures have been in place for a sufficient period of time and management has concluded, through testing, that these controls are effective. Accordingly, the material weaknesses above ~~are~~were not remediated as of ~~September 30, 2022.~~

~~Table of~~ ~~Contents~~

March 31, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting ~~identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred~~ during the period covered by this Quarterly Report on Form 10-Q that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to legal proceedings which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these legal proceedings will not have a material adverse impact on our financial position or results of operations and cash flows. While we currently believe that the ultimate outcome of such legal proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results of operations in the period in which the ruling occurs. The estimate of the potential impact from such legal proceedings on our financial position or results of operations could change in the future.

ITEM 1A. RISK FACTORS

Reference is made to the information disclosed under Part I, Item 1A - "Risk Factors" in our ~~2021~~2022 Form 10-K, which contains a detailed discussion of certain risk factors that could materially adversely affect the Company's business, operating results or financial condition. There are no material changes to the risk factors previously disclosed, ~~nor has~~except as set forth below.

If we cannot regain compliance with the NYSE’s continued listing standards, the NYSE may delist our common stock, which could negatively affect our company, the price of our common stock and your ability to sell your shares of our common stock.

On April 12, 2023, the Company ~~identified~~was notified by the NYSE that the average closing price of the Company’s common stock, par value $0.001 per share, over the prior consecutive 30 trading-day period was below $1.00, which is the minimum average closing price required to maintain listing on the NYSE under Section 802.01C of the NYSE Listed Company Manual.

Pursuant to Section 802.01C, the Company has a period of six months following receipt of the NYSE notice to regain compliance with the minimum share price requirement. In order to regain compliance, on the last trading day of any ~~previously undisclosed risks that could materially adversely~~calendar month during the cure period, the common stock must have (i) a closing price of at least $1.00 and (ii) an average closing price of at least $1.00 over the 30 trading-day period ending on the last trading day of such month. The Company responded to the NYSE with respect to its intent to cure the deficiency to regain compliance with the minimum share price requirement, which may include, if necessary, effecting a reverse stock split, subject to approval by the Board and stockholders of the Company. If we effect a reverse stock split, the number of shares available on the public market following such action would be reduced significantly, which will likely affect the ~~Company's business, operating results~~volume and liquidity of our common stock.

If we are unable to satisfy the NYSE criteria for continued listing, our common stock would be subject to delisting. The delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or ~~financial condition.~~acquire our common stock, which could negatively impact our ability to raise equity financing; decreasing the amount of news and analyst coverage of us; and limiting our ability to issue additional securities or obtain additional financing in the future. In addition, delisting from the NYSE may negatively impact our reputation and, consequently, our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

The following exhibits are filed herewith or incorporated by reference herein:

Exhibit No.

Description

3.1

Amended and Restated Certificate of Incorporation of a.k.a. Brands Holding Corp., filed with the Delaware Secretary of State on September 21, 2021 (incorporated by reference to Exhibit 3.1 to a.k.a. Brands Holding Corp.’s Current Report on Form 8-K (File No. 001-40828), filed with the Securities and Exchange Commission on September 27, 2021).

3.2

Amended and Restated Bylaws of a.k.a. Brands Holding Corp., effective September 21, 2021 (incorporated by reference to Exhibit 3.2 to a.k.a. Brands Holding Corp.’s Current Report on Form 8-K (File No. 001-40828), filed with the Securities and Exchange Commission on September 27, 2021).

31.1*

Certification of ~~Principal~~Interim Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

~~Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

32.1**

Certification of ~~Principal~~Interim Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

~~Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

101.INS*

Inline XBRL Instance Document.

101.SCH*

Inline XBRL Taxonomy Extension Schema Document.

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

104*

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

__________

* Filed herewith.

** Furnished herewith. The ~~certifications~~certification attached as ~~Exhibits~~Exhibit 32.1 ~~and 32.2~~ that ~~accompany~~accompanies this Quarterly Report on Form 10-Q ~~are~~is deemed furnished and not filed with the SEC and ~~are~~is not to be incorporated by reference into any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	a.k.a. Brands Holding Corp.

Date: ~~November~~May 10, ~~2022~~2023	By:	/s/ Ciaran Long
	Name:	Ciaran Long
	Title:	Interim Chief Executive Officer and Chief Financial Officer
		(Authorized Signatory and Principal Executive, Financial and Accounting Officer)

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	Common Stock			Partnership Units(1)			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Noncontrolling Interest		Total Stockholders’ Equity		Redeemable Noncontrolling Interest
	Shares	Amount		Units	Amount
Balance as of December 31, 2020	—	$	—	114,167,842	$	108,197	$	727	$	5,839	$	14,138	$	9,983	$	138,884	$	—
Issuance of units	—	—		25,746,282	82,669		—		—		—		—		82,669		—
Noncontrolling interest from purchase of Culture Kings				—	—		—		—		—		—		—		142,717
Equity-based compensation		—		—	—		523		—		—		—		523		—
Cumulative translation adjustment	—	—		—	—		—		(3,444)		—		(398)		(3,842)		(1,575)
Net income	—	—		—	—		—		—		1,472		318		1,790		—
Balance as of March 31, 2021	—	—		139,914,124	190,866		1,250		2,395		15,610		9,903		220,024		141,142
Equity-based compensation	—	—		—	—		609		—		—		—		609		—
Cumulative translation adjustment	—	—		—	—		—		(3,709)		—		(137)		(3,846)		(1,835)
Net income	—	—		—	—		—		—		2,431		253		2,684		(495)
Balance as of June 30, 2021	—	—		139,914,124	190,866		1,859		(1,314)		18,041		10,019		219,471		138,812
Purchase of Petal & Pup noncontrolling interest	—	—		—	—		(10,599)		—		—		(9,599)		(20,198)		—
Purchase of Culture Kings noncontrolling interest	21,809,804	22		—	—		132,256		—		—		—		132,278		(132,278)
Reorganization transactions	94,780,338	95		(139,914,124)	(190,866)		190,771		—		—		—		—		—
Issuance of common stock upon initial public offering, net of issuance costs	10,000,000	10		—	—		95,472		—		—		—		95,482		—
Equity-based compensation	—	—		—	—		5,582		—		—		—		5,582		—
Cumulative translation adjustment	—	—		—	—		—		(13,392)		—		(471)		(13,863)		(6,283)
Net income (loss)	—	—		—	—		—		—		(9,894)		51		(9,843)		(251)
Balance as of September 30, 2021	126,590,142	$	127	—	$	—	$	415,341	$	(14,706)	$	8,147	$	—	$	408,909	$	—


	Fair Value at Acquisition Date		Annual Amortization Expense		Estimated Useful Life
Brand names	$	68,354	$	6,835	10 years
Customer relationships	4,855		1,214		4 years
Total	$	73,209


Remainder of 2022	$	696
2023	9,155
2024	6,419
2025	5,741
2026	4,963
Thereafter	22,174
Total remaining lease payments	49,148
Less: imputed interest	8,086
Total operating lease liabilities	41,062
Less: current portion	(6,034)
Long-term operating lease liabilities	$	35,028