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a.k.a. Brands Holding Corp. Reports Third Quarter 2022 Financial Results

Culture Kings Reimagines In-Store Retail with Its First U.S. Flagship Store in Las Vegas

Active Customers1 Increased 23% on an LTM Basis Compared to the Same Period Last Year

a.k.a. Brands Holding Corp. (NYSE: AKA), a brand accelerator of next generation fashion brands, today announced financial results for the third quarter ended September 30, 2022.

Results for the Third Quarter

  • Net sales decreased 3.7% to $155.8 million, compared to $161.8 million in the third quarter of 2021; flat2 in Constant Currency.
  • Net loss was $(0.1) million or $0.00 per share, and (0.1%) of net sales in the third quarter of 2022, compared to net loss attributable to a.k.a. Brands Holding Corp. of $(9.9) million or $(0.11) per share. and (6.1%) of net sales in the third quarter of 2021.
  • Adjusted EBITDA1 was $9.2 million, or 5.9% of net sales, compared to $18.5 million, or 11.5% of net sales in the third quarter of 2021.

“Thanks to the hard work and agility of our teams, we delivered 8% growth in the U.S. and grew active customers1 by 23% compared to last year. And, I am pleased that we sequentially stabilized and improved our profitability during the third quarter despite the challenging macro environment,” said Jill Ramsey, chief executive officer, a.k.a. Brands. “Our flexible and asset-light model enables us to quickly adapt during dynamic market conditions, and we remain laser focused on identifying efficiencies in our platform while balancing growth. During the quarter, we took a number of controllable actions, including marketing spend reallocation, inventory optimizations and resource rightsizing. As we look ahead, we anticipate another challenging quarter, but I’m confident that we have great brands, next-generation merchandising and marketing strategies and the necessary discipline to deliver long-term growth.”

Recent Business Highlights

  • Princess Polly expanded their formal dress assortment with a new homecoming collection, which resonated well with customers.
  • Culture Kings opened its first U.S. flagship store in Las Vegas on November 5, formally launching the brand in the U.S. with its revolutionary, immersive in-store experience.
  • Petal & Pup piloted a three-day shoppable event in Nashville, which was attended by approximately 100 influencers and garnered 10 million social media impressions.
  • mnml is the fastest growing brand on Culture Kings website and is leveraging the proven data driven merchandising strategy to drop new styles faster.

Third Quarter Financial Details

  • Net sales decreased 3.7% to $155.8 million, compared to $161.8 million in the third quarter of 2021. The decrease was driven by a decrease in the average order value during the quarter, which was primarily due to changes in foreign currency rates. On a Constant Currency2 basis, net sales were flat to last year.
  • Gross margin was 55.7%, compared to 53.2% in the third quarter of 2021. The 250 basis point increase in gross margin rate was primarily driven by a detrimental $6.0 million fair value adjustment related to the Culture Kings acquisition included in the prior year, partially offset by increased promotional activity.
  • Selling expenses were $41.5 million, compared to $40.6 million in the third quarter of 2021. Selling expenses were 26.6% of net sales compared to 25.1% of net sales in the third quarter of 2021. The increase was primarily due to the inclusion of mnml and increased costs for distribution and future store facilities, partially offset by increased strategic usage of lower-cost shipping vendors.
  • Marketing expenses were $16.5 million, compared to $15.5 million in the third quarter of 2021. Marketing expenses were 10.6% of net sales compared to 9.6% of net sales in the third quarter of 2021. The increase was primarily driven by the inclusion of mnml, which operates with a higher rate of advertising spend.
  • General and administrative (“G&A”) expenses were $26.1 million, compared to $28.9 million in the third quarter of 2021. G&A expenses were 16.8% of net sales compared to 17.9% of net sales in the third quarter of 2021. The decrease in G&A expenses during the quarter was primarily due to a reduction in equity-based compensation.
  • Adjusted EBITDA1 was $9.2 million, or 5.9% of net sales, compared to $18.5 million, or 11.5% of net sales in the third quarter of 2021. 

Balance Sheet and Cash Flow

  • Cash and cash equivalents at the end of the third quarter totaled $31.1 million, compared to $38.8 million at the end of fiscal year 2021.
  • Inventory at the end of the third quarter totaled $136.9 million, compared to $115.8 million at the end of fiscal year 2021. Inventory decreased $6.9 million, or 5%, from the end of the second quarter of 2022.
  • Debt at the end of the third quarter totaled $129.9 million, compared to $108.8 million at the end of fiscal year 2021. The Company drew $25.0 million on its revolving credit facility in the first quarter of 2022. Additionally, the Company drew $15.0 million on its revolving credit facility in October 2022, which is not reflected in the September 30, 2022 balance sheet.
  • Cash flow from operations for the nine months ended September 30, 2022 was $(11.4) million, compared to $20.6 million for the nine months ended September 30, 2021.

Outlook

As a result of the significant incremental currency headwinds, the Company has adjusted its expectations for the fourth quarter of 2022. The Company now expects:

  • Net sales between $158 million and $165 million
  • Adjusted EBITDA3 of between $11.2 million and $13.0 million
  • Equity-based compensation of approximately $2.5 million
  • Interest expense of approximately $2.6 million
  • Weighted average diluted share count of 129 million

The above outlook is based on several assumptions, including but not limited to, foreign exchange rates remaining at the current levels and a continued promotional environment. See “Forward-Looking Statements” for additional information.

Conference Call

A conference call to discuss the Company’s third quarter results is scheduled for November 10, 2022, at 4:30 p.m. ET. Those who wish to participate in the call may do so by dialing (877) 858-5495 (or (201) 689-8853 for international callers). The conference call will also be webcast live at https://ir.aka-brands.com in the Events and Presentations section. A recording will be available shortly after the conclusion of the call. To access the replay, please dial (877) 660-6853 (or (201) 612-7415 for international callers), conference ID 13733529. An archive of the webcast will be available on a.k.a. Brands’ investor relations website.

Use of Non-GAAP Financial Measures and Other Operating Metrics

In addition to results determined in accordance with accounting principles generally accepted in the United States of America (GAAP), management utilizes certain non-GAAP performance measures such as net income, as adjusted, net income per share, as adjusted, Adjusted EBITDA, Adjusted EBITDA margin and pro forma net sales for purposes of evaluating ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance. See additional information at the end of this release regarding non-GAAP financial measures.

About a.k.a. Brands

a.k.a. Brands is a brand accelerator of next generation fashion brands. Each brand in the a.k.a. portfolio targets a distinct Gen Z and millennial audience, creates authentic and inspiring social content and offers quality exclusive merchandise. a.k.a. Brands leverages its next-generation retail platform to help each brand accelerate its growth, scale in new markets and enhance its profitability. Current brands in the a.k.a. Brands portfolio include Princess Polly, Culture Kings, mnml, Petal & Pup and Rebdolls.

Forward-Looking Statements

Certain statements made in this release are “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements.

These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company’s control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements.

Important factors, among others, that may affect actual results or outcomes include the effects of geopolitical, economic and market conditions, including heightened inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, the impact 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; our ability to anticipate rapidly-changing consumer preferences in the apparel, footwear and accessories industries; our ability to acquire new customers, retain existing customers or maintain average order value levels; the effectiveness of our marketing and our level of customer traffic; merchandise return rates; our success in identifying brands to acquire, integrate and manage on our platform; our ability to expand into new markets; the global nature of our business; our use of social media platforms and influencer sponsorship initiatives, which could adversely affect our reputation or subject us to fines or other penalties; the inherent challenges in measuring certain of our key operating metrics, and the risk that real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business; the potential for tax liabilities that may increase the costs to our consumers; our ability to attract and retain highly qualified personnel; fluctuations in wage rates and the price, availability and quality of raw materials and finished goods, which could increase costs; interruptions in or increased costs of shipping and distribution, which could affect our ability to deliver our products to the market; and other risks and uncertainties set forth in the sections entitled “Risk Factors” and “Forward-Looking Statements” in the Company’s Annual Report on Form 10-K, dated March 1, 2022, filed with the Securities and Exchange Commission. a.k.a. Brands does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(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 tax

 

(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

 

a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(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

 

Stockholders’ equity:

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

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

 

a.k.a. BRANDS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(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

)

Purchase 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

 

a.k.a. BRANDS HOLDING CORP.

KEY FINANCIAL AND OPERATING METRICS

(unaudited)

 

 

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)1

$

9,236

 

 

$

18,547

 

 

$

25,779

 

 

$

46,302

 

Adjusted EBITDA margin1

 

6

%

 

 

11

%

 

 

6

%

 

 

12

%

 

Key Operational Metrics and Regional Sales

 

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

(metrics in millions, except AOV; sales in thousands)

2022

 

2021

 

2022

 

2021

Key Operational Metrics

 

 

 

 

 

 

 

Active customers4

 

3.8

 

 

 

3.1

 

 

 

3.8

 

 

 

3.1

 

Active customers across a.k.a. Brands4,5

 

3.8

 

 

 

3.1

 

 

 

3.8

 

 

 

3.1

 

Average order value

$

85

 

 

$

89

 

 

$

84

 

 

$

87

 

Average order value across a.k.a. Brands5

$

85

 

 

$

89

 

 

$

84

 

 

$

89

 

Number of orders

 

1.8

 

 

 

1.8

 

 

 

5.5

 

 

 

4.4

 

Number of orders across a.k.a. Brands5

 

1.8

 

 

 

1.8

 

 

 

5.5

 

 

 

4.9

 

 

 

 

 

 

 

 

 

Sales by Region (actual)

 

 

 

 

 

 

 

U.S.

$

82,172

 

 

$

76,435

 

 

$

242,117

 

 

$

190,470

 

Australia

 

57,943

 

 

 

63,831

 

 

 

166,377

 

 

 

142,163

 

Rest of world

 

15,707

 

 

 

21,496

 

 

 

54,118

 

 

 

47,135

 

Total

$

155,822

 

 

$

161,762

 

 

$

462,612

 

 

$

379,768

 

Year-over-year growth

 

(3.7

)%

 

 

 

 

21.8

%

 

 

Year-over-year growth on a constant currency basis2

 

0.3

%

 

 

 

 

26.2

%

 

 

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. AOV may fluctuate as we expand into new categories or geographies or as our assortment changes.

a.k.a. BRANDS HOLDING CORP.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands, except per share data)

(unaudited)

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are key performance measures that management uses to assess our operating performance. Because Adjusted EBITDA and Adjusted EBITDA margin facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes.

We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business. We expect Adjusted EBITDA margin to increase over the long-term as we continue to scale our business and achieve greater leverage in our operating expenses.

We calculate Adjusted EBITDA as net income (loss) adjusted to exclude: interest and other expense; provision for income taxes; depreciation and amortization expense; equity-based compensation expense; costs to establish or relocate distribution centers; transaction costs; costs related to severance from headcount reductions; and one-time or non-recurring items. Adjusted EBITDA is considered a non-GAAP financial measure under the SEC’s rules because it excludes certain amounts included in net income, the most directly comparable financial measure calculated in accordance with GAAP.

A reconciliation of non-GAAP Adjusted EBITDA to net loss for the three and nine months ended September 30, 2022 and 2021 is as follows:

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2022

 

2021

 

2022

 

2021

Net loss

$

(114

)

 

$

(10,093

)

 

$

(2,801

)

 

$

(6,114

)

Add (deduct):

 

 

 

 

 

 

 

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

%

Net Loss, As Adjusted and Net Loss Per Share, As Adjusted

Net loss, as adjusted and net loss per share, as adjusted are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in net loss and net loss per share calculated in accordance with GAAP, the most directly comparable financial measures calculated in accordance with GAAP. Management believes that net loss, as adjusted and net loss per share, as adjusted are meaningful measures to share with investors because they better enable comparison of the performance with that of the comparable period. In addition, net loss, as adjusted and net loss per share, as adjusted afford investors a view of what management considers a.k.a.’s core earnings performance and the ability to make a more informed assessment of such core earnings performance with that of the prior year.

We have calculated net loss, as adjusted and net loss per share, as adjusted for the nine months ended September 30, 2022 by adjusting net loss and net loss per share for the inventory step-up amortization expense resulting from the acquisition of mnml.

There were no adjustments to net income (loss) or net income (loss) per share for any other periods or comparable periods otherwise shown herein. A reconciliation of non-GAAP net loss, as adjusted to net loss, as well as the resulting calculation of net loss per share, as adjusted for the six months ended September 30, 2022 are as follows:

 

Nine Months Ended

September 30, 2022

Net loss

$

(2,801

)

Adjustments:

 

Inventory step-up amortization expense

 

707

 

Tax effects of adjustments

 

(212

)

Net loss, as adjusted

$

(2,306

)

Net loss per share, as adjusted

$

(0.02

)

Weighted-average shares, diluted

 

128,663,950

 

Pro Forma Net Sales

Pro forma net sales is considered a non-GAAP financial measure under the SEC’s rules. We believe that pro forma net sales is useful information for investors as it provides a better understanding of sales performance, and relative changes therein, on a comparable basis. We calculate pro forma net sales as net sales including the historical net sales relating to the pre-acquisition periods of Culture Kings, assuming that the Company acquired Culture Kings at the beginning of the period presented. Pro forma net sales is not necessarily indicative of what the actual results would have been if the acquisition had in fact occurred on the date or for the periods indicated nor does it purport to project net sales for any future periods or as of any date. A reconciliation of non-GAAP pro forma net sales to net sales, which is the most directly comparable financial measure calculated in accordance with GAAP, for each quarter in 2021 and 2020, is as follows:

 

 

Net Sales in 2021

 

Three Months Ended

 

Actual

 

Culture Kings

 

Pro Forma

 

March 31

 

$

68,779

 

$

51,263

 

$

120,042

 

June 30

 

 

149,227

 

 

 

 

149,227

 

September 30

 

 

161,762

 

 

 

 

161,762

 

December 31

 

 

182,423

 

 

 

 

182,423

 

 

 

$

562,191

 

$

51,263

 

$

613,454

 

 

 

 

Net Sales in 2021

 

Net Sales in 2020

 

Growth Rate

Three Months Ended

 

Pro Forma

 

Actual

 

Culture Kings

 

Pro Forma

 

Actual

 

Pro Forma

March 31

 

$

120,042

 

$

35,006

 

$

25,586

 

$

60,592

 

96.5

%

 

98.1

%

June 30

 

 

149,227

 

 

46,793

 

 

38,179

 

 

84,972

 

218.9

%

 

75.6

%

September 30

 

 

161,762

 

 

63,336

 

 

48,713

 

 

112,049

 

155.4

%

 

44.4

%

December 31

 

 

182,423

 

 

70,781

 

 

56,654

 

 

127,435

 

157.7

%

 

43.1

%

 

 

$

613,454

 

$

215,916

 

$

169,132

 

$

385,048

 

 

 

 

A reconciliation of non-GAAP pro forma net sales to net sales, disaggregated by geography, which is the most directly comparable financial measure calculated in accordance with GAAP, for the three months ended September 30, 2021 and 2020, is as follows:

 

 

Three Months

Ended

September 30, 2021

 

Three Months Ended September 30, 2020

 

Growth Rate

 

 

Actual

 

Actual

 

Culture Kings

 

Pro Forma

 

Actual

 

Pro Forma

U.S.

 

$

76,435

 

$

37,648

 

$

3,989

 

$

41,637

 

103.0

%

 

83.6

%

Australia

 

 

63,831

 

 

19,707

 

 

40,017

 

 

59,724

 

223.9

%

 

6.9

%

Rest of world

 

 

21,496

 

 

5,981

 

 

4,707

 

 

10,688

 

259.4

%

 

101.1

%

Total

 

$

161,762

 

$

63,336

 

$

48,713

 

$

112,049

 

 

 

 

____________________

1
See additional information at the end of this release regarding key operating and financial metrics and non-GAAP financial measures.

2 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 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, which was the last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods.

3 The Company has not provided a quantitative reconciliation of its Adjusted EBITDA outlook to a GAAP net income outlook because it is unable, without making unreasonable efforts, to project certain reconciling items. These items include, but are not limited to, future equity-based compensation expense, income taxes, interest expense and transaction costs. These items are inherently variable and uncertain and depend on various factors, some of which are outside of the Company’s control or ability to predict. See additional information at the end of this release regarding non-GAAP financial measures.

4 Trailing twelve months.

5 Metrics “across a.k.a. Brands” assume we owned Culture Kings for all periods presented.

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