WEBER INC. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. The section titled "Special Note Regarding Forward-Looking Statements" should be read for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year end isSeptember 30 , and our fiscal quarters end onDecember 31 ,March 31 ,June 30 andSeptember 30 . Our CompanyWeber Inc. and its subsidiaries (collectively "Weber," the "Company," "we" and "our") is the leading outdoor cooking company in the global outdoor cooking market. Our founderGeorge Stephen , Sr., established the outdoor cooking category when he invented the original charcoal grill 70 years ago. In the decades since, we have built a loyal and global following of both grilling enthusiasts and barbecue professionals in backyards all around the world. Our product portfolio includes traditional charcoal grills, gas grills, smokers, pellet and electric grills and recently our Weber Connect™ technology-enabled grills. Our full range of products is sold in 78 countries through an omni-channel network that consists of wholesale, direct-to-consumer and e-commerce. We operate in the global outdoor cooking market, which is comprised of outdoor products that include gas grills, charcoal grills, wood pellet grills, electric grills, smokers, grilling accessories and solid fuel products (including charcoal briquettes, lump charcoal, pellets, and wood chips and chunks). Our mission at Weber is to lead the outdoor cooking industry by innovating breakthrough new products and services that enhance our global consumers' grilling experiences. Our purpose is to ignite inspiration and discovery through everything we do, at every touchpoint with our consumers. Grilling is about making delicious food, bringing people together and creating memories. Key Factors Affecting Our Results of Operations
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled "Risk Factors" in our Annual Report on Form 10-K.
Economic Conditions
Demand for our products is significantly affected by a number of economic factors impacting our customers and consumers, such as the availability of credit, consumer confidence and spending, demographic trends, employment levels and other macroeconomic factors (e.g., lockdowns, government mandates, etc.) that may influence the extent to which consumers invest in household products such as grills, and associated accessories, consumables and services. In recent months, there has been a slowdown in retail traffic, both in-store and online, which the Company believes is due to rising inflation, supply chain constraints, higher fuel prices and geopolitical uncertainty. These market factors are expected to continue and therefore continue to have a material adverse impact on our results of operation. The Company continues to monitor developments inRussia andUkraine as well as financial and economic sanctions imposed by theU.S. and other countries. InMarch 2022 , the Company suspended operations inRussia , including cessations of imports intoRussia , sales to retailers inRussia and e-commerce activity inRussia . During the fourth quarter of fiscal year 2022, the Company commenced activities to liquidate its on-hand inventory. While the conflict has negatively impacted our results of operations for the three months endedDecember 31, 2022 , the Company's net sales and total assets inRussia represented less than 1% of our total consolidated net sales and total assets.
Impact of Inflation
Changing costs of inbound freight, materials, components, equipment, labor and
other inputs used to manufacture and sell our products and logistics costs, in
particular, have impacted and may in the future impact operating costs and,
accordingly, may affect the prices of our products. We are involved in
continuing programs to mitigate the impact of cost increases through
identification of sourcing and manufacturing efficiencies where possible.
However, we may not be able to fully mitigate or pass through the increases in
our operating costs, and rising prices could also affect demand for our
products. Additionally, rising inflation has negatively impacted retail traffic
and may continue to do so in the future.
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Impact of Foreign Exchange Rates
We conduct business in various locations throughout the world and are subject to market risk due to changes in value of foreign currencies in relation to our reporting currency, theU.S. dollar. The functional currencies of our foreign operating locations are generally the local currency in the country, however, our results of operations and assets and liabilities are reported inU.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and theU.S. dollar. Additionally, because our consolidated financial results are reported inU.S. dollars, the translation of sales or earnings generated in other currencies intoU.S. dollars can result in a significant increase or decrease in the amount of those sales or earnings in our financial statements, which also affects the comparability of our results of operations and cash flows between financial periods.
Seasonality/Weather
Although we generally have demand for our products throughout the year, our sales have historically experienced some seasonality. We have typically experienced our highest level of sales of our products in the second and third fiscal quarters as retailers acrossNorth America andEurope change over their floor sets, build inventory and fulfill consumer demand for outdoor cooking products. Sales are typically lower during our first and fourth fiscal quarters, with the exception of ourAustralia /New Zealand business, which is counter-seasonal to the balance of our business. We have a long track record of investing in our business throughout the year, including in operating expenses, working capital and other growth initiatives. We typically borrow under our short-term revolving facility in the first and second fiscal quarters to fund working capital for building up inventory in anticipation of the higher demand we experience in the second and third fiscal quarters. While these investments drive performance during the primary selling season in our second and third fiscal quarters, they generally have a negative impact on cash flow and net income during our first and fourth fiscal quarters. Unfavorable weather during our higher sales season can also have a material adverse impact on our results, and can cause shifts in sales across fiscal quarters.
Impact of Pandemic
We continue to monitor the COVID-19 pandemic and adjust our mitigation
strategies as necessary to address any changing health, operational or financial
risks that may arise. After the onset of the pandemic, we experienced a
significant increase in demand for our grills and accessories. While this demand
has since moderated, we will continue to manage our production capacity. We
continue to monitor the business for adverse impacts of the pandemic, including
volatility in the foreign exchange markets, supply chain disruptions in certain
markets and potential disruptions in certain countries. In the event we
experience adverse impacts from the above or other factors, we would also
evaluate the need to perform interim impairment tests for our goodwill,
intangible assets and property, equipment and leasehold improvements. There can
be no assurance that volatility and/or disruption in the global capital and
credit markets will not impair our ability to access these markets on terms
acceptable to us, or at all.
Components of our Operating Results
We consider a variety of financial and operating measures in assessing the
performance of our business. The key
We offer a broad range of products that consist of grills, accessories and consumables. Sales are recorded net of related discounts, allowances and taxes to be submitted to third parties. We discuss the net sales of our products in our three reportable segments, as defined below.
Gross Profit and Gross Margin
Gross profit is calculated by taking net sales less cost of goods sold, which includes the cost of direct materials, labor, purchased finished products and components, inbound freight, packaging, warranty and depreciation. Gross margin is defined as gross profit as a percentage of net sales.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of research and
development, marketing, advertising and selling costs; non-manufacturing
employee compensation and benefit costs; transportation costs of delivering our
product to customers and the costs associated with a network of warehousing
facilities to house inventory until the point of sale; outside services and
fees; legal, insurance, accounting, audit and other administrative expenses; and
general corporate infrastructure costs.
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Interest Expense, Net
Interest expense, net consists primarily of interest on our borrowings, including our credit facilities (term loans and revolving facilities), overdraft facility and charges for limited standby letters of credit. Interest expense, net also includes the amortization of deferred financing costs associated with our credit facilities, current year impacts of interest rate swap transactions, as well as interest resulting from a financing obligation under a sale-leaseback arrangement. Interest expense is offset by our interest income, consisting of interest earned on our cash and cash equivalents.
Reportable Segments
We operate and manage our business in three reportable segments:Americas ;Europe ,Middle East andAfrica ("EMEA"); andAsia-Pacific ("APAC"). We identify our reportable segments based on the information used by the Chief Operating Decision Maker ("CODM") to monitor performance and allocate resources. See Note 12 to our condensed consolidated financial statements for additional information regarding our reportable segments. Non-GAAP Measures In addition to theU.S. GAAP results provided in this Quarterly Report on Form 10-Q, we provide supplemental non-GAAP measures to evaluate our business, measure our performance, identify trends affecting our business and assist us in making strategic decisions. Our management team utilizes a combination of GAAP and non-GAAP financial measures to evaluate business results, to make decisions regarding the future direction of our business, and for resource allocation decisions. As a result, we believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors' understanding of our underlying operating performance and in their analysis of ongoing operating trends. The use of non-GAAP financial information should not be considered as an alternative to, or more meaningful than, the comparableU.S. GAAP measures. In addition, because our non-GAAP measures are not determined in accordance withU.S. GAAP, it is susceptible to differing calculations, and not all comparable or peer companies may calculate their non-GAAP measures in the same manner. Our non-GAAP measures are adjusted loss from operations, adjusted net loss, EBITDA and Adjusted EBITDA.
Adjusted Loss from Operations and Adjusted Net Loss
Adjusted loss from operations and adjusted net loss are loss from operations and net loss, respectively, adjusted for stock-based compensation expense, restructuring costs, business transformation costs, operational transformation costs and financing costs. Adjusted loss from operations also reflects an adjustment for foreign currency gain (loss). Adjusted net loss reflects each of the above adjustments, except for foreign currency gain (loss) and the tax impact of all adjustments. We use adjusted loss from operations and adjusted net loss as indicators of the productivity of our business and our ability to manage expenses, after adjusting for certain expenses that we view as not indicative of regular operations. Adjusted loss from operations and adjusted net loss are not calculated in the same manner by all companies and, accordingly, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
EBITDA and Adjusted EBITDA
EBITDA is net loss before interest expense, net, income taxes and depreciation and amortization.
Adjusted EBITDA is a key metric used by management and our Board to assess our financial performance. Adjusted EBITDA is also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside otherU.S. GAAP measures. We use Adjusted EBITDA to supplementU.S. GAAP measures of performance to evaluate the effectiveness of our business strategies, make budgeting decisions and compare our performance against that of other companies using similar measures. Adjusted EBITDA is EBITDA adjusted for stock-based compensation expense, restructuring costs, business transformation costs, operational transformation costs and financing costs. Adjusted EBITDA is not calculated in the same manner by all companies and, accordingly, is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a company's operating performance in isolation from, or as a substitute for, net loss, cash flows from operations or cash flow data, all of which are prepared in accordance withU.S. GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. Adjusted EBITDA is not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance withU.S. GAAP. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items. 28
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The following table reconciles loss from operations to adjusted loss from operations; net loss to adjusted net loss; net loss to EBITDA; and EBITDA to Adjusted EBITDA for the periods presented:
Three Months Ended December 31,
2022 2021
(dollars in thousands)
Loss from operations $ (90,340) $ (89,245)
Adjustments:
Foreign currency gain (loss)(1) 11,041 (164)
Stock-based compensation expense(2) 8,537 25,511
Restructuring charges(3) (1,166) -
Business transformation costs(4) 12,734 7,410
Operational transformation costs(5) 13,603 6,648
Financing costs(6) 537 -
Adjusted loss from operations $ (45,054) $ (49,840)
Net loss $ (113,891) $ (74,553)
Adjustments:
Stock-based compensation expense(2) 8,537 25,511
Restructuring charges(3) (1,166) -
Business transformation costs(4) 12,734 7,410
Operational transformation costs(5) 13,603 6,648
Financing costs(6) 537 -
Tax impact of adjusting items(7) 1,596 (11,458)
Adjusted net loss $ (78,050) $ (46,442)
Net loss $ (113,891) $ (74,553)
Adjustments:
Interest expense, net 29,519 15,531
Income tax expense (benefit) 5,073 (30,387)
Depreciation and amortization 15,106 13,787
EBITDA $ (64,193) $ (75,622)
Stock-based compensation expense(2) 8,537 25,511
Restructuring charges(3) (1,166) -
Business transformation costs(4) 12,734 7,410
Operational transformation costs(5) 13,603 6,648
Financing costs(6) 537 -
Adjusted EBITDA $ (29,948) $ (36,053)
______________
(1)Adjusted loss from operations includes foreign currency gain (loss) in order
to align adjusted loss from operations with Adjusted EBITDA, with the exception
of depreciation and amortization.
(2)See Note 11 to our condensed consolidated financial statements for further information.
(3)"Restructuring costs" are costs associated with the Company's restructuring plan that was implemented in fiscal year 2022, which included the termination of certain senior executives, a workforce reduction of non-manufacturing and distribution headcount, the termination of certain contracts and the disposal of certain other assets.
(4)"Business transformation costs" are costs for business transformation initiatives that require severance or other costs to transition to a new operating model.
(5)"Operational transformation costs" are defined as restructuring and transformation initiatives related to supply chain, operational moves and startups that are designed to enable future productivity. These costs also include significant non-capitalizable systems integration costs, as well was plant shutdown and closure costs that will drive future efficiencies.
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(6)"Financing costs" include non-capitalizable costs relating to the Company's Secured Credit Facility and other financing costs.
(7)"Tax impact of adjusting items" represents the Company's effective tax rate applied to the adjusting items presented.
Results of Operations
Three Months Ended
31, 2021
The following table sets forth our summarized condensed consolidated statements
of operations data in dollars, as percentage change between the respective
periods and as a percentage of net sales (the table may not foot due to
rounding):
Three Months Ended $ Variance % Variance
December 31, Increase/ Increase/ % of Net Sales
2022 2021 (Decrease) (Decrease) 2022 2021
(dollars in thousands)
Net sales $ 164,899 $ 283,141 $ (118,242) (42 %) 100 % 100 %
Cost of goods sold(1)(2) 128,951 219,128 (90,177) (41 %) 78 % 77 %
Gross profit 35,948 64,013 (28,065) (44 %) 22 % 23 %
Operating expenses:
Selling, general and
administrative(1)(2) 122,381 148,084 (25,703) (17 %) 74 % 52 %
Amortization of intangible
assets 5,073 5,174 (101) (2 %) 3 % 2 %
Restructuring costs (1,166) - (1,166) (100 %) (1 %) - %
Loss from operations (90,340) (89,245) (1,095) (64 %) (55 %) (32 %)
Foreign currency (gain) loss (11,041) 164 (11,205) (6832 %) (7 %) - % Interest expense, net 29,519 15,531 13,988 90 % 18 % 5 % Loss before taxes (108,818) (104,940) (3,878) 4 % (66 %) (37 %) Income tax expense (benefit) 5,073 (30,387) 35,460 (117 %) 3 % (11 %) Net loss$ (113,891) $ (74,553) $ (39,338) 53 % (69 %) (26 %)
Adjusted loss from operations(3)
4,786 (10 %) (27 %) (18 %) Adjusted net loss(3)$ (78,050) $ (46,442) $ (31,608) 68 % (47 %) (16 %) EBITDA(3)$ (64,193) $ (75,622) $ 11,429 (15 %) (39 %) (27 %) Adjusted EBITDA(3)$ (29,948) $ (36,053) $ 6,105 (17 %) (18 %) (13 %) ______________
(1)Amounts include stock-based compensation expense as follows:
Three Months Ended December 31,
2022 2021
(dollars in thousands)
Cost of goods sold $ 671 $ 1,182
Selling, general and administrative 7,866 24,329
Total stock-based compensation expense $ 8,537
(2)Amount includes depreciation expense as follows:
Three Months Ended December 31,
2022 2021
(dollars in thousands)
Cost of goods sold $ 5,604 $ 4,935
Selling, general and administrative 4,429 3,678
Total depreciation expense $ 10,033 $ 8,613 (3)See the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Measures."
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Net Sales . Net sales for the three months endedDecember 31, 2022 decreased by$118.2 million , or 42%, to$164.9 million from$283.1 million during the three months endedDecember 31, 2021 . The decrease was attributable to higher retailer inventory carried over from fiscal year 2022 that drove lower customer orders, slowed consumer sales due to the macroeconomic factors described in the section titled "Economic Conditions". The decrease in sales volume was partially offset by certain pricing actions. Fluctuation in foreign exchange rates also unfavorably impacted net sales by$7.6 million , particularly the Australian Dollar and the Euro as compared to theU.S. dollar. Net sales for the three months endedDecember 31, 2022 decreased in theAmericas by 38%, in EMEA by 58% and in APAC by 36% as compared to the three months endedDecember 31, 2021 . Cost of Goods Sold. Cost of goods sold for the three months endedDecember 31, 2022 decreased by$90.2 million , or 41%, to$129.0 million from$219.1 million during the three months endedDecember 31, 2021 , primarily due to lower sales volumes. Gross Profit and Gross Margin. Gross profit for the three months endedDecember 31, 2022 decreased by$28.1 million , or 44%, to$35.9 million from$64.0 million during the three months endedDecember 31, 2021 . Gross margin decreased by 81 basis points to 22% during the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . The decrease in gross profit and gross margin resulted from lower volumes and was partially offset by pricing actions in all regions. Selling, General and Administrative. Selling, general and administrative costs for the three months endedDecember 31, 2022 decreased by$25.7 million , or 17%, to$122.4 million from$148.1 million during the three months endedDecember 31, 2021 . Selling, general and administrative costs as a percent of net sales increased by 2,192 basis points to 74% during the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . The decrease in selling, general and administrative costs was primarily driven by lower stock-based compensation expense of$16.5 million , which is primarily due to fewer unvested profits interest awards and Pre-IPO Management Incentive Compensation Plan awards in the current year period, a reduction in advertising expense of$5.7 million , lower distribution costs on lower sales of$4.8 million and lower salary costs of$2.9 million resulting from the restructuring plan implemented in fiscal year 2022. This was partially offset by higher consulting costs of$7.9 million during the three months endedDecember 31, 2022 . Amortization of Intangible Assets. Amortization of intangible assets for the three months endedDecember 31, 2022 was essentially flat as compared to the prior year period.
Restructuring Costs. During the three months ended
Foreign Currency (Gain) Loss. The impact of foreign exchange resulted in a gain of$11.0 million for the three months endedDecember 31, 2022 relative to a loss of$0.2 million for the three months endedDecember 31, 2021 due to the foreign exchange rate impacts on transactions with Weber affiliates conducted in foreign currencies other than the US dollar. The gain in the current year period primarily relates to Euro-denominated transactions. Interest Expense, Net. Interest expense, net increased by$14.0 million , or 90%, for the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 , primarily due to the commencement of the Incremental Term Loan inMarch 2022 and higher interest rates. Income Taxes. Income taxes increased by$35.5 million for the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . The increase is driven by adjustments for full valuation allowance loss entities that were established during the third quarter of fiscal year 2022, primarily forWeber Inc. Net Loss. Net loss for the three months endedDecember 31, 2022 increased by$39.3 million to a net loss of$113.9 million for the three months endedDecember 31, 2022 from$74.6 million for the three months endedDecember 31, 2021 . This increase was primarily due to lower gross profit of$28.1 million , which was driven by lower net sales of$118.2 million and lower costs of goods sold of$90.2 million , higher income taxes of$35.5 million and higher interest expense of$14.0 million as compared to the prior year period. This was partially offset by favorable foreign currency impacts of$11.2 million and a reduction in selling, general and administrative costs of$25.7 million for the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 .
Segment Information
We operate and manage our business in three reportable segments:Americas , EMEA and APAC. We identify our reportable segments based on the information used by the CODM to monitor performance and allocate resources. See Note 12 of the notes to our condensed consolidated financial statements for additional information regarding our reportable segments. 31
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Net sales by reportable segment is summarized as follows:
Three Months Ended December 31, $ Variance % Variance
Increase/ Increase/
2022 2021 (Decrease) (Decrease)
(dollars in thousands)
Americas $ 97,508 $ 156,494 $ (58,986) (38 %)
EMEA 26,687 62,985 (36,298) (58 %)
APAC 40,704 63,662 (22,958) (36 %)
Total net sales $ 164,899 $ 283,141 $ (118,242) (42 %)
Adjusted income (loss) from operations by reportable segment is summarized as
follows:
Three Months Ended December 31, $ Variance % Variance
Increase/ Increase/
2022 2021 (Decrease) (Decrease)
(dollars in thousands)
Americas $ 1,528 $ 23,286 $ (21,758) (93 %)
EMEA (9,841) 10,269 (20,110) (196 %)
APAC 10,980 19,347 (8,367) (43 %)
Total adjusted income from
operations $ 2,667 $ 52,902 $ (50,235) (95 %)
The following table reconciles segment adjusted income from operations to loss from operations for the periods presented:
Three Months Ended December 31,
2022 2021
(dollars in thousands)
Segment adjusted income from operations
Americas $ 1,528 $ 23,286
EMEA (9,841) 10,269
APAC 10,980 19,347
Segment adjusted income from operations for reportable segments 2,667 52,902
Corporate and supply chain costs(1) (47,721) (102,742)
Foreign currency (gain) loss(2) (11,041) 164
Stock-based compensation expense(2) (8,537) (25,511)
Restructuring charges(2) 1,166 -
Business transformation costs(2) (12,734) (7,410)
Operational transformation costs(2) (13,603) (6,648)
Financing costs(2) (537) -
Loss from operations $
(90,340)
______________
(1)"Corporate and supply chain costs" consists primarily of corporate general
and administrative costs as well as certain unallocated supply chain costs.
(2)See "Non-GAAP Measures-adjusted loss from operations" for descriptions of
reconciling items from loss from operations to adjusted loss from operations.
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The following table summarizes certain financial information relating to theAmericas segment results that have been derived from our condensed consolidated financial statements: Three Months Ended December 31, $ Variance % Variance Increase/ Increase/ 2022 2021 (Decrease) (Decrease) (dollars in thousands) Total segment net sales$ 97,508 $ 156,494 $ (58,986) (38 %) Segment adjusted income from operations $ 1,528$ 23,286 $ (21,758) (93 %) Total SegmentNet Sales . Total segment net sales for the three months endedDecember 31, 2022 decreased by$59.0 million , or 38%, to$97.5 million from$156.5 million during the three months endedDecember 31, 2021 . The decrease was attributable to higher retailer inventory carried over from fiscal year 2022 that drove lower customer orders, slowed consumer sales due to the macroeconomic factors described in the section titled "Economic Conditions" and delayed timing of shipments related to the deployment of the Company's Global SAP/S4HANA ERP platform. These decreases were partially offset by pricing actions. Segment Adjusted Income from Operations. Segment adjusted income from operations for the three months endedDecember 31, 2022 decreased by$21.8 million , or 93%, to$1.5 million from$23.3 million during the three months endedDecember 31, 2021 . The decrease was attributable to lower sales volumes, higher allocation of corporate supply chain costs and was partially offset by pricing actions, lower distribution costs on reduced sales and lower advertising spend.
EMEA
The following table summarizes certain financial information relating to the
EMEA segment results that have been derived from our condensed consolidated
financial statements:
Three Months Ended December 31, $ Variance % Variance
Increase/ Increase/
2022 2021 (Decrease) (Decrease)
(dollars in thousands)
Total segment net sales $ 26,687 $ 62,985 $ (36,298) (58 %)
Segment adjusted (loss) income
from operations $ (9,841) $ 10,269 $ (20,110) (196 %)
Total Segment Net Sales . Total segment net sales for the three months ended
December 31, 2022 decreased by $36.3 million , or 58%, to $26.7 million from
$63.0 million during the three months ended December 31, 2021 . The decrease was
attributable to higher retailer inventory carried over from fiscal year 2022
that drove lower customer orders, slowed consumer purchases across most of the
segment due to the macroeconomic factors described in the section titled
"Economic Conditions" as well as unfavorable impacts of foreign exchange rates,
which reduced net sales by $2.7 million . Excluding the $2.7 million unfavorable
impact of foreign exchange rates, EMEA net sales for the three months ended
December 31, 2022 decreased by 53%, as compared to the three months ended
December 31, 2021 .
Segment Adjusted (Loss) Income from Operations. Segment adjusted (loss) income
from operations for the three months ended December 31, 2022 decreased by $20.1
million , or 196%, to a loss of $9.8 million from income of $10.3 million during
the three months ended December 31, 2021 . This decrease was primarily
attributable to lower sales, higher allocation of corporate supply chain costs,
partially offset by pricing actions, lower advertising costs and reduced
distribution costs on lower sales.
APAC
The following table summarizes certain financial information relating to the
APAC segment results that have been derived from our condensed consolidated
financial statements:
Three Months Ended December 31, $ Variance % Variance
Increase/ Increase/
2022 2021 (Decrease) (Decrease)
(dollars in thousands)
Total segment net sales $ 40,704 $ 63,662 $ (22,958) (36 %)
Segment adjusted income from
operations $ 10,980 $ 19,347 $ (8,367) (43 %)
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Total SegmentNet Sales . Total segment net sales for the three months endedDecember 31, 2022 decreased by$23.0 million , or 36%, to$40.7 million from$63.7 million during the three months endedDecember 31, 2021 . The decrease was attributable to lower revenues as consumer traffic, both in-store and online, slowed in comparison to the exceptional demand realized during the same period last year. In addition, unfavorable foreign exchange rates, specifically the Australian dollar as compared to theU.S. dollar, reduced net sales by$4.5 million . Excluding the$4.5 million unfavorable impact of foreign exchange rates, APAC net sales for the three months endedDecember 31, 2022 decreased by 29% as compared to the three months endedDecember 31, 2021 . Segment Adjusted Income from Operations. Segment adjusted income from operations for the three months endedDecember 31, 2022 decreased by$8.4 million , or 43%, to$11.0 million from$19.3 million during the three months endedDecember 31, 2021 . This decrease is primarily attributable to lower sales inAustralia , increased distribution costs and higher allocation of corporate supply chain costs. Liquidity and Capital Resources Overview Our primary working capital requirements are to fund our daily operational activities like purchasing raw materials and component parts to manufacture products, and making payments to suppliers for goods and services. Our working capital requirements fluctuate during the year, driven primarily by the seasonality of market demand and the timing of inventory manufacturing and purchases, as well as the timing of cash receipts for products sold to customers. Our business is seasonal in nature with the highest level of sales of products occurring in the second and third fiscal quarters; accordingly, we historically borrowed under our short-term revolving credit facility in the first and second fiscal quarters to fund working capital for building up inventory in anticipation of the higher demand in the second and third fiscal quarters. Our capital expenditures are primarily related to growth initiatives and operational spending, including investments related to new product development, manufacturing and operational activities and investments in technology systems. In addition, in the future we may allocate capital to strategic acquisitions. Generally, we fund working capital requirements, capital expenditures, payments related to acquisitions and debt service requirements with a combination of both cash on hand and the borrowing capacity under the Secured Credit Facility, as discussed below. During the three months endedDecember 31, 2022 , the Company entered into new Unsecured Loan Agreements, as discussed below, which have increased our liquidity position. The Company considers all investments with initial maturities of three months or less to be cash and cash equivalents, which consist primarily of demand deposits with major financial institutions in theU.S. and in countries where the Company's subsidiaries operate. As ofDecember 31, 2022 , our cash and cash equivalents totaled$37.7 million , we had$12.8 million of borrowings available under the Revolving Loan,$230.0 million of borrowings available under the Unsecured Revolving Loan and$120.0 million available under the Unsecured 15% Term Loan. We believe we have sufficient cash and cash equivalents, including availability under the Secured Credit Facility and new Unsecured Loan Agreements, to fund our operations, capital expenditures and debt service through fiscal year 2023.
Secured Credit Facility
The Company has a credit facility arrangement with a term loan of
The Term Loan matures onOctober 30, 2027 and the revolving facility matures byOctober 30, 2025 . Borrowings under the credit facilities bear interest at a rate equal to, at our option, either (i) LIBOR for the relevant interest period, adjusted for statutory reserve requirements (subject to a floor of 0.00% per annum for all revolving loans and a 0.75% floor for the term loans), plus an applicable margin or (ii) a base rate equal to the highest of (a) the rate of interest publicly announced from time to time by the administrative agent as its "prime rate", (b) the federal funds effective rate plus 0.50% and (c) adjusted LIBOR for an interest period of one month plus 1.00% (subject to a floor of 0.00% per annum), in each case, plus an applicable margin. As ofDecember 31, 2022 , the interest rate on the Incremental Term Loan was LIBOR plus 3.25%. The Incremental Term Loan matures onOctober 30, 2027 . At the Company's option, the Incremental Term Loan interest rate is based on either (a) Term secured overnight financing rate ("SOFR") for the applicable interest period (subject to a floor of 0.75%) plus an applicable margin or (b) base rate equal to the highest of (i) the rate of interest publicly announced from time to time by the administrative agent as its "prime rate", (ii) the federal funds effective rate plus 0.50% and (iii) Term SOFR for an interest period of one month plus 1.00% (subject to a floor of 0.75% per annum), in each case, 34
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plus an applicable margin. As of
OnDecember 27, 2022 , the Company amended the Secured Credit Facility loan agreement. Pursuant to the amendment, the leverage ratio covenant was waived for the fiscal quarters endingDecember 31, 2022 , andMarch 31, 2023 . As ofDecember 31, 2022 , the Company was in compliance with all other covenants in the Secured Credit Facility. Unsecured Loan Agreements OnNovember 8, 2022 , the Company entered into a loan agreement withBDT Capital Partners Fund I, L.P. andBDT Capital Partners Fund I-A, L.P. The loan agreement provides for an unsecured term loan in an initial aggregate principal amount of$61.2 million (the "Unsecured 12% Term Loan") and additional unsecured term loans in an aggregate principal amount of up to$150.0 million . The Unsecured 12% Term Loan and any additional unsecured term loans entered into under the loan agreement mature onJanuary 29, 2028 and bear interest at a fixed annual rate equal to 12.0%, payable in kind or in cash, at the election of the Company, on a quarterly basis (and, in the absence of such election, interest will be paid in kind). OnDecember 11, 2022 , the Company entered into a loan agreement withRibeye Parent, LLC , which provides for an unsecured delayed draw term loan of$120.0 million (the "Unsecured 15% Term Loan") and an unsecured revolving credit facility with an initial aggregate commitment of$230.0 million (the "Unsecured Revolving Loan") (collectively, the "Unsecured 15% Credit Facility"). The Unsecured 15% Term Loan and Unsecured Revolving Loan may be drawn down subject to customary closing conditions no later thanDecember 31, 2023 . Borrowings under the Unsecured 15% Credit Facility mature onDecember 31, 2023 and bear interest at a fixed annual rate equal to 15.0%, payable in kind or in cash, at the election of the Company, on a quarterly basis (and, in the absence of such election, interest will be paid in kind). A commitment fee of 0.5% per annum or average daily unused commitments under the Unsecured 15% Credit Facility shall also be payable in kind or in cash on a quarterly basis.
The Unsecured 12% Term Loan and Unsecured 15% Credit Facility contain no negative covenants and no financial maintenance covenant.
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