UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
_________________________
| | | | | |
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2021June 30, 2022
| | | | | |
| o | 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: 001-40702
_________________________
Weber Inc.
(Exact name of registrant as specified in its charter)
_________________________
| | | | | |
DE (State or other jurisdiction of incorporation or organization) | 61-1999408 (I.R.S. Employer Identification No.) |
1415 S. Roselle Road Palatine, Illinois (Address of principal executive offices) | 60067 (Zip Code) |
(847) 934-5700
(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 |
| Class A Common Stock, par value $0.001 per share | | WEBR | | 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 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. x Yes o 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). x Yes o 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 | | o | | Accelerated filer | | o |
| Non-accelerated filer | | x | | Smaller reporting company | | o |
| | | | Emerging growth company | | o |
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). o Yes x No
Class A Common Stock outstanding as of JanuaryJuly 31, 2022 – 52,562,77953,073,680 shares
Class B Common Stock outstanding as of JanuaryJuly 31, 2022 – 234,645,219234,506,736 shares
WEBER INC.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in the sections titled “Quantitative and Qualitative Disclosures About Market Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in other sections of this Quarterly Report on Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed in the section titled "Risk Factors"“Risk Factors” in our Annual Report on Form 10-K.10-K and in our Quarterly Reports on Form 10-Q.
Our future results could be affected by a variety of other factors, including uncertainty of the magnitude, duration, geographic reach, impact on the global economy and current and potential travel restrictions of the COVID-19 outbreak, the current, and uncertain future, impact of the COVID-19 outbreak on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), and cash flows and liquidity, risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects, the ability to realize the anticipated benefits and synergies from business acquisitions in the amounts and at the times expected, the impact of competitive conditions, the effectiveness of pricing, advertising, and promotional programs; the success of innovation, renovation and new product introductions; the recoverability of the carrying value of goodwill and other intangibles, the success of productivity improvements and business transitions, commodity and energy prices, transportation costs, labor costs, disruptions or inefficiencies in supply chain, the availability of and interest rates on short-term and long-term financing, the levels of spending on systems initiatives, properties, business opportunities, integration of acquired businesses, and other general and administrative costs, changes in consumer behavior and preferences, the effect of U.S. and foreign economic conditions on items such as interest rates, statutory tax rates, currency conversion and availability, legal and regulatory factors including the impact of any product recalls; and business disruption or other losses from war, pandemic, terrorist acts or political unrest.
The risk factors discussed in the section titled "Risk Factors"“Risk Factors” in our Annual Report on Form 10-K and in our Quarterly Reports on Form 10-Q could cause our results to differ materially from those expressed in the forward-looking statements made in this Quarterly Report on Form 10-Q. There also may be other risks that are currently unknown to us or that we are unable to predict at this time.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Forward-looking statements speak only as of the date they were made, and we are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Weber Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share data)
| | | | December 31,
2021 | | September 30,
2021 | | June 30,
2022 | | September 30,
2021 |
| | | (unaudited) | | | | (unaudited) | | |
| Assets | Assets | | | | Assets | | | |
| Current assets: | Current assets: | | | | Current assets: | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 46,199 | | | $ | 107,517 | | Cash and cash equivalents | $ | 40,846 | | | $ | 107,517 | |
Accounts receivable, less allowances (1) | Accounts receivable, less allowances (1) | 156,392 | | | 138,683 | | Accounts receivable, less allowances (1) | 279,606 | | | 138,683 | |
| Inventories, net | Inventories, net | 470,519 | | | 332,621 | | Inventories, net | 396,669 | | | 332,621 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 113,618 | | | 68,236 | | Prepaid expenses and other current assets | 82,954 | | | 68,236 | |
| Total current assets | Total current assets | 786,728 | | | 647,057 | | Total current assets | 800,075 | | | 647,057 | |
| Property, equipment and leasehold improvements, net | Property, equipment and leasehold improvements, net | 172,959 | | | 162,829 | | Property, equipment and leasehold improvements, net | 197,539 | | | 162,829 | |
Operating lease right-of-use assets (2) | Operating lease right-of-use assets (2) | 67,502 | | | 66,962 | | Operating lease right-of-use assets (2) | 79,155 | | | 66,962 | |
| Other long-term assets | Other long-term assets | 57,751 | | | 61,454 | | Other long-term assets | 53,386 | | | 61,454 | |
| Trademarks, net | Trademarks, net | 356,975 | | | 357,821 | | Trademarks, net | 355,282 | | | 357,821 | |
| Other intangible assets, net | Other intangible assets, net | 139,793 | | | 144,257 | | Other intangible assets, net | 129,514 | | | 144,257 | |
| Goodwill | Goodwill | 109,180 | | | 110,612 | | Goodwill | 106,785 | | | 110,612 | |
| Total assets | Total assets | $ | 1,690,888 | | | $ | 1,550,992 | | Total assets | $ | 1,721,736 | | | $ | 1,550,992 | |
| Liabilities and equity (deficit) | Liabilities and equity (deficit) | | | | Liabilities and equity (deficit) | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Trade accounts payable | Trade accounts payable | $ | 375,887 | | | $ | 330,669 | | Trade accounts payable | $ | 379,689 | | | $ | 330,669 | |
Accrued expenses (3) | Accrued expenses (3) | 136,365 | | | 150,610 | | Accrued expenses (3) | 123,200 | | | 150,610 | |
| Income taxes payable | Income taxes payable | 8,696 | | | 4,823 | | Income taxes payable | 4,813 | | | 4,823 | |
| Current portion of long-term debt and other borrowings | Current portion of long-term debt and other borrowings | 173,500 | | | 12,500 | | Current portion of long-term debt and other borrowings | 63,000 | | | 12,500 | |
| Current portion of long-term financing obligation | Current portion of long-term financing obligation | 612 | | | 592 | | Current portion of long-term financing obligation | 654 | | | 592 | |
| Total current liabilities | Total current liabilities | 695,060 | | | 499,194 | | Total current liabilities | 571,356 | | | 499,194 | |
| Long-term debt, less current portion | Long-term debt, less current portion | 982,568 | | | 984,818 | | Long-term debt, less current portion | 1,215,728 | | | 984,818 | |
| Long-term financing obligation, less current portion | Long-term financing obligation, less current portion | 38,228 | | | 38,394 | | Long-term financing obligation, less current portion | 37,891 | | | 38,394 | |
Non-current operating lease liabilities (4) | Non-current operating lease liabilities (4) | 55,809 | | | 55,329 | | Non-current operating lease liabilities (4) | 66,888 | | | 55,329 | |
| Tax Receivable Agreement liability | Tax Receivable Agreement liability | 9,226 | | | 9,226 | | Tax Receivable Agreement liability | — | | | 9,226 | |
| Other long-term liabilities | Other long-term liabilities | 79,424 | | | 85,376 | | Other long-term liabilities | 72,877 | | | 85,376 | |
| Total liabilities | Total liabilities | 1,860,315 | | | 1,672,337 | | Total liabilities | 1,964,740 | | | 1,672,337 | |
| Commitments and Contingencies (Note 8) | Commitments and Contingencies (Note 8) | 0 | | 0 | Commitments and Contingencies (Note 8) | 0 | | 0 |
| Class A Common Stock, $0.001 par value - 3,000,000,000 shares authorized, 52,569,898 and 52,533,388 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively | 53 | | | 53 | | |
| Class B Common Stock, $0.00001 par value - 1,500,000,000 shares authorized, 234,645,219 and 233,572,370 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively | 2 | | | 2 | | |
| Preferred Stock, $0.0001 par value - 1,500,000,000 shares authorized, zero shares issued and outstanding as of both December 31, 2021 and September 30, 2021 | — | | | — | | |
| Class A Common Stock, $0.001 par value - 3,000,000,000 shares authorized, 52,899,303 and 52,533,388 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively | | Class A Common Stock, $0.001 par value - 3,000,000,000 shares authorized, 52,899,303 and 52,533,388 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively | 53 | | | 53 | |
| Class B Common Stock, $0.00001 par value - 1,500,000,000 shares authorized, 234,559,825 and 233,572,370 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively | | Class B Common Stock, $0.00001 par value - 1,500,000,000 shares authorized, 234,559,825 and 233,572,370 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively | 2 | | | 2 | |
| Preferred Stock, $0.0001 par value - 1,500,000,000 shares authorized, zero shares issued and outstanding as of both June 30, 2022 and September 30, 2021 | | Preferred Stock, $0.0001 par value - 1,500,000,000 shares authorized, zero shares issued and outstanding as of both June 30, 2022 and September 30, 2021 | — | | | — | |
| Additional paid-in capital | Additional paid-in capital | 12,015 | | | 6,109 | | Additional paid-in capital | 18,715 | | | 6,109 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | (8,942) | | | (9,280) | | Accumulated other comprehensive loss | (5,155) | | | (9,280) | |
| Retained earnings (deficit) | Retained earnings (deficit) | 6,899 | | | (7,646) | | Retained earnings (deficit) | (59,485) | | | (7,646) | |
| Total Weber Inc. equity (deficit) | Total Weber Inc. equity (deficit) | 10,027 | | | (10,762) | | Total Weber Inc. equity (deficit) | (45,870) | | | (10,762) | |
| Noncontrolling interests | Noncontrolling interests | (179,454) | | | (110,583) | | Noncontrolling interests | (197,134) | | | (110,583) | |
| Total equity (deficit) | Total equity (deficit) | (169,427) | | | (121,345) | | Total equity (deficit) | (243,004) | | | (121,345) | |
| Total liabilities and equity (deficit) | Total liabilities and equity (deficit) | $ | 1,690,888 | | | $ | 1,550,992 | | Total liabilities and equity (deficit) | $ | 1,721,736 | | | $ | 1,550,992 | |
_____________
(1)Includes related party royalty receivables of $144$171 and $119 at December 31, 2021June 30, 2022 and September 30, 2021, respectively (see Note 9).
(2)Includes related party operating lease assets of $1,544$1,256 and $1,629 at December 31, 2021June 30, 2022 and September 30, 2021, respectively (see Note 9).
(3)Includes related party operating lease liabilities of $438$387 and $431 at December 31, 2021June 30, 2022 and September 30, 2021, respectively (see Note 9).
(4)Includes related party operating lease liabilities of $1,106$898 and $1,198 at December 31, 2021June 30, 2022 and September 30, 2021, respectively (see Note 9).
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Weber Inc.
Condensed Consolidated Statements of Operations
(dollars in thousands, except share and per share data)
(unaudited)
| | | Three Months Ended December 31, | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net sales (1) | Net sales (1) | $ | 283,141 | | | $ | 308,878 | | Net sales (1) | $ | 527,936 | | | $ | 668,867 | | | $ | 1,418,371 | | | $ | 1,632,176 | |
Cost of goods sold (2) | Cost of goods sold (2) | 219,128 | | | 174,073 | | Cost of goods sold (2) | 374,291 | | | 369,776 | | | 992,196 | | | 912,558 | |
| Gross profit | Gross profit | 64,013 | | | 134,805 | | Gross profit | 153,645 | | | 299,091 | | | 426,175 | | | 719,618 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
Selling, general and administrative (4)(5) | Selling, general and administrative (4)(5) | 148,084 | | | 114,103 | | Selling, general and administrative (4)(5) | 173,494 | | | 257,758 | | | 487,515 | | | 555,744 | |
| Amortization of intangible assets | Amortization of intangible assets | 5,174 | | | 3,017 | | Amortization of intangible assets | 5,154 | | | 5,226 | | | 15,495 | | | 12,090 | |
| Gain on disposal of assets held for sale | Gain on disposal of assets held for sale | — | | | (5,185) | | Gain on disposal of assets held for sale | — | | | — | | | — | | | (5,185) | |
| (Loss) income from operations | (Loss) income from operations | (89,245) | | | 22,870 | | (Loss) income from operations | (25,003) | | | 36,107 | | | (76,835) | | | 156,969 | |
| Foreign currency loss (gain) | Foreign currency loss (gain) | 164 | | | (3,507) | | Foreign currency loss (gain) | 16,766 | | | (3,758) | | | 20,983 | | | (3,772) | |
Interest income (5) | (230) | | | (179) | | |
| Interest expense | 15,761 | | | 14,652 | | |
Interest expense, net (6) | | Interest expense, net (6) | 19,267 | | | 18,031 | | | 51,813 | | | 49,780 | |
| Gain on Tax Receivable Agreement liability remeasurement | | Gain on Tax Receivable Agreement liability remeasurement | (9,226) | | | — | | | (9,226) | | | — | |
| Loss from early extinguishment of debt | Loss from early extinguishment of debt | — | | | 5,448 | | Loss from early extinguishment of debt | — | | | — | | | — | | | 5,448 | |
| Other expense | | Other expense | 68 | | | — | | | 502 | | | — | |
| (Loss) income before taxes | (Loss) income before taxes | (104,940) | | | 6,456 | | (Loss) income before taxes | (51,878) | | | 21,834 | | | (140,907) | | | 105,513 | |
| Income tax (benefit) expense | (30,387) | | | 166 | | |
| Loss from investments in unconsolidated affiliates | — | | | 1,405 | | |
| Income tax expense | | Income tax expense | 121 | | | 4,009 | | | 36,958 | | | 19,398 | |
| Gain from investments in unconsolidated affiliates | | Gain from investments in unconsolidated affiliates | — | | | — | | | — | | | (5,505) | |
| Net (loss) income | Net (loss) income | $ | (74,553) | | | $ | 4,885 | | Net (loss) income | (51,999) | | | 17,825 | | | (177,865) | | | 91,620 | |
| Net loss attributable to noncontrolling interests | Net loss attributable to noncontrolling interests | (91,330) | | | — | | Net loss attributable to noncontrolling interests | (44,505) | | | — | | | (132,698) | | | — | |
| Net income attributable to Weber Inc. | $ | 16,777 | | | $ | 4,885 | | |
| Net (loss) income attributable to Weber Inc. | | Net (loss) income attributable to Weber Inc. | $ | (7,494) | | | $ | 17,825 | | | $ | (45,167) | | | $ | 91,620 | |
| Earnings (loss) per share of Class A common stock | Earnings (loss) per share of Class A common stock | | | | Earnings (loss) per share of Class A common stock | | | | | | | |
| Basic | Basic | $ | 0.31 | | | N/A | Basic | $ | (0.14) | | | N/A | | $ | (0.84) | | | N/A |
| Diluted | Diluted | $ | (0.19) | | | N/A | Diluted | $ | (0.41) | | | N/A | | $ | (0.84) | | | N/A |
| Weighted average shares outstanding | Weighted average shares outstanding | | Weighted average shares outstanding | |
| Basic | Basic | 53,309,932 | | | N/A | Basic | 53,875,489 | | | N/A | | 53,499,650 | | | N/A |
| Diluted | Diluted | 287,955,151 | | | N/A | Diluted | 290,170,910 | | | N/A | | 53,499,650 | | | N/A |
_____________
(1)Includes related party royalty revenue of $144$106 and $43$128 for the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,$379 and $75 for the nine months ended June 30, 2022 and 2021, respectively (see Note 9).
(2)Includes related party rental expense of zero and $179$213 for the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,zero and $605 for the nine months ended June 30, 2022 and 2021, respectively (see Note 9).
(3)Includes related party rental expense of $167$176 and $59$68 for the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,$513 and $196 for the nine months ended June 30, 2022 and 2021, respectively (see Note 9).
(4)Includes related party royalty expense of zero for both the three months ended June 30, 2022 and 2021 and zero and $268 for the threenine months ended December 31,June 30, 2022 and 2021, and 2020, respectively (see Note 9).
(5)Includes related party compensation expense of zero for both the three months ended June 30, 2022 and 2021 and $420 and zero for the nine months ended June 30, 2022 and 2021, respectively (see Note 9).
(6)Includes related party interest income of $3zero and $14$11 for the for the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,$3 and $40 for the nine months ended June 30, 2022 and 2021, respectively (see Note 9).
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Weber Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(dollars in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Net (loss) income | $ | (51,999) | | | $ | 17,825 | | | $ | (177,865) | | | $ | 91,620 | |
| Other comprehensive (loss) income: | | | | | | | |
| Foreign currency translation adjustments, net of income tax expense of $324, zero, zero and zero | (15,867) | | | 577 | | | (23,074) | | | 2,941 | |
| Gain (loss) on derivative instruments, net of income tax benefit of $1,445, zero, zero and zero | 13,287 | | | (4,273) | | | 45,523 | | | 19,320 | |
| Comprehensive (loss) income | (54,579) | | | 14,129 | | | (155,416) | | | 113,881 | |
| Less: Comprehensive loss attributable to noncontrolling interests | (47,526) | | | — | | | (114,374) | | | — | |
| Comprehensive (loss) income attributable to Weber Inc. | $ | (7,053) | | | $ | 14,129 | | | $ | (41,042) | | | $ | 113,881 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Weber Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
Equity (Deficit)
(dollars in thousands)thousands, except share data)
(unaudited)
| | | | | | | | | | | |
| | Three Months Ended December 31, |
| | 2021 | | 2020 |
| Net (loss) income | $ | (74,553) | | | $ | 4,885 | |
| Other comprehensive (loss) income: | | | |
| Foreign currency translation adjustments, net of income tax benefit of $135 and zero | (3,006) | | | 10,457 | |
| Gain on derivative instruments, net of income tax expense of $238 and zero | 5,316 | | | 3,709 | |
| Comprehensive (loss) income | (72,243) | | | 19,051 | |
| Less: Comprehensive loss attributable to noncontrolling interests | (89,358) | | | — | |
| Comprehensive income attributable to Weber Inc. | $ | 17,115 | | | $ | 19,051 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 |
| | Class A Common Stock | | Class B Common Stock | | Preferred Stock | | | | Accumulated Other Comprehensive Income (Loss) | | |
| | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Additional Paid-in Capital | | Cumulative Translation Adjustments | | Unrealized Gain (Loss) on Derivative Instruments | | Retained Earnings (Deficit) | | Non-controlling Interests | | Total |
| Balance at March 31, 2022 | 52,834,735 | | | $ | 53 | | | 234,609,825 | | | $ | 2 | | | — | | | $ | — | | | $ | 15,125 | | | $ | (6,751) | | | $ | 1,155 | | | $ | (49,763) | | | $ | (153,897) | | | $ | (194,076) | |
| Deferred tax asset associated with repayment of member notes | — | | | — | | | — | | | — | | | — | | | — | | | 487 | | | — | | | — | | | — | | | — | | | 487 | |
| Issuance of Class A shares for equity awards | 14,568 | | | — | | | — | | | — | | | — | | | — | | | (92) | | | — | | | — | | | — | | | — | | | (92) | |
| Conversion of Paired Interests | 50,000 | | | — | | | (50,000) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,494) | | | (44,505) | | | (51,999) | |
| Dividends on Class A shares and equity awards | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,228) | | | — | | | (2,228) | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,856) | | | (9,856) | |
| Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | 3,195 | | | — | | | — | | | — | | | 14,145 | | | 17,340 | |
| Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,184) | | | — | | | — | | | (12,683) | | | (15,867) | |
| Gain on derivative instruments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,876 | | | — | | | 7,286 | | | 10,162 | |
| Reclassification of realized loss on derivative instruments to net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 749 | | | — | | | 2,376 | | | 3,125 | |
| Balance at June 30, 2022 | 52,899,303 | | | $ | 53 | | | 234,559,825 | | | $ | 2 | | | — | | | $ | — | | | $ | 18,715 | | | $ | (9,935) | | | $ | 4,780 | | | $ | (59,485) | | | $ | (197,134) | | | $ | (243,004) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| | | | Accumulated Other Comprehensive Income (Loss) | | |
| | Members' Equity | | Cumulative Translation Adjustments | | Unrealized Gain (Loss) on Derivative Instruments | | Total |
| Balance at March 31, 2021 | $ | 69,337 | | | $ | (26,091) | | | $ | (16,532) | | | $ | 26,714 | |
| Capital contributions | 11,969 | | | — | | | — | | | 11,969 | |
| Issuance of common units in connection with acquisition | 14,582 | | | — | | | — | | | 14,582 | |
| Repurchase of members' interest | (188,860) | | | — | | | — | | | (188,860) | |
| Interest income on notes receivable | (11) | | | — | | | — | | | (11) | |
| Notes receivable repayments | 829 | | | — | | | — | | | 829 | |
| Net income | 17,825 | | | — | | | — | | | 17,825 | |
| Members’ distributions | (285,452) | | | — | | | — | | | (285,452) | |
| Unit-based compensation | 4,511 | | | — | | | — | | | 4,511 | |
| Foreign currency translation adjustments | — | | | 577 | | | — | | | 577 | |
| Loss on derivative instruments | — | | | — | | | (7,059) | | | (7,059) | |
| Reclassification of realized loss on derivative instruments to net income | — | | | — | | | 2,786 | | | 2,786 | |
| Balance at June 30, 2021 | $ | (355,270) | | | $ | (25,514) | | | $ | (20,805) | | | $ | (401,589) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Weber Inc.
Condensed Consolidated Statements of Equity (Deficit)
(dollars in thousands, except share data)
(unaudited)
| | | | | Three Months Ended December 31, 2021 | | Nine Months Ended June 30, 2022 |
| | | | Class A Common Stock | | Class B Common Stock | | Preferred Stock | | | | Accumulated Other Comprehensive Income (Loss) | | | | Class A Common Stock | | Class B Common Stock | | Preferred Stock | | | | Accumulated Other Comprehensive Income (Loss) | | |
| | | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Additional Paid-in Capital | | Cumulative Translation Adjustments | | Unrealized Gain/(Loss) on Derivative Instruments | | Retained Earnings (Deficit) | | Non-controlling Interests | | Total | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Additional Paid-in Capital | | Cumulative Translation Adjustments | | Unrealized Gain (Loss) on Derivative Instruments | | Retained Earnings (Deficit) | | Non-controlling Interests | | Total |
| Balance at September 30, 2021 | Balance at September 30, 2021 | | 52,533,388 | | | $ | 53 | | | 233,572,370 | | | $ | 2 | | | — | | | $ | — | | | $ | 6,109 | | | $ | (5,692) | | | $ | (3,588) | | | $ | (7,646) | | | $ | (110,583) | | | $ | (121,345) | | Balance at September 30, 2021 | 52,533,388 | | | $ | 53 | | | 233,572,370 | | | $ | 2 | | | — | | | $ | — | | | $ | 6,109 | | | $ | (5,692) | | | $ | (3,588) | | | $ | (7,646) | | | $ | (110,583) | | | $ | (121,345) | |
| Repayment of member notes | Repayment of member notes | | — | | | — | | | 1,072,849 | | | — | | | — | | | — | | | 2,077 | | | — | | | — | | | — | | | 9,273 | | | 11,350 | | Repayment of member notes | — | | | — | | | 1,072,849 | | | — | | | — | | | — | | | 2,077 | | | — | | | — | | | — | | | 9,273 | | | 11,350 | |
| Deferred tax asset associated with repayment of member notes | | — | | | — | | | — | | | — | | | — | | | — | | | (487) | | | — | | | — | | | — | | | — | | | (487) | | |
| | Issuance of Class A shares for equity awards | Issuance of Class A shares for equity awards | | 36,510 | | | — | | | — | | | — | | | — | | | — | | | (351) | | | — | | | — | | | — | | | — | | | (351) | | Issuance of Class A shares for equity awards | 280,521 | | | — | | | — | | | — | | | — | | | — | | | (1,412) | | | — | | | — | | | — | | | — | | | (1,412) | |
| Conversion of Paired Interests | | Conversion of Paired Interests | 85,394 | | | — | | | (85,394) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Net loss | Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,777 | | | (91,330) | | | (74,553) | | Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (45,167) | | | (132,698) | | | (177,865) | |
| Interest income on notes receivable | Interest income on notes receivable | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | — | | | — | | | — | | | — | | | (3) | | Interest income on notes receivable | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | — | | | — | | | — | | | — | | | (3) | |
| Dividends on Class A shares and equity awards | Dividends on Class A shares and equity awards | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,232) | | | — | | | (2,232) | | Dividends on Class A shares and equity awards | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,672) | | | — | | | (6,672) | |
| Distributions to noncontrolling interests | Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,627) | | | (9,627) | | Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (34,547) | | | (34,547) | |
| Stock-based compensation | Stock-based compensation | | — | | | — | | | — | | | — | | | — | | | — | | | 4,670 | | | — | | | — | | | — | | | 20,841 | | | 25,511 | | Stock-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | 11,944 | | | — | | | — | | | — | | | 53,097 | | | 65,041 | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (441) | | | — | | | — | | | (2,565) | | | (3,006) | | Foreign currency translation adjustments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,243) | | | — | | | — | | | (18,831) | | | (23,074) | |
| Gain on derivative instruments | Gain on derivative instruments | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 404 | | | — | | | 2,353 | | | 2,757 | | Gain on derivative instruments | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,922 | | | — | | | 30,728 | | | 37,650 | |
| Reclassification of realized loss on derivative instruments to net loss | Reclassification of realized loss on derivative instruments to net loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 375 | | | — | | | 2,184 | | | 2,559 | | Reclassification of realized loss on derivative instruments to net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,446 | | | — | | | 6,427 | | | 7,873 | |
| Balance at December 31, 2021 | | 52,569,898 | | | $ | 53 | | | 234,645,219 | | | $ | 2 | | | — | | | $ | — | | | $ | 12,015 | | | $ | (6,133) | | | $ | (2,809) | | | $ | 6,899 | | | $ | (179,454) | | | $ | (169,427) | | |
| Balance at June 30, 2022 | | Balance at June 30, 2022 | 52,899,303 | | | $ | 53 | | | 234,559,825 | | | $ | 2 | | | — | | | $ | — | | | $ | 18,715 | | | $ | (9,935) | | | $ | 4,780 | | | $ | (59,485) | | | $ | (197,134) | | | $ | (243,004) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended June 30, 2021 |
| | | Accumulated Other Comprehensive Income (Loss) | | |
| | Members' Equity | | Cumulative Translation Adjustments | | Unrealized Gain (Loss) on Derivative Instruments | | Total |
| Balance at September 30, 2020 | $ | 25,032 | | | $ | (28,455) | | | $ | (40,125) | | | $ | (43,548) | |
| Capital contributions | 12,094 | | | — | | | — | | | 12,094 | |
| Issuance of common units in connection with acquisition | 14,582 | | | — | | | — | | | 14,582 | |
| Repurchase of members' interest | (188,860) | | | — | | | — | | | (188,860) | |
| Interest income on notes receivable | (40) | | | — | | | — | | | (40) | |
| Notes receivable repayments | 981 | | | — | | | — | | | 981 | |
| Net income | 91,620 | | | — | | | — | | | 91,620 | |
| Members’ distributions | (315,620) | | | — | | | — | | | (315,620) | |
| Unit-based compensation | 4,941 | | | — | | | — | | | 4,941 | |
| Foreign currency translation adjustments | — | | | 2,941 | | | — | | | 2,941 | |
| Gain on derivative instruments | — | | | — | | | 11,289 | | | 11,289 | |
| Reclassification of realized loss on derivative instruments to net income | — | | | — | | | 8,031 | | | 8,031 | |
| Balance at June 30, 2021 | $ | (355,270) | | | $ | (25,514) | | | $ | (20,805) | | | $ | (401,589) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Weber Inc.
Condensed Consolidated Statements of Equity (Deficit)
(dollars in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, 2020 |
| | | | Accumulated Other Comprehensive Income (Loss) | | |
| | Members' Equity (Deficit) | | Cumulative Translation Adjustments | | Unrealized Gain/(Loss) on Derivative Instruments | | Total |
| Balance at September 30, 2020 | $ | 25,032 | | | $ | (28,455) | | | $ | (40,125) | | | $ | (43,548) | |
| Capital contributions | 100 | | | — | | | — | | | 100 | |
| Interest income on notes receivable | (14) | | | — | | | — | | | (14) | |
| Notes receivable repayments | 152 | | | — | | | — | | | 152 | |
| Net income | 4,885 | | | — | | | — | | | 4,885 | |
| Foreign currency translation adjustments | — | | | 10,457 | | | — | | | 10,457 | |
| Gain on derivative instruments | — | | | — | | | 1,129 | | | 1,129 | |
| Unit-based compensation | 430 | | | — | | | — | | | 430 | |
| Reclassification of realized loss on derivative instruments to net income | — | | | — | | | 2,580 | | | 2,580 | |
| Members' distributions | (29,090) | | | — | | | — | | | (29,090) | |
| Balance at December 31, 2020 | $ | 1,495 | | | $ | (17,998) | | | $ | (36,416) | | | $ | (52,919) | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Weber Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
| | | | Three Months Ended
December 31, | | Nine Months Ended June 30, |
| | | 2021 | | 2020 | | 2022 | | 2021 |
| Operating activities | Operating activities | | | | Operating activities | | | |
| Net (loss) income | Net (loss) income | $ | (74,553) | | | $ | 4,885 | | Net (loss) income | $ | (177,865) | | | $ | 91,620 | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | |
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | | Adjustments to reconcile net (loss) income to net cash used in operating activities: | |
| Provision for depreciation | Provision for depreciation | 8,613 | | | 6,749 | | Provision for depreciation | 29,206 | | | 20,317 | |
| Provision for amortization of intangible assets | Provision for amortization of intangible assets | 5,174 | | | 3,017 | | Provision for amortization of intangible assets | 15,495 | | | 12,090 | |
| Provision for amortization of deferred financing costs | Provision for amortization of deferred financing costs | 1,022 | | | 912 | | Provision for amortization of deferred financing costs | 3,556 | | | 2,813 | |
| Deferred income tax expense (benefit) | Deferred income tax expense (benefit) | 340 | | | (1,840) | | Deferred income tax expense (benefit) | 22,257 | | | (3,174) | |
| Stock/unit-based compensation | Stock/unit-based compensation | 25,511 | | | 3,428 | | Stock/unit-based compensation | 65,041 | | | 94,193 | |
| Loss from investments in unconsolidated affiliates | — | | | 1,405 | | |
| Gain on Tax Receivable Agreement liability remeasurement | | Gain on Tax Receivable Agreement liability remeasurement | (9,226) | | | — | |
| Gain from investments in unconsolidated affiliates | | Gain from investments in unconsolidated affiliates | — | | | (5,505) | |
| Gain on disposal of assets held for sale | Gain on disposal of assets held for sale | — | | | (5,185) | | Gain on disposal of assets held for sale | — | | | (5,185) | |
| Loss from early extinguishment of debt | Loss from early extinguishment of debt | — | | | 5,448 | | Loss from early extinguishment of debt | — | | | 5,448 | |
| Changes in operating assets and liabilities | | |
| Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
| Accounts receivable | Accounts receivable | (18,345) | | | (41,432) | | Accounts receivable | (163,576) | | | (186,381) | |
| Inventories | Inventories | (139,694) | | | (76,209) | | Inventories | (84,823) | | | (96,505) | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | (46,606) | | | 10,408 | | Prepaid expenses and other current assets | (13,470) | | | 12,844 | |
| Trade accounts payable | Trade accounts payable | 52,464 | | | (34,655) | | Trade accounts payable | 62,191 | | | 106,057 | |
| Accrued expenses | Accrued expenses | (10,554) | | | (22,157) | | Accrued expenses | (2,148) | | | 29,165 | |
| Income taxes payable | Income taxes payable | 3,074 | | | (4,580) | | Income taxes payable | 835 | | | 6,507 | |
| Other | Other | 5,661 | | | (11,346) | | Other | 9,693 | | | (9,844) | |
| Net cash used in operating activities | (187,893) | | | (161,152) | | |
| Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | (242,834) | | | 74,460 | |
| Investing activities | Investing activities | | | | Investing activities | | | |
| Proceeds from disposal of property, equipment and leasehold improvements | Proceeds from disposal of property, equipment and leasehold improvements | 10 | | | 11,896 | | Proceeds from disposal of property, equipment and leasehold improvements | 18 | | | 14,028 | |
| Additions to property, equipment and leasehold improvements | Additions to property, equipment and leasehold improvements | (25,876) | | | (4,972) | | Additions to property, equipment and leasehold improvements | (80,362) | | | (40,503) | |
| Net cash (used in) provided by investing activities | (25,866) | | | 6,924 | | |
| Payments for acquisitions | | Payments for acquisitions | — | | | (128,514) | |
| Net cash used in investing activities | | Net cash used in investing activities | (80,344) | | | (154,989) | |
| Financing activities | Financing activities | | | | Financing activities | | | |
| Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | — | | | 1,250,000 | | Proceeds from issuance of long-term debt | 250,000 | | | 1,250,000 | |
| Payments for deferred financing costs | Payments for deferred financing costs | — | | | (26,654) | | Payments for deferred financing costs | (9,700) | | | (26,654) | |
| Payments for capitalized offering costs | Payments for capitalized offering costs | (2,109) | | | — | | Payments for capitalized offering costs | (2,109) | | | (2,349) | |
| Payments under agreement with iDevices | Payments under agreement with iDevices | (52) | | | (58) | | Payments under agreement with iDevices | (99) | | | (228) | |
| Interest rate swap settlement payments | Interest rate swap settlement payments | (1,478) | | | (996) | | Interest rate swap settlement payments | (4,384) | | | (3,903) | |
| Proceeds from contribution of capital, net | Proceeds from contribution of capital, net | 11,346 | | | 252 | | Proceeds from contribution of capital, net | 11,346 | | | 13,075 | |
| Repurchase of members’ interests | | Repurchase of members’ interests | — | | | (188,860) | |
| Dividends paid | Dividends paid | (2,123) | | | — | | Dividends paid | (6,394) | | | — | |
| Members’ distributions | Members’ distributions | (9,627) | | | (29,090) | | Members’ distributions | (34,547) | | | (315,622) | |
| Borrowings from revolving credit facility | Borrowings from revolving credit facility | 203,000 | | | — | | Borrowings from revolving credit facility | 724,500 | | | 217,000 | |
| Payments on revolving credit facility | Payments on revolving credit facility | (42,000) | | | — | | Payments on revolving credit facility | (676,500) | | | (217,000) | |
| Payments of long-term debt | Payments of long-term debt | (3,125) | | | (616,250) | | Payments of long-term debt | (10,000) | | | (622,500) | |
| Shares withheld to satisfy employee tax obligations | Shares withheld to satisfy employee tax obligations | (351) | | | — | | Shares withheld to satisfy employee tax obligations | (1,412) | | | — | |
| Service on financing obligation | Service on financing obligation | (145) | | | (125) | | Service on financing obligation | (441) | | | (382) | |
| Net cash provided by financing activities | Net cash provided by financing activities | 153,336 | | | 577,079 | | Net cash provided by financing activities | 240,260 | | | 102,577 | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (895) | | | (381) | | Effect of exchange rate changes on cash and cash equivalents | 16,247 | | | 629 | |
| (Decrease) increase in cash and cash equivalents | (Decrease) increase in cash and cash equivalents | (61,318) | | | 422,470 | | (Decrease) increase in cash and cash equivalents | (66,671) | | | 22,677 | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 107,517 | | | 123,792 | | Cash and cash equivalents at beginning of period | 107,517 | | | 123,792 | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 46,199 | | | $ | 546,262 | | Cash and cash equivalents at end of period | $ | 40,846 | | | $ | 146,469 | |
| Supplemental disclosures of cash flow information: | | | | |
| Cash paid for interest | $ | 13,311 | | | $ | 12,785 | | |
| Cash paid for income taxes | $ | 4,439 | | | $ | 4,299 | | |
| Supplemental disclosures of non-cash investing information: | | |
| Property and equipment included in accounts payable and accrued expenses | $ | 26,050 | | | $ | 5,805 | | |
|
Weber Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
| | | | | | | | | | | |
| | Nine Months Ended June 30, |
| | 2022 | | 2021 |
| Supplemental disclosures of cash flow information: | | | |
| Cash paid for interest | $ | 44,860 | | | $ | 42,977 | |
| Cash paid for income taxes, net of refunds of $159 and $3,213, respectively | $ | 14,255 | | | $ | 17,090 | |
| Supplemental disclosures of non-cash investing information: | | | |
| Property and equipment included in accounts payable and accrued expenses | $ | 18,905 | | | $ | 7,253 | |
| Deferred offering costs in accrued expenses | $ | — | | | $ | 1,689 | |
| Settlement of existing relationship through business combination | $ | — | | | $ | 9,776 | |
| Issuance of common units for business acquisition | $ | — | | | $ | 14,582 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Weber Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
Description of Business
Weber Inc. (“Weber,” “Company,” “we,” and “our”), a Delaware corporation, was formed in April 2021 for the purpose of facilitating an initial public offering (“IPO”) of its Class A common stock, facilitating organizational transactions and to operate the business of Weber HoldCo LLC and its consolidated subsidiaries. The Company historically conducted its business through Weber-Stephen Products LLC prior to the IPO. Following the Company's IPO in August 2021, Weber Inc. is a holding company and its sole asset is a controlling equity interest in Weber HoldCo LLC, a Delaware limited liability company formed in April 2021. As part of the IPO and other associated transactions (collectively referred to as the “Reorganization Transactions”), Weber-Stephen Products LLC became a wholly owned subsidiary of Weber HoldCo LLC, and will continue as the primary operating company.
Weber, together with its subsidiaries, is an outdoor cooking company in the global outdoor cooking market. Our product portfolio includes traditional charcoal grills, gas grills, smokers, pellet grills, electric grills and related accessories. Our full range of products are sold in 78 countries.
We are headquartered in Palatine, Illinois, and our stock is listed on the New York Stock Exchange (NYSE) under the symbol “WEBR.”
Basis of Presentation
The condensed consolidated financial statements of Weber Inc. were prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) for interim reporting. In management’s opinion, the interim financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results of financial position, operations and cash flows for the periods presented. The results of operations for the period ended December 31, 2021June 30, 2022 are not necessarily indicative of the operating results expected for the full fiscal year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.
Principles of Consolidation
The condensed consolidated financial statements include the accounts and operations of the Company and its subsidiaries. Weber HoldCo LLC is considered a variable interest entity. Weber Inc. is the primary beneficiary of Weber HoldCo LLC and has decision making authority that significantly affects the economic performance of this entity. As a result, Weber Inc. consolidates the financial statements of Weber HoldCo LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. Noncontrolling interests reflect the entitlement of the owners of Weber-Stephen Products LLC’s outstanding equity interests prior to the IPO (“Pre-IPO LLC Members”) to a portion of Weber HoldCo LLC’s net income (loss). income.
As the Reorganization Transactions are considered transactions between entities under common control, the condensed consolidated financial statements for periods prior to the IPO and the Reorganization Transactions have been adjusted to combine the previously separate entities for presentation purposes. Prior to the Reorganization Transactions, Weber Inc. had no operations.
Fiscal Year
The Company’s fiscal year runs from October 1 through September 30. All references to years are to fiscal years unless otherwise stated.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The effect of the change in the estimates will be recognized in the current period of the change.
Seasonality
Although the Company generally has demand for its products throughout the year, the Company’s sales have historically experienced some seasonality. The Company has typically experienced its highest level of sales of its products
in the second and third fiscal quarters as retailers across North America and Europe changeoverchange over their floor sets, build inventory and fulfill consumer demand for outdoor cooking products. Sales are typically lower during the first and fourth fiscal quarters, with the exception of the Australia/New Zealand business, which is counter seasonalcounter-seasonal to the balance of the business.
Accounts Receivable
Sales of Accounts Receivable
During the second quarter of fiscal year 2022, the Company entered into an agreement to sell certain trade accounts receivable to a third party financial institution (“Receivables Purchase Agreement”). The Receivables Purchase Agreement results in the transfer of the trade accounts receivable and associated risks to the third party and provides the third party with the full benefits and burdens of ownership in exchange for cash proceeds to the Company. The trade accounts receivable transferred are accounted for as sales of receivables as they have satisfied the required criteria under Accounting Standards Codification (“ASC”) 860, Transfers and Servicing, and are de-recognized from the Company’s condensed consolidated balance sheets. The maximum receivables that may be sold under the Receivables Purchase Agreement at any time is $235.0 million. As of June 30, 2022, the third party under the Receivables Purchase Agreement informed the Company that, as permitted by the terms of the agreement, it will not be purchasing trade accounts receivable for an unspecified period of time. There can be no assurance that the third party will begin purchasing trade accounts receivable in the near term, or at all.
The Company has no retained interest in the trade accounts receivable sold, however, the Company does have collection and administrative responsibilities for the sold trade accounts receivable. The Company has not recorded any servicing assets or liabilities as of June 30, 2022 in conjunction with the Receivables Purchase Agreement as the fair value of these servicing arrangements and fees earned were not material.
Trade accounts receivable sold under the Receivables Purchase Agreement were $25.9 million and $141.8 million for the three and nine months ended June 30, 2022, respectively. The trade accounts receivable sold that remained outstanding as of June 30, 2022 was $0.5 million. The net proceeds received during the nine months ended June 30, 2022 were included in Net cash (used in) provided by operating activities in the condensed consolidated statements of cash flows. The difference between the carrying amount of the trade accounts receivable sold and the sum of the cash received was $0.1 million and $0.5 million for the three and nine months ended June 30, 2022, respectively, and was recorded as a loss on sale of receivables in Other expense in the condensed consolidated statements of operations. There were no sales of accounts receivable prior to the second quarter of fiscal year 2022.
Allowance for Current Expected Credit Losses
The Company estimates its expected credit losses based on historical experience, the aging of accounts receivable, consideration of current economic conditions and its expectations of future economic conditions. The allowance for expected credit losses was $2.3$2.7 million and $2.6 million as of December 31, 2021June 30, 2022 and September 30, 2021, respectively.
Inventories
The components of inventory are as follows:
| | | | December 31, 2021 | | September 30,
2021 | | June 30,
2022 | | September 30,
2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Work-in-process and materials | Work-in-process and materials | $ | 89,922 | | | $ | 60,367 | | Work-in-process and materials | $ | 79,511 | | | $ | 60,367 | |
| Finished products | Finished products | 380,597 | | | 272,254 | | Finished products | 317,158 | | | 272,254 | |
| Total inventories, net | Total inventories, net | $ | 470,519 | | | $ | 332,621 | | Total inventories, net | $ | 396,669 | | | $ | 332,621 | |
New Accounting Pronouncements Recently Adopted
In March 2020, the the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This ASU is effective for all entities beginning as of its date of effectiveness, March 12, 2020. The guidance is temporary and can be applied through December 31, 2022. The guidance has not impacted the condensed consolidated financial statements to
date. The Company will continue to monitor the impact of the ASU on our condensed consolidated financial statements in the future.
New Accounting Pronouncements Issued but Not Yet Adopted
No recent accounting pronouncements were issued by the FASB that are believed by management to have a material impact on the Company’s future financial statements.
2. Acquisitions
June Acquisition
On January 12, 2021, the Company acquired all of the remaining outstanding stock of June Life, Inc. ("June"), a smart appliance and technology company. The purpose of the acquisition was primarily to advance consumer experiences through the use of embedded technology in its products and higher quality digital products.
The composition of the purchase price recorded for June was as follows (dollars in thousands):
| | | | | |
| Cash | $ | 108,285 | |
| Fair value of equity interest | 24,144 | |
| Settlement of existing contractual relationship | 9,776 | |
| Total | $ | 142,205 | |
Prior to the acquisition, the Company held an existing equity interest in June, which was historically accounted for as an equity method investment. Additionally, the Company had a license and development agreement with June to license certain software and other technology owned by June and adapt this technology to certain products of the Company. The
license and development agreement included provisions for the Company to pay June royalties at varying rates based on the quantities and type of product sold containing the licensed technology. During the three months ended December 31, 2020, the Company recorded an equity method loss of $1.4 million, with an offsetting decrease in its investment in June. At acquisition, the Company remeasured the fair value of its existing equity interest, which exceeded the carrying amount of the investment and resulted in a pre-tax gain of $6.9 million. The gain offset with the equity method loss of $1.4 million was recorded within Gain from investments in unconsolidated affiliates during the nine months ended June 30, 2021.
Upon completion of the merger agreement, June became a wholly-owned subsidiary of the Company. At the time of acquisition, the fair value of the existing equity interest totaled $24.1 million, which was based on per share prices paid to the sellers of common stock and preferred stock on acquisition.
The June license and development agreement, was deemed to be an existing contractual relationship. As a result of the business combination, the Company recorded this arrangement as consideration at its January 12, 2021 fair value, which resulted in an increase in goodwill of $9.8 million.
The results of operations for June have been included in the condensed consolidated statements of operations since the acquisition date, which were not material. June operations are reflected within the Americas reportable segment. Actual and pro forma revenue and results of operations for the acquisition have not been presented because they do not have a material impact to the Company’s net sales and results of operations, either individually or in aggregate.
The December 31,June 30, 2022 and September 30, 2021 condensed consolidated balance sheet includessheets include the assets and liabilities of June, which have been measured at fair value as of the acquisition date. The Company believes that the information provides a reasonable basis for estimating the fair values of the acquired assets and assumed liabilities.
The allocation of purchase price recorded for June was as follows (dollars in thousands):
| | | | | |
| Cash | $ | 6,046 | |
| Inventory | 480 | |
| Accounts receivable | 85 | |
| Prepaid expenses and other current assets | 617 | |
| Property and equipment | 104 | |
| Intangibles | 109,700 | |
| Goodwill | 53,193 | |
| Accounts payable | (870) | |
| Accrued expenses | (2,670) | |
| Other long-term liabilities | (24,480) | |
| Total | $ | 142,205 | |
The above fair values of assets acquired and liabilities are based on the information that was available as of the reporting date.
The goodwill of $53.2 million represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including an experienced workforce and expected future synergies. None of the goodwill is expected to be deductible for tax purposes. In the first quarter of fiscal year 2022, the Company recorded a reduction to accrued expenses of $1.3 million, with a corresponding decrease to goodwill, resulting from a change in the fair value of a liability.
The Company recognized $24.5 million of deferred tax liabilities due to the acquisition of June. The deferred tax liabilities have been recorded in Other long-term liabilities in the condensed consolidated balance sheets.
The gross carrying amounts allocated to intangible assets were as follows (dollars in thousands):
| | | | | |
| Trade names and trademarks | $ | 17,000 | |
| Developed software / patented technology | 87,000 | |
| Non-competition / restrictive covenant agreements | 5,700 | |
| Total | $ | 109,700 | |
The useful lives assigned to intangible assets were as follows (in years):
| | | | | |
| | Useful Lives |
| Trade names and trademarks | 20.0 |
| Developed software / patented technology | 15.0 |
| Non-competition / restrictive covenant agreements | 3.0 |
| Total weighted average useful life | 15.2 |
Developed software/patented technology were valued using the multi-period excess earnings method (“MPEEM”). Intangible assets consisting of trade names and trademarks and non-competition/ restrictive covenant agreements were valued using the relief from royalty (“RFR”) method and lost income method, respectively. In many cases, the determination of fair values required estimates about discount rates, future expected cash flows and other future events that are judgmental and subject to change.
As a result of the acquisition, the Company recognized $1.2 million of acquisition-related costs.
RMC Acquisition
On April 1, 2021, the Company acquired all aspects of the operations of R McDonald Co. Pty. Ltd. (“RMC”), that supported the Company’s business units in Australia and New Zealand. This included certain fixed assets, members of the RMC workforce and their related employment liabilities and the reacquired right to sell and market the Company’s products. RMC, a marketing and distribution company, had historically provided operational and marketing support to
operate the Weber Australia and Weber New Zealand businesses on behalf of the Company. The primary purpose of the acquisition was to re-acquire those operational and marketing rights.
The composition of the purchase price recorded for RMC was as follows (dollars in thousands):
| | | | | |
| Cash | $ | 26,275 | |
| Equity consideration issued by the Company | 14,582 | |
| Total | $ | 40,857 | |
Prior to the acquisition, the Company had a preexisting contractual agreement with RMC which provided RMC the exclusive rights to sell, market, and distribute barbecue grills and accessories in Australia and New Zealand. With the acquisition, the effective settlement of this agreement resulted in the Company reacquiring rights to sell, market, and distribute products in Australia and New Zealand. In addition, RMC had a contractual agreement to provide administrative support services to the Company’s Australian and New Zealand businesses, as well as a licensing agreement for RMC to use certain trademarks of the Company. The transaction resulted in no gain or loss as the contractual terms of these agreements were at market.
The results of operations for RMC have been included in the condensed consolidated statements of operations since the acquisition date, which were not material. RMC operations are reflected within the Asia-Pacific (“APAC”) reportable segment. Actual and pro forma revenue and results of operations for the acquisition have not been presented because they do not have a material impact to the Company’s net sales and results of operations, either individually or in aggregate.
The December 31,June 30, 2022 and September 30, 2021 condensed consolidated balance sheet includessheets include the assets and liabilities of RMC, which have been measured at fair value as of the acquisition date. The Company believes that the information provides a reasonable basis for estimating the fair values of the acquired assets and assumed liabilities.
The allocation of purchase price recorded for RMC was as follows (dollars in thousands):
| | | | | |
| Property and equipment | $ | 432 | |
| Reacquired rights | 14,300 | |
| Other long-term assets | 410 | |
| Goodwill | 27,120 | |
| Accrued expenses | (1,405) | |
| Total | $ | 40,857 | |
The above fair values of assets acquired and liabilities are based on the information that was available as of the reporting date.
The goodwill of $27.1 million represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including an experienced workforce and expected future synergies. None of the goodwill is expected to be deductible for tax purposes. In the period subsequent to acquisition, the Company recorded a deferred tax asset of $0.4 million in its acquisition of RMC, with a corresponding decrease to goodwill.
The reacquired rights were valued using MPEEM. The useful life of the reacquired rights were estimated to be 3.3 years. The determination of fair values required estimates about discount rates, future expected cash flows and other future events that are judgmental and subject to change.
As a result of the acquisition, the Company recognized approximately $0.3 million of acquisition-related costs.
3. Goodwill and Other Intangibles
Goodwill allocated to the Company's reportable segments and changes in the carrying amount of goodwill during the threenine months ended December 31, 2021June 30, 2022 is shown below.
| | | | Americas | | EMEA | | APAC | | Total | | Americas | | EMEA | | APAC | | Total |
| | | (dollars in thousands) | | (dollars in thousands) |
| Balance as of September 30, 2021 | Balance as of September 30, 2021 | $ | 73,696 | | | $ | 10,589 | | | $ | 26,327 | | | $ | 110,612 | | Balance as of September 30, 2021 | $ | 73,696 | | | $ | 10,589 | | | $ | 26,327 | | | $ | 110,612 | |
Acquisitions(1) | Acquisitions(1) | (1,284) | | | — | | | — | | | (1,284) | | Acquisitions(1) | (1,284) | | | — | | | — | | | (1,284) | |
| Foreign exchange | Foreign exchange | — | | | (186) | | | 38 | | | (148) | | Foreign exchange | — | | | (999) | | | (1,544) | | | (2,543) | |
| Balance as of December 31, 2021 | $ | 72,412 | | | $ | 10,403 | | | $ | 26,365 | | | $ | 109,180 | | |
| Balance as of June 30, 2022 | | Balance as of June 30, 2022 | $ | 72,412 | | | $ | 9,590 | | | $ | 24,783 | | | $ | 106,785 | |
_____________
(1)Represents a measurement period adjustment related to the June acquisition. See Note 2 for further information.
The Company evaluates goodwill and indefinite-lived intangible assets for possible impairment during the fourth quarter of the Company's fiscal year or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
During the quarter ended June 30, 2022, the Company determined that a triggering event had occurred given the negative impact to its operating results from the current macroeconomic environment, including inflation, foreign exchange fluctuations, supply chain disruptions and higher freight and fuel costs. Accordingly, the Company performed a quantitative assessment for all reporting units, which compared the reporting units’ fair values to their respective carrying values. The Company determined that no impairment charge was required with respect to goodwill and indefinite-lived intangible assets as a result of this quantitative assessment for the nine months ended June 30, 2022.The Company’s intangible assets consist of the following:
| | | | December 31, 2021 | | June 30, 2022 |
| | | Weighted-Average Remaining Amortization Years | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Weighted-Average Remaining Amortization Years | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| | | | (dollars in thousands) | | | | (dollars in thousands) |
| Trademark—Weber | Trademark—Weber | N/A | | $ | 310,000 | | | $ | — | | | $ | 310,000 | | Trademark—Weber | N/A | | $ | 310,000 | | | $ | — | | | $ | 310,000 | |
| Trademarks—Other | Trademarks—Other | 14.3 | | 55,900 | | | (8,925) | | | 46,975 | | Trademarks—Other | 13.9 | | 55,900 | | | (10,618) | | | 45,282 | |
| Trademarks, net | Trademarks, net | | 365,900 | | | (8,925) | | | 356,975 | | Trademarks, net | | 365,900 | | | (10,618) | | | 355,282 | |
| Customer lists | Customer lists | 9.0 | | 91,361 | | | (51,681) | | | 39,680 | | Customer lists | 8.6 | | 90,155 | | | (54,080) | | | 36,075 | |
| Patents | Patents | 7.3 | | 3,428 | | | (1,454) | | | 1,974 | | Patents | 6.7 | | 3,428 | | | (1,582) | | | 1,846 | |
| In-process research and development | In-process research and development | 5.1 | | 4,500 | | | (2,213) | | | 2,287 | | In-process research and development | 4.6 | | 4,500 | | | (2,438) | | | 2,062 | |
| Developed technology | Developed technology | 14.1 | | 87,000 | | | (5,589) | | | 81,411 | | Developed technology | 13.6 | | 87,000 | | | (8,489) | | | 78,511 | |
| Reacquired rights | Reacquired rights | 2.6 | | 13,641 | | | (3,069) | | | 10,572 | | Reacquired rights | 2.1 | | 12,961 | | | (4,860) | | | 8,101 | |
| Non-compete agreement | Non-compete agreement | 2.1 | | 5,700 | | | (1,831) | | | 3,869 | | Non-compete agreement | 1.6 | | 5,700 | | | (2,781) | | | 2,919 | |
| Other intangible assets, net | Other intangible assets, net | | 205,630 | | | (65,837) | | | 139,793 | | Other intangible assets, net | | 203,744 | | | (74,230) | | | 129,514 | |
| Total | Total | | $ | 571,530 | | | $ | (74,762) | | | $ | 496,768 | | Total | | $ | 569,644 | | | $ | (84,848) | | | $ | 484,796 | |
| | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
| | Gross Carrying
Amount | | Accumulated Amortization | | Net Book
Value |
| (dollars in thousands) |
| Trademark—Weber | $ | 310,000 | | | $ | — | | | $ | 310,000 | |
| Trademarks—Other | 55,900 | | | (8,079) | | | 47,821 | |
| Trademarks, net | 365,900 | | | (8,079) | | | 357,821 | |
| Customer lists | 91,563 | | | (50,483) | | | 41,080 | |
| Patents | 49,428 | | | (47,389) | | | 2,039 | |
| In-process research and development | 4,500 | | | (2,100) | | | 2,400 | |
| Developed technology | 87,000 | | | (4,139) | | | 82,861 | |
| Reacquired rights | 13,568 | | | (2,035) | | | 11,533 | |
| Non-compete agreement | 6,300 | | | (1,956) | | | 4,344 | |
| Other intangible assets, net | 252,359 | | | (108,102) | | | 144,257 | |
| Total | $ | 618,259 | | | $ | (116,181) | | | $ | 502,078 | |
The Company’s indefinite-lived intangible assets consist of Trademark—Weber.
Total amortization expense for the Company’s intangible assets was $5.2 million and $3.0 million for both the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,$15.5 million and $12.1 million for the nine months ended June 30, 2022 and 2021, respectively.
4. Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements, net consists of the following:
| | | December 31,
2021 | | September 30,
2021 | | June 30,
2022 | | September 30,
2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Land | Land | $ | 6,453 | | | $ | 6,453 | | Land | $ | 6,469 | | | $ | 6,453 | |
| Buildings | Buildings | 49,009 | | | 44,829 | | Buildings | 58,151 | | | 44,829 | |
| Computer equipment and software | Computer equipment and software | 79,836 | | | 79,286 | | Computer equipment and software | 84,134 | | | 79,286 | |
| Equipment | Equipment | 252,372 | | | 238,601 | | Equipment | 258,115 | | | 238,601 | |
| Leasehold improvements | Leasehold improvements | 12,638 | | | 13,156 | | Leasehold improvements | 12,854 | | | 13,156 | |
| Construction-in-progress | Construction-in-progress | 32,158 | | | 32,547 | | Construction-in-progress | 54,642 | | | 32,547 | |
| | 432,466 | | | 414,872 | | | 474,365 | | | 414,872 | |
| Accumulated depreciation | Accumulated depreciation | (259,507) | | | (252,043) | | Accumulated depreciation | (276,826) | | | (252,043) | |
| Total | Total | $ | 172,959 | | | $ | 162,829 | | Total | $ | 197,539 | | | $ | 162,829 | |
Depreciation expense amounted to $8.6$10.3 million and $6.7$6.9 million for the three months ended December 31,June 30, 2022 and 2021, and 2020, respectively, of which $1.9$2.9 million and $1.7$1.8 million related to the amortization of capitalized software costs, respectively. Depreciation expense amounted to $29.2 million and $20.3 million for the nine months ended June 30, 2022 and 2021, respectively, of which $8.7 million and $5.2 million related to the amortization of capitalized software costs, respectively. Unamortized software costs were $32.6$40.8 million and $29.1 million as of December 31, 2021June 30, 2022 and September 30, 2021, respectively.
5. Debt
Long-term debt consists of the following:
| | | | December 31,
2021 | | September 30,
2021 | | June 30,
2022 | | September 30,
2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Secured Credit Facility Term Loan, due October 2027 | Secured Credit Facility Term Loan, due October 2027 | 1,017,400 | | | 1,020,525 | | Secured Credit Facility Term Loan, due October 2027 | $ | 1,011,150 | | | $ | 1,020,525 | |
| Secured Credit Facility Incremental Term Loan, due October 2027 | | Secured Credit Facility Incremental Term Loan, due October 2027 | 249,375 | | | — | |
| Secured Credit Facility Revolving Loan | Secured Credit Facility Revolving Loan | 161,000 | | | — | | Secured Credit Facility Revolving Loan | 48,000 | | | — | |
| Total borrowings | Total borrowings | 1,178,400 | | | 1,020,525 | | Total borrowings | 1,308,525 | | | 1,020,525 | |
| Deferred financing costs | Deferred financing costs | (17,025) | | | (17,692) | | Deferred financing costs | (18,969) | | | (17,692) | |
| Original issue discount | Original issue discount | (5,307) | | | (5,515) | | Original issue discount | (10,828) | | | (5,515) | |
| Total debt | Total debt | 1,156,068 | | | 997,318 | | Total debt | 1,278,728 | | | 997,318 | |
| Less: Current portion of long-term debt and other borrowings | Less: Current portion of long-term debt and other borrowings | (173,500) | | | (12,500) | | Less: Current portion of long-term debt and other borrowings | (63,000) | | | (12,500) | |
| Total long-term debt | Total long-term debt | 982,568 | | | 984,818 | | Total long-term debt | $ | 1,215,728 | | | $ | 984,818 | |
Aggregate maturities of long-term debt as of June 30, 2022, are as follows (dollars in thousands):
| | | | | |
| Remaining period of 2022 | $ | 3,750 | |
| 2023 | 15,000 | |
| 2024 | 15,000 | |
| 2025 | 15,000 | |
| 2026 | 15,000 | |
| Thereafter | 1,196,775 | |
| | $ | 1,260,525 | |
Incremental Term Loan
On March 2, 2022, the Company exercised its right under the credit facility ("Secured Credit Facility") to borrow $250.0 million of incremental term loans (the “Incremental Term Loan”). In connection with the Incremental Term Loan, the Company paid financing costs totaling $9.7 million, including an original issue discount of $6.3 million. The financing costs and original issue discount were recorded as deferred financing costs in the condensed consolidated balance sheets and are amortized over the remaining life of the Incremental Term Loan.
The Incremental Term Loan matures on October 30, 2027. Principal payments on the Incremental Term Loan commenced on June 30, 2022, and are payable quarterly at scheduled amounts, with the balance due at maturity. 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, plus an applicable margin. As of June 30, 2022, the interest rate on the Incremental Term Loan was SOFR plus 4.25%. Interest is payable on the last business day of the month for the relevant interest period selected.
Secured Credit Facility
The Company's credit facility (“Secured Credit Facility”)Facility includes an initial term loan (“Term Loan”) of $1,250.0 million, an Incremental Term Loan of $250.0 million and a revolving credit facility (“Revolving Loan”) with a maximum commitment of $300.0 million.million, which can be restricted to a lower borrowing level based on the result of a financial covenant testing condition, as defined in the Secured Credit Facility. As of December 31, 2021,June 30, 2022, the Revolving Loan had borrowings outstanding of $161.0$48.0 million and letters of credit issued of $6.6$2.6 million leaving $132.4$249.4 million of available borrowing capacity.
Covenants
The Secured Credit Facility contains certain restrictive covenants relating to, among other things, limitations on indebtedness, transactions with affiliates, sales of assets, acquisitions and members’ distributions. In addition, above a certain borrowing level, there is a financial covenant relating to the Company’s average leverage ratio. As of December 31, 2021,June 30, 2022, the Company was in compliance with all covenants in the Secured Credit Facility. However, the Company’s business is seasonal in nature with the highest level of sales of its products occurring in the second and third fiscal quarters; accordingly, the Company typically borrows under its short-term Revolving Loan 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. Given the current macroeconomic environment and the challenges posed by inflation, foreign exchange fluctuations, supply chain disruptions and higher freight and fuel costs, the Company expects continued pressure on its results of operations, working capital requirements and ability to comply with the covenants in the Secured Credit Facility. The Company is monitoring this matter, taking certain financial transformation and cost savings actions, which include suspension of its dividend; reduction of capital expenditures, cost of goods sold and selling, general and administrative expenses; prudent management of global inventory and working capital positions; and a workforce reduction of our non-manufacturing and distribution headcount by at least 10%, while reducing overall selling, general and administrative personnel costs by at least 15%. Additionally, the Company is working with its lenders to ensure continued compliance with the Secured Credit Facility. There can be no assurance that these efforts will be successful.
6. Derivative Instruments
Interest Rate Swap Contracts
The Company uses interest rate swap contracts to minimize the effect of fluctuating variable interest rates under the Secured Credit Facility on Interest expense within its reported operating results. As cash flow hedges, the interest rate swaps are revalued at current market rates, with the changes in valuation reflected directly in Other comprehensive (loss) income, (loss), to the extent that the hedge is effective. The gains or losses on the interest rate swaps reported in Accumulated other comprehensive (loss) income (loss) in equity are reclassified into Interest expense in the periods in which the monthly interest settlement is paid on the interest rate swap.
The notional values of the Company’s outstanding interest rate swap contracts were as follows:
| | | | | | | | | | | |
| December 31,
2021 | | September 30,
2021 |
| (dollars in thousands) |
| Interest rate swap contracts | $ | 1,220,000 | | | $ | 1,220,000 | |
| | | | | | | | | | | |
| June 30,
2022 | | September 30,
2021 |
| (dollars in thousands) |
| Interest rate swap contracts | $ | 1,220,000 | | | $ | 1,220,000 | |
On October 30, 2020, the Company completed a series of transactions to amend and extend certain interest rate swap agreements by an additional three years. These interest rate swap transactions consisted of the following: (i) $360.0 million of the interest rate swaps were de-designated as cash flow hedges, (ii) the Company entered into a $360.0 million pay-variable received-fixedreceive-fixed interest rate swap which was designed to economically offset the terms of the $360.0 million of swaps in (i) and which are not designated as cash flow hedges, and (iii) the Company entered into a $500.0 million new pay-fixed interest rate swap with an extended maturity. The new pay-fixed interest rate swapsswap is considered a hybrid instrument with a financing component and an embedded at-market derivative that was designated as a cash flow hedge (see discussion of cash flow presentation below).
At the time of the de-designation of the above $360.0 million in interest rate swaps, there was approximately $38.2 million of unrealized losses recorded in Accumulated other comprehensive income (loss). income. This amount is amortized to interest expense through the remaining term of the original de-designated swaps unless it becomes probable that the cash flows originally hedged will not occur, in which case the proportionate amount of the loss will be recorded to interest expense at that time. The $360.0 million of interest rate swaps de-designated as cash flows hedges and the $360.0 million of offsetting swaps will be marked to market with changes in fair value recognized, along with the fixed and variable payments on these swaps, in interest expense which are expected to nearly offset each other. The Company presents the derivatives on a gross basis on the balance sheet.
The new$500.0 million pay-fixed interest rate swap is a hybrid instrument in accordance with Accounting Standards Codification (“ASC”)ASC 815, Derivatives and Hedging, consisting of a financing component and an embedded at-market derivative. The financing component is accounted for at amortized cost over the life of the swap while the embedded at-market derivative is accounted for at fair value on the balance sheet and designated as a cash flow hedge. This new $500.0 million swap is indexed to one-month LIBOR
and is net settled on a monthly basis with the counterparty for the difference between the fixed rate of 2.2025% and the variable rate based upon one-month LIBOR (subject to a floor of 0.75%) as applied to the notional amount of the swap. In connection with the transactions discussed above, no cash was exchanged between the Company and the counterparty. The liability of the terminated interest rate swaps as well as the inception value of the receive-fixed interest rate swap was blended into the new pay-fixed interest rate swap. Cash settlements related to interest rate contracts will generally be classified as operating activities on the condensed consolidated statements of cash flows. The cash flows related to the portion of the hybrid instrument treated as debt are classified as financing activities in the condensed consolidated statements of cash flows while the portion treated as an at-market derivative is classified as operating activities.
See Note 10 for further information.
Foreign Currency Forward Contracts
The Company enters into foreign currency forward contracts to minimize the effect of fluctuating variable foreign currency denominated cash flows impacting Gross profit within its reported operating results. When entered, these financial instruments are designated as cash flow hedges of underlying exposures and de-designated when the foreign currency denominated sale of inventory is made to a third party. As cash flow hedges, the forward contracts are revalued at current foreign exchange rates with the changes in the valuation reflected directly in Accumulated other comprehensive (loss) income, (loss), to the extent that the hedge is effective. The gains or losses on the forward contracts reported in Accumulated other comprehensive (loss) income (loss) in equity (deficit) are reclassified into Cost of goods sold in the period or periods in which the foreign currency denominated sale of inventory is made to a third party and the contracts are de-designated. The gains or losses from changes in the fair value of foreign exchange contracts de-designated as cash flow hedges are recorded in Foreign currency loss (gain). The Company also enters into foreign currency forward contracts that economically hedge its risk on foreign currency denominated receivables. The gains or losses from changes in fair value on these contracts are recorded in Foreign currency loss (gain). Cash settlements related to forward currency forward contracts are classified as operating activities on the condensed consolidated statements of cash flows.
The notional values of the Company’s outstanding foreign currency forward contracts were as follows:
| | | | | | | | | | | |
| December 31,
2021 | | September 30,
2021 |
| (dollars in thousands) |
| Foreign currency forward contracts | $ | 7,992 | | | $ | 28,254 | |
| | | | | | | | | | | |
| June 30,
2022 | | September 30,
2021 |
| (dollars in thousands) |
| Foreign currency forward contracts | $ | 49,804 | | | $ | 28,254 | |
See Note 10 for further information.
Cash Flow Hedges Impact on the Condensed Consolidated Statements of Comprehensive (Loss) Income
For derivatives designated as cash flow hedges, the gain (loss) recognized in Other comprehensive (loss) income was:
| | | Three Months Ended December 31, | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Interest rate swap contracts | Interest rate swap contracts | $ | 2,880 | | | $ | 1,219 | | Interest rate swap contracts | $ | 8,929 | | | $ | (7,059) | | | $ | 37,650 | | | $ | 11,406 | |
| Foreign currency forward contracts | Foreign currency forward contracts | — | | | (90) | | Foreign currency forward contracts | — | | | — | | | — | | | (117) | |
| Total gain recognized | $ | 2,880 | | | $ | 1,129 | | |
| Total gain (loss) recognized | | Total gain (loss) recognized | $ | 8,929 | | | $ | (7,059) | | | $ | 37,650 | | | $ | 11,289 | |
Cash Flow Hedges Impact on the Condensed Consolidated Statements of Operations
For derivatives designated as cash flow hedges, the gain reclassified from Accumulated other comprehensive (loss) income (loss) into the condensed consolidated statements of operations was:
| | | Three Months Ended December 31, | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Interest rate swap contracts | Interest rate swap contracts | $ | 2,673 | | | $ | 2,448 | | Interest rate swap contracts | $ | 2,913 | | | $ | 2,669 | | | $ | 7,873 | | | $ | 7,782 | |
| Foreign currency forward contracts | Foreign currency forward contracts | — | | | 132 | | Foreign currency forward contracts | — | | | 117 | | | — | | | 249 | |
| Total gain recognized | Total gain recognized | $ | 2,673 | | | $ | 2,580 | | Total gain recognized | $ | 2,913 | | | $ | 2,786 | | | $ | 7,873 | | | $ | 8,031 | |
For derivatives de-designated as cash flow hedges and economic hedges on foreign currency denominated receivables, the (gain) loss recognized directly into Foreign currency loss (gain) in the condensed consolidated statements of operations was:
| | | | | | | | | | | |
| Three Months Ended December 31, |
| 2021 | | 2020 |
| (dollars in thousands) |
| Foreign currency forward contracts | $ | (320) | | | $ | 1,507 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (dollars in thousands) |
| Foreign currency forward contracts | $ | (104) | | | $ | (141) | | | $ | (424) | | | $ | 776 | |
As of December 31, 2021,June 30, 2022, the Company estimates that it will recognize approximately $10.2$1.1 million of lossesgains associated with the above contracts in net (loss) income within the next 12 months.
Commodity Index Contracts
The Company uses commodity index contracts to reduce its exposure to fluctuations in cash flows relating to the purchases of aluminum and steel-based components and raw materials impacting Gross profit. The commodity index contracts are accounted for as financial instruments and the Company did not apply hedge accounting.
The notional values of the Company’s outstanding commodity index contracts were as follows:
| | | December 31,
2021 | | September 30,
2021 | | June 30,
2022 | | September 30,
2021 |
| | (volumes in pounds) | | (volumes in pounds) |
| Aluminum index contracts | Aluminum index contracts | 4,500,000 | | | 7,200,000 | | Aluminum index contracts | — | | | 7,200,000 | |
| Steel index contracts | Steel index contracts | 25,500,000 | | | 700,000 | | Steel index contracts | 2,700,000 | | | 700,000 | |
As financial instruments, the commodity index hedges are revalued at current commodity index rates with the changes in the valuation reflected directly in Cost of goods sold. The Company recorded a corresponding loss (gain) on the change in fair market value as follows:
| | | | | | | | | | | |
| Three Months Ended December 31, |
| 2021 | | 2020 |
| (dollars in thousands) |
| Commodity index contracts | $ | 221 | | | $ | (3,803) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (dollars in thousands) |
| Commodity index contracts | $ | 1,527 | | | $ | (1,508) | | | $ | 38 | | | $ | (7,099) | |
See Note 10 for further information.
Counterparty Credit Risk
Using derivative instruments means assuming counterparty credit risk. Counterparty credit risk relates to the loss the Company could incur if a counterparty were to default on a derivative contract. The Company deals with only investment-grade counterparties and monitors the overall credit risk and exposure to individual counterparties. The Company did not experience any nonperformance by a counterparty during the threenine months ended December 31, 2021June 30, 2022 or 2020.2021. The Company did not require, nor did it post, collateral or security on such contracts.
7. Income Taxes
TheIn accordance with ASC 740, Income Taxes, the Company recorded anmakes its best estimate of the annual effective tax rate at the end of each interim period, and the impact of discrete items, if any, and adjusts the rate as necessary. As of June 30, 2022, the Company applied its estimated annual effective tax rate of 32.1% to its loss before taxes of $140.9 million for the nine months ended June 30, 2022 and adjusted for the impact of discrete items, resulting in income tax benefitexpense of $30.4$0.1 million and $37.0 million for the three and nine months ended December 31, 2021, resultingJune 30, 2022, respectively. This resulted in an effective tax raterates of 29.0%,(0.2)% and (26.2)% for the three and nine months ended June 30, 2022, respectively, as compared to the federal statutory rate of 21.0%.
The effective tax rate was higherdifferent than the statutory rate primarily due to foreign taxes owed by foreign subsidiaries, uncertainthe establishment of a valuation allowance to reduce the net deferred tax positionsassets at Weber Inc. In evaluating the Company's ability to recover deferred tax assets, all available positive and increases on certain previouslynegative evidence was considered, including scheduled reversal of deferred tax liabilities, operating results and forecasts of future taxable income in each of the jurisdictions in which the Company operates. Due to
the cumulative loss that was incurred over the period including fiscal year 2020, fiscal year 2021 and the nine months ending June 30, 2022, the Company established a valuation allowances. These unfavorable expenses were partially offset by a noncontrolling interest benefitallowance to adjust forreduce the net deferred tax assets at Weber Inc.'s allocable share of Weber HoldCo LLC's net loss for as the quarter. Thedeferred tax assets were not more likely than not to be realized, resulting in income tax benefit forexpense of $22.5 million during the threenine months ended December 31, 2021 reflects the estimated annual effective tax rate applicable to the net loss recognized for the quarter.June 30, 2022.
The Company recorded income tax expense of $0.2$4.0 million and $19.4 million for the three and nine months ended December 31, 2020,June 30, 2021, respectively, resulting in an effective tax raterates of 2.6%18.4% and 18.4%, respectively, as compared to the federal statutory rate of 21.0%. The difference in the rate was due to nontaxable U.S. flow-through income and a discrete benefit resulting from ourreleases of Germany, United Kingdom and South Africa valuation allowance releases.allowances. This benefit was partially offset by foreign taxes owed by foreign subsidiaries.
Tax Receivable Agreement
In connection with the IPO, the Company entered into the Tax Receivable Agreement with the pre-IPO LLC Members, which provides for the payment by Weber Inc. of 85% of certain cash tax benefits that Weber Inc. actually realizes, or in some cases is deemed to realize. The amounts payable under the Tax Receivable Agreement will vary depending upon a number of factors, including the amount, character and timing of the taxable income of Weber Inc. in the future. As of September 30, 2021, the Company recognized a liability of $9.2 million as an estimate of Tax Receivable Agreement payments that would be paid based on its estimates of future taxable income.
As of June 30, 2022, the Company determined that making a payment under the Tax Receivable Agreement was not probable because the Company does not believe it has sufficient taxable income to utilize deductions of certain tax attributes that would generate cash savings in U.S. federal, state and local income tax or franchise tax and result in a payment under the Tax Receivable Agreement. This conclusion was primarily a result of the required valuation allowance established during the quarter. As a result, the Company remeasured the Tax Receivable Agreement liability to zero in the condensed consolidated balance sheets as of June 30, 2022 and recorded a Gain on Tax Receivable Agreement liability remeasurement of $9.2 million in the condensed consolidated statements of operations for the three months ended June 30, 2022.
8. Commitments and Contingencies
Warranty
The Company offers warranties on most of its products. The specific terms and conditions of the warranties offered by the Company vary depending upon the product sold. The Company estimates the costs that may be incurred under its warranty plans and the period for which claims are honored, and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of units
sold, the type of products sold, historical and anticipated rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
The following is an analysis of product warranty reserves and charges against those reserves (dollars in thousands):
| | | | | |
| Balance at September 30, 2021 | $ | 28,300 | |
| Accrual for warranties issued | 1,7167,737 | |
| Warranty settlements made | (1,381)(4,780) | |
Balance at December 31, 2021June 30, 2022 | $ | 28,63531,257 | |
The balance of warranty reserves recorded in Other long-term liabilities was $23.3$25.3 million and $23.1 million as of December 31, 2021June 30, 2022 and September 30, 2021, respectively. The remaining current balances of $5.3$6.0 million and $5.2 million as of December 31, 2021June 30, 2022 and September 30, 2021, respectively, were recorded in Accrued expenses.
Contingent Consideration
As part of the acquisition of all aspects of the business related to iGrill and Kitchen Thermometer products from iDevices, LLC (“iDevices”), the Company has future cash payments due to iDevices in conjunction with an earn-out and development agreement. Under this agreement, the Company paid iDevices a minimum of $8.0 million, and then must pay additional royalty payments at fixed rates on iGrill and Kitchen Thermometer products sold for a total of 10 years or up to $15.0 million, whichever comes first. Under the terms of the earn-out and development agreement, the Company paid $0.1 million and $0.2 million during both the threenine months ended December 31,June 30, 2022 and 2021, and 2020, respectively. The fair value of the
contingent consideration liability was $0.4 million and $0.5 million at both December 31, 2021June 30, 2022 and September 30, 2021.2021, respectively. The fair value of these estimated future cash payments was based on valuation methods and management’s best estimates and was recorded in Other long-term liabilities in the condensed consolidated balance sheets.
Europe Manufacturing Facility
During October 2021, the Company executed an agreement to expand the Europe Manufacturing Facility in Poland. The Company doesdid not control the asset under construction, and iswas therefore not deemed the accounting owner of the asset under construction.
The lease term is 14 years and will commencecommenced upon completion of the building, which is expected to occuroccurred during the quarter ended June 30, 2022. Upon commencement, the Company will recordrecorded a right-of-use asset and a lease liability. In addition, the Company has options to extend the lease term for five-year periods as allowed by local laws and regulatory requirements. The annual cash rental payments due under the lease agreement during the first year will be approximately $1.2 million. The lease also requires the Company to pay real estate taxes and maintenance costs on the facility. No lease payments were made during the quarternine months ended December 31, 2021.June 30, 2022.
Legal Proceedings
The Company is subject to a variety of investigations, claims, suits and other legal proceedings that arise from time to time in the ordinary course of business including, but not limited to, intellectual property, employment, tort and breach of contract matters.matters, as well as securities litigation. The Company currently believes that the outcomes of such proceedings, individually and in the aggregate, will not have a material adverse impact on its business, cash flows, financial position or results of operations. Any legal proceedings are subject to inherent uncertainties, and management’s view of these matters and their potential effects may change in the future.
9. Related Parties
Periodically, the Company engages in transactions with related parties, which include entities that are owned in whole or in part by certain owners or employees of the Company.
The Company has historically leased certain manufacturing and office facilities in the U.S. from a related party. During the fourth quarter of fiscal year 2021, the related party sold the leased properties to a third party. Accordingly, the Company will no longer recognize these leases as related party transactions. Rental expense amounted to zero and $0.2$0.3 million for the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,zero and $0.8 million for the nine months ended June 30, 2022 and 2021, respectively.
During fiscal year 2021, the Company leased office facilities in Australia from a related party. Rental expense amounted to $0.2 million and zero for the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,$0.5 million and zero for the nine months ended June 30, 2022 and 2021, respectively. The Company
had related party operating right-of-use assets of $1.5$1.3 million and $1.6 million at December 31, 2021June 30, 2022 and September 30, 2021, respectively. Additionally, the Company had related party current operating lease liabilities of $0.4 million and $0.4 million and non-current operating lease liabilities of $1.1$0.9 million and $1.2 million at December 31, 2021June 30, 2022 and September 30, 2021, respectively.
The Company has a royalty agreement with a related party for the use of the Company’s trademark. Royalty revenue from this agreement was $0.1 million for both the three months ended December 31,June 30, 2022 and 2021, and was immaterial$0.4 million and $0.1 million for the threenine months ended December 31, 2020.June 30, 2022 and 2021, respectively. Royalty revenues for the nine months ended June 30, 2021 reflect the impact of a retroactive discount totaling $0.1 million, which was granted to the related party as a COVID-19 concession. The Company had a royalty receivable of $0.2 million and $0.1 million from this related party at both December 31, 2021June 30, 2022 and September 30, 2021.2021, respectively.
During fiscal year 2019, the Company entered into a series of transactions with June. As a result of the acquisition described in Note 2, June has become a wholly-owned subsidiary of the Company and is consolidated in its financial statements. As such, the Company no longer records related party transactions with June. ForRoyalty expense was zero for both the three months ended December 31,June 30, 2022 and 2021, and 2020, the Company recorded royalty expense of zero and $0.3 million for the nine months ended June 30, 2022 and 2021, respectively.
In connection with the IPO, the Company entered into the Tax Receivable Agreement with the Pre-IPOpre-IPO LLC Members, which provides for the payment by Weber Inc. of 85% of certain cash tax benefits that Weber Inc. actually realizes, or in some cases is deemed to realize. TheAs discussed in Note 7, the Tax Receivable Agreement liability was
remeasured during the third quarter of fiscal year 2022 and the liability was decreased to zero as of June 30, 2022 from $9.2 million at both December 31, 2021 andas of September 30, 2021. The Tax Receivable Agreement is considered a related party transaction.
In connection with the Incremental Term Loan discussed in Note 5, the Company paid arrangement fees and structuring fees totaling $0.6 million to a related party. These fees were capitalized as part of the total deferred financing costs during the quarter ended March 31, 2022.
In March 2022, the Company reassigned the beneficiary of a life insurance policy to a related party pursuant to a preexisting agreement. As a result, the Company recognized selling, general and administrative expense of zero and $0.4 million for the three and nine months ended June 30, 2022, respectively.
The Company historically had notes receivable due from members, which were fully repaid during the first quarter of fiscal year 2022. The balance of the notes receivable due from members, including interest, was zero and $11.3 million at December 31, 2021June 30, 2022 and September 30, 2021, respectively. Related party interest income associated with the full recourse member notes was immaterial for both the three and nine months ended December 31, 2021June 30, 2022 and 2020.2021. See Note 15 for further information.
10. Fair Value of Financial Instruments
With respect to financial assets and liabilities, fair value is defined as the exchange price that would be received for an asset, or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy has been established based on three levels of inputs, of which the first two are considered observable and the last unobservable.
•Level 1—Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.
•Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily available pricing sources for comparable instruments.
•Level 3—Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability based on the best information available in the circumstances.
The Company had interest rate swap contracts held with financial institutions as of December 31, 2021June 30, 2022 and September 30, 2021, classified as Level 2 financial instruments, which are valued using observable underlying interest rates and market-determined risk premiums at the reporting date.
The Company had foreign currency forward contracts held with financial institutions as of December 31, 2021June 30, 2022 and September 30, 2021, classified as Level 2 financial instruments, which arewere valued using observable forward foreign exchange rates at the reporting date.
The Company had commodity index contracts held with financial institutions as of December 31, 2021June 30, 2022 and September 30, 2021, classified as Level 2 financial instruments, which are valued using observable commodity index rates at the reporting date.
The Company had a contingent consideration liability as of December 31, 2021June 30, 2022 and September 30, 2021, classified as a Level 3 instrument, in conjunction with its acquisition of all aspects of the business related to iGrill and Kitchen Thermometer products from iDevices. The fair value of these estimated future cash payments was determined based on valuation methods and estimates of future cash flows. See Note 8 for further details.
The fair value of financial assets and liabilities measured on a recurring basis was as follows:
| | | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 | | June 30,
2022 | | Level 1 | | Level 2 | | Level 3 |
| | (dollars in thousands) | | (dollars in thousands) |
| Prepaid expenses and other current assets: | Prepaid expenses and other current assets: | | Prepaid expenses and other current assets: | |
| Foreign currency forward contracts | Foreign currency forward contracts | $ | 171 | | | $ | — | | | $ | 171 | | | $ | — | | Foreign currency forward contracts | $ | 104 | | | $ | — | | | $ | 104 | | | $ | — | |
| Commodity index contracts | 2,216 | | | — | | | 2,216 | | | — | | |
| | Interest rate swap contracts | Interest rate swap contracts | 7,661 | | | — | | | 7,661 | | | — | | Interest rate swap contracts | 11,926 | | | — | | | 11,926 | | | — | |
| Total | Total | $ | 10,048 | | | $ | — | | | $ | 10,048 | | | $ | — | | Total | $ | 12,030 | | | $ | — | | | $ | 12,030 | | | $ | — | |
| Other long-term assets: | Other long-term assets: | | | | | | | | Other long-term assets: | | | | | | | |
| Interest rate swap contracts | Interest rate swap contracts | $ | 24,796 | | | $ | — | | | $ | 24,796 | | | $ | — | | Interest rate swap contracts | $ | 41,973 | | | $ | — | | | $ | 41,973 | | | $ | — | |
| Total | Total | $ | 24,796 | | | $ | — | | | $ | 24,796 | | | $ | — | | Total | $ | 41,973 | | | $ | — | | | $ | 41,973 | | | $ | — | |
| Accrued expenses: | Accrued expenses: | | | | | | | | Accrued expenses: | | | | | | | |
| | Commodity index contracts | Commodity index contracts | $ | 854 | | | $ | — | | | $ | 854 | | | $ | — | | Commodity index contracts | $ | 277 | | | $ | — | | | $ | 277 | | | $ | — | |
| Interest rate swap contracts | Interest rate swap contracts | 13,231 | | | — | | | 13,231 | | | — | | Interest rate swap contracts | 6,235 | | | — | | | 6,235 | | | — | |
| Total | Total | $ | 14,085 | | | $ | — | | | $ | 14,085 | | | $ | — | | Total | $ | 6,512 | | | $ | — | | | $ | 6,512 | | | $ | — | |
| Other long-term liabilities: | Other long-term liabilities: | | | | | | | | Other long-term liabilities: | | | | | | | |
| Interest rate swap contracts | Interest rate swap contracts | $ | 33,971 | | | $ | — | | | $ | 33,971 | | | $ | — | | Interest rate swap contracts | $ | 24,780 | | | $ | — | | | $ | 24,780 | | | $ | — | |
| Contingent consideration | Contingent consideration | 450 | | | — | | | — | | | 450 | | Contingent consideration | 404 | | | — | | | — | | | 404 | |
| Total | Total | $ | 34,421 | | | $ | — | | | $ | 33,971 | | | $ | 450 | | Total | $ | 25,184 | | | $ | — | | | $ | 24,780 | | | $ | 404 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30,
2021 | | Level 1 | | Level 2 | | Level 3 |
| (dollars in thousands) |
| Prepaid expenses and other current assets: | | | | | | | |
| Foreign currency forward contracts | $ | 134 | | | $ | — | | | $ | 134 | | | $ | — | |
| Commodity index contracts | 3,378 | | | — | | | 3,378 | | | — | |
| Interest rate swap contracts | 8,762 | | | — | | | 8,762 | | | — | |
| Total | $ | 12,274 | | | $ | — | | | $ | 12,274 | | | $ | — | |
| Other long-term assets: | | | | | | | |
| Interest rate swap contracts | $ | 27,267 | | | $ | — | | | $ | 27,267 | | | $ | — | |
| Total | $ | 27,267 | | | $ | — | | | $ | 27,267 | | | $ | — | |
| Accrued expenses: | | | | | | | |
| Interest rate swap contracts | $ | 14,688 | | | $ | — | | | $ | 14,688 | | | $ | — | |
| Total | $ | 14,688 | | | $ | — | | | $ | 14,688 | | | $ | — | |
| Other long-term liabilities: | | | | | | | |
| Interest rate swap contracts | $ | 40,392 | | | $ | — | | | $ | 40,392 | | | $ | — | |
| Contingent consideration | 503 | | | — | | | — | | | 503 | |
| Total | $ | 40,895 | | | $ | — | | | $ | 40,392 | | | $ | 503 | |
The carrying amounts reported in the Company’s condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, and trade accounts payable approximate their fair values due to the short-term nature of these instruments. The carrying amounts reported in the Company’s condensed consolidated balance sheets for the variable rate, revolving loan facility also approximate its fair value. The fair value of the fixed rate debt is not readily determinable, because the information is not available.
11. Stock-Based Compensation
The Weber Inc. Omnibus Incentive Plan (the “2021 Plan”) provides for the issuance of up to 22,694,608 shares of Class A common stock in connection with equity awards granted under the 2021 Plan. The Company hadhas three types of share-based compensation awards outstanding under the 2021 Plan: profits interest awards, options and RSUs.restricted stock units (“RSUs”).
Profits Interest Awards
Prior to the Company's IPO, the Company granted profits interest units with vesting periods ranging from one to five years to certain key employees in consideration for their services to or for the benefit of the Company. A portion of the profits interest units vest based on service and a portion of the awards based on service as well as the Company’s achievement of certain performance objectives associated with net sales (“hybrid units”).
The profits interest units have distribution thresholds determined on a per common unit in Weber HoldCo LLC (“LLC unit”) basis with the holder receiving, upon exercise, a value in LLC units equal to the difference between the current fair value per LLC unit less the distribution threshold. Therefore, the distribution thresholds serve as a cashless exercise price, with holders receiving their share of the value of the Company’s implied equity value in excess of the distribution threshold. Once vested, the profits interests represent profits interest ownership in the Company tied solely to the accretion, if any, in the value of the Company in excess of the distribution threshold.
On December 17, 2021, Weber Inc. paid a dividend of $0.04 per share to holders of Class A common stock.stock on December 17, 2021, March 18, 2022 and June 17, 2022. Profits interest units that were outstanding at the time of the dividenddividends were adjusted pursuant to pre-existing anti-dilution provisions in the Company’s equity incentive plan documents. The adjustments reduced the distribution thresholds of outstanding profits interest units by the amount of the dividend per share. The adjustments did not result in incremental stock-based compensation expense as the anti-dilutive adjustments were required by pre-existing terms included within the awards.
During the three months ended December 31, 2021, there has been no activity related to the profits interest units.
The following table summarizes the Company’s profits interest units distribution thresholds as of December 31, 2021,June 30, 2022, which serve as a cashless exercise price:
| | | | | | | | | | | | | | |
Distribution Threshold (per unit)(1) | | Service-Based Units
Outstanding | | Hybrid Units
Outstanding |
| $5.46 – $6.96 | | 4,142,102 | | | — | |
| $6.97 – $8.46 | | 4,142,102 | | | — | |
| $8.47 – $9.46 | | 5,481,420 | | | 1,185,180 | |
| $9.47 – $10.71 | | 2,295,274 | | | 592,590 | |
| Total | | 16,060,898 | | | 1,777,770 | |
| | | | | | | | | | | |
Distribution Threshold (per unit)(1) | Service-Based Units
Outstanding | | Hybrid Units
Outstanding |
| $5.38 – $6.88 | — | | | — | |
| $6.89 – $8.38 | — | | | — | |
| $8.39 – $9.38 | 2,011,499 | | | 1,118,019 | |
| $9.39 – $10.63 | 1,005,749 | | | 559,010 | |
| Total | 3,017,248 | | | 1,677,029 | |
_____________
(1)The exercise price of units outstanding as of December 31, 2021June 30, 2022 reflect the non-cash adjustments to the units as a result of the cash dividenddividends paid by the Company. As such, the distribution thresholds noted above have been reduced by $0.04$0.12 per unit to reflect the adjustment.
The following table summarizes the Company’s outstanding profits interest awardsunits distribution thresholds as of December 31, 2021 are shown below. There are no vested hybrid units.June 30, 2022, which serve as a cashless exercise price, and held by certain individuals who received a cash distribution during certain quarters in lieu of a distribution threshold reduction:
| | | | | | | | | | | | | | | | | | | | |
| | Units Outstanding | | Weighted Average Exercise Price | | Weighted Average Fair Value |
Nonvested service units(1) | | 11,713,015 | | | $ | 8.17 | | | $ | 8.97 | |
Vested service units(1)(2) | | 4,347,883 | | | $ | 7.72 | | | $ | 9.15 | |
Nonvested hybrid units(3) | | 1,777,770 | | | $ | 9.58 | | | $ | 7.88 | |
| | | | | | | | | | | |
Distribution Threshold (per unit)(1) | Service-Based Units
Outstanding | | Hybrid Units
Outstanding |
| $5.42 – $6.92 | 4,142,102 | | | — | |
| $6.93 – $8.42 | 4,142,102 | | | — | |
| $8.43 – $9.42 | 3,469,922 | | | — | |
| $9.43 – $10.67 | 1,289,524 | | | — | |
| Total | 13,043,650 | | | — | |
_____________
(1) The exercise price of units outstanding as of June 30, 2022 reflect the non-cash adjustments to the unit thresholds as a result of the cash dividends paid by the Company. As of June 30, 2022, certain employees received a total cash
distribution payment of $0.04 per unit in lieu of a distribution threshold reduction. As such, the distribution thresholds noted above have been reduced by $0.08 per unit to reflect the adjustment.
The following tables summarize the Company’s profits interest award activity during the nine months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service-Based Units | | Hybrid Units |
| Units | | Weighted Average Exercise Price | | Weighted Average Fair Value | | Units | | Weighted Average Exercise Price | | Weighted Average Fair Value |
Nonvested units, September 30, 2021 | 11,713,015 | | | $ | 8.21 | | | $ | 8.97 | | | 1,777,770 | | | $ | 9.50 | | | $ | 7.88 | |
| Vested units | (3,802,263) | | | $ | 8.04 | | | $ | 8.82 | | | (592,590) | | | $ | 9.50 | | | $ | 7.48 | |
Nonvested units, June 30, 2022(1)(2) | 7,910,752 | | | $ | 8.15 | | | $ | 9.04 | | | 1,185,180 | | | $ | 9.50 | | | $ | 8.09 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service-Based Units | | Hybrid Units |
| Units | | Weighted Average Exercise Price | | Weighted Average Fair Value | | Units | | Weighted Average Exercise Price | | Weighted Average Fair Value |
Vested units, September 30, 2021 | 4,347,883 | | | $ | 7.76 | | | $ | 9.15 | | | — | | | $ | — | | | $ | — | |
| Vested units | 3,802,263 | | | $ | 8.04 | | | $ | 8.82 | | | 592,590 | | | $ | 9.50 | | | $ | 7.48 | |
Adjustment to vested hybrid units(3) | — | | | $ | — | | | $ | — | | | (100,741) | | | $ | 9.50 | | | $ | 7.48 | |
Vested units, June 30, 2022(1)(2)(4)(5) | 8,150,146 | | | $ | 7.85 | | | $ | 9.00 | | | 491,849 | | | $ | 9.50 | | | $ | 7.48 | |
_____________
(1)The aggregate intrinsic value of all nonvested and vested service-based units outstanding was $77.8$14.1 million.
(2)The aggregate intrinsic value of all nonvested and vested hybrid units outstanding was $3.6 million.
(3)The hybrid awards vest based on achievement of a performance target. For the awards that vested during the second quarter of fiscal year 2022, 83% of the awards met the performance target resulting in a 17% reduction in the number of vested units.
(4)The aggregate intrinsic value of all vested service-based units was $22.5$5.9 million.
(3)(5)The aggregate intrinsic value of all vested hybrid units outstanding was $5.9$1.2 million.
As of December 31, 2021,June 30, 2022, there was $30.5$16.6 million and $6.8$4.0 million of total unrecognized compensation cost related to nonvested profits interest units for service-based vesting units and hybrid units, respectively. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.720.6 years for service-based units and 0.820.6 years for hybrid units.
Options
During the threenine months ended December 31, 2021,June 30, 2022, the Company granted options to certain employees of the Company. Options are awarded with an exercise price equal to the market price on the date of the grant and become exercisable in one to three years after grant. Options expire ten years after the date of grant. The Company granted 1,038,866 options during the threenine months ended December 31, 2021.June 30, 2022. The weighted average exercise price of the options granted was $18.05 per option and the weighted average fair value was $7.06 per option. During the threenine months ended December 31, 2021, noJune 30, 2022, zero options vested orand 58,651 options were forfeited. As of December 31, 2021,June 30, 2022, the outstanding options had an intrinsic value of zero.
The fair value and corresponding stock-based compensation expense for options was determined using the Black-Scholes option pricing model. The weighted-average assumptions used to estimate the fair value of the options as of December 31, 2021,June 30, 2022, were as follows:
| | | | | |
| Expected term (in years) | 6.0 |
| Risk-free interest rate | 1.24 | % |
| Expected volatility | 39.01 | % |
| Expected dividend yield | — | % |
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected holding period. The Company assumed a dividend yield of zero percent when valuing the options because, as of the grant date, the Company did not have a history of paying dividends. Expected volatility is based on the expected volatility of comparable peer companies that are publicly traded. The expected term represents the period of time that awards granted are expected to be outstanding. The Company elected to use the simplified method to estimate the expected holding period because there is not sufficient information to estimate post-vesting exercise behavior. As such, the Company will continue to use this methodology until there is sufficient history to provide a reasonable basis on which to estimate the expected term.
As of December 31, 2021,June 30, 2022, there was $6.4$3.5 million of total unrecognized compensation cost related to nonvested options. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.970.8 years.
Restricted Stock UnitsRSUs
During the threenine months ended December 31, 2021June 30, 2022 the Company granted RSUs to certain employees of the Company. The RSUs vest over a period ranging from three months to three years. The RSUs accrue dividend equivalents associated with the underlying shares of Class A common stock as the Company declares dividends. Dividends will generally be paid to holders of RSUs in cash upon the vesting date of the associated RSU and will be forfeited if the RSU does not vest. RSUs that were converted from equity awards outstanding prior to the Company’s IPO do not accrue dividends until they are fully vested. The fair value of the RSU awards was calculated utilizing the closing day stock price on the date of grant. No RSUs were granted or outstanding during the threenine months ended December 31, 2020.June 30, 2021. Upon vesting of the award, the Company will issue shares of Class A common stock to the award holder. At the time of issuance, the Company will typically withhold the number of shares to satisfy the statutory withholding tax obligation and deliver the net number of resulting shares vested to award holder.
The following tables summarize the Company’s RSUs and activity during the threenine months ended December 31, 2021:June 30, 2022:
| | | Total RSUs | | Total RSUs |
| | Number of RSUs | | Weighted Average Grant Date Fair Value | | Number of RSUs | | Weighted Average Grant Date Fair Value |
| Nonvested, September 30, 2021 | Nonvested, September 30, 2021 | | 2,086,541 | | | $ | 17.56 | | Nonvested, September 30, 2021 | 2,086,541 | | | $ | 17.56 | |
| Granted | Granted | | 2,546,501 | | | $ | 17.22 | | Granted | 2,625,545 | | | $ | 17.04 | |
| Vested | Vested | | — | | | $ | — | | Vested | (478,224) | | | $ | 12.52 | |
| Forfeited | Forfeited | | (27,954) | | | $ | 17.97 | | Forfeited | (375,514) | | | $ | 17.82 | |
| Nonvested, December 31, 2021 | | 4,605,088 | | | $ | 17.37 | | |
| Nonvested, June 30, 2022 | | Nonvested, June 30, 2022 | 3,858,348 | | | $ | 17.40 | |
| | | Total RSUs | | Total RSUs |
| | Number of RSUs | | Weighted Average Grant Date Fair Value | | Number of RSUs | | Weighted Average Grant Date Fair Value |
| Vested, September 30, 2021 | Vested, September 30, 2021 | | 776,544 | | | $ | 17.59 | | Vested, September 30, 2021 | 776,544 | | | $ | 17.59 | |
| Units vested | Units vested | | — | | | $ | — | | Units vested | 478,224 | | | $ | 12.52 | |
Units settled | Units settled | | (50,196) | | | $ | 17.59 | | Units settled | (432,435) | | | $ | 11.97 | |
| Vested, December 31, 2021 | | 726,348 | | | $ | 17.59 | | |
| Vested, June 30, 2022 | | Vested, June 30, 2022 | 822,333 | | | $ | 16.44 | |
_____________
(1)For RSUs granted after the Company's IPO, the settlement of awards occurs on the vesting date. For RSUs that were converted from Pre-IPO Management Incentive Compensation Plan awards, the post vesting settlement of awards can occur up to ten years after the vesting date.
As of December 31, 2021,June 30, 2022, there was $61.0$31.4 million of total unrecognized compensation cost related to RSUs. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.820.7 years.
Employee Stock Purchase Plan
In August 2021, the Company's Board of Directors (the “Board”) approved the Employee Stock Purchase Plan (“ESPP”). The ESPP allows eligible employees to purchase, through payroll deductions, a limited number of shares of Class A common stock during pre-specified offering periods at a discount established by the Company's Compensation Committee. The purchase price will be equal to the lesser of (i) 85% of the fair market value of a share on the first trading day of the offering period and (ii) 85% of the fair market value of a share on the applicable purchase date. For the ESPP, a
total of 9,077,843 shares of Class A common stock were reserved for issuance and no shares have been issued during the threenine months ended December 31, 2021.June 30, 2022. Withholding periods will beginbegan on January 1, 2022.
The ESPP is accounted for as a compensatory plan since the number of shares a participant is permitted to purchase is not fixed based on the stock price at the beginning of the offering period and the expected withholdings. The ESPP enables a participant to “buy-up” to the plan’s share limit, if the stock price is lower on the purchase date. As a result, the fair value of the awards granted under the ESPP is calculated using the Black-Scholes option pricing model at the beginning of each offering period as the sum of:
•15% of the share price of an unvested share at the beginning of the offering period,
•85% of the fair market value of a six-month call on the unvested share aforementioned, and
•15% of the fair market value of a six-month put on the unvested share aforementioned.
Summary of Stock-Based Compensation Expense
The table below summarizes stock-based compensation expense recognized by award type:
| | | Three Months Ended December 31, | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Profits interest awards: | Profits interest awards: | | Profits interest awards: | |
| Service-based profits interest awards | Service-based profits interest awards | | $ | 8,984 | | | $ | 2,122 | | Service-based profits interest awards | $ | 5,840 | | | $ | 53,795 | | | $ | 22,769 | | | $ | 83,830 | |
| Hybrid profits interest awards | Hybrid profits interest awards | | 2,417 | | | — | | Hybrid profits interest awards | 1,111 | | | — | | | 4,609 | | | — | |
| Total profits interest awards | Total profits interest awards | | 11,401 | | | 2,122 | | Total profits interest awards | 6,951 | | | 53,795 | | | 27,378 | | | 83,830 | |
| Options | Options | | 957 | | | — | | Options | 938 | | | — | | | 2,662 | | | — | |
| Pre-IPO Management Incentive Compensation Plan awards | Pre-IPO Management Incentive Compensation Plan awards | | — | | | 876 | | Pre-IPO Management Incentive Compensation Plan awards | — | | | 3,408 | | | — | | | 5,422 | |
| RSUs | RSUs | | 12,007 | | | — | | RSUs | 9,380 | | | — | | | 33,678 | | | — | |
| ESPP | | ESPP | 71 | | | — | | | 178 | | | — | |
Total stock-based compensation expense(1) | Total stock-based compensation expense(1) | | $ | 24,365 | | | $ | 2,998 | | Total stock-based compensation expense(1) | $ | 17,340 | | | $ | 57,203 | | | $ | 63,896 | | | $ | 89,252 | |
_____________
(1)In addition to the stock-based compensation expense recognized for the awards listed above, $1.1 millionzero and $0.4$4.5 million of expense was recognized in relation to partial recourse notes during the three months ended December 31,June 30, 2022 and 2021, respectively, and 2020,$1.1 million and $4.9 million of expense was recognized in relation to partial recourse notes for the nine months ended June 30, 2022 and 2021, respectively. See Note 15 for further information.
12. Segments
The Company has 3 operating segments, Americas, which consists of Canada, Chile, Mexico and the United States; the European, Middle East and African regions (“EMEA”); and the Asia-Pacific region (“APAC”), which includes Australia and New Zealand. The Company’s reportable segments consist of Americas, EMEA and APAC. Corporate/Other is not an operating segment and includes unallocated corporate and certain supply chain expenses and assets (consisting primarily of cash, land, buildings and equipment, certain intangible assets (trademark) and deferred tax assets), inter-segment eliminations and other adjustments to segment results necessary for the presentation of consolidated financial results in accordance with GAAP. Internal revenue transactions between the Company’s segments are immaterial. Each operating segment derives its revenues from the provision of gas, charcoal, electric and pellet grills and related accessories to customers.
The Company’s Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer (“CEO”). The CEO reviews financial information presented on a consolidated basis, accompanied by disaggregated information about the Company’s revenue and profitability, for purposes of making operating decisions, assessing financial performance and allocating resources. The CODM receives discrete financial information by segment.
The CODM reviews adjusted income (loss) income from operations as the key segment measure of performance. Adjusted income (loss) income from operations is defined as income (loss) income from operations adjusted for unallocated net expenses, stock/unit-based compensation, impairment costs and gain on disposal of assets held for sale. Adjusted income (loss) income from operations
excludes interest income, interest expense, net, loss from early extinguishment of debt, income taxes, and loss (gain)gain from investments in unconsolidated affiliates.affiliates, gain from Tax Receivable Agreement remeasurement and other expense.
The information below summarizes key financial performance measures by reportable segment:
| | | Three Months Ended December 31, 2021 | | Three Months Ended June 30, 2022 |
| | Americas | | EMEA | | APAC | | Corporate/Other | | Total | | Americas | | EMEA | | APAC | | Corporate/Other | | Total |
| | (dollars in thousands) | | (dollars in thousands) |
| Net sales | Net sales | $ | 156,494 | | | $ | 62,985 | | | $ | 63,662 | | | $ | — | | | $ | 283,141 | | Net sales | $ | 273,571 | | | $ | 232,805 | | | $ | 21,560 | | | $ | — | | | $ | 527,936 | |
Adjusted (loss) income from operations(1) | $ | 23,286 | | | $ | 10,269 | | | $ | 19,347 | | | $ | (102,742) | | | $ | (49,840) | | |
Adjusted income (loss) from operations(1) | | Adjusted income (loss) from operations(1) | $ | 11,753 | | | $ | 41,248 | | | $ | (3,483) | | | $ | (53,537) | | | $ | (4,019) | |
| Depreciation and amortization | Depreciation and amortization | $ | 2,307 | | | $ | 307 | | | $ | 1,400 | | | $ | 9,773 | | | $ | 13,787 | | Depreciation and amortization | $ | 2,397 | | | $ | 284 | | | $ | 1,434 | | | $ | 11,303 | | | $ | 15,418 | |
| Capital expenditures | Capital expenditures | $ | 147 | | | $ | 910 | | | $ | 154 | | | $ | 24,665 | | | $ | 25,876 | | Capital expenditures | $ | 407 | | | $ | 179 | | | $ | 799 | | | $ | 16,703 | | | $ | 18,088 | |
| | | | | |
| | Three Months Ended December 31, 2020 | | Three Months Ended June 30, 2021 |
| | Americas | | EMEA | | APAC | | Corporate/Other | | Total | | Americas | | EMEA | | APAC | | Corporate/Other | | Total |
| | (dollars in thousands) | | (dollars in thousands) |
| Net sales | Net sales | $ | 179,290 | | | $ | 65,817 | | | $ | 63,771 | | | $ | — | | | $ | 308,878 | | Net sales | $ | 339,441 | | | $ | 306,668 | | | $ | 22,758 | | | $ | — | | | $ | 668,867 | |
Adjusted (loss) income from operations(1) | $ | 34,895 | | | $ | 8,350 | | | $ | 19,578 | | | $ | (33,553) | | | $ | 29,270 | | |
Adjusted income (loss) from operations(1) | | Adjusted income (loss) from operations(1) | $ | 61,206 | | | $ | 108,380 | | | $ | 1,989 | | | $ | (69,996) | | | $ | 101,579 | |
| Depreciation and amortization | Depreciation and amortization | $ | 139 | | | $ | 437 | | | $ | 363 | | | $ | 8,827 | | | $ | 9,766 | | Depreciation and amortization | $ | 2,331 | | | $ | 417 | | | $ | 1,527 | | | $ | 7,804 | | | $ | 12,079 | |
| Capital expenditures | Capital expenditures | $ | 62 | | | $ | 136 | | | $ | 150 | | | $ | 4,624 | | | $ | 4,972 | | Capital expenditures | $ | 26 | | | $ | 8,836 | | | $ | 503 | | | $ | 13,784 | | | $ | 23,149 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended June 30, 2022 |
| Americas | | EMEA | | APAC | | Corporate/Other | | Total |
| (dollars in thousands) |
| Net sales | $ | 735,712 | | | $ | 563,675 | | | $ | 118,984 | | | $ | — | | | $ | 1,418,371 | |
Adjusted income (loss) from operations(1) | $ | 62,904 | | | $ | 129,686 | | | $ | 19,880 | | | $ | (195,440) | | | $ | 17,030 | |
| Depreciation and amortization | $ | 7,002 | | | $ | 880 | | | $ | 4,250 | | | $ | 32,569 | | | $ | 44,701 | |
| Capital expenditures | $ | 634 | | | $ | 1,309 | | | $ | 2,308 | | | $ | 76,111 | | | $ | 80,362 | |
| | |
| Nine Months Ended June 30, 2021 |
| Americas | | EMEA | | APAC | | Corporate/Other | | Total |
| (dollars in thousands) |
| Net sales | $ | 891,649 | | | $ | 617,995 | | | $ | 122,532 | | | $ | — | | | $ | 1,632,176 | |
Adjusted income (loss) from operations(1) | $ | 178,246 | | | $ | 206,516 | | | $ | 28,963 | | | $ | (163,976) | | | $ | 249,749 | |
| Depreciation and amortization | $ | 4,474 | | | $ | 1,287 | | | $ | 2,254 | | | $ | 24,392 | | | $ | 32,407 | |
| Capital expenditures | $ | 183 | | | $ | 11,956 | | | $ | 1,162 | | | $ | 27,202 | | | $ | 40,503 | |
_____________
(1)Adjusted income (loss) income from operations for each reportable segment includes cost of goods sold transfer price allocations and distribution allocations from Corporate/Other. Corporate/Other includes unallocated corporate and certain supply chain expenses and inter-segment eliminations.
Reconciliations
The information below provides a reconciliation of adjusted income (loss) from operations to (loss) income before taxes:
| | | Three Months Ended
December 31, | | Three Months Ended June 30, | | Nine Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Segment adjusted income from operations | | |
| Segment adjusted income (loss) from operations | | Segment adjusted income (loss) from operations | |
| Americas | Americas | $ | 23,286 | | | $ | 34,895 | | Americas | $ | 11,753 | | | $ | 61,206 | | | $ | 62,904 | | | $ | 178,246 | |
| EMEA | EMEA | 10,269 | | | 8,350 | | EMEA | 41,248 | | | 108,380 | | | 129,686 | | | 206,516 | |
| APAC | APAC | 19,347 | | | 19,578 | | APAC | (3,483) | | | 1,989 | | | 19,880 | | | 28,963 | |
| Segment adjusted income from operations for reportable segments | Segment adjusted income from operations for reportable segments | 52,902 | | | 62,823 | | Segment adjusted income from operations for reportable segments | 49,518 | | | 171,575 | | | 212,470 | | | 413,725 | |
Unallocated net expenses(1) | Unallocated net expenses(1) | (116,800) | | | (38,203) | | Unallocated net expenses(1) | (73,947) | | | (69,996) | | | (245,247) | | | (163,976) | |
| Adjustments to (loss) income before taxes | | |
| Adjustments to income (loss) before taxes | | Adjustments to income (loss) before taxes | |
| Stock/unit-based compensation expense | Stock/unit-based compensation expense | (25,511) | | | (3,428) | | Stock/unit-based compensation expense | (17,340) | | | (61,714) | | | (65,041) | | | (94,193) | |
| Gain on disposal of assets held for sale | Gain on disposal of assets held for sale | — | | | 5,185 | | Gain on disposal of assets held for sale | — | | | — | | | — | | | 5,185 | |
| Interest income | 230 | | | 179 | | |
| Interest expense | (15,761) | | | (14,652) | | |
| Interest expense, net | | Interest expense, net | (19,267) | | | (18,031) | | | (51,813) | | | (49,780) | |
| Gain on Tax Receivable Agreement liability remeasurement | | Gain on Tax Receivable Agreement liability remeasurement | 9,226 | | | — | | | 9,226 | | | — | |
| Loss from early extinguishment of debt | Loss from early extinguishment of debt | — | | | (5,448) | | Loss from early extinguishment of debt | — | | | — | | | — | | | (5,448) | |
| Other expense | | Other expense | (68) | | | — | | | (502) | | | — | |
| (Loss) income before taxes | (Loss) income before taxes | $ | (104,940) | | | $ | 6,456 | | (Loss) income before taxes | $ | (51,878) | | | $ | 21,834 | | | $ | (140,907) | | | $ | 105,513 | |
_____________
(1)Unallocated net expenses includes Corporate/Other as defined in the table above and other adjustments, which include business and operational transformation costs, debt refinancingfinancing and IPO costs and COVID-19 costs.
The information below provides a reconciliation of segment assets to total consolidated assets:
| | | December 31, 2021 | | June 30, 2022 |
| | Americas | | EMEA | | APAC | | Corporate/Other | | Total | | Americas | | EMEA | | APAC | | Corporate/Other | | Total |
| | (dollars in thousands) | | (dollars in thousands) |
Segment assets(1) | Segment assets(1) | $ | 218,146 | | | $ | 201,209 | | | $ | 51,164 | | | $ | — | | | $ | 470,519 | | Segment assets(1) | $ | 171,383 | | | $ | 179,619 | | | $ | 45,667 | | | $ | — | | | $ | 396,669 | |
All other(2) | All other(2) | | 1,220,369 | All other(2) | | 1,325,067 |
| Total assets | Total assets | | $ | 1,690,888 | | Total assets | | $ | 1,721,736 | |
| | | September 30, 2021 | | September 30, 2021 |
| | Americas | | EMEA | | APAC | | Corporate/Other | | Total | | Americas | | EMEA | | APAC | | Corporate/Other | | Total |
| | (dollars in thousands) | | (dollars in thousands) |
Segment assets(1) | Segment assets(1) | $ | 164,905 | | | $ | 104,219 | | | $ | 63,497 | | | $ | — | | | $ | 332,621 | | Segment assets(1) | $ | 164,905 | | | $ | 104,219 | | | $ | 63,497 | | | $ | — | | | $ | 332,621 | |
All other(2) | All other(2) | | 1,218,371 | | All other(2) | | 1,218,371 | |
| Total assets | Total assets | | $ | 1,550,992 | | Total assets | | $ | 1,550,992 | |
_____________
(1)Inventory is the only segment asset reviewed by the CODM.
(2)“All other” consists of assets that are not reviewed by the CODM at a segment level: cash and cash equivalents; accounts receivable; prepaid and other tax assets; prepaid expenses and other current assets; property, equipment and leasehold improvements, net; operating lease right-of-use assets; other long-term assets; trademarks, net; other intangible assets, net; and goodwill.
13. Noncontrolling Interests
The noncontrolling interests balance represents the economic interests in Weber HoldCo LLC held by the Pre-IPO LLC Members. The following table summarizes the ownership of LLC Units in Weber HoldCo LLC as of December 31, 2021:June 30, 2022:
| | | LLC Units | | Ownership Percentage | | LLC Units | | Ownership Percentage |
| LLC Units held by Weber Inc. | LLC Units held by Weber Inc. | 52,569,898 | | | 18 | % | LLC Units held by Weber Inc. | 52,899,303 | | | 18 | % |
| Units held by Pre-IPO LLC Members | Units held by Pre-IPO LLC Members | 234,645,219 | | | 82 | % | Units held by Pre-IPO LLC Members | 234,559,825 | | | 82 | % |
| Balance at end of period | Balance at end of period | 287,215,117 | | | 100 | % | Balance at end of period | 287,459,128 | | | 100 | % |
The noncontrolling interest holders have the right to exchange an LLC unit along with a share of Class B common stock ("Paired Interests") for Class A common stock. As such, future exchanges of Paired Interests by noncontrolling interest holders will result in a change in ownership and decrease or increase the amount recorded as noncontrolling interests and increase or decrease additional paid-in capital when Weber HoldCo LLC has positive or negative net assets, respectively. As of December 31, 2021, no Pre-IPODuring the nine months ended June 30, 2022, pre-IPO LLC members have exchanged any85,394 Paired Interests.Interests for Class A common stock.
14. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to Weber Inc. by the weighted average number of Class A common stock outstanding during the period. The weighted average number of Class A common stock outstanding during the period includes both the weighted average of Class A common stock outstanding as well as the weighted average of vested RSUs outstanding during the period. Shares of Class B common stock do not share in earnings and are not participating securities. Accordingly, separate presentation of lossearnings (loss) per share of Class B common stock under the two-class method has not been presented. Diluted earnings (loss) per share is calculated by giving effect to the potentially dilutive weighted average impact of profits interest awards, options, RSUs and HoldCo LLC Units that are convertible into shares of our Class A common stock when paired with an equal number of shares of Class B common stock.
Prior to the IPO, the Weber-Stephen Products LLC structure included only LLC common units issued and outstanding to pre-IPO LLC members. The Company analyzed the calculation of earnings per unit for periods prior to the IPO and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements. Therefore, earnings per share information has not been presented for the prior period.year periods.
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net incomeearnings (loss) per share of Class A common stock is as follows:
| | | | | |
| Three Months Ended
December 31, 2021 |
| (in thousands, except shares and per share data) |
Numerator - basic: | |
Net loss | $ | (74,553) | |
Less: Net loss attributable to noncontrolling interests | (91,330) | |
Net income attributable to Weber Inc. - basic | $ | 16,777 | |
Numerator - diluted: | |
Net income attributable to Weber Inc. - basic | 16,777 | |
Net income (loss) effect of dilutive securities: | |
Add: Net loss attributable to dilutive impact of Paired Interests(1)
| (71,380) | |
Net loss attributable to Weber Inc. - diluted | $ | (54,603) | |
Denominator - basic: | |
Weighted average of Class A common stock outstanding - basic | 53,309,932 | |
Net income per Class A common stock - basic | $ | 0.31 | |
Denominator - diluted: | |
Weighted average of Class A common stock outstanding - basic | 53,309,932 | |
Weighted average effect of dilutive securities: | |
Add: Class A common stock assumed exchange for Paired Interests(2)
| 234,645,219 | |
Weighted average Class A common stock outstanding - diluted | 287,955,151 | |
Net loss per Class A common stock - diluted | $ | (0.19) | |
| | | | | | | | | | | |
| Three Months Ended
June 30, 2022 | | Nine Months Ended
June 30, 2022 |
| (in thousands, except shares and per share data) |
| Numerator - basic: | | | |
| Net loss | $ | (51,999) | | | $ | (177,865) | |
| Less: Net loss attributable to noncontrolling interests | (44,505) | | | (132,698) | |
| Net loss attributable to Weber Inc. - basic | $ | (7,494) | | | $ | (45,167) | |
| Numerator - diluted: | | | |
| Net loss attributable to Weber Inc. - basic | $ | (7,494) | | | $ | (45,167) | |
| Net loss effect of dilutive securities: | | | |
Add: Net income (loss) attributable to dilutive impact of Paired Interests(1) | (110,997) | | | — | |
| | | |
| | | |
| | | |
| Net loss attributable to Weber Inc. - diluted | $ | (118,491) | | | $ | (45,167) | |
| Denominator - basic: | | | |
| Weighted average of Class A common stock outstanding - basic | 53,875,489 | | | 53,499,650 | |
| Denominator - diluted: | | | |
| Weighted average of Class A common stock outstanding - basic | 53,875,489 | | | 53,499,650 | |
| Weighted average effect of dilutive securities: | | | |
Add: Class A common stock assumed exchange for Paired Interests(2) | 236,295,421 | | | — | |
| | | |
| | | |
| | | |
| Weighted average Class A common stock outstanding - diluted | 290,170,910 | | | 53,499,650 | |
| | | |
| Earnings (loss) per share of Class A common stock - basic | $ | (0.14) | | | $ | (0.84) | |
| Earnings (loss) per share of Class A common stock - diluted | $ | (0.41) | | | $ | (0.84) | |
_____________
(1)This adjustment assumes after-tax elimination of noncontrolling interests due to the assumed exchange of all Paired Interests for shares of Class A common stock in Weber Inc. as of the beginning of the period following the if-converted method for calculating diluted net lossincome per share.
(2)The diluted weighted average shares outstanding of Class A common stock includes the effects of the if-converted method to reflect the assumed exchange of all Paired Interests on a 1-for-oneone-for-one basis for shares of Class A common stock in Weber Inc.
The following number of weighted average potentially dilutive shares were excluded from the calculation of diluted loss per share because the effect of including such potentially dilutive shares would have been anti-dilutive.anti-dilutive:
| | | | | | | | |
| | Three Months Ended December 31,2021 |
Profits interest awards | | 5,053,269 | |
Options | | 1,038,866 |
RSUs | | 4,605,088 |
| | | | | | | | | | | |
| Three Months Ended
June 30, 2022 | | Nine Months Ended
June 30, 2022 |
| Paired Interests | — | | | 240,381,268 | |
| Profits interest awards | 7,118,496 | | | 7,638,920 | |
| Options | 513,684 | | | 622,821 | |
| RSUs | 521,621 | | | 1,100,301 | |
15. Member Notes
During the three months ended December 31, 2021,first quarter of fiscal year 2022, the Company received $10.6 million from certain borrowers for repayment of the outstanding balance, including accrued interest, of partial recourse member notes and $0.8 million for repayment of the outstanding balance, including accrued interest, of full recourse member notes. As partial recourse notes arewere not reflected in the condensed consolidated financial statements, the repayment of the partial recourse notes was
accounted for as an equity issuance of the 1,072,849 LLC units (along with an equal number of shares of Class B common stock).
The Company recognized zero and $1.1 million in stock-based compensation expense during the three and nine months ended December 31, 2021June 30, 2022, respectively, related to the repayment of partial recourse notes, as the early repayment was considered a
modification to the loan term of the partial recourse notes. The Company recognized $0.4$4.5 million and $4.9 million in unit-based compensation expense during the three and nine months ended December 31, 2020June 30, 2021, respectively, related to the issuance of partial recourse notes. The total amount due from members on the notes receivable, including interest, was zero and $11.3 million as of December 31, 2021June 30, 2022 and September 30, 2021, respectively.
16. Subsequent Events
On July 24, 2022, the Board appointed Alan Matula, Weber’s then Chief Technology Officer, as the Interim Chief Executive Officer of the Company, to succeed Chris Scherzinger, who has departed from such role and from the Board. In addition, on August 12, 2022, the Board approved a restructuring plan, which included the termination of other senior executives, a workforce reduction of our non-manufacturing and distribution headcount by at least 10%, the termination of certain lease and other contractual obligations, and the disposal of certain other assets. We expect to substantially complete the restructuring plan by the first quarter of fiscal year 2023.
As a result of the above actions, the Company expects to incur total pre-tax charges of between approximately $30 million to $40 million, which are expected to be recorded in the fourth quarter of fiscal year 2022. Of these total charges, approximately $23 million to $30 million relates to severance and other termination-related benefits, approximately $4 million to $5 million relates to lease and other contractual terminations, and approximately $3 million to $5 million relates to the disposal of certain other assets.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 is September 30, and our fiscal quarters end on December 31, March 31, June 30 and September 30. Our fiscal years ended September 30, 2022, 2021 and 2020 are referred to herein as Fiscal Year 2022, Fiscal Year 2021 and Fiscal Year 2020, respectively.
Our Company
Weber Inc. (“Weber,” “Company,” “we,” and “our”), together with its subsidiaries, is the leading outdoor cooking company in the global outdoor cooking market. Our founder George Stephen, Sr., established the outdoor cooking category when he invented the original charcoal grill nearly 70 years ago. In the decades since, we have built a loyal and global following of both grilling enthusiasts and barbequebarbecue 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 are 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 is monitoring developments in Russia and Ukraine as well as financial and economic sanctions imposed by the U.S. and other countries. In March 2022, the Company suspended operations in Russia, including cessations of imports into Russia, sales to retailers in Russia and e-commerce activity in Russia. While the conflict has negatively impacted our results of operations for the three and nine months ended June 30, 2022, the Company's net sales and total assets in Russia represented less than 1% of our total consolidated net sales and total assets.
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 across North America and Europe changeoverchange 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 our Australia/ New Zealand business, which is counter seasonalcounter-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. A few examples are colder, wetter weather patterns during the key second and third fiscal quarters in North America and Europe, or drought conditions leading to wildfires similar to what Australia experienced in early Fiscal Year 2020.
Impact of COVID-19
Since the onset of the COVID-19 pandemic, we have focused on protecting our employees’ health and safety, meeting our customers’ needs as they navigate an uncertain financial and operating environment, working closely with our suppliers to protect our ongoing business operations and rapidly adjusting our short-, medium- and long-term operational plans to proactively and effectively respond to the current and potential future public health crises. While the COVID-19 pandemic presents seriouscontinues to present concerns for our business and operations, our employees and their families, our customers and our suppliers, we believe that we are adapting wellhave adapted to the wide-ranging changes that the global economy is currently undergoing. We remain confident in our business continuity strategy, our ability to produce and sell our products safely and in compliance with applicable laws and governmental orders and mandates, and our financial flexibility even in the event of a potentially extended economic downturn. For further discussion of the risks raised by the COVID-19 pandemic, see the section titled "Risk Factors" in our Annual Report on Form 10-K.
We are fully operational as we abide by local COVID-19 safety regulations across the world. To achieve this, we have many employees working remotely and have adopted significant protective measures for our employees on site, including staggered shifts, social distancing and hygiene best practices recommended by the United States Centers for Disease Control and Prevention (the “CDC”) and local public health officials. In addition, we have taken additional steps to monitor and strengthen our supply chain to maintain an uninterrupted supply of our products.
Although we have implemented measures to mitigate the impact of the COVID-19 pandemic on our business, these measures may not be fully effective. We cannot predict the degree to, or the period over, which we will be affected by the pandemic and resulting governmental and other measures. The economic effects of the COVID-19 pandemic could continue to affect demand for our products in the foreseeable future. As the COVID-19 pandemic continues, it may also have the effect of heightening many of the risks described in the section titled “Risk Factors” in our Annual Report on Form 10-K.
The severity, magnitude and duration of the current COVID-19 pandemic is uncertain and rapidly changing.uncertain. We continue to actively monitor the pandemic including, infection and hospitalization rates, vaccination efforts, and related governmental actions such as expanded or reduced stay-at home orders, mask mandates, shutdowns and social distancing guidelines. We will 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 during this period of volatility. 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.
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.
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, the U.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 in U.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar. Additionally, because our consolidated financial results are reported in U.S. dollars, the translation of sales or earnings generated in other currencies into U.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.
Items Impacting Comparability
Business Combinations
RMC Acquisition. April 1, 2021, the Company acquired all aspects of the operations of R McDonald Co. Pty. Ltd. (“RMC”), that supported the Company’s business units in Australia and New Zealand. This included certain fixed assets, members of the RMC workforce and their related employment liabilities and the reacquired right to sell and market the Company’s products. The primary purpose of the acquisition was to re-acquire those operational and marketing rights. The
acquisition was accounted for as a business combination, and RMC was acquired for approximately $26.3 million in cash and $14.6 million in equity.
June Acquisition. On January 12, 2021, the Company acquired all of the outstanding stock of June Life, Inc. (“June”), a smart appliance and technology company. The acquisition aligns with the Company’s strategy of revolutionizing the outdoor cooking experience through connected products, services and experiences that make grilling the perfect meal simple with our smartphone-enabled step-by-step cooking experience. Weber Connect, powered by June
OS, is our award-winning smart cooking software solution developed with June. The acquisition was accounted for as a business combination, and June was acquired for aggregate consideration of $142.2 million, including $108.3 million of cash.
Gain on Disposal of Assets Held for Sale
During Fiscal Year 2020, the Company determined that one of our manufacturing sites was considered to be assets held for sale, since the asset group was being marketed for sale and all the criteria to be classified as held for sale under Accounting Standards Codification ("ASC"(“ASC”) 360, Property, Plant and Equipment, had been met. The related buildings and its content were vacated and we no longer required these assets for our future operations. The carrying value of these assets was $8.3 million as of September 30, 2020. Assets held for sale are measured at the lower of their carrying value or the fair value less cost to sell. On December 30, 2020, we disposed of this manufacturing site, for net cash proceeds of $13.5 million, which resulted in a gain of $5.2 million.
Loss from Early Extinguishment of Debt
On October 30, 2020, the Company retired its existing senior credit facility and entered into a new credit facility (“Secured Credit Facility”) with a syndicate of financial institutions and investors. During the three months ended December 31, 2020, the Company recorded a $5.4 million loss from early extinguishment of debt, of which $4.1 million related to the term loan of the Company’s senior credit facility and $1.3 million related to revolving credit facility of the senior credit facility, representing a write-off of unamortized deferred financing costs.
Components of our Operating Results
We consider a variety of financial and operating measures in assessing the performance of our business. The key U.S. GAAP measures we use are net sales, gross profit, income (loss) from operations and net (loss) income.
Net Sales
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.
Reportable Segments
We operate and manage our business in three reportable segments: Americas, which consists of Canada, Chile, Mexico and the United States; the European, Middle East and African regions (“EMEA”); and the Asia-Pacific region (“APAC”), which includes Australia and New Zealand. 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 the U.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. All historic non-
GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures. The use of non-GAAP financial information should not be considered as an alternative to, or more meaningful than, the comparable U.S. GAAP measures. In addition, because our non-GAAP measures are not determined in accordance with U.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) income from operations, adjusted net (loss) income, EBITDA and Adjusted EBITDA.
Adjusted (Loss) Income from Operations and Adjusted Net (Loss) Income
Adjusted (loss) income from operations and adjusted net (loss) income is (loss) income from operations and net (loss) income adjusted for stock/unit-based compensation expense, business transformation costs, operational transformation costs, impairment costs, debt refinancingfinancing and IPO costs, COVID-19 costs and gain on disposal of assets held for sale, and, in the case of adjusted net (loss) income, loss from early extinguishment of debt, net of the tax impact of such adjustments. Adjusted (loss) income from operations is also adjusted for foreign currency (loss) gain. Adjusted (loss) income from operations excludes interest expense, net, income taxes, gain on Tax Receivable Agreement liability remeasurement, loss from early extinguishment of debt, interestother expense net, income taxes and loss (gain)gain from investments in unconsolidated affiliates.
We use adjusted (loss) income from operations and adjusted net (loss) income 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) income from operations and adjusted net (loss) income 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) income before interest expense, net, income taxes and depreciation and amortization.
Adjusted EBITDA is a key metric used by management and our Board of Directors 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 other U.S. GAAP measures. We use Adjusted EBITDA to supplement U.S. GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other companies using similar measures.
Adjusted EBITDA is defined as net (loss) income before interest expense, net, income taxes and depreciation and amortization, adjusted for stock/unit-based compensation expense, business transformation costs, operational transformation costs, debt refinancingfinancing and IPO costs, COVID-19 operational costs, gain on Tax Receivable Agreement liability remeasurement, loss from early extinguishment of debt, and gain on disposal of assets held for sale as shown below.and other expense. 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) income, cash flows from operations or cash flow data, all of which are prepared in accordance with U.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 with U.S. GAAP. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.
The following table reconciles (loss) income from operations to adjusted (loss) income from operations; net (loss) income to adjusted net (loss) income; net (loss) income to EBITDA; and EBITDA to Adjusted EBITDA for the periods presented:
| | | | | | | | | | | |
| Three Months Ended December 31, |
| 2021 | | 2020 |
| (dollars in thousands) |
| (Loss) income from operations | $ | (89,245) | | | $ | 22,870 | |
| Adjustments: | | | |
Foreign currency (loss) gain(1) | (164) | | | 3,507 | |
Stock/unit-based compensation expense(2) | 25,511 | | | 3,428 | |
Business transformation costs(3) | 7,410 | | | 871 | |
Operational transformation costs(4) | 6,648 | | | 991 | |
Debt refinancing and IPO costs(5) | — | | | 2,761 | |
COVID-19 costs(6) | — | | | 27 | |
| Gain on disposal of assets held for sale | — | | | (5,185) | |
| Adjusted (loss) income from operations | $ | (49,840) | | | $ | 29,270 | |
| Net (loss) income | $ | (74,553) | | | $ | 4,885 | |
| Adjustments: | | | |
Stock/unit-based compensation expense(2) | 25,511 | | | 3,428 | |
Business transformation costs(3) | 7,410 | | | 871 | |
Operational transformation costs(4) | 6,648 | | | 991 | |
Debt refinancing and IPO costs(5) | — | | | 2,761 | |
COVID-19 costs(6) | — | | | 27 | |
| Loss from early extinguishment of debt | — | | | 5,448 | |
| Gain on disposal of assets held for sale | — | | | (5,185) | |
| Tax impact of adjusting items | (11,458) | | | (214) | |
| Adjusted net (loss) income | $ | (46,442) | | | $ | 13,012 | |
| Net (loss) income | $ | (74,553) | | | $ | 4,885 | |
| Adjustments: | | | |
| Interest expense, net | 15,531 | | | 14,473 | |
| Income tax (benefit) expense | (30,387) | | | 166 | |
| Depreciation and amortization | 13,787 | | | 9,766 | |
| EBITDA | $ | (75,622) | | | $ | 29,290 | |
Stock/unit-based compensation expense(2) | 25,511 | | | 3,428 | |
Business transformation costs(3) | 7,410 | | | 871 | |
Operational transformation costs(4) | 6,648 | | | 991 | |
Debt refinancing and IPO costs(5) | — | | | 2,761 | |
COVID-19 costs(6) | — | | | 27 | |
| Loss from early extinguishment of debt | — | | | 5,448 | |
| Gain on disposal of assets held for sale | — | | | (5,185) | |
| Adjusted EBITDA | $ | (36,053) | | | $ | 37,631 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Nine Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (dollars in thousands) |
| (Loss) income from operations | $ | (25,003) | | | $ | 36,107 | | | $ | (76,835) | | | $ | 156,969 | |
| Adjustments: | | | | | | | |
Foreign currency (loss) gain(1) | (16,766) | | | 3,758 | | | (20,983) | | | 3,772 | |
Stock/unit-based compensation expense(2) | 17,340 | | | 61,714 | | | 65,041 | | | 94,193 | |
Business transformation costs(3) | 11,559 | | | 6,572 | | | 26,241 | | | 9,496 | |
Operational transformation costs(4) | 8,851 | | | 5,027 | | | 22,689 | | | 10,853 | |
Financing and IPO costs(5) | — | | | 8,954 | | | 877 | | | 12,660 | |
COVID-19 costs(6) | — | | | 68 | | | — | | | 548 | |
| Gain on disposal of assets held for sale | — | | | — | | | — | | | (5,185) | |
| Adjusted (loss) income from operations | $ | (4,019) | | | $ | 122,200 | | | $ | 17,030 | | | $ | 283,306 | |
| Net (loss) income | $ | (51,999) | | | $ | 17,825 | | | $ | (177,865) | | | $ | 91,620 | |
| Adjustments: | | | | | | | |
Stock/unit-based compensation expense(2) | 17,340 | | | 61,714 | | | 65,041 | | | 94,193 | |
Business transformation costs(3) | 11,559 | | | 6,572 | | | 26,241 | | | 9,496 | |
Operational transformation costs(4) | 8,851 | | | 5,027 | | | 22,689 | | | 10,853 | |
Financing and IPO costs(5) | — | | | 8,954 | | | 877 | | | 12,660 | |
COVID-19 costs(6) | — | | | 68 | | | — | | | 548 | |
| Gain on Tax Receivable Agreement liability remeasurement | (9,226) | | | — | | | (9,226) | | | — | |
| Loss from early extinguishment of debt | — | | | — | | | — | | | 5,448 | |
| Gain on disposal of assets held for sale | — | | | — | | | — | | | (5,185) | |
| Other expense | 68 | | | — | | | 502 | | | — | |
Tax impact of adjusting items(7) | 4,245 | | | (15,118) | | | (27,835) | | | (23,523) | |
| Adjusted net (loss) income | $ | (19,162) | | | $ | 85,042 | | | $ | (99,576) | | | $ | 196,110 | |
| Net (loss) income | $ | (51,999) | | | $ | 17,825 | | | $ | (177,865) | | | $ | 91,620 | |
| Adjustments: | | | | | | | |
| Interest expense, net | 19,267 | | | 18,031 | | | 51,813 | | | 49,780 | |
| Income tax expense | 121 | | | 4,009 | | | 36,958 | | | 19,398 | |
| Depreciation and amortization | 15,418 | | | 12,079 | | | 44,701 | | | 32,407 | |
| EBITDA | $ | (17,193) | | | $ | 51,944 | | | $ | (44,393) | | | $ | 193,205 | |
Stock/unit-based compensation expense(2) | 17,340 | | | 61,714 | | | 65,041 | | | 94,193 | |
Business transformation costs(3) | 11,559 | | | 6,572 | | | 26,241 | | | 9,496 | |
Operational transformation costs(4) | 8,851 | | | 5,027 | | | 22,689 | | | 10,853 | |
Financing and IPO costs(5) | — | | | 8,954 | | | 877 | | | 12,660 | |
COVID-19 costs(6) | — | | | 68 | | | — | | | 548 | |
| Gain on Tax Receivable Agreement liability remeasurement | (9,226) | | | — | | | (9,226) | | | — | |
| Loss from early extinguishment of debt | — | | | — | | | — | | | 5,448 | |
| Gain on disposal of assets held for sale | — | | | — | | | — | | | (5,185) | |
| Other expense | 68 | | | — | | | 502 | | | — | |
| Adjusted EBITDA | $ | 11,399 | | | $ | 134,279 | | | $ | 61,731 | | | $ | 321,218 | |
______________
(1)Adjusted (loss) income from operations includes foreign currency (loss) gain in order to align adjusted (loss) income from operations with Adjusted EBITDA, with the exception of depreciation and amortization and lossgain from investments in unconsolidated affiliates.
(2)See Note 11 to our condensed consolidated financial statements for further information.
(3)“Business transformation costs” are costs for business transformation initiatives that require severance or other costs to transition to a new operating model.
(4)“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.
(5)“Debt refinancingFinancing and IPO costs” are defined as certaininclude non-capitalizable costs from the refinancing ofrelating to the Company’s Secured Credit Facility, and the Company's IPO.IPO and other financing costs.
(6)During the threenine months ended December 31, 2020,June 30, 2021, the Company incurred costs related to the global COVID-19 pandemic. These costs primarily resulted from the impact of enhanced employee safety and social distancing protocols.
(7)“Tax impact of adjusting items” represents the Company's effective tax rate for the nine months ended June 30, 2022 applied to the adjusting items presented.
Results of Operations
Three Months Ended December 31, 2021June 30, 2022 Compared to the Three Months Ended December 31, 2020June 30, 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 December 31, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) | | % of Net Sales |
| 2021 | | 2020 | | | | 2021 | | 2020 |
| (dollars in thousands) | | | | | | |
| Net sales | $ | 283,141 | | | $ | 308,878 | | | $ | (25,737) | | | (8 | %) | | 100 | % | | 100 | % |
Cost of goods sold(1)(2) | 219,128 | | | 174,073 | | | 45,055 | | | 26 | % | | 77 | % | | 56 | % |
| Gross profit | 64,013 | | | 134,805 | | | (70,792) | | | (53 | %) | | 23 | % | | 44 | % |
| Operating expenses: | | | | | | | | | | | |
Selling, general and administrative(1)(2) | 148,084 | | | 114,103 | | | 33,981 | | | 30 | % | | 52 | % | | 37 | % |
| Amortization of intangible assets | 5,174 | | | 3,017 | | | 2,157 | | | 71 | % | | 2 | % | | 1 | % |
Gain on disposal of assets held for sale(3) | — | | | (5,185) | | | 5,185 | | | (100 | %) | | — | % | | (2 | %) |
| (Loss) income from operations | (89,245) | | | 22,870 | | | (112,115) | | | (64 | %) | | (32 | %) | | 7 | % |
| Foreign currency loss (gain) | 164 | | | (3,507) | | | 3,671 | | | (105 | %) | | — | % | | (1 | %) |
| Interest income | (230) | | | (179) | | | (51) | | | 28 | % | | — | % | | — | % |
| Interest expense | 15,761 | | | 14,652 | | | 1,109 | | | 8 | % | | 6 | % | | 5 | % |
Loss from early extinguishment of debt(3) | — | | | 5,448 | | | (5,448) | | | (100 | %) | | — | % | | 2 | % |
| (Loss) income before taxes | (104,940) | | | 6,456 | | | (111,396) | | | (1725 | %) | | (37 | %) | | 2 | % |
| Income tax (benefit) expense | (30,387) | | | 166 | | | (30,553) | | | (18405 | %) | | (11 | %) | | — | % |
| Loss from investments in unconsolidated affiliates | — | | | 1,405 | | | (1,405) | | | (100 | %) | | — | % | | — | % |
| Net (loss) income | $ | (74,553) | | | $ | 4,885 | | | $ | (79,438) | | | (1626 | %) | | (26 | %) | | 2 | % |
Adjusted (loss) income from operations(4) | $ | (49,840) | | | $ | 29,270 | | | $ | (79,110) | | | (270 | %) | | (18 | %) | | 9 | % |
Adjusted net (loss) income(4) | $ | (46,442) | | | $ | 13,012 | | | $ | (59,454) | | | (457 | %) | | (16 | %) | | 4 | % |
EBITDA(4) | $ | (75,622) | | | $ | 29,290 | | | $ | (104,912) | | | (358 | %) | | (27 | %) | | 9 | % |
Adjusted EBITDA(4) | $ | (36,053) | | | $ | 37,631 | | | $ | (73,684) | | | (196 | %) | | (13 | %) | | 12 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) | | % of Net Sales |
| 2022 | | 2021 | | | | 2022 | | 2021 |
| (dollars in thousands) | | | | | | |
| Net sales | $ | 527,936 | | | $ | 668,867 | | | $ | (140,931) | | | (21 | %) | | 100 | % | | 100 | % |
Cost of goods sold(1)(2) | 374,291 | | | 369,776 | | | 4,515 | | | 1 | % | | 71 | % | | 55 | % |
| Gross profit | 153,645 | | | 299,091 | | | (145,446) | | | (49 | %) | | 29 | % | | 45 | % |
| Operating expenses: | | | | | | | | | | | |
Selling, general and administrative(1)(2) | 173,494 | | | 257,758 | | | (84,264) | | | (33 | %) | | 33 | % | | 39 | % |
| Amortization of intangible assets | 5,154 | | | 5,226 | | | (72) | | | (1 | %) | | 1 | % | | 1 | % |
| (Loss) income from operations | (25,003) | | | 36,107 | | | (61,110) | | | (64 | %) | | (5 | %) | | 5 | % |
| Foreign currency loss (gain) | 16,766 | | | (3,758) | | | 20,524 | | | (546 | %) | | 3 | % | | (1 | %) |
| Interest expense, net | 19,267 | | | 18,031 | | | 1,236 | | | 7 | % | | 4 | % | | 3 | % |
| Gain on Tax Receivable Agreement liability remeasurement | (9,226) | | | — | | | (9,226) | | | 100 | % | | (2 | %) | | — | % |
| Other expense | 68 | | | — | | | 68 | | | 100% | | — | % | | — | % |
| (Loss) income before taxes | (51,878) | | | 21,834 | | | (73,712) | | | (338 | %) | | (10 | %) | | 3 | % |
| Income tax expense | 121 | | | 4,009 | | | (3,888) | | | (97 | %) | | — | % | | 1 | % |
| | | | | | | | | | | |
| Net (loss) income | $ | (51,999) | | | $ | 17,825 | | | $ | (69,824) | | | (392 | %) | | (10 | %) | | 3 | % |
Adjusted (loss) income from operations(3) | $ | (4,019) | | | $ | 122,200 | | | $ | (126,219) | | | (103 | %) | | (1 | %) | | 18 | % |
Adjusted net (loss) income(3) | $ | (19,162) | | | $ | 85,042 | | | $ | (104,204) | | | (123 | %) | | (4 | %) | | 13 | % |
EBITDA(3) | $ | (17,193) | | | $ | 51,944 | | | $ | (69,137) | | | (133 | %) | | (3 | %) | | 8 | % |
Adjusted EBITDA(3) | $ | 11,399 | | | $ | 134,279 | | | $ | (122,880) | | | (92 | %) | | 2 | % | | 20 | % |
______________
(1)Amounts include stock/unit-based compensation expense as follows:
| | | Three Months Ended December 31, | | Three Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Cost of goods sold | Cost of goods sold | $ | 1,182 | | | $ | 121 | | Cost of goods sold | $ | 1,038 | | | $ | 504 | |
| Selling, general and administrative | Selling, general and administrative | 24,329 | | | 3,307 | | Selling, general and administrative | 16,302 | | | 61,210 | |
| Total stock/unit-based compensation expense | Total stock/unit-based compensation expense | $ | 25,511 | | | $ | 3,428 | | Total stock/unit-based compensation expense | $ | 17,340 | | | $ | 61,714 | |
(2)Amount includes depreciation expense as follows: | | | | | | | | | | | |
| Three Months Ended December 31, |
| 2021 | | 2020 |
| (dollars in thousands) |
| Cost of goods sold | $ | 4,935 | | | $ | 3,252 | |
| Selling, general and administrative | 3,678 | | | 3,497 | |
| Total depreciation expense | $ | 8,613 | | | $ | 6,749 | |
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
| (dollars in thousands) |
| Cost of goods sold | $ | 5,411 | | | $ | 3,354 | |
| Selling, general and administrative | 4,853 | | | 3,499 | |
| Total depreciation expense | $ | 10,264 | | | $ | 6,853 | |
(3)See the section titled “Key Factors Affecting Our Results of Operations—Items Impacting Comparability.”
(4)See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.”
Net Sales. Net sales for the three months ended December 31, 2021June 30, 2022 decreased by $25.7$140.9 million, or 8%21%, to $283.1$527.9 million from $308.9$668.9 million during the three months ended December 31, 2020.June 30, 2021. The decrease was primarily attributable to a returnlower grill revenues as consumer sales, both in-store and online, slowed due to normalized seasonality patternsthe macroeconomic factors described in the Americas, wherebysection titled “Economic Conditions”, in comparison to the Company typically recognizes lower saleshigh demand realized during its firstthe same period last year. In turn, re-stock orders from our customers declined during the current quarter period, which along with the second fiscal quarter, following exceptional retailer demand during the three months ended December 31, 2020. Additionally, product availabilitytypically reflects our highest level of sales. The decrease in the Americas and EMEAsales volume was adversely impactedpartially offset by extended inventory transit times resulting from global supply chain disruptions.certain pricing actions. Fluctuation in foreign exchange rates also decreasedunfavorably impacted net sales by $2.0$32.9 million, particularly the Euro and Australian Dollar as compared to the U.S. dollar. Net sales for the three months ended December 31, 2021June 30, 2022 decreased in the Americas by 13%19%, in EMEA by 4%,24% and were flat in APAC by 5% as compared to the three months ended December 31, 2020.June 30, 2021.
Cost of Goods Sold. Cost of goods sold for the three months ended December 31, 2021June 30, 2022 increased by $45.1$4.5 million, or 26%1%, to $219.1$374.3 million from $174.1$369.8 million during the three months ended December 31, 2020.June 30, 2021. The increase was primarily due to higher inbound freight costs of $29.1$17.1 million and higher commodity costs of $25.6$66.3 million, which were partiallymostly offset by lower sales volumes.
Gross Profit and Gross Margin. Gross profit for the three months ended December 31, 2021June 30, 2022 decreased by $70.8$145.4 million, or 53%49%, to $64.0$153.6 million from $134.8$299.1 million during the three months ended December 31, 2020.June 30, 2021. Gross margin decreased by 2,1001,561 basis points to 23%29% during the three months ended December 31, 2021June 30, 2022 compared to the three months ended December 31, 2020.June 30, 2021. The decrease in gross profit and gross margin was primarily due to higher inbound freight costs and higher commodity costs, and lower sales volumes.partially offset by pricing actions in all regions.
Selling, General and Administrative. Selling, general and administrative costs for the three months ended December 31, 2021 increasedJune 30, 2022 decreased by $34.0$84.3 million, or 30%33%, to $148.1$173.5 million from $114.1$257.8 million during the three months ended December 31, 2020.June 30, 2021. Selling, general and administrative costs as a percent of net sales increaseddecreased by 1,540567 basis points to 52%33% during the three months ended December 31, 2021June 30, 2022 compared to the three months ended December 31, 2020.June 30, 2021. The increasedecrease in selling, general and administrative costs was primarily driven by higherreductions in advertising and corporate marketing expense of $28.0 million, lower incentive compensation expense of $8.6 million and lower stock/unit-based compensation expense of $21.0$44.9 million, higher business and operational transformation costs of $9.1 million, and additional costs resulting fromwhich is primarily due to fewer unvested profits interest awards in the June acquisition of $5.1 million.current year period.
Amortization of Intangible Assets. Amortization of intangible assets for the three months ended December 31, 2021 increased by $2.2 million, or 71%, to $5.2 million from $3.0 million for the three months ended December 31, 2020. The increase in amortization of intangible assetsJune 30, 2022 was primarily driven by the amortization of intangible assets relatedessentially flat as compared to the June and RMC acquisitions.prior year period.
Foreign Currency Loss (Gain). The impact of foreign exchange resulted in a loss of $0.2$16.8 million for the three months ended December 31, 2021June 30, 2022 relative to a gain of $3.5$3.8 million for the three months ended December 31, 2020June 30, 2021 due to the
foreign exchange rate impacts on transactions with Weber affiliates conducted in foreign currencies other than the US dollar.
Interest Income. Interest income for The loss in the three months ended December 31, 2021 was essentially flat as comparedcurrent year period primarily relates to the previous year period.Euro-denominated transactions.
Interest Expense.Expense, Net. Interest expense, net increased by $1.1$1.2 million, or 8%7%, for the three months ended December 31, 2021June 30, 2022 compared to the three months ended December 31, 2020,June 30, 2021, primarily due to the commencement of the Secured Credit FacilityIncremental Term Loan in October 2020.March 2022.
Gain on Tax Receivable Agreement Liability Remeasurement. The Gain on Tax Receivable Agreement liability remeasurement of $9.2 million for the three months ended June 30, 2022 resulted from remeasuring the Tax Receivable Agreement liability to zero at June 30, 2022.
Other Expense. Other expense of $0.1 million for the three months ended June 30, 2022 represents the Company's loss on sale of receivables under the Receivables Purchase Agreement.
Income Taxes. Income taxes decreased by $30.6$3.9 million for the three months ended December 31, 2021June 30, 2022 compared to the three months ended December 31, 2020.June 30, 2021. Subsequent to its IPO, the Company is structured as a C Corporation, and theCorporation. The current year period reflects an income tax benefitexpense of $30.4$0.1 million as a result of the estimated annual effective tax rate, including the impact of discrete items, applicable to the net loss recognized for the quarter. In the prior year period, the Company, through its subsidiary, Weber-Stephen Products LLC, was structured as a partnership and therefore, was subject to certain LLC entity-level taxes and foreign taxes but generally not subject to U.S. federal income taxes.
Loss from Investments in Unconsolidated Affiliates. No gain or loss from investments in unconsolidated affiliates was recorded for the three months ended December 31, 2021 as the Company completed its acquisition of June in January 2021. The three months ended December 31, 2020 reflect a loss from investments in unconsolidated affiliates of $1.4 million as a result of Weber recording its share of June’s losses.
Net (Loss) Income. Net (loss) income decreased by $79.4$69.8 million to a net loss of $74.6$52.0 million for the three months ended December 31, 2021June 30, 2022 from net income of $4.9$17.8 million for the three months ended December 31, 2020. TheJune 30, 2021. This decrease was primarily due to $70.8 million of lower gross profit of $145.4 million, which was driven by lower net sales of $25.7$140.9 million and higher costs of goods sold of $45.1$4.5 million. Additionally, foreign currency loss was unfavorable by $20.5 million and higheras compared to the three months ended June 30, 2021. These impacts were partially offset by a decrease in selling, general and administrative costs of $34.0$84.3 million, relating to higher stock/unit-based compensation expensea Gain on Tax Receivable Agreement liability remeasurement of $9.2 million and transformation initiatives. This was partially offset by a decrease inlower income taxes of $30.6$3.9 million as compared to the prior year period.
Segment Information
Net sales by reportable segment is summarized as follows:
| | | Three Months Ended December 31, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) | | Three Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
| | (dollars in thousands) | | | | (dollars in thousands) | | |
| Americas | Americas | $ | 156,494 | | | $ | 179,290 | | | $ | (22,796) | | | (13 | %) | Americas | $ | 273,571 | | | $ | 339,441 | | | $ | (65,870) | | | (19 | %) |
| EMEA | EMEA | 62,985 | | | 65,817 | | | (2,832) | | | (4 | %) | EMEA | 232,805 | | | 306,668 | | | (73,863) | | | (24 | %) |
| APAC | APAC | 63,662 | | | 63,771 | | | (109) | | | — | % | APAC | 21,560 | | | 22,758 | | | (1,198) | | | (5 | %) |
| Total net sales | Total net sales | $ | 283,141 | | | $ | 308,878 | | | $ | (25,737) | | | (8 | %) | Total net sales | $ | 527,936 | | | $ | 668,867 | | | $ | (140,931) | | | (21 | %) |
Adjusted income (loss) from operations by reportable segment is summarized as follows:
| | | Three Months Ended December 31, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) | | Three Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
| | (dollars in thousands) | | | | (dollars in thousands) | | |
| Americas | Americas | $ | 23,286 | | | $ | 34,895 | | | $ | (11,609) | | | (33 | %) | Americas | $ | 11,753 | | | $ | 61,206 | | | $ | (49,453) | | | (81 | %) |
| EMEA | EMEA | 10,269 | | | 8,350 | | | 1,919 | | | 23 | % | EMEA | 41,248 | | | 108,380 | | | (67,132) | | | (62 | %) |
| APAC | APAC | 19,347 | | | 19,578 | | | (231) | | | (1 | %) | APAC | (3,483) | | | 1,989 | | | (5,472) | | | (275 | %) |
| Total adjusted income from operations | Total adjusted income from operations | $ | 52,902 | | | $ | 62,823 | | | $ | (9,921) | | | (16 | %) | Total adjusted income from operations | $ | 49,518 | | | $ | 171,575 | | | $ | (122,057) | | | (71 | %) |
The following table reconciles segment adjusted income from operations to (loss) income from operations for the periods presented: | | | Three Months Ended December 31, | | Three Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
| | (dollars in thousands) | | (dollars in thousands) |
| Segment adjusted income from operations | Segment adjusted income from operations | | Segment adjusted income from operations | |
| Americas | Americas | $ | 23,286 | | | $ | 34,895 | | Americas | $ | 11,753 | | | $ | 61,206 | |
| EMEA | EMEA | 10,269 | | | 8,350 | | EMEA | 41,248 | | | 108,380 | |
| APAC | APAC | 19,347 | | | 19,578 | | APAC | (3,483) | | | 1,989 | |
| Segment adjusted income from operations for reportable segments | Segment adjusted income from operations for reportable segments | 52,902 | | | 62,823 | | Segment adjusted income from operations for reportable segments | 49,518 | | | 171,575 | |
Corporate and supply chain costs | Corporate and supply chain costs | (102,742) | | | (33,553) | | Corporate and supply chain costs | (53,537) | | | (49,375) | |
Foreign currency loss (gain)(1)(2) | Foreign currency loss (gain)(1)(2) | 164 | | | (3,507) | | Foreign currency loss (gain)(1)(2) | 16,766 | | | (3,758) | |
Stock/unit-based compensation expense(1)(2) | Stock/unit-based compensation expense(1)(2) | (25,511) | | | (3,428) | | Stock/unit-based compensation expense(1)(2) | (17,340) | | | (61,714) | |
Business transformation costs(1)(2) | Business transformation costs(1)(2) | (7,410) | | | (871) | | Business transformation costs(1)(2) | (11,559) | | | (6,572) | |
Operational transformation costs(1)(2) | Operational transformation costs(1)(2) | (6,648) | | | (991) | | Operational transformation costs(1)(2) | (8,851) | | | (5,027) | |
Debt refinancing and IPO costs(1) | — | | | (2,761) | | |
Financing and IPO costs(2) | | Financing and IPO costs(2) | — | | | (8,954) | |
COVID-19 costs(1)(2) | COVID-19 costs(1)(2) | — | | | (27) | | COVID-19 costs(1)(2) | — | | | (68) | |
Gain on disposal of assets held for sale(1) | — | | | 5,185 | | |
| (Loss) income from operations | (Loss) income from operations | $ | (89,245) | | | $ | 22,870 | | (Loss) income from operations | $ | (25,003) | | | $ | 36,107 | |
______________
(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) income from operations” for descriptions of reconciling items from (loss) income from operations to adjusted (loss) income from operations.
Americas
The following table summarizes certain financial information relating to the Americas segment results that have been derived from our condensed consolidated financial statements:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| 2022 | | 2021 | | |
| (dollars in thousands) | | |
| Total segment net sales | $ | 273,571 | | | $ | 339,441 | | | $ | (65,870) | | | (19 | %) |
| Segment adjusted income from operations | $ | 11,753 | | | $ | 61,206 | | | $ | (49,453) | | | (81 | %) |
Total Segment Net Sales. Total segment net sales for the three months ended June 30, 2022 decreased by $65.9 million, or 19%, to $273.6 million from $339.4 million during the three months ended June 30, 2021. The decrease was attributable to lower revenues in the U.S. and Canada as consumer traffic, both in-store and online, slowed due to the macroeconomic factors described in the section titled “Economic Conditions”, in comparison to the high demand realized during the same period last year as well as increased promotional activities. These decreases were partially offset by pricing actions. Unfavorable foreign exchange rates reduced net sales by $1.5 million, primarily driven by the Canadian dollar as compared to the U.S. dollar.
Segment Adjusted Income from Operations. Segment adjusted income from operations for the three months ended June 30, 2022 decreased by $49.5 million, or 81%, to $11.8 million from $61.2 million during the three months ended June 30, 2021. The decrease was attributable to lower sales volumes, higher inbound freight costs and increased product material costs and was partially offset by pricing actions, lower advertising spend and reduced incentive compensation expense
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 June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| 2022 | | 2021 | | |
| (dollars in thousands) | | |
| Total segment net sales | $ | 232,805 | | | $ | 306,668 | | | $ | (73,863) | | | (24 | %) |
| Segment adjusted income from operations | $ | 41,248 | | | $ | 108,380 | | | $ | (67,132) | | | (62 | %) |
Total Segment Net Sales. Total segment net sales for the three months ended June 30, 2022 decreased by $73.9 million, or 24%, to $232.8 million from $306.7 million during the three months ended June 30, 2021. The decrease was attributable to slowed consumer purchases across most of the region as well as unfavorable impacts of foreign exchange rates, which reduced net sales by $29.8 million. Excluding the $29.8 million unfavorable impact of foreign exchange rates, EMEA net sales for the three months ended June 30, 2022 decreased by 14%, as compared to the three months ended June 30, 2021.
Segment Adjusted Income from Operations. Segment adjusted income from operations for the three months ended June 30, 2022 decreased by $67.1 million, or 62%, to $41.2 million from $108.4 million during the three months ended June 30, 2021. This decrease was primarily attributable to lower sales, higher inbound freight and increased product material costs, partially offset by pricing actions, lower advertising costs and reduced incentive compensation expense.
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 June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| 2022 | | 2021 | | |
| (dollars in thousands) | | |
| Total segment net sales | $ | 21,560 | | | $ | 22,758 | | | $ | (1,198) | | | (5 | %) |
| Segment adjusted (loss) income from operations | $ | (3,483) | | | $ | 1,989 | | | $ | (5,472) | | | (275 | %) |
Total Segment Net Sales. Total segment net sales for the three months ended June 30, 2022 decreased by $1.2 million, or 5%, to $21.6 million from $22.8 million during the three months ended June 30, 2021. The decrease was primarily attributable to unfavorable foreign exchange rates, specifically the Australian dollar as compared to the U.S. dollar, which reduced net sales by $1.6 million. Excluding the $1.6 million unfavorable impact of foreign exchange rates, APAC net sales for the three months ended June 30, 2022 increased by 2% as compared to the three months ended June 30, 2021. This increase was driven by higher sales in most APAC markets, with the exception of Australia where the effects of severe flooding during February and March continued to adversely affect product availability at key retailers.
Segment Adjusted (Loss) Income from Operations. Segment adjusted (loss) income from operations for the three months ended June 30, 2022 decreased by $5.5 million, or 275%, to a loss of $3.5 million from income of $2.0 million during the three months ended June 30, 2021. This decrease is primarily attributable to lower sales in Australia, elevated customer freight and distribution rates and higher inbound freight and product material costs.
Nine Months Ended June 30, 2022 Compared to the Nine Months Ended June 30, 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) | | % of Net Sales |
| 2022 | | 2021 | | | | 2022 | | 2021 |
| (dollars in thousands) | | | | | | |
| Net sales | $ | 1,418,371 | | | $ | 1,632,176 | | | $ | (213,805) | | | (13 | %) | | 100 | % | | 100 | % |
Cost of goods sold(1)(2) | 992,196 | | | 912,558 | | | 79,638 | | | 9 | % | | 70 | % | | 56 | % |
| Gross profit | 426,175 | | | 719,618 | | | (293,443) | | | (41 | %) | | 30 | % | | 44 | % |
| Operating expenses: | | | | | | | | | | | |
Selling, general and administrative(1)(2) | 487,515 | | | 555,744 | | | (68,229) | | | (12 | %) | | 34 | % | | 34 | % |
| Amortization of intangible assets | 15,495 | | | 12,090 | | | 3,405 | | | 28 | % | | 1 | % | | 1 | % |
Gain on disposal of assets held for sale(3) | — | | | (5,185) | | | 5,185 | | | (100 | %) | | — | % | | — | % |
| (Loss) income from operations | (76,835) | | | 156,969 | | | (233,804) | | | (64 | %) | | (5 | %) | | 10 | % |
| Foreign currency loss (gain) | 20,983 | | | (3,772) | | | 24,755 | | | (656 | %) | | 1 | % | | — | % |
| Interest expense, net | 51,813 | | | 49,780 | | | 2,033 | | | 4 | % | | 4 | % | | 3 | % |
Loss from early extinguishment of debt(3) | — | | | 5,448 | | | (5,448) | | | (100 | %) | | — | % | | — | % |
| Gain on Tax Receivable Agreement liability remeasurement | (9,226) | | | — | | | (9,226) | | | 100 | % | | (1 | %) | | — | % |
| Other expense | 502 | | | — | | | 502 | | | 100% | | — | % | | — | % |
| (Loss) income before taxes | (140,907) | | | 105,513 | | | (246,420) | | | (234 | %) | | (10 | %) | | 6 | % |
| Income tax expense | 36,958 | | | 19,398 | | | 17,560 | | | 91 | % | | 3 | % | | 1 | % |
| Gain from investments in unconsolidated affiliates | — | | | (5,505) | | | 5,505 | | | (100 | %) | | — | % | | — | % |
| Net (loss) income | $ | (177,865) | | | $ | 91,620 | | | $ | (269,485) | | | (294 | %) | | (13 | %) | | 6 | % |
Adjusted income from operations(4) | $ | 17,030 | | | $ | 283,306 | | | $ | (266,276) | | | (94 | %) | | 1 | % | | 17 | % |
Adjusted net (loss) income(4) | $ | (99,576) | | | $ | 196,110 | | | $ | (295,686) | | | (151 | %) | | (7 | %) | | 12 | % |
EBITDA(4) | $ | (44,393) | | | $ | 193,205 | | | $ | (237,598) | | | (123 | %) | | (3 | %) | | 12 | % |
Adjusted EBITDA(4) | $ | 61,731 | | | $ | 321,218 | | | $ | (259,487) | | | (81 | %) | | 4 | % | | 20 | % |
______________
(1)Amounts include stock/unit-based compensation expense as follows:
| | | | | | | | | | | |
| Nine Months Ended June 30, |
| 2022 | | 2021 |
| (dollars in thousands) |
| Cost of goods sold | $ | 3,263 | | | $ | 783 | |
| Selling, general and administrative | 61,778 | | | 93,410 | |
| Total stock/unit-based compensation expense | $ | 65,041 | | | $ | 94,193 | |
(2)Amount includes depreciation expense as follows:
| | | | | | | | | | | |
| Nine Months Ended June 30, |
| 2022 | | 2021 |
| (dollars in thousands) |
| Cost of goods sold | $ | 15,629 | | | $ | 9,810 | |
| Selling, general and administrative | 13,577 | | | 10,507 | |
| Total depreciation expense | $ | 29,206 | | | $ | 20,317 | |
(3)See the section titled “Key Factors Affecting Our Results of Operations—Items Impacting Comparability.”
(4)See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.”
Net Sales. Net sales for the nine months ended June 30, 2022 decreased by $213.8 million, or 13%, to $1,418.4 million from $1,632.2 million during the nine months ended June 30, 2021. The decrease was attributable to lower grill revenues as consumer traffic, both in-store and online, slowed due to the macroeconomic factors described in the section titled “Economic Conditions”, in comparison to the high demand realized during the same period last year. Net sales were also adversely impacted during the first half of fiscal year 2022 by certain product availability resulting from global supply chain disruptions. These decreases in sales volume were partially offset by certain pricing actions. Fluctuation in foreign exchange rates also decreased net sales by $54.8 million, particularly the Euro as compared to the U.S. dollar. Net sales for the nine months ended June 30, 2022 decreased in the Americas by 17%, EMEA by 9% and in APAC by 3%, as compared to the nine months ended June 30, 2021.
Cost of Goods Sold. Cost of goods sold for the nine months ended June 30, 2022 increased by $79.6 million, or 9%, to $992.2 million from $912.6 million during the nine months ended June 30, 2021. The increase was primarily due to higher inbound freight costs of $83.1 million and higher commodity costs of $151.0 million, which were partially offset by lower sales volumes.
Gross Profit and Gross Margin. Gross profit for the nine months ended June 30, 2022 decreased by $293.4 million, or 41%, to $426.2 million from $719.6 million during the nine months ended June 30, 2021. Gross margin decreased by 1,404 basis points to 30% during the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021. The decrease in gross profit and gross margin was primarily due to higher inbound freight costs, higher commodity costs and lower sales volumes.
Selling, General and Administrative. Selling, general and administrative costs for the nine months ended June 30, 2022 decreased by $68.2 million, or 12%, to $487.5 million from $555.7 million during the nine months ended June 30, 2021. The decrease in selling, general and administrative costs was primarily driven by reductions in advertising and corporate marketing expense of $29.9 million, lower incentive compensation expense of $26.8 million and lower stock/unit-based compensation expense of $31.6 million, which is primarily due to fewer unvested profits interest awards in the current year period. These impacts were partially offset by higher research and development costs to support future innovation of $15.6 million and increased distribution costs of $9.5 million.
Amortization of Intangible Assets. Amortization of intangible assets for the nine months ended June 30, 2022 increased by $3.4 million, or 28%, to $15.5 million from $12.1 million for the nine months ended June 30, 2021. The increase in amortization of intangible assets was primarily driven by the amortization of intangible assets related to the June and RMC acquisitions.
Foreign Currency Loss (Gain). The impact of foreign exchange resulted in a loss of $21.0 million for the nine months ended June 30, 2022 relative to a gain of $3.8 million for the nine months ended June 30, 2021 due to the foreign exchange rate impacts on transactions with Weber affiliates conducted in foreign currencies other than the U.S. dollar. The loss in the current year period primarily relates to Euro-denominated transactions.
Interest Expense, Net. Interest expense, net increased by $2.0 million, or 4%, for the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021, primarily due to higher volume of borrowings under the Revolving Loan during the current year period as well as the commencement of the Incremental Term Loan in March 2022.
Gain on Tax Receivable Agreement Liability Remeasurement. The Gain on Tax Receivable Agreement liability remeasurement of $9.2 million for the nine months ended June 30, 2022 resulted from remeasuring the Tax Receivable Agreement liability to zero at June 30, 2022.
Other Expense. Other expense of $0.5 million for the nine months ended June 30, 2022 represents the Company's loss on sale of receivables under the Receivables Purchase Agreement.
Income Taxes. Income taxes increased by $17.6 million for the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021. Subsequent to its IPO, the Company is structured as a C Corporation. The current year period reflects income tax expense of $37.0 million as a result of the estimated annual effective tax rate, including the impact of discrete items, applicable to the net loss recognized for the nine months ended June 30, 2022. In the prior year period, the Company, through its subsidiary, Weber-Stephen Products LLC, was structured as a partnership and therefore, was subject to certain LLC entity-level taxes and foreign taxes but generally not subject to U.S. federal income taxes.
Gain from Investments in Unconsolidated Affiliates. No gain or loss from investments in unconsolidated affiliates was recorded for the nine months ended June 30, 2022 as the Company completed its acquisition of June in January 2021. The nine months ended June 30, 2021 reflect a gain from investments in unconsolidated affiliates of $5.5 million, which resulted from a $6.9 million gain from the remeasurement of the existing equity interest in June to fair value at the time of
acquisition, offset by a $1.4 million loss recorded for Weber’s share of June’s losses in the first quarter of Fiscal Year 2021.
Net (Loss) Income. Net (loss) income decreased by $269.5 million to a net loss of $177.9 million for the nine months ended June 30, 2022 from net income of $91.6 million for the nine months ended June 30, 2021. This was primarily due to $293.4 million of lower gross profit, driven by lower net sales of $213.8 million and higher costs of goods sold of $79.6 million, and higher income tax expense of $17.6 million as compared to the prior year period. Additionally, foreign currency loss was unfavorable by $24.8 million as compared to the nine months ended June 30, 2021. These impacts were partially offset by lower lower selling, general and administrative costs of $68.2 million and a Gain on Tax Receivable Agreement liability remeasurement of $9.2 million.
Segment Information
Net sales by reportable segment is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| 2022 | | 2021 | | |
| (dollars in thousands) | | |
| Americas | $ | 735,712 | | | $ | 891,649 | | | $ | (155,937) | | | (17 | %) |
| EMEA | 563,675 | | | 617,995 | | | (54,320) | | | (9 | %) |
| APAC | 118,984 | | | 122,532 | | | (3,548) | | | (3 | %) |
| Total net sales | $ | 1,418,371 | | | $ | 1,632,176 | | | $ | (213,805) | | | (13 | %) |
Adjusted income from operations by reportable segment is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| 2022 | | 2021 | | |
| (dollars in thousands) | | |
| Americas | $ | 62,904 | | | $ | 178,246 | | | $ | (115,342) | | | (65 | %) |
| EMEA | 129,686 | | | 206,516 | | | (76,830) | | | (37 | %) |
| APAC | 19,880 | | | 28,963 | | | (9,083) | | | (31 | %) |
| Total adjusted income from operations | $ | 212,470 | | | $ | 413,725 | | | $ | (201,255) | | | (49 | %) |
The following table reconciles segment adjusted income from operations to (loss) income from operations for the periods presented: | | | | | | | | | | | |
| Nine Months Ended June 30, |
| 2022 | | 2021 |
| (dollars in thousands) |
| Segment adjusted income from operations | | | |
| Americas | $ | 62,904 | | | $ | 178,246 | |
| EMEA | 129,686 | | | 206,516 | |
| APAC | 19,880 | | | 28,963 | |
| Segment adjusted income from operations for reportable segments | 212,470 | | | 413,725 | |
Corporate and supply chain costs(1) | (195,440) | | | (130,419) | |
Foreign currency loss (gain)(2) | 20,983 | | | (3,772) | |
Stock/unit-based compensation expense(2) | (65,041) | | | (94,193) | |
Business transformation costs(2) | (26,241) | | | (9,496) | |
Operational transformation costs(2) | (22,689) | | | (10,853) | |
Financing and IPO costs(2) | (877) | | | (12,660) | |
COVID-19 costs(2) | — | | | (548) | |
Gain on disposal of assets held for sale(2) | — | | | 5,185 | |
| (Loss) income from operations | $ | (76,835) | | | $ | 156,969 | |
______________
(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 income from operations” for descriptions of reconciling items from (loss) income from operations to adjusted income from operations.
Americas
The following table summarizes certain financial information relating to the Americas segment results that have been derived from our condensed consolidated financial statements:
| | | Three Months Ended December 31, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) | | Nine Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
| | (dollars in thousands) | | | | (dollars in thousands) | | |
| Total segment net sales | Total segment net sales | $ | 156,494 | | | $ | 179,290 | | | $ | (22,796) | | | (13 | %) | Total segment net sales | $ | 735,712 | | | $ | 891,649 | | | $ | (155,937) | | | (17 | %) |
| Segment adjusted income from operations | Segment adjusted income from operations | $ | 23,286 | | | $ | 34,895 | | | $ | (11,609) | | | (33 | %) | Segment adjusted income from operations | $ | 62,904 | | | $ | 178,246 | | | $ | (115,342) | | | (65 | %) |
Total Segment Net Sales. Total segment net sales for the threenine months ended December 31, 2021June 30, 2022 decreased by $22.8$155.9 million, or 13%17%, to $156.5$735.7 million from $179.3$891.6 million during the threenine months ended December 31, 2020.June 30, 2021. The decrease was primarily attributable to a returnlower grill revenues in the U.S. and Canada as consumer traffic, both in-store and online, slowed due to normalized seasonality patterns following exceptional early seasonthe macroeconomic factors described in the section titled “Economic Conditions”, in comparison to the high demand in Fiscal Year 2021.realized during the same period last year. Additionally, certain product availability was adversely impacted by extended inventory transit times resulting from global supply chain disruptions. Foreigndisruptions and the startup of new production lines. These decreases were partially offset by pricing actions. Unfavorable foreign exchange rates trended favorably, contributing an additional $0.2 million ofreduced net sales for the three months ended December 31, 2021,by $1.5 million, primarily driven by the Canadian dollar as compared to the U.S. dollar.
Segment Adjusted Income from Operations. Segment adjusted income from operations for the threenine months ended December 31, 2021June 30, 2022 decreased by $11.6$115.3 million, or 33%65%, to $23.3$62.9 million from $34.9$178.2 million during the threenine months ended December 31, 2020.June 30, 2021. The decrease was attributed to lower sales volumes in the U.S., higher inbound freight costs and increased product material costs, which was partially offset by pricing actions, and lower advertising costs. The three months ended December 31, 2021 also reflects $4.2 million of incremental selling, generalcosts and administrative expenses and higher intangible amortization resulting from the June acquisition.reduced incentive compensation expense.
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
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) | | Nine Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
| | (dollars in thousands) | | | | (dollars in thousands) | | |
| Total segment net sales | Total segment net sales | | $ | 62,985 | | | $ | 65,817 | | | $ | (2,832) | | | (4 | %) | Total segment net sales | $ | 563,675 | | | $ | 617,995 | | | $ | (54,320) | | | (9 | %) |
| Segment adjusted income from operations | Segment adjusted income from operations | | $ | 10,269 | | | $ | 8,350 | | | $ | 1,919 | | | 23 | % | Segment adjusted income from operations | $ | 129,686 | | | $ | 206,516 | | | $ | (76,830) | | | (37 | %) |
Total Segment Net Sales. Total segment net sales for the threenine months ended December 31, 2021June 30, 2022 decreased by $2.8$54.3 million, or 4%9%, to $63.0$563.7 million from $65.8$618.0 million during the threenine months ended December 31, 2020.June 30, 2021. The decrease was primarily attributable to product availability, which was adversely impacted by extended inventory transit times resulting from global supply chain disruptions, and unfavorable foreign exchange rates, which reduced net sales by $1.7$49.1 million, primarily driven by the Euro as compared to the U.S. dollar.dollar, as well as slowed consumer purchases. Excluding the $1.7$49.1 million unfavorable impact of foreign exchange rates, EMEA net sales for the threenine months ended December 31, 2021June 30, 2022 decreased by 2%1%, as compared to the threenine months ended December 31, 2020.June 30, 2021.
Segment Adjusted Income from Operations. Segment adjusted income from operations for the threenine months ended December 31, 2021 increasedJune 30, 2022 decreased by $1.9$76.8 million, or 23%37%, to $10.3$129.7 million from $8.4$206.5 million during the threenine months ended December 31, 2020.June 30, 2021. This increasedecrease was primarily attributedattributable to pricing actions that improved gross margin,higher inbound freight and product material costs, which werewas partially offset by pricing actions, lower sales volumes.advertising costs and reduced incentive compensation expense.
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
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) | | Nine Months Ended June 30, | | $ Variance
Increase/
(Decrease) | | % Variance
Increase/
(Decrease) |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
| | (dollars in thousands) | | | | (dollars in thousands) | | |
| Total segment net sales | Total segment net sales | | $ | 63,662 | | | $ | 63,771 | | | $ | (109) | | | — | % | Total segment net sales | $ | 118,984 | | | $ | 122,532 | | | $ | (3,548) | | | (3 | %) |
| Segment adjusted income from operations | Segment adjusted income from operations | | $ | 19,347 | | | $ | 19,578 | | | $ | (231) | | | (1 | %) | Segment adjusted income from operations | $ | 19,880 | | | $ | 28,963 | | | $ | (9,083) | | | (31 | %) |
Total Segment Net Sales. Total segment net sales for the threenine months ended December 31, 2021June 30, 2022 decreased by $0.1$3.5 million, or 3%, to $63.7$119.0 million from $63.8$122.5 million during the threenine months ended December 31, 2020.June 30, 2021. The decrease was primarily attributable to unfavorable foreign exchange rates, specifically the Australian dollar as compared to the U.S. dollar, which reduced net sales by $0.5$4.2 million. Excluding the $0.5$4.2 million unfavorable impact of foreign exchange rates, APAC net sales for the threenine months ended December 31, 2021June 30, 2022 increased by 1%, as compared to the threenine months ended December 31, 2020.June 30, 2021. This increase was driven by higher sales in most APAC markets, with the exception of Australia where the effects of severe flooding during February and March continued to adversely affect product availability at key retailers.
Segment Adjusted Income from Operations. Segment adjusted income from operations for the threenine months ended December 31, 2021June 30, 2022 decreased by $0.2$9.1 million, or 1%31%, to $19.3$19.9 million from $19.6$29.0 million during the threenine months ended December 31, 2020.June 30, 2021. This decrease is primarily attributedattributable to increased advertising expense of $0.8 million, strategic investmentslower sales in Asia of $0.6 million to support sales growthAustralia and higher distribution costs of $1.3 million resulting from increased inbound freight and logisticsproduct material costs. This was partially offset by lower selling, general and administrative costs resulting from the acquisition of RMC in Fiscal Year 2021.
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 and cash to be received for products sold to customers.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.purchases, as well as the timing of cash receipts for products sold to customers. 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. 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 the United States and in countries where the Company’s subsidiaries operate. As of December 31, 2021,June 30, 2022, our cash and cash equivalents totaled $46.2$40.8 million, and we had $132.4$249.4 million of borrowings available under the revolving credit facility.
Based on our growth plans,During the second quarter of fiscal year 2022, the Company entered into an agreement to sell certain trade accounts receivable to a third party financial institution (“Receivables Purchase Agreement”). The Receivables Purchase Agreement results in the transfer of the trade accounts receivable and associated risks to the third party and provides the third party with the full benefits and burdens of ownership in exchange for cash proceeds to the Company. The trade accounts receivable transferred are accounted for as sales of receivables as they have satisfied the required criteria under Accounting Standards Codification (“ASC”) 860, Transfers and Servicing, and are de-recognized from the Company’s condensed consolidated balance sheets. The maximum receivables that may be sold under the Receivables Purchase Agreement at any time is $235.0 million. As of June 30, 2022, the third party under the Receivables Purchase Agreement informed the Company that, as permitted by the terms of the agreement, it will not be purchasing trade accounts receivable for an unspecified period of time. There can be no assurance that the third party will begin purchasing trade accounts receivable in the near term, or at all.
We believe we believe ourhave sufficient cash and cash equivalents, position,including net cash provided by operating activities and availability under our Secured Credit Facility, are currently adequate to financefund our working capital requirements, plannedoperations, capital expenditures and debt service. In the future, we may allocate additional capital towards strategic acquisitions.service through fiscal year 2022. Given the current operating environment, we may opportunistically assessare assessing options to strengthen our balance sheet and ensure the most efficient capital structure.sheet. These may include additional debt or equity financing, factoring facilities and other potential financing options. There can be no assurance that equity or debt financing will be available to us if we need it or, if available, the terms will be satisfactory to us. We are also pursuing a number of financial transformation initiatives, which include suspension of our dividend; reduction of capital expenditures, cost of goods sold and selling, general and administrative expenses; prudent management of global inventory and working capital positions; and a workforce reduction of our non-manufacturing and distribution headcount by at least 10%, while reducing overall selling, general and administrative personnel costs by at least 15%.
Secured Credit Facility
The Company has a credit facility arrangement with a term loan of $1,250.0 million (“Term Loan”) and a revolving credit facility with a maximum commitment of $300.0 million (the “Secured Credit Facility”). The term loan matures on October 30, 2027 and the revolving facility matures by October 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.
On March 2, 2022, the Company exercised its right under the Secured Credit Facility to borrow $250.0 million of incremental term loans (the “Incremental Term Loan”). The Incremental Term Loan matures on October 30, 2027. Principal payments on the Incremental Term Loan commenced on June 30, 2022, and are payable quarterly at scheduled amounts, with the balance due at maturity. 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, plus an applicable margin. As of December 31, 2021,June 30, 2022, the interest rate on the Incremental Term Loan was SOFR plus 4.25%. Interest is payable on the last business day of the month for the relevant interest period selected.
As of June 30, 2022, we were in compliance with the covenants of the Secured Credit Facility. However, our business is seasonal in nature with the highest level of sales of its products occurring in the second and third fiscal quarters; accordingly, we typically borrow under our short-term revolving credit facility.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. Given the current macroeconomic environment and the challenges posed by inflation, foreign exchange fluctuations, supply chain disruptions and higher freight and fuel costs, we expect continued pressure on our results of operations, working capital requirements and ability to comply with the covenants in the Secured Credit Facility. We are monitoring this matter, taking certain financial transformation and cost savings actions, which include suspension of its dividend; reduction of capital expenditures, cost of goods sold and selling, general and administrative expenses; prudent management of global inventory and working capital positions; and a workforce reduction of our non-manufacturing and distribution
headcount by at least 10% while reducing overall selling, general and administrative personnel costs by at least 15%. Additionally, the Company is working with its lenders to ensure continued compliance with the Secured Credit Facility. There can be no assurance that these efforts will be successful.
Summary of Cash Flows
A summary of our cash flows (used in) provided by (used in) operating, investing and financing activities is presented in the following table: | | | | | | | | | | | |
| | Three Months Ended December 31, |
| 2021 | | 2020 |
| (dollars in thousands) |
| Net cash used in operating activities | $ | (187,893) | | | $ | (161,152) | |
| Net cash (used in) provided by investing activities | (25,866) | | | 6,924 | |
| Net cash provided by financing activities | 153,336 | | | 577,079 | |
| Effect of exchange rate changes on cash and cash equivalents | (895) | | | (381) | |
| Net (decrease) increase in cash and cash equivalents | $ | (61,318) | | | $ | 422,470 | |
| | | | | | | | | | | |
| | Nine Months Ended June 30, |
| 2022 | | 2021 |
| (dollars in thousands) |
| Net cash (used in) provided by operating activities | $ | (242,834) | | | $ | 74,460 | |
| Net cash used in investing activities | (80,344) | | | (154,989) | |
| Net cash provided by financing activities | 240,260 | | | 102,577 | |
| Effect of exchange rate changes on cash and cash equivalents | 16,247 | | | 629 | |
| Net (decrease) increase in cash and cash equivalents | $ | (66,671) | | | $ | 22,677 | |
Cash (Used in) Provided by Operating Activities
Net cash used in operating activities increased to $187.9was $242.8 million for the threenine months ended December 31, 2021 from $161.2June 30, 2022 as compared to cash provided by operating activities of $74.5 million for the threenine months ended December 31, 2020,June 30, 2021, an increase of $26.7$317.3 million or 17%426%. The increase was driven by the unfavorable impact of increasing inventory levels during the three months ended December 31, 2021,in net cash used in operating activities is primarily due to higher inventory costs, including commodities and inbound freight costs, and the unfavorable impact of higher prepaid expenses and other current assets, primarily for income taxes. This was partially offset by the favorable impacts from accounts payable balances driven by the timing of payments as compared to the prior year period.lower operating results.
Cash Used in Investing Activities
Net cash used in investing activities was $25.9$80.3 million for the threenine months ended December 31, 2021June 30, 2022 as compared to net cash provided by investing activities of $6.9$155.0 million for the threenine months ended December 31, 2020.June 30, 2021, a decrease of $74.6 million or 48%. The increasecurrent year period reflects the absence of $32.8cash payments of $102.2 million was due to higher capitalfor the acquisition of June and $26.3 million for the acquisition of the RMC business, as well as cash proceeds of $14.0 million from the disposal of a manufacturing site. Capital expenditures of $20.9increased $39.9 million as compared to the prior year period, primarily related to the Company’s implementation of a Global SAP/S4 HANA ERP platform, and building improvements for the global headquarters office in the U.S. Additionally,and capital for the current year period reflects the absence of cash proceeds of $11.9 million from the disposal of a manufacturing site during the first quarter of Fiscal Year 2021.Europe Manufacturing Facility in Poland.
Cash Provided by (Used In) Financing Activities
Net cash provided by financing activities was $153.3$240.3 million for the threenine months ended December 31, 2021June 30, 2022 as compared to net cash provided by financing activities of $577.1$102.6 million for the threenine months ended December 31, 2020.
The first quarter of Fiscal YearJune 30, 2021. During the nine months ended June 30, 2022, reflectsthe Company received $250.0 million in proceeds from the Incremental Term Loan. In addition, there were net borrowings onproceeds from the revolving credit facility of $161.0$48.0 million and proceeds of $11.3 million for capital contributions.issuance of capital. The Company paid $9.6$34.5 million of member distributions, $3.1$9.7 million of issuance costs associated with the Incremental Term Loan, $10.0 million of principal repayments on its term loans, $6.4 million of dividends, $4.4 million for its term loan, $2.1 million of dividendsinterest rate swap settlements and $2.1 million for certain IPO-related costs, all of which offset the cash proceeds.
During the first quarter of Fiscal Yearnine months ended June 30, 2021, the Company refinanced its debt, resulting in proceeds of $1,250.0 million, of which $616.3$616.6 million was used to the payoff the previous credit facility. The Company paid $26.7 million of costs associated with the debt refinancing.refinancing and subsequently paid down $6.3 million on the term loan. Additionally, the Company paid member distributions of $29.1$315.6 million, repurchased certain members’ interests for $188.9 million, paid interest rate swap settlements of $3.9 million and paid certain IPO-related costs of $2.3 million. These transactions were partially offset by proceeds of $13.1 million for issuance of capital.
Dividends/Distributions
On November 3, 2021,May 11, 2022, (i) the Weber Inc. Board of Directors declared a quarterly dividend of $0.04 per share of Class A common stock, which was paid on DecemberJune 17, 20212022 to stockholders of record on DecemberJune 7, 20212022 and (ii) Weber HoldCo LLC declared a distribution of $0.04 per LLC Unit, which was paid on DecemberJune 17, 20212022 to LLC Unit holders on that date.
Additionally, on February 3,On July 25, 2022, (i)the Company announced that the Weber Inc. Board of Directors declared ahas suspended the quarterly dividend of $0.04 per share of Class A common stock, payable March 18, 2022 to holders of our Class A common stock of record on March 8, 2022 and (ii) Weber HoldCo LLC declared a distribution of $0.04 per LLC Unit, payable March 18, 2022 to holders of LLC Units as of that date. Weber Inc. will pay the dividend to holders of Class A common stock with the funds it receives from the Weber HoldCo LLC distribution as a holder of LLC Units.cash dividend.
Other Information
As of December 31, 2021, $38.2June 30, 2022, $30.8 million of our $46.2$40.8 million in cash and cash equivalents was held in jurisdictions outside of the U.S. Cash held outside the U.S. may be repatriated, subject to certain limitations, and would be available to
be used to fund our domestic operations. However, repatriation of funds may result in additional tax liabilities. We believe that our existing cash balance in the U.S. is sufficient to fund our working capital needs in the U.S.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, sales and expenses and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.
There have been no significant changes to our accounting policies during the threenine months ended December 31, 2021.June 30, 2022. See our Annual Report on Form 10-K for the year ended September 30, 2021 for a summary of these policies.
Recent Accounting Pronouncements
There have been no new accounting standards material to Weber Inc. that have been adopted during the threenine months ended December 31, 2021.June 30, 2022.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes with respect to the Company’s exposure to market risk disclosed in our Annual Report on Form 10-K for the year ended September 30, 2021.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this 10-Q Report, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon this evaluation, our principal
executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2021.June 30, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the quarter ended December 31, 2021.June 30, 2022.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information presented in Note 8 to our condensed consolidated financial statements within this Quarterly Report on Form 10-Q is incorporated herein by reference.
In addition, on July 29, 2022, a purported class action complaint was filed in the U.S. District Court for the Northern District of Illinois naming as defendants, among others, the Company, our former Chief Executive Officer, our Chief Financial Officer, our Chief Accounting Officer, most of our board of directors and the banks that acted as underwriters in our initial public offering. The complaint asserts claims under U.S. federal securities laws, on behalf of a putative class of purchasers of shares of Class A common stock in the Company’s initial public offering in August 2021 (the “IPO”), alleging that the IPO Registration Statement and prospectus made false or misleading statements regarding the purported likelihood of price increases and declining demand and failed to disclose that, as a result of the foregoing, there would be an adverse impact on the Company’s financial results. The action seeks unspecified damages and an award of costs and expenses, including reasonable attorneys’ fees, as well as equitable relief.
Item 1A. Risk Factors
ThereMaterial updates to our risk factors disclosed in our Annual Report on Form 10-K for the year ended September 30, 2021 and our Quarterly Report on Form 10-Q for the six months ended March 31, 2022 are disclosed below.
Risks Related to Our Financial Condition
We rely on our free cash flow generation and credit facilities to provide us with sufficient working capital to operate our business and finance our growth strategies.
Historically, we have relied upon our free cash flow generation and existing credit facilities to provide us with adequate working capital to operate our business. Moreover, our growth rate depends, to a large degree, on the availability of adequate capital to fund the expansion of our products offerings and market penetration, which in turn will depend in large part on cash flow generated by our business and the availability of equity and debt capital. To the extent we become more dependent upon our credit facilities to fund our operations, if our lenders reduce or terminate our access to amounts under our credit facilities, we may not have sufficient capital to fund our working capital needs or growth strategies and/or we may need to secure additional capital or financing to fund our working capital requirements, to repay outstanding debt under our credit facilities or to finance our growth strategies. Given the current macroeconomic environment, we expect continued pressure on our ability to comply with the covenants in our Secured Credit Facility (as defined herein), which could limit our borrowing capacity and result in a default. We are monitoring this matter and working with lenders under the Secured Credit Facility on options to prevent a default in the event we are not able to continue to meet the current covenants in the Secured Credit Facility. We can make no assurance that we will be successful in ensuring our availability of amounts under our credit facilities when they are needed or in connection with raising additional capital and that any amount, if raised, will be sufficient to meet our cash flow requirements. In the event we do not have available cash balances on hand for funding future operations, and if we are not able to maintain our borrowing availability under our credit facilities at that time and/or raise additional capital when needed, we may be forced to sharply curtail our efforts to manufacture and promote the sale of our products or to curtail our operations.
The implementation of our workforce reduction and restructuring plan could result in greater costs and fewer benefits than we anticipate, which could materially harm our business, financial condition and operating results.
As described in this Quarterly Report on Form 10-Q, we are in the process of initiating a restructuring plan to manage cash flows, expand gross margins and reduce selling, general and administrative expenses. The restructuring plan is comprised of a workforce reduction of the Company’s non-manufacturing and distribution headcount of at least 10%, lease exit and other contract terminations and the disposal of certain assets. In conjunction with these actions, we expect to incur pre-tax expenses totaling approximately $30 million to $40 million, which the Company expects to record during the fourth quarter of fiscal year 2022.
The process to undertake these restructuring initiatives could take more time and be more costly than anticipated. These restructuring initiatives could place substantial demands on our management, which could lead to the diversion of management’s attention from other business priorities. These initiatives could also lead to unanticipated work stoppages, low employee morale, decreased productivity, and a failure to deliver under existing commitments to third parties, which could harm our business. As a result of these or any other factors, we could fail to realize the anticipated benefits associated with the workforce reduction and restructuring initiatives, which could in turn materially harm our business, financial condition and operating results.
Other than the new risk factors above, there have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the year ended September 30, 2021.2021 and our Quarterly Report on Form 10-Q for the six months ended March 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the three and nine months ended December 31, 2021.June 30, 2022.
Pursuant to the terms of the Amended and Restated Limited Liability Company Agreement of Weber HoldCo LLC, each holder of non-voting common interest units of Weber HoldCo LLC ("LLC Units") has the right to require Weber HoldCo LLC to redeem all or a portion of its LLC Units for, at the Company’s election, newly issued shares of Class A Common Stock on a one-for-one basis or a cash payment equal to the volume weighted average market price of one share of Class A Common Stock for each LLC Unit redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications). Additionally, in the event of a redemption request by a holder of LLC Units, the Company may, at its option, effect a direct exchange of cash or Class A Common Stock for LLC Units in lieu of such a redemption. A corresponding number of shares of Class B Common Stock will be canceled on a one-for-one basis if the Company or Weber HoldCo LLC, following a redemption request of a holder of LLC Units, redeems or exchanges LLC Units of such holder of LLC Units.
Item 5. Other Events
On August 12, 2022, as part of our cost-saving plan to preserve liquidity, expand gross margins and reduce selling, general and administrative costs, the Board approved a restructuring plan, which included a workforce reduction of our non-manufacturing and distribution headcount by at least 10%, including the termination of certain senior executives, the termination of certain lease and other contractual obligations and the disposal of certain other assets. We expect to substantially complete the restructuring plan by the first quarter of fiscal year 2023.
As a result of these actions, the Company expects to incur total pre-tax charges of between approximately $30 million and $40 million, which are expected to be recorded in the fourth quarter of fiscal 2022. Of these total charges, approximately $23 million to $30 million relates to severance and other termination-related benefits, approximately $4 million to $5 million relates to lease and other contractual terminations, and approximately $3 million to $5 million relates to the disposal of certain other assets. Of these total costs, approximately $27 million to $35 million are expected to be paid in cash.
Also on August 12, 2022, the Board approved the departures of Mary A. Sagripanti, Chief Marketing Officer of the Company, and Troy J. Shay, Chief Executive Officer of 1952 Ventures LLC and Chief Growth Officer of the Company, from their respective roles.
As disclosed on a Form 8-K filed on July 25, 2022, the Board appointed Alan D. Matula as the Company’s Interim Chief Executive Officer, effective July 24, 2022. In connection with this appointment, on August 12, 2022 the Compensation Committee of the Board approved an increase in Mr. Matula’s annual base salary to $925,000, with a target annual incentive under the Company’s Annual Incentive Plan of 100% of his annual base salary, with such increases effective from July 24, 2022.
Item 6. Exhibits
| | | | | | | | |
| Exhibit No. | | Description |
| | |
| | Certification of Interim Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification of Interim Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| 101* | | The following financial statements from Weber Inc.’s Quarterly Report on Form 10-Q for the threenine months ended December 31, 2021,June 30, 2022, filed with the Securities and Exchange Commission on February 14,August 15, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Statements of Comprehensive (Loss) Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Equity (Deficit), and (vi) the Notes to Condensed Consolidated Financial Statements. |
| | |
| 104** | | The cover page from Weber Inc.’s Quarterly Report on Form 10-Q for the threenine months ended December 31, 2021June 30, 2022 formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101. |
*Filed herewith.
**Furnished herewith.
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.
| | | | | | | | |
| Weber Inc. |
| | |
| By: | /s/ Chris M. ScherzingerAlan D. Matula |
| | Chris M. ScherzingerAlan D. Matula |
| | |
| | Interim Chief Executive Officer
(As Principal Executive Officer)
|
| | |
| By: | /s/ William J. Horton |
| | William J. Horton |
| | |
| | Chief Financial Officer (As Principal Financial Officer) |
Date: February 14,August 15, 2022