v3.26.1
Income Taxes
 3 Months Ended
Mar. 31, 2026
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Corporate Simplification

On December 17, 2025, the Company entered into the Merger Agreement with Holdings, Merger Sub and Blocker. Pursuant to the Merger Agreement, effective January 1, 2026, Merger Sub merged with and into Holdings, with Holdings surviving as a wholly owned subsidiary of the Company. The Merger was part of a series of internal legal reorganization transactions undertaken to simplify the Company’s organizational structure and eliminate its umbrella partnership-C corporation (UP-C) structure (the “Corporate Simplification”).

The Corporate Simplification was intended to simplify the Company’s organizational structure and is expected to reduce future cash payment obligations that may otherwise have arisen under the Tax Receivable Agreement. The Tax Receivable Agreement remains in effect following the Merger; however, no liability has been recorded as of March 31, 2026 due to its immateriality and the impact of valuation allowances.

The Corporate Simplification resulted in a change in the tax status of certain entities within the consolidated group. As a result of the Merger, the Company is permitted to file a consolidated U.S. federal income tax return (and, where applicable, consolidated or combined state income tax returns). The Company remeasured its deferred tax assets and liabilities on a consolidated basis, rather than on a separate-entity basis, to reflect this change in tax status. The remeasurement resulted in an adjustment to increase our total deferred tax assets by $1.4 million, with an equally offsetting adjustment to our valuation allowance, resulting in no change to our net deferred tax assets and additional paid-in capital in the Company’s unaudited consolidated statements of equity (deficit) as of January 1, 2026.

In connection with the Corporate Simplification, the Company separately assessed its valuation allowance, inclusive of realization of deferred tax liabilities within the consolidated group, including those associated with the Chubbies segment, to support the realizability of deferred tax assets. This resulted in the reduction of a portion of the Company’s existing valuation allowance and a corresponding recognition of an income tax benefit of $6.6 million during the three months ended March 31, 2026.

Provision for Income Taxes

The Company is subject to U.S. federal, state and local, and foreign income taxes in the jurisdictions in which the Company operates. As a result of the Corporate Simplification, the Company expects to elect to file a consolidated tax return for U.S. federal and state purposes (where applicable) for our domestic operations across all entities. Furthermore, our foreign operations are subject to income taxes for our Oru Mexico and Solo Stove entities.

Our forecasted annual effective tax rate (“AETR”), as calculated for our tax filing jurisdictions generating earnings, was 24.2% as of March 31, 2026. The effective income tax rate was 54.7% for the three months ended March 31, 2026, compared to (18.9)% for the corresponding period in 2025. The increase in the effective income tax rate for the three months ended March 31, 2026 was primarily driven by the valuation release due to the Corporate Simplification when comparing the current period to the prior year period.

Income tax benefit for the three months ended March 31, 2026 was $6.6 million, compared to income tax expense of $2.9 million in the corresponding period in 2025. Income taxes represent federal, state, local, and foreign income taxes on a consolidated basis for three months ended March 31, 2026, and the Company’s allocable share of taxable income of Holdings, as well as Oru’s and Chubbies’ federal, state, and local income taxes and foreign income taxes related to international subsidiaries for the three months ended March 31, 2025.

Deferred Tax Assets and Liabilities

As a result of the Corporate Simplification, the Company’s remeasurement will no longer result in recording a basis difference for its investment in Holdings. The Company’s net non-current deferred tax assets and liabilities are as follows (in thousands):

March 31, 2026December 31, 2025
Total deferred tax assets$31,998$43,985
Valuation allowance(27,408)(40,613)
Net deferred tax assets4,5903,372
Total deferred tax liabilities(4,755)(10,111)
Net deferred tax liabilities$(165)$(6,739)
The Company evaluates the realizability of its deferred tax assets on a quarterly basis and establishes valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. As of March 31, 2026, the Company concluded, based on the weight of all available positive and negative evidence, that all of the Company’s deferred tax assets are more likely than not to be unrealized resulting in the Company recording a full valuation allowance against the deferred taxes of Solo Brands, Inc. and subsidiaries as of March 31, 2026.