Income Taxes |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 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 June 30, 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 six months ended June 30, 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 24.3% as of June 30, 2026. The effective income tax rate was (3.2)% and 39.7% for the three and six months ended June 30, 2026, respectively, compared to (8.7)% and (13.3)% for the three and six months ended June 30, 2025, respectively. The change in the effective income tax rate for the three and six months ended June 30, 2026 was primarily driven by the effects of the Corporate Simplification and related valuation release. The Company’s income tax expense (benefit) is as follows (in thousands):
Income taxes represent federal, state, local, and foreign income taxes on a consolidated basis for the three and six months ended June 30, 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 and six months ended June 30, 2025. Deferred Tax Assets and Liabilities 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 June 30, 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.
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