🔥Def Incinerating Something🔥

Solo Brands Inc. and iRobot Corporation ($IRBT)

Apr 02, 2025

Y’all know the PETITION team enjoys the simple things in life. One of them is watching a fire, taking in the warmth while sipping an adult beverage or two. But like the lot of you, we jockey desks for a living, so the only fires we tend to deal with are dumpster fires.

In this case, the flames are flickering off Dallas-area-based Solo Brands, Inc. ($DTC) (the “company”), a disaster we saw years in the making. When it IPO’d way back in ‘21, we immediately questioned whether it, as a massive beneficiary of the pandemic, was “a rocket ship for outdoor brands or an opportunistic dump on public markets.”*

💥Opportunistic IPOs Abound💥

PETITION LLC

October 27, 2021

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LOL, why do we pose those rhetorical questions? Duh, it was the latter. In case y’all need a refresher on this owner of direct-to-consumer, “lifestyle” brands before we dig in, it’s the force behind Solo Stove “smokeless” outdoor fire pits, ISLE paddle boards, Oru kayaks, and Chubbies swim trunks and bathing suits. If that already sounds like too many brands for a “lifestyle” that fits too few people, don’t worry, it definitely gets worse.

You see, those are just the ones the company already owned in ‘21, and fueled by the IPO’s $219mm equity raise, these guys have been busy AF lighting cash aflame. In the past two years, it’s expanded “offerings” through new product launches like Pi Prime pizza ovens and wood-pellet-fueled Tower Patio Heaters, and acquisitions including TerraFlame indoor fireplaces and IcyBreeze combo portable air conditioners and coolers.

If you’ve never heard of any of that garbage, you’re not alone. Before we sat down to write this piece, we hadn’t either, and that’s coming from a team that, after one too many benders with Johnny, woke up personally owning at least one of the pre-IPO offerings. We investigated ~~thoroughly~~ appropriately, and here’s the IcyBreeze state of play.

Source: IcyBreeze. Probably going to open 10 more “chapters” before long.

Honestly, that makes way more sense than any other outcome. Who exactly is the market for a glorified, $300 swamp cooler? We genuinely don’t know, and apparently the company didn’t either. The deal closed in July ‘23, and it took them a little over a year to put the biz on ice permanently, locking in a value-accretive use of $29.4mm in cash.

Aside from those Chubbies, which we’ll raise below (😜), the rest of the business ain’t faring much better. On March 12, 2025, the company released its FY24 report, which looked a lot like their staple product.

⬆️ net losses, ⬇️ revenue, ⬆️ tariffs,** ⬆️ administrative expense. The market reacted immediately.

Specifically, the company tacked on a couple mil to its ‘23 net loss of $111.6mm, leaving ‘24 with that figure at $113.4mm,*** and net sales are also down since ‘22’s peak of $517.6mm …

Of those ‘24 sales, ~70.2% (~$319.1mm) were direct to consumer (giving us the company’s ticker symbol). The other 29.8% ($135.5mm) were retail, which was basically flat YoY. Consolidated EBITDA also took an absolute shellacking as well, falling from $94.8mm in ‘23 to $44.5mm in ‘24 — a staggering 53.1% drop.

What part of the business is to blame? Save the Chubbies, all of it. ISLE and Oru are the easiest targets. The company tossed them into an “All Other” bucket because they are absolutely busted and apparently not worth segmenting off. Along with whatever else lives in that category, they contributed an aggregate negative $17.3mm to ‘24 EBITDA. The company’s already recorded full impairment charges for the brands, so we may be in store for a couple more pun-filled tombstones.

The Solo Stove business segment, which houses the company’s indoor and outdoor fire pits, stoves, and accessories businesses, got cooked too. Compared to ‘23, it’s down 15.4% in net sales, from $351.6mm to $297.4mm, and a fiery 42.4% in EBITDA, from $79.6mm to $45.9mm, which all goes to show that once you’ve purchased a long-lived, smokeless fire pit, yeah, there’s not much need for another.

Only those Chubbies continued to pop off. We mean, look at them — not literally though, at least here, we’re a family publication after all. That business segment’s YoY net sales and EBITDA enlarged another 10.9% and 16.6%, from, respectively, $101.6mm to $112.7mm and $13.6mm to $15.8mm. But that generous bulge isn’t going to do much to save the company. It entered ‘25 with $12mm of cash on hand against a $69mm revolver and an $83mm term loan, both under a JPMorgan Chase Bank, N.A. ($JPM)-agented facility.**** But since the new year rolled in, the company has fully drawn the revolver — an incremental $277.3mm — and is now indebted to the tune of $428mm, with a May ‘26 maturity date to boot. Not like maturity is going to matter. On account of the draw, the company is now sitting at 9.6x leverage and expects “to experience difficulty remaining in compliance with [its] quarterly financial covenants.” So we’ll get a default in, what, six months at most? In the meantime, the company is, of course, attempting a futile effort to restructure or refinance the debt.*****

In connection with those efforts — and perhaps to find a workable business model — the company brought on help in the form of new directors Liz Vanzura and John Larson, which are likely names unfamiliar to those who hang around in restructuring circles. Typically we’d welcome that as a good thing, but their CVs gave us pause. Ms. Vanzura is the co-founder of GAI Insights, “an advisory firm guiding companies on generative AI strategies,” which is odd-as-f*ck for a company that makes nearly all its money from tangible, real-life products. Meanwhile Mr. Larson brings in … automotive-related experience, having previously served as the CEO of Bestop, Inc., “a leading manufacturer of soft tops and accessories for Jeep vehicles,” and Escort Inc., “an automobile electronics manufacturer.” But Mr. Larson must have dressed to impress because a short two months after he hopped on board, the company named him as its interim president and CEO after former CEO Chris Metz peaced out 13 months into the job.

And that’s where things stand at the moment.

The company didn’t disclose any specific action it is pursuing, although we reckon RIF’ing its 526 employees and closing distribution centers are on the table. But it’s a safe bet that lenders are already circling and trying to get ahold of Mr. Larson ahead of a damn-near-certain event of default coming down the pike.

*For what it’s worth, the other segment in that newsletter was about a potential Claire’s Inc. IPO. Which never, in fact, happened. It, too, is looking like quite a dumpster fire and rumors are swirling that it may be, once again, headed for the bankruptcy bin.

**The company manufactures its products in, gulp, China and Mexico, which are subject to ongoing and new tariffs of 25%+ under the new US administration. Consequently, the company declined to provide go-forward guidance. Probably a smart move.

***After giving effect to a $66.8mm net loss attributable to “Continuing LLC Owners,” including management, a couple of co-founding brothers, and prior investors. All-in, the net loss was a cool $180.4mm.

****The ‘24 10-K is slightly inconsistent on the amount of funded debt. The company uses a composite figure of $150.7mm but lists the revolver and term loan independently at $69mm and $83mm, respectively.

*****In case you’re wondering, yes, the company did issue a going concern warning. It is also subject to non-compliance notice from the NYSE.

⏩One to Watch: iRobot Corporation ($IRBT)⏩

iRobot Corporation ($IRBT)(“iRobot”) is the Bedford, MA-based maker of home robots and smart home devices. Three MIT roboticists – Helen Greiner, Rodney Brooks, and Colin Angle – launched the company in ‘90, and if you are wondering, yes, they were inspired by the robots in the original Star Wars.

After initially focusing on military and space exploration uses, iRobot found major commercial success in ‘02 with the Roomba robot vacuum cleaner, which spawned a new category of what the company calls “robotic floorcare.” The company has since sold more than 50mm ~~pet transporters~~ home robots worldwide.

The company achieved profitability fourteen years after its launch in ’04 and, boosted by the robust success of the Roomba, grew its consumer product revenue in every year but ‘09 (understandable) and remained profitable in all but one year from ’04 to ’21. The company dominated the category it created until it began to cede ground to competitors who offered better tech and/or more budget-friendly options.

Source: June 2020 Company Investor Presentation iRobot stopped presenting on market share after this, 😂.

As you can see, things started to go wrong in a big way in (late) ‘18. The first Trump administration’s tariffs hurt the company, which at the time manufactured nearly all of its products in China. After initially absorbing the cost of tariffs, the company later decided to raise prices in ’19, when the tariffs stepped up from 10% to 25%. iRobot quickly reversed course after seeing that competitors were not raising their prices and instead were stealing share from iRobot. Gross margins fell 600bps from 50.8% in FY18 to 44.8% in FY19.

Growing consumer adoption of robotic vacuums was enough to mitigate the company’s tariff troubles and market share erosion at first.

Covid was a net positive for the company. Despite brief supply chain disruptions in 1Q20 that hampered sales, FY20 revenue grew 17.8% with 5.5mm units sold, as folks trapped at home could no longer stand their own mess. Gross margins also improved 205bps to 46.9% in ’20 as the company received some tariff refunds and a temporary exclusion from China tariffs. The stock peaked at $133.40 in Feb ’21 following 4Q20 earnings.

It has been tumbling ever since.

In ’21, sales increased 9.4% with another 5.6mm units sold, but supply chain challenges continued to plague the company — the same semiconductor chip shortages and shipping delays that impacted so many at that time. The company, therefore, struggled to fulfill orders around the crucial holiday season. Gross margins fell to 35.2%, a drop of 1,169bps(!!!), due to higher component costs, transportation expenses, the expiration of the company’s temporary tariff exclusion (later reinstated for part of the year), and greater promotional activity. ’21 was also the first year that the company’s patents started to expire. Despite these issues, the company spent $150mm on share buybacks and $71mm to acquire Aeris Cleantec AG (“Aeris”), a premium air-purifier maker.

Hold on. The Aeris transaction turned out to be a bonanza! Nice save there, guys!!

Just.

Kidding.

Things. Kept. Getting. Worse.

See for yourself 👇.

Source: PETITION LLC, Company Filings. Note that 2024 includes the impact of a $94mm Amazon termination fee, discussed below.

In ’22, the company’s sales tanked -24%, as its supply chain challenges continued and the macroeconomic picture — including consumer sentiment — deteriorated across key markets. The company reported order reductions, delays, and cancellations from its retailers and distributors.

The company’s tariff exclusion got reinstated and extended through ’24, but gross margins continued downward anyway, falling another 558bps to 29.6%. The company also initiated its first of several restructuring efforts, laying off approximately 100 people or 8% of its workforce.

At the same time, lenders started tightening the screws.

In May ’22, iRobot began busting covenants on its only debt, a $150mm undrawn unsecured revolver due June ’23, agented by Bank of America ($BAC). BofA agreed to waive the leverage and coverage covenants for the first 9 months of ’22 and adjust them for 4Q22, in exchange for a new liquidity covenant and a small increase in the rate from L+100 to L+150.

In August ’22, the company announced that it had entered into an agreement to be acquired by Amazon Inc. ($AMZ) for $61/share, or a $1.7b enterprise value, in an all-cash deal. The deal appeared to be a lifeline for iRobot, but was immediately met with concerns from consumer groups and antitrust regulators. NPR reported on the transaction announcement and the response from one consumer rights advocate, Robert Weissman, president of Public Citizen:

"The last thing American [sic] and the world needs is Amazon vacuuming up even more of our personal information […] This is not just about Amazon selling another device in its marketplace, […] It's about the company gaining still more intimate details of our lives to gain unfair market advantage and sell us more stuff."

Query what Mr. Weissman now thinks about artificial intelligence, lol.

The deal would ultimately die at the hands of EU antitrust regulators — but not for another 18 months.

Come October ’22, iRobot and BAC were back at the negotiating table again. This time, the BAC agreed to temporarily increase the size of the revolver to $200mm through year end to support inventory build-up ahead of the holiday season in exchange for increasingly demanding covenant tests and a security interest in substantially all U.S. assets. They also changed the interest rate to S+150 for obvious reasons.

Of course, iRobot shockingly could not meet the covenants and was back for amendment #4 in Jan ’23. This amendment reduced the size of the revolver from $150mm to $100mm, converted it into an ABL, raised the rate to S+450, reconfigured the covenants again, and pushed out the maturity to Sept ’24.

Operationally, the company kept struggling through ’23. Revenue dropped by nearly a quarter, again, for the second year in a row. The company blamed the poor macroeconomic environment and competition. Gross margins contracted another 753bps to 22.0%. The company announced more layoffs and eliminated open positions, ultimately reducing its workforce by 325 people or 23% from 2Q22.

In July ’23, almost a year after the Amazon deal announcement, The Carlyle Group ($CG), via its Carlyle Credit Opportunities Fund (“Carlyle”), provided the company a $200mm senior secured term loan due July ‘26 which took out the BAC paper. The new three-year term loan carried an interest rate of S+900 (250bps can be PIK), double the cost of iRobot’s prior debt, and a guaranteed minimum return of 1.3x to 1.7x depending on repayment timing. Amazon lowered its acquisition price to $51.75/share, or a $1.4b enterprise value, to reflect the new debt issuance.

In Jan ’24, the deal with Amazon was officially terminated, and Founder-CEO Colin Angle stepped down. iRobot received a $94mm termination fee after the break-up. Where did it all go? $19mm went to pay professional fees associated with the dead deal. The remaining $75mm was already locked up by Carlyle under the terms of its credit agreement, with $35mm immediately applied to paying down the term loan (including the minimum return!) and $40mm restricted for future repayments subject to a limited right to purchase inventory. As of FY24 year end, the term loan still had $200.6mm outstanding.

Business did not improve one bit in ’24. Revenue fell another 23.4% — the third year running of 20%+ declines. Gross margin dropped even more to 20.9%. iRobot slashed R&D, marketing, and other G&A expenses, but they remain elevated as a percentage of revenue compared to historicals given lower operating leverage. The company has also cut capex to almost nothing ($0.1mm) in ’24 and has been managing down inventory levels to preserve cash. It has also diversified its base of manufacturing partners, shifting production from China to Malaysia and Vietnam — TBD if this will be sufficient to avoid another big tariff hit this time around. iRobot ended the year with $134mm of cash and cash equivalents, $40mm of which is controlled by Carlyle. It’s going to be awfully hard to build that cash pile when you’re, as Herb Greenberg pointed out in his

Herb Greenberg | On the Street

newsletter here, discounting like a motherf*cker.

Will all the triage be enough? Likely not. iRobot’s ’24 10-K, filed on March 12, 2025, included a going concern warning, and the Board of Directors announced that it was initiating a strategic review.

The going concern warning also meant that iRobot had once again busted a covenant. Carlyle waived the covenant until May ’25 in exchange for a $3.6mm amendment fee to be paid in kind plus warrants representing 6% of iRobot’s outstanding common stock. Carlyle also deferred a $4mm “use fee” that iRobot owes for tapping into the $40mm restricted cash account in order to buy inventory in the second half of ’24.

Despite inventing the robot vacuum, iRobot has failed to innovate at the same rate as its competitors, which have unseated it as the highest rated product in a number of categories across consumer review sites. Cutting R&D and CapEx doesn’t seem likely to help it reclaim its market position, nor does reducing marketing and advertising spend. iRobot and the Roomba still have strong name recognition — enough that the NYT Wirecutter article on “The Best Robot Vacuums” includes a section on “Why we don’t currently recommend vacuums from iRobot.”

Small comfort for iRobot when it’s only “win” is not being forgotten.

📚Resources📚

We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find it here💥.

📤 Notice📤

Glenn Siegel (Member) joined Moore & Van Allen PLLC from Morgan Lewis & Bockius LLP.

John Aschenbeck (Director) joined MACCO Restructuring Group.

Reece Fulgham (Managing Director) joined MACCO Restructuring Group.

Stephanie Rosner (Associate) joined Davis Polk & Wardwell LLP from Weil.

🍾Congratulations to…🍾

Eric Koza for being named Global Co-Leader of Turnaround & Restructuring Services (TRS) at AlixPartners.

Eversheds Sutherland US LLP (Todd Meyers, Nathaniel DeLoatch, Erin Broderick) for securing the legal mandate on behalf of the official committee of unsecured creditors in the OTB Holdings LLC (a/k/a On the Border Mexican Grill & Cantina) chapter 11 bankruptcy cases.

John Castellano and Dave Orlofsky for being named Co-Leaders of TRS Americas at AlixPartners.

Joff Mitchell for moving into a Global Vice Chair role at AlixPartners.

Josh Mendelsohn for being promoted to Managing Director at Guggenheim Securities.