8-K: Solo Brands Changes Auditors, Appoints BDO USA, P.C.

Solo Brands has replaced Ernst & Young LLP with BDO USA, P.C. as its independent registered public accounting firm following a competitive search process.

Summary

• Solo Brands, Inc. has appointed BDO USA, P.C. as its new independent registered public accounting firm for the fiscal year ending December 31, 2025.
• This decision was made by the Audit Committee of the Board of Directors on April 7, 2025, following a competitive search process.
• Ernst & Young LLP (EY), who had served as the company's auditor since 2021, was subsequently dismissed.
• EY's audit reports for the fiscal years ended December 31, 2023 and December 31, 2024, did not contain any adverse opinions, disclaimers, or qualifications regarding uncertainty, audit scope, or accounting principles.
• During the past two fiscal years and up to April 7, 2025, there were no disagreements with EY on accounting principles, practices, financial statement disclosure, or auditing scope that would have required them to reference the disagreement in their reports.
• The company reported material weaknesses in its internal control over financial reporting in its 2023 and 2024 Annual Reports on Form 10-K.
• These weaknesses related to the timely execution of controls, resource constraints in the accounting function, aggregation of control deficiencies over segregation of duties, and information technology change management.
• The Audit Committee discussed these material weaknesses with EY.
• Solo Brands has provided EY with a copy of the Form 8-K disclosures and requested a letter from EY to the SEC confirming their agreement with the statements made.
• The company did not consult with BDO regarding accounting principles or the type of audit opinion during the years ended December 31, 2023 and 2024, and through the date of this Form 8-K.
• EY's letter to the SEC, dated April 10, 2025, confirms their agreement with specific statements in the Form 8-K regarding their dismissal and the description of material weaknesses.

Sentiment

Score: 5

Explanation: The change in auditors is neutral, but the presence of material weaknesses in internal control is a concern. The company is taking steps to address these weaknesses, but the situation warrants careful monitoring.

Positives

• EY's audit reports for 2023 and 2024 did not contain any adverse opinions or disclaimers, suggesting no fundamental issues with the company's financial statements.
• The company proactively addressed material weaknesses in internal control over financial reporting and discussed them with the Audit Committee and EY.
• The transition to a new auditor, BDO, was conducted after a competitive search process, indicating a thorough and considered decision.

Negatives

• The company reported material weaknesses in its internal control over financial reporting for both 2023 and 2024.
• These weaknesses related to the timely execution of controls, resource constraints in the accounting function, aggregation of control deficiencies over segregation of duties, and information technology change management.

Risks

• The material weaknesses in internal control over financial reporting could indicate potential vulnerabilities in the company's financial processes.
• The transition to a new auditor could present challenges in ensuring a smooth audit process for the fiscal year ending December 31, 2025.
• Failure to remediate the identified material weaknesses could lead to future audit qualifications or adverse opinions.

Future Outlook

The company will be working with BDO USA, P.C. as its independent auditor for the fiscal year ending December 31, 2025, and will need to address the previously identified material weaknesses in internal control.

Industry Context

Changes in auditors are not uncommon, but they often raise questions about a company's financial health and internal controls. Investors will be watching to see how Solo Brands manages the transition to BDO and addresses the identified weaknesses.

Comparison to Industry Standards

• Comparing Solo Brands' auditor change to similar companies in the consumer discretionary sector, such as Yeti or Vista Outdoor, reveals that auditor changes are not uncommon, but the presence of material weaknesses in internal control is a concern.
• Companies like Lululemon and Nike, which are known for strong internal controls, rarely change auditors and maintain robust financial reporting processes.
• Solo Brands' situation is more akin to companies undergoing restructuring or facing financial challenges, where auditor changes are more frequent.
• The key difference lies in the disclosed material weaknesses, which require remediation to meet industry best practices.

Stakeholder Impact

• Shareholders will be concerned about the material weaknesses in internal control and the potential impact on the company's financial reporting.
• Employees in the accounting function may face increased scrutiny and workload as the company works to remediate the weaknesses.
• The change in auditors could affect the company's relationship with its lenders and other stakeholders.

Next Steps

• Solo Brands will work with BDO USA, P.C. on the audit for the fiscal year ending December 31, 2025.
• The company will need to remediate the identified material weaknesses in its internal control over financial reporting.
• Investors will monitor the company's progress in addressing these weaknesses and the impact on future financial reporting.

Key Dates

Keywords

auditor, BDO USA, Ernst & Young, material weaknesses, internal control, accounting firm, audit committee, Solo Brands