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Long-Term Debt | 12 Months Ended
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Feb. 01, 2025
Debt Disclosure [Abstract] |
Long-Term Debt | Note 5 — Long-Term Debt Long-term debt, net consisted of the following (in thousands):
|  | February 1, 2025 |  |  | February 3, 2024 |
Revolving line of credit |  | $ | 43,000 |  |  | $ | 34,000 |
Non-Convertible Term Loan |  |  | 8,500 |  |  |  | — |
Convertible Term Loan |  |  | 8,500 |  |  |  | — |
Collaboration Agreement fees |  |  | 3,995 |  |  |  | — |
Total outstanding borrowings |  |  | 63,995 |  |  |  | 34,000 |
Less: unamortized debt discount and issuance costs |  |  | (4,793 | ) |  |  | — |
Total debt |  |  | 59,202 |  |  |  | 34,000 |
Less: current portion of long-term debt |  |  | (49,199 | ) |  |  | — |
Long-term debt, net |  | $ | 10,003 |  |  | $ | 34,000 |
Revolving Line of Credit On March 31, 2023, the Company entered into a Third Amended and Restated Credit Agreement (the “2023 Credit Agreement”) with Bank of America, N.A., as administrative agent and collateral agent, and lender. The 2023 Credit Agreement amended the previous Second Amended and Restated Credit Agreement (the “2019 Credit Agreement”) from a $75.0 million senior secured revolving credit facility to a $90.0 million senior secured revolving credit facility. The 2023 Credit Agreement contains substantially similar terms and conditions as the 2019 Credit Agreement including a swingline availability of $10.0 million, a $25.0 million incremental accordion feature and extended its maturity date to March 2028. The fee paid to the lenders on the unused portion of the 2023 Credit Agreement is 25 basis points when usage is greater than 50% of the facility amount; otherwise, the fee on the unused portion is 37.5 basis points per annum. On January 25, 2024, the Company entered into a First Amendment to the 2023 Credit Agreement that increased the advance rate and allowed the Company to enter into the FILO Term Loan (defined below) agreement. Subsequent to January 25, 2024, advances under the 2023 Credit Agreement accrue interest at an annual rate equal to the Secured Overnight Financing Rate (“SOFR”) plus a margin of 275 basis points with no SOFR floor. Upon the demonstration that the Company’s fixed charge coverage ratio is greater than 1.0 to 1.0 on a trailing twelve-month basis, the interest rate permanently decreases on the 2023 Credit Agreement to SOFR plus a margin of 225 basis points. Prior to January 25, 2024, advances under the 2023 Credit Agreement accrued interest at an annual rate equal to SOFR plus a margin ranging from 200 to 250 basis points with no SOFR floor. On October 21, 2024, the Company entered into a Second Amendment to the 2023 Credit Agreement to permit the Beyond Credit Agreement and the Beyond Subscription Agreement and to modify the borrowing base calculation and the minimum excess availability covenant. The interest rate and expiration date provisions of the First Amendment to the 2023 Credit Agreement remained unchanged. The Company is subject to a Third Amended and Restated Security Agreement (“Security Agreement”) with its lenders. Pursuant to the Security Agreement, the Company pledged and granted to the administrative agent, for the benefit of itself and the secured parties specified therein, a lien on and security interest in all of the rights, title and interest in substantially all of the Company’s assets to secure the payment and performance of the obligations under the 2023 Credit Agreement. The maximum availability under the 2023 Credit Agreement is limited by a borrowing base formula, which consists of a percentage of eligible inventory and eligible credit card receivables, less reserves and an excess required availability covenant, which limits the borrowing base formula by the greater of 10% of the combined borrowing base formula or $8.0 million. As of February 1, 2025, there were no letters of credit outstanding under the 2023 Credit Agreement. As of February 1, 2025, the Company had approximately $4.3 million available for borrowing under the 2023 Credit Agreement, after the minimum required excess availability covenant. Availability under the 2023 Credit Agreement fluctuates largely based on eligible inventory levels, and as eligible inventory increases in the second and third fiscal quarters in support of the Company’s back-half sales plans, the Company’s borrowing capacity increases correspondingly. FILO Term Loan On January 25, 2024, the Company entered into the FILO Term Loan with Gordon Brothers Group, via an affiliate entity, 1903P Loan Agent, LLC, as administrative agent and lender. The indebtedness under the FILO Term Loan was subordinated in most respects to the 2023 Credit Agreement. The FILO Term Loan had a maturity date of March 2028, coterminous with the 2023 Credit Agreement. The interest rate of the FILO Term Loan was one-month term SOFR, plus a margin of 9.50%. The Company borrowed $10.0 million under the FILO Term Loan during fiscal 2024. Proceeds from the Beyond Credit Agreement were used by the Company to repay and terminate the FILO Term Loan on October 21, 2024. The Company paid $12.6 million, which consisted of $10.0 million of debt principal and $2.6 million of prepayment penalties. The Company recorded a loss on extinguishment of debt related to the termination of the FILO Term Loan of $3.3 million during fiscal year 2024, of which $2.6 million was for the prepayment penalty and the remainder was related to the write-off of unamortized debt issuance costs. Beyond Credit Agreement On October 21, 2024, the Company entered into the Beyond Credit Agreement with Beyond, as administrative agent and lender. The Beyond Credit Agreement consists of an $8.5 million Convertible Term Loan that is mandatorily convertible into Common Stock at a price of $1.85 per share for a total of 4,594,594 shares upon the approval of Kirkland’s shareholders and an $8.5 million Non-Convertible Term Loan that is non-convertible. The maturity date on the Non-Convertible Term Loan is September 30, 2028. Beyond can elect to convert a portion of the Convertible Term Loan into shares of Kirkland’s Common Stock prior to shareholder approval up to a cap of 2,609,215 shares. The indebtedness under the Beyond Credit Agreement is subordinated to the 2023 Credit Agreement and is not subject to a borrowing base calculation. The Beyond Credit Agreement accrues interest at an annual rate equal to SOFR plus a margin of 275 basis points with no SOFR floor. See “Note 15 — Subsequent Events” for further discussion. Collaboration Agreement Fees The Company entered into the Collaboration Agreement with Beyond, which outlines the parties’ intentions to collaborate on numerous operating arrangements. Under the Collaboration Agreement, Kirkland’s will pay Beyond a quarterly collaboration fee equal to 0.25% of Kirkland’s quarterly retail and e-commerce revenue starting in the first quarter of fiscal 2025 and continuing for the remaining seven-year term of the Collaboration Agreement. This fee will extend an additional two years beyond the Collaboration Agreement if the Beyond Credit Agreement is still outstanding as of the expiration or termination of the Collaboration Agreement. Kirkland’s will also pay to Beyond an incentive fee equal to 1.5% of Kirkland’s incremental growth in e-commerce revenue during the term of the Collaboration Agreement. As payments are remitted to Beyond from the Company, the balance of the liability related to the sale of a percentage of future revenue will be repaid over the life of the Collaboration Agreement. In order to determine the amortization of the liability, the Company is required to estimate the total amount of future payments to Beyond over the life of the Collaboration Agreement. The $3.8 million initial liability will be accreted to the total of the payments as interest expense over the life of the Collaboration Agreement. At execution, the estimate of this total interest expense resulted in an effective annual interest rate of approximately 19.6%. This estimate contains significant assumptions that impact both the amount recorded at execution and the interest expense that will be recognized over the Collaboration Agreement period. The Company will periodically assess the estimated payments to Beyond and to the extent the amount or timing of such fees is materially different than the original estimates, an adjustment will be recorded prospectively to increase or decrease interest expense. The main factor that could materially affect the amount of the payments is changes in the Company’s estimated retail and e-commerce revenue. General Terms and Conditions Borrowings under the 2023 Credit Agreement and the Beyond Credit Agreement are subject to certain conditions and contain customary events of default, including, without limitation, failure to make payments, a cross-default to certain other debt, breaches of covenants, breaches of representations and warranties, a change in control, certain monetary judgments and bankruptcy and ERISA events. Upon any such event of default, the principal amount of any unpaid loans and all other obligations under the 2023 Credit Agreement and the Beyond Credit Agreement may be declared immediately due and payable. As of February 1, 2025, the Company was in compliance with the financial covenants in the 2023 Credit Agreement and the Beyond Credit Agreement. However, the Company’s conclusion that substantial doubt exists about the Company’s ability to continue as a going concern requires an explanatory paragraph in the report of its independent registered public accounting firm on the Company’s accompanying financial statements for the fiscal year ended February 1, 2025, which results in a violation of affirmative covenants under the 2023 Credit Agreement and the Beyond Credit Agreement. As such, the Company has classified the outstanding borrowings under these agreements as current on the consolidated balance sheet as of February 1, 2025, except for the Convertible Term Loan that converted to equity on February 5, 2025. See “Note 15 — Subsequent Events” for further discussion. Scheduled maturities of debt are as follows (in thousands):
|  | Scheduled Maturities |
2025 |  | $ | 52,240 |
2026 |  |  | 1,154 |
2027 |  |  | 1,154 |
2028 |  |  | 9,655 |
2029 |  |  | 1,155 |
Thereafter |  |  | 2,268 |
Total scheduled maturities |  |  | 67,626 |
Less: unamortized debt discount and issuance costs |  |  | (4,793 | )
Less: present value of collaboration agreement fees |  |  | (3,631 | )
Total debt |  | $ | 59,202 |

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