Q3 2021 Solo Brands Inc Earnings Call
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Hello, and welcome to the Sterlite Brands, Inc. Third quarter 2021 earnings Conference call. Thank you for your patience the COO will begin shortly.
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Hello, and welcome to the select brands, Inc. Third quarter 2021 earnings Conference call. My name is Robin and I'll be coordinating your coach date, if you would like to ask a question. During the presentation. You may do state by pressing star followed by one on your telephone keypad I will now hand, you over to your house.
Bruce Williams from ICR.
Please go ahead.
Good morning, everyone and thank you for joining the call to discuss solo brand third quarter results.
We released this morning and can be found on the Investor Relations section of our website at investors got Zillow brand Dot Com today's call will be hosted by Chief Executive Officer, John <unk>, Chief Financial Officer, Sam standards before we get started I want to remind everyone that management's remarks on this call.
May contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 that are based on current management expectations. These may include without limitations predictions expectations.
<unk> or estimates, including regarding our anticipated financial performance business plans and objectives and future events and developments and actual results could differ materially from those mentioned. These forward looking statements also involve substantial risks and uncertainties some of which may be outside of our control and that could be.
Cause actual results to differ materially from those expressed in or implied by such statements.
These risks and uncertainties among others are discussed in our filings with the FCC.
Courage you to review these filings for a discussion of these risks, including our quarterly report on Form 10-Q, which will be filed today and will be available on the investor portion of our website at investors got so low brands Dot com.
You should not place undue reliance on these forward looking statements. These statements are made only as of today and we undertake no obligation to update or revise them for any new information, except as required by law.
This call will also contain certain non-GAAP financial measures, including net income as adjusted diluted <unk> per share as adjusted.
EBITDA and adjusted EBITDA margin, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings provide consistency and comparability with our past performance and facilitate period to period comparison of our core operating results and the results of peer companies.
Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our quarterly report on Form 10-Q and in our earnings release, both of which are available on the investor portion of our website at investors dot solo brand's dotcom.
I would like to turn the call over to John.
Thank you Bruce and thank you everyone for joining us for our first earnings call as a public company I'm excited to be here today to share our story and talk about the tremendous opportunity ahead of us.
First I'd like to say, how proud I am of our accomplishments to date and driving extensive growth across the platform, but also acquiring and integrating three exciting brands and moving it to a new global headquarters all while launching a successful IPO. Thank you to our hardworking and dedicated team for all the hard work over the last year.
Later, Sam will discuss the details of our third quarter financial performance and provide our outlook for 2021, we are very excited about the continued growth and momentum in our business.
We are very pleased to report strong third quarter results that were ahead of our expectations as revenue grew 138, 3% driven by strength across all our businesses. Adjusted net income increased 39, 7% and adjusted EBITDA increased 56, 7%.
For those of you who may not be familiar with our company celebrated as a direct to consumer ecommerce platform comprised of four disruptive and rapidly growing lifestyle brands, our premium authentic lifestyle brands develop innovative products that create good moments that lead to lasting memories for our customers.
We believe that we have an amazing family of brands that are uniquely positioned within their respective categories. The brands on our platform delivers significant and predictable growth and are fundamentally better together than they are apart.
Starting with our largest brand seller, though there's a disruptive outdoor lifestyle brand comprised of fire pits camping stove grills and accessories that make lighting fires simple our secondary combustion produces a cleaner hotter burn that creates a roaring virtually smokeless blame resulting in a better customer experience around the fire with friends and family.
And all of this from a portable with Bernie so that can be enjoyed while camping at the beach or in the backyard.
We have a culture of innovation as evidenced by over 25, new products being introduced over the last two years in fact I'm excited to announce our latest innovation in the presale launch of a new solar cell product in a totally new category for us the <unk> Pi Pi is a backyard pizza oven, which bakes delicious pizza in a way that is easy.
It offers another way to connect with family and friends, which is what we're all about we are excited about this new product offering to our customers and believe that we can disrupt this category and continue to be a key player in the growing outdoor lifestyle space.
The continuous product development cycle across our product lines lead to high repurchase rates and drive increasing customer lifetime value I'm very pleased that we have been able to generate tremendous growth over the last several years with lower customer acquisition cost is 45% of sales are generated through word of mouth.
Oreo kayak is a revolutionary brand of origami folding kayaks that can be easily stored assembled in minutes.
<unk> journey started with a transformative idea what if a kayak could pulled up like a piece of paper our team figured out a way to make it a reality today, we have five different kayak models that fit every major use case and we see a massive opportunity to continue introducing first time kayakers to the sport.
But we make the world's best most innovative kayak and we are well on our way to being one of the most recognizable kayak brands in the world. We invented this category and we are on a mission to transform how people connect to the outdoors.
<unk> is one of the original standup paddle board brands and it has a history of continuous innovation and evolution Io.
<unk> was founded in 2000 and for 17 years ago and was one of the first brands to self surf boards on the Internet today Isle has evolved to sell both hard and inflatable stand up paddle boards that can hold up into a backpack, making is easier to transport, but still maintaining quality and performance.
We love the IL continues to respect its heritage and southern California ethos.
Chevy says our authentic premium casual and activewear brands that was built for the modern men's active lifestyle chevy's does not a transactional apparel company, but instead a relationship oriented brand that speaks to its customers with spreads the team at Shelby says a history of pioneering unique digital experiences and continues to grow its commute.
<unk> of loyal fans.
Notably in the last 12 months Chevy's has developed a social following on tick tock with over one 6 million people like our other brands. Charlie's has also been built on a culture of continuous product innovation and pushing to drive new trends. For example, the shorter Inseam trend was started by Chubb is nearly 10 years ago and today.
As far more conducive to the young men's active lifestyle.
Solo brands our E Commerce platform serves as our primary sales channel generating over 92% of our sales 84% on our owned websites and is a key differentiator in an industry that primarily relies on our retail stores, we provide a curated brand experience to our customers and benefit from having direct.
Interactions with them.
Sell at providing our customers with a world class customer experience and we do it better and faster with scale.
Solo brands has driven tremendous growth in sales margins and free cash flow given our asset light operating model. We believe what sets us apart is our D to C execution, coupled with our brand offerings that leverage operating synergies across our platform. The key attributes of our platform are one our direct connection.
To our community of customers to our innovative product development capabilities and three our scalable global infrastructure.
Our E Commerce platform provides us the opportunity to have a direct relationship with our customers and we know that our customers are our most impactful brand advocates.
As mentioned earlier word of mouth referrals drove 45% of new customers to <unk> through June 30, and it has held through Q3, we use our strong customer engagement to leverage our vast first party consumer data to improve our marketing efficiency increased customer engagement and drive loyalty and repeat purchases.
We apply the knowledge and expertise of solar sales marketing team and digital AD in an email strategies to our other brands, which are utilized to accelerate growth and drive efficiencies.
For example, we have aggregated AD spend to reduce advertising costs and avoid agency fees through our in house marketing team. In addition, our marketing team is able to monitor our rollout in real time with our proprietary correlation regression model. This gives us a distinct advantage of being able to directly measure our advertising spend and use.
Levers to help drive efficient customer acquisition and conversion without being dependent on third party marketing and advertising platforms for performance measurement and customer acquisition.
Next I would like to take the opportunity to highlight our product development capabilities. Our innovation feedback loop starts with leveraging our massive consumer dataset by increasing customer engagement and improving our marketing efficiency.
We take our learnings and incorporate consumer insights into product innovation, our customers tell us what they like what they don't like and what they want us to develop and will utilize these real time consumer insights to inform and shorten our product development timeline.
Such approximately 18% of solo brands revenue was generated from new products launched in 2019, and we have a 36% repeat purchase rate with our customers.
Good recent example of utilizing our real time consumer insights to inform product innovation is the launch of color ways fire pits, our customers told us that they wanted more color options beyond the natural stainless steel finish we worked hard to find a coating that did not melter flake under the heat of the secondary burn, which burns much hotter than a typical.
Campfire and we launched our color ways line, just a few weeks ago in Q4. The initial response has been extremely positive.
Furthermore, we are very excited about the innovation that we're developing across our brands to expand within existing categories or launch into new ones. We have built a product development organization and our supply chain that enables us to design prototype and launch products quickly to that end. In addition to sellafield pie and silicone color ways, which I have.
Already mentioned Oreo broadened its assortment by launching a kayak and a black color, which quickly sold out we have some other exciting new products. We plan to launch this coming year at Chevy's and Isle as well our product pipeline is strong and we are very excited about continuing to deliver innovation into the marketplace.
The beauty of our brand platform is that it is highly scalable we have the global infrastructure to support organic growth, but also to integrate D to C. Acquisitions, we have made significant investments in supply chain infrastructure fulfillment and customer service. As a result, we have built a powerful DTC e-commerce platform for our existing and for future.
I am pleased to say that we are truly a plug and play platform that has been able to generate significant leverage in marketing and advertising shipping and fulfillment and human capital. We believe we have significant runway ahead of us by executing on the following growth strategies.
First accelerate organic growth, we are a D to C first platform and our focus is to protect and accelerate our DTC growth leveraging our proprietary marketing engine, we have significant room for organic growth within each of our current brands by building brand awareness and acquiring new customers, we see the total addressable market just.
For <unk> in the United States, a 76 million households, and solar stuff has only about one 5% market penetration of this market.
In addition, we see a massive tam an untapped opportunity to gain increased domestic market penetration and our other brands our proprietary consumer insights derived from our customer database enables us to increase our brand reach efficiently and inform our marketing and product decisions.
Second utilize scale and platform efficiencies, we have made significant investments in our supply chain infrastructure customer service and digital marketing platform.
And we have built a scalable global network of suppliers to support the growth of all our brands and.
In 2018, we brought our fulfillment in house, which eliminates the middleman and provides us with greater control over the fulfillment process and allows us to offer the best customer experience possible. We operate three warehouse facilities throughout the United States, enabling two to three day delivery via ground shipping almost anywhere in the diverse.
The United States as such we have improved shipping times picking times and lower fulfillment costs by leveraging our expertise in shipping and fulfillment across the solo brands portfolio, we have been able to generate platform efficiencies driving material EBITDA leverage and better customer experience.
Third international expansion, we also see tremendous opportunity to expand our brands internationally by replicating our successful domestic DTC model and by growing and leveraging our global infrastructure.
In August we launched the <unk> West side in Canada and have been pleased with our performance. Thus far our Canadian launch is a great example of how we lean on other brands resources and expertise to accelerate growth in the platform are oral kayak brand already had a presence in Canada, and we partner with orders community to build awareness about <unk>.
As a result of Oreo support and <unk> strong brand in the U S. We generated more revenue in August 2021 in Canada than we generated in any August and the first six years in the U S and.
In October we opened a new fulfillment center in Rotterdam, Netherlands to service the European market and launched a European website with targeted advertising directly in four countries and had sales in 20 countries. We will continue to replicate our domestic D to C model across the continent.
Fourth strategic acquisitions, we are constantly evaluating opportunities to add other disruptive digital D to C and high growth brands to our platform. However, I cannot emphasize enough that we have significant growth in front of us with our current brands. Nevertheless, we have a clearly defined brand accelerator model and acquisition criteria should we.
Find the right strategic and opportunistic brand partners in the future. As a reminder, we are looking for enthusiast brands with impressive digital communities and strong emotional connections with our customers. We are a founder friendly acquirer of choice and want to partner with brands, who are category creators and who have developed a significant competitive moat in their respective.
Categories.
Fifth and final channel expansion, while our focus is on driving growth on our DTC platform, we recognize the importance of having a retail presence in order to meet customers, where they are we offer our products and selective retailers because we know that some customers prefer an in person experience, we see an opportunity to continue to see.
Electively expand in this channel with our strategic partners, including Rei Ace and Dick's Sporting goods and expect a strategic retail could be 15% to 20% of our overall business over the next five years.
We also have seven owned retail stores across chevy's aisle and now solo branch showroom collectively I would also like to highlight a rapidly growing opportunity in corporate sales. We are very excited about this channel as it allows for us to access the large and growing promotional products industry.
This channel plays into our strengths because we have the ability to provide unique customizable products that are great for gifting.
Before I close I have two important call outs, we would not be in a position without our amazing world class team that has expertise across disciplines.
I am proud to say that across our brands. Our people are fueled by a common set of key values that positions solo brand to continue its category disruption and growth trajectory our people our tireless results oriented boldly entrepreneurial and bring positivity to our culture and I. Thank them for their hard work dedication and enthusiasm.
Second one aspect of our winning culture that I'm proud of is that we strive to be the good we aim to be the good by operating with integrity and under stringent ESG targets to that end, we partner with our suppliers to help them meet and exceed our standards. Furthermore, we contribute to the health of our communities and our planet through our philanthropic partners.
As our brands grow we donate more back to the causes that matter to our community and customers.
We think solo brands has the opportunity to be the leading direct to consumer company in the world. Our collection of brands combined with our focus on delivering best in class customer experience positions us to deliver strong results over the long term now with that I'd like to turn the call over to Sam to discuss our third quarter results in more detail Sam.
Thanks, John and good morning, everyone before I begin the review of our third quarter financial results I would like to highlight a few points regarding how full of brands provides a highly attractive financial profile first as you'll see from the numbers. The operating primarily direct to consumer we maintained strong adjusted gross margin well above 60% second by bringing in house key functions such as.
Supply chain warehousing fulfillment and marketing, we can drive tremendous operating leverage and spent into incremental growth, while maintaining strong profitability third our direct to consumer model allows us to maintain a deep connection with our current and future customers as we collaborate real time to identify.
A lot of products that create meaningful moments for Maxim memory in their lives.
Together this produces a flywheel effect of rapid growth scalability and robust free cash flow conversions that allows for us to reinvest in product innovation marketing and extend our brand reach given our largely untapped addressable markets and our low capex requirements for growth. We continue to be excited about the white space opportunity ahead with that preamble I am pleased to share with you.
Our third quarter momentum and our outlook for the future at solar brands.
We experienced rapid growth during the quarter that exceeded our expectations and revenues and profitability. Please note that total revenues in the quarter include the acquisitions of <unk>, which were acquired in Q3 'twenty one and are not included in our financial results last year net.
Net sales increased 138, 3% to $69 4 million compared to $29 1 million in the prior year period by channel direct to consumer sales grew 119, 6% to $58 1 million compared to $26 5 million in the same period last year.
Wholesale net sales increased 323, 4% to $11 4 million compared to $2 7 million last year growth was primarily driven by an increase in total orders average order value, which increased 104, 7% and three 9% respectively.
Believe the increase in the number of orders was primarily due to the positive response from our increased spending on our digital marketing strategy growing brand awareness and increased demand for outdoor recreation and leisure lifestyle products.
Gross profit increased 97, 5% to $41 million, our gross margin rate was 59, 1%.
Adjusting for the impact of purchase accounting adjustments related to the fair value write up of inventory for transaction adjusted gross profit increased 122, 3% to $46 5 million.
Adjusted gross margin was 67% in line with their expectations.
Margin was driven by the strength of our direct to consumer platform, while managing to higher freight and logistics costs are impacting many companies to meet that.
Selling general and administrative expenses increased to $28 6 million or 41, 2% of net sales as COO.
Compared to $9 5 million period last year. The increase in SG&A was primarily driven by higher advertising and marketing expense investments in head count to support growth and higher outbound shipping costs. One important note is that our DTC model requires less overhead, allowing us to increase marketing spend and still drive demand that generates positive returns.
Other operating expenses were $2 1 million during the quarter due to acquisition related expenses as a result of these factors net income was $2 1 million.
Adjusted EBITDA and adjusted net income our book used by our management team as supplemental measures of our performance for purposes of fitness, making decision, including managing expenditures in evaluating potential acquisitions may help to identify additional trends and financial results that may not be shrunk solely by period to period comparison of net income or income from continuing operations.
To that end adjusted net income increased 39, 7% to $15 8 million adjusted EBITDA increased 56, 7% to $18 2 million and adjusted EBITDA margin was a healthy 26, 2% in line with expectations.
Now turning to the balance sheet at the end of the period, we had $9 $5 million in cash and cash equivalents. In addition, we had $249 2 million in outstanding borrowings under the revolving credit facility.
$100 million outstanding Brown, Thomas agreement and $30 million under our subordinated debt agreement on October 28, 2021, we completed our initial public offering and raised $231 million in net proceeds and use the proceeds to pay down outstanding debt as of November 32021, we had $32 9 million outstanding borrowings.
The revolving credit facility and $100 million under the term loan agreement the borrowing capacity on our revolving credit facility with $350 million as of November 32021, leaving $317 1 million of availability.
Inventory at the end of the third quarter was $113 6 million. We are pleased with the efforts our team made a profit brands to build up inventory throughout the year to satisfy our growing demand.
Despite supply chain imbalances that are impacting many companies, we are well positioned with the level of Mexican quantities of inventory on hand. Accordingly, we are in great shape to provide a best in class experience for our customers order to delivery through the holidays and into next year.
Now turning to our guidance, we are providing guidance based on the visibility that we have today the holiday selling season has gotten off to a strong start and we are raising our full year revenue guidance range for 2021 to $344 million to $352 million and raising our adjusted EBITDA range to $107 million to $109 million, we expect fully diluted shares outstanding.
With $97 8 million as of December 31, 2021, and.
In conclusion, I am very enthusiastic about our future and are highly disruptive GTT platform, our long term growth for those ourselves and we remain confident in our long term trajectory for growth and profitability I will now turn the call back over to the operator to take your questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind I would like to withdraw your question. Please press star followed by the client ask your question. Please ensure you're saying if you take lightly.
Our first question comes from Robby <unk> from Bank of America. Bobby. Please go ahead. Your line is now open.
Hey, good morning, guys. Congrats on your first quarter as a public company.
I had a few.
Okay.
Oh, yes, absolutely.
My question is on.
On the revenue guidance for the.
In the fourth quarter, how much of that versus what we were expecting at the time of the IPO how much of that is being driven by solo stove.
And the other brands and then also could you talk about the.
Wholesale revenues were a little bit I think lower than we were expecting for this quarter, what's the wholesale versus DTC outlook for the fourth quarter and any any.
Any thoughts on next year for us.
Yeah happy to happy to jump in here and then Sam can layer on on top thanks for the question Ravi.
With regards to maybe go in reverse order there so just speaking to wholesale.
As we see wholesale business come in sometimes it will crossover into.
Another quarter or so.
As we saw the the retail relationships that we have gearing up for Q4.
In ordering inventory some of that inventory pushed into Q4. So that was just a matter of timing from a quarter perspective, so nothing nothing nothing drastically changing or different.
In terms of the way that we've thought about the mix from a retail perspective.
Obviously, historically because of the holiday sales season, and the strong direct to consumer presence Q4, Gen generally tends to be a higher mix of direct to consumer and a lower mix of course, we are still in Q4, so not really indicating exactly where it's going to come through but just based on our historical what we've seen historically from a.
Our retail to D to C mix standpoint, generally D to C will have a higher percent because of the holiday sales season in that direct to consumer channel that we're driving in Q4. So some of thats going to be pulled down slightly from some carryover retail business that we saw from carryover from Q3 to Q4, but generally speaking that's how we see it mix.
And again, Sam mentioned, just a few minutes ago in terms of our future outlook. We're still over the next three to five years expecting to see retail kind of trend towards that 15% to 20%, but that will happen incrementally over that period of time, so nothing drastically changing into 2022 in terms of their retail to.
Two are the wholesale to DTC mix in.
In terms of.
I can't remember what your first question was sort of more color on sort of chubby.
Chubb is Iowa.
All right so for those three versus the solar stuff.
Yeah, absolutely. So we've talked about this in the bill.
Before we won't be reporting on each of the individual brands, but just anecdotally. What we can say is that from a growth perspective, all of the brands are showing really good strong results.
So incrementally.
As we'd beat we're finding that the b is.
Coming in proportionately from each of the brands.
Around where you've seen those proportions historically play out as we've shown them to use and none of the brands are necessarily outsized necessarily from a growth year over year growth standpoint to deliver outsized results.
That sounds great best of luck with the rest of the holiday.
Great. Thanks, Ravi Thanks Robyn.
Thank you Robbie next.
Our next question comes from Chris <unk>.
From J P. Morgan Chris. Please go ahead. Your line is now APAC.
Thanks. Good morning, guys. So my first question is there is a lot of questions out there about potential holiday pull forward given the consumer started shopping.
Earlier this year is that something that.
You think that you've seen and to what extent with only a couple of few weeks left here in the quarter or are you are you baking in the rest of that there could have been pulled forward.
Yes, it's a good question.
We've tried to do you know we've talked about this quite a bit being direct to consumer with this heavy of a mix. As we are we have really good feedback from customers in real time, which I think is an advantage to DTC.
And just overall true to our strategy. What we did is listen to what customers are saying and what customers are saying to us.
And what you were kind of hearing across the board is that customers were concerned based on all the supply chain news that they are going to have a hard time getting products before the holidays. So when a lot of brands did and including our brands as we basically just pulled our promotional calendar forward.
And then David gave customers that peace of mind that they could get their hands on the product soon enough, but there wouldn't be delayed and they'd actually have products under the tree on Christmas or for the holidays.
And so we've seen that play out obviously you know this is our Q3 earnings call. We don't want to get too far into Q4, but early signs are that the demand was higher earlier.
And we again as Sam mentioned, we've really liked what we've seen in Q4, which as you know and.
And a large part what's what's revised our guidance to you guys.
Yes.
Got it and then and then as you look at the fourth quarter you raised.
Essentially raised the year.
About $23 million on top line about $6 million on the EBITDA line. So that's about a 26%.
EBITDA margin flow through just thinking about the scale of <unk>.
For Q from a volume perspective, as well as this been incremental revenues to the original forecast. The question is why wouldn't those the quarter itself just be a higher margin quarter.
And especially with the DTC mix and then why wouldn't that revenue flow through at a higher than 26% EBITDA margin rate.
Yes, great question, essentially there is well well Q4, we have really good operating leverage which you guys have heard me say I've talked about a lot Q4 is also heavier it's all planned but it is a heavier promotional period and so as we outsized performance in Q4, obviously, that's going to flow through all the way through.
To what the EBITDA margin looks like and so youre going to see outsized performance in Q4, ultimately average out to that EBITDA performance for Q4, which is why you see it kind of in that 26% range.
Versus something higher like you might see on an overall yearly blend.
Got it awesome, thanks, very much and have a great holiday.
Thanks, Chris appreciate it Chris.
Thank you Chris Our next question comes from Randy <unk> from Jefferies. Randy. Please go ahead. Your line is now open.
Yes, Thanks, a lot and good morning, everybody. So a couple of questions here.
I guess first John.
John when you are.
About the long term in terms of.
Our category and product expansion opportunities.
Philosophy, you talked a little bit about <unk>.
Hi, give some perspective on color ways in the fire could maybe just give us your perspective on what's your kind of confirmed.
Philosophy on how to think through what products to expand into categories to expand to.
Yeah, I think what they used to do is talk about it from a portability and usage occasion perspective, with how they kind of thought about product experiencing or category expansion. So I'm just curious on how youre thinking about that.
And then Sam I think you said in the quarter <unk> was up three 9% and I think the color ways.
Launched until the fourth quarter. So I'm just curious if theres been nice.
Lift from color ways, and just generally how we should be thinking about the opportunity.
In the future and then lastly.
Back to John on International you talked about expansion of a distribution center abroad already selling in 'twenty country websites in four countries.
Just give us even more flavor or anything else you can think about over the next few years that we should be.
Be considering around international opportunities going forward. Thanks.
Yeah.
Absolutely.
In terms of our philosophy around product innovation and even.
The ongoing discussions that we have around M&A and build versus buy the categories that we're looking to be in our categories first and foremost.
Foremost allow us to help our customers continue to create good moment for last remember anything and Thats, a very strong focal point for US I think also it's just an overall philosophy. We believe in the outdoor category. We believe that people spending time outdoors is what drives a lot of great experience isn't good moments and lots of memories.
So we are looking whether it's in product development or whether it's an M&A, we're looking for products and innovation that help customers create good moments and lasting memories and primarily we're focused in the outdoors and of course products that are allowing us to continue to drive the type of growth.
Categories that either untapped or haven't been innovated that we think have large teams and a good profit opportunity for us from a business perspective.
And then internationally I will just maybe not both of mine out and then get the mic here to talk through.
EBITDA and margin stuff on the international front.
We are really pleased as I mentioned with kind of the early signs both with what we've seen in Canada.
And also in Europe, we have not been surprised.
Four four on the on the bad side in terms of what we've seen in fact, we've we've been pleasantly surprised if anything with demand and the strength of the brand what we didn't know going into international was how well known the solo brand in particular would be would be known and recognized as you went over this.
Paul on to Europe.
Thus far.
Early signs that suggest that the brand is pretty well known and from an overall kickoff point, obviously, its starting up much more rapidly.
Then the way that we kicked off here in the U S and so we're really happy with early signs.
As we've mentioned previously and in the S. One we do have plans to continue to expand.
Those localized sites in Europe beyond just before.
Two to several other countries in Europe, and then later next year still have plans to.
<unk>.
Launch Australia so.
Everything is intact in terms of our international strategy as you guys know.
We did not put international revenue into into our initial model from a financial standpoint, just didn't want to rely on it so everything that we're doing internationally is additive to.
So the way that we've modeled out.
And guided our future revenue.
Okay.
Perfect all the time and I think.
Oh, Yeah go ahead. Your question was on a O V or was there was another piece to it as well in.
The quarter in the quarter, you said that a O D was up three 9% and I think you also said John made mentioned that the color ways on the pits.
Launched in fourth quarter. So so I think that's been a significant up charge or.
A higher price point that the consumer is paying for it. So I'm just curious if it's kind of a impacting <unk> already significantly or noticeably and then well beyond its solo stove. If you had it.
Interesting.
Opportunity whether through higher price products. So you can see here.
Units per transaction that that are coming through just curious there.
Yes, no great question.
I think it's largely because of the historical performance, which is that we have seen increasing EBITDA historically.
As you mentioned Theres a few different ways. That's achieved one is simply by introducing new products at higher ticket prices.
A new categories release, John mentioned, the solar stove by which we're really excited about.
In addition to that though we also have accessories that really round out the experience for our customers and are complementary to their lives and the combination of both having additional accessories and roasting sticks for the fire pits as well as as you mentioned higher priced.
Fire pits that our customers have been requesting that to add color.
All of those kind of blended has continued to improve our <unk> as you look at the past couple of quarters. So.
For Q4, I don't give too much insight there, but we'll certainly that'll be noted in our in our next earnings call, but I'll trend. So far has been have been positive.
I would add as well, saying that I think I think sales callout. There on accessories. This is an important one I would point to the repeat purchase rate of 38% one of the things that we're finding more and more success with is getting customers to add on additional items on the initial purchase and that.
Metric is helping drive.
And in fact, with so many accessories being launched and access to lower priced items, it's actually quite impressive that we're watching <unk> go up as an overall metric because we're having to offset.
<unk> product purchases that are in more of the 50 to $100 range with higher average order values in general.
What by customers, taking adding a fire pit to purchase and then adding accessories with it so we're seeing items per order.
<unk> to rise, which is in large part whats driving that.
Very helpful. Thanks, guys.
I'm trying to think you Randy on that.
Question comes from Sharon Zackfia, William Black Sharon. Please go ahead. Your line is now open.
Just a question on your gross margin outlook is there had been a lot of pushes and pulls you know since the time of the IPO. I mean have you had kind of any material changes to the thought process for the fourth quarter or for 2022.
And then secondarily given the new variant alongside the no obsolescence of your product do you plan to kind of continue to have I guess I recon elevated safety stock.
Going into 2022 to ensure you have supply.
Yeah. So just really quickly on the supply question.
Would absolutely say, yes, we believe that again because of the there's really two types of planning that we think about one is budget planning and one as demand planning and what we want to make sure is that on the demand planning front that we're prepared for whatever growth rate that the customers are demanding for the product again.
You heard the market penetration that we believe we have in the U S. Just the U S alone at solo settles out about one 5%. So very early in the story. Obviously these are products that expire on the shelf we.
We see a big opportunity to continue to carry sufficient inventory to make sure that we can deliver for the customer so.
We're definitely definitely focused on that on the gross margin front.
No.
We're continuing to watch like everyone else's right I mean, the main drivers for the for gross margin or your Cogs.
Which you know are somewhat influenced by the combination of raw materials and your freight expense and so those are those are the things that we're watching closely.
We're very conservative in our approach here, we think that we were sufficiently conservative and still feel very good about being able to deliver on the guidance that we've done that we've put forth that allows us to deliver.
The financial profit profile that we've that we've laid out so we feel good about our gross margin outlook for 2022, nothing that we're seeing are suggesting.
Or indicating anything different than the way we were thinking about several months ago.
None of those things on time to that as well.
Yeah, I'll, just a couple of points on the on the inventory position.
Yeah.
The key thing to note for US is that the customer experience starts with that first order. So when a customer places an order and get confirmation that it's shipping confirmation and those types of experiences really impact, we'll get we'll get feedback before before the product even delivered the customers are raving about.
<unk> brands.
And that's really important to us so that.
Customer impression before that you can actually use the product.
Having that be a good first impression is critical.
Obviously once they get the product and use it we think it will come there just elevates where they havent better experience.
Real life, they've seen on social media or wherever else they get to use it.
It's better when you have a tangible experience.
But having that initial.
Fresh and be driven by having inventory in stock that we're preparing ourselves.
Right out the door two to three day ground shipping, placing our facilities close to our customers. So they can have that positive trend. That's all all very deliberate.
Part of our strategy.
The gross margin side, I think I think John there's nothing really to add there. We're definitely aware of the pressures we're not assuming that those are going away. We're seeing the pressures are there as we think about it our forecast ahead on what we think.
Okay. Thank you very much.
Thank you Sharon.
As a reminder to ask a question. Please press star followed by one kind of thing.
Keep happening.
Our next question comes from Peter Keith from Piper Sandler Pizza. Please go ahead. Your line is now open.
Thank you and good morning, everyone Nice first quarter out of the gate.
I wanted to hit on marketing and.
John I was hoping you could address how you guys have navigated the Apple idea if any change it seems as we've gone along we're getting further away from the change that a lot of DTC companies are seeing increased problems as they get further away from some of that customer data.
Could you talk about how you're navigating it how your ROE as has evolved and are there any specific problems with.
And then any of the four brands.
Yes, great Great question and it's Peter.
Absolutely. So I think first and foremost what's the starting point is that we were again from a model standpoint, really well positioned to take this on head on and the reason is that we had in sourced our marketing execution years ago.
And what's that led to his last fall a year ago, so well before around the March timeframe is when that change that you just mentioned with Apple happened. Many months before that we had the foresight of that happening and made the decision to build out an internal correlation regression model leveraging our own first party data.
That essentially was intended to allow us to see the effectiveness of our ads outside of the bye bye without having to rely on the actual platforms like Facebook and Instagram that were heavily impacted in a negative way by that change we made that investment with our own set of engineers and built this model and how to.
Tested before the change happens so we could see how our model what's performing against the AD platforms and what they were saying when the change happened in March we were able to continue to lean into our own correlation regression model and see the effectiveness of our AD spend even though platforms like Facebook, we're flying largely blind and not <unk>.
To do that and so.
We in large part have not seen the impact.
That other brands have seen because we've been able to leverage our own first party dataset and the internal execution to do that so we've been able and in fact in some instances because a lot of people abandon some of the more common AD platforms, because they were flying blind, we actually found those platforms to be even more cost effective for us.
Because there was less competition because a lot of brands that dropped out. So that's my first point.
The second one that I would make that our team has done an exceptional job on this year is continuing to diversify and to be on the front end of any sort of innovative advertising digital advertising opportunity again with this in house capability that we have and so what we've done as well as we've got spread out and diversified our digital ad spend.
Across an even wider myriad of AD platforms. Those AD platforms are performing well actually performing in many instances above our historical rollouts performance, which is driving very efficient marketing spend so not only do we have the operating leverage that that Sam has been talking about which allows us.
To continue to drive growth once we cover our fixed expenses, but we also have more levers that we can pull in digital marketing as our team has become more knowledgeable and more experienced and diversified that digital out approach.
Alright, that's great feedback that you can do overview.
Go ahead Tim.
Yes, I'm just kind of later on I think one thing to point out just at a high level that I think is pretty darn unique given 84% of our business is done on the web site.
That fact alone that's a step to be able to see real time, what's happening is we as we test and kind of.
Different levers around our digital.
<unk> strategy, that's just not possible for many companies that they are not going to get the kind of that throughput of data <unk>.
When they when they're when they're moving their core market strategy or.
Our changing changing that.
Tactics, so for US just the capability to do that I think is incredibly unique and then obviously as John mentioned, we're doing everything we can to leverage it and have them in.
In house marketing and all the things you've talked about so I just wanted to point that just the capability I think is pretty unique.
Let's get them up to Canada, I think most of it.
Okay.
If I can just ask a follow up maybe we'll look at the <unk>. For example, so because thats a recent acquisition you didn't have that period of in house marketing to build all of the data.
Is that brand specifically.
Able to navigate this or is it has chubb have you seen any any specific problems because of the change.
Yeah. Good question, specifically, obviously, we don't generally kind of isolate brands, but in this instance, this is this is an easy one to cover Chubb is actually very similar to <unk> had taken the same approach in sourcing their marketing and so while they didnt necessary.
Really have the correlation regression model that we have built they have a very sophisticated execution internally with their own marketing team and so they've been able to navigate it again as I mentioned earlier, they've built through pivoting to new channels tick Tock as an example.
Our masks at $1 6 million follower base.
Based on tick Tock, which is right in the wheelhouse that demographics, just right in the wheelhouse of their customers. So what they've been able to do is diversify their digital marketing strategy, which has allowed them to continue to maintain the marketing efficiencies that they've seen in the past.
Less less by utilizing the solar cell approach, which is this correlation and regression model and more by diversifying into new AD channels and now when you layer those two things together, obviously theres wins on both sides, because they're teaching us about the ticks off channel and how to leverage that and we're giving them visibility into our correlation regression model. So.
This is truly a rising tide lifts all ships, but they were able to navigate it in their own way.
Leveraging new digital channels.
Alright, that's great overview. Thanks, so much guys.
Yes, Thanks Peter.
Thank you Peter.
At the sign a reminder to ask a question. Please press star followed by one on your telephone keypad now.
We have no further questions. This will conclude our Q&A I will now hand back to John for any closing comments.
Yeah, great. Thank you. Thank you all for being with US today, we're really looking forward to update you on our progress on our next earnings call looking forward to talking through our Q4 and full year results. So wish you all happy holiday season, and again. Thank you all for joining us today.
Thank you for joining you may now disconnect your lines.
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