Q4 2021 Solo Brands Inc Earnings Call
[music].
Welcome to today's so like brands, Inc, fourth quarter and fiscal year 2021 financial results call. My name is Jordan and I'll be coordinating your call today.
If you'd like to register a question. During this presentation you may do so by pressing star followed by one in your telephone keypad.
I'm now going to hand over to Bruce Williams from ICR to begin.
Please go ahead good morning, everyone and thank you for joining the call to discuss solo brands' fourth quarter results, which 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.
Before we get started I'd like 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 1095 that are based on current management expectations. These may include without limitation predictions expectations targets or estimates including regard.
Our anticipated financial performance business plans and objectives for 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 cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties among others discussed in our filings with the SEC.
We encourage you to review these filings for a discussion of these risks, including our soon to be filed annual report.
<unk> Form 10-K and will be available on the investor portion of our website at investors got solo brand Dot Com you.
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 earnings per share as adjusted adjusted EBITDA and adjusted EBITDA.
Which we believe are useful supplemental measures that assists 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 appear companies reconciliation of these non-GAAP measures to the most comparable GAAP.
Definitions of these indicators are included in our earnings release, which will be available on our investors portion of our website at investors dot solo brands Dot com.
Now I would like to turn the call over to John .
Thank you Bruce and thank you everyone for joining us for our fourth quarter and full year results for 2021.
We accomplished a great deal last year and I want to thank our entire team for their dedication and hard work.
I will begin today by highlighting the unique characteristics of our business.
Which I believe will help distinguish us over the long term.
Next I will provide an overview of our performance demonstrate our confidence in our strategic initiatives going forward and finally, I will turn the call over to Sam to discuss our financial performance and outlook for 2022.
While <unk> has historically generated over 90% of our revenues we are much more than a consumer durable company, we operate beloved brands with a focus on digital direct to consumer that creates a special connection to our customers strong differentiation and a passionate following that generates growth high profit margins and strong free.
Cash flow our brands are better together than apart because we provide a global scalable infrastructure that supports rapid organic growth efficiencies and shared learnings.
We are incredibly pleased with our performance in the fourth quarter and for the full year driven by the continued strength and vitality of our brands, especially solar stove, which seasonally outperforms in the fourth quarter.
We continue to see tremendous opportunity for growth across our platform, which is focused on disruptive outdoor lifestyle brands.
Our strong fourth quarter results were driven by solid demand across our brands, our consistently high customer referral rates and better in stock position. Despite supply chain challenges enabled us to generate strong 164% topline growth for the quarter compared to the same period in the prior year, which was on top of a two <unk>.
Third 38% increase from the fourth quarter of 2019 and.
In addition, adjusted EBITDA increased 55% compared to the same period of the prior year.
Our promotional levels were consistent with last year in the same quarter. However, we made strategic investments in marketing infrastructure and international expansion to continue to accelerate our growth plans. In addition, we incurred cost as a newly public company, which were reflected in our fourth quarter results given our early stage growth profile, we see.
<unk> to invest back into our business to strengthen our existing foundation for sustainable long term revenue and EBITDA growth.
2021 was an amazing year for solo brands, we added three unique and exciting brands to our platform that will aid in our mission to bring lasting memories to people across the world. We generated solid profitability, which is on top of the growth that we experienced during COVID-19 and hit new record sales levels.
We believe that all our brands have tremendous growth in front of them and we continue to invest in people our proprietary data platform product innovation and international expansion to meet robust customer demand acquire customers at a faster pace, all while creating installation from the challenging and changing digital marketing headwinds or <unk>.
<unk> generates high levels of profitability and we remain comfortable with our long term growth targets of 20% plus sales growth mid 20% EBITDA margins at 20% to 25% adjusted net income growth.
However, we expect these investments will pressure margins in the near term as we build infrastructure for long term growth. We believe that some of these investments will have a positive impact on revenue growth as soon as the back half of this year, while others will pay off in 2023 and beyond.
We believe that the key to our success is developing greater control over our growth story, a referral rates in 2021 continued to grow reaching 48% and our repeat purchase rate continues to be strong at 40%, our strong referral and repeat purchase rates lower customer acquisition costs, allowing us to maximize marketing spin.
<unk> enhanced new customer acquisition and increased LTV, our E. Commerce business continues to drive over 85% of total sales, which creates a large first party dataset leveraging this data allows for us to gain deep merchandising insights that help to shorten the product innovation cycle and drive repeat purchase rates.
In the early stages of investment to mobilize our extensive first party data set across all brands and expect for this investment to pay off later this year and in future years. This will give us a single view of the customer, allowing for us to improve our already successful loyalty programs and to automate segment and personalize our marketing efforts to not only.
Drive customer retention, but also increased conversion rates.
Additionally, we see a tremendous opportunity to leverage our data to drive cross pollination across our platform at the beginning of the year 4000 of our customers had purchased for more than one brand, but by the end of the year over 25000 of our customers had purchased from at least two of our brands and growth of buybacks in just the first.
Three to six months of bringing our brands together, we have a high degree of confidence we can significantly increase this metric, which would drive efficient revenue from our installed customer base without having to rely on third party marketing platforms or outsized investments in marketing spend we view this as a top priority over the next 12 months.
As we look ahead, we remain focused on our strategic initiatives to drive growth.
First we will continue to build and invest in strong relationships with our customers and as mentioned above invest in our data platform that helps us stay connected to our customers our relationship with our customers leads us to our second initiative, which is to drive informed innovation across all our brands third we see opportunities to accelerate our channel expansion.
Through wholesale.
Fourth we will continue pursuing strategic M&A for solo brands and fifth we launched international in late 2021, and expect to expand our efforts in additional markets in 2022.
Let's start with the customer because we continue to generate the majority of our business through our own websites, we were able to build strong direct relationships with our customers and generate reliable data that helps us measure the health of our business with recent net promoter scores trending up into the <unk> referral rates at 45%.
And repeat purchase rates at over 40%, we have high confidence in our ability to generate sustainable growth through the investments already underway.
We are excited about the opportunities for us to continue to invest in data infrastructure that will extend the advantages of our go to market platform. These investments have expected payback periods of less than 12 months based on estimates and improved marketing efficiency.
This work commenced in the fourth quarter and will continue throughout 2022. When our work is completed we will be able to fully leverage our first party data across all brands recent privacy changes made by Apple and Google reinforced the importance of owning and leveraging your own data. While these changes have negatively impacted digital marketing costs in the marketplace.
They are less relevant to our business as we continue to leverage our data across the celebrant platform. Our data capabilities are expected to increase our marketing efficiency provide some profit protection and helped to insulate us in this new environment, where marketing costs are rising.
Next this product innovation, we launched the heat deflector at <unk> this quarter based on feedback and we're pleased with the sales momentum we started shipping heat to feel like there is in the first quarter. In addition, our subtlest of Pie Pizza oven was made available for preorder on International Pie day 314 on our website and we are starting.
To get it into customers' hands in the second quarter.
The initial response of Super positive and we're pleased to see the majority of sales coming from existing customers. While early this is a big unlock for <unk> by more than doubling the LTV from these customers and significantly increasing <unk> Tan.
At <unk>, we launched a special Black edition kayak in Q4, which is just as <unk> portable and easy to assemble at our standard inland, but with a sleek and stealthy black finish we sold out of it quickly and recently relaunched and expanded our offering. The initial response has been positive. We are also launching an introductory price point kayak.
<unk> Lake later, this year, which would be an opportunity to further expand our addressable market keep an eye out for lake, which will initially be launched on kick started this month similar to the way we've launched products in the past we plan to launch further innovation with Ireland Chevy's later this year as well the strength of our product innovation pipeline will keep our.
Customers engaged and will also drive repeat purchases.
We will continue to make strategic investments to innovate our product lines and <unk>.
New products to customers faster.
Turning to our channel expansion opportunities one of the benefits of our model is our ability to meet our customers where they are to that end. We have created strong momentum in our wholesale channel and see an opportunity to lean into this channel based on the tremendous demand we are seeing from our retail customers in 2022, we are expanding.
The number of doors with several key retailers such as Ace hardware Dicks Academy and tractor supply. We are also rolling out two skus that will be exclusive to retail one of the unique bundle that includes the solar stove stand and cover and the other is a new larger 30 inch solar stove Canyon.
Our customers have been asking for a larger <unk> and we see this as the perfect fit for our retail partners we have.
Have felt strong winds behind our wholesale business and believe that coupled with our primary DTC channel, we are well positioned to be where our customers need and want us to be which has always been our primary goal.
Turning now to international expansion, we see international as part of our long term growth and believe that investing in it now will not only give us a first mover advantage, but we will also expand our addressable market and reduce friction points by getting our products closer to our future international customers with.
We launched localized sites in Canada in August in Europe in October and plan to enter the Australian market in the third quarter of this year.
It is early and we are still learning we are optimistic about the opportunity in front of us.
Lastly, we continue to evaluate strategic acquisitions and we are pleased that interest to join celebrate is strong we are highly selective and focused on finding unique brands founder led and will complement our existing platform.
Turning to our supply chain, while we are experiencing.
<unk> continued pressures from inbound freight we are in a good inventory position to meet the strong demand from our customers.
Our on time deliveries shipping accuracy and quality remained consistent despite global supply chain challenges prices, a key lever for us to mitigate cost increases over the near term and while we are holding prices constant on our site. We have slightly increased prices to our wholesale accounts over the medium and long term, we are increasing our supplier base and exploring.
Additional geographic opportunities for manufacturing, including North America.
Before turning the call over to Sam I would like to touch on our outlook for 2022, while we are optimistic about the future growth opportunities for all our brands. We are not immune to the recent macro headwinds that could impact discretionary spending. In addition, we are lapping our most difficult comparisons of the year.
As such we have seen a slight slowdown in sales trends for the first quarter. We believe our guidance appropriately incorporates the current trends in our business as well as the investments that I discussed earlier, we have a lot of growth opportunities in front of us and we are excited for the future. We believe the investments we are making in our business will position us for long term sustainable growth.
I will now turn the call over to Sam to discuss our fourth quarter results in more detail.
Thanks, John and good morning, everyone I'm excited to share with you our 2021 fourth quarter and full year results and then follow that up with commentary on our growth outlook for 2022.
And 2021 solar brands had another remarkable year as we grew more than two times on an organic basis and more than three times on an inorganic basis with the addition of three new and exciting brands.
Not only did we generate more than double the revenue organically. We did so in tandem with growing adjusted EBITDA, Our DTC business model continues to position us to power both growth and profitability.
Fourth quarter net sales increased 164% to $176 5 million compared to $66 $8 million in the prior year period by channel direct to consumer sales grew 162% to $164 2 million compared to $62 7 million in the same period in the prior year and wholesale.
Sales increased to 197% to $12 3 million compared to $4 1 million in the prior year.
Growth was driven by an increase in volume specifically an increase in total orders, which increased to 105%. Our average order value increased 14, 2% driven by product mix. The continued growth of direct to consumer sales over what many of you. It is a tough fourth quarter comparison in 2020, while maintaining consistent promotional levels with prior years.
Demonstrated continued strength in direct to consumer demand in the fourth quarter.
Turning to our full year results. Please note that total net sales includes the post acquisition net sales contributions of <unk>.
<unk> and <unk>, which were acquired in 2021 in May August and September respectively and were not included in our financial results in 2020.
Net sales increased 203% to $403 7 million compared to $133 4 million in the prior year. The increase was led by the continued robust organic growth in our <unk> brand of 171% over the prior year to 362 million organic net sales in our other lifestyle brands in <unk>, Oregon.
<unk> increased 60% to $121 3 million over the prior year for a combined organic growth rate of 131% to $483 3 million in net zero on a pro forma basis. If we had owned all brands for the full year.
In addition growth was driven by total orders, increasing 145% and average order value increasing 19, 9% direct to consumer net sales increased to 190% to $355 7 million and wholesale net sales increased 347% to $48 1 million on the year, our direct to consumer channel.
Accounted for 88, 1% of total net sales and wholesale net sales accounted for 11, 9%.
In 2020 wholesale net sales accounted for eight 1% of net sales our growth in wholesale as a percentage of overall net sales of 347% growth rate year over year demonstrates our continued success with growing our existing partnerships as well as expanding with new partners.
We are bullish on the opportunity to continue to team up with Rei, Dick's Sporting goods Ace hardware and many other long term and new partners to lean into growth, including with new exclusive wholesale offerings as John referenced.
Overall, we were pleased to observe that consumer demand and solid throughout the fourth quarter and 2021 as a whole and that 2021 prove to build very favorably compared to the prior year.
Moving to gross profit gross profit increased to 169% to $111 7 million.
Our gross margin rate was 63, 3% compared to 62, 2% in the prior year.
Adjusting for the impact of purchase accounting adjustments related to the fair value write up of inventory for transaction adjusted gross profit increased to 148% to $117 2 million.
Adjusted gross margin was 66, 4% compared to 78% in the prior year with the variance to prior year, driven by higher freight and logistics expenses.
For the full year gross profit increased to 198% to $258 9 million.
Gross margin rate was 64, 1% and adjusted gross margin was 67, 2% we.
We were pleased to generate robust gross margin levels in spite of unprecedented challenges in the supply chain.
Our premium brands and products continue to generate and sustain strong gross margin levels, which enables continued success with our direct to consumer and wholesale efforts.
Selling general and administrative expenses for the fourth quarter increased $82 5 million or 46, 8% of net sales as compared to $19 6 million in the same period last year.
The increase was primarily due to the following an increase in our advertising and marketing spend of $27 $3 million to drive brand awareness and increase in employee costs of $13 7 million as a result of increased headcount to support growth and equity based compensation expense, which includes an increase of $6 6 million equity based compensation.
An increase in shipping costs of $13 5 million raise the sale and investments to expand our international footprint.
For the full year SG&A expenses increased to $159 5 million or 39, 5% of net sales the.
The increase in SG&A was primarily driven by the following an increase in our advertising and marketing spend to $57 million to drive brand awareness and increase in shipping costs of $24 4 million that varies with sales and increase in employee costs of $20 6 million as a result of increased headcount to support growth and additional equity based compensation expense, which includes an increase of seven.
$3 million equity based compensation.
An increase in seller fees of $8 9 million in onetime costs related to our transaction.
Other operating expenses were $6 6 million during the quarter due to employee costs related to the acquisitions international expansion costs and costs to transition to our new global headquarters as a result of these factors net income increased to 127, 2% to $12 4 million for the fourth quarter, and 333, 4% and $56 5 million for the full year.
Here for the fourth quarter and the full year earnings per share attributable to <unk>, Inc. Was <unk> 17.
Earnings per share represents only the period from the IPO date of October 28, 2021 to December 31, 2021, which represents a period when the company had outstanding class a common stock.
For the fourth quarter adjusted EBITDA increased 55, 1% to $43 1 million and adjusted EBITDA margin was 24, 4%.
For the full year, adjusted EBITDA increased to 120% to $120 9 million compared to $54 9 million in the prior year adjusted EBITDA margin was 29, 9% in 2021.
For the fourth quarter adjusted net income increased 38% to $35 3 million for the full year adjusted net income increased to 105% to $105 3 million compared to $51 5 million in the prior year.
Weighted average diluted shares were 63 million 10, 538 as calculated under the Treasury method of accounting for options and Orange juice and under the if converted method for class B shares, which amount to $33 million 416783 shares our adjusted EPS for the fourth quarter and full year of 2021.
<unk> was <unk> 45.
And $1 55, respectively.
Now turning to the balance sheet at the end of the period, we had $28 million in cash and cash equivalents on October 28, 2021, we completed our initial public offering and raised $229 million in net proceeds from the IPO and the exercise of the underwriters option to purchase additional stock and used the proceeds to pay down outstanding debt that was primarily from.
Actions, including the acquisitions of <unk> and <unk> as.
As of December 31, 2021, we had $32 5 million outstanding borrowings under the revolving credit facility and $99 $4 million under the term loan agreement the.
The borrowing capacity on our revolving credit facility was $350 million as of December 31, 2021, leaving three.
$317 5 million of availability.
Inventory at the end of the fourth quarter was $102 3 million. We are pleased with our ability to invest in working capital and to ensure adequate supply to meet the demands of our customers. Our inventories were unusually low at the end of 2020 due to supply chain disruption, which led to stock out pent up demand going into the first quarter of the following year we are in.
The much better inventory position today and appreciate all of our teams efforts to ensure the best experience for our customers.
Turning to our guidance, we are providing guidance based on the visibility that we have today and our historical seasonal trends for.
For fiscal 2022, we expect revenues in the range of $540 million to $570 million and adjusted EBITDA in the range of $121 million to $132 million coming.
Coming off of the strength of the fourth quarter of 2021 and as John previously mentioned, we decided to make additional strategic investments in the three following areas as we head into 2022.
First we continue to invest in infrastructure to expand our international operations in Canada, and Europe , and our planned launch of Australia in the third quarter.
Second we have accelerated our innovation timeline by investing in innovation center investments and enhancing our design and manufacturing capabilities. We are proud of these investments with increased funding behind developing and marketing launches of new products, including solar.
And so it's strategic vector and other products under development third we are making meaningful investments in data infrastructure in terms of both people and systems as they look to consolidate and leverage our prime position to respond to increasing data privacy changes.
In light of these and other investments, we expect to see lower adjusted EBITDA margin for the year.
Because we are a few days out from the end of our first quarter you'd like to provide some additional context and insight into what we are seeing this quarter.
There are a few factors that will impact our results relative to the year prior to that are important to understand.
First off the seasonality.
The first quarter is our smallest quarter each year typically operating in the mid teens as a percent of total year revenue.
Accordingly, the investments, we're making now are having an outsized impact on margins in the first quarter of this year.
Lesson as you progressed throughout the year and normalize into future years.
A second key variance between the first quarter of this year versus last year until we close the fourth quarter of 2020 with higher levels of deferred revenue due to the supply chain disruptions, which impacted our ability to ship product for orders placed during the quarter.
Our 2020 year and deferred revenue was $20 2 million and was alleviated. Once we are back in stock in the first quarter of 2021 and contrast as of December 2021, our deferred revenue balance was $3 5 million, which is mine with our typical trends.
Third there are other expenses, there incrementals last year, including public company expenses and the whole cost structure of all of our brands.
Finally, we recognize that there are a number of macroeconomic factors that play in terms of lapping stimulus checks and child tax credits in 2021 and placement of other impacts on discretionary purchases in 2022.
We believe these factors have weighed on our first quarter results and assume these impacts will continue through the first half of the year.
For the first quarter, we expect revenue in the range of $82 million to $85 million and adjusted EBITDA of 12 million to $14 million. We expect first half gross margin rate to be in line with full year 2021, as we have previously communicated we expect sustained freight pressure in the back half of 2022.
We are assuming our first quarter revenue guidance is in line with historical seasonality for the second quarter. We expect net sales will also be in line with historical trends as being a little above mid <unk> as a percent of the year's total net sales.
In conclusion, I am very enthusiastic about our future. The brands, we have and that we brought onboard our innovation pipeline and our highly disruptive DTC platform. We believe in our long term algorithm of 20% net sales growth mid twenty's percent, adjusted EBITDA margin and 20% to 25% of adjusted net income growth our long term growth for <unk>.
And we remain confident in and committed to 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 as a reminder, if you'd like to register a question. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by two and please ensure you said when speaking.
We would also ask if participants could limit themselves to one question and then one follow up question.
Our first question comes from Randy <unk> of <unk>.
Jeffrey Randy Please go ahead.
Yes, Thanks, a lot and good morning, Sam I, just want to go back to the guidance for a second for the year did you could you just clarify did you say just clarify what you said on the gross margin again, and if I heard that correctly does it sounds it sounds like the most of the change or variable versus our model in the east.
Dollar guide has to do with the incremental SG&A for which you gave us those different buckets youre spending and so can you just clarify again the gross margin.
Is it supposed to be flat or whatever you just said.
Versus 2021 for 2022, I just need to know that and then could you expand upon in those SG&A buckets that are higher I guess higher can you give a little bit more detail around the individual buckets in terms of how much is going into each for 2022.
Yeah.
Sure. Thanks, Randy Thanks for the question let.
Let me start with gross margin so.
At the modeling sustained pressure from freight spec the rising freight costs will roll throughout the year with our first quarter being the highest gross margin rate and sequential pressure from there is freight costs rolled through margin.
So overall compared to two.
<unk> 2021 on the year, we expect that.
Pressure to.
Lower gross margin on a year by a little over a 120 basis points.
Okay.
When it comes to EBITDA margin, we would expect that given the investments, we're making the pacing of investments will be even throughout the entire year.
And then given seasonality patterns of our revenue, we would expect Q2 and Q4 to be our highest margin EBITDA margin quarters and in Q1, and Q3 will be lower just given.
Given the revenue sizing.
From an investment standpoint.
Like John mentioned and Haven that I brought up in mind.
Investing in.
Innovation data and international in terms of the buckets those that would be in personnel to support growth.
Growth in those teams would be in systems and in being in marketing international and product innovation.
John anything you want to layer in on there.
Yes.
Yes.
What I would throw throw on top of that Randy is if you think about the three buckets, which I think is what youre trying to get at is kind of how does how does the investment or the increase in SG&A break out across those three opportunities.
What I would share with you is about half or a little over half is on the data side, and then product innovation and international is where the other half is going to be made up. So if you think about kind of how it's breaking down the data infrastructure and investments, we're making there, which we see to be the most impactful in our long.
Term sustainable growth model.
It's going to be in the data side and in international and the pull forward of product innovation is going to be the second bucket.
Helpful. And then my last John Let me, let me, let me add one comment Randy as well.
For freight we haven't pinned down our contracts yet for this for year as a reminder, freight contracts go through the end of April .
So we're still on last year's.
Rates combined with spot market, so that obviously averages up throughout the year given the increase in spot market throughout the year last year, but we will have more insight on our next call. Once we have locked in those contracts. So those are in process again, we've modeled.
Due to freight pressure, but we have not been that yet so.
More to come there.
Helpful. And then just I guess, John maybe if you could expand a little bit on the commentary around the demand side of things, maybe give us a little bit more color on differences in the <unk>.
Trends youre seeing by the two largest brands solo and Shelby just curious on kind of what Youre seeing are you seeing slight slowdown in unit velocity change in what people are buying maybe a lower priced product.
A higher priced product and just curious what youre seeing.
The two larger brands.
Yes for sure for sure. So what I would say is what we saw coming out of the gate I know, we're getting towards the end of Q1.
So all eyes are kind of on whats really happening now we obviously just reported our Q4, so a few days left.
But with inflation the Ukrainian conflict gas prices.
Even what consumers are seeing when they go to the grocery store.
We saw early this year, obviously a lot of these things none of us have full visibility into what was coming and what we saw from an impact standpoint, particularly in our in our dot com business on our own websites right, where we have very real time information is that traffic we saw.
Traffic headwinds at the beginning part of Q1 that really kind of ran all the way through.
Even the first part of March what's been what's been promising for US is that we actually are starting to normalize and we're starting to see actually the latter part of March actually trending up in traffic year over year.
So we like the direction that its going but again because of some of the unknowns out in the future and what we saw the first part of the first couple months of Q1, we have taken the softness that we experienced in traffic and kind of rolled that through the year to make sure that we're positioning ourselves well for us.
The thing that I'll point out about our model in particular is that this is exactly what DTC was built for was were headwinds in softness like we've seen in Q1, we have this direct relationship with our customers.
We know what's happening in real time and are able to pivot and make decisions as a business.
To combat those the other thing that we really like about what's going on right now with our businesses.
There are macroeconomic factors are things that are happening that are out of our control, but we are watching very closely the things that are in our control. So things like NPS referral rate repeat purchase rate in LTV and all of those metrics are continuing to hold strong or actually increase and so that's.
For us very encouraging.
To the health of our business and brand and consumers desire to be loyal and to stay close to the brands that they love so.
That's kind of what we've seen and what we're seeing right now and why we continue to be optimistic about our full year guidance.
Very helpful. Thanks, guys.
Thanks Randy.
Our next question comes from Robbie Holmes with Bank of America will be please go ahead.
Hey, good morning, guys.
My two questions maybe first just a follow up on Randy's question.
Questioning can you guys talk a little bit more about the revenue cadence you expect for 2022 to.
Two growth rates.
Given the way the first quarters.
Happened.
And noting that it sounds like traffic more recently has gotten better but.
And Sam should we expect kind of a slower growth rate for revenues in the second quarter and then the initiatives will be more.
Realized are driving better growth digital advertising things like that in the third and fourth quarter, maybe maybe some thoughts there.
And then the second question can you guys brought up a little bit more on the wholesale side wholesale still very small for you.
Same thing would that would you see wholesale account shipments building more dramatically. This year as you move through the year that could support outsized revenue growth in the back half versus the front half.
Great. Thanks, both they're both great.
Thanks Robby.
Yes go ahead, sorry go ahead.
Volume.
Alright, it sounds good it sounds like we've got a good tug of war Sam Let me with this one but I'll give you on the next one.
Good question.
Got it.
I did so.
I will.
Why don't I, Sam I'll take question, two and why don't you take question one is that.
Sounds good.
Alright, I'll jump in then on question two specifically around wholesale Ravi.
So what youre spot on Youre hearing it.
We talked about it we like the momentum and while we did see traffic headwinds.
The first couple months of Q1 in particular on the Dot com business.
On the overall whole.
Our <unk> business, our wholesale business has continued to maintain year over year, good solid year over year growth and so we do we do life what's happening there.
We've always said, we want to be where our customers want us to be and where customers are showing not through.
Just what they're saying, but also showing us through how they are spending.
We want to be where they want to be and ultimately what we've seen is in this in this first quarter. There has been really good solid demand through retailers and the retailers of course that are excited to roll that into seasonally Q2, and the rest of the year. So you are going to see us leaning into.
Meeting demand where the demand is.
As such as we've been saying for the last many months since even before we went public.
In terms of our long term trend, we still expect for DTC, which I think Sam just just talked about being roughly 88% of our business. In 2021, we do continue to see that or expect that to trend more towards an 80 20, 80% direct to consumer.
And then 20% through wholesale and Thats that was already planned and reflected we saw these trends happening over the last year and are going to continue to lean into them. So in terms of the wholesale business, we definitely will lean into the wholesale opportunity throughout this year and you'll see that kind of play out as we get to the latter months or better.
Quarters.
And John as the exclusive product or these are you sort of setting up sort of holiday assortments that are exclusive for some of these big retailers and so you could have outside shipments of some of those newer products hitting in say third quarter.
That's right that's exactly right from a planning perspective.
That's when you see it you would see those those exclusive skus. It takes time to just get them together and get the marketing material and the product.
Package and whatnot and so it is a back half of this year and again because of the holiday ramp up.
The retailers, it's likely to be in Q3.
I could say that it potentially carries into the first part of Q4, but I would say middle to late Q3, and early Q4 is where you'll see that hit.
Okay.
Awesome Robbie to your first question.
The growth you're spot on and we expect these investments to pay off.
Continue to path.
<unk> for the back half of the year.
National so by heat the collectors and additional investments, we're making around data.
And so we would expect our growth rate to be higher in the back half of the year versus first half of the year from a seasonality perspective.
Okay.
You didn't catch it on the call are just to provide a little more color historically, our first quarter has been around 15% mid teens I should say I didn't get the specific ICR is going to be that would be now but around mid teens call. It percent.
For the year.
Historical seasonal trend last few years, and then Q2 typically.
On the call it mid to higher <unk> higher.
Higher end of the mid 20% of total year revenue.
So we would expect that to be.
Pretty much in line with historical trends and then again that growth rate year on year.
Picking up a bit more in the back half to hit the numbers that we provided in our guidance.
Got it thanks, so much guys really helpful.
Sure. Thanks Ravi.
Our next question comes from <unk> <unk> of Credit Suisse. Please go ahead.
Hi, guys. Good morning, if I could dig in a little bit more too.
You just said on one of the earlier questions on <unk>.
DTC is designed for this and you can seen capture trends very quickly and it gives you the ability to pivot.
Can you maybe be more specific on what you do when you pivot because we're in this sort of macro environment, you may be observing things, but.
What actual strategies, perhaps are in place or what are the changes that you make as you pivot the business.
Yeah, we've talked about this over the last few months and then Camille further question here.
One of the one of the cool things about our model that we really like.
About DTC, specifically is that theres, a high variable fixed or variable cost structure in the business.
It's obviously.
Our model, we're shifting marketing spend.
Make up a large a large part of our overall SG&A and as such whenever we see <unk>.
Version rates.
Slowing or traffic slowing we can then make very real time decisions about how we're going to pivot or spend differently, particularly around the marketing front and of course, we get the benefit if there.
There is softness we get the benefit of course in the shipping expense line item in SG&A, obviously going down.
If theyre softness, but it's primarily around marketing I would say the second component, which I was hitting on but I want to just reiterate is we can also see whenever these headwinds hit.
We're not just looking at okay, well traffic is down the first couple months of the quarter and so what are we going to do about the traffic, but we're also doing in tandem with that is we're looking at the other factors like what's happening with our with our wholesale demand or the demand coming in from our retailers what's happening.
<unk> with conversion rate, we're looking at what's happening for us internally, what's happening with the Kpis and metrics that really point to the health of our business. So what youre going to find with US is that were really relentlessly focused on four key metrics. We're focused on NPS, we're focused on repeat purchase.
Right, we're focused on referral rate or how much of our business is coming from people telling others about it and then we're focused on LTV or lifetime value of the customer.
And of course repeat purchase rate in LTV are pretty well correlated, but if we see those metrics holding or improving.
Despite kind of some of the headwinds or softness that might be happening because of the macroeconomic trends that gives us lots of confidence and the reason that should matter to the market and to our shareholders is because it gives us the confidence to make decisions like we're making now to continue to lean into investments because we believe that those investments are.
Owing to pay off based on the health that we're seeing through those those metrics that I just talked about those four metrics. So those are the specific things as we're making decisions about how and where to spend our marketing dollars, which is a massive.
SG&A expense for us.
And so it gives us lots of leverage in our business to Peel it back or to lean into it based on where there's opportunity and then number two is our investments in the long term growth and our ability to take those investments and put them to work based on the health that we're seeing in our business on those on those four key metrics that I've been talking about.
Understood.
Really helpful. And then if I can ask this might be too specific but because your DTC you might be able to answer it which was the beginning of the year, we had omicron I suppose for a few weeks.
And then obviously the Russia, Ukraine crisis, as you were tracking either traffic or maybe conversion over those periods of time did you see sort of spy.
Spikes and troughs right around some of these events, which might give us a read on consumer confidence and its impact on your business from a macro perspective.
Yeah.
Say that as it was.
A specific day, Okay. This hit the news and then this happened, but I would say just overall.
You just named you named a few and there is there is.
There's even more than those as we all know with gas prices and inflation the horizon, even fast food prices that are pushed through this first quarter.
President and ways and I would just say that overall, which I've been talking about what we've seen is that there was.
Feels like to us and what we're seeing come through in our site traffic in real time.
Net traffic just just really got depressed and it was like.
Consumers, we're just waiting and seeing.
And you're going to see how things played out again, we're encouraged by what we've seen in March in terms of those traffic trends kind of rebounding, which gives us.
Hope, but not hope that we're pushing through our guidance, but gives us hope that we are.
Consumers need to let it sit it needs to register that need to understand what it means for them and then life kind of continues on and people realize they have to they have to continue to live their lives.
Do and make purchasing decisions. So it felt to us like a pause I would say.
In a wait and see and it feels at least again, it's early but just in this month of March it's felt like.
They are starting to turn turn the corner and started to make decisions again.
Okay, great. Thank you.
Our next question comes from Peter Keith of Piper Sandler Pizza. Please go ahead.
Hey, Thanks, good morning, everyone.
I guess somewhat simplistic question, but just with regard to the full year guidance. So your sales are in line with where the street was modeled.
The EBITDA is about $20 million lower.
Not hearing many complaints around input costs and things like that so is it really just the $20 million lower guide is solely due to the three investment initiatives that you have or are there other factors that I'm not accounting for it.
Sam you want to take that John and yes sure.
I would say that those are those are made.
And putting those investments as we go into this year.
Again, we have this.
This year, we have.
Thinking of Q1 in particular, where we've layered on investments, but have a lower seasonal revenue and lower incremental investments around data innovation and international.
Those woods away, particularly on the first quarter and our lighter revenue quarters.
But that has been driving the incremental spend.
On the year.
Okay and is it fair to think about that as something to the tune of an additional $20 million.
Again accounts for that lower EBITDA outlook.
Yes, I think I think.
That's correct.
Yeah go ahead John .
Yes, that's correct Peter.
That's spot on when you think about those three initiatives and the investments that are being made.
That's where that is flowing through and you're seeing that on the lower EBITDA.
Okay, Great and then.
Some of the new products that are coming out so I did actually receive my own heat deflector. This past weekend I tried it out Saturday I think it's a fantastic product. So I think it's going to do well.
Some good news on the pie pizza oven.
John you guys have always talked about in the past youre, not including new products into the revenue outlook youre, not including international growth and the revenue outlook, where do you stand today, just given you've got some visibility on heat to factor in maybe Pi is this now embedded in our full year outlook.
Yes, that's a great question Peter so.
As they come out we will start thinking through them, we haven't shipped any pie.
And so as such we've taken the softness that we saw in Q1 and we've rolled that into our full year guidance. We did incorporate what we've seen because we've started with shipments and we have a little bit more visibility into the deflector, it's a more reliable more reliable prediction for us to put into our model.
And roll forward into guidance so.
The deflector is in Pi is largely not because we just again.
$3 one forward a couple of weeks into that product in terms of even pre sales still haven't actually shifted out so.
I'd say 50 51 is kind of.
In there, but still it's still early remember deflector is really a product that's designed to keep people.
Extra extra warm whenever it's especially called out and we didn't get that product launched until.
We started selling it but but not shipping it until.
Late February and then into March and so we actually missed from a seasonal standpoint seasonality standpoint, a big opportunity on the <unk> that we think is going to is going to payoff. Big later this year in Q4, but we did not bake that in we're just we're looking at our current trends. So that's why you're hearing a little bit of hesitation on my part because yes.
The collectors in our guidance, but not the full potential of what we think the flush it could do.
Okay sounds good that's helpful. Thanks, so much.
Our next question comes from Chris <unk> of Jpmorgan, Chris. Please go ahead.
Okay.
Hi, Thanks, This is Megan on for Chris.
Just following up on some of the comments around the traffic trends you've made in <unk>.
Can you talk about whether this is consistent across all four brands and is there anything youre seeing in any of the brands that would suggest the consumer is becoming more price sensitive or do you think maybe it just reflects the return to some more normal historical seasonal demand patterns, where maybe some of them more warm weather products just aren't as top of mind for the consumer.
Sure.
Yeah. So it has been consistent across across all the brands and I would say even outside of several brands. The brands that were networked with that we interact with in the direct to consumer space.
This is very consistent across across direct to consumer so it doesn't feel like.
Something that's isolated to a specific brand or a specific price point at this stage.
All that being said.
It's hard to say that.
For us to say that this is kind of a return to normalized traffic or consumer behavior, we do have.
A perfect storm of macroeconomic factors that are weighing in on.
Consumerism right now, particularly that all hit in a very concentrated way at the beginning of this year and of course quarter one so.
We're again, we've rolled the softness forward that we've seen.
In an effort to.
Put ourselves in a position to wait and see but we.
At the same time or continue to operate the business and make our investments in the long term growth because of those those case you guys have talked about earlier that are pointed to really strong health in the business. So I don't know that this is that this is a return to normalized this isn't normal and so.
Does it feel like this is a normalized state but again.
We're going to we're going to have to continue to play this out and see it see how it comes together I mean, we've been in Covid for two years finally oven.
Which is like the third wave kind of start subsiding and then right on the heels of that you get the training complex you get all of the runaway inflation. It feels like we're going through and then that flows through the gas prices.
Overall.
Grocery and fast through the stuff that really hits consumers pocket books and is right in their face and so it's just hard to say it really is hard to say.
Yeah that's helpful.
And just as a follow up are you embedding any increase in promotions on potential price elasticity, especially as we get into the back half I know you mentioned you raised prices to wholesale but not on your website.
How are you thinking about that.
Yes.
Or not.
Currently planning to be more promotional than we have been in prior years again, we think that the strength of our brands and the high referral rates and the high repeat purchase rates along with the the product innovation pipeline that we have for new products that are coming out Peter just mentioned that the collector pays off.
C launch, but not in consumers' hands, yet the other brands through Ireland Chevy's, all have really great great products coming out this year and we think that combined together with what we're seeing in those kpis around referral rates and repeat purchase rates that we're going to be in a very solid position to be able to to me.
Meet and exceed expectations.
Most importantly continue to operate this D to C model the way that we have.
We've always set out to do which is to take great care of our customers and drive.
Loyalty that keeps them to be customers for life.
Sure.
Great that's really helpful best of luck.
Thanks.
Our final question comes from Brian <unk> with William Blair Bryan. Please go ahead.
Hey, guys. Thanks for the question.
It sounds like Costco It may have been stronger than expected with the 4000 customers going to 25000 by year end there.
Could you talk a little bit about I guess, one what brands or products, you're seeing that that crossover happen.
Two maybe with this being a priority moving forward I guess, what inning are we in here in terms of your ability to cross and then three does that change your thinking around acquisitions, and what kind of a tool that can be controlled.
Great question.
Thanks for thanks for asking it.
Terms of where we are from an any perspective. This is like I don't even know if we started the game to be honest, we we have we have done.
Really zero cross promotion across the brands outside of just announced to our customers that we.
That these brands are all together under the solo brands' umbrella. That's that's the extent and Thats, where you saw that lift which is super encouraging for us that's why you're seeing us make.
Significant investments into our data infrastructure, because we do see I mean, we have over about two I'll call. It about $2 4 million customers across all the brands and 25000 of those customers have purchased for more than one brand.
In terms of where we are and what the opportunity is in front of US you can start really understanding and it makes sense why we're so bullish and why I'm. So confident about making these investments in our data infrastructure. So that's that's where we are and as that as that rolls over to our strategy with M&A and opportune.
There it doesn't mean that we would change our approach and get hasty with acquisitions, we will continue to be opportunistic and very disciplined and find the direct to consumer brands early in their story large hands with.
With really strong customer following high NPS scores.
With a big concentration of their business coming through their own site versus wholesale so all of the factors in.
And criteria that we've been talking about for the last six months and beyond is still in play, but you are right on to to allude to or two to kind of point to it.
If that's the case and we are in these early innings and we're seeing this like Crazy increase right out of the gate without much effort up to now then isn't this a big opportunity and we do see that along with you and we're going to continue to be opportunistic.
And look for opportunities in M&A, but that will probably start becoming a criteria you might see us for instance, during diligence with with a potential M&A.
<unk> doing across collaboration where we can actually look at their data ahead of time and see how many of their customers are already sell a branch customers or not.
That's just an extra criteria that will help.
Create.
A situation, where we're able to better assess the right brands to partner with and to acquire.
Got it that's super helpful and then.
I guess following up on the exclusive Skus the retail partners.
It sounds like John I think one of them was it's a larger fire pit what is it about that channel or customer.
Seem to outsize demand for for that there versus what youre seeing stronger D to C side.
Yeah. So specifically this particular product, which is called Canyon actually was the first version of our Yukon. It was a 30 inch it was it was a 30 inch versus our current 27 inch Yukon, which sounds like Oh, it's three inches actually when you get it in front of you.
It's significant in terms of its difference and we actually ended up launching a 30 inch Yukon and then peeling it back and redesigning to a 27 inch because we found that our small parcel carriers, so your Fedex and USPS.
That product was too large to fit on their automatic conveyors and so they had to manually handle it every time, which increased the cost tremendously, but most importantly created a poor customer experience because the damage rate.
Yes.
Quite high trying to shift that larger pit.
Through traditional small parcel. So then the option was do we put every single individual Yukon 30 inch Yukon on a pallet and shifted LCL to a customer which just didn't seem like a good customer experience in order to see prudent from a business perspective, we redesigned the you cut down to 2007, but customers have continued to add.
Would you come back out with that model ever.
Would pay more for it et cetera et cetera. So the feedback has been really solid from our from our customers and wanting an additional option that's even bigger than our current size Yukon and has just started just click that our retail partners are the perfect place to put that product we ship our products on pallets anyway to our retailers.
That avoids the damage rates with small parcel and then customers are just buying it and walking out of the store with it which ultimately then.
Self delivery, so that's what's driving that and why we're so excited about it and it really fits also.
The need of our retail partners, who have been asking us for unexplored <unk> for something that would only be found in stores.
And so that's exactly what we're doing we will carry it in our own stores as well. So we have for instance, our showroom here at our headquarters in Texas, and the consumer will be able to come into our store. So it'll be essentially a retail only or a brick and mortar only SKU.
Got it makes a lot of sense.
We have no further questions on the phone line, so I'll hand back.
Great.
We're super appreciative of everybody being on the call with us today were.
<unk> said about what we have out in front of us.
Just the last thing I would I would leave us with its just that we are.
We feel that this is this is exactly what <unk> was built for.
Love the connection to our customers, we love the real time information fee that we get from what's happening with our customers and their willingness to share what's going on.
We're optimistic about our investments that we're making for the long term and looking forward to being with all of you again in may.
Talk about our actual Q1 results and what we're seeing in the market at that time.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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