Q1 2023 NeoGames SA Earnings Call
On the cash side, we feel good about our inventory balance and how we have managed it down over the past three quarters, we expect to end the year close to where we ended Q1, but will also be opportunistic with our purchases as we go through the year.
Our capital expenditures target remains at approximately $60 million given the incremental investments are across a number of key initiatives, including technology expanded customization capabilities retail openings and product expansion.
These factors contribute to an unchanged free cash flow assumption of $100 million to $150 million for the year.
Overall, we are off to a good start to the year.
<unk> as our team continued to diligently manage the voluntary recalls while still making progress on our underlying strategic priorities.
His focus and execution keeps us well positioned to deliver our financial outlook for the year, even as we continue to be prudently cautious in this uncertain environment.
We remain excited by our product lineup, including our ability to bring back and even expand on the products impacted by the voluntary recall R.
Our visibility to gross margin improvements remains strong as we drive sequentially better results throughout the year.
And we continue to make key investments that support our global expansion in the year ahead.
Now I would like to turn the call back over to the operator to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone telephone if youre using a speakerphone. Please pick up the handset before pressing the keys.
You said anytime your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Sharon Zackfia from William Blair. Please go ahead.
Hi, good morning, and thank you for taking the question.
I guess there's.
Then concern about the health of the June quarter.
Particularly given our COO.
Competitive activity and certainly the rate of growth.
We've seen really since kind of the.
In that quarter. So can you talk about between <unk> growth.
How you feel the brand is there relative to <unk>.
Some of the competition, that's expanding distribution rapidly.
And you talked about essentially your customer demographic.
Weather.
How they drink segment in Chile, with a younger female demographic. Thank you.
Thanks, Sharon good morning, and thanks for the question.
Take it from a couple of different perspectives.
Obviously, we mentioned on the call that.
We've seen the market expansion, that's happening in drink ware, and the growth and we think all of those dynamics and that focus on the category is actually plays really well into our drink where portfolio strategy and when you think about kind of how yeti goes to market. We go to market with a broad based portfolio of drink where we can.
Bind that with our customization personalization business, we continue to address more drinking occasions and more drinking moments as we talked about on the call. The all day drink, where we want to be with people when they wake up until when they go to bed and we want to be with them every day and so when you watch how we've built out our product portfolio we are addressing.
Seeing multiple use cases multiple consumer groups, we're leveraging form factors sizes color ways.
And then the global opportunity and we think about the success. We've had in building this drink water business in the.
United States since 2014, and the global growth opportunity not only the one that we're realizing the opportunity in front of US. We gave is an incredibly exciting category. It's also as we mentioned on the last call something that offers an opportunity for us as a platform for expansion. So you'd noticed the recent jeanice bucket that fits along with the use of.
<unk>, along with our what we call our.
Individual kind of drink ware.
Consumption.
And then within drink, where the expansion into hydration and further expansion into hydration and bottles for their expansion into tumblers further expansion into different straw lid format. So we feel we feel good about the business and we feel good about where we're going with our drink where portfolio don't drink or strategy.
The next question comes from Joe Gomes from Raymond James. Please go ahead.
Thanks, Hey, guys. Good morning, I guess the first question you mentioned sell through was up in the quarter could you quantify for us how long.
It was up maybe overall and excluding the recall products.
Hey, Joe So we don't typically give specific color around sell through.
Other than to say, we were pleased with with the growth that we saw across both categories.
The other thing I'd say is we have to remember that the sell through reporting we have good sell through reporting in the U S. But.
We had less so outside the U S. So.
And to sort of like quantify the impact of our business would be mixing sell through and sell in so little difficult to quantify how big of an impact that it did have.
But.
Other than to say, we were pleased with the growth that we saw.
We feel like it's put us in a in a in a good channel inventory position and that it was really across the portfolio. Despite what was going on with the recall.
Okay, well that was my follow up question, which is it sounds like you're in a good spot from an inventory standpoint.
We have done with the Destocking at least at this point.
Well I don't know that I would characterize it so much as a destocking is and more about just caution from our wholesale channel partners that we saw coming out of the holidays.
But.
And we expect some of that to continue as we head into Q2 in a relatively peak period for us, but I think the key messages is we feel we feel good about where our channel inventory is I mean, youre always going to have some parts, where you've maybe got too much of some product and not enough of others and we've got you know.
We will see that in right now is no different.
But.
We feel good about where we are and we're continuing.
To work with our wholesale channel partners on as we go through the year.
Okay. Thank you.
The next question comes from beneath Pizza from David. Please go ahead.
Hi, Good morning, guys. Thanks for thanks for taking the question here.
But to put a willingness to maybe reinvest some of that upside if it accrues over the year, just curious kind of what you would what you would do you're already spending on initiatives this year.
I'm, just curious where where you might turn up the dial a divestment in the event that you have some some projects to do.
Do that with.
Yeah. Good morning, Peter Thanks for the question I.
Like you said, we feel good about where gross margins landed in Q1, we feel like we're on the right track to land the 55% that we guided for the year in the event that we do see upside to there.
Our to that.
I think youll see it will just be more of the same types of things that we've talked about it's really about setting us up for growth next year, given the opportunity that we see in front of us, particularly outside the U S.
And so I think it'll be and things it would be.
Be in areas such as you know.
Raising brand awareness outside the U S. Our global teams.
Technology to take some of the capabilities, we have here in the U S and expanding them globally. So I don't know that it'll be anything widely different it'll be just further investment in the things that we've already talked about.
Okay that makes sense and then I guess with respect to the reintroduction of the recalled items and then the two new items.
I mean production is already underway just not sure how that compared to maybe your expectations. When you when you embarked on this.
Curious if you could give us a little more color in terms of the timing of when you expect to have these products back in the market how do you expect to support them.
With your marketing et cetera, just so we kind of an idea of how this is expected to play out in the back half of the year.
Good morning, Peter Matt Here I think.
I think I would kind of take this from a couple of different perspectives. One is we're incredibly excited to be back in production.
Literally completed some finished goods so that we're starting to we're starting to build that capacity and that inventory back up and then it will we.
We have all the logistics and getting it and getting it ready to be back in the market. What we said on the call was we're.
We're still committed to being back in the market in Q4.
As of today, what what we're sticking too, but we feel good about.
The work that's gone into building the solution by an incredibly focused team and really a short short amount of time to go from a problem identification or opportunity identification to being back into production and finished goods rolling off rolling off the line as we think about the reintroduction.
Our intent today is it will reintroduce it with the marketing levers that we usually do when we when we kind of promote a product or get a product out in front of the consumer we don't intend because this was a component change to a product.
To reintroduce it like it's a new product, but really just turn up the turn up the yeti marketing dials.
<unk> stuff, our marketing our brand team does to create awareness and find interesting ways to get it in front of consumers to reintroduce the product.
Most as if it went from out of stock Tabak in stock.
And where we can kind of put our hand on the lever a little bit to create that awareness.
Makes us feel good about the opportunity not only in Q4, but really building into 2024, as we think about not only the product coming back to market, but it is coming back to market with with new sizes and then over time, we'll bring will bring additional color ways in and.
It would be back up and enrolling and a really important strategic category for us.
Okay, great. Thanks, so much good luck.
The next question comes from Robbie <unk> from Bank of America. Please go ahead.
Oh, Hey, Matt.
Actually have.
A couple of questions. The first was just the.
On the wholesale channel you mentioned that.
Some caution in the channel what are you hearing back from the wholesale partners right now like what are what's the outlook on that.
The customers.
Good morning, Robby I think it is and we said this on the last and got our last conversations.
When we think about the wholesale channel one of the unique things about yeti has the breadth and diversity, we have within our wholesale from small independents to some of the best large nationals.
In the United States and similarly around the globe and then within those groups a real range of.
Diversity of partners. So we get a pretty broad based look at at how they're operating.
And one of the things that we've talked about is theres no theres no sort of common yeti theme within the caution or not we have some some partners that are really leaning hard into the year and we have other people who are taking a kind of a more cautious look at Q2 Q3 as the year goes on I.
I think the most positive evidence is what what Mike said, which is overall demand for the brand is strong and we're and we're hearing that from our wholesale partners. We have great relationships, we have from at all levels and very regular weekly if not daily conversations with the majority of our regional and national accounts.
Close relationship we're in constant communication about merchandising product sorting, what's what's working in the channel and make sure. We take advantage of those opportunities as the consumer continues to show up and show up with demand for the brand I think will turn as we go through the year to more conversation to Peter's previous question.
About the reintroduction of the.
New and improved soft coolers, and how we get those out in front of consumers and use that as just another sort of springboard for yeti awareness, but also demand for that product category.
That's helpful. And then just a clarification on <unk> to see you call that Amazon and corporate sales.
What are you seeing at Yeti Dot com was the customization shift the big impact on Yeti Dot com like if you excluded that is there any change with the moment to make Eddie Dot com or have you changed the digital marketing spending youre doing to drive to yeti dot com or anything like that.
Hey, Ravi so.
You hit on a couple of things one we had a good quarter from Amazon and corporate sales.
And even just to round out the rest of the D to C channel stores, we opened up our our 14th location in Omaha, and we're pleased with the results so far of that store.
On Dot com.
You hit on the.
The big point in that.
And the challenge that we had with Yeti Dot Com really was was a unique issue to to this Q1 and typically in prior Q1s really since we've been public we exit Q4 with this with a backlog of custom orders that we weren't able to fulfill in Q4.
Due to the investments we've made in customization that we've talked to you all about we were able to reduce lead times and fulfill all those orders in the quarter and while that's obviously a good thing from a customer experience standpoint, it left us with a tough compare in Q1.
But on a demand basis.
We were pleased with the results that we saw in dot com, both and see any end in drink ware.
I would just I'm sorry, one thing I would add as we mentioned on the call being as important is the fact, we said we saw.
Acquisition and retention across all of our DTC channels was positive in the in.
In the quarter and included in that is the increase in value with those so that the work that we're doing to acquire customers retain customers drive value as it is a real positive.
Got you.
One just last one the product costs.
The up 100 basis points is that a product cost landed from China and sort of what is the product cost outlook, you mentioned moving production out of China.
Starting to is that going to is that going to help is that going to reduce product costs.
As you do that or.
And then are you having to should we expect more price increases to offset the product cost pressures.
Yes, just so here's what I'd say about product costs I would say that the the comments around the transition out of China really didn't didn't play a role and in anything we're thinking about product costs for this year.
It's just it's early in that in that process.
The impact that we saw in Q1 was really just a continuation of what we saw in the second half of last year. It was it was largely planned and really nothing has changed with regard to how we're thinking about product costs for the year, we expect it to be relatively neutral for the year to slightly positive as what we said in our prepared.
<unk> remarks, and so no real concerns on that it's just what we saw in Q1 was with sort of a continuation of some of the dynamics, we talked to you all about in the second half of last year.
Thanks, so much.
The next question comes from Peter Grom from UBS. Please go ahead.
Thanks, operator, and good morning, everyone. So Mike you mentioned towards the end of your prepared remarks, greater visibility to margin expansion beyond this year and just kind of looking at the phasing of the guidance, particularly from a gross margin perspective, you're kind of exiting the year with <unk>.
And then just kind of building on that clearly stepping up investment.
This year, so to the extent that we have another year of outsized gross margin expansion would you expect more of that to flow to the bottom line or would you continue to reinvest.
Looking out next year. Thanks.
Yeah. Thanks, Peter So a couple of things.
One thing just to so you are correct in that if you look at what we said about margins, we expect to land the year at <unk> 55, we expect to as we step through the year, we expect a sequential or year over year increase two to increase.
Sequentially as we go through the year, so that would imply an exit rate in the range that you mentioned, but what I'll say as you know Q4 is always our highest gross margin quarter, given the given the mix of DTC.
So.
You have to take that into account I wouldn't necessarily look at that 57 ish percent rate and assume that that's going to be the rate going forward. So.
But that said, we're not obviously, we're not recapturing all the inbound freight.
This year, there will be more to capture next year as.
Given the opportunity that we believe is in front of US we're going to continue to invest both in product as well as in other parts of our business be it head count demand and demand creation brand awareness technology et cetera. So.
No real specific guidance to give on FY 'twenty four right at this point I will obviously have more to at a later time, but where we're going.
We're going to continue to invest and we're going to continue into two and value evaluate things that we think can really set us up for the future.
That's really helpful. And then just maybe one quick follow up.
International performances has been very very strong.
I guess just as it becomes a bigger piece of the business are there any margin mixed implications that we need to be aware of as we look out.
Or is the margin profile kind of similar to what we would see here in the U S.
Yeah from a gross margin standpoint, it's really similar to what we see in the U S. There's differences across the regions based on on sales mix, but it won't you know once you normalize by channel.
The gross margins across.
Alright, the three reasons are similar to what we see.
In the U S.
Great. Thanks, Thanks, so much I'll pass it on.
The next question comes from Phil <unk> from BNP Paribas. Please go ahead.
Hey, guys. Thanks for the question I just wanted to ask maybe about the wholesale trends in U S versus international and U S was down about a percent.
Overall, so was it down maybe double digits in wholesale.
You can help us frame that and then based on the guidance for two Q3 Q as it declines are kind of stepping.
Stepping up is that how we should think about it in U S wholesale.
Yeah, Hey, Xeon.
To your point wholesale down one in total inner.
International.
Was up and we don't generally guide to the specific growth rate of international wholesale within that broader wholesale channel, but it's.
Suffice it to say it was a similar growth rate to international in total implying that that wholesale in the U S was was down.
Again, not going to give specific numbers on what what the business in the U S.
[noise] grew but but.
You know when we talked about sort of the spread for them from sell through to sell in.
The sell through reporting we have is generally all in the U S. We were pleased with it it was positive and so it kind of speaks to the to the delta between sell through and sell in when you consider that the U S was was down obviously more than that minus one.
Yes, and the other thing and any other sorry, as you know and the other thing I'd say is.
We.
That soft cooler impact that we said that we're seeing from the from the stop sale, that's almost entirely a U S dynamic in it because the there were several regions where the M series had not fully been distributed.
And so when we talk about the impact the stop sale. It is primarily primarily a U S impact.
And so when we go into Q2 and Q3, the doubled down double digits that we talked about that's going to primarily be a U S dynamic as well.
Okay very helpful and maybe just quickly on the 300 bps or the recapture of the rate that you mentioned in <unk> I know you mentioned, it's probably higher than <unk>.
But was that much better than you anticipated and just any frame out how you thought about that capture in the quarter.
Yes, I mean, we we knew that.
We knew there would be some demand shaping the we just we didn't know how much and so we when we talked about it.
Earlier, we then that's basically what we said is that we knew there would be some offset but they werent sure how much we do believe that that 300.
Basis points of offset is.
We don't expect to see that as we go through the year into Q2 and Q3.
We expect the impact from.
From the recall in those quarters to be the roughly 900 basis points that we talked about.
Just because you know a lot of that was was wholesale dealers.
Refilling their shelves with with with flips, where they had M series products before.
Understood. Thank you for that.
The next question comes from Tom Kevin on from TD Cowen. Please go ahead.
Good morning, Thanks for taking my question.
Mike can you talk to the confidence and visibility in the return to double digit top line growth in the fourth quarter. What do you think are the key.
Drivers in.
In that acceleration that we should be looking for.
Yeah. So.
I would think about it I mean first and foremost is going to be.
The planned reintroduction of the products that we that we that are currently on stop sale. So we'll get the not only the the launch and the D to C, but we'll get to sort of.
Refill back into the channel.
Given all of the product that we've taken back from the wholesale dealers. So I think that's I think that's the first thing.
We are when we look out over the year even.
Even in drink, where we're excited about the plan reintroductions that we have.
The planned product introductions that we have.
We feel like we've we've.
We've got an opportunity to continue to go drink wear and that drink where growth will build throughout the year and so it's.
It's the recall is obviously the biggest piece, but even if you normalize for that we feel like we've got a good opportunity to continue the growth to grow other parts of our business as well.
Got it.
One follow up on.
On freight I think over 600 basis point headwind to.
Gross margin over a two year period, what do you think the ultimate recapture is.
That freight cost.
And we obviously can understand some of the timing of it.
Expecting this year, but how is traction in 2024.
Well if you if you look at so you are correct.
We've over time before.
Through 2022, we gave up 600 basis points of gross margin due to freight.
Obviously, not capturing all of that this year.
So when you look at where rates are today, I mean, they've largely come back down to sort of pre pandemic levels that over time, we should be able to capture the majority of that back in our gross margin. However, we also are looking at this as an opportunity to reinvest back into the business and so.
And that's going to be both on the product side or within Cogs, and therefore gross margin as well as on the SG&A side. So.
I do think we have more tailwind to come as we exit this year, but we're going to have to measure that against.
What opportunities, we see to grow our business over the long term.
Understood. Thank you.
The next question comes from Peter Keith from Piper Jaffray. Please go ahead.
Hey, Thanks, good morning, everyone.
There is clearly some concerns in the investment community that you guys might be losing some shelf space, particularly with some of the larger nationals, maybe just give us a view if you think about the next 12 months as you re launching a lot of the recalled products sounds like sell through was good.
Where do you think your shelf space will be in aggregate do you think it will be holding steady it'll be up or even down a little bit.
Good morning, Peter Thanks, Thanks for the question I would say in the conversations I have directly and the conversations that our teams have regularly.
Shelf space losses, not a conversation we have a we talk about merchandising how we're gonna make shelf space for additional products that we do.
Discussed with the channel that are that are coming.
I think the the shelf space.
Movements that we tend to see are we just took some really large products off the shelf in our soft coolers, we expect those to be back in Q4, the conversations with our wholesale partners are.
Timing related.
On the on the bringing those those new products in that new category family back to market.
So I don't we don't see and don't have conversations around shelf space reduction, it's really more productive and.
As recently as this week, having conversations over what the next two to three years looks like versus the next two to three quarters.
Okay helpful and then.
I guess ramp up in Europe .
Talking about it for a couple of years. It sounds like you maybe hit the accelerating here now that the Covid concerns are fading could you just give us some updates on how the positioning is there if it's more DTC versus wholesale and any green shoots you might be seeing with U K or Germany.
Yeah.
Peter a couple of things there.
Lots and lots of green shoots in the benefit of Europe is Europe being not not a single entity EBIT.
Lots of individual countries that have their.
Our D to C business had the distinct advantage during COVID-19.
We were able to focus on that business, while wholesale was a little slower.
Due to the nature of what was happening what we're seeing now is the benefits of that is that we were at but really nice D to C business across a number of markets throughout Europe .
Wholesale door openings continue at a good pace.
Replenishment were getting as the brand awareness grows and as the consumer demand grows within our established stores has been good.
We really like what we're seeing in the U K and we like both what we're seeing but also just the the significant opportunity that is.
Germany, and the German speaking country and regions.
But also what we're seeing come out of northern Europe and the Nordics.
So we love what we're seeing there I think there's some fun things going on between our brand awareness Activations that are very endemic as we've talked about a lot of the on mountain Activations and then some of the the broader based.
Partnerships that we have through some of the major sports and then the fact that the Metallica tour kicked off in Amsterdam and is doing the first leg of its tour throw out a number of stops in Europe I think all of those give us really yeti like opportunity to build and it is broad based introduction of the product portfolio of this broad based brand awareness attack.
<unk>.
Okay sounds great. Thank you very much guys.
The next question comes from Jim Duffy from Stifel. Please go ahead.
Thank you good morning, Mike.
Two questions around the D to C. Consumer engagement can you comment on what Youre seeing with performance marketing was formed in 2023.
Our strategies for marketing dollar allocation to top of funnel versus more performance marketing spend.
Hello, Jim.
Touch on a couple of things at a high level.
Historically, you haven't spoken specifically to the performance of our <unk>.
Individual marketing channels, what I would say is.
We actually have a very integrated approach to how we build build the funnel from from top to bottom.
And with the work we've done with our advanced analytics team and learning more.
About consumer and consumer behavior, particularly in the United States It.
It is affecting and impacting in a positive way, how we allocate our performance marketing dollars and so the work between our chief marketing Chief Marketing Officer, and Chief Commercial Officer is really almost a weekly and sometimes daily evolution of.
What's what we put towards top of funnel versus where do we invest in the mid funnel versus what do we invest in the AR.
In kind of a closer into the transaction.
Some great things come out of our advanced analytics team and in looking at.
Demographics in geographies with affinity for categories, and then applying a applying things in front of consumers at that point.
The results were seeing in those we're now expanding those results more nationally we're learning some things around certain products and certain product categories, how different groups have affinities for them and how that changes how we apply our not only our performance marketing, but also how we think about creating brand awareness in those geos and demos.
So.
We're excited by what we're seeing and it's not always the answer has not always been intuitive and so seeing sort of a data driven focus on that I think there is going to lead to some really nice opportunities for us.
Okay, and then the U S market I am curious engagement trends, you're seeing with new versus.
Existing customers and specifically I'm curious as the underwater bottle and it's more approachable price points, bringing a new consumer to you into the mix.
I would say a couple of things.
As we expand the portfolio. It does two things it gives us a chance to reengage existing customers and to acquire acquired new customers Interestingly.
We see that with things like the yonder, but we also see that was soft coolers and what soft coolers have brought from an acquisition perspective.
In an area that may not be as intuitive even in or even in a hard coolers and our wield.
48, and 60 kind of our newest additions to our hard cooler category.
Those are actually brought in some different geos and demos that may not have.
May not have been as kind of naturally thought of so I actually think it's every time, we bring innovation to market. It gives us kind of two opportunities it gives us an opportunity to drive.
Deeper within our own customer base and it also gives us a chance to acquire and I think that's why you hear some of the results of broad based acquisition really balanced acquisition and retention.
In the quarter.
Thank you.
We have time for last question from Brian Macneal Homeira from Canaccord Genuity. Please go ahead.
Good morning, Thanks for squeezing me in here. So we've noticed recently that yet he is being.
Co marketing with trigger at Dick's is that knew what.
What drove that decision and will that kind of partnership for lack of a better term be expanded.
Thanks, Brian for the question I think I would say, we have a lot of Brad.
Brand friends.
In the active outdoor.
Consumer lifestyle space and so we do we are product gets positioned alongside a lot of a lot of different brands and a lot of our categories in fact multiple brands in multiple categories.
And then we have a lot of retail or wholesale partner overlap.
From a from a direct co marketing kind of national we don't have anything active in that way I think the positioning that happens inside stores, sometimes it's really focused on merchandising to the consumer at certain times of year, when when they're in the winter and that kind of that mode.
The beginning of summer Moms Dads grads is an opportunity for people to start thinking about summer to start thinking about barbecue started thinking about outdoor gatherings.
It's natural that you would see products like yeti and trigger and many others being positioned together a merchandize together within a store.
This concludes our question and answer session I would now like to turn the conference back over to Matt for any closing remarks.
Thanks, everyone for joining us this morning, and we look forward to speaking to you as we returned.
The return for our Q2 call.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines Goodbye.
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