Q4 2024 Solo Brands Inc Earnings Call
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Speaker Change: Good morning and welcome to the Solo Brands 4th Quarter in fiscal year 2024 Financial Results Conference call.
Speaker Change: All participants will be in listen only mode. Should you need assistance, please signally conference specialist by pressing the star key, followed by zero on your telephone keypad.
Speaker Change: Please note, this event is being recorded. I would now like to turn the conference over to Mark Anderson, Senior Director, Treasury, and Investor Relations. Please go ahead. Thank you and good morning, everyone. We appreciate you joining us for the Solo Brands Conference call to review fourth quarter and full year results for 2024.
Mark Anderson: Joining me on the call today are the company's interim president and chief executive officer John Larson and chief financial officer Laura Coffey.
Mark Anderson: Today's conference call will be recorded. Please be advised that any time-sensitive information may no longer be accurate as of any replay or transcript reading date.
Mark Anderson: I would also like to remind you that the statements in today's discussion that are not historical facts including statements about expectations, future events, financial performance, turnaround efforts, strategic transformation goals, and future growth are four lucky statements.
Mark Anderson: and are made pursuant to the Safe Harbor provisions of the Private Security's Litigation Reform Act of 1995.
Mark Anderson: Forward-looking statements by their nature are uncertain and outside of the company's control. Actual results may differ materially from those expressed or implied. Please refer to today's earnings press release for our disclosures on forward-looking statements.
Mark Anderson: These factors and other risks and uncertainties are described in detail in the company's filings with the Security and Exchange Commission.
Mark Anderson: Solo Brands assumes no obligation to publicly update or revise any forward-looking statements.
Speaker Change: Management will refer to non-GAAP measures and reconciliations to the nearest GAAP measures can be found at the end of our earnings release. Finally, the earnings release has been furnished to the SEC on Form 8K. Now, I'd like to turn the call over to John Larson.
John Larson: Good morning and thank you all for joining us to review Solo Brands Strategic Plan and Financial Results. During today's call, we intend to level set everyone on recent news, review our 2024 financial results, and share our turnaround work for 2025.
John Larson: During the fourth quarter, the board and management team engaged in developing an aggressive turnaround plan for 2025.
John Larson: As part of our transformation plan, we hired external financial advisors to help us go through every line item of the business.
John Larson: They have been an integral part of helping to develop and quantify 30 plus value accretive initiatives.
Speaker Change: As most of you know, Chris Metz notified the board in mid-February of his decision to resign.
Speaker Change: Given that the board and management team were closely involved in the 2025 turnaround plan, we felt it was critical not to lose momentum.
Speaker Change: I was immediately appointed as interim CEO and in the office the following Monday morning.
Speaker Change: Then stepping into the role, I along with the leadership team and board have taken actions to accelerate and amplify the company's transformation plan.
Speaker Change: I plan to continue serving on the board and remain in-room leader on-site until the right person to leave Solo Brands is identified.
Speaker Change: I firmly believe that we lost no time or momentum with the management change.
Speaker Change: We are now aggressively working through 30 plus evaluative initiatives to return Solo Brands to profitable and sustainable growth.
Speaker Change: Notwithstanding challenging results, we believe Solo Brands has a solid foundation for success, including great enthusiast brands, a pipeline of new products and highly loyal customers.
Speaker Change: I am encouraged by what I see here. Our board and management team are fully aligned in taking thoughtful steps to improve the near-term and long-term business trajectory.
Speaker Change: Turning to our fourth quarter results net sales were $143 5 million down 13, 2% from a year ago.
Speaker Change: This was driven by declines in retail and direct to consumer channels, but in the <unk> segment, partially offset by increased net sales in the chubby segment.
Speaker Change: We are carefully evaluating the effectiveness and return of our marketing spend.
Speaker Change: Although the Snoop ads created good brand awareness last year, we're working to better position spend to be more efficient and tied to the outcomes that align closer to our goals.
Speaker Change: Our gross profit for the quarter was $87 8 million compared to $96 4 million in the prior year.
Speaker Change: Our reported gross profit margin grew to 61.1% up 280 basis points compared to 58, 3% in the year ago quarter.
Speaker Change: Selling general and administrative expenses were 81 8 million in the quarter down from $84 3 million in the prior year.
Speaker Change: The improvement in SG&A expenses were mainly due to the early termination of a legacy advertising agreement.
Speaker Change: The fourth quarter's net loss was $58 2 million and adjusted net income excluding after tax restructuring charges and other nonrecurring or non cash charges resulted in positive earnings at $2 3 million and adjusted EPS of three cents per share.
Speaker Change: Adjusted EBITDA for the quarter was $6 3 million with a margin of four 4%.
Speaker Change: Turning to the full year results 2024, net sales were $454 6 million down eight 1% from the prior year.
Speaker Change: Our reported gross profit margin for the year was 57, 3%.
Speaker Change: And excluding inventory charges related to restructuring and consolidation and other noncash items. Our adjusted gross profit margin was 61, 7% up 30 basis points from the prior year.
Speaker Change: The company reported a GAAP net loss of $180 2 million an improvement versus a net loss of $195 3 million in 2023.
Speaker Change: Adjusted net income was $11 4 million or E. P. S. N 12, and our adjusted EBITDA was 32 point.
Speaker Change: 6 million or seven 2% of net sales for the full year in 2024.
Speaker Change: Please refer to our earnings release for reconciliation tables to the most comparable GAAP measures.
Speaker Change: In early 2025, we continued implementing corporate restructuring and cost optimization initiatives to Rebase line expenses and rightsize the business based on expected sales this year.
Speaker Change: We have examined the company's marketing effectiveness and have a multi step plan to improve efficiencies and address spin, which John will discuss in a few moments.
Speaker Change: We have begun creating better performance management metrics and are evaluating talent at every level.
Speaker Change: I wanted to give you a few examples of actions we have taken thus far after careful consideration.
Speaker Change: We consolidated two distribution centers and are looking to sublease those facilities.
Speaker Change: We believe this was necessary to even maintain operating leverage across our fulfillment network.
Speaker Change: We are continuing to evaluate and make strategic decisions to lower cost and respond to business needs.
Speaker Change: We successfully renegotiated break contracts for the organization in mid 'twenty 'twenty four and are currently exploring other opportunities to reduce our spend in this area.
Speaker Change: After the holiday period, we decided to take an action on a reduction enforce primarily to streamline our solar segment marketing and operational function.
Speaker Change: We also rationalize certain operations reduced overhead cost and re baseline cost to better align with the sales going forward.
Speaker Change: We have decided to pause our financial guidance based on the challenging and uneven consumer environment anticipated this year and uncertainty with tariffs.
Speaker Change: However, we are targeting improving profitability compared to a year ago, especially as we expect our major initiatives to ramp up in the second half of the year.
Speaker Change: Regarding tariffs we are actively addressing the impact on our business.
Speaker Change: In some instances, we have proactively shifted production to alternative countries to avoid China specific impact while exploring mitigation tactics to even further reduce tariff headwinds.
Speaker Change: Okay.
Speaker Change: Although there continues to be uncertainty regarding the operation and duration of terrorists.
Speaker Change: We are currently estimating the impact to be significant to our operations before planned mitigation activities.
Speaker Change: Turning to the company's balance sheet and cash flow position, we ended the quarter with $12 million in cash and cash equivalents.
Speaker Change: We continued to manage working capital closely and we ended the quarter with inventory of $108 6 million down from a year ago and up 1.8 million from September 30th.
Speaker Change: The company's cash provided by operating activities was $10 5 million for the year and the full year capital expenditures were $14 5 million.
We are working to maintain a disciplined and conservative capital allocation strategy, which includes careful cash management and we have no M&A plan for 2020 five.
Speaker Change: Investing in product innovation is essential, but we will be judicious with our cash.
Speaker Change: As of September 31st 2024.
Speaker Change: All of our borrowings were $69 million.
Speaker Change: Term loan outstanding was $83 million and our borrowing capacity on our revolver was $350 million.
Speaker Change: As of December 31st we were in compliance with all financial and operational.
Speaker Change: Subsequent to the end of the year, we drew down $277 3 million on the revolver, which matures next year on May 12 2026.
Speaker Change: More information will be available on our 10-K filed this morning, but due to uncertainty in the business and our expected level of indebtedness without the application of successful mitigating strategies, we expect to experience difficulty remaining in compliance with the financial covenants in our credit agreement.
Speaker Change: Today's 10-K also includes disclosures about the company's ability to continue as a going concern.
Speaker Change: We are evaluating strategies to refinance our existing debt.
Speaker Change: And our plans are focused on improving our results and liquidity and we are discussing today.
John Larson: With that I would like to turn it back to John.
John Larson: Thank you Laura.
Speaker Change: I mentioned in the opening I am laser focused on accelerating and amplifying the restructuring plan that was already underway and ensuring the company maintained the momentum of these critical initiatives my.
Speaker Change: My focus is 100% on optimizing the bottomline and preserving cash.
Speaker Change: We have implemented surge teams to focus on the key areas of opportunity.
Speaker Change: Our most critical initiatives for our strategic turnaround plan include.
Speaker Change: Number one reset.
Speaker Change: Resetting the organization's cost structure in line with our sales and profit profile.
Speaker Change: We are working closely with our financial advisors to walk through every line item on our income statement and balance sheet and have developed an extensive list of initiatives to drive bottom line results starting this year.
Speaker Change: Two focusing on profitability by channel by product for each division to drive the business to where we believe we can provide stronger margins.
Speaker Change: Three resetting our marketing approach our single biggest line item of expenditure.
Speaker Change: As you May know <unk> recently joined solo brands Board and has now agreed to serve as the company's interim CMO.
Speaker Change: This is a former colleague and highly awarded marketing Rockstar.
Speaker Change: She has a successful track record as CMO and head of brand strategy for companies like Cadillac and hunger and has worked at agencies for many years she.
Speaker Change: She also earn the AD age's marketer of the year Award and it was inducted into the Aaas advertising Hall of achievement.
Speaker Change: We are excited to leverage your strategic ability to lead our marketing efforts identify the appropriate partners and leading edge AI tools with the potential to increase efficiency dramatically and reignite our brands.
Speaker Change: Number four executing in a complete review of our product lineup simplifying our current product offerings and strategically repricing our portfolio of offerings.
Speaker Change: We believe there are significant pricing opportunities to provide clarity for our consumers and to achieve stronger margins.
Speaker Change: We are fortunate to have a cohesive collection of premium brands with deep customer following and we'd expect that being less promotional but help avoid channel conflict between our direct to consumer and retail outlets.
Speaker Change: Number five accelerating and amplifying new product launches to drive further momentum in the latter half of the year and identifying new product opportunities.
Our team of entrepreneurs already has an innovative mindset and we know that solo stove and chubby are exceptionally positioned with strong brand recognition and loyal customers to these brands.
Speaker Change: Recall that we consolidated Io paddle boards, and kayaks and touring new water sports division to create a more profitable scalable platform.
We are actively working on a product roadmap for outdoor lifestyle spaces designed to positively impact People's lives as they enjoy leisure time outdoors.
Speaker Change: Finally, we are creating a metric focused culture and reporting system to track performance in real time.
Speaker Change: We believe that tie in key performance indicators to our actions and providing simple dashboard reporting will allow our culture to align engage and succeed.
Speaker Change: Also developing repeatable processes that enhance operational efficiency and consistency is critical.
Speaker Change: We plan to tracker wins collect feedback and analyze failures and successes.
Speaker Change: Our strategic transformation plan initiatives are tracked and reviewed weekly and we expect that our quarterly financial results will be the measure of our accomplishments.
Speaker Change: Regarding tariffs as we are seeing in similar industries, we now have the impact of tariff uncertainties.
Speaker Change: As Laura mentioned, we are proactively managing this dynamic situation with a broad range of mitigation plans.
Speaker Change: To summarize the company is resetting the organization's cost structure identifying the key performance drivers in our portfolio revamping, our marketing approach overhauling, our pricing and promotion strategies accelerating and amplifying, our new product launches and creating.
Speaker Change: A metric based culture to attract performance in real time.
Speaker Change: Bottom line, we have great brands and products with best in class reviews, we have the foundation, we are resetting our business approach to deliver improved results.
Speaker Change: And.
Speaker Change: As we execute our value accretive initiatives. This year, we expect the performance upside would be more visible in the back half of the year.
Speaker Change: Thank you for your continued interest in the company, we look forward to providing updates when we report first quarter results in May.
Speaker Change: Have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.