Crocs, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Crocs Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Corey Lynn.

Good morning, everyone, and thank you for joining us today for the CROC's third quarter 2021 earnings call. Earlier this morning, we announced our latest quarterly results, and a copy of the press release may be found on our website at croc.com. We would like to remind you that some of the information provided on this call is forward-looking and accordingly is subject to the state's harbor provisions of the federal securities laws. Statements include, but are not limited to, statements regarding potential impacts to our business related to the COVID-19 pandemic. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events. We caution you that all forward-looking statements are subject to risks and uncertainties described in the risk factor section of our annual report on Form 10-K. Accordingly, actual results could differ materially from those described on this call. Please refer to CROC's annual report on Form 10-K as well as other documents filed with the SEC for more information relating to these risk factors. Adjusted gross margin, income from operations, operating margin, and earnings per diluted common share are non-GAAP measures. A reconciliation of these amounts to their GAAP counterparts is contained in the press release we issued earlier this morning. Joining us on the call today are Andrew Reese, Chief Executive Officer, and Ann Melman, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will open the call for your questions.

At this time, I'll turn the call over to Andrew. Thank you, Kari, and good morning, everyone. As you saw from our release this morning, we achieved exceptional top-line growth and industry-leading profitability during Q3 of 2021. Our extraordinary performance, in spite of the ongoing COVID-19 pandemic and widespread supply chain disruptions, demonstrates the strength of the Crocs brand and product offering globally and reinforces the confidence we have in achieving our short- and long-term goals. Our team's ability to navigate these disruptions for the last two-plus years has been and continues to be a key ingredient across the success. Anne will review our financial results in more detail shortly, but here are a few highlights from the third quarter of 2021. We experienced board-based growth with total revenues up 73% versus prior year to $626 million and doubling from 2019. DTC grew 60% versus prior year and 90% versus 2019 to represent 51% of revenues. Digital sales grew 69%, achieving double-digit growth in all regions and representing 37% of total revenues. Adjusted operating income more than doubled in the quarter to $205 million versus $75 million in 2020, with adjusted operating margins expanding to an impressive 33%. Finally, we committed to becoming a net zero company by 2030 and began production of bio-based products that go on sale in 2022. Let's now turn our attention to the topic that I know is top of mind for many of you. The recent factory closures in Vietnam due to COVID-19 and broader global supply chain challenges facing all industries. We first want to recognize our factory partners for their extraordinary efforts in a difficult time and for protecting the health of their employees. We appreciate their ongoing partnership. Regarding the impact to the cross business, during the third quarter, some of our factories in Vietnam were closed for several weeks, and they began reopening earlier this month. As of today, most of our factories in Vietnam are operational, although they are in various stages of restarting. We expect the situation to remain fluid as the vaccination rates increase in the country. We are pursuing all of the actions you might expect to mitigate the impact of this temporary disruption. First, we assist shifting production capacity to other countries, including China, Indonesia, and Bosnia, where possible. We also have a unique advantage in that we can ramp factory production quickly due to the limited inputs and simple configuration of our products. Secondly, by prioritizing top-selling products and narrowing SKU counts, while still preserving newness, we're able to improve factory throughput. Thirdly, we're aggressively leveraging air freight to bring in units for 2022 spring-summer selling season. In the United States, we're planning to reduce our dependency on West Coast ports by adding East Coast trans-shipment capabilities to reach our major U.S. customers. In addition to maximizing supply, we're strategically allocating units. We will prioritize our most important channels, e-commerce, retail, and our major wholesale customers. As we all know, this situation is very fluid, but I have full confidence in the supply chain team and our factory partners to manage through this temporary disruption. Also, I want to emphasize that these disruptions will not distract from our long-term strategy, that we believe will propel the cross-brand to $5 billion plus over the next five years. Now let's turn back to the third quarter operating highlights. From a channel perspective, global DTC revenues, which include revenues from e-commerce and company-owned retail stores, grew by 60%. Wholesale, which includes brick and mortar, retail, and distributors, grew revenues 88% and 111% compared to 2019. Digital sales grew 69% and an impressive 129% versus 2019. All channels benefited from strong traffic, higher pricing, and fewer promotions. Execution against our product growth strategy is going well. Clark's sales were outstanding, increasing 91% from a strong 2020 to represent 82% of footwear revenues versus 72% last year. We continue to innovate and are excited about our first line product, which is on trend for holiday. Recent Clark collaborations with Balenciaga, Hidden Valley Ranch, and San Quentin China, amongst others, continue to excite fans and elevate the Clark's brand. We continue to raise awareness for sandals, including them in collaborations such as the one with Benefit Cosmetics that featured both a clog and a two-strap saddle. Sandals grew by 15% in the quarter and 31% year-to-date as we conclude the saddle season in many parts of the world. Sandals represented 13% of footwear sales for the quarter versus 19% last year due to the strength of clog growth. Jibbitz sales once again more than doubled for the quarter versus 2020. We continue to create excitement through a fresh assortment, including recent Jibbitz partnerships with social media personality, Brendan Rock, and legendary rock brand, Grateful Dead. Consumer demand for our products is high, and we remain confident in our growth trajectory. We're raising the low end of our four-year revenue guidance and now expect 2021 revenues to increase by between 62% and 65%. We're also raising our 2021 adjusted operating margin guidance from approximately 25% to approximately 28%, as we benefit from favorable gross margins, SG&A leverage, and the underlying strength of our brand. I'm pleased to share that our brand is extraordinarily healthy, and this is a testament to our product and marketing teams around the world who continue to innovate and raise the bar. In our 2021 Brand Strength Survey, which measures participants' views about the cross-brand globally, results were up double digits for each of our key metrics, brand desirability, brand relevance, and brand consideration. We've now averaged double-digit growth across these metrics for five consecutive years. Another indicator of brand strength is the Piper Sandler Fall 2021 Taking Stock with Teams Survey. where the cross-brand advanced in the all-team preferred footwear rankings to the number six spot, up from number nine last year and number 34 just five years ago. Supported by the help of our brand, wholesale bookings for the first half of 2022 have been exceptionally strong. However, given the supply constraints we've just discussed, We have limitations around how much demand we can fulfill for the first half of the year. Despite this temporary supply chain disruption, we're confident that we will be able to exceed 20% revenue growth for 2022. Before I turn the call over to Anne, I want to thank the entire Crocs organization. We're incredibly proud of the health of the Crocs brand and business. Our results and the confidence we have in our long-term vision are due to our dedicated and talented colleagues who bring the Crossbrand to life every day. I want to thank them for everything that they do. With that, Anne will now review our financial results in more detail.