Crocs, Inc.

Hello, and welcome to the Crocs, Inc. Third Quarter 2022 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist or pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To answer your question, please press star, then two. Please note, today's event is being recorded. I now would like to turn the conference over to your host today, Ms. Cori Lynn. Ms. Lynn, please go ahead.

Good morning, everyone, and thank you for joining us today for the Crocs Third Quarter 2022 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 crocs.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 safe harbor provisions of the federal securities laws. These statements include but are not limited to statements regarding our supply chain challenges, cost inflation, the acquisition of HeyDude, and the benefits thereof, CROC strategies, plans, objectives, expectations, financial or otherwise, and intentions, future financial results and growth potential, anticipated product portfolio, ability to create and deliver shareholder value, and statements regarding potential impacts to our business related to the COVID-19 pandemic. These statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performances, or achievements expressed or implied by the forward-looking statements. Crocs is not obligated to update these forward-looking statements to reflect the impact of future events, except as required by applicable law. We caution you that all forward-looking statements are subject to risks and uncertainties described in the risk factors section of our annual report on Form 10-K and our subsequent filings with the FCC. Accordingly, actual results could differ materially from those described on this call. Please refer to the 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. Certain financial metrics that we refer to as, quote, adjusted or, quote, non-GAAP 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 Millman, 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. Good morning, everyone. I'm incredibly pleased with the strength of our brands and the third quarter results we released this morning. Consumer demand for both the Crocs and HeyDo brands is exceptional and led to strong double-digit revenue growth. As we continue to navigate a dynamic macro environment, Our teams remain focused on driving market share gains and executing our long-term growth strategies for sustainable, profitable growth. Looking at the third quarter of 2022, Anne will review our financial results in more detail shortly, but here are a few highlights. Consolidated revenues of $985 million grew 63% on a constant currency basis. Props brand revenues grew 20% constant currency with growth in all regions, and DTC comparable sales grew 18 percent. Aged brand revenues were $269 million, representing revenue growth of 87 percent versus prior year. Adjusted operating margins of 28 percent were best in class. Adjusted diluted EPS increased 20 percent to $2.97 per share. Significant deleveraging within the quarter, with net leverage of 2.4 times. Moving to our brand highlights for the quarter, let's begin with the Crocs brand. In Piper Sandler's fall 2022 Taking Stock with Teens survey, the Crocs brand increased to the number five favorite footwear brand among teens, up from number six in fall of 2021. The brand also continued to strengthen with men's and kids, ranking as the number five and number four brands, respectively, within the MPD retail tracking service for fashion footwear. in terms of dollar value of sales for September in the United States. These results were achieved as we continued to raise the bar in marketing activations and product innovations. Our partnership with Salehi Bambri continues to be very successful, as we released three new colors this quarter, all of which sold out instantly in the U.S. In EMEA, our partnership with high fashion designer Christian Cowan featured custom gibbets charms that can be converted into wearable accessories, such as a necklace and a hair clip, elevating our customization to new heights. In China, we teamed up with prominent fashion ambassadors, Bai Jing Ting and Nana, to launch our global crush collection. As a fan-centric brand, we continue to demonstrate our versatility, partnering with convenience store 7-Eleven and relaunching our adult Lightning McQueen Club for the fourth time at parents' request. Marrying marketing activations with product innovations is one of our core competencies and how we continue to build brand relevance. New product introductions include adding hype for her in the Crush collection that is now global, a new molded silhouette for him with the Echo Club, early access events on the Crocs app for the Echo Club, generating significant app downloads, strong DTC sellout, as well as much excitement with our specialty footwear retailers. In the Sandal Arena, we elevated comfort with the mellow slide that targets the recovery segment, combining the comfort of light red foam with modern silhouette. A rapid pace of both product and marketing innovation hit an all-time record in September, and we plan to sustain a high level of innovation and new product introduction through the holiday season and into 2023. From a cross-brand perspective, Clark's continued to exhibit strong double-digit growth this quarter. Sandals, an important growth pillar for the future, increased nearly 20% in Q3. We're confident that sandals will deliver strong back-half growth as we experience exceptional growth internationally and see high saddle penetration in markets such as India, Southeast Asia, and the Middle East. Finally, Jivitz continues to create excitement and engagement with consumers globally. growing double digits from last year. We continue to drive digital growth, one of our most important initiatives. We saw strong 22% constant currency growth and digital penetration increase to 37.4% with growth across all regions, driven by increases in new customers, combined with repeat purchasing from existing customers. We launched more robust technical capabilities to enable enhanced personalization, and we expanded new marketplaces, including selling on Douyin in China. Turning to Hey Dude, the brand is one of the fastest-growing casual footwear brands in the U.S. market today, and we now expect revenues to exceed $1 billion in 2023, a full year earlier than previously committed. In Piper Sandler's fall Taking Stock with Teens survey, Hey Dude ascended to the number seven favorite footwear brand among teens, up from number eight in the fall of 2021 and number nine in the spring of 2022. We're also seeing early evidence of success with our marketing campaigns, as the Piper study noted increased hey dude mindshare in the northeast and the south regions of the United States. We're excited about the rebrand that went live in July, and we've seen consideration increase by five percentage points in our recent brand study. The brand was recently featured in the Wall Street Journal article entitled, the beer koozie-like shoe that is selling out across America. We're excited to have acquired the rights to HeyDude.com this past quarter, which would make it even easier for our fans to purchase directly from our website. HeyDude also began its influencer strategy with a portfolio of partners. Going forward, we'll continue to implement a successful marketing playbook for the HeyDude brand. From a product perspective, the HeyDude brand is continuing to expand wearing occasions, as we enter colder seasons with products such as the Brit, Denny, and the Scott boots. Additionally, the introduction of the Axle is testing the relevance of the Hey Do brand in the sneaker category. Our iconic core silhouettes, the Wally and Wendy, continue to grow and be in demand as we introduce new colors, prints, and elevated products to include fur linings. With the addition of Hey Do, we have diversified our product portfolio. For Q3, clock penetration was just over half of our total revenues. The casual silhouettes of HeyDude diversified our overall revenue base to constitute 27% total revenues, and Sandals were approximately 9% of enterprise revenues. In summary, we have tremendous confidence and clear evidence as to the underlying strength and growth potential for both Crocs and the HeyDude brands. Before turning the call over to Anne, I want to provide an update on what we're seeing in the macro environment. Pressures remain from widespread inflation, elevated interest rates, and a strong US dollar. China's zero COVID strategy and the war in Ukraine. During the pandemic, inventories were operating at historically lean levels caused by supply chain delays and Vietnam factory closures. In recent months, we've seen high levels of promotions in response to elevated inventory levels, particularly in the United States. The combination of these factors are pressuring margins and making near-term performance more difficult to predict. However, even facing an uncertain macro environment, we are raising our guidance for 2022 and remain confident in continuing to gain significant market share and achieving our long-term revenue targets for both brands while generating best-in-class profitability. I will now turn the call over to Anne, who will review our third quarter financial results in more detail.