a.k.a. Brands Holding Corp.

Ladies and gentlemen, welcome to the AKA Brands Holding Corp. Third Quarter 2021 Earnings Conference Call. All phones are in a listen-only mode. We will provide instructions at the end of the call on how to ask your questions. At this time, I'll turn the call over to Emily Goldberg, Head of Corporate Communications. Go ahead, Emily.

Good afternoon, everyone. Thank you for joining AKA Brands' Third Quarter Conference Call to discuss the results we released this afternoon, which can be found on our website at ir.akabrands.com. With me on the call are Jill Ramsey, Chief Executive Officer, and Kiran Long, Chief Financial Officer. Before we get started, I would like to remind you of the company's safe harbor language. Management may make forward-looking statements which refer to expectations, projections, or other characterizations of future events, including guidance and underlying assumptions. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially than those expressed. For further discussion of the risks related to our business, please see our filings with the SEC. Please note we assume no obligation to update any such forward-looking statements. This call will contain non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin. Reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website. Now I would like to turn the call over to Jill.

Good afternoon, everyone, and thanks for joining us. We're excited to be hosting our first earnings call as a public company and even more excited to discuss our strong third quarter performance. I'll begin with an overview of our results and highlights from our brands and then outline our growth strategies. Kiran will then take you through the details of our financials and provide our full year outlook, and then we'll open it up for questions. I'm proud of the strong performance our brands delivered in the third quarter, demonstrating the power of our platform and the talent of our teams. We drove strong growth across our brands while navigating COVID-19 and global supply chain dynamics. For the third quarter, net sales grew by 155% to $161.8 million. And pro forma for the acquisition of Culture Kings, net sales increased 44% from the third quarter last year, and active customers grew 54% across our brands. Our brands achieved growth across all regions, particularly in the U.S., where net sales increased 84% on a pro forma basis, making the US our largest market. And momentum has continued into the fourth quarter. As many of you know, Australia was in strict lockdown for most of the quarter due to a rise in COVID-19. Despite lockdowns, curfews, and store closures, our Australian business grew 7% on top of very strong growth last year. further proving our agility, resiliency, and the strength of our brands and teams. We are also encouraged by the vaccination rollout and reopening trends we see in Australia. Eighty-nine percent of their population has received at least one vaccine dose, and almost all lockdown restrictions have been lifted. All of our Culture King stores are now open and traffic is rebounding, while digital sales also continue to grow. Tehran will provide more details on COVID-19 impacts in the region. Turning to rest of world, on a pro forma basis, our brands grew 101%, largely driven by Culture Kings expansion into New Zealand and growing demand for Princess Polly and Culture Kings in Europe and Asia. Over the past few months, we have discussed our mission and strategy with many of you, which is to accelerate the growth of direct-to-consumer fashion brands for the next generation. We have a compelling group of high-growth brands that customers love. Princess Polly, Culture Kings, Petal & Pop, Reb Dolls, and our most recent acquisition, Minimal. All of them are digital first and masters at connecting with customers on social media through a constant stream of great content and new fashion. At AKA, we accelerate the growth of our brands through our next-generation retail platform. providing expertise to achieve greater scale and profitability. We know we are better together. Across our brands, we share best practices like data-driven merchandising and efficient social-led marketing, as well as share vendors for cost leverage and synergies. And through our network of best-in-class third-party tech partners, we get early access to the latest digital capabilities and innovation. Our unique model positions us to achieve our vision to become the global leader in direct-to-consumer fashion for the next generation. Our strong performance demonstrates that our strategy is working. I'll share some highlights from our brands this quarter, beginning with Princess Polly, our largest and first brand on the platform. They have pioneered effective next-gen strategies, such as test and repeat buying and micro-influencer-led marketing, both of which we are sharing across our brands, creating powerful network effects. Princess Polly outperformed expectations this quarter across all regions, led by strong growth in the U.S. As the U.S. reopened and consumer fashion needs changed, Princess Polly quickly adjusted merchandise from stay-at-home wear to going-out dresses and party wear. As a reminder, their test and repeat approach to buying gives them agility to react quickly to trends and get new fashion to customers in just 30 to 45 days. This quarter, they increased the number of new weekly styles introduced by 13% over the prior quarter. And they also expanded the penetration of exclusive merchandise, which drives higher gross margins. They also launched a sustainable fashion line, converting 5% of their assortment to products made from lower impact materials and saw strong customer response exceeding expectations. These merchandising strategies were supported by a marketing campaign celebrating the US reopening and summer holidays. With 75% of their customers in either high school or college, Princess Polly continues to focus their marketing strategy on students. Their back-to-school campaign, powered by influencers, produced strong week-over-week growth. They also rolled out a new university-based influencer program. and received 20,000 ambassador applicants. We're pleased with Princess Polly's acceleration in the US and confident about their continued growth ahead. Turning to Culture Kings, a leading Australian streetwear retailer with a cult-like following and unique blend of music, sport, and fashion. We acquired Culture Kings in March of this year, doubling AKA in size. While they are a digital first, retailer culture kings is notably our only brand with stores these highly experiential and innovative stores are like no other and set a new standard for the future of retail their stores serve as powerful marketing engines with a theatrical and celebrity event format that fuels type and demand and provides powerful content for their digital channels while the stores have since reopened Notably, five of eight stores were closed for the majority of the third quarter due to COVID-19. The team quickly shifted marketing spend and inventory to focus on the digital business and the U.S. market, both of which performed well. We're proud of how the team navigated the COVID-related challenges in Australia and the resulting third quarter growth they achieved. This quarter, Culture Kings opened their eighth and most innovative store yet in Auckland, New Zealand, with record performance. On opening day, there was a six-hour line to enter the store, demonstrating the power of the brand. But just three weeks after opening, the store was closed due to lockdowns. During this time, robust growth in New Zealand continued online and accelerated throughout the quarter. The success of Culture King's first market expansion outside of Australia further bolsters our confidence in our ability to expand this popular brand to other markets. Next, I'll touch on Petal & Pop and RevDolls. We are very pleased with Petal & Pup's growth this quarter. It is now our fastest growing brand and following the same growth curve as Princess Polly in the US. By leveraging best practices from Princess Polly, we have seen Petal & Pup's growth accelerate, which reinforces the strength of our platform. All of Petal & Pup's buying is data-driven and on the test and repeat model that Princess Polly developed. And Petal & Pup is now heavily leaning into the micro-influencer strategy also innovated by Princess Polly. In July, they launched US-based distribution from a distribution center shared with Princess Polly. This improved the customer experience by reducing shipping time and also provided shared cost leverage and learnings. Petal & Pup excels in trendy, event-driven fashion, and we've seen a great rebound in dresses and occasion wear, which was the brand's fastest-growing category this quarter. As we continue to scale the brand in the U.S., we also appointed a new brand president, Victoria Perry, who is based in San Francisco. Victoria is a seasoned fashion and e-commerce executive, and we are confident that she will continue to accelerate the growth of the brand in the U.S. and globally. Revdolls, which specializes in trendy fashion in extended sizes for ethnically diverse young women, also delivered solid growth this quarter. They launched new collaborations with relevant influencers and increased their brand awareness and credibility through authentic and creative content focused on body positivity and size inclusivity. While small today, we are confident in RebDoll's long-term potential as it caters to an attractive and underserved customer. Turning now to Minimal, the newest brand to join our platform, which we acquired in October. Turan will touch more on the financial details surrounding the transaction but I'll quickly share a few brand highlights and why it is such a good fit for our portfolio. Minimal is a premier men's streetwear brand in the U.S., which bolsters our position in the space. A great strategic fit, Minimal is a proven next-gen direct-to-consumer brand that has mastered modern men's fashion and provides sought-after trends at a premium quality and affordable price. They have a track record of high growth and profitability, and employ a data-driven approach to merchandising and marketing. The brand has built a highly loyal following and has a long runway for growth and profitability in the US and globally. We are confident that this already strong brand can accelerate further and benefit from AKA platform synergies and complements Culture King's particularly well. Minimal excels in denim and bottoms, which perfectly complements Culture King's core categories in hats, hoodies, tees, and sneakers. Minimal is well established in the US and we are also confident that we can successfully bring the brand to Australia. With his strong vision and leadership, founder and CEO Matt Fields has assembled a highly talented team and we're thrilled to welcome them to AKA Brands. Looking forward to the fourth quarter and beyond, momentum in our brands continues to be strong and we remain focused on growing our brands organically to drive profitable and sustainable long-term growth. Before turning to our growth strategies, I would like to comment briefly on our supply chain, a topic on everyone's mind. We experienced minimal disruption to our supply chain in the third quarter, and our inventory is well positioned for the holiday season in the fourth quarter. There are a couple reasons we have fared better than many during the global supply chain disruption. First, as discussed, we do test and repeat buying for the majority of our inventory, which provides a rapid 30 to 45 days to market. To achieve this speed, we rely primarily on air freight, so we do not have a material amount of merchandise delayed at sea, like many others. While we've seen air freight costs increase, the pricing pressure is far less drastic than cost increases related to shifting from sea to air. Second, we have a diversified group of 271 suppliers across 14 countries, with no single supplier making up more than 13% of our sales. and we only have one small supplier in Vietnam, so we were not materially impacted by the closure there, and we were able to quickly adjust. Additionally, by operating at scale in two hemispheres, we are uniquely able to manage inventory and marketing spend across two seasons and regions. This competitive advantage, combined with our flexible business model, has allowed us to remain agile during different phases of the pandemic for nearly two years now. And we are well prepared for the reopening of Australia with the right assortment and strategies in place. Overall, we believe we are well positioned in the fourth quarter and beyond as we continue to navigate dynamic supply chain and COVID-19 related challenges. Next, I'll turn to our near and long-term strategies to drive growth across our brands. Beginning with the U.S., our highest priority market right now. We are energized by the tremendous growth potential we see across our brands. Following the successful expansion of Princess Polly in the US, which now represents the majority of their sales, we have applied their US growth learnings to Petal & Pup and we are doing the same with Culture Kings as they scale their business here. We are on track to deliver on our expansion plans for Culture Kings. We have hired a head of US to build out a team and plan to open a distribution center in the front half of next year in California. We are also working on plans to open a Culture King store next year and look forward to sharing more details on that soon. For all of our brands, as we continue to grow in the U.S., we have strategies in place to acquire new customers, deepen loyalty with our existing customers, and expand our high-quality merchandise assortment. First, I'll touch on our customer initiatives. Our brands are masters at content creation, and we will continue to capitalize on our social media strengths by growing our network of micro influencers, which is a highly efficient strategy for acquiring new customers. We're also leaning in on popular platforms like TikTok as we continue to follow customer traffic to new social media platforms as they evolve. We also see an opportunity to further drive customer retention and frequency of visits that will grow lifetime value. such as loyalty programs. Princess Polly is lapping the one-year anniversary of their loyalty program, which launched in October of 2020. While it's still early days, the program has exceeded expectations, and we've seen more than double the spend coming out of our loyalty members. We'll take the best practices from Princess Polly to roll out loyalty programs to our other brands. Next, I'll touch on our merchandising initiatives. As part of our model, our brands are constantly introducing new styles, designer collaborations, and exclusive items, which keep customers engaged and frequently visiting, as seen in our customer retention rates of 63% in 2020 across AKA brands. Additionally, we have opportunities for strategic assortment expansion. We're pleased to share that Princess Polly is launching extended sizing with their new curve collection in the fourth quarter. which we know will expand our audience and customer base. And building on the successful launch of their sustainable fashion assortment in the third quarter, Princess Polly plans to expand their sustainable offering in the fourth quarter, with a goal to offer 20% of new styles made from renewable fabrics by the end of the year. And at Culture Kings, we are working to expand our print-on-demand graphic tee capabilities, which allow us to real-time react to customer trends and scale t-shirt print production to meet demand. While our near-term focus is in the U.S., longer term, we will also grow our brands internationally, beyond the U.S. and Australia. As we've mentioned, we're seeing highly encouraging early demand signals for Princess Polly in the U.K. and Europe and for Culture Kings in the U.S. and Asia. We will continue to test and learn our way into new digitally savvy markets by localizing the customer experience and tailoring marketing spend to expand awareness and grow our brands internationally over the next several years. And lastly, while organic growth is our top priority, we view M&A as incremental growth drivers for the future. We have a highly disciplined approach that has led to successful M&A deals. As a reminder, we're searching the world for the best high-growth, digital, direct-to-consumer, and profitable brands to add to our portfolio. We believe we can augment our 20% annual long-term growth targets with one to two acquisitions per year. We will continue to be disciplined and very selective in our M&A strategy and only add brands that meaningfully enhance our portfolio. Before I pass it to Kiran, I want to express my gratitude to all of our teams at AKA and across our brands. for delivering a great first quarter as a public company. Our IPO in September was a tremendous milestone and we could not have done it without all of our teams and partners. The opportunity and runway ahead of us is significant and we could not be more excited to execute our strategy for the quarters and years to come. I'm confident that AKA Brands is the future of fashion and we're just getting started. With that, I'll turn it over to Turan now to discuss our third quarter performance and our guidance in more detail.