Casper Sleep Inc.

Good morning and welcome to Casper Sleep's third quarter 2020 conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to Roberto Aja for investor relations for Casper. Mr. Aja, you may begin.

Thank you, operator, and good morning, everyone. Thank you for joining the Casper Sleep 2020 third quarter conference call. We'll get started in just a minute with management's comments, but before doing so, let me take a minute to read the State Harbor language. This call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, and objectives. our anticipated financial performance, and the expected impact of novel coronavirus on our business. These statements are neither promises nor guarantees, involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Factors discussed in our annual report conformed 10-K for the year-end of December 31st, 2019, as updated by the risk factor section of our quarterly report on Form 10-Q for the quarter-end of September 30th, 2020, and our other findings with the Securities and Exchange Commission, should cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause reviews to change. In addition, we may also reference certain non-GAAP metrics, which are reconciled to the nearest GAAP metric in the company's earnings release, which can be found on our investor relations website at ir.casper.com. On the call today is Philip Krim, co-founder and chief executive officer of Casper, Emily Arrell, President and Chief Commercial Officer of Casper, and Mike Monahan, our Chief Financial Officer. Following the prepared remarks, we'll open the call for a question and answer session. With that, I would now like to turn the call over to Mr. Philip Krim, Casper's Chief Executive Officer. Philip, please go ahead.

Thank you, Norberto, and good morning, everyone. Welcome to our third quarter conference call. We are living through an incredible time in the history of our business. As a result of the COVID-19 pandemic, we have seen increased focus on the at-home experience. Consumers are searching for products that improve their wellness and increase their comfort. They are willing to invest in quality, design, and convenience, and they want the products now. Trusted and admired brands that deliver top-quality products and customer service will win over the long term. Casper is one of those brands. In the third quarter, Casper saw record interest for our products, evidenced by our website traffic reaching its highest level since we started the company. Since Q3 of last year, we have added seven new retail partnerships with iconic brands such as Macy's and Nordstrom's, entering conversations with additional retail partners that will both further our brand visibility as well as our growth. With a strong brand and a multi-channel presence across e-commerce, retail stores, and retail partnerships, we are confident Casper is positioned well to take share in the growing fleet market. Revenue for the third quarter was $123.5 million. Disappointing results given the strong demand signals we experienced, in particular across our e-commerce and retail partner sales channels. However, significant challenges in our supply chain, including industry-wide shortages in textiles and chemicals critical to phone production, led to outsized levels of out-of-stock items both in our DTC and retail partnership channels. Thus, we were unable to monetize the full demand opportunity and fulfill all purchase orders, leading to a marked increase in order cancellations. For example, on our website, many of our core mattresses offerings were out of stock for weeks at a time, We are laser focused on and diligently working to address the bottlenecks in our supply chain, including labor shortages, capacity constraints and scarcity across many key materials and components. We have made significant progress over the past few weeks addressing these challenges. As an example, we have already onboarded new Tier 1 and Tier 2 suppliers and vendors who are allowing us to better meet strong consumer demand across our multi-channel distribution platform, while adhering to our high levels of quality control to preserve the value of brand and reputational equity. At the same time, we are implementing redundancies across key supply chain points and better inventory planning, which bring improved forecasting and inventory management. In addition, we are actively building safety stock that will help protect against further disruption. Put succinctly, while we are disappointed in our third quarter results, we believe the worst of our supply chain disruptions are behind us and that we are well positioned going forward to both grow the top line and further preserve the growth to the bottom line and achieve adjusted EBITDA profitability. On a more positive note, gross margins in the quarter came in very strong to 55.5%, an increase of 480 basis points year over year, highlighting the strength of our asset-light model. Year over year, our Q3 gross profit dollars increased by 6%, demonstrating the leverage in our model. We've negotiated more favorable rates with our shipping partners and are optimizing our product mix to both better meet demand and manage overall inventory levels. By leveraging a diverse supplier base, we are able to maintain competitive pricing and favorable margins over the long term in a capital efficient manner. We've also made significant strides towards our goal of profitability. Adjusted EBITDA loss came in at $7.5 million, representing a 57% improvement year over year and a 34% improvement sequentially. In the fourth quarter, we expect to grow revenue and continue our march towards profitability, and as a result, expect a sequential improvement in adjusted EBITDA loss. We are pleased in our ability to continue this positive trend in the face of the significant headwinds we face for most of 2020. We are also seeing success in our efforts to increase our reach in North America through our multi-channel distribution model. We currently have a footprint that is much less than many of our competitors, leaving us with significant opportunity to expand and take market share. Our task resource and retail partnerships are critical to our strategy. Many of our customers want to try a mattress and experience our products before they make a purchase. These channels are highly complementary to our e-commerce strategy and enable us to interact with and influence the customer across the decision-making process, leading to more trial opportunities and higher conversion rates. We've also strengthened our management team in recent months. bringing many talented and experienced individuals to the company, including a new CFO and CMO, along with a number of other senior executives to help lead facets of the business, including e-commerce, media, customer acquisition, retail partnerships, and supply chain teams. Each of these new team members has a deep experience in their respective areas, and I am confident they will make meaningful contributions to Casper. Going forward, we expect to benefit from a number of favorable including strong demand for mattresses, healthy demand for at-home purchases, robust home buying and suburban migration, increased awareness and appreciation for wellness, increased consumer demand for a multi-channel shopping experience, and an industry-leading brand that resonates with consumers across a growing demographic and consumer profile. We feel strongly that our value proposition is not just a major differentiator, but also a significant driver of our growth plans as we continue to converge the shopping experience. In summary, while we are aware that there's still much work to be done, our ongoing trends highlight the value of our strategic multi-channel positioning and expansion across our retail stores and retail partnerships. The addressable market we are in is estimated at over $20 billion. We believe there is an enormous opportunity in front of us for the Casper brand to take a greater share of this large and growing market. We believe Casper is in a great position to provide strong long-term shareholder value. I'll now turn the call over to Emily, our President and Chief Commercial Officer, to provide some additional color on our channel performance and commercial strategy. Emily?