Casper Sleep Inc.

Good morning and welcome to Casper Sleep's second quarter 2021 conference call. Today's call is being recorded. I would like to turn the conference over to Norberto Aja, investor relations for Casper. Mr. Aja, you may begin.

Thank you, operator, and good morning, everyone. Thank you for joining the Casper Sleep 2021 second quarter conference call. We'll get started in just a minute with management's comments and your questions. But before doing so, let me take a minute to read the State of 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, anticipated financial performance, industry-wide supply constraints, and the expected impact of COVID-19 on our business. These statements are neither promises nor guarantees, but 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 are an annual report on Form 10-K for the year ended December 1, 2020, and other filings with the Securities and Exchange Commission. Could cause actual results to differ materially from those indicated by the forward-looking statements made on this call today. 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 our views to change. In addition, we may also reference certain non-GAAP metrics, including adjusted EBITDA, which is 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. With me on the call today is Philip Crimm, co-founder and chief executive officer of Casper, Emily Arell, president and chief commercial officer, and Mike Monahan, chief financial officer. Following their prepared remarks, we will open the call for questions and answer session. With that, I'd now like to turn the call over to Philip Crimm, Casper's chief executive officer. Philip, please go ahead.

Thank you, Norberto, and good morning, everyone. Welcome to Casper's second quarter conference call. Second quarter revenue represented an all-time quarterly record, with Casper's North America revenue increasing 45% year-over-year. This shows we are gaining market share and that Casper's increasing brand momentum continues to drive accelerating demand for innovative sleep products across all of our sales channels. Strong second quarter North America retail partnerships are revenue growth of 79% year-over-year reflects the early success of our strategy to grow our points of distribution, as well as solid performance from our new trial partners. This channel remains key in our ability to efficiently scale Casper's North America business and to further diversify our revenue mix towards premium-priced products through increased trial opportunities. Our DTC channel delivered its best quarter since the beginning of the pandemic, with year-over-year revenue growth of over 31%. Throughout the second quarter, we continue to make progress on our three core strategic priorities, including expanding our product offerings, increasing our brand awareness, and growing our points of distribution. These initiatives, combined with the actions we are taking to further leverage our marketing spin and to increase operating efficiencies, are delivering positive results. We continue to see very solid demand for our products, although the well-publicized industry-wide manufacturing and supply chain disruptions impacted our second quarter results. While the immediate actions we took in the second half of 2020 and early 2021 enabled us to largely sidestep these challenges in the first quarter of 2021, certain supply chain inputs and conditions worsened throughout the second quarter. Specifically, despite expanding our base of third-party manufacturers earlier this year, our suppliers had less capacity than originally anticipated due to the persistent shortage of raw materials and components critical to mattress production. as well as increasingly significant labor shortages and shipping constraints across the supply chain during the second quarter these conditions had a greater than expected impact on our ability to meet all of the demand we receive and are creating stronger than forecasted inflationary pressures across much of our costs of goods sold absent these challenges we believe that casper would have been adjusted even a profitable in the second half of 2021. The combination of a highly disrupted supply chain and inflationary pressures resulted in a loss of revenue due to unfulfilled orders and margin deterioration. We estimate that these factors had a revenue impact of approximately $10 million in the second quarter, and we currently anticipate a revenue impact of approximately $20 million in the third quarter due to these factors as well, which is reflected in the third quarter guidance that Mike will speak to later on this call. Our current expectation is that the industry will continue to face a tight supply environment and material shortages, along with inflationary pressures for the remainder of the year. While our profitability timeline has pushed back as we manage through these challenges over the next few quarters, we remain confident in our ability to achieve this goal over a period of time as these issues resolve. In spite of significant supply constraints and higher material costs, the overall industry environment remains very strong. With manufacturing capacity anticipated to ramp up later this year, we expect that our third-party manufacturing model will help us fulfill the growing demand for Casper products across our expanding footprint and enable us to resume our historically healthy gross margins in 2022. We are taking and will continue to take aggressive measures to offset these various challenges, including further diversifying and expanding our supplier base, renegotiating shipping rates and implementing price increases across certain product lines. And we will plan to institute additional pricing adjustments later this year to help further offset these ongoing inflationary pressures. These price increases are a level we feel represent the right balance between taking share and maintaining price points that we need to remain competitive. Given the strength of our brand, our internal data shows that consumers are willing to pay a premium price for Casper branded products, giving the attractive value proposition of our sleep solutions. One area that Mike will address in more detail, but which I briefly will touch on, is the work that we have been undertaking as it relates to cost management and better aligning our cost structure with our business to achieve greater operating leverage. We are working diligently to find efficiencies and cost-cutting opportunities across our sales and marketing and G&A line, including procurement functions and reductions in our real estate footprint as we adapt to a more hybrid work environment. For example, we are consolidating operations to the New York metro area and moving Casper Labs and our San Francisco resources to New York to reduce overhead costs, create a more fully integrated team, and foster added collaboration. As these shortages subside, our confidence and our ability to capture more of the increased demand we are seeing in the market for our award-winning sleep products is based on a number of key business drivers, starting with the Casper brand. These are times when strong brands can get stronger, and that has been the case with Casper. We have always invested in our brand and have continued to nurture it to grow along with our business. For us, for our retail partners, and for our customers, the Casper brand signifies quality, innovation, value, and perhaps most important of all, trust. The continued strong appeal of our brand and our products is clearly demonstrated by our consistent top-line growth and ability to continue to grow our retail partners. In June, we announced the Casper products will be available to try in over 60 mattress warehouse showrooms, with rollout to additional showrooms taking place later this year. And just a few weeks ago, we announced a national partnership that brings Casper's award-winning suite of sleep offerings to Bed Bath & Beyond customers through their website and mobile app and in select Bed Bath & Beyond stores. As part of this partnership, Casper opened its first one-of-a-kind branded shop-and-shop at Bed Bath & Beyond's newly designed flagship store in New York City. And we are far from being done. We expect to announce a number of new partners in the coming months that will further heighten the Casper brand and afford us additional trial opportunities. As we continue to increase the number of trial doors and leverage the proactive approach we've been taking to engage with our retail partners to drive sell-through, we expect our wholesale revenue to become more and more recurring in nature. While we are still operating with a small number of retail partners and trial doors compared to our peers, we are working towards increasing both at a very fast clip. As this base grows, we are confident that it will provide us with additional opportunities to engage with a greater number of potential customers and to reach current customers more easily and effectively, creating a revolving door for both existing and new customers to experience our products again or for the first time. As we look ahead to 2022, we believe the opportunity for us to take market share is significant. We are confident in our long-term strategy and our growth outlook. We expect the structural headwinds we discussed regarding supply chain to subside, while the importance and focus on sleep and wellness to continue. We remain constructive on the outlook for new home construction, which should remain robust over the coming years as existing home supply remains extremely tight. And the mattress industry remains healthy and growing at high single-digit rates. In summary, the combination of top-line growth and added operational efficiencies is expected to create a powerful tailwind for us as we enter 2022 and help drive the growth we are seeing down to the bottom line, return our gross margins to north of 50% and drive our path towards adjusted EBITDA profitability. Casper is playing an increasing role in the powerful consumer focus on home, health, and wellness. And we are expanding beyond mattresses to include a host of thoughtfully designed products that strategically position us to drive sustainable long-term growth. We are excited by the momentum we continue to see with top line growth of 38% versus Q2 of 2020 and 59% versus Q2 of 2019. And in our ability to build a better future for Casper and create added value for our shareholders. Our goal isn't merely to take market share. Our goal is to also grow the entire market. I will now turn the call over to Emily.