Solo Brands, Inc.

Solo Brands Inc fourth quarter and fiscal year 2021 financial results call. My name is Jordan and I'll be coordinating your call today. If you'd like to register a question during this presentation you may do so by pressing star followed by one on your telephone keypad. I'm now going to hand over to Bruce Williams from ICR to begin. Bruce, please go ahead.

Good morning, everyone, and thank you for joining the call to discuss Solo Brands' fourth quarter results, which we released this morning and can be found on the investor relations section of our website at investors.solobrands.com. Today's call will be hosted by Chief Executive Officer John Marris and Chief Financial Officer Sam Simmons. Before we get started, I want to remind everyone that management's remarks on this call may contain forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995 that are based on current management expectations. These may include, without limitation, predictions, expectations, targets, or estimates, including regarding our anticipated financial performance, business plans, and objectives. The future events and developments in actual results could differ materially from those mentioned. These forward-looking statements also involve substantial risk and uncertainties, some of which may be outside of our control, and that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties, among others, are discussed in our filings with the SEC. We encourage you to review these filings for a discussion of these risks, including our soon-to-be-filed annual report on Form 10-K, and will be available on the investor portion of our website at investors.solobrands.com. You should not place undue reliance on these forward-looking statements. These statements are made only as of today, and we undertake no obligation to update or advise them for any new information except as required by law. This call will also contain certain non-GAAP financial measures, including net income as adjusted, diluted earnings per share as adjusted, adjusted EBITDA, and adjusted EBITDA margin, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past performance, and facilitate period-to-period comparison of our core operating results and the results of peer companies. Reconciliation of these non-gap measures to the most comparable gap measures and definitions of these indicators are included in our earnings release, which will be available on our investors portion of our website at investors.solobrands.com. Now, I would like to turn the call over to John.

Thank you, Bruce, and thank you, everyone, for joining us for our fourth quarter and four-year results for 2021. We accomplished a great deal last year, and I want to thank our entire team for their dedication and hard work. I will begin today by highlighting the unique characteristics of our business, which I believe will help distinguish us over the long term. Next, I will provide an overview of our performance, demonstrate our confidence in our strategic initiatives going forward. And finally, I will turn the call over to Sam to discuss our financial performance and outlook for 2022. While SoloStove has historically generated over 90% of our revenues, we are much more than a consumer durable company. We operate beloved brands with a focus on digital direct-to-consumer that creates a special connection to our customers, strong differentiation, and a passionate following that generates growth, high profit margins, and strong free cash flow. Our brands are better together than apart because we provide a global, scalable infrastructure that supports rapid organic growth, efficiencies, and shared learnings. We are incredibly pleased with our performance in the fourth quarter and for the full year, driven by the continued strength and vitality of our brands, especially SoloStove, which seasonally outperforms in the fourth quarter. We continue to see tremendous opportunity for growth across our platform, which is focused on disruptive outdoor lifestyle brands. Our strong fourth quarter results were driven by solid demand across our brands. Our consistently high customer referral rates and better in stock position despite supply chain challenges enabled us to generate strong 164% top line growth for the quarter compared to the same period in the prior year, which was on top of a 238% increase from the fourth quarter in 2019. In addition, adjusted EBITDA increased 55% compared to the same period in the prior year. Our promotional levels were consistent with last year in the same quarter. However, we made strategic investments in marketing, infrastructure, and international expansion to continue to accelerate our growth plans. In addition, we incurred costs as a newly public company, which were reflected in our fourth quarter results. Given our early stage growth profile, we see opportunities to invest back into our business. to strengthen our existing foundation for sustainable long-term revenue and even the growth. 2021 was an amazing year for Solo Brands. We added three unique and exciting brands to our platform that will aid in our mission to bring lasting memories to people across the world. We generated solid profitability, which is on top of the growth that we experienced during COVID and hit new record sales levels. We believe that all our brands have tremendous growth in front of them, and we continue to invest in people, our proprietary data platform, product innovation, and international expansion to meet robust customer demand, acquire customers at a faster pace, all while creating insulation from the challenging and changing digital marketing headlines. Our business generates high levels of profitability, and we remain comfortable with our long-term growth targets of 20% plus sales growth, mid-20% even to margins, and 20% to 25% adjusted net income growth. However, we expect these investments will pressure margins in the near term as we build infrastructure for long-term growth. We believe that some of these investments will have a positive impact on revenue growth as soon as the back half of this year, while others will pay off in 2023 and beyond. We believe that the key to our success is developing greater control over our growth story. Our referral rates in 2021 continue to grow, reaching 48%, and our repeat purchase rate continues to be strong at 40%. Our strong referral and repeat purchase rates lower customer acquisition costs, allowing us to maximize marketing spend, enhance new customer acquisition, and increase LTV. Our e-commerce business continues to drive over 85% of total sales, which creates a large first-party data set. Leveraging this data allows for us to gain deep merchandising insights that help to shorten the product innovation cycle and drive repeat purchase rates. We are in the early stages of investment to mobilize our extensive first-party data set across all brands and expect for this investment to pay off later this year and in future years. This will give us a single view of the customer, allowing for us to improve our already successful loyalty programs and to automate, segment, and personalize our marketing efforts to not only drive customer retention but also increase conversion rates. Additionally, we see a tremendous opportunity to leverage our data to drive cross-pollination across our platform. At the beginning of the year, 4,000 of our customers had purchased from more than one brand. But by the end of the year, over 25,000 of our customers had purchased from at least two of our brands, a growth of 5x in just the first four to six months of bringing our brands together. We have a high degree of confidence we can significantly increase this metric, which will drive efficient revenue from our installed customer base without having to rely on third-party marketing platforms or outsized investments and marketing spend. We view this as a top priority over the next 12 months. As we look ahead, we remain focused on our strategic initiatives to drive growth. First, we will continue to build and invest in strong relationships with our customers, and as mentioned above, invest in our data platform that helps us stay connected to our customers. Our relationship with our customers leads us to our second initiative, which is to drive informed innovation across all our brands. Third, we see opportunities to accelerate our channel expansion through wholesale. Fourth, we will continue pursuing strategic M&A for solo brands. And fifth, we launched international in late 2021 and expect to expand our efforts in additional markets in 2022. Let's start with the customer. Because we continue to generate the majority of our business through our own websites, we are able to build strong, direct relationships with our customers and generate reliable data that helps us measure the health of our business. With recent net promoter scores trending up into the 80s, referral rates at 45%, and repeat purchase rates at over 40%, we have high confidence in our ability to generate sustainable growth through the investments already underway. We are excited about the opportunities for us to continue to invest in data infrastructure that will extend the advantages of our go-to-market platform These investments have expected payback periods of less than 12 months based on estimates in improved marketing efficiency. This work commenced in the fourth quarter and will continue throughout 2022. When our work is completed, we will be able to fully leverage our first-party data across all brands. Recent privacy changes made by Apple and soon Google reinforce the importance of owning and leveraging your own data. While these changes have negatively impacted digital marketing costs in the marketplace, they are less relevant to our business, as we continue to leverage our data across the Solo Brands platform. Our data capabilities are expected to increase our marketing efficiency, provide some profit protection, and help to insulate us in this new environment where marketing costs are rising. Next is product innovation. We launched the heat deflector at Solo Stove this quarter based on feedback and were pleased with the sales momentum. We started shipping heat deflectors in the first quarter. In addition, our Solo Stove pie pizza oven was made available for pre-order on International Pi Day 3.14 on our website, and we are stoked to get it into customers' hands in the second quarter. Initial response is super positive, and we're pleased to see the majority of sales coming from existing customers. While early, this is a big unlock for Celesto by more than doubling the LTV for these customers and significantly increasing Celesto's TAN. At Oru Kayak, we launched the special black edition kayak in Q4, which is just as light, portable, and easy to assemble as our standard inlet, but with a sleek and stealthy black finish. We sold out of it quickly and recently relaunched and expanded our offering. The initial response has been positive. We are also launching an introductory price point kayak, the Oru Lake, later this year, which would be an opportunity to further expand our addressable market. Keep an eye out for Lake, which will initially be launched on Kickstarter this month, similar to the way we've launched products in the past. We plan to launch further innovation with Aisle and Chevys later this year as well. The strength of our product innovation pipeline will keep our customers engaged and will also drive repeat purchases. We will continue to make strategic investments to innovate our product lines and get new products to customers faster. Turning to our channel expansion opportunities, One of the benefits of our model is our ability to meet our customers where they are. To that end, we have created strong momentum in our wholesale channel and see an opportunity to lean into this channel based on the tremendous demand we are seeing from our retail customers. In 2022, we are expanding the number of doors with several key retailers such as Ace Hardware, Dix, Academy, and Tractor Supply. We are also rolling out two SKUs that will be exclusive to retail. One is a unique bundle that includes a solo stove, stand and cover, and the other is a new larger 30-inch solo stove, the Canyon. Our customers have been asking for a larger fire pit, and we see this as the perfect fit for our retail partners. We have felt strong winds behind our wholesale business and believe that coupled with our primary DTC channel, we are well-positioned to be where our customers need and want us to be, which has always been our primary goal. Turning now to international expansion. We see international as part of our long-term growth and believe that investing in it now will not only give us a first-mover advantage, but will also expand our addressable market and reduce friction points by getting our products closer to our future international customers. We launched localized sites in Canada in August, in Europe in October, and plan to enter the Australian market in the third quarter of this year. While it is early and we are still learning, we are optimistic about the opportunity in front of us. Lastly, we continue to evaluate strategic acquisitions, and we are pleased that interest to join several brands is strong. We are highly selective and focused on finding unique brands that are founder-led and will complement our existing platform. Turning to our supply chain, while we are experiencing continued pressures from inbound freight, we are in a good inventory position to meet the strong demand from our customers. Our on-time deliveries, shipping accuracy, and quality remain consistent despite global supply chain challenges. Price is a key lever for us to mitigate cost increases over the near term. And while we are holding prices constant on our site, we have slightly increased prices to our wholesale accounts. Over the medium and long term, we are increasing our supplier base and exploring additional geographic opportunities for manufacturing, including North America. Before turning the call over to Sam, I would like to touch on our outlook for 2022. While we are optimistic about the future growth opportunities for all our brands, We are not immune to the recent macro headwinds that could impact discretionary spending. In addition, we are lapping our most difficult comparisons of the year. As such, we have seen a slight slowdown in sales trends for the first quarter. We believe our guidance appropriately incorporates the current trends in our business, as well as the investments that I discussed earlier. We have a lot of growth opportunities in front of us, and we are excited for the future. We believe the investments we are making in our business will position us for long-term sustainable growth. I will now turn the call over to Sam to discuss our fourth quarter results in more detail.

Thanks, John, and good morning, everyone. I'm excited to share with you our 2021 fourth quarter and full year results and then follow that up with commentary on our growth outlook for 2022. In 2021, Solo Brands had another remarkable year as we grew more than two times on an organic basis and more than three times on an inorganic basis with the addition of three new and exciting brands. Not only did we generate more than double the revenue organically, we did so in tandem with growing adjusted EBITDA. Our DTC business model continues to position us to power both growth and profitability. For the fourth quarter, net sales increased 164% to 176.5 million compared to 66.8 million in the prior year period. By channel, direct-to-consumer sales grew 162% to 164.2 million compared to 62.7 million in the same period in the prior year. And wholesale net sales increased 197% to 12.3 million compared to 4.1 million in the prior year. Growth was driven by an increase in volume, specifically an increase in total orders, which increased 105%. Our average order value increased 14.2% driven by product mix. The continued growth of direct-to-consumer sales over what many viewed as a tough fourth quarter comparison in 2020 while maintaining consistent promotional levels with prior years, demonstrated continued strength in direct consumer demand in the fourth quarter. Turning to our full-year results, please note that total net sales includes the post-acquisition net sales contributions of Oru, Isle, and Chubbies, which were acquired in 2021 in May, August, and September, respectively, and were not included in our financial results in 2020. Net sales increased 203% to $403.7 million compared to $133.4 million in the prior year. The increase was led by the continued robust organic growth in our solo stove brand of 171% over the prior year to $362 million. Organic net sales in our other lifestyle brands, Chubby's, Oru, and Isle, increased 60% to $121.3 million over the prior year for a combined organic growth rate of 131% to 483.3 million in net sales on a pro forma basis if we had owned all brands for the full year. In addition, growth was driven by total orders increasing 145% and average order value increasing 19.9%. Direct-to-consumer net sales increased 190% to 355.7 million and wholesale net sales increased 347% to 48.1 million. On the year, our direct-to-consumer channel accounted for 88.1% of total net sales, and wholesale net sales accounted for 11.9%. In 2020, wholesale net sales accounted for 8.1% of net sales. Our growth in wholesale as a percentage of overall net sales, a 347% growth rate year-over-year, demonstrates our continued success with growing our existing partnerships as well as expanding with new partners. We are bullish on the opportunity to continue to team up with REI, Dick's Sporting Goods, Ace Hardware, and many other long-term and new partners to lean into growth, including with new exclusive wholesale offerings, as John referenced. Overall, we were pleased to observe that consumer demand was solved throughout the fourth quarter and 2021 as a whole, and that 2021 proved to grow very favorably compared to the prior year. Moving to gross profit, gross profit increased 169% to $111.7 million. Our gross margin rate was 63.3% compared to 62.2% in the prior year. Adjusting for the impact of purchase accounting adjustments related to the fair value write-up of inventory for transactions, adjusted gross profit increased 148% to $117.2 million. Adjusted gross margin was 66.4% compared to 70.8% in the prior year, with the variance to prior year driven by higher freight and logistics expenses. For the full year, gross profit increased 198% to $258.9 million. Our gross margin rate was 64.1% and adjusted gross margin was 67.2%. We were pleased to generate robust gross margin levels in spite of unprecedented challenges in the supply chain. Our premium brands and products continue to generate and sustain strong gross margin levels, which enables continued success with our direct-to-consumer and wholesale efforts. Selling, general, and administrative expenses for the fourth quarter increased $82.5 million, or 46.8% of net sales, as compared to $19.6 million in the same period last year. The increase was primarily due to the following, an increase in our advertising and marketing spend of $27.3 million to drive brand awareness, an increase in employee costs of $13.7 million as a result of increased headcounts and support growth, and equity-based compensation expense. which includes an increase of $6.6 million in equity-based compensation, an increase in shipping costs of $13.5 million that varies with sales, and investments to expand our international footprint. For the full year, SG&A expenses increased to $159.5 million, or 39.5% of net sales. The increase in SG&A was primarily driven by the following, an increase in our advertising and marketing spend of $57 million to drive brand awareness, an increase in shipping costs of $24.4 million that varies with sales, an increase in employee costs of $20.6 million as a result of increased headcount to support growth, an additional equity-based compensation expense, which includes an increase of $7.3 million in equity-based compensation, an increase in seller fees of $8.9 million, and one-time costs related to our transaction. Other operating expenses were $6.6 million during the quarter due to employee costs related to the acquisitions, international expansion costs, and costs to transition to a new global headquarters. As a result of these factors, net income increased 127.2% to $12.4 million for the fourth quarter and 333.4% to $56.5 million for the full year. For the fourth quarter and the full year, earnings per share attributable to Solar Brands Inc. was $0.17. Earnings per share represents only the period from the IPO date of October 28, 2021 to December 31, 2021. which represents a period wherein the company had outstanding Class A common stock. For the fourth quarter, adjusted EBITDA increased 55.1% to $43.1 million, and adjusted EBITDA margin was 24.4%. For the full year, adjusted EBITDA increased 120% to $120.9 million compared to $54.9 million in the prior year. Adjusted EBITDA margin was 29.9% in 2021. For the fourth quarter, adjusted net income increased 38% to $35.3 million. For the full year, adjusted net income increased 105% to $105.3 million, compared to $51.5 million in the prior year. Our weighted average diluted shares were $63,010,538, as calculated under the Treasury method of accounting for options and RSUs. and under the if converted method for Class B shares, which amount to 33,416,783 shares. Our adjusted EPS for the fourth quarter and full year of 2021 were 45 cents and $1.55 respectively. Now, turning to the balance sheet. At the end of the period, we had $28 million in cash and cash equivalents. On October 28, 2021, we completed our initial public offering and raised $229 million in net proceeds from the IPO and the exercise of the underwriter's option to purchase additional stock and use the proceeds to pay down outstanding debt that was primarily from transactions, including the acquisitions of Oru, Isle, and Chubbies. As of December 31, 2021, we had $32.5 million in outstanding borrowing under the revolving credit facility and $99.4 million under the term loan agreement. The borrowing capacity on the revolving credit facility was $350 million as of December 31, 2021, leaving $317.5 million of availability. Inventory at the end of the fourth quarter was $102.3 million. We are pleased with our ability to invest in working capital to ensure adequate supply to meet the demands of our customers. Our inventories were unusually low at the end of 2020 due to supply chain disruption, which led to stock out and pent-up demand going into the first quarter of the following year. We are in a much better inventory position today and appreciate all of our team's efforts to ensure the best experience for our customers. Turning to our guidance, we are providing guidance based on the visibility that we have today and our historical seasonal trends. For fiscal 2022, we expect revenues in the range of $540 million to $570 million and adjusted EBITDA on the range of $121 million to $132 million. Coming off of the strength of the fourth quarter in 2021, and as John previously mentioned, We decided to make additional strategic investments in the three following areas as we head into 2022. First, we continue to invest in infrastructure to expand our international operations in Canada and Europe and our planned launch of Australia in the third quarter. Second, we have accelerated our innovation timeline by investing in an innovation center of excellence and enhancing our design and manufacturing capabilities. We have paired these investments with increased funding behind developing and marketing launches of new products, including SoloStove Pi and SoloStove Heat Deflector, and other products under development. Third, we are making meaningful investments in data infrastructure in terms of both people and systems as we look to consolidate and leverage our prime position to respond to increasing data privacy changes. In light of these and other investments, we expect to see lower adjusted EBITDA margins for the year. Because we are a few days out from the end of our first quarter, we would like to provide some additional context and insight into what we are seeing in the first quarter. There are a few factors that will impact our results relative to the year prior that are important to understand. First off is seasonality. Seasonally, the first quarter is our smallest quarter each year, typically operating in the mid-teens as a percent of total year revenue. Accordingly, the investments we are making now are having an outsized impact on margins in the first quarter this year, that should lessen as you progress throughout the year and normalize into future years. A second key variance between the first quarter of this year versus last year is that we closed the fourth quarter of 2020 with higher levels of deferred revenue due to the supply chain disruptions which impacted our ability to ship products for orders placed during the quarter. Our 2020 year end deferred revenue was $20.2 million and was alleviated once we were back in stock in the first quarter in 2021. In contrast, as of December 2021, Our deferred revenue balance was $3.5 million, which is lined with our typical trends. Third, there are other expenses that are incremental to last year, including public company expenses and the full cost structure of all four brands. Finally, we recognize that there are a number of macroeconomic factors at play in terms of lapping stimulus checks and child tax credits in 2021, inflation and other impacts on discretionary purchases in 2022. We believe these factors have weighed on our first quarter results and assume these impacts will continue through the first half of the year. For the first quarter, we expect revenue in the range of $82 million to $85 million and adjusted EBITDA of $12 million to $14 million. We expect first half gross margin rate to be in line with full year 2021. As we have previously communicated, we expect sustained freight pressure in the back half of 2022. We are assuming our first quarter revenue guidance is in line with historical seasonality. For the second quarter, we expect net sales will also be in line with historical trends of being a little above mid-20s as a percent of the year's total net sales. In conclusion, I am very enthusiastic about our future, the brands we have, and that we've brought on board, our innovation pipeline, and our highly disruptive DTC platform. We believe in our long-term algorithm of 20% net sales growth, mid-20s percent adjusted EBITDA margin, and 20% to 25% adjusted net income growth. Our long-term growth pillars are sound, and we remain confident in and committed to our long-term trajectory for growth and profitability. I'll now turn the call back over to the operator to take your questions.

Thank you. As a reminder, if you'd like to register a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two, and please ensure you're unmuted when speaking. We'd also ask if participants can limit themselves to one question and then one follow-up question. Our first question comes from Randy Connick of Jefferies. Randy, please go ahead.

Yeah, thanks a lot, and good morning. Sam, I just want to go back to the guidance for a second for the year. Could you just clarify, did you say, just clarify what you said on the gross market again? And if I heard that correctly, it sounds like most of the change or variable versus our model and the dollar guide has to do with the incremental SG&A for which you gave us those different buckets you're spending in. So can you just clarify again the gross margin, if it's supposed to be flat or whatever you just said, versus 2021 for 2022? I just need to know that. And then could you expand upon, in those SG&A buckets that are higher, I guess higher, can you give a little bit more detail around the individual buckets in terms of how much is going into each for 2022? Thanks. Sure.

Thanks, Randy. Thanks for the question. Let me start with gross margin. have been modeling sustained pressure from freight, expect the rising freight costs will roll throughout the year, with our first quarter being the highest gross margin rate and sequential pressure from there as freight costs roll through margin. So overall, compared to 2021 on the year, we expect that freight pressure to lower gross margin on the year by a little over 120 basis points. When it comes to EBITDA margins, we would expect that given the investments we're making, the pacing of investments will be even throughout the entire year. And then given seasonality patterns of our revenue, we would expect Q2 and Q4 to be our highest EBITDA margin quarters. And then Q1 and Q3 below are just given the revenue sizing. From an investment standpoint, like John mentioned and Hayes and I brought up in mind, we are investing in innovation, data, and international. In terms of the buckets those hit, that would be in personnel to support growth. Growth in those teams would be in systems and then be in marketing for international and product innovation. John, anything you want to layer on there?

Yeah, just what I would throw on top of that, Randy, is If you think about the three buckets, which I think is what you were trying to get at, is kind of how does the investment or the increase in SG&A break out across those three opportunities? What I would share with you is about half or a little over half is on the data side. And then product innovation and international is where the other half is going to be made up of. So if you think about kind of how it's breaking down, The data infrastructure and investments we're making there, which we see to be the most impactful in our long-term sustainable growth model, it's going to be in the data side and then international. And the pull forward of product innovation is going to be the second bucket.

Helpful.

And then my last question. John, let me add one comment, Randy, as well. For freight, we haven't pinned down our contracts yet for this forward year. As a reminder, freight contracts go through the end of April. So we're still on last year's rates combined with spot market. So that obviously averages up throughout the year given the increase in spot market throughout the year last year. But we'll have more insight on our next call once we have locked in those contracts. So those are in process. Again, we've modeled continued freight pressure, but we have not pinned that yet. So more to come there.

helpful. And then just, I guess, John, maybe if you could expand a little bit on the commentary around the demand side of things, maybe give us a little bit more color on differences in the, in the, uh, you know, trends you're seeing by, you know, the two largest brands, solo and Chubby's just curious on, on kind of what you're seeing. Are you seeing slight slowdown in unit velocity changing what people are buying? Maybe a lower price product versus the higher price product. And just, just curious what you're seeing. by those two larger brands. Thanks.

Yeah, for sure. For sure. So what I would say is what we saw coming out of the gate, I know we've, you know, we're getting towards the end of Q1 and that's, you know, so all eyes are kind of on what's really happening now. We obviously just reported on Q4, so a few days left. But with inflation, the Ukrainian conflict, gas prices, you know, even what consumers are seeing when they go to the grocery store, We saw early this year, obviously a lot of these things, you know, none of us had full visibility into what was coming. And what we saw from an impact standpoint, particularly in our .com business on our own websites, right, where we have very real-time information, is that traffic, we saw traffic headwinds at the beginning part of Q1 that really kind of ran all the way through, you know, even the first part of March. What's been promising for us is that we actually are, it's starting to normalize and we're starting to see actually the latter part of March actually trending up in traffic year over year. And so we like the direction that it's going. But again, because of some of the unknowns out in the future and what we saw the first part of the first couple months of Q1, we have taken the softness that we experienced in traffic and kind of rolled that through the year. to make sure that we're positioning ourselves well to succeed. The thing that I'll point out about our model in particular is that this is exactly what DTC was built for, was we're headwinds and softness like we've seen in Q1. We have this direct relationship with our customers. We know what's happening in real time and are able to pivot and make decisions as a business to combat those The other thing that we really like about what's going on right now with our business is, you know, there are macroeconomic factors. There are things that are happening that are out of our control. But we are watching very closely the things that are in our control. So things like NPS, referral rate, repeat purchase rate, and LTV. And all of those metrics are continuing to hold strong or actually increase. And so that's, for us, very encouraging. It points to the health of our business and brand. and consumers desire to be loyal and to stay close to the brands that they love. So that's kind of what we've seen and what we're seeing right now and why we continue to be optimistic about our four-year guidance.

Very helpful. Thanks, guys.

Thanks, Randy. Our next question comes from Robbie Holmes with Bank of America. Robbie, please go ahead.

Hey, good morning, guys. My two questions, maybe first just a follow-up on Randy's questioning. Can you guys talk a little bit more about the revenue cadence you expect for 2022? Do growth rates, given the way the first quarters happened and noting that it sounds like traffic more recently has gotten better, but John and Sam, should we expect kind of a slower growth rate for revenues in the second quarter and then the initiatives? will be more realized or driving better growth, digital advertising, things like that in the third and fourth quarter. Maybe some thoughts there. And then the second question, can you guys, you brought up a little bit more on the wholesale side. Wholesale is still very small for you. Same thing with that. Would you see wholesale account shipments building more dramatically this year as you move through the year that could support outsized revenue growth in the back half versus the front half? Thanks.

Great. Thanks, Robbie. Thanks, Robbie. Yeah, go ahead, Sam. Sorry, John. Go ahead. I'll follow you.

All righty. Sounds good. It sounds like we've got a good tug-of-war, and Sam let me win this one, but he'll get me on the next one. Good questions.

John hits more than I do, so, you know.

i will uh why don't why don't i uh sam i'll i'll i'll take question two and why don't you take uh question one how's that sounds good all right i'll i'll jump in then on on question two specifically around wholesale robbie i so you're you're spot on you're hearing it you know as as we talk about it we we like the the momentum and while we did see you know traffic headwinds uh you know the first couple months of q1 in particular on the dot com business uh on an overall whole our our b2b business or wholesale business is you know has has continued to to maintain year over year good good solid year over year growth and so we do we do like what's happening there uh you know we've always said we want to be where our customers want us to be and where customers are showing not not through you know, just what they're saying, but also showing us through, you know, how they're spending, we want to be where they want to be. And, you know, ultimately, what we've seen is in this in this first quarter, there has been, you know, really good solid demand through retailers and the retailers, of course, that are excited to roll that into, you know, seasonally Q2 and the rest of the year. So you are going to see us leaning into meeting demand where the demand is. And as such, as we've been saying for the last many months, since even before we went public, in terms of our long-term trend, we still expect for DTC, which I think Sam just talked about being roughly 88% of our business in 2021. We do continue to see that or expect that to trend more towards an 80-20 trend. 80% direct-to-consumer, and then 20% through wholesale. And that was already planned and reflected. We saw these trends happening over the last year and are going to continue to lean into them. So in terms of the wholesale business, we definitely will lean into the wholesale opportunity throughout this year. And you'll see that kind of play out as we get to the latter months or the latter quarters.

And John, is the exclusive product, are these, are you sort of setting up sort of holiday assortments that are exclusive for some of these big retailers? And so you could have outsized shipments of some of this newer product hitting in, say, third quarter?

That's right. That's exactly right. From a planning perspective, you know, that's when you would see it. You wouldn't see those exclusive SKUs. It takes time to just get them together and get the marketing material and the product you know, package and whatnot. And so it is a back half of this year. And again, because of, you know, the holiday ramp up for the retailers, it's likely to be in Q3. I could say that it potentially carries into the first part of Q4, but I would say, you know, middle to late Q3 and then early Q4 is where you'll see that hit.

Awesome. Robbie, to your first question on growth, you were spot on. We expect these investments to pay off, continue to pay off, and really deliver through the back half of the year. International solar stove pie, heat deflectors, and additional investments we're making around data. And so we'd expect our growth rate to be higher in the back half of the year versus first half of the year. From a seasonality perspective, just in case You didn't catch it on the caller, just to provide a little more color. Historically, our first quarter has been around 15%. Sorry, mid-teens, I should say. I shouldn't get so specific. ICR is going to be, you know, instead of me now. But around mid-teens, call it, percent for the year. That's been our historical seasonal trend the last few years. And then Q2 is typically, you know, kind of call it mid-higher 20s, higher end of the mid-20s percent. of total year revenue. So we would expect that to be pretty much like historical trends. And then again, that growth rate year on year really picking up a bit more in the back half to hit the numbers that we provided in our guidance.

Got it. Thanks so much, guys. Really helpful.

Sure. Thanks, Robbie.

Our next question comes from Kumil Gajwala of Credit Suisse. Kumil, please go ahead.

Hi, guys. Good morning. If I could dig in a little bit more to something you just said on one of the earlier questions on DTC is designed for this and you can see and capture trends very quickly and it gives you the ability to pivot. Can you maybe be more specific on what you do when you pivot? Because we're in this sort of macro environment, you may be observing things, but what actual strategies perhaps are in place or what are the changes that you make as you pivot the business?

Yeah, we talked about this over the last few months, and thanks, Camille, for the question here. One of the cool things about our model that we really like, you know, about VTC specifically is that there's a high variable cost structure in the business. You know, it's obviously, you know, a model where, you know, shipping, marketing spend, you know, make up a large part of our overall SG&A. And as such, whenever we see, you know, conversion rates, you know, slowing or traffic slowing, we can then make very real-time decisions about how we're going to pivot or spend differently, particularly around the marketing front. Of course, we get the benefit if, you know, there's softness. We get the benefit, of course, in the shipping expense line item and SG&A obviously going down. if there's softness, but it's primarily around marketing. I would say the second component, which I was hitting on, but I want to just reiterate is we can also see whenever these headwinds hit, we're not just looking at, okay, well, traffic is, you know, is down the first couple months of the quarter. And so what are we going to do about the traffic? But what we're also doing in tandem with that is we're looking at the other factors like, what's happening with our wholesale demand or the demand coming in from our retailers, what's happening with conversion rate. We're looking at what's happening for us internally, what's happening with the KPIs and metrics that really point to the health of our business. So what you're going to find with us is that we're really relentlessly focused on four key metrics. We're focused on NPS, we're focused on repeat purchase rate, We're focused on referral rate or how much of our business is coming from people telling others about it. And then we're focused on LTV or, you know, lifetime value of the customer. And of course, repeat purchase rate and LTV are pretty well correlated. But if we see those metrics holding or improving, despite kind of some of the headwinds or softness that might be happening because of macroeconomic trends, that gives us lots of confidence. And the reason that should matter to the market and to our shareholders is because it gives us the confidence to make decisions like we're making now to continue to lean into investments because we believe that those investments are going to pay off based on the health that we're seeing through those metrics that I just talked about, those four metrics. So those are the specific things is we're making decisions about how and where to spend our marketing dollars, which is a massive SG&A expense for us. And so it gives us lots of leverage in our business to peel it back or to lean into it based on where there's opportunity. And then number two is our investments in the long-term growth and our ability to take those investments and put them to work based on the health that we're seeing in our business on those four key metrics that I've been talking about.

Understood. That's really helpful. And then if I could ask, this might be too specific, but because you're DTC, you might be able to answer it, which was, you know, the beginning of the year, we had Omicron, I suppose, for a few weeks, then obviously, the Russia Ukraine crisis, as you were tracking either traffic or maybe conversion over those periods of time, did you see sort of, you know, spikes and troughs right around some of these events, which might give us a read on consumer confidence and its impact on your business from a macro perspective?

Yeah, I wouldn't say that it was a specific day, okay, this hit the news and then this happened. But I would say just overall, you just named a few and there's even more than those, as we all know, with gas prices and inflation and the rise in even faster prices that have pushed through this first quarter in unprecedented ways. And I would just say that overall... which I've been talking about, what we've seen is that it feels like to us and what we're seeing come through in our site traffic in real time is that traffic just really got depressed. And it was like consumers were just waiting and seeing and going to see how things played out. Again, we're encouraged by what we've seen in March in terms of those traffic trends kind of rebounding. which gives us, you know, hope, but not hope that we're pushing through our guidance, but gives us hope that we are, you know, that consumers need to let it sit. It needs to register. They need to understand what it means for them. And then, you know, life kind of continues on and people realize, you know, they have to continue to live their lives and, you know, do and make purchasing decisions. So it felt to us like a pause, I would say. and a wait and see, and it feels at least, again, it's early, but just in this month of March, it's felt like, you know, they're starting to turn the corner and starting to make decisions again.

Okay, great. Thank you.

Our next question comes from Peter Keith of Piper Sandler. Peter, please go ahead.

Hey, thanks. Good morning, everyone. It might be a somewhat simplistic question, but just with regard to the full year guidance, so your sales are in line with where the street was modeled. The EBITDA is about $20 million lower. I'm not hearing many complaints around input costs and things like that. So is it really this $20 million lower guide is solely due to the three investment initiatives that you have, or are there other factors that I'm not accounting for?

Sam, you want to take that?

Yeah, sure. I would say that those are our main inputs is those investments as we go into this year. Again, this year we have, thinking of Q1 in particular, where we've layered on investments but have lower seasonal revenue and lower income investments around data and innovation and international investments. Those will wait, particularly on the first quarter and our lighter revenue quarters. But that is driving the incremental spend on the year.

Okay. And is it fair to think that that is something to the tune of an additional $20 million, which again accounts for that lower EBITDA outlook?

Yeah, I think that's correct.

Yeah, go ahead, John. Yeah.

Yeah, that's correct, Peter. That's spot on. When you think about those three initiatives and the investments that are being made, that's where that is going through, and you're seeing that on the lower you go.

Okay, great. And then with some of the new products that are coming out, so I did actually receive my own heat deflector this past weekend. I tried it out Saturday. I think it's a fantastic product, so I think it's going to do well. Sounds like some good news on the pie pizza oven. John, you guys have always talked about in the past, you're not including new products into the revenue outlook. You're not including international growth in the revenue outlook. Where do you stand today, just given you've got some visibility on heat deflector and maybe pie? Is this now embedded in the full-year outlook?

Yeah, that's a great question, Peter. So as they come out, we'll start thinking through them. We haven't shipped any pie. And so as such, we've taken the softness that we saw in Q1 and And we've rolled that into our full year guidance. We did incorporate what we've seen because we've started with shipments and we have a little bit more visibility into deflector. It's a more reliable, it's a more reliable, you know, prediction for us to put into our model and roll forward into guidance. So, you know, the deflector is in, pie is largely not because we just, again, it's, you know, 3.14, we're a couple of weeks into that product in terms of even pre-sales. still haven't actually shipped it out. So, uh, I'd say, you know, 50, 50, one is kind of, you know, in there, but still, still early. Remember deflector is really a product that's designed to keep people, you know, extra, extra warm whenever it's especially cold out. And we didn't get that product launched until, you know, we started selling it, but, but not shipping it until, you know, late, late February and then into March. And so, We actually missed, from a seasonal standpoint, seasonality standpoint, a big opportunity on deflector that we think is going to pay off big later this year in Q4, but we did not make that in. We just are looking at our current trend. So that's why you're hearing a little bit of hesitation on my part because, yes, deflector is in our guidance, but not the full potential of what we think deflector could do.

Okay. Sounds good. That's helpful. Thanks so much.

Our next question comes from Chris Horvath of JP Morgan. Chris, please go ahead.

Hi, thanks. This is Megan on for Chris. You know, just following up on some of the comments around the traffic trends you've made in 1Q, you know, can you talk about whether this is consistent across all four brands? And is there anything you're seeing in any of the brands that would suggest, you know, the consumer is becoming more price sensitive? Or do you think maybe it just reflects a return to some more normal historical seasonal demand patterns where maybe some of the more warm weather products just aren't as top of mind for the consumer?

Yeah, so it has been consistent across all the brands. And I would say even outside of solo brands, the brands that we're networked with, that we interact with in the direct-to-consumer space, it feels like this is very consistent across direct-to-consumer. So it doesn't feel like know something that's isolated to a specific brand or a specific price point at this stage um you know all that being said you know it's hard to say that you know for us to say that this is you know kind of a return to normalize you know traffic or consumer behavior we we do have you know kind of a perfect storm of macroeconomic you know factors that are that are weighing in on on consumerism right now, particularly that all hit in a very concentrated way at the beginning of this year. And of course, you know, quarter one. So, you know, we're, again, we've rolled the softest forward that we've seen in an effort to, you know, to put ourselves in a position to wait and see, but we, you know, and at the same time or continue to operate the business and make our investments in the long-term growth because of those, those KPIs I talked about earlier that are pointing to really strong health in the business so i don't know that this is that this is a a return to to normalize this isn't normal and so it just doesn't feel like this is a normalized state but again you know we're gonna we're gonna have to continue to play this out and and see it you know see how it comes together i mean we've been in covet for two years finally omicron you know which is like the third wave kind of starts subsiding and then right on the heels of that you get the ukrainian conflict you get all of the runaway inflation it feels like we're going through. And then that flows through to gas prices and overall grocery and fast food, the stuff that really hits consumers' pocketbooks and is right in their face. And so it's just hard to say. It really is hard to say.

Yeah, that's helpful. And just as a follow up, are you embedding any increase in promotions on potential price elasticity, especially as we get into the back half? I know you mentioned, you know, you raised prices to wholesale, but not on your website. So just how are you thinking about that?

Yeah, we are not currently planning to be more promotional. than we have been in prior years. Again, you know, we think that the strength of our brands and the high referral rates and the high repeat purchase rates, along with the product innovation pipeline that we have for new products that are coming out. Peter just mentioned the deflector pies, obviously, you know, launched, but not in consumer's hands yet. The other brands, Poru, IO, and Shelby's all have really great, great products coming out this year. And we think that combined together, with what we're seeing in those KPIs around referral rates and repeat purchase rates, that we're going to be in a very solid position to be able to meet and exceed expectations and, most importantly, continue to operate this D2C model the way that we've always set out to do, which is to take great care of our customers and drive loyalty that keeps them to be customers for life.

Great. That's really helpful. Best of luck.

Thanks.

Our final question comes from Ryan Sunday with William Blair. Ryan, please go ahead.

Hey, guys. Thanks for the question. It sounds like cross-sell had maybe been stronger than expected with the 4,000 customers going to 25,000 by year-end there. Could you talk a little bit about, I guess, one, what brands or products you're seeing that crossover happen? two maybe with this being a priority moving forward i guess what what ending are we in here in terms of your ability to cross promote and then three does that change your your thinking around acquisitions and and what kind of a tool or that could be looking forward a great question uh thanks for thanks for asking in terms of where we are from any perspective this is like i don't even know if we started the game to be honest we we have we have done

really zero cross-promotion across the brands outside of just announcing to our customers that these brands are all together under the Solo Brands umbrella. That's the extent, and that's where you saw that lift, which is super encouraging for us. It's why you're seeing us make significant investments into our data infrastructure because we do see, I mean, we have over about two, I'll call it about 2.4 million customers across all the brands, and 25,000 of those customers have purchased from more than one brand. So in terms of where we are and what the opportunity has in front of us, you can start really understanding, and it makes sense, why we are so bullish and so confident about making these investments in our data infrastructure. So that's where we are. And as that rolls over to our strategy with M&A and opportunity there, It doesn't mean that we would change our approach and get hasty with acquisitions. We'll continue to be opportunistic and very disciplined in finding direct-to-consumer brands early in their story, large TAMs, with really strong customer followings, high NPS scores, with a big concentration of their business coming through their own site versus wholesale. So all of the factors and criteria that we've been talking about for the last six months and beyond is still in play, but you're right on to, to, to, to allude to, or to, to kind of point to if, if that's the case and we're in these early innings and we're seeing this like crazy increase right out of the gate without much effort up to now, then isn't this a big opportunity? And we do see that along with you and, and you know, we're going to continue to be opportunistic and, and, and, you know, look for opportunities in M&A, but that will probably start becoming a criteria for, you might see us for instance during diligence with uh with a potential m a um you know target doing a cross collaboration where we can actually look at their data ahead of time and see how many of their customers are already solo brands customers or not so that's just an extra criteria that will help you know create a situation where we're able to better assess you know the right brands to partner with and to acquire that's super helpful and then

I guess talking up on the exclusive skews for the retail partners, it sounds like, John, I think one of them was it's a larger fire pit. What is it about that channel or customer that you're seeing the outside demand for that there versus what you're seeing on your D2C side?

Yeah, so specifically this particular product, it's called Canyon. actually was the first version of our Yukon. It was a 30-inch versus our current 27-inch Yukon, which sounds like, oh, it's three inches. Actually, when you get it in front of you, it's significant in terms of its difference. And we actually ended up launching the 30-inch Yukon and then peeling it back and redesigning it to a 27-inch because we found that our small parcel carriers, so your FedEx and UPS, that that product was too large to fit on their automatic conveyors. And so they had to manually handle it every time, which increased the cost tremendously, but most importantly created a poor customer experience because the damage rate went up quite high, trying to shift that larger pit through, you know, traditional small parcel. So then the option was, do we put every single individual Yukon 30 inch Yukon on a pallet? and ship it LTL to a customer, which just didn't seem like a good customer experience, nor did it seem prudent from a business perspective. We redesigned the Yukon down to 27. But customers have continued to ask us, would you come back out with that model ever? You know, we would pay more for it, et cetera, et cetera. And so the feedback has been really solid from our customers in wanting an additional option that's even bigger than our current size Yukon. And it just started, it just clicked. that our retail partners are the perfect place to put that product. We ship our product on pallets anyway to our retailers. So that avoids the damage rates with small parcel. And then customers are just buying it and walking out of the store with it, which ultimately then they're kind of self-delivering. So that's what's driving that and why we're so excited about it. And it really fits also the need of our retail partners who have been asking us for unexclusive, for something that, you know, would only be found in stores. And so that's exactly what we're doing. We will carry it in our own stores as well. So, you know, we have, for instance, our showroom here at our headquarters in Texas, and a consumer would be able to come into our store. So it'll be essentially a retail only or a brick and mortar only SKU. Got it. Makes a lot of sense. Thanks.

We have no further questions on the phone line, so I'll hand back. Great.

Well, we're super appreciative of everybody being on the call with us today. We're enthusiastic, as Sam said, about what we have out in front of us. And again, the last thing I would leave us with is just that we feel This is exactly what D2C was built for. We love the connection to our customers. We love the real-time information feed that we get from what's happening with our customers and their willingness to share what's going on. We're optimistic about our investments that we're making for the long term and looking forward to being with all of you again in May to talk about our actual Q1 results and what we're seeing in the market at that time.

This concludes today's call. Thank you for joining. You may now disconnect your