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.