Solo Brands, Inc.

good morning and welcome to the solo brands incorporated second quarter fiscal 2023 financial results call all lines have been placed on mute during a presentation portion of the call with an opportunity for question and answer at the end if you would like to ask a question please press star followed by one on your telephone keypad i would now like to turn the call over to our host bruce Williams, please go ahead.

Good morning, everyone, and thank you for joining the call to discuss Solo Brand's second quarter results, which we released this morning. It 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 Summer Webb. Before we get started, I want to remind everyone that management remarks on this call may contain forward-looking statements within the meaning 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. Future events and developments and actual results could differ materially from those mentioned These forward-looking statements also involve substantial risks 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 quarterly report on Form 10-Q, and will be available on the Investors 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 revise them for any new information except as required by law. This call will also contain certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin, which we believe are useful supplemental measures that assist evaluating our ability to generate earnings, provide consistency and comparability with our past performance, and facilitate period to period comparisons of our core operating results and the results of peer companies. Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our earnings release, which will be available to our investors portion of our website at investors.solobrands.com. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We are unable to provide a reconciliation of non-GAAP adjusted EBITDA margin to net income margin, the most directly comparable GAAP financial measure on a forward-looking basis without unreasonable efforts. because items that impact this GAAP financial measure are not within the company's control and or cannot be reasonably predicted. Now, I will turn the call over to John.

Thank you, Bruce, and thank you for joining the call to discuss our second quarter results. I will begin by reviewing our second quarter performance, then provide an update on our key operational strategies. Summer will review our second quarter results and provide our outlook. We are pleased with our performance, and I'm grateful to our team for their dedication and hard work to produce results in this environment. Against a challenging consumer backdrop, we focused on driving profitable sales, which enabled us to deliver better-than-expected margins and profitability. For the quarter, we generated sales of $131 million, in line with our expectations, and a 170 basis point expansion in EBITDA margins to 19.1%. Our results for the quarter demonstrate that we are committed to a disciplined approach to drive strong return on invested capital and free cash flow. During the quarter, we leaned into the strong momentum we were seeing through our wholesale channel. We are rapidly gaining shelf space while increasing our door count. We have built strong relationships with our retail partners and consumers have reacted enthusiastically to the presentation of our brands at stores across the country. Within the online channel, we used our digital marketing lever to strategically pare back our spending as we saw strength in wholesale. As we grew into an omnichannel model, we have focused on elevating our brand positioning and aligning our sales calendar with our retail partners. We have also pulled back our use of flash sales year over year, leading to a reduction in the level of planned promotions. As expected, this pullback in promotions and advertising during the quarter led to a moderation in sales trends in our direct channel, But longer term, we believe that this is appropriate to drive consistent messaging and to better reflect the value of our brands. We are increasingly managing our business with an omnichannel approach, and given the strong consistent even though margins in both channels, we plan to be disciplined in directing marketing investments that will optimize growth. To that end, we continue to refine our marketing investments to grow our brand awareness. We know that we are currently gaining exposure to a broader audience through our retail partners, and we are leaning into this opportunity. By investing in shop-and-shops, end caps, bundles, and point-of-sale displays, we are able to tell a better story and create a stronger connection to our brands. For example, in Shields stores, we have created a beautiful in-store solo-store shopping experience that showcases the depth of our assortment. Our improved positioning of retail stores provides a seamless customer experience for those shopping our brands at retail or online. In addition to enhancing our in-store presence with our retail partners, we see opportunities to build awareness for our entire platform of brands. We believe that many of our customers do not know all of the brands that are part of the Solo Brands family, which creates a significant opportunity to increase the number of customers that shop across our brands. Beginning in the second half of the year, we will be adding marketing inserts to our packaging that display all of our distinct brands and offer an incentive to try another brand. We are incredibly excited about the potential for this initiative. Moving forward, we remain committed to our key priorities, investing in product innovation, growing our wholesale penetration, and building our international business. Our unrelenting focus on innovation is at the heart of our success. Our team continues to push boundaries and explore new avenues to create compelling products. Over the last 12 months, we have introduced a flurry of new innovation, and we've been pleased with the consumer response. With notable call-outs at Solo Stove of our Pie Pizza Oven, Mesa, and Fire Pit Surround, at Chubby's of our Everywhere Pant, at Aisle of our Switch, and at Oru Kayak of our Lake, we continue to generate strong customer responses from our most recent innovations. Looking ahead, we're excited about our new product launches planned for the back half of the year and look forward to unveiling the first of several in the third quarter. We are at the early stages of our wholesale expansion, which is ramping at a faster than expected rate. As such, we recognize that this channel shift may be pressuring the top line in our direct channel in the near term, but we believe that our omnichannel strategy will produce a halo effect as our brand recognition grows and customers look to our direct channel to continue their relationship with our brands. In the wholesale channel, we are building stronger relationships with our partners. We are now part of the normal planning cycle for many of our key retailers, which is leading to an increase in door count, additional shelf space, and improved product placement. We recognize the mutual benefits of working closely with our retail partners, and we will continue to drive awareness and sales across all channels. Our international business remains a significant opportunity for us. Today, it is still a relatively small part of our overall business, and we are focused on investing and building the infrastructure to position us for long-term growth. We are taking a measured and methodical approach to our growth in new markets, recognizing the importance of making disciplined marketing choices. Similar to our domestic business, we are looking at the international business holistically and our channel agnostic. We are building relationships with retail partners, including Costco Europe, which we believe will enable us to grow our brand recognition more rapidly. Before I turn the call over to Summer, I'd like to discuss the current environment. Consumers continue to be selective in choosing which brands they shop. Our company's focus on customer experience and product innovation is helping us deliver in spite of this environment. With a clear mission to deliver good moments and lasting memories, our customers continue to refer us to their friends and come back for themselves. Life truly is better around Solo Brands products, and I look forward to our innovation pipeline and continued momentum as we execute through the second half of the year. And now it's the summer.