Solo Brands, Inc.

Hello, everyone, and welcome to today's Solo Brands, Inc. Second Quarter Fiscal 2024 Financial Results Call. My name is Seb, and I'll be the operator for your call today. If you would like to ask a question during the Q&A session, please press star 1 on your telephone keypad. If you would like to withdraw your question, please press star 2. I will now hand the floor to Bruce Williams to begin the call. Please go ahead.

Good morning, everyone, and thank you for joining the call to discuss Solo Brands' second 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 Chris Metz and Chief Financial Officer Laura Coffey. Before we get started, I want to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, not 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. 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 net income as adjusted, diluted earnings per share as adjusted, gross margin 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 comparisons of our core operating results and the results of peer competence. 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 in the investor portion of our website at investors.solobrands.com. Now, I'd like to turn the call over to Chris.

Thank you, Bruce, and thank you all for joining us today. I will begin by discussing our second quarter performance and provide an update on our solo brand strategic plan and priorities. Lastly, I will turn the call over to Laura to discuss our financial results in more detail and our outlook for fiscal 2024. We are pleased with our second quarter results as total revenues increased modestly year-over-year for the quarter. By channel, direct-to-consumer declined 0.9% as this channel continues to generate sequential improvement over the prior two quarters. We were particularly pleased with our wholesale results as revenues increased 4.8% despite continued difficult comparisons. In addition, We generated healthy, low double-digit EBITDA margins for the quarter, despite planned investments in people, processes, and capabilities that will provide the foundation that is needed to drive sustainable growth over the long term. While we were pleased with our second quarter results and confident in the long-term growth opportunities for solo brands, we recognize that consumers are facing a number of near-term headwinds and demand for large-ticket consumer durables remains challenging. According to date, we are seeing softer than expected traffic through our direct channel. As such, we believe it is prudent to update our guidance to reflect the current trends. Laura will share with you shortly more color on our full year guidance. Now I would like to give an update on the solo brand strategic plan that we embarked upon shortly after I joined the company that allowed us to evaluate the full potential of our current business. The results of this in-depth strategic analysis confirm my conviction that our brands have significant opportunities to continue to gain market share within their respective categories, and that we have a long runway of growth ahead of us. We have clearly identified several strengths of the company, highlighted by one, we have incredibly strong brands with a passionate, loyal, and high-value customer base. Two, our brands are leaders in the premium segments of their markets with a long-term opportunity to grow into additional categories and expand our TAM. And three, we're building the infrastructure to create a highly scalable model that will drive long-term margins and returns on capital. First, I want to provide a summary of the consumer insight work that will guide our strategic plan and will inform our decisions regarding adjacencies and expansion of our TAM. We conducted the most in-depth consumer segmentation analysis that our company has ever done, speaking to over 2,000 consumers. Within Stowe, Solo Stowe's net promoter score was incredibly high, putting us in the top one percentile in the outdoor goods market and leads in unaided brand awareness compared to our direct competitors. Walking in, I believe that the Solo Stove brand was strong, but frankly, I was pleasantly surprised to see just how strong it truly is. We have a premium customer base as the average household income of our customers is near 200,000, which is two times the outdoor goods market. This consumer insight work will inform our strategic approach to pricing, as well as how to leverage our strong brand characteristics to expand our TAM by entering into near-term adjacent categories. Within Chubbies, we know that we play in a larger but highly fragmented market. However, we are pleased with our share position within our core categories with ample opportunities to grow. Similar to Stowe, we have a premium customer that has a household income of approximately $140,000. That is 1.4 times the menswear market. We believe that we have room for growth as we increase our brand awareness and capitalize on our strong net promoter score for the brand. We believe that executing on our long-term strategic pillars will be a multi-year process. This year, 2024, is about stabilizing the business, particularly in the direct channel in investing in capabilities. At SoloStove, we welcomed in a new Senior Vice President of Direct-to-Consumer eCommerce, who brings a wealth of relevant experience, most recently at Shark Ninja. We're also reinvigorating our product innovation engine by laying the groundwork to build out a multi-year product pipeline that will generate innovation across platforms. In Q2, we welcomed in the new Senior Vice President of Product Development for SoloStove, who also brings a wealth of relevant experience. having spent much time at innovative companies such as Helen of Troy, TTI, and Bosch. In fact, this new leader and I just returned from a very productive trip to Asia with our product development team, looking at new product opportunities. Next, we are enhancing our product development ecosystem, which means that each new product introduction will be supplemented by consumer insight research, robust go-to market marketing, as well as channel distribution strategies. We will have multiple exciting new products in Solo Stove to launch beginning in 2025. In fact, some of these new product introductions will begin to expand our TAM as we innovate into near-adjacent categories outside of our core fire pit and pizza oven categories within Solo Stove. We believe that the investments we are making in people and infrastructure will position us to return to revenue growth, expand our margins, and begin to introduce multiple new product innovations starting in 2025. As part of our strategic plan, we see substantial opportunities to continue to expand our omnichannel distribution. In fact, our consumer research has informed us that about 50% of consumers are purchasing their products in physical stores and not just online. This leads us to believe that our strategy of partnering with the right retailers to expand our overall revenue line is a smart approach. We don't believe this is an either or. We need to expand both our DTC and retail business. Our research supports this, and you will see us continue down this path. A smaller but still important part of reaching consumers where they shop is continuing to selectively open our owned retail footprint within Chubby's. During the second quarter, we opened three new Chubby's stores. At our new Woodlands, Texas location, we experienced our largest grand opening weekend to date. Today, we have 10 Chubby's stores and plan to open an additional two stores by year end. Lastly, as part of our strategic plan, we see opportunities to leverage our scale across our platform to drive EBITDA margin expansion. Specifically, we will leverage our very strong existing fulfillment and procurement capabilities and scale our supply chain network to further reduce delivery and carrying costs. A few operational examples that help support our increasingly higher margins are one, our fulfillment centers are shipping greater than 99% picking accuracy. Two, our procurement team continues to collaborate with our suppliers to drive net productivity offsetting inflationary pressures. And three, our fulfillment team just signed a new contract with a leading packaged goods delivery company that will offer significant improvement in our delivery costs. This leverage will only grow as we expand Solo Stove into categories beyond fire pits and pizza ovens. In summary, despite the more challenging consumer environment, I couldn't be more encouraged with the progress we are making in returning solo brands to stronger performance consistent with the best-in-class outdoor companies. We are building out our capabilities, ushering in incredible new talent, investing in much-needed systems, and adding robust, repeatable processes. We believe the work we are doing to improve our capabilities and performance will pay dividends and drive long-term, sustainable growth. All of this leads me to believe we continue to march down the path to success as we move through our rebuild year of 2024. I will now turn the call over to Laura.