Weber Inc. Class A

Hello and welcome to the WebR Inc. Third Quarter 2021 Earnings Conference Call. My name is Charlie and I will be coordinating your call today. If you would like to ask a question during the presentation, you may register to do so by pressing star followed by 1 on your telephone keypad. I will now hand you over to your host, Brian Enkelop, to begin. Brian, please go ahead.

Good morning and thank you for joining us today for our Third Quarter 2021 Earnings Call. I'm joined this morning by Chris Herzinger, our Chief Executive Officer, and Bill Horton, our Chief Financial Officer. I'll start with our forward-looking statements disclaimer. As you are aware, certain statements made today, such as projections for Weber's future performance, are forward-looking statements. Actual results could be materially different from those projected. For further information concerning factors that could cause results to differ, please refer to our public 10-Q SEC filing our earnings release, and our FPP filings, all of which are available on the company's website. This is of particular note during the current COVID-19 pandemic, when the length and the severity of the crisis and economic and business impacts are so difficult to predict. A recording of today's webcast and supporting documents will be archived for at least 90 days on Weber's Investor Relations website. During the call today, the company may also discuss certain non-GAAP financial measures. For reconciliation of these measures to GAAP reporting, please refer to the company's earnings announcement, which has been posted on the company's website at investors at Weber.com and can be found on the company's SEC filings. And now I'd like to turn the call over to Chris. Hello, everyone. I'm excited to be with you this morning, and I want to welcome you to Weber's first earnings call at the public company. Before Bill and I comment on the outstanding results for our fiscal third quarter, I'd like to start by thanking our Weber team members all around the world for their hard work this quarter and this year and their commitment to making the very best grills and accessories and delivering the very best customer service to our Weber fans around the world. We wouldn't be here today having this conversation as a public company were it not for your efforts. I'd also like to thank our founding family, the Stephens, and BBT Capital Partners for their support over so many years and during our IPO process. The IPO certainly represents a capstone moment in our remarkable 70-year company history, but it's even more so a launching pad for future opportunities. Today, we're extremely proud to report a record fiscal third quarter. Our first quarter is a public company. Our fiscal year end is September 30th, so this quarter's results represent our third fiscal quarter that ended June 30th. Bill will go through the entire quarter in more detail, but in summary, our third quarter sales were up 19% versus the same period last year, reaching a record $669 million. This marks the fifth straight quarter of record sales, and compared to the third quarter in 2019, our net sales in the quarter this year were up 51%. On a fiscal year-to-date basis, net sales were up $475 million, or 41%, to $1.6 billion. For the quarter, every region experienced strong growth rates, with the Maya leading the charge up 35%, Asia Pacific up 25%, and the Americas up 8%. Countries experiencing the most significant growth in the quarter were Canada, the U.K., the Nordics, and several emerging markets around the world. For reported earnings, net income was $18 million, or 2.7% of net sales, and adjusted EBITDA was $134 million, or 20.1% of net sales, despite distribution, inbound freight, and commodity cost inflation headwinds. Our quarterly gross margin improvement and strong EBITDA performance is attributable to our multi-continent manufacturing footprint, particularly with our U.S. plant here in Chicago, as well as proactive pricing and mix management early in 2021 when we foresaw the rising challenges. These are unique strengths for Weber and delivered reliable earnings for our shareholders, while also allowing us to fund investment in future growth initiatives like new product development, new technology platforms, digital marketing, and geographic expansion. For those of you who are new to Weber and the outdoor cooking category, I want to spend a few minutes introducing you to the iconic Weber brand and our truly unique global business model that's driving this outstanding performance. Unlike other outdoor cooking companies, we are a true global business, selling in 78 countries around the world, driving approximately half of our revenue outside the U.S. Weber is the clear market share leader in key grilling markets globally, with a wide margin over the number two player. And notably, the number two player is different in each market, reinforcing that Weber is the only truly global outdoor cooking brand. And it's not just global presence, it's global fandom. We have an installed base of over 50 million households across those 78 countries. We win on brand awareness, net promoter score, customer satisfaction, and loyalty. In fact, 96% of Weber owners globally recommend Weber grills to friends and family, to 10 people on average. Weber owners grill about 80 times a year, which is around 15% to 30% more than other brand owners. We have over 3 million social followers, about two times the closest competitive brand, and that lead is growing. Our category leadership and our strong momentum position us to capture an even greater leadership share of the estimated $49 billion global outdoor cooking pan for Frost & Sullivan. In addition, Weber is the only brand that plays in all the product segments within the outdoor cooking category, gas, charcoal, smokers, electric, wood pellets, portables, and accessories. At price points ranging from $50 for a Smokey Joe to $4,000 for a Summit Gas Grilling Center, there is a Weber grill for everyone, no matter where you live, where or what you want to grill, or what fuel preference you may have. Having access to all consumers globally and across all product segments gives us an opportunity to innovate broadly. Weber is a company of inventors. We invented modern charcoal grilling in 1952 and gas in 1985, and our inventions in electric pellets and smart grilling in recent years have driven category and market share growth for Weber in all the key markets around the world. Today, Weber holds over 1,000 patents and pending patents globally. So invention is not only a key strategic growth platform for Weber, it's also built into our DNA. We partnered with June Life a couple years ago to invent Weber Connect, our smart grilling technology platform that won the Consumer Electronics Show Award for Best Connected Home Product last year. And when we acquired 100% of June earlier this year, we added more inventors to our family. The June Oven just won the Best Smart Oven Award from America's Test Kitchen. We bring that attitude of invention to the largest community of owners and fans worldwide, and it's been a successful driver of revenue and market share growth for us in 2021, as you see in our third quarter results. Before Bill drives more deeply into those Q3 numbers, I want to provide an update on progress against our five key strategic growth priorities. First, to introduce disruptive new products. Second, to accelerate our direct-to-consumer and e-commerce business. Third, to expand customers and consumer revenue streams. Fourth, to expand in emerging geographies. And fifth and finally, to execute value-creating operational initiatives. In the quarters and years to come, I'll continue to frame our operating results against these five strategic growth priorities. First up is disruptive new product innovation. This year, we launched the Genesis EX and Spirit EX smart gas grill lines, as well as the Weber Traveler portable grill for camping and tailgating. Both watches have been extremely well-received, averaging 4.8 stars out of 5 in consumer ratings. We also upgraded the SmokeFire wood pellet grill with a new second-generation launch, and we've launched several enhancements to our Weber Connect smart grilling platform, which is available both on the standalone Weber Connect smart hub device that can turn any grill into a smart grill, and also embedded into the SmokeFire and EX gas grills. The EX smart grills recently won several key awards, Best Overall Grill for 2021, awarded by Good Housekeeping. The Food Network's Best New Grill for 2021. Best Gas Grill for 2021 by Rolling Stone. And Best Smart Grill by NBC News. And the Travelogist won Best Portable Grill on Wheels from Wired Magazine and Best Travel Grill from The Manual. We're very excited about the marketplace response to our 2021 innovations. Our second key growth strategy is to accelerate direct-to-consumer and e-commerce sales growth, which includes Webber.com as well as our global network of Webber stores and grill academies. Webber.com growth has been strong in 2021, with year-to-date sales up 54% versus the same period last year. Increased media investment across connected TV, social media, influencer programming, and online video and search contributed to revenue gains in general and Webber.com specifically. Our third strategic priority, expanding our retail customer base and new consumer revenue streams, also continue to drive strong results. From 2018 to 2020, we added over $200 million in revenue at retail customers who were completely new to Weber, and we continued to see that incremental growth in 2021 from the likes of Costco globally, Best Buy, REI, Canadian Tire, Sodomac, and other new partners internationally, offering consumers more access points to the Weber experience. We've also continued to invest in our core retail partners, and we continue to outpace market growth in their stores as well. Our fourth key growth strategy is expanding and deepening our presence in emerging geographies, a short list of markets with high PAMs, but relatively underdeveloped retail categories. A key market development lever here are our Weber stores and grill academies, of which we now have 179 globally. We've seen disproportionate growth in these outlets in 2021, as you'll hear from Bill shortly, and we continue to expand. Fifth and finally is our strategy around value-creating operational initiatives. We're making significant progress against our make where we sell strategy and delivering on market improvement initiatives, even as our teams manage through what continues to be a very challenging commodity and global logistics environment. During Q3, we set a new output record in our U.S. manufacturing facility, which produced 20% more output versus the same period last year, setting a productivity record. In addition, we've made great progress in construction of our new manufacturing facility in Europe, where we're on track to a fall production startup. This new Breen-certified facility will provide us with cost reduction and speed our responsiveness to customer demands in our important EMEA market. So overall, we're very happy with the progress being made and our ability to convert our strategic priorities into strong results, both in sales growth and margin performance. Finally, before I hand it over to Bill, I'd like to recognize our recently appointed non-executive chair of the board, Kelly Rengo. She's been fantastic and a valuable board member at Weber for many years, and she now steps into our chair role. And I'd like to welcome two new board members, Melinda Rich from Rich Foods and Saran Saranjan from Procter & Gamble. It's great to have you on the Weber team. With that, I'll now pass it over to Bill Horton, our CFO, to review the third quarter financial results. Over to you, Bill. Thanks, Chris, and good morning, everyone. Before I get into the details, I wanted to summarize some guidelines we'll follow as we share our financial results every quarter. We'll report our results by operating segment, which lines up for us as our three primary regions, the Americas, which includes the U.S., Canada, and Latin America, EMEA, which includes all of Europe, the Middle East, and Africa, and APAC, which consists of Australia, New Zealand, and the balance of the countries we operate in throughout Asia. As a reminder, we'll present our financial results on both a GAAP and a non-GAAP basis. Along with reporting our GAAP financials every quarter, we'll also disclose several non-GAAP reporting metrics that we believe provide a better representation of the underlying operating results of the consolidated Weber business and our operating segments. As we call out in our earnings release, and in our public filings, our non-GAAP results exclude non-cash, stock-based compensation, and other non-recurring costs we detail out, such as business transformation costs, operational transformation costs, and COVID-19 costs that were especially impactful in 2020. For the consolidated Webber business, the primary GAAP metrics we'll speak to will be net sales, gross margin, income from operations, net income, and operating cash flow. and our non-GAAP reporting metrics will be adjusted income from operations, adjusted net income, EBITDA, and adjusted EBITDA. For each of these non-GAAP measures, we will provide a walk from GAAP to non-GAAP reporting in our public filers. At an operating segment level, we'll report net sales and adjusted income from operations. At times, we will also discuss other metrics that provide our stakeholders with status updates against our five key strategic growth priorities. Finally, with every quarterly earnings call, we intend to provide updated fiscal year guidance for net sales and adjusted EBITDA. Today will be the first time we'll be providing guidance as a public company for our 2021 fiscal year, and we'll then follow up in November with our first outlook for fiscal 2022. Now, I'd like to share our financial results from our third quarter, followed by our year-to-date financials. For the third quarter, net sales increased 19% to $669 million from $561 million in the prior year quarter, and up 51% versus the third quarter of 2019, setting a fifth straight year-over-year quarterly sales record. Third quarter sales growth was driven by strong consumer demand, particularly in Europe and APEC. Core growth, which represents business growth excluding the impact of foreign exchange, accounted for 69 million, or plus 12% year over year. The impact of favorable exchange rates, primarily the Euro, Canadian dollar, and Aussie dollar, contributed 39 million, or a 7% lift in the quarter. Net sales growth in the third quarter was broad-based across all of our operating segments, with the Americas up 8%, EMEA up 35%, and APAC up 25%. Turning to the Americas, net sales increased 8% to $339 million from $315 million in the prior year quarter. Sales growth began to normalize in Q3, following an exceptionally strong first half of 2021. where the business was up 65% year-on-year. This strong performance in the first half, which continued into the third quarter, was driven by strong supply chain execution to proactively meet customer and consumer demand in advance of the season, resulting in fiscal year-to-date third quarter sales growth of plus 37% versus 2020. Bottom line, we put ourselves in a position to win early in advance of and during the third quarter selling season, and this has worked well for us. Of note, Canada's results were exceptionally strong, up 90%, and our focus on new customer acquisition, such as Canadian Tire, continues to deliver positive results. Overall, core growth represented 18 million, or 6% growth, and favorable foreign exchange rates, primarily the Canadian dollar, represented 6 million, or 2% of the increase. In Europe, net sales increased 35% to $307 million from $228 million in the prior year quarter. Every country in the region showed solid growth. However, our strongest results came from the UK and the Nordic countries that include Denmark, Norway, Sweden, and Finland, which all outpaced the overall regional growth rate. Core growth accounted for $49 million, or a 22% year-over-year increase. And favorable foreign exchange, primarily the euro, provided a 30 million or a 13% lift in the quarter. Finally, our APAC region also completed a strong quarter as net sales increased 25% to 23 million from 18 million in the prior year quarter. Core sales were up 2 million or 10%. And foreign exchange, primarily the Australian dollar, contributed 3 million or a 15% lift. Australia and New Zealand continue to benefit from Weber Drill Academies and Weber store sales. This quarter, we added another five Weber stores, bringing our store count in Australia and New Zealand to 31. Now I'd like to transition from net sales to our other key financial results for the quarter. Consolidated gross profit increased 29% to $299 million, or 44.7% of net sales, compared to $232 million, or 41.3% of net sales, in the prior year quarter. The 340 basis point year-over-year gross margin improvement was driven primarily by pricing actions offsetting cost inflation, a favorable mixed shift towards EMEA, our highest margin operating segment, and reduced COVID-19 costs. Net income declined 78% to $18 million from $79 million in the prior year quarter. The decrease was primarily driven by $62 million of non-cash, unit-based compensation expense, primarily driven by valuation methodology changes as a result of the recent IPO. Lower net income compared to our expectations relates to the timing related to the release of reserves against our net operating losses and research and development credit carry-forwards from the acquisition of June Light Inc. in January. We had anticipated a $13 million one-time benefit would be realized in Q3, but are confident now that it will be in Q4, so there is no impact to our anticipated full year 2021. The non-cash compensation expense charges and shifting the tax benefits from the June live transaction to Q4 were partially offset by strong gross margin performance during the quarter. Adjusted net income declined 6% to $85 million, from $91 million in the prior year quarter, primarily driven by increased interest expense in the quarter. Adjusted EBITDA increased 10% to $134 million, or 20.1% of net sales, compared to $122 million, or 21.7% of net sales, in the prior quarter. This was primarily driven by sales and margin growth partially offset by higher year-over-year SG&A spending, including increased distribution costs on higher volumes and strategic investments in advertising, marketing, and R&D to drive current and future results. And it's consistent with the growth priorities outlined earlier by Chris. Operating cash flow for the third quarter was down $44 million to $289 million, primarily driven by a $96 million increase in year-over-year inventories. In the same period last year, strong operating income results combined with low levels of inventory during the early stages of the pandemic drove the best operating cash flow quarter in Weber's history. With strong POS trends in mid to late Q3 last year, inventory levels dropped to extremely low levels, which continued through the first quarter of fiscal 2021 when trade inventory started to normalize. Now, turning to our fiscal year-to-date results, net sales increased 41% to $1.632 billion from $1.157 billion in the prior fiscal year-to-date period, Core growth represented $401 million, a 35% increase versus last year, and foreign exchange accounted for $74 million. We continue to see progress towards our key strategic growth priorities, with direct-to-consumer sales up 54% versus the same nine-month period last year. In addition, emerging geographies were up 59% versus the same period last year, representing 11% of total revenues up from 9% last year. On a year-to-date basis, net sales growth is consistently strong across all of our operating segments, with the Americas up 37%, EMEA up 42%, and APAC up 69%. For the Americas, Net sales increased 37% to $892 million, from $650 million in the prior year. All channels continued to deliver strong year-over-year sales growth, with online sales at Weber.com outpacing the overall region, up 72% versus the prior year. Core growth represented a $233 million increase, or a 36% increase year-on-year, while foreign exchange contributed $9 million of the revenue increase. Our EMEA region net sales increased by 42% to $618 million from $435 million in the prior year. Core sales growth was $129 million, up 30%, while foreign exchange represented $54 million of the sales increase. Strong consumer demand for rubber outdoor cooking products impacted all countries, and every country across Europe has delivered strong year-over-year comps here today. For the APAC region, net sales increased by 69% to $123 million from $73 million in the prior year. Core growth represented $39 million, or a 54% increase, and was primarily driven by Australia and New Zealand. while foreign exchange represented $11 million of the year-to-date growth. Turning now to our key financial results on a fiscal year-to-date basis, consolidated gross profit increased 53% to $720 million, or 44.1% of net sales, compared to $470 million, or 40.6% of net sales, in the prior year. The 350 basis point year-over-year expansion of gross margins were driven by pricing actions to offset cost inflation, favorable mix towards EMEA, reduced COVID-19 costs, and favorable FX movement. Net income declined 11% to $92 million from $103 million in the prior year-to-date period. The decrease was primarily driven by $94 million of non-cash unit-based compensation expense. primarily driven by valuation methodology changes as a result of the recent IPO. Lower net income compared to our expectations relates to the same June life NOL and R&D tax credit timing issue I discussed earlier. So again, no impact to our anticipated full year 2021. The non-cash compensation expense charges and shifting of tax benefits from the June life transaction to Q4 partially offset by strong gross margin performance and revenue growth. Adjusted net income increased 62% to $196 million from $121 million in the prior year-to-date period, driven by strong top-line growth and gross margin improvement. Adjusted EBITDA increased 62% to $321 million, or 19.7% of net sales, compared to $199 billion, or 17.2% of net sales in the prior year. This 250 basis point improvement was primarily driven by top-line growth and margin initiatives across the business, partially offset by increased investments to support our five key strategic growth priorities in areas like brand advertising, marketing, and R&D. Operating cash flow for the first nine months of fiscal 2021 was down $47 million, driven primarily by a $69 million increase in year-over-year inventories. I would like to wrap up my prepared remarks by providing guidance for the 2021 fiscal year. Clearly, the third quarter of fiscal 2021 was a record quarter for Weber by nearly all key financial measures. We drove strong financial results throughout our P&L, Our entire organization is making great strides against our key growth initiatives, and we're leveraging our world-class supply chain and operations organization to successfully navigate the tight supply chain in this environment of heightened consumer demand. We anticipate closing out our fiscal 2021 with full-year net sales between $1.96 billion and $1.97 billion, up 28% to 29% versus the prior year. Adjusted EBITDA is expected to be between $305 million and $310 million, up 35% to 37% versus the fiscal year ended September 30, 2020. When we report our Q4 and full-year fiscal 2021 financials, I will at that time provide guidance for our fiscal year 2022. I will also at that time provide our EPS outlook, and we will detail our recurring dividend plans. I will now turn it back to Chris to close out our prepared comments. Thanks, Bill. In closing, I'd like to again thank our Weber team members for delivering outstanding results in the quarter during the challenges of lockdowns across offices and facilities around the world and still supplying and satisfying our customers when many others could not. And I'd like to thank our new shareholders for joining us today. I'm extremely excited for all that is in front of Weber and the opportunities that lie ahead of us as a public company. We won't let up on our passion for inventing groundbreaking new products that continue to redefine all the segments of the outdoor cooking category, and we look forward to adding to our loyal community of Weber fans in the process. Now I'd like to open up the call for questions.

If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, it's star followed by two. Our first question comes from Robbie Owens of Bank of America. Your line is open. Please go ahead.

Oh, good morning, guys. Can you hear me okay?

Yeah, Robbie, can you hear us, Robbie?

Oh, yeah, terrific, terrific. Just making sure you never know. Great. Listen, I think a key question I just wanted to ask was, can you guys give us an update on freight and commodity cost pressures? And Bill, you gave us the guidance, but anything change in sort of the gross margin expectations embedded in that guidance? And maybe how to think about the quarter year now and what you're seeing in terms of gross margin pressures, and then also any thoughts on how that carries over into next year and maybe how the price increases are playing out to mitigate some of these pressures.

Yeah, Robbie, maybe I'll take a first crack at it, and Chris can certainly jump in if he's got some additional comments. But generally, these commodity inflationary trends you're seeing are consistent with what we've shared during the IPO process, and no real surprises, although we're managing through it as we have historically. Generally, our supplier contracts and hedge positions are protected us from most of the major commodity movement earlier this fiscal year. We certainly realized the impact in our year-to-date Q3 actuals, but not to the extent that we're now seeing the spot markets that's impacting Q4 and Q1, and definitely not what we're seeing in the inbound freight pricing that's out there. However, our exposure is higher now, consistent with what you've seen from most companies reporting earnings, providing guidance, etc., In late Q3 and now into Q4, we're now at market rates, which, you know, depending on the commodity, generally are up between 20% and 170% in some cases versus last year. We're covering these inflationary challenges, you know, like we have historically. You know, these aren't new to our team. We managed through tariffs, you know, back in the early days. We managed through inflationary challenges earlier this year. And we have plans to cover this impact on a dollar basis starting in Q1. and certainly fully by Q2 with pricing actions that were being finalized and deployed across all of our markets. So I guess I'll wrap up and maybe come back to you with a follow-up if you have follow-ups. But ultimately, we're going to continue to focus on what's helped us gain competitive wins throughout the pandemic. We're going to focus on ensuring we have the supply ready for our consumers where and when they want to purchase. We're going to leverage, as Chris alluded to, our unmatched supply chain with a truly global manufacturing footprint. And we're going to proactively manage pricing in a methodical way to make sure the Weber brand and our Weber pricing holds value for our consumers. And I would say, you know, directionally, that pricing deployment is going well in every market. We'll share details of that into, you know, our next earnings call as we give guidance for 2022.

That's really helpful. And just a quick follow-up, maybe for Chris, it sounded like demand for grills is stronger outside the U.S. than inside the U.S. I don't know if I heard that right, but is that the case, and why would that be?

Well, I think, Robbie, I think it's strong in all of our regions. And so we've seen positive, both from a point of sale standpoint, positive trends there, as well as sort of an overall retail or wholesale demand. And I think it's consistent across the market. There are some timing dynamics. And so one of the strange trends oddities of how covid has played out and how lockdowns play out regionally and frankly even how some of the supply chain challenges you know the container logistics challenges relative to ocean freight how those have played out regionally it hits different parts of the world in different times and so it's just to give you an example in our in our fiscal q2 which is january through march The European market had a really tough go relative to a resurgence in lockdowns and also the transportation issue, the inbound containers. And so the demand there was suppressed a little bit by the COVID dynamic and logistics in Q2. And you saw that bounce back in our Q3 results where Europe really outpaced Europe. If you remember the Suez Canal incident that happened back earlier in the year, that really impacted European inbound. And so we saw that bounce back in Q3. In contrast, the Americas, which is a little bit lagging behind in a Q3 standpoint, had a tremendous Q2. And so as you look over the course of the year, it's pretty balanced. Our year-to-date numbers for the Americas up 37%, for EMEA up 42%. for Asia Pacific, up 69%, particularly in Asia Pacific, driven by an enormous growth year in Australia for our business there, which is because it's Southern Hemisphere counter-seasonal. And they were kind of lapping a depressed year from 2019 due to some brush fire issues in-country. And so there was a really big surge in Australia. And so generally speaking, it's been balanced across the world, minus these quarter-to-quarter fluctuations based on macro factors.

That's really helpful. Thank you so much.

Thanks, Robin.

Our next question comes from Kate McShane of Goldman Sachs. Your line is open. Please go ahead.

Hi, good morning. Thank you for taking our question. Excuse me. Morning, Kate. My question was just around accessories. I don't think we heard too much in the prepared comments today, but I know that is a big future growth driver for you. So could you maybe give a little bit more color around your accessories, business, how it performed during Q3, and what the outlook is for the rest of the year?

Sure. I can take that, Phil, and then you can – oh, sorry. Go ahead. Great. No, you go ahead, Chris. Go ahead. Well, I was going to say the accessories business is doing really well. We've challenged our teams to really maximize that part of the business. As you know, Kate, from prior conversations, that's an accretive part of our gross margin mix. And so we like the accessories business, and it's a key focus area for us. We've put a lot of programs in place to continue to drive those, and they are performing well. I would say, generally speaking, from a revenue standpoint, it's growing basically in line with our grill sales. And so it's not beating our grill sales, but it's growing in line with grill sales. So we've seen some really good progress in a number of areas. One of the ones that is my favorite is looking at attachment rates. So anytime we sell someone a grill, which because our grill business has been growing so rapidly, there's a tremendous opportunity for us to get accessories attached to a grill at the first purchase of the grill. And in our Weber.com environment in particular, we put a number of programs in place, and we actually redesigned our entire website for the 21 season back in the spring timeframe to present really highly correlated accessories at the time of purchase of each grill, which is perhaps not rocket science, but it's something that we weren't doing in the past. And putting those algorithms in place inside our website drove about a $10 10 percentage point attachment rate increase for accessory sales associated with a Weber grill. And so that's been a really nice driver of growth in our Weber.com environment. And we're also seeing attachment rates increase at retail as well for our retail partners. And so it's probably on the order of about 5% to 7% higher than we've seen in the past years. And so that's a function of merchandising. It's a function of how we present the accessories adjacent to the grills. And accessories will be a key growth driver for us going forward. there is um you know a great innovation coming next year on accessories that i'll be excited to share with you uh probably in our november call um but the uh where we were really taking the accessories to another level and effectively creating an outdoor kitchen uh for grill users in the weber in the weber user base so um accessories are a key growth platform for us going forward and that's across every region around the world not just in the us in particular our accessories business is a substantially higher part of our overall mix in Europe, where we have a stronger presence of Weber stores and grill academies, and it's more of a dealer model as opposed to a big box model. And that's been a growth engine for us outside of the U.S. that we're bringing into the U.S. for years coming forward.

Thank you.

Thank you. Okay, the only thing I'd add to that, and Chris got it right, generally our accessories are growing right in line with the balance of our business, certainly in Q3. The one point I'd add is our ASPs continue to trend up in accessories. You know, we were kind of last year, if you will, versus last year we're up almost 10% in the quarter on accessory ASPs. So we're getting the trade-up that Chris alluded to on Weber.com. That's helping certainly. So we feel overall really positive about what we're seeing in accessories.

Thank you. Our next question comes from Megan Alexander of JP Morgan. Your line is open. Please go ahead.

Hey, good morning. Thanks, guys. You know, my first question is, you know, kind of a follow-up to Robbie's second question. Can you talk about whether you're seeing any impact in POS trends from, you know, the Delta variant in any of your markets internationally or, you know, regionally in the U.S.? ?

Yeah, sure. I can take that one. So I don't know that we've seen, you know, it's a volatile environment, obviously. And one of the dynamics that we've seen, certainly in the U.S., although, honestly, it's in some other countries as here is the slowdown of the reopening, if you will, so kind of a pause in the reopening and a little bit more of lockdown behaviors and a lot of the debates around vaccine policies, et cetera. That's a little more dramatic here in the U.S., where our vaccination rates are relatively low. In many other of our regions around the world, we see more of a return to normal happening, although clearly varies because a market like Australia or parts of Asia are even more in a more dramatic kind of pullback. So it really varies by region, Wendy, and – sorry, Megan – And I think there's not one unilateral statement that would work for the entire world. So that said, the way that we're looking at it, first of all, our point of sale data, as I mentioned before, continues to be strong. And so we haven't seen any kind of a pullback. What you might expect to see is a lengthened surge. And I would say that the business is behaving differently. a little bit more in line with the traditional seasonal dynamic that we would normally see in a grilling season. And so it's normal in the northern hemisphere for us to come out of the, you know, come out of the summer and into the fall with, you know, sort of a counter seasonal dynamics. We have seen continued strong business in the last couple of months. And so I don't know that I would attribute that to Delta. What I would probably attribute that to are the sustaining trends that are coming out of the pandemic. There is, if you think there's a number of them, you know, if you think about homeownership and the migration of particularly millennials from urban areas to suburban areas and purchasing houses, starting, you know, starting backyard entertaining or backyard entertaining becoming a bigger part of your business. your experience and how you socialize with people, traditionally that's a sweet spot for Weber. It's always been for decades and decades a place where Weber as a brand wins and is really an integral part of consumers' lifestyles. And so that's positive for us. I think also if you think about remote working, there hasn't been a light switch flip and everyone goes back to the office five days a week everywhere. And so I think on a go-forward basis, it's fair to expect some kind of a hybrid model where you've got a little more work from home than pre-pandemic, even if it's not a full lockdown five days a week at home. That's generally beneficial to the grilling category and generally beneficial to Weber because just if you add to grilling opportunities. So there is a lingering and I think a sustaining upside that's not really related to the Delta variant, but it is related to this sort of new normal that we're living in right now. And there's every reason to expect those trends to continue on a go-forward basis.

That's really helpful. Thank you. Just as a follow-up, you know, it seems like the supply chain concerns are more cost-related, but can you just talk about, you know, maybe your inventory position and the ability to fill demand? It doesn't seem like You know, that's a concern. But how does this compare to maybe some of your peers, and do you maybe see this as an opportunity to take more share going forward?

Okay, go ahead, Bill. I was just going to start, Chris, and you can jump in, certainly. You know, we feel really good about our inventory position. Obviously, we're comping, as I mentioned in my comments, we're comping a period last year where inventory levels were at were extremely low levels for us as a company, just given the demand and the surge in the season, if you will, from last year. So we feel real good about it as we head into our peak season in the next three to four months. about where our inventory positions lie. You know, we're seeing the constraints, obviously, out in the marketplace. But, you know, as I mentioned, we feel really confident in our supply chain team to manage through this. What we're seeing is, you know, transit times generally have moved from historical averages of 45 to 50 days to now closer to 75 to 80 days. You know, we are seeing the carrier reliability, for example, which in July was, I believe, 15%. versus if you go back to last year, 75%. So we're certainly seeing the challenges in the supply chain. Long Beach Port, for example, is one that's really a bottleneck, as you've read about in the media. However, we're managing through it. We haven't had any issues with supplying our customers' needs, and that's ultimately what our team is pressed to do, which is ensure that as we get to our peak season, that we've got the supply ready for our consumers and our customers globally, and we feel good about where we are. Chris, did you want to add anything to that? Yeah, sorry. I stepped on you earlier. So, you know, the thing I would add is there are some of what we're doing well that's leading to us taking share in the market, and I think winning, and based on the data we have, outperforming competitors on in-stocks. um at retail generally speaking um we we've got a we've got a great team who's been around the block before this is not our first rodeo we've run into these kind of challenges in the past and uh i think our team is working well globally and communicating well and that that's not to be taken lightly like i think the ability to execute in times like these um does matter and i feel i'm thankful for my team and i'm proud of their performance i would also say the strategies that we put in place get the leg up in many respects. And so we do have a strategy that I've talked to many of you about, maybe all of you about, called Make Where We Sell. And that's a strategic intent to get our production closer to our demand. And so we've invested substantially in my three and a half years here at Weber to maximize our U.S. production footprint. That's really unique for Weber. We're the only grilling company of size that has U.S. manufacturing footprint, and that helps us a lot when it comes down to these global transportation challenges and boats getting stuck at ports and inventory being tied up on the water, so to speak. And we're adding, as you know, a manufacturing footprint in Europe as that will open, I think we open officially with the grand opening is in just a couple weeks. And things are trending really well there. And so on a go forward basis, we'll have a European manufacturing footprint that will take some of those delays and lead times out of the European business as well. And that's a really exciting opportunity for us. And it's going to be a big unlock. If you think about that dynamic where, you know, products on the water normally for, you know, 35 to 45 days, and now it's up to 75 days. when you have local production in Europe, you will cut that dramatically, probably by two thirds in terms of like the, you know, sort of the working capital that's tied up in serving the business. And it allows you to be much more responsive to customer demand. And we think that's a strategic advantage for us. It's a big investment point. It's what we've invested to bring that to life. And that's going to serve as well as these dynamics play out in the future. And they're volatile. They'll come and go, but we'll be robust and ready for them.

Great, thank you.

Thanks, Megan.

The next question comes from Simeon Siegel of BMO Capital. Your line is open. Please go ahead.

Thanks. Hey, guys. Good morning. Congrats on the first quarter as a public company. I'm good to connect again. Chris, you mentioned some interesting data points about consumer usage. You talked about the average grills, but first the kind of how frequently people grill, et cetera. Can you just talk to how you track those usage stats, how they've been trending? Maybe touch on how you see using technology to get increasingly more engaged with those customers going forward. And then, Bill, if you can, any help on how you're thinking about the regional revenues for the fourth quarter embedded within the revenue guide that you guys gave? Thanks so much.

So I'll take the first one, Simeon. It's evolving. As we've talked about before, we put a lot of investment behind Weber Connect. That's our technology platform, for those who don't know, that effectively creates a smart grilling dynamic. The way I think about it is it's like Waze. And so it gives you a personal situation-specific grill guidance throughout a cook that reacts to changes in conditions or temperatures or temperatures. food types and gives you real-time feedback that ties to algorithms we have in the cloud, we've seen a really positive response to that. In fact, the Weber, I mentioned in my prepared remarks some of the success we've seen behind the Weber and Spear at ex smart grills which have weber connect embedded in them that affected you know we've driven a huge amount of growth in revenue through that connect line this year and in particular embedded into grills and that'll be a key platform for us going forward but as we expand that and we drive that household penetration of smart real tires indian we get the data from consumers that show us Not just an engagement with the brand on a week-to-week, day-to-day, cook-to-cook basis through the app, but also a connection with the brand where we get insights into what people are cooking and when they like to cook and what their desires are that may be unmet relative to accessories or maybe even services in the future that will build on that experience. And that's growing from a scale. standpoint. So it's still early days for us in terms of the household penetration of the tech connect technology, but it does give us everything you're talking about. The richness of information that allows us to spin our marketing back and even spin our product development back and our service development back to create forward. So that's an engine that's getting revved up and starting. But the early read, particularly in Q3 on the EX line, was tremendously positive. And you'll see us build on that going forward. We do measure consumer trends beyond the Webber Connect platform in a number of ways. And we do have an entire consumer insights and analytics group as part of the Webber family. It's sort of how I'm wired from my background at leading consumer companies. And so I do really value the data. And there are a number of trends that are really interesting. Just to hit back on the tech point quickly, one of our key strategies that we've outlined is to go after new innovation and disruptive new products that will accelerate purchase frequencies and attract millennials into the categories. And what we found when we show millennials in research a grill that has Weber Connect technology embedded versus the same grill without Weber Connect technology embedded, and we'll sell them both ways in the future, millennials' purchase interest rises over 40% higher when they see the grill of technology embedded. And so there's a tremendous accelerator in front of us to bring that technology solution to this broad array of consumers who are wired literally to expect it and really desire it. And that's a really great grilling experience. And so the feedback that is really positive. And I think that association of technology to the product that's not tech for tech's sake, but really grounded in the consumer insight, does create a deep bond with the Webber platform, and it creates value that goes beyond the initial purchase and into a series of purchases and interactions over time. And so I think that's That's a piece where we've connected the dots between our research with consumers and the actual behaviors on grills that are being purchased. So I think that's probably the key insight that I'm thinking about on a day-in, day-out basis right now. And I don't know if there's anything you want to build on that, Sidney, before Bill takes the second half of your question.

No, that was perfect. Thank you.

Yeah, I'll hit the corner question for Q4. So just as a reminder, you know, we're comping a really strong Q4 last year that was up more than 80% in our Q4 last year. You know, if you think back to historically, our Weber business is generally somewhere between 13% and 14% of our business normally happens in Q4 last year. In our fiscal 2020, our Q4 was 24% of our year. So, again, just a really strong Q4. This year, you know, our Q4, we still feel really positive about where the business is coming in. It's still going to represent 17% of our business across the year. That's our latest outlook. So it's still much higher than our kind of historical trends. And then when we look at a two-year stack basis, you know, it's still going to be our highest quarter. So our two-year stack for Q4 is going to be close to 73%. So it's, again, a really strong quarter. When it comes to the region, I think it was your question around the region spread, it's generally level-based or level spread across regions. So we're not seeing any particular region in Q4 significantly stronger than the other, maybe with the exception of APAC slightly, although we're managing through the forecast and managing through final shipments here. But generally it's going to be essentially flat growth comparatively across regions. Does that make sense?

Yes. Thanks a lot, guys. Best of luck for the rest of the year. Thank you.

The next question is from Chris Kerry of Wells Fargo Securities. Your line is open. Please go ahead.

Hi. Good morning. Thank you. I just wanted a quick follow-up on Robbie's question at the beginning of the call. It's the right way to think about commodities, that they are getting worse, or the overall concept of inflation is getting worse. Commodities are an element. Trade is an element.

But you'll be looking at pricing offsets and, in general, feel good about where you are. Maybe if you could just expand on that.

um on that or clarify that for me just um as far as you know what's occurred maybe over the past couple months and and how you're thinking about it um and then you know any um any commentary just as we get you know further into this uh you know kind of um uptick in in grill purchases on um you know how much you think these uh grill purchases have been for uh replacement of old grills first uh first new you know grilling households and and how you expect um I expect that mix to kind of play out over the next year. Thanks so much. Yeah, Chris, so maybe I can take the first part of your question, and then, Chris, you can jump in on the second one. So, you know, is it getting worse? I would say definitely the last three to four months we've seen an increased spike in inflation, primarily on inbound freight. You've heard about that from from not only our competitors, but also just generally, you know, CPGs. Everybody's talking about them. That's real. And we expect it to continue at least through March, which is our second quarter, with the continued use of higher premium expedited freight lanes. So, you know, just for perspective, you know, generally inbound freight represents historically between 5% and 6% of our cost of goods that we've seen that increase over the last three months. to closer to 12 to 15% of our COGS. So certainly it's real, it's out there, and we're not gonna talk around it. But what are we doing about it? We're planning our supply chain as if this is gonna persist, like I said, at least through our second quarter with this use of continued higher premium expedited freight lanes. We've doubled our carrier access pools with more than eight providers. So we're expanding. We've got a strategy to essentially deal with this. So we're executing these strategies to, number one, protect our in-season volume movement. Again, I mentioned that earlier. We want to make sure that customers are able to get the Weber grills that they demand and need. So that's our strategy, and we'll continue to manage through these issues like we've done in the past. So, Chris, Scherzinger, you want to comment? I think you hit it, and we hit it before a bit there. You know, I don't – we don't – want to pass the buck. And so we do put a lot of effort into productivity initiatives, into partnering with our supplier base to lock in contracts and rates and try and uh you know get advantageous uh costing relative to the marketplace and generally speaking we've been successful with that over the years facing a number of challenges and we're having uh you know i think we're making good progress on that front now uh we do we are a brand that lives in a in a premium segment generally speaking of of each of the categories and segments that we play in i mean you can get a weber grill for a weber smoky joe is fifty dollars all the way up to a weber summit gas grilling center is $4,000. So we play across a really wide range of price points. And in an inflationary environment like this one, where you would expect to see most consumer goods manufacturers taking some kind of pricing action in the face of the headwinds that we're talking about, it's nice that Weber has, you know, one of the tools we have available to us is a full assortment. And so we're not going to price ourselves out of a particular consumer's market because we have offerings that are a whole range of price points. And that gives us, I think, an advantage structurally in terms of how we go to market. But we do have pricing power because we're a premium brand and we have the highest brand perception promoter score and brand awareness, not just in the U.S., but in all of the markets that we're playing in around the world. And so when the rubber meets the road and pricing has to be a lever to pull, we do have the ability to execute that. And we've shown that even going into 2021, the reason you see Part of the reason that you see really positive gross margin performance for our business in Q3 and adjusted EBITDA performance for our business in Q3 is because we saw this coming and we took action early and that included some pricing in certain markets. going into the 2021 season, and that was effective. And so we would anticipate that being part of our tool set that we have to navigate these kind of headwinds going forward. And we'll navigate that with the consumer in mind and with our retail partners at our side and do that in a collaborative way. But we do have the power to do that. And then I want to hit the other question, Chris, that you had around volume sourcing. I don't really have any new information around repeat or kind of replenishment, if you will, repurchase volume of existing grills versus new grill category entrance. So honestly, we do look at that at the end of the year on an annual basis, and so that's probably work that's going on with our insights team right now. So I'll check in with them, and we'll have that information for you if we can next time we talk. So let me take homework on that one. But I do think one of the interesting trends we've seen this year, particularly over the last three or four months, is a surge in our premium grill lines. And so we have seen particularly like in the gas category, which the gas category, by the way, is a really interesting, it's a growing, it's a growing segment. It's up substantially this year on a fiscal year today basis, but Weber's up more than double the category. In fact, I think our market share is up something like two and a half points in the gas category this year based on MPD data. And that's, on our ability to supply, which we talked about earlier, but two, some of the movement in the market toward premium grills, where Weber obviously wins. And so we have seen a big surge in demand for our Genesis grills and for our Summit grills, which is our premium gas line, over the last few months. And that's a dynamic that would typically indicate not a first grill purchase, but a trade-off or a replacement of an existing grill.

It's very helpful. Thank you very much. Thanks, Chris.

As a reminder, if you would like to ask a question, please press Start followed by 1 on your telephone keypad now. Our next question comes from of UBS. Your line is open. Please go ahead.

Thank you, and good morning. Could you talk a little bit about 2022 demand drivers and what you see at this point? perhaps any insight into how your retail partners are looking at the categories. And then to go back to the inventory question earlier, would it be possible to quantify what the inventory situation at retail looks like at the end of the quarter and how that compares to pre-pandemic levels? I'm really just trying to understand how much inventory replenishment could help sales next fiscal year, regardless of demand.

Yeah, our opinion, maybe inventory question. Okay. And then, um, Chris, maybe you can comment on the first part of, uh, of the question, you know, generally, you know, obviously in our three markets, they're all unique uh three primary markets but i would say generally trade inventories are in line with our historical norms um so we're kind of aligning with our retailer inventory strategies i would say much healthier than they were at this time last year during the peak of the pandemic where you know everybody was challenged with just you know fulfilling demand and the supply issues etc so we feel really good about entering the year so i would say generally um you know for the exam the americas as an example We spent a lot of time collaborating with our channel partners in Q1 and Q2 to make sure that their trade inventories were in good shape going into the Q3 selling season. That's, as Chris alluded to earlier, I think, paid off really well with strong in-stocks, which then drove strong PLFs. So, you know, we've certainly, there's always challenges to manage the mix, if you will, but I would say overall, both in the Americas, APAC, and Europe, we feel really good about where we sit in trade inventory, and as we head into the season, we'll be able to fulfill consumers' demands.

Great.

So would you say the last one?

Go ahead.

No, I was just sort of following up. That's okay.

Yeah, give a follow-up to Bill. Go ahead and shoot it his way.

Yeah, would you say that inventory levels at the quarter end are sort of comparable to pre-pandemic levels? In other words, you're not really looking at kind of a star channel or anything?

That's correct. That's exactly how we view it. I couldn't have put it better myself. So that's exactly how we view it. You know, there's puts and takes within some categories, but generally overall, that's exactly how we're viewing it in all of our markets.

Thanks.

And then let me jump in on the, this is Chris, I'll jump in on the first part of your question around 22. I mentioned some of the tailwinds that we think will sustain earlier relative to sort of the post-COVID or the coming out of COVID dynamics and the positive dynamics that we see there. I would add one that I didn't mention earlier, which is this really remarkable wave of millennials who are sort of coming of age from a standpoint so the sound bite there is that there are 40 this is a US sound bite but I think you could you can multiply it by a little over a factor of two to get to the global number which is of course what we look at with half of our business outside of the US but there are in the US 40 million millennials will turn 35 in the next 10 years. And so there's a tidal wave of millennials coming into what is traditionally for Weber a really like a sweet spot for introduction to the brand and for starting a family, buying a home, orienting your life more around your home and your backyard. And that's historically been a place where Weber plays a really dynamic part of consumers and families' lives. And so we're excited about that tailwind that's coming in front of us. That's not a one-year tailwind. That's a prolonged next 10 years tailwind. And it's sizable. In fact, I think it might even be more sizable than the baby boomer surge that happened years and years ago. So that's an exciting tailwind. Everything that we're doing in the face of those positive tailwinds is is what i outlined earlier in the prepared remarks our key growth strategies which is to introduce disruptive products and innovate with ways to change consumers billing experiences to drive our direct-to-consumer and experiential interaction with the brand to expand our customer base partner with our retailers and drive new revenue growth there and then to expand and deepen our presence in emerging geographies which represent growth. And all four of those pillars, just as they were impactful to our Q3 results and to our 2021 results, they'll be impactful to our 2022 strategies as well. I have a line that I use here with my team internally at Weber, which is the category doesn't happen to us, we happen to the category. And that is only a mantra of an ambition to be a leader and to always put our consumer at the forefront of everything we do and to make sure that we're bringing consumers value-added solutions that earn the Weber brand and live up to the Weber brand, and that's how we drive our business, and we think that that will impact our 2022 when we get to it.

Thank you. We are now out of time for any further questions, and we are coming to the end of the call, so I will hand back over to the team for any closing remarks.

I just want to thank everyone for your time today. As I mentioned earlier, we're very excited about the results, and I'm very proud of the Weber team for what we've accomplished. And you heard that from me throughout the conversation, our ability to rise up in the face of the challenges that we talked about today, but also to bring to life so many great growth initiatives for the company. And to see those show up in our Q3 results is exciting, and not just on the top lines, but on the bottom line as well. And so we feel that we're doing right by our shareholders and that we're delivering on the promise of the Weber brand. And we look forward to our future conversations with you and continuing to push it higher. So thank you, everyone.

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