Weber Inc. Class A

Hello and welcome to the Webber Inc. fourth quarter and full year 2021 earnings conference call. My name is Alex and I will be coordinating the call today. If you would like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you wish to withdraw your question, you can press star 2. I will now hand over to our host, Brian Eichenlaub, Vice President of Investor Relations and Treasurer of Webber Inc. Brian, over to you.

Good morning, and thank you for joining us today for our fourth quarter and full year fiscal 2021 earnings call. I am joined this morning by Chris Scherziner, 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-K SEC filing, our earnings release, and to our SEC filings, all of which are available on the company's website. During the call today, the company may also discuss certain non-GAAP financial measures. For a 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 investorsatweber.com and can be found in the company's SEC filings. A recording of today's webcast and supporting documents will be archived for at least 90 days on Weber's investor relations website. And now I'd like to turn the call over to Chris.

Thanks, Brian, and good morning, everyone. I'd like to start today's call by thanking our team around the world for delivering another strong quarter and a record-setting year for Weber, delivering 30% revenue growth in fiscal 2021 on top of last year's strong 18% growth rate for a two-year revenue growth stat of plus 48%. And despite the well-known challenges in this global operating environment, our revenue growth converted to record-setting gross profit and EBITDA as well, Our Weber team around the world worked tirelessly to meet customer needs and to grow our iconic brand while delivering fantastic financial results. In fiscal 2021, we generated net sales of $1,982,000,000, again, a 30% increase versus last year. Adjusted EBITDA reached a record $307 million, and we expanded EBITDA margins by 60 basis points to 15.5%, while at the same time increasing our strategic investments in new product development, digital marketing, and supply chain initiatives that yield current and future benefits for our company. Our ability to drive growth today, invest in our future, and deliver these results is a testament to our strategies and also our people and their ability to execute in tough environments. Given these strong financial results, last month our Board of Directors declared a quarterly cash dividend of $0.04 per share to common stockholders, implying a $0.16 per share annual dividend. The initiation of a dividend reflects the confidence we have in the performance of our business and the strong cash flow generation we expect to achieve, which affords us the ability to return value to our shareholders while also investing in our future growth. In recent months, there's been much discussion around global supply chain challenges and inflationary pressures, and like many businesses, we have been affected. However, we believe our unique global manufacturing footprint and world-class supply chain organization is a valuable competitive advantage. It has uniquely positioned us to navigate the current environment favorably relative to the broader market, and we've continued to supply our customers and consumers in the face of record demand. To help mitigate the supply chain pressures that we expect to linger throughout 2022, we have leveraged a unique broad network of supply partners and proactively engaged with new carriers and landside transportation partners to manage both availability and rates. In addition, we've increased rail moves within regions and are flexing a variety of alternate container depots and port pairs to limit terminal congestion delays. As a result, we are current with all global shipments and have healthy inventory levels to meet 2022 demand. We are the only large-scale grill brand who owns and operates our own US manufacturing facilities, which has been a distinct advantage in this tough environment. In addition, in October, we began production at our new Poland manufacturing facility, which I will speak to in a moment. We're now the only major grill brand to operate our own European manufacturing facility as well. This is a real unlock for our large and growing EMEA business, and it strengthens and diversifies our entire global network. Regarding inflation and commodity price increases going into 2022, these supply chain advantages help us on this front, and we remain focused on improving our operational efficiency as the first line of defense to help offset rising input costs. In addition, as we've discussed in the past, Weber is a premium brand that has pricing power in the marketplace on a global basis. We have implemented price increases this quarter to offset the current inflationary environment as we enter the 2022 season, and these have been accepted in planning discussions with our retail partners across geographies. The combination of supply chain productivity and pricing actions will help protect gross profit dollars in 2022 and set up longer-term structural accretion. Our strong financial results for fiscal 2021 continue to demonstrate the strength of the Weber brand and our products across all key segments of the outdoor cooking category and all key grilling markets globally. And they validate the five key growth strategies that we've discussed since going public a few months ago. I'd like to provide some highlights on the progress we've made against these. First is disruptive new product innovation. We are a company of inventors and have been for 70 years, and innovation played a big role in our 2021 success, with successful new launches that included the Weber Traveler Portable Grill, the Weber Genesis and Spirit EX line of smart gas grills, which feature embedded Weber Connect technology, the Weber Summit Kamado Charcoal Grill, and the second-generation Weber Smokefire Wood Pella Grill, among others. These new products won a number of industry awards, and consumer ratings and reviews are excellent. and we're on track to unveil several exciting new products for 2022 over the next few months. So there's a lot of positive momentum here. The Weber Connect platform is worth a special call-out. As a reminder, in January 2021, we acquired 100% of June Life, the Silicon Valley inventors of the June Oven, and our longtime partner in the creation of Weber Connect, the first true smart grilling technology platform. Weber Connect continues to be recognized as the best-in-class smart grilling experience by influential media, and it keeps getting better. This month, we are releasing our largest ever update to the Weber Connect app. Consumers can access new recipes and guided cook programs for a variety of dietary preferences, and they'll enjoy new experiential benefits, including a new fuel monitoring feature. The stream of Weber Connect updates and added functionality continually makes your grill smarter over time, which tees up exciting opportunities for Weber and our loyal consumers. Our next key growth platform is direct-to-consumer sales and e-commerce, which includes both Webber.com and our global network of roughly 200 Webber stores and grill academies. Growth here was up substantially in 2021, even lapping a strong growth year in 2020. Our increased media investment this past year across connected TV, social media, influencer programming, and digital video helped drive revenue gains of around 50% in 2021. We'll continue to invest in new store openings, with 14 new stores opening in the fourth calendar quarter of 2021, and this will continue to be a meaningful growth platform for us in 2022 and beyond. Bill's going to share more detail on our e-commerce results as well. Next are emerging geographies, which grew nearly 60% year-on-year in 2021. These focused markets outpaced total company growth by two times, highlighted by wins in Latin America, Southern and Eastern Europe, and Asia. We continue to be optimistic about our emerging market runway in the future, fueled by Weber store growth and increased investments to build awareness of the Weber way of grilling. And then finally is our strategic platform around value-creating operational initiatives. As I noted earlier, our operational infrastructure is a key differentiator for Weber. We remain committed to investing here, and we're seeing fantastic results. I was very proud to attend the official grand opening of our first Weber-owned and operated European manufacturing site in Zopsia, Poland, in October. This Breen-certified facility is now producing and shipping Weber grills across Europe for the 2022 season. It provides game-changing structural cost savings, improves working capital requirements, and de-risks our global supply chain in the face of the current industry challenges. Before I turn it over to Bill, I wanted to close my comments by highlighting our newly created subsidiary, 1952 Ventures, named for the founding year of Weber when the first Weber kettle was invented and revolutionized the outdoor cooking industry. 1952 Ventures is designed to house new growth platforms for Weber to accelerate innovation and brand extension. This allows us to pursue additional disruptive growth opportunities without distracting the core Weber business team. Troy Shea has been appointed its Chief Executive Officer Weber will fund 1952 Ventures through existing cash flows and leverage capacity, staying true to our stated target of three times net leverage. Importantly, we believe 1952 Ventures activity will be highly value accreted to Weber. The startup of 1952 Ventures, along with the recent promotions of several key senior leaders, builds on our recent success and expands our capacity for continued growth. I believe a company's success reflects the talents of its team, and I feel strongly that we have the best team in the business. With that, I'll now pass it over to Bill Horton, our Chief Financial Officer, to review the fourth quarter and fiscal year financial results. Over to you, Bill. Thanks, Chris. I will start with a summary of our strong Q4 financial results before going deeper into the regional and channel financial results for our full fiscal year 2021 that ended September 30th. I'm pleased to report that across net sales, net income, and EBITDA, we delivered results above or in line with our previous guidance. As a reminder, Weber is a seasonal business, and our first and fourth quarters historically have each represented approximately 15% of our full year sales, with only the Australia and New Zealand business being in season during those quarters. That said, we saw a significant seasonality shift last fiscal year. A strong retail sellout throughout Q2 and Q3, combined with pandemic-driven supply chain slowdowns, depressed retailer inventories and required continued replenishment during our fiscal Q4 last year and into Q1 this fiscal year. Both Q4 2020 and Q1 2021 sales were up more than 80% versus the same period in the prior year. Despite this Q4 2020 cost, we over-delivered on our plans for Q4 this year, with sales of $350 million, down only 5% from last year, and up 77% on a two-year stack basis, a significant accomplishment for our teams. E-commerce and direct-to-consumer channels continued the strong growth results we've delivered over the past three years, with Q4 sales up 42% versus Q4 last year. We have a unique mix of growth drivers within our e-commerce and direct-to-consumer channels, with pure play retail partners in every country where we operate. Webber.com now selling our products via our website in 28 countries and a unique network of 193 Webber stores, unlike any in our competitive space. In the fourth quarter, direct-to-consumer sales were up 22%, with Webber.com up 39% versus the same period last year. Our strong Q4 sales enabled over-delivery of our other key financial metrics for the quarter when compared to the guidance provided during our last quarter's earnings call. Quarterly sales growth of negative 5% was better than the negative 10% we guided to during our call. An adjusted EBITDA of negative 14 million in the quarter was at the midpoint of our provided guidance. Again, The sales results in the quarter allowed for over-delivery on our full year guidance to drive net sales growth of 30%, record EBITDA of 307 million, and EBITDA margin expansion of 60 basis points to 15.5%. Specifically, net sales increased by 457 million to 1.982 billion from 1.525 billion last year. This is our second consecutive year of innovation-led growth with our two-year sales stack of 48%. Core growth, which represents business growth excluding the impact of foreign exchange, represented $381 million, a 25% increase versus last year, and foreign exchange accounted for $76 million. We continue to see progress towards our key strategic growth priorities, with direct-to-consumer sales up 46% versus last year, For fiscal 2021, both growth segments within our direct-to-consumer channel delivered exceptional results, with Weber.com up 50% and Weber's store sales up 42%. While we had exceptional growth across all product categories, two specific drivers were our gas grill segment that was up 35% versus last year and our portable segment. It was up 600% upon the retail success of the Weber Traveler, which continues to outpace our expectations. In addition, for fiscal 2021, emerging geographies were up nearly 60% versus last year, representing 12% of total revenues, up from 10% last year. The focus on developing markets is something we have discussed previously. Our proven track record of penetrating and scaling the Weber brand in new or underdeveloped geographies is a clear differentiator for our company. For example, over the last two years, we've driven two-year CAGRs in the UK, Italy, and France of 45%, 39%, and 24%, respectively. Other developing markets to call out that are in the early to mid-stages of their maturity cycles like Japan, Mexico, and Russia, collectively grew 48% last year and have delivered two-year keggers of 33%. Net sales growth was consistently strong across all of our operating segments, with the Americas up 25%, EMEA up 34%, and APAC up 49%. For the Americans, Net sales increased 25%, or $222 million to $1.1 billion from $881 million last year. All sales continued to deliver strong year-over-year sales growth, with online sales at Weber.com outpacing the overall region up 64%. Core growth represented a $212 million increase, or a 24% increase year-on-year, while foreign exchange contributed $10 million of the revenue increase. Leading the growth within the American segment was our Canada business, where the continual addition of new retailers to the Weber portfolio, successful new product launches, and efficient supply chain execution have led to significant market share gains, delivering growth of 84% in 2021 and a 47% trigger over the last two years. Our EMEA region net sales increased by 34%, or $184 million, to $726 million from $542 million last year. Core sales growth was $129 million, up 24%, while foreign exchange represented $55 million of the sales increase. Direct-to-consumer sales grew 27%, driven primarily by new Weber store openings and increased revenue within existing stores, along with Weber.com growth of 25%. It's worth mentioning that every country in the region delivered double-digit growth, and we're very excited about where the brand is positioned for continued future growth. For the APAC region, net sales increased by 49%, or 51 million, to 154 million from 103 million last year. Core growth represented 40 million, or a 39% increase. while foreign exchange represented 11 million of the sales increase. From an absolute dollar growth basis, Australia and New Zealand led the way. However, our developing countries in Asia grew 85%. A clear indicator that our accelerated growth strategies for emerging markets are working. Behind the strong sales growth, gross profit for the fiscal year increased by 215 million, or 35%. to $825 million from $610 million last year. Gross margin increased by 170 basis points versus last year to 41.6%. The increase in gross profit dollars was primarily driven by higher sales volumes, global productivity initiatives, and a decrease in COVID-19 related costs. The 170 basis point year-over-year expansion of gross margin was driven by pricing actions to offset cost inflation productivity initiatives, favorable mixed shift towards EMEA, reduced COVID-19 costs, and favorable FX movement. Selling, general, and administrative costs for the fiscal year increased by 294 million or 66% to 739 million from 445 million last year. SG&A as a percent of net sales increased by 810 basis points to 37.3% this year. This increase was primarily driven by higher non-cash stock-based compensation charges of $127 million, increased distribution costs of $47 million associated with higher sales volumes, higher advertising costs of $41 million to drive revenue, and higher research and development costs and other investments to support growth initiatives. excluding the impact of non-cash stock-based compensation charges and other one-time items, adjusted SG&A expense as a percent of net sales increased to 28.3% in 2021 from 27.7% in 2020. Net income declined 94% to $6 million from $89 million in the prior year, The decrease was primarily driven by 131 million of non-cash unit-based compensation charges, largely driven by valuation methodology changes as a result of the IPO. As discussed last quarter, the timing of the realization of some June life net operating losses and R&D tax credits shifted some expected earnings from Q3 to Q4 of this year, while having no impact to the full year earnings figures. Adjusted net income increased 28% to $161 million from $126 million in the prior year, driven by strong top-line growth and gross margin improvement. Adjusted EBITDA increased 35% to $307 million, or 15.5% of net sales, compared to $227 million, or 14.9% of net sales last year. This 60 basis point improvement was primarily driven by top line growth and margin improvement initiatives across the business, partially offset by increased investments to support our key strategic growth priorities in areas like brand advertising, marketing, and research and development. Midcast provided by operating activities decreased to 54 million for the fiscal year ended September 30th, 2021, from 305 million for the fiscal year ended September 30th, 2020, a decrease of 251 million, or 82%. While the company experienced favorable operating results, this was partially offset by the impact of normalizing inventory levels throughout the fiscal year ended September 30th, 2021. Additionally, less favorable impacts from accounts payable balances driven by timing of payments further offset the company's results as compared to the prior year period. Our inventory position remains healthy and ended 2021 up $99 million versus last year to $333 million due to the strong out-of-season demand last year that drove low retail inventories into Q1 of this fiscal year. Inventory turns again hit a record 3.6 turns for Weber, as our focus on supply and demand planning systems and processes and our make-for-use-sell strategy continues to drive working capital improvement for our business. Our ending average net leverage was 2.9 times, with no draw on our revolving credit facilities, in line with our long-term target leverage ratio of three times. I would like to wrap up my prepared remarks by providing guidance for the 2022 fiscal year. Clearly, 2021 was the second consecutive record year for Weber on 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 unique global manufacturing footprint and world-class supply chain organization as we continue to navigate the current challenging operating environment. We anticipate a strong fiscal 2022 with full year net sales growth of between 6% and 8% and adjusted EBITDA of between $325 million and $345 million. As in prior years, we anticipate weighted sales activity in our second and third quarters. On gross margins, I expect first half year-over-year margin contraction that will normalize and improve in the second half. As inbound freight variances currently held on the balance sheet roll to the P&L, the Poland plant favorably impacts cost of goods sold, and we allow late Q1 and early Q2 pricing actions across all markets to favorably impact our year-over-year comps in the second half. I will now turn it back to Chris to close out our prepared remarks. Thanks, Bill. I'd like to close our comments the same way I opened, with a big thank you to our Weber employees around the world. We've accomplished so much in 2021 in the face of continual headwinds, but all of you worked so hard to meet the needs of our retail partners and our loyal end consumers, the Weber fans, across 78 countries globally. Your effort made all the difference, and it shows in our performance as a company. So thank you all. And with that, I'd like to open up the call for questions.