Weber Inc. Class A

Good morning and welcome to today's WebAIR Inc. first quarter 2022 earnings conference call. My name is Gemma and I'll be the operator for today. If you'd like to ask a question for the Q&A session, please press star followed by one and a telephone keypad. And if you change your mind, it's star followed by two. I'll now hand over to the team. Please begin.

Good morning and thank you for joining us today for our first quarter fiscal 2022 earnings call. I'm joined this morning by Chris Scherzinger, 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 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 information. 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 investors.weber.com and can be found in the company's SEC filings. The recording of today's webcast 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.

Thank you, Brian, and good morning, everyone. This morning, I'll touch on three major themes from our first quarter. First is our solid sales performance, generally on track to our broader objectives leading into the 2022 season, particularly in the face of acute logistics and supply chain challenges in the quarter. Second is our progress in proactively navigating these inflationary and disruptive market dynamics with a leadership mentality. And third is strong momentum and progress on our five key growth strategies, particularly the exciting new product innovations recently announced for the 2022 season. First, let me talk about Q1 performance. The Weber team worked tirelessly to meet the needs of our customers amid continued strong demand for our products. We generated net sales of $283 million, a decrease of 8% from the prior year period, but on a two-year stack basis, up 74.6%. Recall that the first fiscal quarter last year, which was the fourth calendar quarter of 2020, we saw unprecedented retailer restocking of depleted inventory coming out of the first COVID summer when shelves were bare. This year's Q1 results show strong, sustaining demand in the face of healthier retailer inventories and represent a two-year compounded annual growth rate of about 30%. As you know, Weber is a seasonal business, and our first quarter historically has been a low-volume off-season quarter. we do believe we're now seeing a return to normal outdoor cooking seasonality patterns and retailer order timing, with fiscal Q2 and Q3 being our peak sales quarters. Like many organizations, our results were negatively impacted by the generational inflation headwind, including raw material commodity costs, extreme inbound freight cost increases, and unfavorable foreign exchange movements. These pressures impacted first quarter margins, and led to an adjusted EBITDA loss of $36 million. Since we last spoke to you, the operating environment has become more challenging and costly for our entire industry, and we believe these challenges will persist through the remainder of the year. Bill will cover this in greater detail shortly, as well as the positive financial impact of the significant proactive actions we're taking to mitigate the drag on near-term financial results, while also maintaining investment for future growth. Second, I'd like to talk about how we're navigating this very challenging operating environment. As I shared with you last quarter, we are intently focused on managing today's costs and logistics challenges with agility and a leadership mindset. And I'm confident that when conditions eventually normalize, which they will, that Weber will come out stronger than ever. We have the strongest brand in the industry. We have a uniquely diversified global manufacturing footprint, and we have a world-class team bringing leadership, innovation, and value to our consumers worldwide. Current container cost inflation, even at 10 times historic rates, cannot and will not derail our long-term growth vision and success. That said, in this moment, we are taking significant actions to combat the inflationary pressures. First, we're driving numerous activities in our manufacturing, sourcing, and transportation operations to manage costs down, including shifting manufacturing for certain product lines to different sites in our network, driving mid-season supplier negotiations and cross-improvement initiatives, shifting transportation tactics at both the volume and mix level, and implementing commodity and currency financial management instruments. We also just recently introduced a second 2022 price increase in most key markets in order to address the even higher inflationary cost pressures than we saw six months ago when we took the first 2022 increase. We expect to see the impact of these combined pricing actions across the second and third quarters. Whoever is a premium brand that does have pricing power in the marketplace on a global basis, that this still requires great partnership with our retail customers to execute given the difficult timing relative to the season. We are committed to delivering maximum value to our consumers and to building our business and our retail partners business collaboratively. In addition to cost reductions in pricing, We're also aggressively pulling back SG&A expenses in areas that do not impact our demand generation for future growth levers. Combined, these three action plans will produce substantial offsets to the unprecedented inflation that 2022 is throwing at us. That brings me to my third and final topic today before I toss it to Bill, which is the exciting progress we're making on the five key growth strategies for Weber, many of which are set to take great leaps forward in the 2022 season. At the risk of being redundant, long-term thinking has always been one of Weber's most defining characteristics, and it's one of the key reasons we've succeeded consistently over the past 70 years in good economic cycles and bad. So in the face of today's challenges, it's in our DNA to keep an eye on the future and deliver the strategies and initiatives that will create shareholder value for many years to come. You've heard about these five key strategies from me in all of our communications to date. So today, let me focus on how they're coming to life in this moment to drive 2022 growth for Weber. First is introducing market-disruptive new products. In January, we announced our new products for the 2022 season, really breakthrough products that reimagine outdoor cooking and the experience for consumers. Our all-new 2022 Genesis line, including smart Genesis gas grills with Weber Connect built in, the new Stealth Edition of our SmokeFire smart wood pellet grill, Weber crafted a new outdoor kitchen collection of attachments and grillware accessories that unlock new food discoveries and cooking methods on your patio to transform your Weber grill into a full-blown, multifaceted outdoor kitchen. And lastly, a special 70th anniversary new product to be unveiled later this month, a pretty cool retro throwback to celebrate our heritage and our invention of modern grilling back in 1952. We are fired up about these products. And the Genesis innovation on our flagship line, well, it's the most significant gas grilling innovation in 15 years. Here's a quick rundown on the new Genesis. To start, it's just larger. Dramatically larger cook surface area, food prep area, and built-in storage with the largest high heat fear zone in the history of the Genesis. It has a proprietary lighting system called Night Vision that changes grilling after sunset forever. and a proprietary burner design called Pure Blue that delivers best-in-class high heat, even flame, and maximum fuel efficiency. Plus, integrated Weber Connect technology for real-time food monitoring and step-by-step cooking instructions on your grill and on your phone, and the built-in framework to turn that one single Genesis into a flat-top grill, a pizza oven, a rotisserie pit, a stir-fry station, and more with the Weber-crafted line of grillware. Just a few examples of how we're setting a new bar in outdoor cooking and taking our consumers' experiences to new heights. Early consumer response has been extremely strong, piquing the interest of current Weber owners ready to trade up, as well as owners of other lesser grills ready to move to a Weber experience. The second key strategy is to accelerate our direct-to-consumer and e-commerce revenue. Our Weber stores and grill academies internationally And our Weber.com business across all regions showed strong performance in Q1, representing 12% of sales. And we have strong expansion initiatives in place for the 2022 season. We opened seven new Weber stores in the first quarter alone, bringing our total store count to 200 globally. And we're on track to launch substantial Weber.com site upgrades, as well as new social influencer programming in all global markets in Q2. Third is expanding our retail customer base and new consumer revenue streams, We continue to deliver increased Weber presence across retail footprints in all regions globally, building on successes like REI and Best Buy in the US, Canadian Tire in Canada, Costco and Amazon in multiple regions around the world, and many more. We value building strong partnerships with retailers who can bring the Weber brand to life in their footprint. In addition, we have a number of exciting consumer programs going live or being piloted in 2022 to deepen user engagement and drive new recurring revenue streams, such as instructional video classes, drill training events across Australia, as well as warranty and maintenance service programs. Fourth is expanding and deepening our presence in emerging markets. We are seeing great performance from our emerging geographies, where Q1 sales were up 13% versus the prior year quarter. This growth is coming from developing countries in all regions, with our most significant growth in the quarter coming from Mexico, Chile, Italy, Eastern Europe, and China. And speaking of China, although it represents only a small part of our business today, we continue to see exciting investment opportunities building on the upcoming opening of our first Weber store in Shanghai for the 2022 season. Fifth and finally is executing on value-enhancing operational initiatives. While it may seem a paradox to talk about great progress operationally in the face of the current headwinds I discussed earlier, we continue to see great evidence that our multi-continent infrastructure is a productivity engine, however. This is a key competitive differentiator for us and a driver of long-term value. Our new plant in Poland is yielding outstanding results and exceeding throughput and cost expectations. In fact, given our early success there, we're already leaning in to add further capacity at the site. Looking ahead, Both in the face of temporary but trying near-term challenges and with a view to long-term growth and category leadership, Weber remains exceptionally well positioned with the best brand, the largest geographic and consumer footprint, the best innovation engine, the best global operation, and the best team in the industry. I would like to take a moment to thank our team members around the world for their continued resilience, their passion, and their commitment to our consumers in order to deliver maximum value to our shareholders. With that, I'll pass it over to Bill Horton, our Chief Financial Officer, to discuss the first quarter financials and guidance in greater detail. Over to you, Bill.