Weber Inc. Class A

Hello and welcome to today's Webber Incorporated second quarter 2022 earnings conference call. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Brian Eichenraub, Vice President of Investor Relations and Treasury. Brian, please go ahead.

Good morning, and thank you for joining us today for our second 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 10Q 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 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 investors.weber.com. and can be found in the company's SEC filings. A 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. Like other companies, we face a challenging operating environment in our fiscal second quarter, but we believe Weber has navigated the volatility well. I'd like to take a moment to reflect on the major global dynamics that have risen to the forefront since our first quarter update back in February. First, supply chain complexities persisted through the quarter, which continued to impact operations. Additionally, rising inflation paired with geopolitical uncertainty drove market turbulence and pressured consumer shopping behaviors globally. We remain highly confident in our leading market position and strategy, but these external factors have changed our outlook for the balance of fiscal year 2022. We will discuss this in detail after reviewing the second quarter results. Before that, I do want to acknowledge the tragedy in Ukraine which erupted shortly after our last earnings call. We have since suspended our commercial operations in Russia, resulting in a $25 million revenue reduction. We have many employees globally with ties to Ukraine, and we are supporting them as best we can. I'm particularly moved by the efforts of our team in Poland, who not only continue to make great progress on operational initiatives at our new plant, but many of whom are hosting refugees in their homes and donating their time and resources to help Ukrainians. It is this type of spirit that makes Weber a special place to work, and I'm proud to be part of this team. Weber has operated through many economic environments over the last 70 years. We've faced every type of cycle, every recession, every inflation surge, every war, and we have navigated them all to achieve consistent and resilient sales growth, marked by a 10% CAGR all the way back to 1980. While we expect current macroeconomic headwinds to continue through 2022, we are confident we will manage this market cycle well, just as we have in the past. And the reason is that Weber is as durable as the products we make. We have the right brand, the right strategy, the right global team, and the right operational footprint to drive the company's long-term success and unlock substantial value creation for shareholders. With that said, I'll turn now to our operational and financial performance for our second quarter. We're pleased with the progress made against strategic initiatives in the quarter to maintain our position as the clear global category leader, to drive large sequential improvements to our gross margin, to further optimize our unique global manufacturing and distribution capabilities, and to continue to deliver the highest quality, most innovative products and best service to our consumers around the world. For the second quarter, net sales were $607 million, which was down 7% versus the prior year period, and down 4%, excluding a negative 3% impact of foreign exchange rates. This sales performance is still markedly above 2020 levels, with Q2 sales from 2020 to 2022 up 46% on a two-year stack basis, or $180 million. And compared to pre-pandemic 2019, our Q2 sales this year are up 35%, and fiscal year-to-date sales were up 37%. We generated $86 million in adjusted EBITDA in a quarter, down from $149 million in the second quarter of 2021. The decline is a result of a year-over-year sale decrease attributable to the challenging supply environment, the significant devaluation of the Euro, and the inflationary cost of goods impact we've been discussing. We're pleased that the pricing actions we took last fall and in Q2, which were fully accepted, are offsetting these challenges and favorably impacting gross margin. This dynamic will continue to improve over the next several quarters. We continue to experience significant cost increases in commodities and inbound freight, with container rates up three to four times versus prior year levels. These increases will continue to produce difficult comps for the rest of fiscal year 2022, but we do believe that inbound freight costs have stabilized, and we don't see additional near-term risk of further increases this fiscal year. As I just mentioned, we addressed inflationary cost pressures through pricing and other tactical initiatives, and we're pleased to report the effectiveness of these actions. Taking price when we did drove gross margin improvement of nearly 12 percentage points above first quarter results. This margin expansion effort will help us achieve improving year-over-year gross margin comps for the rest of fiscal year 2022 and well into fiscal 2023. Bill will provide more context around this strong gross margin improvement. I'll turn now to our operating environment. Since the beginning of March, the industry has seen a significant drop-off in year-over-year point-of-sale data, with sharply reduced shopper traffic both in retail stores and online. This can be partly attributed to unfavorable weather in the early spring months, as well as a return to travel for many families enjoying a spring break. In addition, there is meaningful inflationary pressure on consumer spending behaviors globally, and in some regions, significant consumer distraction related to the Ukraine conflict. The sales data and trends we are monitoring inform our financial outlook for the fiscal year, and based on these evolving macro factors, combined with recent changes to the valuation of the euro, we now expect our net sales to be between $1.65 billion and $1.8 billion. Flowing that update through to the bottom line, we expect adjusted EBITDA to be between $140 million and $180 million. Bill will present a breakdown of the drivers behind these numbers in a moment. Weber's decades of commercial and operational experience across global markets offer deep insights into environments like the one our industry is facing today. And with these external pressures in full view, we have taken decisive actions, which include the following. First, taking pricing action to offset cost headwinds, the most recent of which was announced in early Q2 and took full effect in early Q3. Second, reducing SG&A spend while still amplifying our new product launches to grillers globally. Third, driving two key operational initiatives that will improve our efficiency and gross margin performance well into the future, a global ERP upgrade across all regions and the startup and now expansion of our new Poland manufacturing plant. Fourth and finally, investing for future growth with continual product and technology innovation, including an exciting range of new products teed up for 2023 that build on this year's launches. These initiatives are consistent with our existing strategic growth priorities. As a reminder, these priorities are to introduce disruptive new products, accelerate direct-to-consumer revenue and e-commerce, grow with new retail customers and drive new consumer revenue streams, expand in emerging geographies, and finally to execute value-enhancing operational initiatives. These growth priorities continue to be the foundation of our go-forward strategy and business roadmap. I'd like to highlight the progress we're making in 2022. Earlier this year, we unveiled three new product lines that transform the outdoor cooking experience, designed to fuse the best in smart technology, high-quality materials, superior performance engineering, and craftsmanship. First is the 2022 Genesis Smart Gas Grill Lineup. Second is the all-new Weber Crafted Outdoor Kitchen Collection of grillware accessories. And third is the Stealth Edition of the SmokeFire Smart Wood Pellet Grill Line, which is a Red Dot Product Design Award winner this year. These products are revolutionizing the way Weber owners grill and gather for outdoor meals. The smart technology experience is nearly doubling usage of our Weber Connect platform, which we believe will only further solidify first-party data relationships with our already loyal user base. Creating innovative products not only improves families' cooking experiences, but also drives top and bottom line growth through accelerated purchase frequency and trade-ups, as well as increased frequency and value of accessory purchases in between major grill purchases. The experiences these products deliver are resonating really well with our consumers. Our 2022 innovations are receiving an average 4.8 out of 5 stars from purchasers online, which bolsters our consumer satisfaction scores. As a reminder, our global satisfaction score remains exceptionally high at 91%, with 96% of Weber owners recommending Weber to their friends and family. Additionally, Weber continues to be recognized as the global barbecue leader by grilling enthusiasts, through recent awards stretch across our uniquely diverse range of product segments. These include Best Gas Grill of 2022 by CNET, Best Overall Electric Grill by MarthaStewart.com, Best Charcoal Grill of 2022 by Gear Patrol, and Best Portable Grill by Wired Magazine. We also received Best Grill accolades from a wide range of publications in tech, fashion, and culinary arenas globally. such as Engadget, T3, British and German GQ, the New York Times, Food Network, Epicurious, Yahoo, and many more. Weber was even named the most trusted barbecue grill brand of 2022 by Life Story Research Group based on their evaluation of consumer trust in brands found inside and outside the home. Our brand is as strong as ever. Among global grill brands, Weber engages the largest community of grillers online by more than double. approaching 4 million followers across social channels around the world. Further, our engagement is outpacing the competition on Facebook, Instagram, and Twitter. Our community even extends outside our Weber-owned channels with fans who have started forums across Facebook, Reddit, and other third-party community sites. These organic forums are great Weber communities, with members sharing their passion for grilling with Weber products on a daily basis. Our marketing and influencer teams actively engage with these forums, providing them with access to resources, products, and experts. As I said, we are the global category leader with an immense industry-leading installed base of more than 55 million Weber households worldwide. Building on that base, we are entering new markets and growing brand awareness and household penetration. That's demonstrated by our results in emerging geographies. For the quarter, sales in emerging countries grew 26% over the prior year quarter, and represented 12% of our global sales versus 9% of sales in the second quarter of last year. We see more opportunity and white space in these emerging markets, and we're not taking our foot off the accelerator. Lastly, I wanted to touch on the progress against our value creation strategy. Last fall, we achieved a major milestone in our multi-continent manufacturing strategy as we began producing grills at our new Poland plant. Initially, this facility was designed to manufacture two key product lines for Europe. However, given the outstanding results year-to-date, which have exceeded our throughput and cost savings expectations, we have begun the build-out of an expansion that will nearly double the capacity, expand the number of product lines manufactured there, and enable us to serve other regions outside Europe, including North America, in early 2023. We anticipate the expansion will be completed and fully operational by the fourth quarter of this year and will serve as a key competitive differentiator for us in driving long-term value for Weber shareholders. I'll say it again, Weber is as durable as the product we make. The challenges we are seeing are trying, but they're temporary. We are highly confident in our strategy and our ability to not only mitigate our exposure in this market, but to set ourselves up for continued long-term growth and the clear category of leadership we've consistently demonstrated over the last 70 years. We remain exceptionally well positioned, and uniquely so, with the best brand, the largest geographic and consumer footprint, the only global manufacturing footprint, the best innovation engine, and the best team in the industry. I would like to thank our team members for their continued resilience, passion, and commitment to serving our customers and loyal Weber fans as we continue to focus on delivering value to our shareholders. With that, I'll pass it over to Bill Horton, our Chief Financial Officer, to discuss the second quarter financials and guidance in greater detail.