YETI Holdings, Inc.

Greetings and welcome to the Yeti Holdings Fourth Corner 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tom Shaw, Vice President of Investor Relations.

Good morning, everyone, and thanks for joining us to discuss Yeti Holdings' fourth quarter and full year 2020 results. Before we begin, we'd like to remind you that some of the statements that we make today on this call, including those statements related to the impact of the COVID-19 pandemic on our business, may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recently filed Form 10-Q and the Form 8-K filed with the SEC today, along with the associated press release. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events, or otherwise, except as required by law. During our call today, we'll be discussing certain non-GAAP measures pertaining to completed fiscal periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release issued this morning, as well as in the supplemental reconciliation, both of which are available in the investor relations section of the Yeti website. We use non-GAAP measures as the lead in some of our financial discussions, as we believe they more accurately represent the true operational performance and underlying results of our business. Today's call will be led by Matt Reintjes, President and CEO, and Paul Carboni, CFO. Following our prepared remarks, we'll open the call for your questions. And with that, I'll turn the call over to Matt.

Thanks, Tom, and good morning, everyone. 2020 was an incredible year for Yeti, punctuated by a very strong fourth quarter. As we look back at our original 2020 full-year outlook, we exceeded the high end of our net sales forecast and the high end of our adjusted EPS. We're proud of this performance and execution given the constant series of challenges we successfully addressed throughout 2020. I would be remiss to not take a moment to acknowledge the passion and dedication of our team at Yeti, plus the amazing support of our partners and customers throughout the year. At the same time, our hearts continue to go out to those within our communities that are suffering through the hardships of the ongoing social, economic, and pandemic challenges. Before getting into the details of our results and our strategic priorities, I want to highlight two themes we believe are central not only to our success in 2020, but also how we will continue to resonate with customers over the long term. This starts with our brand's innate ability to connect with customers in meaningful ways. For years, we've been part of the shift to a more active lifestyle and a greater appreciation for outdoor activities and recreation. The pandemic furthered these behaviors, including a well-documented increase in vacations closer to home. As a brand that lives to deliver performance, durability, and versatility across all of our products, we are positioned well at the intersection of these trends. As the world changed dramatically during the pandemic, many of the observed consumer shifts I outlined gained further traction, supporting the tremendous results we are sharing here today and building upon our legacy of growth. However, A world of distancing also meant that many other activities with high Yeti relevance were curtailed or eliminated. Many events and gatherings, including weekend tailgating, backyard barbecues, standing on the sidelines at sporting events, or something as simple as a hot drink for a morning commute were disrupted. Moving forward, we expect the traction of outdoor and active pursuits to endure. At the same time, our brand is uniquely positioned as people begin to return to certain elements of work life, social gathering, and travel for their fields. Over the past five years, we have adapted our business to drive impact in a rapidly evolving digital consumer environment. Supported by our breadth and depth marketing strategy, which has been a consistent hallmark of our brand engagement and awareness push, we believe has been a true differentiator for Yeti. As we have previously communicated, we evolved to even stronger digital engagement and reach in 2020. The success of this transition, as well as other lessons from the pandemic, have helped inform and prioritize how we will invest across our strategic priorities. Most notably, you will see an added focus this year in digital brand and product storytelling, product development, data analytics, e-commerce, and our international infrastructure. We believe this focus will help Yeti build upon its leadership position in the market and ultimately capitalize on our global potential. Now turning to our results. Unwavering customer demand and incredible execution by our team resulted in fourth quarter net sales growth of 26% and delivered full year growth of 19%. B2C continued to lead the way, growing 46% for the quarter and 50% for the full year. Wholesale posted a 6% increase for the fourth quarter, and despite the massive channel disruptions throughout the year, ended the full year down only slightly. Product strength was balanced between coolers and equipment and drinkware for the quarter, with both posting approximately 20% growth for the full year. Finally, our international business, which remained at a Yeti high 7% for the second straight quarter, delivered 81% growth and ended the year at 6% mix, exhibiting growing demand and even in the face of large-scale disruption to retail partners outside of the US. Equally as strong as the top line, our adjusted operating margin expanded 440 basis points in the quarter, highlighted by gross margins approaching 60%. Similarly, full-year adjusted operating margin expanded nearly 500 basis points to reach 20.5%. These results yielded adjusted EPS growth of 70% for the quarter and 76% for the year, while also supporting the voluntary debt paydown of $100 million during the fourth quarter, resulting in our year-end cash balance of $253 million, a strong and consistent performance top to bottom. Now shifting over to our strategic growth priorities, which have remained consistent since our IPO in 2018 and will continue to guide our focus in our investment in 2021. First, our fourth quarter brand and product storytelling efforts were perhaps our strongest, most consistent, and most integrated, culminating in Yeti as a holiday must-have. Supporting these year-end efforts, in November, we broadened distribution of our Yeti Dispatch Magalog to over 1.8 million homes, while also extending those stories digitally to expand reach and duration of the impact. As an example, we developed ambassador content that was featured in our Wild Thanksgiving digital campaign, which was also highlighted in a print copy of the Dispatch. We also reinforce the overall Yeti brand through focused strategic television placement in key sports and entertainment slots in Q4, alternating between a product showcase and a Yeti brand spot. Throughout the quarter, we continue to look for ways to impact our community. We supported incredible organizations such as Captains for Clean Water, Black Outside, Billion Oyster Project, Heroes and Horses, Conservation Alliance, The Nature Conservancy, The Lee Initiative, Southern Smoke, Outreach Alliance, and Memphis Rocks. In November, the limited edition Veterans Day Tumblr we introduced to benefit Folds of Honor and Lieutenant Colonel Dan Rooney's mission of educational scholarships for families of fallen and disabled service members quickly sold out and raised $50,000 for this worthy cause. As we shift to 2021, we have three areas of focus for our brand. First, we will continue to build our breadth and depth strategy for both the digital and offline world, primarily created by our very talented in-house team. This is a key pillar of consumer engagement and acquisition with us alternating between brand and product stories. Music is a great example of a reach platform where we are focused on expanding our audience and driving a unique Yeti form of engagement. For example, we continued our work with highly talented artists to create curated Spotify playlists, including the Beastie Boys, Leon Bridges, and most recently, the Foo Fighters. Expect additional impactful initiatives here in music and our other communities as we move throughout the year and bring expansive and creative reasons to connect with Yeti. Another focus will be to continue leveraging the depth of our existing U.S. market efforts while also establishing our international roots. This includes the inaugural season of Major League Soccer's Austin FC with Yeti as their jersey sponsor, as well as supporting our partners such as USA Climbing and surfer John John Florence at what we hope will be the Tokyo Olympics this summer. It will also mean expanding our global roster of ambassadors and partnerships, digital brand building, and developing international-focused content and stories. Finally, we have a thoughtful approach to sustainability in Yeti. This begins with acknowledging what we are already doing, driving a strategy that is impactful, and communicating appropriately across our channels and products. More to come on this journey, but to be clear, we expect ESG to continue to be an integral part of the Yeti business, brand, and our overall story of durability. On the innovation side, we saw broad-based strength from both new products launched in 2020 as well as our legacy products. Our successful fourth quarter was led by sustained demand for coolers, even as inventory remained challenged across our channels due to COVID-related supply disruption. Growth in drinkware was excellent as receptivity to our expanded culture line, continued interest in our bottle offering, and ongoing vitality across our both new and existing tumblers continued. Importantly, we also earned product recognition and validation across a wide range of media. Men's Health highlighted the Rode 24 Hard Cooler as the best cooler in its 2020 Outdoor Awards. Gray's Sporting Journal honored the Loadout Go Box in its Best Accessories list. And Time Magazine selected the Yeti V-Series Cooler as one of the 100 Best Inventions of 2020. These accolades not only recognize our latest innovations, but also support continued healthy consumer discovery across our portfolio. One way we extended product vitality in existing Yeti products was by highlighting favorite heritage picks through our Q4 Gear Garage Finds campaign that featured limited quantities of discontinued items or colors. In new offerings, we added the popular ice pink color to the 10 ounce tumbler and introduced our second Yeti Presents coffee table book with wild sheep. As part of our new sponsorship of Austin FC, we also offered their official club jersey on our website. Combined with the aforementioned brand and product initiatives, there was no shortage of energy around the Yeti innovation during the quarter. As we continue into 2021, our product lineup will showcase investment in product, continued expansion through color and line extensions, elevated go-to-market product storytelling, and category expansion. This holistic approach will support the vitality of demand we expect this year. Let me give you a few details. We are standardizing our innovative MagSlider lid solution across our drinkware lineup. This includes both replacing standard lids that historically came with a product such as our lowball, and also adding lids that were sold separately for a product, for example, the wine tumbler. We're also in the process of transitioning many of our lids to utilize a new material containing 50% post-consumer recycled content. While adding to our product costs, we believe these types of actions make an impact continue to deliver value to our customers, and sustain our premium positioning. We will also debut three new colors, aquifer, prickly pear, and granite. In drinkware, we will also add line extensions that reflect the customer demand for larger capacity single-person drinkware. And next week, we will launch a new collection of bags consisting of backpacks, duffel bags, and wheeled luggage. Originally planned for the second half of 2020, We postpone the introduction and believe now is a more optimal time to introduce our Crossroads collection to the market, given the continued focus on short excursion road tripping and the expectation of buildup to traditional travel and daily commutes. Each piece in the collection has been constructed with durability, performance, and design in mind. From our material choices to accessibility, storage, and comfort, the collection is perfect for weekend travel or adventures far from home. Leveraging our prior learnings in this category, we see a tremendous opportunity to offer a collection position at the center of premium, outdoor ready, and daily use. We are launching B2C only as we build into the product family, build awareness, and ramp our supply chain through 2021. Shifting to our omni-channel strategy, 2020 was a strong year for our direct-to-consumer business, with a record 53% mix for the full year. continuing the shift from less than 10% DTC only five years ago. This underscores the focus and importance we have discussed of meeting customers where they want to shop. Yeti.com showed outstanding growth, extremely strong, consistent price integrity, and execution in the face of holiday small parcel capacity challenges. Our team did a phenomenal job focusing on end-to-end service this year, including our work to position inventory, balance our distribution center productivity, and secure carrier capacity. Our corporate sales business also had a great quarter. Throughout the pandemic, we've seen Yeti remain a go-to choice for employee engagement, corporate rewards, and brand partnerships. At the same time, we continue to succeed in our targeted efforts to engage corporations through our outbound focused on sustainability messaging. At wholesale, even with a challenging inventory position, our wholesale partners did a phenomenal job addressing customer demand as we worked to replenish supply. Entering 2021, we have visibility into restock needs and the expected replenishment cycle across accounts as we move throughout the year. We remain encouraged as our wholesale partners continue to evolve their own models, leveraging digital to drive increasing relevance with customers while brick and mortar rebuilds traffic. Going forward, we will continue to invest to build broad channel strengths. At Yeti.com, this includes recent hires to drive expertise and discipline across digital and analytics, further developing our consumer data platform, investing in our enhanced e-commerce shopping experience, and continuing to drive seamless customization. In corporate sales, we will prioritize executing against a strong order pipeline and optimizing our service structure to be even more productive at our sales efforts. At Yeti.com, We remain focused on implementing strong operations across our young fleet of eight stores while evaluating very select openings in the back half of the year. Finally, on wholesale, our clear focus will be on thoughtfully getting inventory repositioned, fully rebuilding Yeti merchandising on the floor, and working with our partners on the success of their overall omnichannel efforts. On the international side of the business, we continue to build upon momentum of our international sales with mixed growing from just 2% in 2018 to 6% for 2020. As the largest driver of our international business today, Canada showed strong growth despite significant lockdowns and restrictions that impacted the local wholesale market. Our Canadian B2C business grew triple digits as we built awareness and executed on strong demand. Across the rest of our markets, Australia continues to raise our expectations with triple digit overall growth in the quarter. In Europe and the UK, we continue to see receptivity build with stronger than planned D2C offsetting the impact of our disrupted wholesale rollout this year given the pandemic. We're putting additional capital and resources behind our international efforts in 2021 as we look to extend D2C and targeted wholesale strategies across each region. In Canada, our focus will be on demand creation and inventory resets. In addition, we are putting a heavier focus on D2C execution and are excited about the prospects of our National Hockey League Licensed Wrinkler launch. In Australia, we are adding resources to drive additional brand awareness and make a push deeper into the large urban markets. In Europe and the UK, we're developing new local language e-commerce sites and accelerating our wholesale push beyond the approximately 125 doors at the end of 2020. In Asia, we are focused on unlocking growth in Japan from the limited wholesale reach we have today, while also setting the infrastructure to support additional Asian markets. Holistically, we believe that international remains a massive opportunity for the brand, and we are more formally aligning our organization to drive our potential here. As I hand the call over to Paul to review our detailed results and outlook, I want to again thank our Yeti team for the incredible work, resilience, and dedication that made 2020 the success that it was. Moving forward, we will undoubtedly need to address unknowns that will have varying degrees of impact on the economy, consumers, and those associated in some way with our brand. What is never in doubt is that we take any challenge as a chance to get better and strengthen our business. We remain incredibly optimistic about the opportunity for 2021 and the long-term sustainable growth opportunity of Yeti. Thanks again, and now I'll turn it over to Paul.