YETI Holdings, Inc.

Good morning, and welcome to the Yeti Holdings Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode today. Should you need any assistance during the call, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Tom Shaw, Vice President, Investor Relations. Please go ahead, sir.

Good morning, and thanks for joining us to discuss Yeti Holdings' third quarter 2022 results. Before we begin, we'd like to remind you that some of the statements that we make today on this call 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 10Q and the Form 8K filed with the SEC today. 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 this morning's press release, as well as in the supplemental reconciliation, both of which are available in the investor relations section of our website at yeti.com. 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 Mike McMullen, Interim CFO. Following our prepared remarks, we'll open the call for your questions. And now I'd like to turn the call over to Matt. Thanks, Tom, and good morning.

To start the call today, I would like to focus on the excellent execution during the quarter and outline how we are positioned to grow over the important Q4 holiday period. I'll then give some color on each of our four strategic growth priorities that remain central to our continued success in 2022 and beyond. Looking at the third quarter, Yeti posted a 20% sales increase. underscoring the ongoing strength of the brand, as well as the unique power and importance of our omnichannel approach. We saw varied balance sell in and sell through at wholesale, inclusive of some earlier than planned shipments to support inventory at retail ahead of the holidays. Our direct consumer business was highlighted by strong customer retention and acquisition across our DTC channel. And we saw excellent international contribution from what is still a relatively young part of our business. As we look forward, our current view of the second half and full year revenue remains consistent and intact from our prior outlook. As seen throughout the year, gross and operating margins remain strong, even with significant headwinds partially offset by ongoing expense discipline. Importantly, we are increasingly optimistic on gross margin tailwinds building in 2023. We expect this will help support margin expansion and investment in future growth. As Mike will cover, we made good progress on the inventory management front as we balance order flow against lowering transit times to drive working capital efficiency going into next year. As we head into the final stretch of the year and plan for the holiday season, we recognize a heightened level of uncertainty persists across the market. As consumers make purchase decisions in this environment, we will continue doing what we do best, stoking the brand and delivering product innovation. Our goal remains focused on winning this season's gifting occasions. We have a great lineup of product and brand activities we're deploying towards these efforts. The innovation foundation for the quarter has already been laid, capping one of our most expansive innovation years for Yeti. Included are the completion of our full channel rollout of our two flagship soft coolers, extensions of the successful Camino Tote, our two newest wheeled coolers, the recent debut of our new straw lid Rambler drinkware, and this week's introduction of Yeti's first lightweight bottle, Yonder. We will show these products through our unique and diverse marketing channels to engage both new and existing customers throughout the quarter and into 2023. This includes expanding the reach of our brand through our fall Yeti Dispatch Magalog, dropping in homes next week, special finds in our seasonal gear garage during Black Friday week, and activating our holiday brand campaign, Use Your Gifts. Our overarching holiday message underscores the value, versatility, and desirability of Yeti products. Now to our strategic growth priorities. Continuing to expand our brand and audiences while also connecting with our customers remains central to our growth agenda. We are focused on cultivating deep engagement opportunities across our existing customer base as we see untapped opportunity for the discovery of our product assortment and our customization capabilities. These efforts are magnified when we target newer consumer communities as we establish awareness and consideration. This has been the essence of our breadth and depth strategy, which we brought to life in distinctly Yeti ways during the third quarter. Starting with our social media, we expanded our popular packed social series of how-to videos that inform and educate customers on the functionality of our products. The campaign spotlights the broad range of our offering, including our Camino totes, our roadie hard coolers, and our Crossroads duffels, and provides tangible examples of their versatility for a variety of activities and adventures. The brand also showed up big in college football at the matchup between the Alabama Crimson Tide and the Texas Longhorns, showing another great example of how Yeti can seamlessly integrate brand and product in a real way. This effort was anchored by our new roadie wheeled coolers, positioned as the perfect tailgate companion. We invited one of our ambassadors, Matt Pittman, the founder of Meat Church, to smoke a mix of Texas and Alabama barbecue to share with fans and the college game day crew. Finally, we spotlighted our collegiate customization business to drive engagement across our digital channels. Perhaps most importantly, and in a return to normal, this campaign showed the ongoing power of Yeti products as we continue gathering with our friends and family at events that were disrupted throughout the pandemic. I want to highlight what an incredible quarter it was for some of our newer Yeti ambassadors. Australian surfer Stephanie Gilmore won her eighth WSL world title in Southern California. She stands alone as the most decorated female athlete in professional surfing. Another Aussie, Tia Claire Toomey, won her sixth consecutive world's fittest woman title at the CrossFit Games in Wisconsin, becoming the first person to claim that many titles. Finally, We were thrilled to add Nora Vasconcellos as Yeti's first female skate ambassador. I want to recognize our Major League Soccer partner, Austin FC, who in their second season made the MLS Western Conference Finals. As the official jersey sponsor of Austin FC, Yeti received exposure on national broadcasts on ESPN and ABC over three consecutive weekends, culminating in the Western Conference Finals on October 30th. As we continue to broaden our 13 passion-based active communities, we will foster deep and broad relationships, which is the unique power behind how we build and expand this brand. On the product side, our third quarter results are highlighted by innovation, strong inventory flow, and demand dynamics across our cooler business, driving the overall C&E category up 25% for the period. Our end stocks continue to improve across our core Tundra hard coolers, which were particularly depleted in the wholesale channel last year. Our latest soft coolers, the M30 Tote and the M20 Backpack, continue to resonate with customers and have just recently become fully assorted in the wholesale channel. The new Rody 48 and 60 wheeled hard coolers have captured strong early reviews from both the trade and consumer. Full distribution is still ramping. All in all, we are in the best product position since before the pandemic, with a deep assortment of both existing and new innovation. We believe this well positions the brand to not only capture holiday demand, but to also drive growth and expansion into 2023. Our limited expansion of Yeti bags and wholesale continued in the quarter, as we've debuted our product across nearly 100 doors since the summer. Early results are positive, and we will continue to look at strategically increasing doors for the balance of the year, with additional opportunities building into 2023. Our drinkware business grew 17% during the quarter, with strong trends continuing across our bottles business and our travel mugs. Our new innovation builds upon this momentum, starting with the new Rambler 25-ounce and 35-ounce straw lid mugs that were launched in DTC in late October. And just this week, Yeti added a new non-insulated product to our drinkware business with the debut of our first lighter weight yonder bottle. Over the years, we have received feedback from our ambassadors and customers that weight can matter more than thermal performance when exploring deep in the wild. We have worked hard to develop a line of drinkware that would be both lighter than our core offerings while retaining Yeti's superior durability and performance qualities to truly disrupt the marketplace. Ultimately, the team delivered a highly durable product punctuated with a great carry and drinking experience. Launched in two sizes and four colors, Yondra creates an additional way for Yeti to be part of daily life. And as we move into 2023, customers will be able to customize their bottles with full color printing options available on Yeti.com. Our channel strategy is designed to effectively match the customer with a great experience when and where they choose to find our brand. That's the objective of a true omnichannel approach, and we're seeing this dynamic play out now more than ever. As expected, as we rebalanced inventory across our channels, wholesale growth outpaced DTC growth for the second straight quarter and drove our first $200 million quarter for the channel. We saw excellent sell-through trends during the period, supported by much healthier in-stock positions relative to last year. As we have seen historically, our brand performs best in this channel when we are in stock and our product is merchandised well. We continue to work closely with our key wholesale partners to optimize delivery and the customer experience. During our Q2 call, we indicated that growth in our DTC channel would be driven by a strong recovery in our Amazon business. Amazon faced a similarly limited inventory position as wholesale last year. We also saw strong ongoing momentum within corporate sales and Yeti-owned stores. As we think about measuring the reach of DTC, we are increasingly looking at total acquisition and retention trends across the direct consumer channel. A holistic look across our e-commerce, Amazon, and Yeti-owned stores showed healthy acquisition growth compared to last year. This dynamic is consistent with the rebalancing of demand we are seeing across our omni-channel, leading to 20% overall top-line growth. We remain pleased with the level of retention we are seeing across DTC, particularly Yeti.com, as well as the underlying quality of those transactions. As we head into 2023 with a more normalized inventory position, we are taking a fresh look at the roles and scope of each part of our omnichannel to ensure that we are amplifying and differentiating to drive accelerated growth for the long term. Looking at a few of the details across DTC, Amazon's recovery was demand-driven and anticipated given the inventory normalization following last year's Yeti inventory allocation decisions. We will continue to balance a strengthened Fulfilled by Amazon position and supplement with Fulfilled by Merchant to help drive improved year-over-year execution throughout the holidays. Strong demand in corporate sales continues as the brand resonates across a wide range of accounts, including B2B, collegiate, and hospitality. Increased customization capacity should help service demand over the holidays and into 2023. Yeti-owned stores continue to drive a pinnacle Yeti experience with a heightened focus on localization, merchandising, and service. We opened our 12th location in Southlake, Texas earlier this quarter and will add one additional destination later this month, located just south of Los Angeles in El Segundo. We continue to expect an accelerated pace of Yeti store openings starting in 2023, as these become increasingly valued for brand exposure, product consideration, and purchase. Taking the Yeti story globally remains one of our biggest opportunities, and we continue to make excellent progress in the third quarter, despite unabated tensions in the global, political, and economic environment. Our international sales grew 60%, representing our highest quarterly growth in the past year, and realized a Yeti high 13% sales mix. Growth was once again well-balanced across our three primary regions. Performance in Canada echoed many of the channel trends experienced in the U.S. with strong wholesale performance coupled with robust DTC growth despite relatively softer e-commerce trends. We continue to make progress with several key wholesale accounts while also investing in merchandising initiatives as in-stocks improve. On the DTC side, growth was supported by the launch of Fulfilled by Merchant on Amazon to drive greater depth and breadth of assortment to local customers. Australia's performance remains outstanding, continuing to exceed expectations with balanced strength across channels. Our local Father's Day campaign was particularly successful, building up to the early September holiday, including our largest online day to date for the country. In addition, we launched updated versions of our e-commerce sites in both Australia and New Zealand. As we look at Europe, I was fortunate to spend some time in several markets in the UK and Europe during the quarter. seeing and hearing firsthand how the brand is making a strong impression with customers across their active lifestyle pursuits. While we're being mindful of the clear pressures across the region, we are delivering on our near-term financial expectations with the actions needed to build a lasting brand foundation. This effort included very successful consumer-focused participation and brand building in our most extensive series of local events to date across the UK. Additionally, we continue to add select wholesale doors across the UK and European region, surpassing 800 total locations during the period, with nearly half of this year's openings in our focus markets of the UK and Germany. We have a tremendous opportunity to build a sizable business across Europe, and we'll continue to utilize and localize our playbook to drive the brand in future global locations. Finally, I want to express my thanks to our recently departed CFO, Paul Carboni, Paul is an incredible partner of mine, helping bring this company public and navigate many dynamic environments the past four years. I'm excited for him as he returns to Boston and is able to spend more time with his family. As we continue our active search for our next CFO, we are incredibly fortunate to have a seasoned, capable, and strong leader in Mike McMullen as interim CFO. Mike has been a key partner to me leading our finance team for nearly seven years, and I'm excited to have him step into the role. In closing, It's important to take a step back and a press upon where we stand today. Growing top line 20% in Q3 and 19% year to date in this environment is a testament to both the hard work and execution of our team and the unwavering passion for the brand from our customers. Consumers are still discovering the breadth and depth of our product lineup. They're giving us permission to bring more high quality offerings to market to meet their needs. And they're waiting for our brand to reach them across global channels. Profitability remains strong, but has been challenged this year by market-driven headwinds. But we do see many of these turning to tailwinds as we move towards 2023. As we work through the near-term noise, our focus on driving strong top line and strong margins while investing in growth to build upon our momentum. And finally, we are resolute in maintaining a healthy balance sheet, which we see as an asset that creates flexibility. and one that strengthens as we work down the inventory pressures driven by supply chain costs. As we think through the working capital opportunity in the near term, we believe the business is set up once again for strong cash flow in 2023. And with that, I will now pass the call over to Mike.