Solo Brands (DTC) 3 Aug 232023 Q2 Earnings call transcript

Good morning, and welcome to the Solo Brands, Incorporated Second Quarter Fiscal 2023 Financial Results Call. [Operator Instructions] I would now like to turn the conference call over to our host, Bruce Williams. Please go ahead.

Good morning, everyone, and thank you for joining the call to discuss Solo Brands' second quarter results, which we released this morning and can be found on the Investor Relations section of our website at investors.solobrands.com. Today's call will be hosted by Chief Executive Officer, John Merris; and Chief Financial Officer, Somer Webb.

Litigation I call remind within current may of Private started, remarks that the management get XXXX the this of on contain Securities expectations. we want based everyone to management's meaning that Before are Act on Reform forward-looking statements our future differ These include, events and results could regarding and from predictions, performance, those business or estimates, expectations, developments; may financial targets plans materially mentioned. limitation, including without anticipated and objectives, actual

these uncertainties, statements some These that or which cause materially also outside involve are our soon-to-be-filed forward-looking investors.solobrands.com. a actual including the such filings differ these risks, risks discussed available report and will of risks These our quarterly of website for among at We others, be of substantial our in to statements. with review implied uncertainties, by expressed may the discussion our control filings Form portion of on SEC. could and from be and those results XX-Q on Investors and to encourage you

not except undue revise today, statements of these made on no are by place required new reliance forward-looking as These we any information to for statements. update only them undertake obligation or as law. and should You

performance generate adjusted to contain earnings, non-GAAP also evaluating peer measures provide facilitate companies. supplemental results will results of we and comparisons call and This and believe useful period-to-period core ability operating adjusted financial consistency EBITDA with measures, certain EBITDA including and are which of in past the our margin, that our our comparability assist

similarly which note definition included website metrics portion definitions presented other measures in most at to our our from of are Investors titled by indicators may of measures will investors.solobrands.com. non-GAAP GAAP available the and Reconciliation these Please differ measures our to be of our companies. these that earnings release, of these comparable

within basis, adjusted margin, GAAP without the predicted. measure on of to most provide forward-looking unable cannot EBITDA reconciliation GAAP a financial and/or items be impact financial company's because non-GAAP are that We comparable are control directly to reasonably this margin the not unreasonable a efforts net income measure

Now I John. will turn the over to call

for quarter Thank to then by second and strategies. second joining update provide the you, operational begin quarter thank our reviewing an and I results. our performance our will key Bruce, discuss you call on

Somer our will quarter provide second and outlook. review results our

with their sales, backdrop, We and margins work consumer profitability. dedication for and to environment. are to results this team pleased us driving on in our grateful which and better-than-expected focused deliver our hard performance, a produce profitable Against to enabled I'm challenging we

generated expectations in of we For basis to with XX.X%. margin million, the $XXX line XXX our point sales in quarter, and expansion a EBITDA

we on demonstrate return Our for that invested flow. to disciplined approach cash are the results drive capital to a quarter free and strong committed

seeing we strong the were into we momentum During leaned the our quarter, channel. wholesale through

shelf while count. gaining rapidly door space increasing our are We

We and brands enthusiastically have reacted to have the country. built the our relationships with strong of stores consumers across our at retail presentation partners,

back we we channel, spending in wholesale. saw digital used lever strength online our pare the strategically to Within as marketing our

elevating our on positioning partners. sales we retail with As calendar brand our focused model, we aligning omni-channel into and an have grew our

We in level the have use of also pulled flash planned promotions. leading sales back to a of year-over-year, our reduction

a appropriate value the term, we moderation As to longer that led this promotions to during reflect pullback better but, of in channel; is brands. our and quarter advertising our messaging in drive expected, the sales consistent and to direct in believe trends this

continue to that awareness. margins channels, be marketing the refine increasingly managing omni-channel in growth. brand end, We to consistent optimize grow And approach. that will our directing to EBITDA plan an strong disciplined are in investments we with both marketing business To our we given our investments

this create into investing story retail stronger our exposure that better able and broader currently are are a are and partners, tell we know to a through leaning end audience caps, in to a By we and opportunity. to displays, point-of-sale connection shop-in-shops, bundles gaining brands. We we our

Stove created example, SCHEELS that shopping experience our For beautiful Solo we of assortment. showcases in-store in the depth stores, have a

positioning a brands seamless or shopping in customer provides our improved stores experience Our those retail online. retail for at

Solo our addition we customers in-store entire increase presence the of brands. a enhancing do the that number which with significant all of awareness know brands. across opportunity not brand customers In We for of platform to brands opportunities are our creates of our that build our believe part to partners, retail see shop our to that of the family, many

year, of our the to half inserts offer that of brands an and marketing to adding the try our in brand. packaging Beginning another distinct we will be all second display incentive

excited the incredibly for We about this initiative. potential are

we key growing investing to forward, innovation, priorities: building business. remain committed in Moving penetration wholesale and our our our product international

Our success. our innovation unrelenting focus at on heart is of the

push to continues products. boundaries and to team Our avenues create explore new compelling

consumer of the Chubbies innovation, new callouts and with Kayak Oru Oven, of Over pleased Switch; Solo our Everywhere Pizza we've the Fire at and of months, Pi flurry Surround; we with at at Pit a of Pant; our been and have of last our response, Mesa our Stove of notable Lake. XX introduced ISLE

generate continue to from We innovations. recent our responses customer most strong

launches quarter. look the product Looking first of and third about we're the to ahead, for excited the of forward our the planned year half unveiling in several new back

which are ramping our wholesale We a is stages early expansion, the of faster-than-expected at at rate.

look we their line the strategy and this will brands. direct the our our near-term, recognize to relationship top believe channel may a direct our omni-channel in produce with that continue pressuring channel our recognition halo as As shift be grows in our customers that to channel we effect but brand such,

are channel, relationships building wholesale partners. we with the stronger our In

our increase and part additional key the closely product planning with normal of now sales improved will is our mutual to benefits of all we across count, continue to awareness drive retailers, and recognize channels. cycle working We many partners, for of space shelf are placement. door an We retail which the leading in and

growth. still significant our of for small part it and a to overall us. long-term remains relatively we infrastructure a business and building business, investing focused international on Our position opportunity are is Today, for us the

our a marketing methodical taking growth new approach importance to recognizing the and are making markets, choices. measured We disciplined of in

our looking are business to the Similar and business, at holistically agnostic. channel international domestic we are

We which enable Costco we partners, believe are including our building relationships to Europe, recognition will with grow us retail rapidly. brand more

brands call Before like I to to Somer, turn continue Consumers the shop. I'd environment. the in over to choosing they selective current be discuss which

is of Our helping and deliver on in spite product customer this company's innovation focus us environment. experience

Solo clear I our look friends the for better we back through innovation execute and and a continued deliver products, forward lasting to memories, mission momentum their year. refer moments themselves. Brands and pipeline us and to half of to the customers come truly is With around to good continue second our as Life

Somer. for now And

morning, XXXX. Thanks, remainder John, walk you results I everyone. through our second and will quarter of our and then good Today for the outlook provide

our for successful. a has omni-channel the execution strategy profitable execute plan first business. the half of XXXX, is to believe been of balanced, We For our our very year plan through the

that into the brand long-term. pressure strategy deliver and have strong elevating on will brand partners, on leaned our business building enhanced in broadening short-term, price realize could our and retail We reach with in strategic key through confident the this for put it promotion, customer financial relationships marketing. some We we our our remain online results but intentionality through shareholders

our quarter, quarter, the continued continued sales momentum to retailers. the volume with key Reorder throughout wholesale in new in experience strong along product channel. we second During placement

As strength we our in wholesale, we digital reduced saw channel. spend from marketing direct-to-consumer

quarter. the EBITDA We second XX.X% million $XX continued focus revenues in generating to margin and profitable on for and delivered

to million by XX% second increased driven our X.X% by in sales the in our quarter Net compared to wholesale well $XXX decreased for as space existing compared prior to channel, growth demand Wholesale partners sales to shelf Sales $XX.X driven strong prior the in million the million direct-to-consumer net door offset increased which softer were in period. $XXX.X as in were within the business. by $XX.X million year year, count. trends

overall net direct-to-consumer prior compared for million spend. due $XXX.X XX.X% $XX.X the decreased and same reducing our million to less in marketing Our in sales being period second the to the promotional year to quarter

rate Gross XX.X% the XX.X% margin. gross compared to to quarter second decreased Moving margin of XXXX. in to

strong higher carry by which wholesale Our margin. was channel our retailers, our mix gross at impacted margin lower by sales rate a year-over-year, driven

noted as channel each generates contribution we as profitability, agnostic previously margins. are regarding channel similar However,

costs, and administrative to compared the costs. The The as variance expense. offset for and second variable million, last was XX.X% sales year. $XX.X to $X.X net costs to of of Selling, XX.X% lower quarter decline net driven decline expenses $X.X general fixed marketing or by sales decreased higher in of was in $XX.X million million same or period due distribution by variable million, the in partially

per income $X.XX. was million was second Our net net income $XX.X quarter diluted share and

adjusted $XX EPS adjusted our increased Second net diluted EBITDA quarter XXX million Adjusted to points per and basis income and share. margin X.X% XX.X%. to EBITDA $XX.X was increased $X.XX adjusted was million,

the balance At million $XX.X the the cash in period, equivalents. and to sheet. end we turning Now of cash had

June of XX, under term as was availability. under facility of agreement. loan The $XXX outstanding the and million credit revolving revolving the capacity had $XXX in borrowing the we As of credit million borrowings $XX $XX.X leaving million facility million June on XX,

of liquidity were to roughly leverage balance the net than of we X.Xx. a and at our remains X.X are Class able we shares of that the leverage execute quarter, take believe strategic strong million to able million position, share. and buyback $X share we a We opportunities In have with a $XX less health advantage A per sheet

line the million, Inventory was $XXX.X second ago. in end year with at roughly the quarter of a

progress well-positioned management We the continued of are with the into pleased are and of half back inventory year. our our going

outlook. our to Turning

than half channel. excited quarter, and our our front in planned us, a half our momentum about the the are in but in in business about the we for more new the a wholesale products ability deliver are and remain to year of anticipated the near- continued of the in we and of year With lot long-term. fourth significant seeing there optimistic back the portion of of We we second pipeline sales of the half have is

first million. while has outcome in $XXX the likely enabled on strength the of million, EBITDA seeing to profitable revenue the $XXX We demonstrated on continued most As half range us the at our $XXX with focus results, with midpoint along margin. a of driving million on reiterate revenue in range deliver of momentum to growth, wholesale,

EBITDA adjusted XX% we to While our target guidance, XX% year. from raising are we reiterating full to XX.X% to are for XX.X% the revenue

driving creating brands incredible at customers. closing, the and to In innovation our our for highest execute continue levels experiences new

tremendous us. amount incredibly the are in about front of We of excited growth

to We will profitable investing delivering the growth continue to focus shareholders. our for on future strategically while

now the operator Q&A. turn the will I over begin to call to

first Citi. of of the Our comes Instructions] line question Chasen Bender [Operator from

ahead. Your is line now Please open. go

in. slotting to on just me I'd morning. for [ph] like guidance. start Thanks Good the

planning XX% what the I you're off give of were fourth kind just of all, it. I in XQ, can top just about quarter there's of on you of on talking can't us the but Just in remember more it the last the bit evolution guidance, I'm a of through like year? my margin color is the rest It head. about cadence how anything you're And that. how you And you thinking little there? First was of quarter? the if figure quarter. flow looks EBITDA it, revision a else on XX% then, specifically behind the third think can unpack upward And any largely curious

good questions. Absolutely Yes.

previous back if half in our timing retailers. we QX, with quarters out end it roughly year, wholesale, going it's did to in have on the there about some our of goes dynamic in or the with we is I QX. the just the timing QX, stated QX at as that think early XX% depending relationships around XX% mention roughly So be of

-- estimate. it's think again, actually out XX% that's you on the XX% a to going be of ship going good or orders wholesale half, probably a I be good And it's XX%, is based XX% to about holidays. So back those the estimate. timing roughly the think we if in when to But for

this of wholesale. there's in new of we just flexibility as little there landscape dial So bit of kind a

On the right. exactly you're EBITDA margins,

our on of performance kind we the the first of half raised in the based So guidance year.

throttle half. leaving in we We've are it mentioned our that down. leverage, can the is We we back variable and lever can and spend a up throttle flexibility that marketing it

in some. us half first strength back in saw and we it see You the throttled wholesale,

new up which half, throttle probably However, in we expect product second have that do innovation, we'll marketing spend. we the

half, second why benefit that's lean flexibility the and an so of the are our margin from just guidance to advantage and are marketing in the revising go half. that we EBITDA first And into but taking up from spend with standpoint, the ahead we

of have they terms conversations wholesale you I'm so, XXXX Got curious, shelf And just then, shelf if and should to of with picking retailers? they going? color -- the XXXX. space you momentum door expansion, the that Makes your sense. great And that in it. And planning additional you were expecting? how see are end Are there. up have to how are the on evolve kind into cap any started just

We more very overall our happened have conversations others. Certainly, than with signs started right positive. those way in partners. now a are retail But having have and are accelerated some deeper

are We door count, stores in board. the generally in seeing real estate better expansion across

volume particularly But the specific, wholesale it's in Solo expansion, those and when most particular, about more of obviously drive Stove; brands talking just be we're Chubbies which brand. two to Solo inside

far. conversations good So so

specifically. across board healthy really retail momentum two seeing the across with our are brands, partners We those

could more sneak color. give I thinking over a about us last of was shares you priority your And sponsors refresh if on months from appreciate if I capital just and one repurchased given could I key here, you've in. how and from of clearly a hoping the you. allocation of some you're lot stakeholders. Got just then that couple

rest update us into an how thinking that year. the maybe you're the on of just So give about

Yes, absolutely.

of kind cash to of cash believe EBITDA. into it can generate of obviously said, year, we we generation, expected lot free free We've the we of a we kind on XXX% as over this going So that flow. shown be focus flow

We are to use very be that we about strategic disciplined and capital. going how

in the repurchase done we acquisition. with TerraFlame that saw we've You that the did QX,

from at But capital use our look of ability M&A the our that we strategic But two standpoint. shareholders. main things. benefits opportunities an best to our to the continue want We are to those

line revolving end year. And of then, the of our credit down the course, we're going to pay by

So did line, to we our credit M&A but what between paying opportunities, buyback off share debt, the the in and not then revolving term on loan, QX.

it color. pause the there I Got and will Appreciate it. pass on.

line of Thank Instructions] of Robert you. of question Our Ohmes [Operator next Bank from comes the America.

Please Your ahead. now open. line is go

Hi. Robbie. decrease the It's product on more marketing about the mix out bit you shift in talk revenue shift -- DTC decrease it the Can Maddie spend. about was, and this more in called mix Can for a you talk like by what you was? driven Thanks. product little what

Yes.

product Stove, So recall, you at Mesa of end we launched we’ve at QX. was -- the if launched launches when so of Solo one the that big

that, overall shift out orders rolling an year. more revenue are than And some standpoint over so, with mix going as Mesa is were we're of last out the from they going with Bonfire

with the think maybe order retailers. still So in to well, if for about, count in they're as our market strategy but their as some products you Bonfires of us and up, at retailers, introduced and customers, our coming engaging the wholesale wholesale of not us kind we our they're with the products they're this that necessarily goes is into with finding

percentage bigger a become product. our point has just price Mesa so lower of a and mix, And it's

is, DTC question your And you Can in recently the about revenue? profitability look portfolio. other breakdown market to then the talk across a brands? with you it of And next added Got similar have brands portfolio you. the your wholesale as it. you to to does Thank TerraFlame

absolutely. Yes,

it from There's overall some wholesale look business So Target. particularly coming similar an with TerraFlame, standpoint. does through good with mix

that profile to of P&L, looking would see. flow marketplace to really to that margins similar healthy the a out so gross direct-to-consumer From margin business are coming you We perspective, TerraFlame. strong expand expect through otherwise margin down what

amongst growing rest behind It's the has a the think a opportunity it I'll to market of small customer a that remind and one lot our standpoint, of is materiality just compared it's base. Solo -- big particularly strength on Stove everyone call, platform. TerraFlame quite from the we

the to have take really that's Smores into. fire we've the excited as are about talked we we that our "Bring inside, opportunity As Indoors," one lean to

the those that think opportunity market we Right we and very potential that integration focused lot synergies So of brand. finding for and across on a now, there's are market audiences.

we that strength brand. and the think seeing behind As you'll 'XX, specific I TerraFlame brand, at momentum start better look

Great. Thank you.

Thank you.

the Piper Our line Keith comes Sandler. of next question from Peter of

ahead. now line open. is go Please Your

walk profitability. the and and about to margin the drive puts want forward and congrats Good guys wholesale to that I trajectory flowing gross on think the the in thanks. and back only half sticking year, flow continue but gross kind Could takes, morning, on just then margin, potential Hey, are higher. through? freight to of going through and of maybe topic, you us also around not lower how dynamics through improved the the and just the headwind, margin Somer, gross of should Maybe

Yes, for sure, Peter.

a of from shift basis what we less is XX that's headwind gross a basis and mix wholesale channel. about just [indiscernible] direct the basis discipline, kind points pricing freight. XX bought to about say by standpoint, offset year-to-date, from points I'd from then And So the point being of of so XXX kind from then margin promotional, about

the have our to it of benefit started half. through We second come in expected numbers. seeing We at QX in the kind

to in it standpoint, XXX freight. what that more right should But little pretty is our But be points going a now additional in, get expect half. to a XXX tailwind overall kind from half. we mix in wholesale of first overall direct-to-consumer kind an from stays the back are of basis with the consistent we I mix to bit the expecting

back do We we as promotional be -- half past standpoint, our promotions. an on from the are think, in been the year-over-year we we overall have holiday as will about in

stay will pricing probably same. think relatively the we So

have will headwind little or freight. bit shift. the wholesale direct-to-consumer from to -- some And gain will of wholesale the We the from we overall, overall a then mix still to

will work the -- DXC just we I to sales. think that did through model, guess want but that I That’s Okay. the about helpful. in

I impacting, could XX% that's the the little that low some -- in XX%, just product the your of there's on within point I back maybe mix So is the year and from bit down Or worse guess, based get kind of a is know half? DXC the outlook? down the here

Thanks, Peter.

a around the at So you on in look And or blended the X% about I basis XX%. QX, half, basically, it's roughly a so similar. but down just on back X% down year at are if basis, you thinking if had you of in half the the front look we for blended very QX, way XX% down it think,

the in this about talked we've again, past. So

flow ebb quarters being Our quarters a the and X bit and based and tend to business. higher on little and DXC timing being X wholesale, little X bit wholesale, X a with the quarters seasonality higher of just

exactly the if in of how roughly newer on -- quarter-to-quarter the back so DXC. QX It's it. you that's our the think, about sell-in the So you flows because is shift through that was this timing wholesale don't QX XX% again, know it half but for -- talking back some thinking of and look we on we Somer But to the retail partners, to slightly. could blended half roll the are or exactly at a to the of we half down front of that are about year, the how flowing through or anticipating year, we're basis, I

Okay. That's guys. so it. very much Appreciate helpful. Thanks

Thank you.

of Blair. from of comes the Blee question next Our William Phillip line

ahead. line Please Your is open. go now

that outlook about much into your to flow Maybe product the guys thinking break bit international how a through you. expectations? more could for second does half sales Thanks. newness? us. How margins? Thank are And should for you Great. then play How the you down just

Thanks for the Yes. question.

just than so than we to having really markets XX% international, good our first And our still percent it's of excited of are half anticipate we full we are year. as international less don't business, and open. overall year was of back that and new. the year So about Last relatively it's overall see quickly continuing opportunity. there, the XX%, relative still But less for on our changing business, this momentum a

of newness, of a year Somer strength back innovation In lot innovation overall there's definitely this outlook, this, the product but in terms and pipeline. of mentioned the half our and

even half quarter, that really starting products even going of are you'll strength in seeing beginning Black the period. this product look these Those So of to start momentum to and we launch parts and we in QX into continue ahead first rollouts. our the as the innovation of healthy Friday/Cyber have Monday

from the the anticipate does being having and channel, year. the are back and of in that the the within rolling year products the to in strength half by really that the able product back Stove wise exception having year, split into of forecast. a new the have So we brands terms seeing newness lean half our some we lot front with not platform, been to region; of by the even in half it have QX. already of of what we do innovation Those split of Solo the the changes into the But planned wise

all planning So we've year, been that. kind of

mix as rolling the XX% So strength planned in half talked the that we product that's in revenue half back having about the are back innovation year, our of of between the healthy out. we a and QX

shed Okay, some that, Can often may accessories, success great. pretty you with be for multiple And lot do you And then the seen which marketing including where are of for you brands? what inserts customers a see you your strategy you similar then you've how now shopping of crossover with. your to on opportunity light mentioned demand.

think start how can Thank to related you see do this you to So initiative? you. demand quickly some generation

Yes.

we are on of some not will hopeful on quickly, seeing not that counting demand it, flow that We certainly but it. through start dependent

that the is to really timing how see explore the think for will We and do it good this. we brands goes. So go

our has I a around next data like, lot been It's customers us think to saying. for are response what tell. really will better have on early the call, what for you we

inserts signals, end at those have By the we positive much marketing have of in quarter the month, by this right really visibility. but now. end and early the don't some know the better we all scale at packages, have We of very, very will

we feel next that lot learn still to just it call. So there. Don't looking forward want we talking yet like the have preempt to because too on much about a to

you. Thank

the of line next of Canaccord comes Brian Genuity. from McNamara Our question

ahead. go is Please line now Your open.

in I Hi. taking Callinan. question what there This is not for Brian. how to the direct is questions. on is channel, but Thanks it to parse Madison probably out growth answer, a I'm way two this leaned you gave spend EBITDA our if know marketing for or it you up any easiest in the by Like, like margin looks if point you more in more be like EBITDA of the instance, QX margin, XXX into quarter? looks than bps. for consensus

context great. So that any helpful would be for

We didn't much Yes. that as think it just about way, truthfully.

and I think are there of of every certainly marquee do, in just products. what Stove two as wholesale, effort those we of partnerships, spending always recognized we the said, again, we was most we inventory generating room we revenue in brands have marketing spending. positive we especially dollars foundational format, spend were putting that and spend. where to Solo at our we some That leaned a in grow a biggest revenue our momentum lot being in into rollout if of dollar than were a lot operating, we We meaning more Chubbies, is were

you inventory Solo really sales tons lots of these retail that to pit into that of being a were partners try time spend are prudent towards we pits retail to same we not see just it into And create to seeded foundation. strategy Stove, marketing seeding at pushing to our partners. the fire and If think drive it be fire did

DXC. start think, on a awareness. in We pressure brand seeing more the again, you'll lot a long-term, short-term So

that inside marketing are and retailers a getting a lean do there better into familiarity our a new brand will idea season and And with eyeballs know are we We time where brand. our be spend. of then there of more that

year about that flexibility expense. that as marketing to of a of the just us lever the some back we talk variable gives that Somer the alluded half and

the good So be It timing where will will lean wasn't and able in, for think time a it just be come in it. we we'll to QX.

But are and what gauge have it have the approach. would to to if we of half impact do have hard could we could looking a positive been been at into more been, have. and the 'XX or long-term exactly the would think medium we year but So even taking back

with SCHEELS, pilot you. test more product like at, to phase broadly? more out now? are and there Thank the or then, displays great. That’s they Or plans Public right enhanced And Lands secondly, a roll like, Thanks. are those

They with is are great retailers. expanded test. to test phases but test, Public quickly Lands where very and phases, expand. many it's other beyond then of have the these a quickly been are that, conversations beyond rolling example beyond really in starting retailers pilot close of expanding just just is test the SCHEELS to with

display more They've expanded season, for and very it's The this to successful, Chubbies in-store indicated been even has broadly. expanding already us XXXX.

So seeing we between of bit a a mix those. little are

past in we the to feedback Some Again, at rolled now not are doors based expect stores roll momentum XXXX more retailers. in in from still and are out. displays are have have test phase, being there. and good are getting some do we phase momentum right It's test estate we the that real as all on better prominent happening the and once, but more now

you Great. much. I will pass it so on. Thank

Thank you.

hand are conference for John the time, to over to Merris like waiting back there additional questions no at remarks. closing I'd this As

so We the you everybody Great. appreciate call. Thank on much. being

to looking getting into the half here. We year forward back are of really the

are We few the months. in excited upcoming, about innovation to forward you guys and newness and with being look a

today. So thanks for attending

quarter results Incorporated you this Ladies second and joining. call. financial concludes Brands, XXXX Solo fiscal for Thank gentlemen,

your disconnect now may You lines.