Good afternoon, good morning, and thank you for joining On's 2023 Fourth Quarter and Full Year Earnings Conference Call and Webcast. With me today on the call are Executive Co-Chairman and Co-Founder, David Allemann; CFO, and Co-CEO, Martin Hoffmann; and Co-CEO, Marc Maurer. Before we begin, I would briefly remind everyone that today's call will contain forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements reflect our current expectations and beliefs only and are subject to certain risks and uncertainties that could cause actual results to differ materially. Please refer to our 20-F filed with the SEC earlier this morning for a detailed discussion of such risks and uncertainties. We will further reference certain non-IFRS financial measures such as adjusted EBITDA and adjusted EBITDA margin. These measures are not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS. Please refer to today's release for reconciliation to the most comparable IFRS measures. We will begin with David, followed by Martin, leading through today's prepared remarks, after which we are looking forward to opening the call for a Q&A session. With that, I'm very happy to turn over the call to David.

Thank you, Jerrit, and welcome everyone to our fourth quarter and full year 2023 results call. I'm talking to you from Forrli (ph) in Zurich while my partners Marc and Martin are tuning in live from the New York Stock Exchange. I'm excited to tell you that 2023 has been another exceptional year for our brand. Also, very significant revenue growth of 47% to CHF1.79 billion in 2023. This turns into even 55% growth on a constant currency basis and exceeds the expectations that we had for the year. It means that On is capturing market share faster than competitors. I would also like to point out a gross profit margin of 59.6% on our journey to becoming the most premium global sports brand. Today, I would like us to speak about why On is a performance sports brand that appeals to a far wider audience. As you know, the journey of On is deeply rooted in our commitment to innovation, catering first to athletes and runners. In 2023, we witnessed our running products soar to new heights, further solidifying their dominant position in our portfolio. Let me share an example of this success with the Cloudmonster. Launched just two years ago, this running shoe has quickly ascended to be our highest absolute growth franchise in 2023, but we don't pause here. Just two weeks ago, we unveiled the Cloudmonster 2, and in early April, we will launch the innovation-packed Cloudmonster Hyper. This move not only amplifies the momentum in running, but also introduces a range of options for our channel partners, smart-tiering (ph) is in our playbook. I would like to highlight that the success of the Cloudmonster franchise is part of a broader narrative where seven of our franchises now contribute over 5% each to our growing top…

Thank you very much, David, and hello to everyone on the call. We are very excited to be hosting today's call from the New York Stock Exchange. Being here brings back great memories from our listing event in September 2021. It fills us with an immense sense of pride to see what our team has achieved in the first-two years since going public. We observe very strong growth, incredible increase in brand awareness, and significant gains in market share nearly everywhere around the globe. Seeing with our own eyes, the fast-growing share of runners in On product along The Bund in Shanghai. A few weeks ago, or when running through Central Park these past days, but also the increasing diversity and more younger fans wearing our products is extremely rewarding. On our journey towards building the most premium global sportswear brand, 2023 was another exceptional year. David highlighted some of the big achievements we were able to celebrate. All of this is reflected in our very strong financial results. We significantly exceeded our expectations voiced at the beginning of the year and reached CHF1.79 billion in net sales, a 46.6% increase compared to 2022. It's worth reminding that this includes considerable translation impacts from the strength of the Swiss Franc throughout 2023. On a constant currency basis, we are thrilled to say that On grew by over 55%. As the most premium sportswear brand, our focus is on combining strong top-line and bottom-line growth. In 2023, we achieved this outstanding net sales growth, while bringing efficiency and profitability to new heights. We significantly increased our gross profit margin from 56% to 59.6% and our adjusted EBITDA margin from 13.5% to 15.5%. At the same time, we have grown our DTC share from 36.4% to 37.5%, significantly optimized our inventory position…

[Operator Instructions] Your first question comes from the line of Aubrey Tianello from BNP Paribas. Please go ahead.

Hey. Thanks for taking the questions. Wanted to start out with the revenue guide and the guidance for 1Q revenue growth in the context for the full year. Appreciate some of the color you already gave, Martin, on why we should expect an acceleration later. And I know you don't typically guide by channel by quarter, but given the realignment in wholesale that's going on in EMEA, and the year-over-year compares that you referred to, would be great to get a little more color on what the expectation is for wholesale in 1Q, and should we maybe anticipate something similar to the fourth quarter?

This is a bit in a bigger context, and the bigger context is for us, we're very closely focused on sell-out, and we're seeing that demand is much higher than supply and to the channel, which is great, which is where we want to be as a premium brand. And when you look at Q3 and Q4, last year, then you basically saw that Q3 on a Compton currency had roughly 55% growth, and Q4 roughly 20% growth. So on average, this gives roughly 35% selling growth into wholesale. And I think this is a meaningful number to look at. Now, when we look at EMEA, so we are seeing the door closure impact and in Q1, this is specifically high. So we roughly have a 9% overall impact on the EMEA number in Q1 and 13% roughly for wholesale. So this is really -- the door closures being pronounced in this quarter, and then it will level out more around 5% of the wholesale number.

Great. Thanks. And if I could just ask a quick follow-up, I think the mid-term target for On store openings is about 20 to 25 per year. Is that what we should expect to see in 2024, or does it sort of ramp toward that rate later?

Yeah. So, including China, we're looking at roughly 17 to 19 retail locations that we're opening in 2024. But as we're stating every single time, it's very important that we have some flexibility. This is not just about the absolute number, it's about getting the right location and the right size to reach the right consumer. But if you consider roughly 20 stores in 2024, then this is not a bad number.

Got it. Thank you.

Your next question comes from the line of Alex Straton from Morgan Stanley. Please go ahead.

Hi. This is Chad Britnell on for Alex Straton. First, for me on the full year guide, can you just talk a little bit more about some of the assumptions you've made on the DTC and wholesale side as it relates to building to your full year number for 2024?

Yeah. Very happy to take this. So we laid out our plan in the Investor Day, and we said we believe in the multi-channel strategy. So this is E-com, retail and our wholesale partners, and we want to grow in a meaningful way in all the different channels. At the same time, we always said that we expect an increase of our DTC share, and we have proven that again last year and especially in the fourth quarter, and also our communication, now what we are seeing in the first quarter shows the strengths that we have in our direct channel, be it retail, be it E-com. We will continue building our capabilities there. We will significantly invest in our tech capabilities. We just spoke about the retail expansion, and we see that high quality demand coming into the channel. So we have a strong confidence that we will continue seeing an increase in our DTC share. And to the point that Marc just mentioned, that channel will be basically not impacted by the comparisons that we have in wholesale, where we have the impact from the expansion into new doors. But we maintain a high sell-out number and basically a high demand in the channel. So it will be a focus and it will drive sales beyond the guidance that we give for the whole business and yeah, it remains our closest and most premium touch point with the customer.

Great. Thanks. And then just a quick follow-up for me. So, on order book strength in the first half of 2024, your commentary last quarter was a bit more upbeat than peers and it seemed like you were seeing some strong demand signals when you reported 3Q. So just wondering if you're seeing any softening there or potentially adopting a more cautious outlook that's a bit more in line with what we've seen from some of your peers.

I think we have seen really strong demand in the holiday season. We knew already quite a lot at the time when we communicated it last time, it was a very promotional environment. We stayed full price with a high share. This is also reflected in our strong margin. And so we are very happy. And what we really see is, and we mentioned that in the call, our retail partners and our DTC channels have seen a very strong growth. And it's also not a surprise that there is probably some competition that we see in the online channel when it comes to some of our key accounts that are driving a significant holiday business as well, so that's something to factor in. But in the end, for us, it's about reaching the right customer with the right product. And so, if we look at the overall demand that we have seen in the holiday season, this was clearly very, very strong and above the outlook that we have given where we see the growth for the business in the future.

Ladies and gentlemen, as a gentle reminder, please limit yourself to one question. Your next question comes from the line of Jonathan Komp from Baird. Please go ahead.

Yeah. Hi. Thank you. Good morning or good afternoon. I want to follow up on the full year guidance. If I could ask maybe a broader question, just the fact that the constant currency growth of 30% is above the long-term CAGR you outlined. Could you maybe just touch on the factors that give you confidence of projecting above your long-term targets, especially since there is some acceleration in the constant currency growth after the first quarter? And could you just touch on the Olympics, what you're hoping to accomplish and what sort of the moment could represent for the brand? Thank you.

Thank you, Jonathan. That's a long one question, but we're super excited to talk about the Olympics too. I think we're -- so what gives us confidence? One is, we're extremely closely watching sell-out in our key channels. And so wholesale partner, but also retail and our On E-com on what we're seeing in terms of demand going in makes us very positive. And again, I mean, I think we already spoke about it, so we're really where we want to be in terms of being able to limit product supply to exactly the right channels, keeping the brand premium and catering to that demand. Then, the second element that makes us very positive is that how it's reflected in the product. So apparel is growing when we look at future and pre-orders that we have on the book. So, for example, pre-orders in -- for fall winter '24 in apparel are more than doubling and the sell-out that we see how sizing is being -- the new sizing is being adopted by the market, all makes us feel very positive about how the category is growing. And then, we also see that our bread and butter, which is really the core running market, we continue to gain share in run specialty, but also in the DTC channel like Dick's. And I think one element there is maybe you followed the launch of the Cloudmonster 2. And the Cloudmonster 2 very clearly segmented more into the channels that cater to the runner and it's doing extremely well. And it's not really cannibalizing the Cloudmonster 1 a lot. So both products together have grown. And then also we will launch Cloudmonster Hyper. And that one is then the even most elevated product. And so like that, you can basically see how…

Very good. Thank you.

Your next question comes from the line of Jay Sole from UBS. Please go ahead.

Great. Thank you. I have one question, but two parts. First, on the gross margin guide for approximately 60% this year, can you just talk about some of the drivers to get from the 59.6% level of '23 to the 60% for '24? And then just to follow up on the Olympics question, how do you see marketing as a percent of sales developing this year in fiscal '24, given it is an Olympic year and probably a lot of marketing spend around that event? Thank you.

So happy to take the margin question. So we always said that we are running our business at the 60% margin. We are a premium brand, we have premium pricing and we have the power. We have -- we maintain that high share of full price sales. And 2023 was the first year where we were able to show almost the full potential of the gross margin. There were still some headwinds, especially in the beginning of the year. You remember from basically the additional costs that we had from the inventory. But for '24, the key driver will be a higher DTC share. So this is the key underlying factor. We are not planning significant price increases in '24. We have -- we will be increasing prices on some of the updated models. So you have seen this on the Cloudmonster, where the Cloudmonster 2 is at a $10 higher price point than the Cloudmonster 1. But besides that, that there will not be a meaningful pricing round this year. That's something that we are looking then into 2025.

And on marketing spend, I think just considering the Olympics for us would probably be the wrong thing to do. I think what we're trying to do is increase brand awareness and consideration in a meaningful way over time in the key markets. And I think Martin has elaborated on it in the prepared remarks. We feel there's a lot of opportunity to continue to increase brand awareness, especially in already sizable markets like the U.S. So we will use the Olympics to basically tell the Olympic stories through our eyes and the eyes of the athletes, which is very much around kind of competing together versus competing against each other. And as already said, we feel it's a great window to bring product innovation to the market. And so it's more a story that we can use to tell. But in terms of absolute spending, this will continue to be around 12%. And really with a focus on increasing brand awareness across the globe, where we feel we have opportunity is to bring almost a little bit less messages in a more concentrated way to the market. So how do we focus our marketing spend on the biggest cities, on where the money has the biggest impact, and how do we deal with stories that we almost tell over and over again? And so it really lands with the consumer versus our -- spreading ourselves a bit too thin, and that's an area that we're looking at.

Got it. Thank you so much.

Your next question comes from the line of Abbie Zvejnieks from Piper Sandler. Please go ahead.

Great. Thanks for taking my question. Can you just talk about, as you launch new products and category, like, train with the Cloudpulse, some more in lifestyle with Cloudtilt, is there any way that you're segmenting the product differently or any wholesale accounts where you think you can significantly expand into those new categories. And then just kind of as a follow-up, you mentioned wholesale accounts you feel well penetrated in terms of actual doors in North America and Germany, but there's more opportunity outside of that. Can you just give us a little more color on what you mean or examples of that?

I'd be very happy to comment on how we're expanding our product in apparel and in training, and Marc can probably then shed some light on the different wholesale accounts. I mean, one thing is very clear, the apparel category is clearly working. Martin mentioned it. Our growth in DTC last year has been 110%, so that works really well. And so also, if you're looking at now the apparel growth in fall winter '24 pre-orders versus fall winter '23, we see a 126% growth. And that's across the different collections in apparel, and it also includes different price points. So clearly, apparel is working. Now, of course, the Cloudpulse is our footwear piece in the training vertical. But it's also very important to note that, of course, in training, a lot more apparel pieces are sold than footwear, so we have really high hopes to penetrate training. And we already see that, because if you go to a premium gym in the U.S. and across the world, you see how consumers adopt to a large extent also on running shoes and on running apparel and we truly build on that. So that's how apparel, and especially, also the training vertical is working.

And very quickly on wholesale. So last year, you saw roughly 8%. So last year, 2023, 8% net increase. So this includes the new doors, but also the ones that we closed in the wholesale channel. And you can calculate with a similar number for 2024, so roughly 8% net overall.

Thank you.

Your next question comes from the line of Jim Duffy from Stifel. Please go ahead.

Thank you. I wanted to ask about the inventory. Very good progress to tighten inventories exiting the year. Can you speak to the inventory composition by region and how you're projecting inventory into early 2024, maybe the Q1 and mid-year expectations?

Thanks, Jim. So [indiscernible] a big focus for us in 2023 to really manage that inventory down and great work by the team. We are now in a position where we have a good inventory level, but there is still room to optimize. So if you look at the number at the moment, that's about six months of reach. We always said that we see that we should be rather at four months of reach, so there's further optimization going on. But very important is it's still the right inventory. So it has been the right inventory last year, it is still the right inventory, so there's no risk sitting in our inventory, and we will continue our path on increasing ourselves stronger than our inventory position. The picture is the same in all the different regions, so inventory situation is healthy in the different regions. We are in a position to fulfill the demand, but we are also now in a stronger position to hold back if we think that this is in the favor of our long-term durable growth and really an important step into the right direction. I said it a year ago that for us a working capital of around 30% of net sales is something where we have been in the past and where we want to be. And this is where we are now and now we can optimize from that.

Thank you.

Your next question comes from Liv Townsend (ph) from JP Morgan. Please go ahead.

Thanks for taking my question. It's just on the stores, as you've continued to open more, is it possible to talk now about like-for-like trends in stores or maybe sales densities, or just anything that would help us understand a bit more about the store performance and profitability?

Yeah. Thank you. I assume you're talking about our On retail stores, so…

Yes.

I think what -- so the way to think about this is basically almost like kind of different stores that cater to different consumers. So one is, how do we reach in high traffic locations and very broad consumer base. So you can think about Regent Street and Champs-Elysees would definitely be one. Some of the Lafayette store in New York, for example. So how are we bringing large enough footprints to a very high traffic? And then I think we're also trying to cater a more local consumer base. So if you take the Williamsburg and store New York, or the [indiscernible] store and in Paris [indiscernible] are a little bit smaller by size, but that cater very much often to a wrong community. So we do a lot of community runs, a lot of store activations and so on. And for us, it's very important that our stores are able to bring the different verticals, product franchises and communities to life, and that we're able to cater to those. And now when you look at the high-traffic locations, like Regent Street, we are extremely happy how they are performing and they're driving significant revenue. So can invite you all to go to London. I think we've shared some insights in the past, but those locations work really, really well. And what we learned is that we need more space to sell product. I think we're trying to find out what's the right split between being -- bringing amazing experiences to the consumer and just being commercial. And I think this is where we're learning a lot. We've made improvements in, for example, New York store, in the London store, and it's really showing this, especially showing in the apparel share. So the apparel share continues to increase as we're giving more space for apparel and as we're giving more space for visual merchandising. And then, I think the second thing that we're learning is that many of our stores are too small. So we started relatively small, almost like we're guiding and trying to kind of overachieve a little bit the initial ideas that we had, and so I think we learned a lot through that. And it allows us now to upscale the store footprint and bring bigger stores to the market and that's the biggest focus in China. So it's not only about adding new stores, it's also very much about taking existing locations and bringing more square footage and square meters to the consumer. And I think this is -- so when you look at the future, don't only look at the amount of stores, also look at square meters that we can bring to the consumer, and in the end, the profitability that we can drive out of it.

Thank you. And if I could just ask a very quick second question, just on the guidance on EBIT -- on adjusted EBITDA. What kind of FX impact are you expecting to see at the adjusted EBITDA level, given the mismatch in FX on OpEx, would we be right to assume that there's a slightly larger FX pressure on the guidance for adjusted EBITDA versus the sales? Thanks.

Well, the impact of FX on our EBITDA margin is very small, so you can take this out. We are much more balanced when it comes to our full P&L on the currencies. The strongest impact sits on the top line, that's why we call it out. But the 16% to 16.5%, that's our goal for the year, both basically reported and constant. Of course, the absolute number is impacted by the currency as well.

Thank you.

Your next question comes from the line of Ashley Owens from KeyBanc Capital Markets. Please go ahead.

Hi. Great. Thank you. So just could you elaborate on any notable areas of strength within the product assortment quarter to date? Any new product launches you believe are currently or will be pivotal in driving share gains this year? And then just how have you seen repeat purchase rates trend as you kind of continue to expand both that product assortment and DTC share would be helpful.

Let me probably comment on exciting new products and also product strength. I mean, we already talked about the Cloudtilt and how the launch has shaped up in an incredible way, so we feel that can be a new blockbuster franchise in performance all day. And we also talked about the Cloudmonster franchise and how it's now expanding with the Cloudmonster Hyper. But we're really strongly focusing this year on performance in running. So the Cloudrunner too is still launching this spring. Then, we already mentioned the Cloudboom strike, Marc mentioned it, that's going to launch in July. Another technology leap in our super shoe range, striking fast as the name says, and our Pinnacle marathon racing shoe, as now proved in the Barcelona marathon last weekend. And then, we continue into August with the Cloudflyer 5 and the Cloudsurfer Next. The Cloudsurfer Next is truly exciting because it's for a young audience, attractive entry point at $150 in our Cloudsurfer franchise and featuring our new CloudTec phase. So really focusing on performance and running. And as you remember also from the intro, it's seven franchises that now contribute more than 5% to our range.

And then just on the repeat purchase. So what we see in E-com is very similar to our wholesale development. So On is growing based on more sales with existing customers and honest growing because of a strong gain of new customers. And what we are very encouraged about is that with our expansion of the product assortment and especially, bringing more silhouettes that speak to younger customer that's something that we very clearly see in our new customer acquisition. So just looking at what is the share of customers that is below 34 years old, in 2021, that share was around 24%. Now in '23 the share was already 29%. So 29% of the customers that we acquired newly in our DTC channel last year were 34 years and younger. So definitely in the right direction. And that's then also reflected in the success and in the respective key accounts like Foot Locker and JD.

We have time for one more question and that question comes from the line of John Kernan from TD Cowen. Please go ahead.

Thanks for taking my question. Hey, Martin. Just got asked a few different ways, but how should we think about the magnitude of the FX result? It obviously created a big EPS headwind in fiscal '23. I'm just curious. I think you said that there's going to be some reversal in fiscal '24. But just as we model both adjusted EBITDA and EPS, I think it'd be helpful if we had a little bit more color on the magnitude of the line item here.

Thanks for that one. So I can elaborate a little bit more on this. So, it's very important to understand how we translate our foreign exchange balances into Swiss Francs. So, on the P&L, that's based on an average rate. So it's a moving average rate, whereas the balance sheet is always translated based on the quarter-end FX rate. So if we look into 2023, the Swiss Franc has gained in value against almost every currency in the world. So for us, U.S. dollar, Euro, British Pound, currencies from China and Japan, those are the ones that are important to our business. So if you take the dollar and Swiss Franc ratio, for example, then the dollar dropped from $0.96 to $0.91 in the course of 2023 and is sitting at around $0.88 today. So this will -- this has already driven an headwind in the P&L last year, and this is what we called out will continue to drive an impact in 2024. Now, if you look at the rate, then it really dropped again towards the end of December down to $0.84 and that was the rate that we had to use to convert our balance sheet and this has driven a meaningful ethics impact. It's unrealized, but it has driven that. It's also visible in our cash balance, it's also visible in our inventory balance. I called out that our inventory items stayed flat, but if you look at the reported number, it actually came down 10%, which is the FX impact. Now, today, as I just mentioned, we are at $0.88. So there has already been a recovery from the $0.84 of the end of the year. So that's why we expect if the rate stays that we have some of the unrealized gains coming back and resulting in FX profit. But it's only on that line versus the revenue and the gross profits. Those are impacted from the continued downward trend that we see on the -- on this -- on the U.S. dollar and other currencies over time. So, not super simple, but I try to shed some more light on that.

That's helpful. And then maybe just one follow-up on the SG&A. Just based on the high end of guidance of the adjusted EBITDA margin guidance, it seems like you are expecting some SG&A leverage even with the shift to DTC. So maybe talked about the levers within the SG&A, the costs of the store expansion, and how should we think about the ability for more SG&A leverage going forward.

Yeah. So we continue to execute on our path to higher profitability levels. Our mid-term aspiration is 18% plus. So we invest in automation in the warehouses. So we expect in '24, basically not an improvement yet, but we will lay the foundation to then see significant improvements in 2024. At the same time, we have economies of scale in many other parts of the business. So when it comes to administration, when it comes to the profitability of certain markets, like China, for example. More of our stores become more profitable and that's helping the overall number. At the same time, we continue to invest. We continue to invest in retail store rollout, we continue to invest in building apparel in China, in other upcoming markets, in our tech capabilities, in sustainability. And that's why we feel that this 16% to 16.5% is exactly the right balance of investing in growth but at the same time, further increasing profitability. So we will manage that in the way we have done in the past. We are committed towards that number, but we will reinvest any additional gains that we have in order to fuel growth for the future.

Very helpful. Thank you.

Ladies and gentlemen, that does conclude today's Q&A session. And with that, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.