Hello and welcome to the Solo Brands, Inc. Third Quarter 2021 Earning Conference Call. My name is Robin and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Bruce Williams, from ICR. Bruce, please go ahead.

Good morning, everyone. And thank you for joining the call to discuss Solo Brands' Third 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, Sam Simmons. Before we get started, I want to remind everyone at management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on current management expectations. These may include without limitations, predictions, expectations, targets, or estimates, including regarding our anticipated financial performance, business plans, and objectives in future events and developments, and actual results could differ materially from those mentioned. These forward-looking statements also involve substantial risks and uncertainties, some of which may be outside of our control, and that could cause actual results to differ materially from those expressed in or implied by such statements. These risks and uncertainties, among others, are discussed in our filings with the SEC. We encourage you to review these filings for a discussion of these risks, including our quarterly report on Form 10-Q, which will be filed today and will be available on the Investor portion of our website at investors.solobrands.com. You should not place undue reliance on these forward-looking statements. These statements are made only as of today, and we undertake no obligation to update or revise them for any new information, except as required by law. This call will also contain certain non-GAAP financial measures including net income as adjusted, diluted units per share as adjusted, Adjusted EBITDA, and Adjusted EBITDA margin, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past performance, and facilitate period-to-period comparison of our core operating results and the results of peer companies. Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our quarterly report on Form 10-Q and in our earnings release, both of which are available on the Investor portion of our website at investors.solobrands.com. Now, I would like to turn the call over to John.

Thank you, Bruce and thank you everyone for joining us for our first earnings call as a public Company. I'm excited to be here today to share our story and talk about the tremendous opportunity ahead of us. First, I'd like to say how proud I am of our accomplishments to date in driving extensive growth across the platform, but also acquiring and integrating three exciting brands and moving into a new global headquarters, all while launching a successful IPO. Thank you to our hard working and dedicated team for all the hard work over the last year. Later, Sam will discuss the details of our Third Quarter financial performance and provide our outlook for 2021. We're very excited about the continued growth and momentum in our business. We are very pleased to report strong Third Quarter results that were ahead of our expectations, as revenue grew 138.3%, driven by strength across all our businesses. Adjusted net income increased 39.7% and Adjusted EBITDA increased 56.7%. For those of you who may not be familiar with our Company, Solo Brands is a direct-to-consumer E-commerce platform comprised of 4 disruptive and rapidly growing lifestyle brands. Our premium authentic lifestyle brands developed innovative products that create good moments that lead to lasting memories for our customers. We believe that we have an amazing family of brands that are uniquely positioned within their respective categories. The brands on our platform deliver significant and predictable growth and are fundamentally better together than they are apart. Starting with our largest brand, Solo Stove is a disruptive outdoor lifestyle brand comprised of fire pits, camping stoves, grills, and accessories that make lighting fires simple. Our secondary combustion produces a cleaner, hotter burn, that creates a roaring, yet virtually smokeless blame, resulting in a better customer experience around…

Thanks, John and good morning, everyone. Before I begin the review of our Third Quarter financial results, I would like to highlight a few points regarding how Solo Brands provides a highly attractive financial profile. First, as you'll see from the numbers, by operating primarily direct-to-consumer, we maintained strong adjusted gross margins well above 60%. Second, by bringing in-house key functions such as supply chain, warehousing and fulfillment, and marketing, we can drive tremendous operating leverage and spend into incremental growth, while maintaining strong profitability. Third, our direct-to-consumer model allows us to maintain a deep connection with our current and future customers, as they collaborate real-time with them to identify and develop products that create meaningful moments and lasting memories in their lives. Altogether, this produces a flywheel effect of rapid growth, scalability, and robust free cash flow conversion that allows for us to reinvest in product innovation, marketing, and extend our brand reach. Given our largely untapped addressable markets and the low capex requirements for growth, we continue to be excited about the white space and opportunity ahead. With that preamble, I am pleased to share with you our Third Quarter momentum and our outlook for the future at Solo Brands. We experienced rapid growth during the quarter that exceeded our expectations in revenues and profitability. Please note that total revenues in the quarter include the acquisitions of Chubbies and ISLE, which were acquired in Q3 '21 and are not included in our financial results last year. Net sales increased 138.3% to $69.4 million compared to $29.1 million in the prior-year period. By channel, direct-to-consumer sales grew 119.6% to $58.1 million compared to $26.5 million in the same period last year and wholesale net sales increased 323.4% to $11.4 million compared to $2.7 million last year. Growth was primarily…

Thank you. [Operator Instructions] Our first question comes from Robert Ohmes from Bank of America. Robby, please go ahead, your line is now open.

Hey. Good morning, guys. Congrats on your first quarter as a public Company.

Awesome. Thanks, Robert.

I just had a few -- oh, yeah, absolutely. My question is, on the nice revenue guidance for the Fourth Quarter, how much of that versus what we were expecting at the time of the IPO, how much of that is being driven by Solo Stove versus the other brands? And then also, could you talk about the wholesale revenues? We're a little bit, I think, lower than we were expecting for this quarter. What's the wholesale versus DTC outlook for the Fourth Quarter and any thoughts on next year for us?

Yes. Happy to jump in here, and then Sam can layer on top. Thanks for the question, Roby. With regards -- just what -- maybe going in reverse order there. Just speaking to wholesale, as we see wholesale business come in, sometimes they will cross over into another quarter or so. As we saw the retail relationships that we have gearing up for Q4 in ordering inventory, some of that inventory pushed into Q4. So that was just a matter of timing from a quarter perspective, so nothing drastically changing or different in terms of the way that we started up the mix from a resale perspective. Obviously, historically, because of the holiday sales season in the strong direct-to-consumer presence, Q4 generally tends to be a higher mix of direct-to-consumer and a lower mix. Of course, we're still in Q4, so not really indicating exactly where it's going to come through, but just based on our historical, what we've seen historically from a retail to DTC mix standpoint, generally, DTC will have a higher percent because of the holiday sales season in that direct-to-consumer channel that we're driving in Q4. So, some of that's going to be pulled down slightly from some carryover resale business that we saw from -- carryover from Q3 to Q4, but generally speaking, that's how we see it mix out. And again, as Sam mentioned just a few minutes ago, in terms of our future outlook, we're still, over the next 3-5 years, expecting to see retail trend towards that 15% to 20%, but that will happen incrementally over that period of time. So, nothing drastically changing into 2022 in terms of the retail to -- or the wholesale to DTC mix. In terms of -- I can't remember what your first question was, Robby.

It was more color on Chubbies, ISLE, and Oru, how the sales are for those three versus the Solo Stove?

Yes. Absolutely. So, we've talked about this before. We won't be reporting on each of the individual brands, but just anecdotally, what we can say is that from a growth perspective, all of the brands are showing really good, strong results. And so incrementally, as we [Indiscernible] we're finding that the [Indiscernible] is coming in proportionately from each of the brands, roughly around where you've seen those proportions historically play out as we've shown them to you. So, none of the brands are necessarily outsize, necessarily from a growth, a year-over-year growth standpoint to deliver these outsize results.

That sounds great. Best of luck with the rest of the holiday.

Great. Thanks, Roby.

Thanks, Roby.

Thank you, Roby. Our next question comes from Chris Horvers from JPMorgan. Chris, please go ahead, your line is now open.

Thanks. Good morning, guys. My first question is there's a lot of questions out there about potential holiday pull-forward, given the consumer started shopping earlier this year. Is that something that you think that you've seen and to what extent with only a couple of few weeks left here in the quarter are you baking in the rest that there could have been pull-forward?

It's a good question. What we've tried to do, and we talked about this quite a bit, being directed consumer as -- with this heavy of a mix as we are, we have really good feedback from customers in real - time, which I think is an advantage to DTC and just overall to our strategy. What we did is listen to what customers are saying and what customers are saying to us. And what you were hearing across the board is that customers were concerned based on all the supply chain news that they were going to have a hard time getting products before the holidays. So, what a lot of brands did, including our brands, is we basically just pulled our promotional calendar forward and then gave customers that peace of mind that they could get their hands on the products soon enough, that there wouldn't be delays, and they actually have products under the tree on Christmas or for the holidays. And so, we've seen that play out. Obviously, this is a Q3 earnings call. We don't want to get too far into Q4, but early signs are that the demand was higher earlier. And we -- again, as Sam mentioned, we really like what we've seen in Q4, which is -- and the large part was, what's revised our guidance to you guys.

Got it. And then as you look at the Fourth Quarter, you raised -- you essentially raised the year about $23 million on top line, about $6 million on the EBITDA line. So, it's about a 26% by EBITDA margin flow-through. Just thinking about the scale of 4Q from a volume perspective, as well as this being incremental revenues to the original forecast. The question is, why wouldn't those -- the quarter itself just be a higher margin quarter, and especially with the DTC mix? And then why wouldn't that revenue flow through at a higher than 26% EBITDA margin rate?

Great question. Essentially, there's -- while Q4 we have really good operating leverage, which you guys have heard Sam talk about a lot, Q4 is also heavier, and it's all planned, but it is a heavier promotional period. And so, as we outsize performance in Q4, obviously that's going to flow through all the way through to what the EBITDA margin looks like. And so, you're going to see outsized performance in Q4 ultimately average out to that EBITDA performance for Q4, which is why you see it in that 26% range versus something higher like you might see on an overall yearly blend.

Got it. Awesome. Thanks very much and have a great holiday.

Thanks, Chris. Appreciate it.

Thanks, Chris.

Thank you, Chris. Our next question comes from Randy Konik from Jefferies. Randy, please go ahead, your line is now open.

Thanks a lot, and good morning, everybody. I've a couple of questions here. First, John, when you're thinking about the long-term in terms of category and product expansion opportunities and philosophy, you talked a little bit about Pie, gave some perspective on colorways in the fire pit. Maybe just give us your perspective on -- what's you’re -- the firm's -- the Company's philosophy on how to think through what products to expand into, categories to expand to. Yeti, I think what they used to do is talk about it from a portability and usage occasion perspective. It's how they thought about product expansion or category expansion. So, I'm just curious on how you're thinking about that. And then Sam, I think you said in the quarter AOV was up 3.9% and I think the colorways didn't launch until the Fourth Quarter. So, I'm just curious if there's been nice AOV lift from our colorways and just generally, how we should be thinking about AOV opportunity in the future? And then lastly, back to John, on international, you talked about expansion of a distribution center abroad already selling in 20 countries, websites in four countries. Just give us even more flavor, anything else you can think about over the next few years that we should be considering around international opportunities going forward. Thanks, guys.

Absolutely. So, in terms of our philosophy around product innovation and even the ongoing discussions that we have around M&A and bill versus buy, the categories that we're looking to be in, are categories that, first and foremost, allow us to help our customers continue to create good moments and lasting memories. That's a very strong focal point for us. I think, also, as just an overall philosophy, we believe in the outdoor category, we believe that people spending time outdoors is what drives a lot of great experiences and good moments, and last in memories. So, we are looking whether it's in product development, or whether it's an M&A, we're looking for products and innovation that help customers create good moments and last memories. And primarily, we're focused in the outdoors and, of course, in products that are allowing us to continue to drive the type of growth or categories that either are untapped or haven't been innovated that we think have large TAMs and a good profit opportunity for us from a business perspective. And then internationally, I'll just maybe not poke my mind out and then give Sam the mic here to talk through EBITDA and margin stuff. On the international front, we are really pleased, as I mentioned, with the early signs, both as what we've seen in Canada and also in Europe. We have not been surprised for -- on the bad side in terms of what we've seen. In fact, we've been pleasantly surprised, if anything, with demand and the strength of the brand. What we didn't know going into international was how well known the Solo Brand in particular would be known, recognized as you went over the pond to Europe. Thus far, early signs would suggest that the brand is pretty well known and from an overall kickoff point, obviously it's starting off much more rapidly than the way that we kicked off here in the US And so we're really happy with early signs. As we've mentioned previously in the [Indiscernible] we do have plans to continue to expand those localized sites in Europe beyond just the four to several other countries in Europe, and then later next year still have plans to launch Australia. So, everything is intact in terms of our international strategy. As you guys know, we did not put international revenue into our initial model from a financial standpoint, just didn't want to rely on it. So, everything that we're doing internationally is additive to the way that we've modeled out and guided our future revenue.

[Indiscernible] Go ahead. Your question was on AOV or was there another piece to it as well?

I think in the quarter you said that AOV was, I think, up 3.9% and I think you also said -- John may have mentioned that the colorways on the pits, I think, launched in the Fourth Quarter. So, I think that's a significant up charge or up -- higher price point that the consumers paying for. So, I'm just curious if it's A. Impacting the AOV already significantly or at least noticeably. And then beyond Solo Stove, if you had interest in AOV opportunity, whether through higher-priced products or UPT or units per transaction that are coming through. Just curious there.

I know. Great question. I'll speak largely in the historical performance, which is that we have seen increasing AOV history. One is simply by introducing new ticket prices in the new categories released. John mentioned the Solo Stove Pie, which we're really excited about. In addition to that, though, we also have accessories that really round out the experience for our customers and are complementary to their lives. And the combination of both having additional accessories and roasting sticks for the fire pits as well as, as you mentioned, higher-priced fire pits that our customers have been requesting that -- to add color, all of those blended, have continued to improve our AOV as you look at the past couple of quarters. For Q4, I don't want to give too much insight there, but we'll certainly -- that'll be noted in our next earnings call. But our trends so far have been positive.

I would add as well, Sam. I think Sam's call out there on accessories is an important one. I would point to the repeat purchase rate of 38%. One of the things that we're finding more and more success with is getting customers to add on additional items on the initial purchase, and that metric is helping drive AOV. And in fact, with so many accessories being launched and access to lower-priced items, it's actually quite impressive that we're watching AOV go up as an overall metric. Because we're having to offset singular product purchases that are in more of the $50 to $100 range with higher average order values in general, what the customers taking, adding a fire pit to purchase, and then adding accessories with it. So, we're seeing items per order continue to rise, which is in large part, which driving that AOV.

Very helpful. Thanks, guys.

Thank you, Randy.

Thank you, Randy. Our next question comes from Sharon Zackfia from William Blair. Sharon, please go ahead, your line is now open.

This is a question on your gross margin outlook. There have been a lot of pushes and pulls since the time of the IPO. Then have you had any material changes to the thought process for the Fourth Quarter or for 2022? And then secondarily, given the new variants alongside the low obsolescence of your products, do you plan to continue to have I guess I'll call it elevated safety stock going into 2022 to ensure you have supply?

Just really quickly on the supply question. I would absolutely say yes, we believe that, again, because of the -- there's really two types of planning that we think about: one is budget planning, and one is demand planning. And what we want to make sure is that on the demand planning front, that we're prepared for whatever growth rate that the customers are demanding for the product. Again, you heard the market penetration that we believe we have in the US, just the US alone. [Indiscernible] one and a half percent so very early in the story. Obviously, these aren't products that expire on a shelf, we see a big opportunity to continue, to carry sufficient inventory to make sure that we can deliver for the customers. So, we're definitely focused on that. On the gross margin front, we're continuing to [Indiscernible] like everyone else's. The main drivers for gross margin are your [Indiscernible] which are somewhat influenced by the combination of raw materials and your freight expense and so those are the things that we're watching closely. We were very conservative in our approach here. We think that we were sufficiently conservative and still feel very good about being able to deliver on the guidance that we put forward, that allows us to deliver the financial profit profile that we've laid out. So, we feel good about are gross margin outlook for 2022, nothing we're seeing that's suggesting or indicating anything different than the way we were thinking about it several months ago. [Indiscernible].

Just a couple points on the inventory position. A key thing to note for us is that the customer experience starts with that first order. So, when a customer places an order and gets confirmation, and then shipping confirmation and those types of experiences really impacts -- we'll get feedbacks before the products are even delivered. The customers are raving about Solo Brands and that's really important to us, a customer impression before they even actually use the product, having that be a good first impression is critical. Obviously, once they get the product and use it from there it would just elevates where they're having even better experience in real life. They've seen it on social media or anywhere else and they use it and it's better when you have a tangible experience but having that initial impression be riven by inventory and [Indiscernible] getting right out the door to the [Indiscernible] placing our facilities closer to customers so they can have that [Indiscernible] all very deliberate part of our strategy. [Indiscernible] I think John [Indiscernible] nothing really to add there. We're definitely up at the pressures, we're not assuming that those are going away, [Indiscernible].

That's great. Thank you very much.

Thank you, Sharon. As a reminder to ask a question, [Operator Instructions] Our next question comes from Peter Keith (phon) [Indiscernible] Peter, please go ahead. Your line is now open.

Thank you. Good morning, everyone. Nice first quarter out of the gate. I wanted to hit on marketing and John something you could address how you guys navigated the Apple IDFA change. It seems that we've got a long, we're getting further away from the change that a lot of DTC companies and seeing increase problems as they get further away from some of that customer data. So, could you talk about how you're navigating it, how you [Indiscernible] evolves and are there any specific problems with any of the four brands? Yeah. Great question, thanks Peter. Absolutely, so I think first and foremost a starting point is that we were, from a model standpoint really well positioned to take this on head-on and the reason is that we had in-source our marketing execution years ago. What that led to is last fall, a year ago so well before, around the March time frame is when that change you just mentioned with Apple happened. Many months before that, we had a foresight of that happening and made the decision to build out an internal correlation-regression model leveraging our own first party data, that essentially was intended to allows us to see the effectiveness of our ads outside of the without having to rely on the actual platforms like Facebook or Instagram that were heavily impacted in the negative way by that change. We made that investment with our own set of engineers and built us model and had it tested before the change happen so we could see how our model was performing against the ad platforms and what they were saying when the change happened in March, we were able to continue to lean into our own correlation-regression model and see the effectiveness of our ads been even though…

I'm just going to layer on what I think one thing to point out is that to a high level that I think is pretty darn unique is given 84% of our business is on the websites just that fact alone [Indiscernible] to be able to see real-tie what's happening as we tap and move different levers around our digital strategy, that's just not possible for many companies. They're not going to get that true [Indiscernible] of data [Indiscernible] when they're moving, they're marketing strategy or changing tactics. For us, just the capabilities and I think it's incredibly unique and then obviously as John mentioned were doing everything, we can to leverage it and have in-house marketing and all the things he talked about. So just wanted to point out, just the capability I think is pretty unique which we're obviously [Indiscernible] make the most of it.

Okay. I was just going to ask a follow up, maybe we'll look at Chubbies for example, cause that's a recent acquisition, you didn't have that period of in-house marketing to build all of the data, does that brand specifically been able to navigate this or has Chubbies seen any specific problem because of the change?

Yeah. Obviously, we don't generally isolate brands but in this instance, this is an easy one to cover. Chubbies is actually very similar to Solo Stove, had taken the same approach of in-sourcing their marketing. So, while they didn't necessarily have the correlation-regression model that we had built, they have a very sophisticated execution internally with their own marketing team. So, they've been able to navigate it, again as I mentioned earlier, they built through pivoting to new channels, TikTok as an example amass a 1.6 million follower based on TikTok, the demographic which is right on the wheel house of their customers. So, what they've been able to do is diversify their digital marketing strategy, which has allowed them to continue to maintain the marketing efficiency that they've seen in the past. Less by utilizing the [Indiscernible] approach which is this correlation-regression model and more of the diversifying into new ad channels and now when you layer those two things together, obviously there's win on both sides because they're teaching us about the TikTok channel and how to leverage that and we're giving them visibility into our correlation-regression model. So, it's truly a [Indiscernible] but they were able to navigate it in their own way leveraging new digital channels.

All right. That's great overview. Thank you so much, guys.

Yeah. Thanks Peter.

Thank you, Peter. As a final reminder to ask a question [Operator Instructions]. We have no other questions with that, that concludes our Q&A. I will now hand back over to John for any closing comments.

Thank you all for being with us today. We're really looking forward to update you on our progress on our next earnings call, looking forward to talking through our Q4 and full-year results so wish you all a happy holiday season and again, thank you all for joining us today.

Thank you for joining. You may now disconnect your line.