Solo Brands Inc (SBDS) 2021 Q4 法說會逐字稿

Welcome to today's Solo Brands, Inc. fourth-quarter and fiscal-year 2021 financial results call. My name is Jordan and I will be coordinating your call today. (Operator Instructions) I'm now going to hand over to Bruce Williams from ICR to begin. Bruce, please go ahead.

Good morning, everyone, and thank you for joining the call to discuss Solo Brands' fourth-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 that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on current management expectations. These may include without limitation predictions, expectations, targets, or estimates, including regarding our anticipated financial performance business plans and objectives, and 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 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 soon-to-be-filed annual report on Form 10-K, that 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 earnings 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 earnings release, which will be available on our investors 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 fourth-quarter and full-year results for 2021. We accomplished a great deal last year and I want to thank our entire team for their dedication and hard work.

I will begin today by highlighting the unique characteristics of our business, which I believe will help distinguish us over the long term. Next, I will provide an overview of our performance and demonstrate our confidence in our strategic initiatives going forward. And finally, I will turn the call over to Sam to discuss our financial performance and outlook for 2022.

While Solo Stove has historically generated over 90% of our revenues, we are much more than a consumer durable company. We operate beloved brands with a focus on digital direct to consumer that creates a special connection to our customers, strong differentiation, and a passionate following that generates growth, high profit margins, and strong free cash flow. Our brands are better together than apart because we provide a global scalable infrastructure that supports rapid organic growth, efficiencies, and shared learnings.

We are incredibly pleased with our performance in the fourth quarter and for the full year, driven by the continued strength and vitality of our brands, especially Solo Stove, which seasonally outperforms in the fourth quarter. We continue to see tremendous opportunity for growth across our platform, which is focused on disruptive outdoor lifestyle brands.

Our strong fourth-quarter results were driven by solid demand across our brands. Our consistently high customer referral rates and better in-stock position despite supply chain challenges enabled us to generate strong 164% top-line growth for the quarter compared to the same period in the prior year, which was on top of a 238% increase from the fourth quarter in 2019. In addition, adjusted EBITDA increased 55% compared to the same period in the prior year.

Our promotional levels were consistent with last year in the same quarter. However, we made strategic investments in marketing, infrastructure, and international expansion to continue to accelerate our growth plans. In addition, we incurred costs as a newly public company, which were reflected in our fourth-quarter results. Given our early-stage growth profile, we see opportunities to invest back into our business to strengthen our existing foundation for sustainable long-term revenue and EBITDA growth.

2021 was an amazing year for Solo Brands. We added three unique and exciting brands to our platform that will aid in our mission to bring lasting memories to people across the world. We generated solid profitability which is on top of the growth that we experienced during COVID and hit new record sales levels.

We believe that all our brands have tremendous growth in front of them and we continue to invest in people, our proprietary data platform, product innovation, and international expansion to meet robust customer demand, acquire customers at a faster pace, all while creating insulation from the challenging and changing digital marketing headwinds.

Our business generates high levels of profitability and we remain comfortable with our long-term growth targets of 20%-plus sales growth, mid-20% EBITDA margins, and 20% to 25% adjusted net income growth. However, we expect these investments will pressure margins in the near term as we build infrastructure for long-term growth. We believe that some of these investments will have a positive impact on revenue growth as soon as the back half of this year, while others will pay off in 2023 and beyond.

We believe that the key to our success is developing greater control over our growth story. Our referral rates in 2021 continued to grow, reaching 48%, and our repeat purchase rate continues to be strong at 40%. Our strong referral and repeat purchase rates lower customer acquisition costs, allowing us to maximize marketing spend, enhance new customer acquisition, and increase LTV.

Our e-commerce business continues to drive over 85% total sales, which creates a large first-party data set. Leveraging this data allows for us to gain deep merchandising insights that help to shorten the product innovation cycle and drive repeat purchase rates.

We are in the early stages of investment to mobilize our extensive first-party data set across all brands and expect for this investment to pay off later this year and in future years. This will give us a single view of the customer, allowing for us to improve our already-successful loyalty programs and to automate, segment and personalize our marketing efforts to not only drive customer retention but also increase conversion rates.

Additionally, we see a tremendous opportunity to leverage our data to drive cross-pollination across our platform. At the beginning of the year, 4,000 of our customers have purchased from more than one brand, but by the end of the year, over 25,000 of our customers had purchased from at least two of our brands, a growth of 5X in just the first four to six months of bringing our brands together.

We have a high degree of confidence we can significantly increase this metric, which will drive efficient revenue from our installed customer base without having to rely on third-party marketing platforms or outsized investments in marketing spend. We view this as a top priority over the next 12 months.

As we look ahead, we remain focused on our strategic initiatives to drive growth. First, we will continue to build and invest in strong relationships with our customers and, as mentioned above, invest in our data platform that helps us stay connected to our customers. Our relationship with our customers leads us to our second initiative, which is to drive informed innovation across all our brands.

Third, we see opportunities to accelerate our channel expansion through wholesale. Fourth, we will continue pursuing strategic M&A for Solo Brands. And fifth, we launched international in late 2021 and expect to expand our efforts in additional markets in 2022.

Let's start with the customer. Because we continue to generate the majority of our business through our own websites, we are able to build strong direct relationships with our customers and generate reliable data that helps us measure the health of our business. With recent Net Promoter Scores trending up into the 80s, referral rates at 45%, and repeat purchase rates at over 40%, we have high confidence in our ability to generate sustainable growth through the investments already underway.

We are excited about the opportunities for us to continue to invest in data infrastructure that will extend the advantages of our go-to-market platform. These investments have expected payback periods of less than 12 months based on estimates and improved marketing efficiency. This work commenced in the fourth quarter and will continue throughout 2022. When our work is completed, we will be able to fully leverage our first-party data across all brands.

Recent privacy changes made by Apple and soon Google reinforce the importance of owning and leveraging your own data. While these changes have negatively impacted digital marketing costs in the marketplace, they are less relevant to our business as we continue to leverage our data across the Solo Brands platform. Our data capabilities are expected to increase our marketing efficiency, provide some profit protection, and help to insulate us in this new environment where marketing costs are rising.

Next is product innovation. We launched a heat deflector at Solo Stove this quarter based on feedback and were pleased with the sales momentum. We started shipping heat deflectors in the first quarter. In addition, our Solo Stove Pi pizza oven was made available for preorder on International Pi Day, 3.14, on our website and we are stoked to get it into customers' hands in the second quarter.

Initial response is super positive and we are pleased to see the majority of sales coming from existing customers. While early, this is a big unlock for Solo Stove by more than doubling the LTV for these customers and significantly increasing Solo Stove's TAM.

At Oru Kayak, we launched the special black edition kayak in Q4, which is just as light, portable, and easy to assemble as our standard Inlet, but with a sleek and stealthy black finish. We sold out of it quickly and recently relaunched and expanded our offering. The initial response has been positive.

We are also launching an introductory price point kayak, the Oru Lake, later this year, which will be an opportunity to further expand our addressable market. Keep an eye out for Lake, which will initially be launched on Kickstarter this month, similar to the way we've launched products in the past. We plan to launch further innovation with ISLE and Chubbies later this year as well.

The strength of our product innovation pipeline will keep our customers engaged and will also drive repeat purchases. We will continue to make strategic investments to innovate our product lines and get new products to customers faster.

Turning to our channel expansion opportunities, one of the benefits of our model is our ability to meet our customers where they are. To that end, we have created strong momentum in our wholesale channel and see an opportunity to lean into this channel based on the tremendous demand we are seeing from our retail customers.

In 2022, we are expanding the number of doors with several key retailers such as Ace Hardware, Dick's, Academy, and Tractor Supply. We are also rolling out two SKUs that will be exclusive to retail. One is a unique bundle that includes a Solo Stove stand and cover, and the other is a new larger 30-inch Solo Stove, the Canyon.

Our customers have been asking for a larger fire pit and we see this as the perfect fit for our retail partners. We have felt strong winds behind our wholesale business and believe that, coupled with our primary DTC channel, we are well positioned to be where our customers need and want us to be, which has always been our primary goal.

Turning now to international expansion, we see international as part of our long-term growth and believe that investing in it now will not only give us a first-mover advantage, but will also expand our addressable market and reduce friction points by getting our products closer to our future international customers.

We launched localized sites in Canada in August, in Europe in October and plan to enter the Australian market in the third quarter of this year. While it is early and we are still learning, we are optimistic about the opportunity in front of us.

Lastly, we continue to evaluate strategic acquisitions and we are pleased that interest to join Solo Brands is strong. We are highly selective and focused on finding unique brands that are founder-led and will complement our existing platform.

Turning to our supply chain, while we are experiencing continued pressures from inbound freight, we are in a good inventory position to meet the strong demand from our customers. Our on-time deliveries, shipping accuracy, and quality remain consistent despite global supply chain challenges.

Price is a key lever for us to mitigate cost increases over the near term. And while we are holding prices constant on our site, we have slightly increased prices to our wholesale accounts. Over the medium and long term, we are increasing our supplier base and exploring additional geographic opportunities for manufacturing, including North America.

Before turning the call over to Sam, I would like to touch on our outlook for 2022. While we are optimistic about the future growth opportunities for all our brands, we are not immune to the recent macro headwinds that could impact discretionary spending. In addition, we are lapping our most difficult comparisons of the year.

As such, we have seen a slight slowdown in sales trends for the first quarter. We believe our guidance appropriately incorporates the current trends in our business as well as the investments that I discussed earlier. We have a lot of growth opportunities in front of us and we are excited for the future. We believe the investments we are making in our business will position us for long-term sustainable growth.

I will now turn the call over to Sam to discuss our fourth-quarter results in more detail.

Thanks, John, and good morning, everyone. I am excited to share with you our 2021 fourth-quarter and full-year results and then follow that up with commentary on our growth outlook for 2022.

In 2021, Solo Brands had another remarkable year as we grew more than two times on an organic basis and more than three times on an inorganic basis with the addition of three new and exciting brands. Not only did we generate more than double the revenue organically, we did so in tandem with growing adjusted EBITDA. Our DTC business model continues to position us to power both growth and profitability.

For the fourth quarter, net sales increased 164% to $176.5 million compared to $66.8 million in the prior-year period. By channel, direct-to-consumer sales grew 162% to $164.2 million compared to $62.7 million in the same period in the prior year. And wholesale net sales increased 197% to $12.3 million compared to $4.1 million in the prior year.

Growth was driven by an increase in volume, specifically an increase in total orders, which increased 105%. Our average order volume increased 14.2%, driven by product mix. The continued growth of direct-to-consumer sales over what many viewed as a tough fourth-quarter comparison in 2020 while maintaining consistent promotional levels with prior years demonstrated continued strength in direct-to-consumer demand in the fourth quarter.

Turning to our full-year results, please note that total net sales includes the post-acquisition net sales contributions of Oru, ISLE, and Chubbies, which were acquired in 2021 in May, August, and September, respectively, and were not included in our financial results in 2020. Net sales increased 203% to $403.7 million compared to $133.4 million in the prior year. The increase was led by the continued robust organic growth in our Solo Stove brand of 171% over the prior year to $362 million.

Organic net sales in our other lifestyle brands -- Chubbies, Oru, and ISLE -- increased 60% to $121.3 million over the prior year for a combined organic growth rate of 131% to $483.3 million in net sales on a pro forma basis if we had owned all brands for the full year.

In addition, growth was driven by total orders increasing 145% and average order value increasing 19.9%. Direct-to-consumer net sales increased 190% to $355.7 million and wholesale net sales increased 347% to $48.1 million.

On the year, our direct-to-consumer channel accounted for 88.1% of total net sales and wholesale net sales accounted for 11.9%. In 2020, wholesale net sales accounted for 8.1% of net sales. Our growth in wholesale as a percentage of overall net sales, a 347% growth rate year over year, demonstrates our continued success with growing our existing partnerships as well as expanding with new partners.

We are bullish on the opportunity to continue to team up with REI, Dick's Sporting Goods, Ace Hardware, and many other long-term and new partners to lean into growth, including with new exclusive wholesale offerings as John referenced. Overall, we were pleased to observe the consumer demand we saw throughout the fourth quarter and 2021 as a whole and that 2021 proved to grow very favorably compared to the prior year.

Moving to gross profit, gross profit increased 169% to $111.7 million. Our gross margin rate was 63.3% compared to 62.2% in the prior year. Adjusting for the impact of purchase accounting adjustments related to the fair value write-up of inventory for transactions, adjusted gross profit increased 148% to $117.2 million. Adjusted gross margin was 66.4% compared to 70.8% in the prior year, with the variance to prior year driven by higher freight and logistics expenses.

For the full year, gross profit increased 198% to $258.9 million. Our gross margin rate was 64.1% and adjusted gross margin was 67.2%. We were pleased to generate robust gross margin levels in spite of unprecedented challenges in the supply chain. Our premium brands and products continue to generate and sustain strong gross margin levels, which enables continued success with our direct-to-consumer and wholesale efforts.

Selling, general, and administrative expenses for the fourth quarter increased to $82.5 million or 46.8% of net sales as compared to $19.6 million in the same period last year. The increase was primarily due to the following: an increase in our advertising and marketing spend of $27.3 million to drive brand awareness; an increase in employee costs of $13.7 million as a result of increased headcount to support growth; and equity-based compensation expense, which includes an increase of $6.6 million in equity-based compensation; an increase in shipping costs of $13.5 million that varies with sales; and investments to expand our international footprint.

For the full year, SG&A expenses increased to $159.5 million or 39.5% of net sales. The increase in SG&A was primarily driven by the following: an increase in our advertising and marketing spend to $57 million to drive brand awareness; an increase in shipping costs of $24.4 million that varies with sales; an increase in employee costs of $20.6 million as a result of increased headcount to support growth; and additional equity-based compensation expense, which includes an increase of $7.3 million equity-based compensation; an increase in seller fees of $8.9 million; and one-time costs related to our transaction.

Other operating expenses were $6.6 million during the quarter due to employee costs related to the acquisitions, international expansion costs, and cost to transition to a new global headquarters. As a result of these factors, net income increased 127.2% to $12.4 million for the fourth quarter and 333.4% to $56.5 million for the full year.

For the fourth quarter and the full year, earnings per share attributable to Solo Brands, Inc. was $0.17. Earnings per share represents only the period from the IPO date of October 28, 2021, to December 31, 2021, which represents a period wherein the company had outstanding Class A common stock.

For the fourth quarter, adjusted EBITDA increased 55.1% to $43.1 million and adjusted EBITDA margin was 24.4%. For the full year, adjusted EBITDA increased 120% to $120.9 million compared to $54.9 million in the prior year. Adjusted EBITDA margin was 29.9% in 2021.

For the fourth quarter, adjusted net income increased 38% to $35.3 million. For the full year, adjusted net income increased 105% to $105.3 million compared to $51.5 million in the prior year. Our weighted average diluted shares were 63,010,538 as calculated under the treasury method of accounting for options and RSUs and under the if-converted method for Class B shares, which amount to 33,416,783 shares. Our adjusted EPS for the fourth quarter and full year of 2021 were $0.45 and $1.55, respectively.

Now, turning to the balance sheet. At the end of the period, we had $28 million in cash and cash equivalents. On October 28, 2021, we completed our initial public offering and raised $229 million in net proceeds from the IPO and the exercise of the underwriters' option to purchase additional stock and used the proceeds to pay down outstanding debt that was primarily from transactions, including the acquisitions of Oru, ISLE, and Chubbies.

As of December 31, 2021, we had $32.5 million in outstanding borrowings under the revolving credit facility and $99.4 million under the term loan agreement. The borrowing capacity on the revolving credit facility was $350 million as of December 31, 2021, leaving $317.5 million of availability.

Inventory at the end of the fourth quarter was $102.3 million. We are pleased with our ability to invest in working capital to ensure adequate supply to meet the demands for our customers. Our inventories were unusually low at the end of 2020 due to supply chain disruptions, which led to stockouts and pent-up demand going into the first quarter of the following year. We are in a much better inventory position today and appreciate all of our teams' efforts to ensure the best experience for our customers.

Turning to our guidance, we are providing guidance based on the visibility that we have today and our historical seasonal trends. For fiscal 2022, we expect revenues in the range of $540 million to $570 million and adjusted EBITDA in the range of $121 million to $132 million. Coming off of the strength of the fourth quarter in 2021, and as John previously mentioned, we decided to make additional strategic investments in the three following areas as we head into 2022.

First, we continue to invest in infrastructure to expand our international operations in Canada and Europe and our planned launch of Australia in the third quarter.

Second, we have accelerated our innovation timeline by investing in an innovation Center of Excellence and enhancing our design and manufacturing capabilities. We have paired these investments with increased funding behind developing and marketing lapses of new products, including Solo Stove Pi and Solo Stove heat deflector and other products under development.

Third, we are making meaningful investments in data infrastructure in terms of both people and systems as we look to consolidate and leverage our prime position to respond to increasing data privacy changes. In light of these and other investments, we expect to see lower adjusted EBITDA margin for the year.

Because we are a few days out from the end of our first quarter, we would like to provide some additional context and insight into what we are seeing in the first quarter. There are a few factors that will impact our results relative to the year prior that are important to understand.

First off with seasonality. Seasonally, the first quarter is our smallest quarter each year, typically operating in the mid-teens as a percent of total year revenue. Accordingly, the investments we are making now are having an outsized impact on margins in the first quarter of this year as our debt financing progressed throughout the year and normalized into future years.

A second key variant between the first quarter of this year versus last year is that we closed the fourth quarter of 2020 with higher levels of deferred revenue due to the supply chain disruptions which impacted our ability to ship products for orders placed during the quarter. Our 2020 year-end deferred revenue was $20.2 million and was alleviated once we were back in stock in the first quarter in 2021. In contrast, as of December 2021, our deferred revenue balance was $3.5 million, which is in line with our typical trends.

Third, there are other expenses that are incremental to last year, including public company expenses and the full cost structure of all core our brands.

Finally, we recognize that there are a number of macroeconomic factors that play in terms of lapping stimulus checks and child tax credits in 2021, inflation, and other impacts on discretionary purchases in 2022. We believe these factors have weighed on our first-quarter results and assume these impacts will continue through the first half of the year.

For the first quarter, we expect revenue in the range of $82 million to $85 million and adjusted EBITDA of $12 million to $14 million. We expect first-half gross margin rates to be in line with full year 2021. As we have previously communicated, we expect sustained freight pressure in the back half of 2022. We are assuming our first-quarter revenue guidance is in line with historical seasonality. For the second quarter, we expect net sales will also be in line with historical trends of being a little above mid-20s as a percent of the year's total net sales.

In conclusion, I'm very enthusiastic about our future, the brands we have and that we have brought onboard, our innovation pipeline, and our highly disruptive DTC platform. We believe in our long-term algorithm of 20% net sales growth, mid-20%s adjusted EBITDA margin, and 20% to 25% adjusted net income growth. Our long-term growth pillars are sound and we remain confident in and committed to our long-term trajectory for growth and profitability. I will now turn the call back over to the operator to take your questions.

(Operator Instructions) Randy Konik, Jefferies.

Thanks a lot and good morning. Sam, I just want to go back to the guidance for a second for the year. Can you just clarify, did you say -- just clarify what you said on the gross margins again. And if I heard that correctly, it sounds like most of the change or variable versus our model and the EBITDA dollar guide has to do with the incremental SG&A for which you gave us those different buckets you are spending in.

So can you just clarify again the gross margin, if it is supposed to be flat or whatever you just said, versus 2021 or 2022? I just need to know that. And then could you expand upon, in those SG&A buckets that are I guess higher, can you give a little bit more detail around the individual buckets in terms of how much is going into each for 2022? Thanks.

Sure, thanks, Randy. Thanks for the question. Let me start with gross margin. So we have been modeling sustained pressure from freight, expect the rising freight costs will roll throughout the year, with our first quarter being the highest gross margin rate and sequential pressure from there as freight costs roll through margin. So overall, compared to 2021, on the year, we expect that freight pressure to lower gross margin on the year by a little over 120 basis points.

When it comes to EBITDA margins, we would expect that given the investments we're making, the pacing of investments will be even throughout the entire year. And then given seasonality patterns of our revenue, we would expect Q2 and Q4 to be our highest margin, EBITDA margin quarters and then Q1 and Q3 would be lower, just given the revenue sizing.

From an investment standpoint, like John mentioned in his and I followed up in mine, we are investing in innovation, data, and international. In terms of the buckets those hit, that would be in personnel to support growth, growth in those teams to be in systems, and then be in marketing for international and product innovation. John, anything you want to layer on there?

Yes, what I would throw on top of that, Randy, is if you think about the three buckets, which I think is what you were trying to get at, is how does the investment or the increase in SG&A break out across those three opportunities. What I would share with you is about half or a little over half is on the data side and then product innovation and international is where the other half is going to be made up of.

So if you think about kind of how it's breaking down, the data infrastructure and investments we are making there, which we see to be the most impactful on our long-term sustainable growth model, it's going to be on the data side. And then international and the pull-forward of product innovation is going to be the second bucket.

Helpful. And then my last (multiple speakers).

John, let me add one comment, Randy, as well. For freight, we haven't pinned down our contracts yet for this forward year. As a reminder, freight contracts go through the end of April, so we are still on last year's rates, combined with spot market.

So that obviously averages up throughout the year, given the increase in spot markets throughout the year last year. But we'll have more insight on our next call once we have locked in those contracts. So those are in process. Again, we've modeled continued freight pressure, but we have not seen that yet. So more to come there.

Helpful. And then John, if you could expand a little bit on the commentary around the demand side of things. Maybe give us a little bit more color on differences in the trends you are seeing by the two largest brands, Solo and Chubbies. Just curious on what you're seeing. Are you seeing a slight slowdown in unit velocity, change in what people are buying, maybe you have lower-priced product versus a higher-priced product? And just curious what you're seeing by those two larger brands.

Yes, for sure, for sure. What I would say is what we saw coming out of the gate -- I know we are getting towards the end of Q1, so all eyes are on what's really happening now. We obviously just reported on Q4, so a few days left. But with inflation, the Ukrainian conflict, gas prices, even what consumers are seeing when they go to the grocery store, we saw early this year obviously a lot of these things. None of us had full visibility into what was coming.

And what we saw from an impact standpoint, particularly in our dotcom business on our own websites, where we have very real-time information, is that traffic -- we saw traffic headwinds at the beginning part of Q1 that really ran all the way through even the first part of March. What's been promising for us is that we actually are -- it's starting to normalize and we're starting to see actually the latter part of March actually trending up in traffic year over year.

So we like the direction that it's going, but again, because of some of the unknowns out in the future and what we saw the first part of -- the first couple months of Q1, we have taken the softness that we experienced in traffic and kind of rolled that through the year to make sure we are positioning ourselves well to succeed.

The thing that I will point out about our model in particular is that this is exactly what DTC was built for -- were headwinds and softness like we have seen in Q1. We have this direct relationship with our customers. We know what is happening in real time and are able to pivot and make decisions as a business to combat those.

The other thing that we really like about what's going on right now with our business is there are macroeconomic factors, there are things that are happening that are out of our control, but we are watching very closely the things that are in our control. So things like NPS, referral rate, repeat purchase rate, and LTV, and all of those metrics are continuing to hold strong or actually increase.

So that's for us very encouraging. It points to the health of our business and brand and consumers' desire to be loyal and to stay close to the brands that they love. So that's what we've seen and what we're seeing right now and why we continue to be optimistic about our full-year guidance.

Robbie Ohmes, Bank of America.

Hey, good morning, guys. My two questions; maybe first, just a follow-up on Randy's questioning. Can you guys talk a little bit more about the revenue cadence you expect for 2022? Do growth rates, if -- given the way the first quarter's happened and noting that it sounds like traffic more recently has gotten better, but John and Sam, should we expect kind of a slower growth rate for revenues in the second quarter and then the initiatives will be more realized or driving better growth, digital advertising, things like that in the third and fourth quarter? Maybe some thoughts there.

And then the second question, you brought up a little bit more on the wholesale side. Wholesale is still very small for you. Same thing: would you see wholesale account shipments building more dramatically this year as you move through the year that could support outsized revenue growth in the back half versus the front half? Thanks.

Both great questions. Thanks, Robbie. Go ahead, Sam.

Sorry, John. Go ahead. I'll follow you.

Sounds good. It sounds like we've got a good tug-o-war. And Sam let me win this one. But he'll get me on the next one. Those are all good questions. Why don't I -- Sam, I will take question two and why don't you take question one? How's that?

Sounds good.

I'll jump in then on question two specifically around wholesale, Robbie. You are spot on. You're hearing it as we talk about it. We like the momentum, and while we did see traffic headwinds the first couple months of Q1 in particular on the dotcom business, on an overall whole, our B2B business, our wholesale business has continued to maintain year-over-year -- good solid year-over-year growth.

And so we do like what's happening there. We've always said we want to be where our customers want us to be and where customers are showing -- not through just what they're saying, but also showing us through how they are spending. We want to be where they want to be, and ultimately, what we have seen is in this first quarter there has been really good solid demand through retailers. And the retailers, of course, then are excited to roll that into seasonally Q2 and the rest of the year.

So you are going to see us leaning into meeting demand where the demand is. And as such, as we've been saying for the last many months since even before we went public, in terms of our long-term trend, we still expect for DTC, which I think Sam just talked about being roughly 88% of our business in 2021, we do continue to see that or expect that to trend more towards an 80/20: 80% direct to consumer and then 20% through wholesale.

And that was already planned and reflected. We saw these trends happening over the last year and are going to continue to lean into them. So in terms of the wholesale business, we definitely will lean into the wholesale opportunity throughout this year. And you will see that play out as we get to the latter months or the latter quarters.

And John, is the exclusive product, are you sort of setting up holiday assortments that are exclusive for some of these big retailers? And so you could have outsized shipments of some of this newer product hitting in, say, third quarter?

That's right; that's exactly right. From a planning perspective, that's when you would see it. You wouldn't see those exclusive SKUs. It takes time to just get them together and get the marketing material and the product packaged and whatnot. So it is a back half of this year.

And again, because of the holiday ramp-up for the retailers, it's likely to be in Q3. I could say that it potentially carries into the first part of Q4, but I would say middle to late Q3 and then early Q4 is where you will see that hit.

Robbie, to your first question on growth, you were spot on. We expect these investments to pay off -- continue to pay off and really deliver through the back half of the year: international, Solo Stove Pi, heat deflectors, and additional investments we're making around the data. And so we'd expect our growth rate to be higher in the back half of the year versus first half of the year.

From a seasonality perspective, just in case you didn't catch it on the call or just to provide a little more color, historically, our first quarter has been around 15% -- sorry, mid-teens, I should say. I shouldn't get so specific [Our sales going to be outside] now. But around a mid-teens, call it, percent for the year. That's been our historical seasonal trend the last few years. And then Q2 is typically kind of call it mid-higher 20%s, higher end of the mid-20%s of total year revenue.

So we'd expect that to be pretty much in line with historical trends. And then again, that growth rate year on year really picking up a bit more in the back half to hit the numbers that we provided in our guidance.

Got it. Thanks so much, guys. Really helpful.

Kaumil Gajrawala, Credit Suisse.

Hi, guys. Good morning. If I could dig in a little bit more to something you just said on one of the earlier questions on DTC is designed for this and you can see and capture trends very quickly. And it gives you the ability to pivot. Can you maybe be more specific on what you do when you pivot? Because in this sort of microenvironment, you may be observing things, but what actual strategies perhaps are in place or what are the changes that you make as you pivot the business?

We talked about this over the last few months, and thanks, Kaumil, for the question here. One of the cool things about our model that we really like about DTC specifically is that there is a high variable cost structure in the business. It's obviously a model where shifting marketing spend make up a large part of our overall SG&A.

And as such, whenever we see conversion rates slowing or traffic slowing, we can then make very real-time decisions about how we are going to pivot or spend differently, particularly around the marketing front. Of course, we get the benefit -- if there's softness, we get the benefit, of course, in the shipping expense line item in SG&A obviously going down if there is softness. But it's primarily around marketing.

I would say the second component, which I was hitting on but I want to just reiterate, is we can also see -- whenever these headwinds hit, we're not just looking at okay, well, traffic is down the first couple months of the quarter and so what are we going to do about the traffic.

But what we're also doing in tandem with that is we're looking at the other factors, like what's happening with our wholesale demand or the demand coming in from our retailers. What's happening with conversion rate. We're looking at what's happening for us internally, what's happening with the KPIs and metrics that really point to the health of our business.

So what you're going to find with us is that we are really relentlessly focused on four key metrics: we're focused on NPS, we're focused on repeat purchase rate, we are focused on referral rate or how much of our business is coming from people telling others about it, and then we're focused on LTV or lifetime value of the customer.

And of course, repeat purchase rate and LTV are pretty well correlated, but if we see those metrics holding or improving despite some of the headwinds or softness that might be happening because of macroeconomic trends, that gives us lots of confidence.

And the reason that should matter to the market and to our shareholders is because it gives us the confidence to make decisions like we're making now to continue to lean in to investments. Because we believe that those investments are going to pay off based on the health that we are seeing through those metrics that I just talked about, those four metrics.

So those are specific things is we're making decisions about how and where to spend our marketing dollars, which is a massive SG&A expense for us. And so it gives us lots of leverage in our business to peel it back or to lean into it based on where there's opportunity. And then number two is our investments into long-term growth and our ability to take those investments and put them to work based on the health that we're seeing in our business on those four key metrics that I've been talking about.

Understood. That's really helpful. And then if I could ask -- this might be too specific, but because you are DTC, you might be able to answer it which was in the beginning of the year, we had Omicron, I suppose, for a few weeks. Then obviously the Russia-Ukraine crisis.

As you were tracking either traffic or maybe conversion over those periods of time, did you see spikes and troughs right around some of these events which might give us a read on consumer confidence and its impact on your business from a macro perspective?

I wouldn't say that it was a specific day: okay, this hit the news and then this happened. But I would say just overall, you just named a few and there is even more than those. As we all know, with gas prices and inflation and the rise in even fast food prices that have pushed through this first quarter in unprecedented ways.

I would just say overall, which I've been talking about, what we've seen is that it feels like to us in what we're seeing come through in our site traffic in real time is that traffic just really got depressed. And it was like consumers were just waiting and seeing and going to see how things played out.

Again, we're encouraged by what we've seen in March in terms of those traffic trends rebounding, which gives us hope. But not hope that we're pushing through our guidance, but gives us hope that we are -- that consumers need to let it sit. It needs to register. They need to understand what it means for them.

And then life kind of continues on and people realize they have to continue to live their lives and make purchasing decisions. So it felt to us like a pause, I would say, and a wait-and-see. And it feels at least -- again, it's early, but just in this month of March, it's felt like they're starting to turn the corner and starting to make decisions again.

Peter Keith, Piper Sandler.

Hey, thanks. Good morning, everyone. It might be a somewhat simplistic question, but just with regard to the full-year guidance, so your sales are in line with where the Street was modeled. The EBITDA is about $20 million lower. Not hearing many complaints around input costs and things like that. So is really this $20 million lower guide is solely do to the three investment initiatives you have? Or are there other factors that I'm not accounting for?

I would say that those are our main inputs is those investments as we go into this year. Again, this year, we have -- thinking of Q1 in particular, where we have layered on investments but have lower seasonal revenue and lower incremental investments around data and innovation and international. Those will weigh particularly on the first quarter and our lighter revenue quarters, but that is driving the incremental spend on the year.

Okay. And is it fair to think about that as something to the tune of an additional $20 million, which again accounts for that lower EBITDA outlook?

Yes, I think --.

That's correct.

Go ahead, John.

Yes, that's correct, Peter. That is spot on. When you think about those three initiatives and the investments that are being made, that is where that is flowing through and you are seeing that on the lower EBITDA.

Okay, great. With some of the new products that are coming out, so I did actually receive my own heat deflector this past weekend and I tried it out Saturday. I think it's a fantastic product, so I think it's going to do well. Sounds like some good news on the Pi pizza oven.

John, you guys have always talked about in the past you are not including new products into the revenue outlook. You are not including international growth in the revenue outlook. Where do you stand today, just given you've got some visibility on heat deflector and maybe Pi? Is this now embedded in the full-year outlook?

Yes, that's a great question, Peter. As they come out, we'll start thinking through them. We haven't shipped any Pi. And so as such, we've taken the softness that we saw in Q1 and we've rolled that into our full-year guidance. We did incorporate what we've seen. Because we've started with shipments and we have a little bit more visibility into the deflector, it's a more reliable prediction for us to put into our model and roll forward into guidance.

The deflector is in; Pi is largely not because we just -- again, it's -- at 3.14, we're a couple weeks into that product in terms of even pre-sales. Still haven't actually shipped it out. So I'd say 50-50. One is in kind of in there, but still early.

Remember, deflector is really a product that's designed to keep people extra warm whenever it is especially cold out. And we didn't get that product launched until -- we started selling it, but not shipping it until late February and then into March. And so we actually missed from a seasonal standpoint -- seasonality standpoint a big opportunity on deflector that we think is going to pay off big later this year in Q4.

But we did not bake that in. We just are looking at our current trends. So that's why you are hearing a little bit of hesitation on my part because yes, deflector is in our guidance, but not the full potential of what we think deflector could do.

Chris Horvers, JPMorgan.

Hi, thanks. This is Megan on for Chris. Just following up on some of the comments around the traffic trends you made in 1Q, can you talk about whether this is consistent across all four brands? And is there anything you're seeing in any of the brands that would suggest the consumer is becoming more price-sensitive? Or do you think maybe it just reflects a return to some more historical seasonal demand patterns where maybe some of the more warm weather products just aren't as top of mind for the consumer?

So it has been consistent across all the brands. And I would say even outside of Solo Brands, the brands that we are networked with that we interact with in the direct-to-consumer space, it feels like this is very consistent across direct to consumer. So it doesn't feel like something that's isolated to a specific brand or a specific price point at this stage.

All that being said, it's hard to say that -- for us to say that this is a return to normalized traffic or consumer behavior. We do have kind of a perfect storm of macroeconomic factors that are weighing in on consumerism right now, particularly that all hit in a very concentrated way at the beginning of this year and of course quarter one.

So again, we've rolled the softness forward that we've seen in an effort to put ourselves in a position to wait and see. But we at the same time are continuing to operate the business and make our investments into long-term growth because of those KPIs I talked about earlier that are pointing to really strong health in the business.

So I don't know that this is a return to normalized. This isn't normal and so this doesn't feel like this is a normalized state, but again, we are going to have to continue to play this out and see how it comes together.

We have been in COVID for two years. Finally Omicron, which is the third wave, kind of starts subsiding and then right on the heels of that, you get the Ukrainian conflict, you get all the runway inflation it feels like we are going through. And then that flows through to gas prices and overall grocery and fast food, the stuff that really hits consumers' pocketbooks and is right in their face. And so it's just hard to say. It really is hard to say.

Yes, that's helpful. And just as a follow-up, are you embedding any increase in promotions on potential price elasticity, especially as we get into the back half? I know you mentioned you raised prices to wholesale, but not on your website. So just how you're thinking about that.

We are not currently planning to be more promotional than we have been in prior years. Again, we think that the strength of our brands and the high referral rates and the high repeat purchase rates along with the product innovation pipeline that we have for new products that are coming out. Peter just mentioned the deflector; Pi has obviously launched but not in consumers' hands yet. The other brands -- Oru, ISLE, and Chubbies -- all have really great products coming out this year.

And we think that combined together with what we're seeing in those KPIs around referral rates and repeat purchase rates that we're going to be in a very solid position to be able to meet and exceed expectations. And most importantly, continue to operate this DTC model the way that we've always set out to do, which is to take great care of our customers and drive loyalty that keeps them to be customers for life.

Great, that's really helpful. Best of luck.

Ryan Sundby, William Blair.

Hey, guys. Thanks for the questions. It sounded like cross-sell had maybe been stronger than expected with the 4,000 customers going to 25,000 by year end there. Could you talk a little bit about, one, what brands or products you are seeing that crossover happen?

Two, maybe with this being a priority moving forward, I guess what inning are we in here in terms of your ability to cross-promote? And then three, does that change your thinking around acquisitions and what kind of a tool that could be moving forward?

Great question; thanks for asking. In terms of where we are from an inning perspective, this is -- like, I don't even know if we've started the game, to be honest. We have done really zero cross-promotion across the brands outside of just announcing to our customers that we -- that these brands are all together under the Solo Brands umbrella. That's the extent.

And that's where you saw that lift, which is super encouraging for us. It is why you are seeing us make significant investments into our data infrastructure. Because we do see -- I mean, we have over about -- I'll call it about 2.4 million customers across all the brands and 25,000 of those customers have purchased from more than one brand.

So in terms of where we are and what the opportunity is in front of us, you can start really understanding and it makes sense why we are so bullish and so confident about making these investments in our data infrastructure.

So that's where we are. And as that rolls over to our strategy with M&A and opportunity there, it doesn't mean that we would change our approach and get hasty with acquisitions. We will continue to be opportunistic and very disciplined in finding direct-to-consumer brands early in their story, large TAMs with really strong customer followings, high NPS scores, with a big concentration of their business coming through their own site versus wholesale.

So all of the factors and criteria that we've been talking about for the last six months and beyond is still in play. But you are right on to allude to or to point to if that's the case and we're in these early innings and we're seeing these crazy increases right out of the gate without much effort up to now, then isn't this a big opportunity? And we do see that along with you and we're going to continue to be opportunistic and look for opportunities in M&A.

But that will probably start becoming a criteria. You might see us, for instance, doing diligence with a potential M&A target, doing a cross-collaboration where we can actually look at their data ahead of time and see how many of their customers are already Solo Brands customers or not. So that's just an extra criteria that will help create a situation where we are able to better assess the right brands to partner with and to acquire.

Super helpful. And then I guess [talking about] the exclusive SKUs for some of the retail partners, John, I think one of them was -- it's a larger fire pit. What is it about that channel or customer that you are seeing the outsized demand for that there versus what you are seeing on your DTC side?

Yes, so specifically, this particular product -- it's called Canyon -- actually was the first version of our Yukon. It was a 30-inch versus our current 27-inch Yukon, which sounds like, oh, it's 3 inches. Actually when you get it in front of you, it is significant in terms of its difference.

And we actually ended up launching the 30-inch Yukon and then peeling it back and redesigning it to a 27-inch because we found that our small parcel carriers, so your FedEx and UPS, that product was too large to fit on their automatic conveyors. And so they had to manually handle it every time, which increased the cost tremendously. But most importantly, created a poor customer experience because the damage rate went up quite high trying to ship that larger pit through traditional small parcel.

So then the option was do we put every single individual Yukon -- 30-inch Yukon on a pallet and ship it LTL to a customer, which just didn't seem like a good customer experience, nor did it seem prudent from a business perspective. We redesigned the Yukon down to 27.

But customers have continued to ask us would you come back out with that model ever? We would pay more for it, etc., etc. So the feedback has been really solid from our customers in wanting in additional option that is even bigger than our current-sized Yukon.

And it just started -- it just clicked that our retail partners are the perfect place to put that product. We ship our product on pallets anyway to our retailers, so that avoids the damage rates with small parcel and then customers are just buying it and walking out of the store with it, which ultimately then they are self-delivering.

So that's what's driving that and why we are so excited about it. And it really fits also the need of our retail partners who have been asking us for an exclusive, for something that would only be found in stores and so that's exactly what we are doing. We will carry it in our own stores as well, so we have for instance our showroom here at our headquarters in Texas and the consumer would be able to come into our store. So it will be essentially a retail-only or a brick-and-mortar-only SKU.

Makes a lot of sense. Thanks.

We have no further questions on the phone line, so I'll hand back.

Great. Well, we are super appreciative of everybody being on the call with us today. We are enthusiastic, as Sam said, about what we have out in front of us. And again, the last thing I would leave us with is just that we are -- we feel that this is exactly what DTC was built for.

We love the connection to our customers; we love the real-time information feed that we get from what's happening with our customers and their willingness to share what's going on. We are optimistic about our investments that we're making for the long term and looking forward to being with all of you again in May to talk about our actual Q1 results and what we are seeing in the market at that time.

This concludes today's call. Thank you for joining. You may now disconnect your lines.