00:02 Hello, and a warm welcome to the On Holding AG Third Quarter Twenty Twenty One Results Call. My name is Melissa, and I will be your operator. [Operator Instructions] I would now like to hand the conference call over to host, Florian Maag, Head Of Investor Relations and Corporate Finance. You may begin.

00:27 Good afternoon. Good morning and thank you for joining on twenty twenty one in overall conference call and webcast for our third quarter twenty twenty one results. With me today on the call, our Executive Co-Chairman and Co-Founder, Caspar Coppetti; CFO and Co-CEO, Martin Hoffman and Co-CEO, Marc Mauer. 00:47 For the first part, Caspar and Martin will lead through the prepared statements. Afterwards, we are looking forward to open the call for a Q&A session. Before we begin, I would like to remind everyone that the remarks during today's call may contain forward looking statements regarding future events and financial performance within the meaning of the Federal Securities Laws. These forward statements reflect our current expectations and beliefs only. And top statements are subject to certain risks and uncertainties that could cause actual results to differ materially. 01:22 Please refer to our final perspective filed with the Securities and Exchange Commission relating to the company's IPO on September sixteenth twenty twenty one for a detailed discussion of the risks that could cause and actual results to differ materially from those expressed or implied in any forward looking statements meet today. 01:42 Please further note that this call will also contains certain non-IFRS financial measures, such as adjusted EBITDA and adjusted EBITDA margin. One of the company believes, these non-IFRS financial measures will provide useful information for investors, the presentation of this information is not intended to be considered in our isolation or as a substitute for the financial information presented in accordance with IFRS. Please refer to today's release for a reconciliation of our non-IFRS financial measures to the most comparable measures prepared in accordance with the IFRS. 02:17 With that, I will turn the call over first to Caspar followed by Martin for the prepared remarks.

02:26 A warm welcome to all of you joining us today. We're excited to share with you On first quarter results as a public company, and we thank you very much for joining this first call following on successful IPO. We are very pleased to announce that Q3 has been the strongest quarter in the history of the company. In terms of net sales, gross profit and adjusted EBITDA. Global consumer demand for the on brand continue to strongly accelerate as expressed by the fact that all channels reached, and product categories are contributing significantly to On’s hyper-growth. Who have filed that our brand which started twelve years ago with the first prototype consisting of cut pieces of [Indiscernible] to the soul of an old running shoe both developed into a company that generated net sales of Swiss Franc two eighteen million in this past quarter Q3 twenty one? 03:24 We see our recent IPO as a steppingstone in our mission to serve more and more people around the world and have been move with us. We invite everyone to join us on this mission to ignite the human spirit through movement or in short dream on. We will continue discover and explore new frontiers to do things differently and build long-term and during value for all our partners and stakeholders. Given that this is our first earnings call, and some of you may be new to On, we will start with the brief introduction [Indiscernible] history, our core strengths and growth strategy and shed light on how we made progress in the past quarter. We will then deep dive into our quarterly performance and conclude with an outlook and guidance before opening it to Q&A. 04:16 On, this is an innovation company. On was boarding in the Swiss Alps…

13:50 Thank you, Caspar. Let's move on to reviewing our financials for the third quarter of twenty twenty one. As we mentioned in the beginning of today's call, we see an accelerating demand for our brands globally. Our Q3 results are the strong combination of growth and profitability and the first validation of our business model and our long-term targets. Net debt for the quarter were two eighteen million Swiss Frac, up by sixty seven point six percent compared to a third quarter last year when running had already been on fire in many COVID-19 restrictions, had been lifted temporary. So we maintained our strong growth on this elevated level. 14:42 It is driven by the continued success of On’s core strategy, including increasing brand awareness multichannel geographic expansion and the broadening of the product portfolio driven by innovation design and sustainability. Year-to-date, we achieved net sales of five thirty three point five million Swiss Frac, a seventy seven point two percent increase compared to the first nine months last year. And the seventy point one percent CAGR over the past three years, which further validates the strong continued strength of our practice. 15:26 The demand for our products accelerated across both the wholesale the direct-to-consumer channel, as well as all regions and all product categories. As Caspar mentioned, we consider our direct-to-consumer and wholesale channel highly complementary. In Q3, we see the strategy being validated by the strong demand in both channels. DTC grew ninety three percent to seventy five point seven million Swiss Frac and wholesale net sales increased by fifty six point seven percent to one hundred and forty two point three million Swiss Frac. Despite the full reopening of retail stores in most key geographies, we see a very strong continued engagement of existing customers and…

34:40 Thank you for your continued support and trust. Operator, we are ready to begin the Q&A session.

35:01 Thank you. [Operator Instructions] We'll be taking our first question today from Kimberly Greenberger of Morgan Stanley. Kimberly, over to you.

35:15 Great. Thank you so much. Good afternoon and congratulations on the fantastic quarter bright here out of the gate. I wanted to ask about your expansion of factory capacity. I know you were working on diversifying your sourcing base even prior to COVID. But if you just sort of step back and think about the goals you've thought for the business over the next two, three, four years, what's your philosophy about how to develop additional factory capacity and diversify your sourcing base in order to maybe at least partially shield from some of the volatility we're seeing concentrated in Vietnam right now. Thanks so much.

36:11 Yes, welcome everyone also from my side. This is Mart speaking and thank you so much. Kimberly for your question. So, I think what we've already started doing some time ago as we started to prioritize agility over efficiency and that really has allowed us now also to deliver a quarter that we delivered and to navigate through some of the challenges and then we saw over the last years on the demand side, but also on the supply side. So, we will continue to build a very agile and nimble sourcing environment and supply to chain an environment, But that means is first, we'll try to diversify into more countries ideally also countries that are closer to the consumer or some of our consumers, for example, in Europe or closer to North America as long as the capabilities are there, and it is meaningful for us to do so, and we have pilots running in certain countries. The second thing that we continue to do is we will continue to dual source our key styles and key materials. So this is another reason why we're able to move volume around pretty quickly and why basically as soon as the factories reopened, we could start and full speed right out of the gate because the materials and the components were there. So we want to create and continue to create redundancies on the supply chain side. So we can react to very, very fast changing and environment that we basically see there. 37:47 And I think sort obviously, we feel that labor continue to be a very constraint resource and even become more constrained over time, so we're working heavily with all our partners to review the dependency on labor, building warehouses, but also be on the factory side and to make sure we able to automate more and more parts of processes.

38:17 Is very clear Mart. Thank you so much. I wanted to ask about the wholesale as well, if I could. The wholesale revenue this quarter came in well above our expectations. I'm wondering if you can talk about the additional expansion in wholesale, any new partners you brought on, hear this year and what you're seeing in terms of demand in that channel? Thanks so much.

38:45 Thank you Kimberly. I'm also going to answer the that one. On the wholesale side. So in the end the demand that we're seeing, we're seeing that coming from end in the key segments that we're were in the running outdoor and performance all they end and these event consumers shop on our own that's and our own channels, but also with our most important wholesale partners and so the wholesale partners are looking at that demand very, very positively under orders and the order book that we're seeing for the next six months spring summer is we evolve basically kind of what we could have expected. But again we have supply constraints for the first month, and we right now taking orders for the second half of the season. So, with this allows us to do this very strong demand is a very, very sought approach on how to expand our wholesale channels and take the right decision from work with the right partners at the right time. And as part of that, we're doing certain trials and so we've piloted thirty two [Indiscernible] doors in the US. We pilots its ten JD doors in the US and ten JD doors in Europe. And we're seeing very, very strong results. 40:01 We will take wholesale decisions that allow large [Technical Difficulty] go after our mission and some of our key targets, one of it being Indian, the number one brand on Runner seat. So you can expect us to expand wholesale in a way and we can be very, very successful, for example, the refiners in the US. and Running Group.

40:28 Thanks so much good luck year.

40:34 We'll be taking our next question today from Grace Morley of JPMorgan. Grace? Please go ahead.

40:43 Hi, Thank you. This is Grace Morley. Thank you taking my question. I guess firstly, just given the current supply constraints that you are asking, how are you prioritizing the product allocation between your wholesale partners? And direct consumer channel and then you mentioned your pricing power and potential to price increases in media or long-term. Can you comment on what the planning any price increases for next year? And also any cost pressures as we had from some of your competitors? Thank you.

41:20 So I will quickly speak to the first one, I'm Martin, I will speak to the pricing question. So, we spoke about that a few times in the past as well and it's very important to understand on is a true omnichannel brand. And if that we're taking a consumer perspective. So we want to have the product available for the consumer that won that product through the channel of the consumers choice. And what that mean is basically when you look at our running product, we will treat our key running partners in our own and DTC business on the same level when it comes to product prioritization. 41:56 And we will do the same on outdoor and the same on the performance all the side. Now as you know, there is a very, very strong demand on the direct-to-consumer side and that product prioritization on is reflected accordingly in the outlook that we gave. Just one additional comment, which is the important year, we also feel that and of the next couple of months are upgrade opportunity to continue to build shelf space with some of our key partners, and that's also one of the reasons why we prioritize top line. So we can gain additional cells shelf space with some of our partners and can through that kind of take that into twenty two, twenty three as well.

42:44 Then creates focusing on the price increases question. So, on the premium brand and we have significant pricing power in we aimed this premium price level, especially also versus our competitors. So, we are planning selective price increases in spring twenty twenty two. They will focus on North America, and they will be relevant for about forty percent of our volume.

43:22 Great. Thank. And then let me just follow-up with a broader question on the industry. It seems that running footwear seems to be a bright spot across all brands currently. Just wondering what your thoughts what driving actually strength clearly benefited during COVID, but eighteen have gone from strength even as economies happen? Thank you.

43:45 Thank you, Grace. This is Caspar. Yeah I mean you mentioned some of the factors I mean running is a habit many of this call are probably runners. When once you get to the point, but you can run twice three four times a week. It's hard to let go just keeps gives a very good concession. And so I will have to ever for during the pandemic are definitely still in play. But let's also ask forget while when consumers now go back to their gyms, a lot of people do running in gyms and treadmills as well. So our relatively less exposed in industry to do the return to gyms because running is now a part of every workout. So, yes, participation in the sport, and we are in a key position that we can just grow with the industry, but we can take significant market share given the way we have been able to manage our supply in plan for hypergrowth going into twenty twenty two.

44:47 Perfect. Thank you very much.

44:51 Thank you, Grace. We're now going to move over to Michael Binetti of Credit Suisse. Michael, please go ahead.

45:01 Hey. Thank you guys thanks for all the detail and congrats on your first quarter here in public. I just wanted to ask you maybe on the new distribution. You mentioned a few stores of footlocker and a few with JD and I know that you guys have had product in full locker in the past, I think was a long time ago, and I think at the time the thinking on why that didn't go forward a while ago is because you needed probably to bring more of a fashion component to it. You mentioned a few references to lifestyle early on. I know you've been investing in the design team and then some of the assets needed to push further on the lifestyle side, And then so, I'd be curious to hear where you feel like you are on that and how much opportunity there is in retailers like footlockers and JD, in the near term Is that something that we could see start to accelerate significantly here as driven on the lifestyle something you guys been working on?

45:58 Thank you for the question. As you can imagine over eight years, On is most as a brand since we are footlocker the last time and the reason why we feel it's by working in the partners like footlocker and JD is beneficial. Just one of moment point out of view. Right. So, first of all, we're starting from a consumer perspective, and we feel on has an opportunity to target even younger consumer than we already and footlocker and JD are great channels to target at the consumer and we do have the product for that consumers. So this is what the tests are showing their product, especially the cardinal resonating extremely relative that step consumer base. And so we very much realize this this an opportunity to capture that additional and opportunity then. 46:54 Second topic is on is attracting a very female consumer as well and we are able to bring a more female consumer into some of these channels, which stay very much appreciated, so we're paid in kind of a main situation in there. And then probably third one, we're working a lot here the product. So, JD and footlocker have a very, very different differentiated product assortment to, for example our free feed or some of our own special retailers. So we feel On has a size and has assortment so we can efficiently target several consumer segments through different partners, and we saw very, very detailed hearing always stay premium in terms of partnering, but also in terms of pricing. And first, and trial show that is successfully working and you can expect and long to take additional but always really, really and so through and slow and making sure we're taking the right steps at the right now.

47:59 Okay. And then if I can ask a follow-up, as you look at next year, I thought it was interesting that you were able to guide of sustainable thirteen percent EBITDA margins. And frankly, that's far off what we heard as we talked to you through the IPO process about where you thought the business would be next year, but you did point to some very heavy gross margin pressure from airfreight and know it starts in the fourth quarter and the first quarter. I think that makes it very impressive than you're able to still guide to flat EBITDA margins next year, But maybe could you help us think about maybe some of the how to think about SG&A versus gross margin next year how you are building to that in your model? Then maybe even first half versus the second half that we understand what some of the dynamics are going to be here as you guys go through the supply constraint that you pointed to?

48:48 Yes, I'm happy to Michael. So, I think looking at our Q3 results, that validates our long term targets that we discussed and given and for Q4 now and order for half year next year, we expect that those long term goals are impacted on higher and above average airfreight cost, which is the key driver for lower gross profit margin and also EBITDA margin. And this impact is in the end reflected in the thirteen percent guidance that we have given both in twenty twenty one which proceeds the impact in Q4 and then for twenty twenty two, which proceeds the impact in half year and we also considered their team the upside from the price increases and also as we always committed to grow top line and in profitability in line, of course, we will also grow our SG&A cost base carefully and under consideration of the current circumstances and the higher the higher freight cost, but we also mentioned it on the call, especially in the next two quarters, we will clearly prioritize our top line versus profitability because for us, it's super important that our consumers can buy our products that our retailers have sufficient amount of product that we the keep our share space and business then also considered in the nine hundred and two one thousand basis points impact from the airfreight that we proceed in Q4 and Q1.

50:37 Okay. Very helpful congrats again guys, thank you.

50:42 Thank you, Michael.

50:46 Thank you, Michael. We'll now be taking our next question from [Indiscernible] UBS. Jay. Please proceed with your question.

50:55 Great. Thank you so much. You would to be possible to elaborate a little bit on the growth you saw in Europe in the quarter. Was a strength concentrated in some of the countries like Germany, and so sort where the companies had – are already a strong base, I mean, did you see was a growth broad base? Are you seeing increasing momentum in some of the other countries across Europe? Thank you.

51:18 Yes. Thank you. Thank you for the question. So the good thing is, I mean, we're seeing that the growth is very much distributed across many countries. It's also on the wholesale side definitely impacted by some of kind of the lockdown that we still saw happening on in the third quarter, but beforehand, what we're seeing as UK is very strong. So UK still comp a bit smaller to some of the other markets and we're investing heavily. So this has been very, very positive and Germany, Switzerland as well as Austria and continue and to basically deliver strong results and then we see that we have a lot of opportunity and still in France. For example, and we're building putting kind of lots of pieces in place, so we can capture that. The order thing, I want to point out which we didn't talk to at is that it's not only footprint it has delivered to it. So especially also apparel has been very strong in some of our European markets and has delivered a very, very strong growth of that.

52:24 Great. And then if I can ask you just about the fiscal twenty guidance based on what you've seen from the stores that you have opened. I mean, what is your thought about store growth as we think about the model twenty two and also e-commerce what e-commerce capabilities what you had to be able to enhance the e commerce growth that you'll have all over the world? Thank you.

52:46 Let me quickly start on store growth and maybe Caspar, you can elaborate a bit more on the e-commerce side, so on the stores side, that the biggest part of the stores will definitely come from China as we continue to build our network stores in China, we're already at eight stores as of today and they're all working very, very well and together with our with Chemo and JD really shaping that environment. And at the same time, we'll continue to roll out on experiences in the key cities across the globe. So we're planning to roll out two for example, top in London and some of the next locations. You can also expect some of the key cities in the U. S. And to get [Technical Difficulty] retail partners, we have the opportunity to bring on to life in a very, very differentiated way together with them and we spoke about tariffs and we're having a concept that starting to roll out if not strong, for example, that has delivered very, very strong results, especially also in the apparel side. So we'll definitely continue to build this on our encompassing brand experience.

54:01 And happy to follow-up well on the DTC question. We've seeing very, very strong demand across our regions and a lot of that demand is converted in our own DTC website. If you look at the mix, the ratio between new customers and existing customers roughly stays the same, which means that we're still bringing a lot of new people to the On brand. At the same time, the elevated brand awareness that we're seeing especially in US now through drives more consumers to our website on their own terms, and this is something that when we look into the next year, we will continue to explore how to find ways, we'll continue to find ways where we're not too reliant on the two big online add providers. But we have many many channels that lead consumers to our website. And we're also investing in our own data capture [Indiscernible] collateral website. We're planning to bring a new web store online in the second half next year. So there are a number of initiatives that will continue to drive our DTC push and will continue that the DTC channel is growing faster than the wholesales channel.

55:30 Terrific. Thank you so much.

55:35 Thank you, Jay. Our next question we're going to be over to Jim Duffy of Stifel. Jim, line yours.

55:46 Thank you. Hello, everyone. Terrific quarter and outlook given the challenging backdrop. I hope you guys can speak in more detail about the product pipeline looking into twenty twenty two both key new franchises and important updates look floor from existing franchises can you maybe touch on the influence of manufacturing disruption on the new release calendar?

56:10 Happy to talk about the new franchises and Denmark, you can probably take the question on the release calendar. So, we have the three business units, the running outdoor and lifestyle side. So in running our goal is to be the number one brand on runner receipt. And so we are actually adding three very exciting franchises next year that will help us get broader acceptance and hopefully push our market share available ten percent. So the first one is the cloud runner, which will be launched in spring. It's a supportive well cushion at hundred fifty US dollars and the second one is cloud goal, which is the neutral version of that same price point that we expect to be on biggest franchise, I wanted gains enough distribution and we get any enough people speak and then the cloud monster is most cushion product today. So this next cushing segment. That's seeking on top of the cloud strategies such already taking one of top spots in terms of solutions that be launched only in July. So that’s on the running side. On the other side, we have an update of our high [Indiscernible] which has already taken quite to market share especially here in Europe and, but also resonate with established like an RIA in North America. And we're adding a multi assumption outdoor product where it's called the cloud one the kind of like mid product that will be very, very popular for people that are not going to extreme outdoors but are looking for a lot proof through protection well. And then on the formula day year life lifestyle segment, we're adding two [Indiscernible] we have just now presented to in our global meeting last week to very easy to everyone is called the cloud EC basically ultralight slip on product also credited to from sustainability point of view because it’s made out of only six parts versus like an average thirty or thirty five parts that we construct our product of and then last not least, the coverage was due kind of like inspired by track heritage and it brings a new silhouette to the last channel.

58:48 Thank you, Caspar for the overview on the footwear side and please let me reiterate again that our parallel is quarter was one hundred and thirty three percent so there's also a lot of apparel launches coming up next year, and we foresee all of those to happen at the planned. And so there's no impact on the apparel side from a production perspective, now when it comes to launch days, so let's probably just quickly look at the first quarter because that quarter that's most impacted. We launched the next iteration duration of the cloud in the first quarter as planned. So we're able to go ahead with that launch as planned. We're also able to go ahead with on just to come on as planned the first quarter, the main impact can happen on the car runner, and that's going to launch slightly delayed, and we will communicate to our most important retail partners that launch data as soon as it is available. Again, our philosophy is to make sure that’s the product this most relevant to the consumers and they already know when it is available. So we will prioritize existing product over new launches. As they're also contributing a huge part of revenues.

60:09 Excellent. Thanks for that detail overview of the pipeline guys and Caspar really exciting announcement around CleanCloud. Can you speak more about that development process for CleanCloud availability timing and lead do you believe that provides you relative to competitors in the marketplace?

60:30 Absolutely. I'm glad that be years excited as we are. We have a long-term vision of moving away perpetual based raw materials and to full clarity. So with the view of our product back and making new ones part of them. The timeline as you can imagine is challenging and it will be a little bit of a moving target. On, but we hope to get there say majority key of our products are no longer perpetual based. We should get that well before the end of the decade. And so clarity, we will depend on how quickly we can we build the return network and then we're also looking to not just do our own partnering with the industry and retailers, and we'll have you now. When it comes to CleanCloud, this is a project that started about four or five years at ago and it came from the insight that were some biofuels available companies start to capturing carbon from the air and turning into for example checks fuel and what's basically and if you can make, you can make plastics and you can make the stuff that we make our product from. It was a very very challenging timely, we followed maybe three or four weeks on technologies during this time. Was going to too much of them inhaled actually doing the chemical processing plants here somewhere in that small dialing in the Alps, in Switzerland that had access to hydropower because some of these processes that are quite energy intense. And whenever we kind of felt like and now we're there in some will came up. Now with this latest announcement, we feel that we're very close to future bringing this to scale. So we found two very strong partners. [Indiscernible] has had already being…

64:13 Outstanding stuff, thank you, very exciting.

Thank you, Jim. We have another question from Jonathan Komp of Baird. Jonathan, please go ahead.

64:23 Yeah. Thank very much. I want to ask about twenty twenty two. I know you're guiding revenue to grow thirty five percent despite the headwinds in the first half. So wondering if it’s possible to comment on the growth you might be able to achieve for the year. Is it weren't for the constraints that you mentioned on the supply chain and when you think about the second half of twenty two, is it possible to maybe highlight that the most important drivers that you see to the strong growth that you're guiding to?

65:00 So, starting with just the second part, I think the Mart was mentioning that that we are now in the discussions with our key accounts about their following in their orders. So to the order for the second half of the year with a lot of strong feedback from their side, we have our orders for the first half of the year where we will face the supply constraints and we would be able to fulfil the full demand and this is business where we get the confidence from same on our tier 2 consumer channel, customers was mentioning that where we still see a strong growth rate of new customers of repeat customers and as we pointed out, we see that in the second half of the year, we will return to hybrid growth. So in the range of forty percent to fifty percent and respectively in the first half, our number is constrained by the supply. Given on the feedback that we get from our retail partners, we would have seen a similar growth rate in the first half as well.

66:17 Yeah, that's very helpful. Thank you. And then one bigger picture question when you look at your business across the main categories running outdoor and performance all day or lifestyle, How do you think about the long-term dynamic between those categories and even sort of what your business might look like longer term if you roughly split across those broad categories?

66:43 You look very…

66:43 On the innovation company, I'm sorry, Caspar, you go ahead.

66:52 So most of the segments that were in heavily inspired by performance and that's the foundation of our brand. We are in innovation company that hard we bring technologies and solutions to all segments that help consumers have better their experience. Running that means they run faster entry free lights are in outdoor lifestyle, basically they just feel better. They're able to move where [Indiscernible] they will sweat less. So these are major trends that we're ranking on and we're recovering looking over the steer, we have a growth school for lifestyle to stock, we feel that the consumers now expect versatile products and most of our products can lift in one or two of the, sometimes three times [Indiscernible] growth. And that's what's been driving so of these success the brand that they are not just making kind of like a very narrow use case product.

68:10 That, that make sense, very helpful.

68:14 Let me just say, as Caspar pointed out, an innovation company at hard and improvement in running. So [Technical Difficulty] and from a communication and also brand perception perspective very much [Technical Difficulty] [Indiscernible].

68:47 That's great. Thanks again.

68:52 Thank, Jonathan. We're now going take our question from Cristina Fernandez of Telsey. Cristina, over to you.

69:03 Thank you. Good afternoon congratulations on good first quarter. I wanted to see if for next year, can you help us think about growth for the different regions? Any puts and takes based on inventory distribution and also some of the initiatives you have with your wholesale partners?

69:27 Yes look, think. Let's look at three main regions, which is basically North America, Europe and [Indiscernible] If you look at North America. North America will continue to be the key growth driver, move on next year as well. So in terms of absolute number, but also in terms of the growth ever we're seeing and very much also driven by our direct to consumer channel. 69:52 Then when you look at the Europe, various markets where on is already a bit more established like [Indiscernible] Austria and some parts of Germany and then there is a lot of opportunity to continue to grow, for example in the UK and France as we already elaborated. So, Europe will continue to have end growth momentum, but it will be a little bit slower expecting it to be a little bit slower and then in the U. S. and then Asia Pacific very much driven more and more by China, which sees incredible momentum you heard and in the statement upfront also on some of the Q3 events that we had that on double, eleven. So, very strong momentum that we're seeing there, and we assume that the strongest percentage growth number will come from Asia Pacific or specifically China. 70:44 Now inventory luckily again, we are working very hard on having a very nimble and channel supply chain. So that also means that we can react to market differences very, very fast. It's also what you saw reflected in our twenty twenty. Results on the demand side as we were basically in manoeuvring between different markets that had a pure COVID lockdown. So, we are confident that it can make sure that the inventories in the warehouse are according to the demand that we foresee and planning. [Call Ends Abruptly]