Solo Brands, Inc. (SBDS) Q3 2022 Earnings Report, Transcript and Summary

Good morning. Welcome to the Solo Brands, Inc. Third Quarter Fiscal 2022 Financial Results Call. My name is Jaquita. I will be the moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity to questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to your host, Bruce Williams. Bruce, please go ahead.

Thank you, Operator. 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 in investors.solobrands.com. Today’s call will be hosted by Chief Executive Officer, John Merris; and Chief Financial Officer, Somer Webb. Before we get started, I want to remind everyone that statements made on this call and the earnings release contains statements regarding our financial outlook, business plans and objectives and other future events and developments, including statements about the market potential of our products, anticipated financial performance and our goals and strategies that are forward-looking statements under the federal securities laws. These forward-looking statements now 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 include those described in the company’s earnings release and other filings with the SEC speak only as of today’s date. In addition, our discussion today includes references to certain supplemental non-GAAP financial measures, including net income as adjusted, diluted earnings per share as adjusted, adjusted gross profit, adjusted gross margin, adjusted EBITDA and adjusted EBITDA margin, which should be considered in addition to and not as a substitute for our GAAP results. We use these non-GAAP measures in evaluating our ability to generate earnings, provide consistency and comparability with our past performance and facilitate a period-to-period comparison of our core operating results. Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definition of the referenced non-GAAP measures are included in our earnings release, in our filings with the SEC, which are available on the 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 for joining the call to discuss our third quarter 2022 results. Today, I will begin with a summary of our third quarter results. Then discuss the program on our strategic initiative. I will then turn the call over to Somer to provide an update on our financial performance and outlook. During a quarter with a number of macro headwinds, we executed our strategy and delivered strong results. These results demonstrate the power of our unique business model, our deep connection with our customers and the benefits of our ongoing strategic investments and product innovation. We talk a lot about the importance of our proprietary first-party customer data. Our customer list derived from online marketing efforts is now nearly 4 million, which creates a larger and larger competitive moat around our business as it continues to grow. Our customers not only love our products after their initial purchase, but they often come back and purchase more from us. In addition, our satisfied customers enjoy telling their friends and family about our products, leading to high referral rates. Our D2C model is differentiated and allows us to leverage our deep engagement with our customers to get better insights into what innovation matters most to our current and future customers. By the end of this year, we will have launched more new products than we ever have released in a year and we are just getting started. We plan to continue this strategy into next year with many exciting product releases still to come. I am incredibly proud of our team’s hard work, especially when you consider we have been able to achieve all of this while generating healthy EBITDA margins. The new innovations we launched this year will continue to ramp and drive growth and we believe the best is yet to come in 2023 and beyond. For the third quarter, net sales increased 47.1% to $102.2 million. Our direct-to-consumer sales increased 48.6% to $86.3 million. Sales in our wholesale channel increased 39.7% to $15.9 million. Both new and existing customers responded to the innovative products we offered this quarter, enabling us to continue to grow our database of clients. And importantly, our sales growth was driven by healthy gross margin of 63.3%. We are extremely pleased to see our consumer engagement statistics remain at high levels. Our Net Promoter Score remains best-in-class consistently performing in the 80s. These numbers demonstrate our ability to deliver an experience that our customers value. We continue to make progress executing our strategic initiative; first, innovating and elevating our product offerings; second, building and leveraging our data warehouse to drive conversion and marketing efficiencies; third, expanding our wholesale distribution; and fourth, growing our international business. Turning to product, as mentioned earlier, we are very proud of the amount and quality of innovation introduced during the quarter. We have introduced new products that will improve the experience for our existing customers, as well as products that meaningfully expand our total addressable market. As an example, in Q3, we launched our tabletop firepit, Mesa. Not only does it provide our signature 360-degree airflow technology and come in a variety of colors, it has an attractive price point, which gives more Solo Stove prospects and entry into the brand that is under $100. Mesa’s price point is more accessible and its size is adaptable to many more backyards and patios than the lineup of larger Solo Stove firepits. This is not only increasing the TAM in our direct-to-consumer business, but is also creating momentum in our corporate business. Companies can personalize Mesa through etching, which we believe makes for the perfect corporate gift. We have been very pleased with the initial results, and while it is still early, we believe this product will drive repeat purchases, leading to an increased lifetime value. We have also released additional consumables for Mesa that we will capitalize on in 2023 and beyond. Our new pizza oven, Pi, began to ship in the second quarter and we are pleased with the response so far. During the quarter, we launched additional accessories, including Pi Stand, which has been well received by our customers. We plan to roll out Pi to international markets before the holidays and we similarly look forward to growing our new consumables line for Pi in 2023. In the first half of Q4, we also launched Tower, a smokeless, pellet-fueled patio heater, and Surround, a table that goes around the larger firepits. Additionally, we expanded our colorways program to offer new colored options for all our firepits. As you can tell, we have been busy and are enthusiastic about our new launches. We like the launch timing of these products, especially given the increased traffic and conversion that we historically see in November and December at Solo Stove. ISLE introduced Switch in Q3 and the customer response has been good. In fact, we have had a hard time keeping Switch in stock due to strong demand. As with all our brands, innovation will be a meaningful catalyst through ISLE achieving the potential we saw when we acquired it in 2021. In addition to innovation, we have a strong leadership team in place at ISLE and we feel confident in its future. Our investments in data are central to our strategy and help differentiate our platform. We are encouraged to see a continued increase in spending by customers across multiple of our brands. By the end of the third quarter, 57,000 customers have purchased from more than one brand, and with over 3.4 million customers, we have significant runway to continue to grow this number. In addition, we were able to achieve efficiencies in our marketing spend during the quarter in a challenging advertising environment. As mentioned earlier, our investments in data have been crucial in allowing us to be more precise with our innovation and to achieve a higher probability of success. In terms of our channel expansion, we continue to see success expanding doors with retail partners. During the quarter, we entered into an agreement with Costco to sell our legacy Solo Stove 1.0 product. We are excited about this opportunity because we believe it broadens our reach to a new customer demographic. The Chubbies brand is also gaining momentum in the wholesale channel and we are excited to significantly expand the brand to most doors at Dick’s Sporting Goods in 2023. Our International business is also beginning to form direct relationships with top retailers and we are proud to be kicking off a Solo Stove partnership with Canadian Tire. In closing, we are incredibly pleased to deliver strong results this quarter in the face of a challenging economic backdrop. While we recognize that the macro environment is dynamic and quickly evolving, we believe that we are positioned with a compelling collection of products and a range of price points to meet our customers where they need us to be. We are not immune to current market conditions, but we are focused on what we can control, which is continuing to innovate and elevate our product offering to grow organically, while at the same time maintaining a disciplined approach to expense management, allowing us to deliver long-term profits and topline growth. I will now turn the call over to, Somer, to give a more detailed review of our third quarter results and overall outlook.

Thanks, John, and good morning, everyone. Today, I will walk you through our third quarter results and then provide some commentary on our outlook for 2022. We are extremely pleased with our third quarter results. Our performance was driven by both the continued growth of our core products throughout all channels, as well as strong response to new products we introduced to the market. This led to better than expected top and bottomline results. We believe that our operating model is a key differentiator for us. Our healthy margins and low financial leverage allow us to reinvest into innovation and high returning strategic initiatives that will benefit us into 2023 and beyond despite the uncertain economic environment. Our Q3 results begin to demonstrate the returns we expected on our investments in innovation. Turning to our third quarter results, net sales increased 47.1% to $102.2 million, compared to $69.4 million in the prior year period. Sales in the third quarter were driven by contribution from acquisitions, new customer growth and the launch of new products, including the Solo Stove Mesa. Our direct-to-consumer sales increased 48.6% to $86.3 million, compared to $58.1 million in the same period in the prior year. Wholesale net sales increased 39.7% to $15.9 million, compared to $11.4 million in the prior year. Our direct-to-consumer business remains roughly 85% of total sales, in line with our historical blend of channel mix. Moving to gross profit. Gross profit increased 57.8% to $64.7 million. Our gross margin rate was 63.3%, compared to 59.1% in the prior year. Adjusting for the impact of purchase accounting adjustments related to fair value write-up of inventory, adjusted gross profit increased 39.1% to $64.7 million. Adjusted gross margin was 63.3%, compared to 67% in the prior year, which was impacted by the gross margin profile of our Q3 2021 acquisition and higher inbound freight. Selling, general and administrative expenses for the third quarter increased $59.5 million or 58.2% of net sales, as compared to $28.6 million in the same period last year. The increase included $9.2 million of activity related to businesses acquired in the third quarter of 2021 and did not have activity for the full comparative period. The remaining variance was driven by $13.5 million of higher fixed costs and $8.1 million of incremental variable cost. The fixed cost increases were primarily due to investments in long-term strategic initiatives, increasing our warehouse footprint across the globe, costs associated with becoming a public company and increased headcount. The variable cost increases were primarily due to marketing and distribution expenses. Our third quarter net loss was $4 million and net loss per share was $0.03. Third quarter adjusted net income was $7.6 million and our adjusted EPS was $0.15. During the quarter, we continued to invest in our long-term strategic initiatives in data, product innovation and international and delivered adjusted EBITDA of $11.2 million and adjusted EBITDA margin of 11%. Now turning to the balance sheet. At the end of the period, we had $17.2 million in cash and cash equivalents. As of September 30th, we had $77.5 million in outstanding borrowings under the revolving credit facility and $97.5 million under the term loan agreement. The borrowing capacity on the revolving credit facility was $350 million as of September 30th, leaving $272.5 million of availability. We have a strong liquidity position and we believe we are able to take advantage of strategic opportunities with a net leverage that remains less than 2 times. Inventory at the end of the third quarter was $165.8 million. The increase is due to a combination of higher in-transit inventory and wholesale inventory for Q1 orders, driven by international expansion, new product launches and 2023 wholesale pre-bookings. We expect the third quarter will be our peak inventory period in dollars and we anticipate levels to be lower in Q4 and Q1 as we exit the holiday season. Turning to our full year outlook, although we are excited about the pipeline of innovation we will launch this year, we recognize that consumers are facing a number of pressures and the macroeconomic environment is uncertain. In addition, we have a significant amount of business in front of us given the fourth quarter has historically accounted for 35% to 40% of our sales. Taking into consideration these factors and current levels of volatility, we are tempering our revenue expectations and now expect 15% to 20% year-over-year topline growth. We continue to expect our adjusted gross margin to be 60% plus and adjusted EBITDA margin in the mid-teens for the full year. In closing, I’d be remiss if I didn’t call out our teams for their incredible work in delivering new and exciting products to our customers. I believe we are just starting to scratch the surface on our market potential. With that said, our financial strength is our highest priority and we are actively monitoring the health of the consumer and the shifts in the economy. We will continue to be nimble and deliberate in navigating the waters ahead. Solo Brands remain focused on our long-term growth strategy and initiatives that will drive positive returns for our customers, team and shareholders. I will now turn the call over to the Operator to begin Q&A.

Absolutely. [Operator Instructions] The first question comes from the line of Robby Ohmes with Bank of America. You may proceed.

Hey. Good morning, john and Somer. Great quarter. I think I am going to ask the question everybody is going to ask which is, can -- the guidance implies that fourth quarter revenues will actually decline year-over-year after a really strong third quarter, can you -- I think number one, are there current patterns you are seeing in either D2C or is there buying changes with wholesale partners? And maybe also, could you help us think about how you are thinking D2C versus wholesale is going to play out and how we should model that for the fourth quarter?

Yeah. Thanks, Robby. Appreciate the question. So first, just talking about the guidance shift that we are putting forth, especially after what we are seeing as a very strong quarter in Q3 and the momentum that we had coming out of it. What you are hearing from us on the guidance is really just our view at wanting to take a balanced approach to looking at the momentum that we had in Q3 moving forward and even some of the momentum that rolled into Q4and balancing that with just an ongoing volatility and uncertainty that we are hearing everywhere from consumers. Remember that because there’s so much concentration especially the last six weeks of the year, for our Solo Stove business, in particular, because of our seasonality, we just feel that this balanced approach to guidance is the right move even though we are seeing the momentum, obviously, coming out of Q3 that we saw. In terms of -- I will kind of answer the part about are we seeing more softness in wholesale or D2C, as well as I talk through the mix, that we are expecting both short- and long-term. But overall, it’s not -- there’s nothing drastic happening in any one area of the business that’s leading to that more than just this overarching thematic volatility that, I think, all of us are aware of that’s happening in the market. Wholesale, as you heard in the Q3 results, wholesale and D2C, both we saw a lot of balance there in terms of year-over-year growth. We are very pleased with how that balance came through. You heard Somer talk about this, but we are maintaining right at that 85-15 mix between the two. I think if you think about our mix long term, again, we have talked about this, but the 80-20 split is kind of where we are continuing to target and expect the business to operate at as we look at least out to the next year to three years with 80% being D2C and 20%-ish being wholesale.

Got you. That’s very helpful. And just a quick follow-up, the liquidity and in terms of being able to take advantage of strategic opportunity, can you just sort of remind us how you guys are thinking about further acquisitions?

Yeah. Absolutely. So we are continuing to look and build relationships with founder owned and operated businesses that we see as strategic and additive to our long-term growth strategy and overall strategic -- the strategic places that we want to be as a family of brands. We also are cognizant of the fact that right now, cost of capital, cost of cash is going up and our stock itself from a valuation standpoint is just very cheap and so those two factors make acquisitions probably more difficult for us than they might otherwise be. But we are continuing to evaluate. We do believe that especially in the future, acquisition opportunities are going to get cheaper. We think that there are going to be great opportunities for us to lean into and we are continuing to evaluate and talk to companies on a weekly basis. So there is a lot of activity there. Hard to say or lean into. We certainly don’t feel that we need acquisitions. We are going to continue to focus on driving organic growth. Right now, it feels like investing cash into our strategic initiatives is delivering the best return on that capital. But if we found the right opportunity and we felt like a new acquisition could be additive to those strategic initiatives, you could definitely expect to see us lean into that.

Great. Thanks, John. Best of luck for the holiday season.

Thanks, Robby.

Thank you. The next question comes from the line of Peter Keith with Piper Sandler. You may proceed.

Hi. Thanks. Good morning, everyone. I wanted to just dig in a little bit deeper on the new Costco relationship. Certainly, it seems like a great opportunity for Solo Stove. Although, maybe just talk about the balance and how that won’t cannibalize your existing D2C business or upset any of your existing wholesale partners where the prices on the month or Q might be a little bit higher than what’s offered at Costco?

Yeah. Great question. Thank you, Peter. We have been in conversations with Costco for multiple years. In the past, we have been pretty prescriptive about how we wanted this relationship to work and initially we ended up deciding collectively Costco and us not to move forward in prior years. Costco had leaned into actually a competitive knockoff product in store and we kind of felt like it was -- they had moved on and it was over, and then we were able to resurrect that partnership this year with this opportunity with our Bonfire to start out in 1.0. And what I would tell you is what we have said before, which is that our focus with wholesale is to be where our customers want and need us to be. And secondarily, we look to be in partnerships or with retailers that are bringing us an audience that we may not already be in front of. We believe that Costco does both of these things for us. We have been careful with the amount of inventory that we are putting there, so that we are not over saturating or taking away from our other retail partners. We think we have been careful there. We have also come to a really good arrangement with Costco in terms of the way that they are approaching pricing with the consumers in their stores. So, so far, so good, sell-through has been ahead of pace from what Costco or us expected initially. While we initially thought it would just be a focused effort around the Bonfire 1.0 product, we have already started conversations at their request looking into spring of 2023 with additional SKUs as they see opportunities to grow the relationship. You are going to see us be very balanced here. We are going to be careful, to your point, not to threaten the relationships with our other key retail partners and also making sure that we are not undermining the B2C business. So it is a balance. We feel like we are striking that balance well right now and there seems to be significant demand coming through that channel even with that balanced approach.

Okay. Sounds good. And John, you had mentioned Costco was selling a knockoff product, sounds like they have taken that away. There’s been some other knockoff products that look like clear patent violations in the marketplace. Any updates on your success there on closing some of those down?

Yeah. Great question. Yeah. Costco did remove that knockoff product, which was a big win for us as we leaned into that partnership. But additionally, we actually had a successful close to some litigation that we were in with a knockoff product that came through from an organization that was licensing the Duraflame trademark and so we are very pleased with the result there. We have had smaller but consistent significant enforcement wins with other knockoffs as well that are either no names or less well-known names, particularly as you mentioned, coming through marketplace. So, overall, we are pleased with our ability to protect the IP that we have, and again, that significant win with Duraflame and SAS was important to us.

Okay. Sounds good. Thanks so much and good luck.

Thank you.

Thank you. The next question comes from the line of Randy Konik with Jefferies. You may proceed.

Hey, guys. Thanks for the help. I just want to get some perspective on how we should be thinking about, just longer term, where you think kind of margins may sit for the business. Recognizing you have seen some freight headwinds. We have definitely seen some SG&A dollar growth ahead of sales growth. Just kind of trying to get a feel for maybe where you think long-term margins may sit versus the last couple years and so on and so forth, because again, I think what the market is trying to understand is where the profit margins kind of adjust to longer term after we get through the fourth quarter and especially considering that the consumer feels choppy, but your business feels okay right now against the more conservative sales backdrop of guidance for the fourth quarter, which probably feels kind of conservative, which is great. So just kind of want your thoughts on just how we should be thinking about maybe not quantify the margins, but maybe point us in the right direction on how margins would play out over the next few years? Thanks, guys.

Yeah. Great questions. So when we are thinking about margins, I will start with gross margin and inbound freight. We had a little bit of a dynamic this year where we were locked into contract. We started buying at kind of the higher rates when freight was still high in the March, April, May, June timeframe. Obviously, we have seen them come down. What we are working through on the inventory on the balance sheet is that with the higher freight. We do expect that to abate in 2023 as we work through that inventory over the holiday season. I would quantify that as about 100 basis points to 150 basis points of pressure that we are seeing right now on our gross margin. As far as EBITDA margins, we are working through the 2023 planning cycle right now. So I won’t give specific guidance on 2023. But what I will say is, we did make significant investments in data, product innovation and international this year. We do expect to get operating leverage as we continue to move forward and grow the business. Our -- over the long run, in the next two years to three years, we expect to be back at 20% EBITDA margin. That’s where we believe that the business will run kind of in the long-term. We will continue to make investments in the long-term, but we expect that our EBITDA margins over the next two years to three years will settle out at 20%.

That’s super helpful. And then maybe, John, maybe I could follow up with you around cost to acquire customer’s trends from your vantage point. You have a nice healthy list of in 3.5 million -- 3.4 million customers, I think, you said. We know what’s gone on in the market around you with Apple iOS privacy changes. Maybe it would be very helpful to get your perspective on how this kind of plays out, broadly speaking from a CAC perspective, from your vantage point? And then how you think about what you are -- maybe broad level and then to you -- your company specifically, what you think about your trends of cost to acquire new customers will do versus the broader trend going forward? Thanks.

Yeah. Thanks, Randy. It’s a great question and it really is a great opportunity for us to talk about the differentiation of our platform. This is exactly what makes Solo Brands so special. We have talked on previous calls this year about the rise of the customer acquisition costs that we have seen this year. Somer, I think, mentioned on our last call that it’s been roughly 20%-ish or so more expensive to acquire the customer up through the first half of this year. I am excited to share that in Q3 we actually saw a reversal of that trend. So a lot of people were asking us, do you think that it’s leveled out, is it going to continue to get more expensive? How do you know it’s at the bottom? Q3 we executed well and we actually saw the reversal. So on a year-over-year trend basis, we saw contribution go up. We started seeing the consumer convert at a better pace. Let me talk for a second about what drives that and how that’s happening. I think that this is really important particularly because it’s differentiated with the way that Solo Brands is executing. The first is that we have this direct connection with our customers. You talked about it, these 3.4 million customers. But these aren’t just customers that have purchased in a store or whatever. These are customers that have purchased through our site. And so we have their information. We are able to communicate with them and where that comes, in particular, handy is when we talk about our investments into product innovation in particular. Let’s go to Solo Stove, as an example, in Q3 with the launch of Mesa, which we are super excited about. Mesa what we saw is it did two things for us. It allowed us to reactivate existing cohorts of customers who were pulled back in to participate with the brand with a really cool lower price point, whether it’s -- that they wanted to use it as a gift or they wanted to add it for an easier, faster experience to participate with the brand. But then we also saw a much faster rate at the acquisition of new customers. Whenever we can leverage our customer list with new innovation to drive purchases it’s going to lower our customer acquisition costs, and ultimately, not only drive customer acquisition cost down, but what we saw with Mesa early signs is that the LTV-to-CAC ratio goes up as we are able to pull those customers, those new customers and convert them not only to Mesa, but then upgrade them to a larger firepit down the line. So we believe that, again, as we said in the middle of the year, customer acquisition costs have leveled out. We don’t expect to be back to where we were at 2020 and 2021 in terms of the lowness of the customer acquisition cost, but we do believe that we saw a flattening out or a bottoming out of what those costs would look like around the middle of the year and saw slight improvements in Q3 that we are excited about. The product innovation that we are launching is a key contributor to keeping customer acquisition costs down, because again, the cost to acquire new customers through -- via email is so much lower than relying on only digital channel.

Yeah. Super helpful. Thank you so much.

Thank you. The next question comes from the line of Chris Horvers with JPMorgan. Please proceed.

Thanks. Good morning. I wish I hadn’t bought the propane-powered patio heater prior to this latest product launch. It looks really awesome. Maybe I could follow up, I mean, like it’s so much nicer to burn the wood, and obviously, the technology burns it so well. Maybe just a follow-up on Robby’s question earlier around the guidance for the fourth quarter. So just to clarify, I mean you had talked about momentum exiting the third quarter, are you up quarter-to-date? And then you also mentioned volatility, we are hearing a lot of retail category seeing a lot of volatility in the back half, end of October, early November. I guess, how would you diagnose what’s happened in your business? To what extent was it you are just lapping all this early holiday selling that occurred in 2020 and 2021 versus a change in the consumer and maybe the election having an overhang on the business?

Yeah or an overhang on the market at a minimum, right, whether it’s -- I don’t think that it’s going to be unique to any one company. But -- and Somer will layer on here as well. I think we both have a couple of things to layer on that are consistent. But you just nailed exactly the point that I wanted to make. What makes this Q4 more challenging to forecast than the prior two years is the two factors you just described. The first one is, compared to last year, the election, obviously, there wasn’t anything happening, there wasn’t a distraction there. But most importantly, the biggest factor that we are seeing that’s making it difficult and less predictable is that holiday shopping happened so much earlier last year because of the supply chain challenges. Consumers were out shopping even into the latter part of October, because they were worried that they weren’t going to get the items that they wanted for the holidays to their houses. And so with that and knowing that, again, Black Friday, Cyber Monday and the bulk of holiday shopping is still out in front of us, whereas last year, we had already started seeing some of that, it makes it challenging to get that -- to really be able to predict what the rest of this quarter looks like. So I think you are nailing it. It’s pretty intuitive and I think everybody understands it. But just to articulate it from our standpoint, that’s part of the factor on guidance and I will have Somer kind of step in and talk a little bit more about what she’s seeing.

Yeah. I will just add that to John’s point and you hit it on the head as well is, we came out of Q3 feeling really good. We saw momentum, we saw that it was continuing to actually build and then we started seeing kind of some unpredictability in consumer’s behavior. And so when we looked at guidance, that’s what we use, is kind of a balanced approach of the unpredictable nature of the consumer, whether it was the election, whether it was the pull forward, whether it was the sense of urgency with holiday spending last year or the consumer is changing, we decided to take a balanced view to Q4, which was hard with some of the data points that we were seeing coming out of Q3. So, but we believe this is the balanced approach. The consumer seems -- ought to be a little bit unpredictable. The macroeconomic factors that are going on right now are unpredictable and so we chose to take a balanced approach for the fourth quarter.

Got it. That’s very helpful. And just in terms of like, as you think about that and the potential for promotion, we are hearing from a lot of retailers that the consumer is really responsive around events and promotion. To what extent did you embed incremental promotionality into the fourth quarter and have you maintained the pricing architecture that you wanted and that you laid out a year ago?

Yeah. Thanks, Chris, for the question. We are really pleased with the discipline that we have shown throughout the year with our promotional strategy. So we have not been more promotional this year up to this point. And what that’s putting us in a position to do is to maintain our -- the promotional levels that we were at this time last year. So we don’t have any anticipation of being more promotional than we have been. If anything, we have been slightly beneath and/or at the promotional levels that we were last year and we anticipate our ability to continue to do that. The consumers are responding well. We also have, again, like you mentioned, a lot of new innovation that’s coming through. You don’t have to be as promotional on new innovation, because consumers, especially our existing customers are so excited to come back through and participate with the brand. So, again, just going back to the power of those investments in innovation that we decided early on this year that we were going to lean into heavily and that is really paying off for us in this timeframe where customers. On a general basis, I’d say, we are hearing consistently across most brands are expecting more promotions. We are not seeing that we have to do that in order to still achieve our growth targets.

Great. Thank you very much.

Thank you. The next question comes from the line of Ryan Sundby with William Blair. You may proceed.

Hi, guys. Thanks for the question. John, last quarter, you mentioned Pi was highly incremental to the Solo database. I guess, one, has that still held through today, and then two, how should we think about that with other new innovation you have coming with something like Tower?

Yeah. Obviously, completely different categories, so new cohorts of customers, some are existing customers that are now being participants in new categories, and then we are also seeing, with Tower, as an example, a new base of customers that hadn’t been brand participants in the past that are excited about us getting into this patio heating game that’s really been uninnovated over the last several decades. Pi continues to do well. We are really pleased with the launch of Pi this year and what it’s done for us in terms of bringing, again, new enthusiasts gets us a little bit more into the kind of the food space -- the backyard food space, which we like, at least as it pertains to some of these more gathering, good moment, lasting memory type products that Pi obviously creates and allowing families and friends to gather and make pizzas. What we are especially pleased with that product is just what people are saying in the reviews. It’s been tremendous. In fact, unsolicited, we actually just got word on Pi in the last couple of weeks that it was selected as Oprah’s -- one of Oprah’s best of gifts for the holidays, which if you guys are familiar with is a huge deal. It’s not an advertising gimmick. You don’t pay to play. It’s truly the products that she use that have come on her radar that she’s just fell in love with and the fact that she recognized Pi as that and threw it in to her gift guide for the holidays, it’s pretty awesome. So we are happy with that product and looking forward to continue to grow that category next year and beyond.

Got it. And then maybe just a follow-up on Mesa, from a psychological standpoint, how important is it to be out there with a sub $100 offering and then is there anything you can point to in the past, whether it would be upgrades from Ranger to Bonfire to Yukon or maybe some of the accessories, in terms of, what we should expect from kind of an upgrade cycle over time there?

Yeah. I mean, with so much innovation, we are finding that there’s so many ways for us to drive retention in the business in addition to driving new acquisition, which we all have been saying for the last year that we are very early and there’s a huge addressable market that we haven’t tapped into on just our core products, particularly the firepit business. But Mesa is definitely a fantastic product and really, really great from a timing perspective as well with the current headwinds and economic conditions that we are facing. This entry-level price point to the brand, to allow participants to come in and be a part of the Solo Stove community and start participating across really all of our brands, from a timing perspective, couldn’t have been better. So we are really stoked about that. And again, I mentioned this earlier, we are also excited about early signs that we are seeing in the data of customers coming in for the first time. So the adoption with our existing customers on Mesa has been tremendous, but we have been equally excited about the acquisition opportunity and increase that it created to attracting new customers, new brand participants. And what we are seeing early is that those customers are having a great experience with Mesa, and they are choosing to then upgrade and get into a Ranger or a Bonfire. So we like those trends. I don’t have data off-hand to share with you in terms of customers upgrading from a Ranger to a Bonfire or Bonfire to Yukon or starting with Yukon and then going more portable down to a Bonfire. But what I can tell you is that the average unit per order across our customer cohorts is increasing. So we are seeing customers purchase more items on their purchases than we have historically, which goes to show, again, the success of this innovation that we are launching and customers willing to be bigger and broader brand participants with us.

Yeah. Great to hear. Thanks, guys.

Thank you. The next question comes from the line of Chasen Bender with Citi. You may proceed.

Great. Thanks for taking the question. I appreciate all the color you guys offered about all the new innovation coming through, really exciting stuff. And I know you don’t talk about it at a brand level, but is there any way you can wrap some commentary around how each of the various brands are kind of performing and how they kind of progress in terms of monthly cadence throughout the quarter?

Yeah. We have talked about this in the past. But Solo Stove is -- seasonally Q4 is generally the brand that has the most to offer. The other three brands are primarily warm mother -- warm weather brands. But, obviously, holiday -- the holiday sales offset that slightly. So, generally, Solo Stove will ramp up throughout the quarter. The same goes for the other brands that are driven again by holiday shopping and sales. So the biggest contributor in the quarter is Stove, particularly because of the seasonality. And then all of the brands experience a very similar ramp in terms of the beginning of the quarter being the slower part of the quarter and then it ramping throughout the quarter, probably, peaking the last week of November, early December and then continuing to be pretty strong through the end of December.

Got it. Thank you for that. And then I know it’s still a super small portion of the business, but could you maybe just comment on the International side of the business and how the expansion there is going? And then just juxtapose against the U.S. dollar strength, maybe how you are thinking about pricing in those markets? Thanks.

Yeah. I will maybe start with pricing and then reverse back to kind of what we are seeing internationally. So, generally, the way we are approaching those markets is to have them operate with a very similar financial profile to our domestic business. So as we think about pricing, we are factoring in the same thing we are domestically. What is the cost of goods, which includes the freight in expense to get the product into those international markets, and then ultimately, what is the customer acquisition cost that we are driving to or looking to drive to a similar contribution margin as we have here domestically. International has been interesting and fun to watch this year for us. We have been very pleased with the kickoff of our International business, particularly Solo Stove who leaned in first and then the other brands which are basically kind of more of a rinse and repeat. So we have been able to kind of use Stove -- the Stove business as a catalyst to then drive international expansion for the other three brands in the platform. I will say that in the last four weeks to six weeks, it feels that internationally, there has been a shift, the macro conditions, the macroeconomic conditions that are happening are obviously not just unique here to the U.S., but they are definitely impacting international markets. And it almost feels like they are being impacted at a more severe rate than domestically. So we are continuing to watch it. It’s been a great year for us internationally. But as we look into 2023, we are definitely keeping an eye on the consumers, the International consumers and how the current market conditions are going to impact them and their buying decisions, the holidays will be important to help indicate that and so we will talk more about that on future calls.

Super. Appreciate the color.

Thank you. There are no questions waiting at this time. So I would like to turn the call back over to John Merris, Chief Executive Officer, for the closing remarks following the Q&A.

Yeah. We appreciate everybody being on the call today and for those of you that haven’t, which we are hearing nobody has, but for those of you that haven’t started your holiday shopping, highly recommend you go check out Mesa. It’s a great price point. It’s a great gift. And of course, if you are looking to sports a little bit, Oprah says the Pi oven is the product of the year to get out there. So, but we appreciate everybody being on the call today and look forward to talking to you again in a few months.

That concludes the conference call. Thank you for your participation. You may now disconnect your line.