Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the SharkNinja Fourth Quarter [2024] (ph) Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. The lines will be open for your questions following the presentation. Please note that this conference is being recorded. I would now like to hand the call over to Arvind Bhatia, Senior Vice President of Investor Relations, to begin the presentation. Thank you. You may begin.

Good morning, and welcome to SharkNinja's fourth quarter 2023 earnings conference call. Joining me on today's call are Mark Barrocas, SharkNinja's Chief Executive Officer; and Larry Flynn, Interim Chief Financial Officer and Chief Accounting Officer. Mark will begin by providing a business update, and Larry will then review our financial results and discuss our 2024 outlook. After that, we will open the call for your questions. By now, everyone should have access to the earnings release for our fourth quarter ended December 31, 2023, issued this morning. The press release is accessible on the company's website at ir.sharkninja.com. Shortly after the conclusion of today's call, our webcast will be archived and available for replay. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it and as such, does include risks and uncertainties. If you refer to SharkNinja's earnings release as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements. Please remember, the company undertakes no obligation to update or revise these forward-looking statements in the future. During the call, we will make a number of references to non-GAAP financial measures. We believe these measures provide investors with useful perspective on the underlying growth trends of the business and have included in our earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. Now, I will turn the call over to Mark.

Thanks, Arvind. It's great to be with everyone this morning. We're thrilled to share with you our excellent top- and bottom-line results for the fourth quarter and full year 2023, our momentum in 2024, which makes us even more excited about the coming year, and our positive long-term outlook driven by our proven three-pillar growth strategy. Let's start by reviewing our operational and financial results. We once again delivered industry-leading performance, gaining market share across both the Shark and Ninja brand portfolios. We had a very strong fourth quarter as adjusted net sales increased nearly 20%. Adjusted EBITDA was up more than 70%. Adjusted gross margin improved nearly 1,000 basis points, and adjusted EBITDA margins expanded almost 500 basis points, which is just incredible. Our outperformance and overall strength demonstrate the power of our innovation engine as our growth was broad-based across categories, customers, channels and geographies. During the critical holiday selling season, consumers responded with excitement and passion around our product offering and our retail partners leaned into our brands. I'm thankful for the continued support and trust in our brands by consumers and retailers. Our full year results underscore our commitment to delivering on our expectations. On a full-year basis, we exceeded the high end of our previously provided guidance across key metrics. We grew adjusted net sales by more than 15% to nearly $4.2 billion. Adjusted EBITDA increased by nearly 39% to $720 million. We expanded adjusted EBITDA margins by nearly 300 basis points to just above 17%. Full year adjusted gross margins improved nearly 700 basis points year-over-year to 46.9%. I'm happy to share that this is well ahead of our longer-term goal of getting back to our pre-COVID adjusted gross margin level of 45%. We believe our strong gross margin rate is a real competitive…

Thank you, Mark, and good morning, everyone. I'll focus my remarks first on our Q4 financial performance and then cover our expectations for 2024 before turning it back over to Mark for closing remarks. As Mark mentioned, our fourth quarter results were very strong. Net sales increased 17% and adjusted net sales, which exclude our divested APAC business, were up 20% to $1.4 billion. We grew adjusted EBITDA 71% to $219 million, with adjusted EBITDA margins increasing more than 470 basis points year-over-year. In terms of top-line performance by region, net sales in North America were up 8% to $973 million, representing 71% of our sales mix. North America POS was even stronger and was up mid-teens. Adjusted net sales in international markets were up 62% to $404 million, including UK, which was up 38%, continuing the strong trend. Retailers leaned into our brands during the holiday season as consumer demand remained strong, leading to reduced week of supply at retailers, which is contributing to the momentum in Q1. Next, let me take a minute to provide color on Q4 performance in our four major product categories. Adjusted net sales in the cleaning category, which includes vacuums, carpet extraction, as well as other floor care products, such as steam mops and wet and dry cleaning floor products, decreased just under 3% to $542 million from $556 million last year. While our sales in the category were down, there were several bright spots. First, we saw a significant sequential improvement relative to the third quarter decline of 9%. Second, sales of our robotic vacuums were up slightly for the quarter after declining earlier in the year. And third, we delivered strong performance in our recently launched carpet extraction subcategory, which continues to perform well here in 2024. Adjusted net sales in…

Thanks, Larry. Some of the takeaways and highlights from today's prepared remarks are: First, in 2023, we delivered very strong results and achieved profitable organic growth fueled by our three-pillar growth strategy. We deployed our best-in-class innovation engine to offer high-performance products that solve consumer problems. We leaned into our always-on omnichannel marketing strategy to create demand and increase brand awareness, and we leveraged our supply chain to achieve success. Second, we're entering 2024 with strong momentum, which we've continued to see in Q1. I could not be more excited for this year as we plan to launch new products, enter new categories, new markets, and reach more households around the world. We're committed to investing back into our business to drive consumer demand, to continue to perfect our state-of-the-art innovation engine, and reinvent and create new categories to delight consumers around the world. We're well-positioned to deliver another strong year. Third, I'm more confident than ever that we're on the right track for the long term. We have a large addressable market that grows with each category we enter, a scalable model that applies to all that we do and a proven track record of organic growth. This is all underpinned by a world-class team that ensures we deliver excellence year after year. We remain committed to our mission of positively impacting people's lives every day and every home around the world while driving growth and profitability and creating significant long-term shareholder value. That concludes our prepared remarks, and I will now turn it over to the operator to kick off Q&A. Operator?

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Randy Konik with Jefferies. Please proceed with your question.

Thanks, guys. Maybe a little bit more than one question. I guess a couple for Mark, couple for Larry. Mark, you talked about international and some things you learned about the UK that are informing you on how to kind of go to market in a better way in Germany, France, Latin America. Maybe share some of those insights. And then, the other thing that's pretty impressive is the continued investment in R&D that continues to pay off. Maybe elaborate on some of the capabilities you've been able to build with that R&D investment over the last few years and kind of some of the capabilities you're working on going forward, that would be super helpful. And then just for Larry, after Mark. When you think about the guidance that you gave, again, impressive especially on the EBITDA dollar line, maybe give us some perspective on what that guidance entails from just category thoughts and then gross margin thoughts in the numbers -- in the plan for the guide for the year, that would be super helpful as well. Thanks, guys.

Yeah. So, I'll start here, Randy. Thanks for the question. So, let's start with the international learnings. I mean, I think, first and foremost, it comes down to do we have the right products for consumers in those markets. I mean, homes are different in Germany and France and elsewhere, Europe and Latin America. Consumer trends are different. So, the first thing was is getting local consumer insights in the markets was a very big change for us. So, we have consumer insights teams in Germany and France. We're in Italy. We're in Spain. We're in Mexico. So, I would say, first, getting the product right and making sure that we are really in tune with consumers in their homes, how they use these products. The second is, I would say, kind of our omni-channel strategy. In every market that we're in, the focus is being relevant where the consumer chooses to shop for our products whether that is online, whether that is brick and mortar. In a country like Germany, brick and mortar still has a very, very high percentage of overall sales, and also a robust direct-to-consumer business. So, we've employed that omnichannel approach in every market that we're in. Third, I would say, is our marketing strategy, TV, social media, experiential events. We're taking those learnings from the UK. We're applying them to all of those markets as well. We're leveraging lots of social media content from one country to another. In fact, I'll give you an interesting insight. Lots of social media that was run in Mexico, how we're taking that content and leveraging it in Spain and vice versa. And then, I would also say that we just had our first EMEA Forum in Mallorca February 1 and 2 where we brought together retailers, influencers,…

Yeah. Thanks for the question, Randy. I guess starting on the EBITDA guide. I think, overall, kind of continued gross margin expansion in the first half, kind of flattish in the second half. So, that's going to drive a lot of that kind of flow-through down to the EBITDA line. From an adjusted OpEx perspective, we're planning for that to be effectively flat as a percentage of sales in 2024. Kind of within the gross margin line specifically, obviously, we've talked about kind of the cost tailwinds that we saw, some of the cost optimization efforts that we've realized and benefited from in the second half of 2023 as we've kind of diversified our supply chain, created dual sourcing capabilities, which has helped us to really kind of optimize our cost base, get obviously cost parity outside of China, but it's also given us kind of leverage as we have competed with our suppliers. So, overall, kind of the gross margin, as we think about the full year, it's 80 basis points to kind of 100 basis points there. And what I would say as we think about the kind of those cost optimization efforts as well, Q4, we also saw category mix benefit us in the gross margin line as we think about beauty growing strongly relative to the rest of the business, D2C growing at a faster pace than the rest of the business. We've also -- ASPs were strong in the fourth quarter, discounted less than expected, really driving demand through our investments in media. And I think those fundamental elements to the gross margin kind of will continue to benefit us in our tools kind of -- in our toolkit I guess as we think about gross margin going forward. From a category perspective, I guess on the top-line, we would look at kind of cleaning and cooking up low kind of mid-single digits, food prep kind of mid-teens, and then kind of other, which encompasses beauty and home environment, is kind of high teens. That's kind of what's baked into our top-line guide.

Very thoughtful and very helpful. Thanks, guys. Really appreciate it.

Thank you. Our next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good morning, and thank you so much for taking our question. I was hoping you could elaborate on the underlying market level growth rate you expect both in the US and the UK for your core categories. Do you think the industry is moving back to more normalized growth levels relative to the last couple of years? And are you seeing any changes in how wholesale partners are planning their orders for the year? And then second for Larry, I was hoping you could help us with a few guardrails on how to think about how the year might shape out on sales growth. The commentary on a strong start to 1Q is very encouraging, but are there any puts and takes we should be considering regarding growth by quarter due to comparisons, product launches, or otherwise? Thank you.

Yeah. So, Brooke, on the first part of your question, in terms of the underlying market, as you know we're coming off of two years now of market declines in 2022 and 2023 after we saw a real spike in demand in '20 and '21. I think we're anticipating the market to flatten in the first half of this year with the hope that we see a little bit of increase in the second half of the year. But our assumption for our guidance kind of assumes a flat overall market. And if we're able to get any tailwind from that with the market growing a little bit, that will be a benefit for us. In terms of the retailers and how the retailers are looking at things, the retailers, as Larry and I pointed out, really leaned into us in Q4. And I think that we're expecting them to support us in a rather big way as we go into 2024, both in our existing categories as well as new categories that we're entering. We are not assuming destocking in '24, but our guidance also hasn't assumed any significant amount of restocking. So, we're expecting to kind of wait until the retailer year-end's finish at the end of this year and start to have conversations with them in March and April as to how they're going to plan their inventory levels. Now, all that being said, I think it's positive to note that retailers did support us with inventory in Q4. They came out of Q4 rather clean on inventory, and we are seeing good ordering patterns in the first quarter of this year. So, we're optimistic that retailers will continue to lean into our products and make sure that they have the stock when the consumer comes to purchase it.

Yeah. And then, Brooke, on the kind of phasing throughout the year on the top-line, we look at it as first half kind of stronger than the second half. Q1 and Q2, baked in our guide is kind of low-double digit in the first two quarters of the year. As you know kind of in Q1 of last year we obviously had kind of lighter growth in Q1 of last year. So, that's kind of how we think about I guess the shaping throughout 2024 kind of embedded within our 7% to 9% top-line.

Thanks so much. I'll pass it on.

Thank you. Our next question comes from the line of Steven Forbes with Guggenheim Securities. Please proceed with your question.

Good morning, Mark, Larry, Arvind. Maybe just to follow-up on Larry's comment before. I think you said OpEx flat for the year. If we think about the support for new market and new category growth in the fourth quarter and the ramp in ad spend, can you just maybe frame for us how you're thinking about the sales and marketing line for 2024 both in terms of the team itself and pure advertising sort of spend?

Yeah. So, I guess kind of within that, flat OpEx as a percentage of sales year-over-year, we would see kind of continued investments in sales and marketing, right, in media, those investments that we made in Q4 and kind of continue to make. Some of those are obviously longer-term investments around sales forces globally, obviously new markets and new categories, and kind of building the brand awareness there. And I think we've talked about that as kind of one of the benefits of our strong gross margin and being able to kind of embed these investments within the P&L to really fuel longer-term growth. And so then, kind of a by-product of that is then thinking about sales and marketing with a little bit of additional investment there, G&A and R&D just kind of deleveraging slightly, kind of overall to flat OpEx as a percentage of sales kind of all in.

Steve, I think we feel that there is a lot of white space growth potential for us in new markets. We've got to continue to build our brand. There's new categories that we're launching into. But we did also spend at quite elevated levels in the second half of 2023. And so, to Larry's point, you will still continue to see more investment in sales and marketing, it just won't be to the degree that we've seen the increases 2023 versus 2022. But you will continue to see more sales and marketing investment.

And if I can maybe just staying on expenses, given the investments in mold and tooling and so forth, maybe the shorter duration assets or depreciation of life of assets, can you just maybe frame D&A expense for the year?

Yeah. I mean I think it would be up slightly, not materially different kind of overall. But, yeah, because we stepped up, I think it was $90 million of CapEx in 2022 and we finished kind of right inside of our 2023 guide at about $130 million, $131 million of CapEx in 2023. And then kind of to your point and as we had talked about previously, a lot of that step-up in CapEx, right, is those tooling investments kind of as we dual source outside of China, et cetera.

Thank you.

Thank you. Our next question is coming from the line of Phillip Blee with William Blair. Please proceed with your question.

Hi, guys. Thanks. Can you speak about some of the outsized growth and share gains you're seeing in some of the newer categories like beauty and outdoor? What are the key drivers there? How sustainable is that in 2024? And then, should we expect a similar kind of success in some of the new categories you have planned for this year? And then just quickly, on your ability to diversify your supply chain outside of China over the next two years, how do you think about the potential risk to quality or supply here given your existing boots on the ground approach with some of your long-time suppliers? Thanks.

Yeah. So, first on the question of new categories, we did experience significant growth both in beauty and outdoor cooking in 2023, which came from growing within the existing retailers as well as expanding into new retailers for a lot of those products. I mean, Q4 of 2023 was the first holiday season that we were in Sephora and Ulta. We're excited to see our beauty brands there. We ended the year with the fastest-growing hair tools company in the US. We experienced significant growth in Europe as well, but we're still relatively low share. I mean, in the US, we ended the year at about 19% share in hot air stylers. We did run with supply constraints throughout the year on beauty as we were chasing supply. We only really launched in most of Europe at the end of last year. Same with Latin America, we really launched just at the end of last year. So, we'll see the full-year benefit and impact of beauty. In the outdoor space, we've expanded into more products. We launched an outdoor oven at the end of the year last year. We'll obviously go into this barbeque season in Q2 with a much stronger offering than we did last year, having multiple grills and an oven. So, we're excited about the growth potential there in outdoor as well as expanding into more doors and more retailers with our outdoor cooking products. In terms of some of the new products, we think there is a big growth opportunity for us in outdoors, going outside the home. You heard us just talk about the recent launches of our indoor/outdoor fan and also our entry into the premium cooler market, our entry into the drinkware market. So, I think outdoor is a category for us overall that we feel like both the Shark and Ninja brands have white space to be able to expand into as we move forward. On the supply chain side, we've been diversifying outside of China now for the better part of the last five years. We've opened up a engineering and quality office actually in Ho Chi Minh City, which just happened last year. So, the quality side, we have moved offshore with a lot of existing suppliers in China that have opened up facilities in Southeast Asia. And so, our teams are on the ground with them. Their managers have moved over from China into Southeast Asia. So, focusing on quality, focusing on fast churn, focusing on competitive pricing, is all something that we've been working on for the last four or five years. And you're just seeing a scaling up of the work that we've done over those last few years really come into effect over the last 18 months.

Okay. Great. That's super helpful. Thank you.

Thank you. Our next question is coming from the line of Megan Alexander with Morgan Stanley. Please proceed with your questions.

Hey. Good morning. Thanks very much. Wanted to follow-up just on the kind of retailer destocking/restocking comment. I think the gap between POS in North America and shipment I think was in the high-single-digit type range in the fourth quarter. I guess how does that compare to what you've been seeing prior? And how did that trend over the quarter? And are you getting to the point where the gap is at least closing and, understanding you want to be conservative in that, assume it may be reversing, but any more color you can give us there?

So, the gap is definitely closing as we come out of Q4. POS still grew over shipments, but at a narrower gap than what we have seen in particularly Q3 and Q2 and Q1. And we would expect that as we go into 2024, the POS and shipments are going to start to normalize themselves. I don't necessarily think or we're not planning for shipments to outpace POS and kind of build inventories back. But I think at least we're planning for shipments and POS to kind of match each other and look a lot more apples to apples.

Super helpful. And then maybe just a question on distribution channels, particularly with some of these new category launches, the cooler in particular. How are you thinking about or planning for new distribution entries in the US in 2024 and beyond?

So, we've made investments in our sales organization over the last year, outdoor retailers, sporting goods retailer with the launch of our Ninja Thirsti product, grocery retailers. So, over the last six months we brought a lot of that staff on. They are scaling up in the business. We think that sporting goods will continue to be a bigger channel for us. I mean as you think about not just coolers and drinkware, but outdoor cooking and our types of outdoor cooking products could apply well into sporting goods. We've launched and been quite successful with a product called the Ninja Blast. It's a portable cordless blender that we think the sporting goods space would be ripe for. Again, as I said, Ninja Thirsti in grocery stores we think is an opportunity. And then continued expansion with both outdoor cooking and beauty as we go into kind of more retailers than we have been in in the past, not just in North America, but in Europe as well. So, you will see a lot of sales force expansion from us and us entering into new retailers.

Awesome. Thank you.

Thank you. Our next question is coming from the line of Brian McNamara with Canaccord. Please proceed with your questions.

Hey. Good morning, guys. Thanks for taking the question, and congrats on the strong results. We've gotten a lot of questions from investors on what a "normal" top-line growth year looks like after kind of flattish sales in 2022, mid-teens growth last year, and now high-single digits guide for 2024. Not expecting a formal long-term guide here, but how should investors overall think about top-line growth longer term? Thank you.

Yeah. I mean, to your point, Brian, we haven't given that kind of long-term guide. Obviously, this is our kind of first time coming out with full-year guidance at the beginning of a year, right? So, I guess, how we probably commented on it at this point in time is 2024 we kind of put that out there and the 7% and 9% top-line probably not a bad template kind of as we look forward. But, again, nothing official from a long-term guide at this point in time.

Fair enough. Thank you.

Thank you. There are no further questions at this time. I would now like to hand the call back over to Mark Barrocas for any closing remarks.

Great. Thanks, everyone, for joining us on our fourth quarter call, and we look forward to speaking to you again soon. Have a great day.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.