Good morning, and thank you all for attending the SharkNinja's Third Quarter 2024 Earnings Conference Call. My name is Brika, and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. I would now like to pass the conference over to your host, Arvind Bhatia, Senior Vice President, Investor Relations. Thank you. You may proceed, Arvind.

Good morning, and welcome to the SharkNinja’s third Quarter 2024 Earnings Conference Call. Our third quarter earnings release was issued this morning and can be found on the Company's website at ir.sharkninja.com. And shortly after today's call, a webcast will be available there for replay. Let me remind you 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 the earnings release and 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. The Company undertakes no obligation to update or revise these forward-looking statements in the future. During the call, we will make several references to non-GAAP financial measures. We believe these measures provide investors with useful perspective on the underlying growth trends of the business. We have included a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures in our earnings release. With me today are Chief Executive Officer, Mark Barrocas; and Chief Financial Officer, Patraic Reagan. Mark will provide a business update, Patraic will review our Q3 financial results and discuss our 2024 outlook, Mark will share a brief closing remarks, and we will then open the call for your questions. Now I will turn the call over to Mark.

Thank you, Arvind. Good morning, everyone, and thank you for joining us today. Our third quarter results were very strong. Our global teams once again delivered incredible top and bottom line performance in the quarter. We drove adjusted net sales growth of 35%. Adjusted EBITDA grew 26%, on top of 38% growth in Q3 last year as we continued to reinvest in our growth initiatives. Gross margins remain very healthy. For the quarter, adjusted gross margins were up 160 basis points to 49.4%. This increase was despite the unfavorable impact of Section 301 tariffs, which went into effect in June. Our strategic initiatives around supplier diversification, competitive bidding and value engineering are all continuing to pay off. We're on track to deliver nearly 200 basis points of adjusted gross margin improvement this year. This is on top of approximately 700 basis points improvement last year, an incredible 900 basis point increase over two years. We're not only delivering strong organic growth, but also highly profitable growth, and we're delivering all of that at scale. At the same time, we are consciously reinvesting our strong performance and upside in our growth initiatives to drive long-term shareholder value. These investments are strengthening our moat and accelerating our pursuit of a very large and growing addressable market. While I'm thrilled about our performance in Q3, I'm equally excited about how broad-based our growth continues to be across our four key categories and across our global markets. In Q3, cleaning, cooking, food prep and other, which includes beauty and home environment, all delivered double-digit growth in adjusted net sales. Our North America net sales grew 26% year-over-year. Our International business accelerated with adjusted net sales increasing 62%, on top of 80% growth last year, our toughest quarterly comparison of the year. Our teams continue…

Thank you, Mark, and good morning, everyone. I'll begin with a review of our third quarter results and then provide an update on our revised 2024 guidance before turning it back over to Mark for closing. Our third quarter results were very strong as we continue to deliver on our 3-pillar growth strategy. Net sales increased 33% and adjusted net sales, which exclude our divested APAC business, were up 35% to over $1.4 billion. As a reminder, we divested our APAC business in Q3 last year. Therefore, beginning in Q4 this year, it will no longer be a factor in our year-over-year comparisons. We delivered adjusted EBITDA growth of 26% to $262 million. Adjusted EBITDA margin declined approximately 130 basis points year-over-year as we continue to purposefully reinvest gross margin upside in product innovation, demand creation and building our brand globally. Looking at performance by region, net sales in North America were up 26% to over $1 billion, representing 70% of sales with broad strength across key categories. Adjusted net sales in international markets accelerated, increasing 62% to $421 million, driven by robust results in EMEA and Latin America. We remain bullish on our international opportunities and believe we have a long runway for growth. In Mexico, POS sales remain strong. We will experience a transition period as we shift away from our existing distributor and go direct. This will have a small temporary impact on our sales into Mexico as we execute the shift in Q4 and in early Q1. I'll now provide color on Q3 performance in our four major product categories, which all saw strong double-digit net sales growth in the quarter. Adjusted net sales in the cleaning category, which includes vacuums, carpet extraction as well as other floor care products remained strong, delivering growth of 19%…

Thanks, Patraic. SharkNinja's outstanding third quarter results showcase our continued success in delivering profitable organic growth through innovative high-performance products. Our expanding $120 billion addressable market presents tremendous opportunity as we enter exciting new categories and strengthen our global brand presence. Our consumer-driven innovation engine continues to thrive and is fueling our growth potential. We're leveraging our agile supply chain and ramping up production to meet increasing consumer demand. We're thrilled about our strong market position for this holiday season and the incredible products we offer. Looking ahead to 2025, we're more confident than ever. Our ability to capitalize on our consumer insights, cutting-edge R&D capabilities and expanding range of products to drive sustainable long-term growth puts us in a strong position. We've made tremendous progress in diversifying our production outside of China to mitigate tariff risks. The future is bright for SharkNinja, and we're excited to continue delivering innovative solutions that enhance our consumers' lives. This concludes our prepared remarks, and I'll now turn it over to the operator to kick off Q&A. Operator?

Thank you, Mark. We will now begin the question-and-answer session. [Operator Instructions] We have the first question on the line from Brooke Roach with Goldman Sachs. You may proceed.

Good morning, and thank you so much for taking our question. Mark, I was hoping you could elaborate a little bit more on your reinvestment priorities as you look ahead into the fourth quarter and into early 2025. How are you thinking about the rate of potential flow-through on revenue growth and margin expansion as you look ahead? And then for Patraic, could you talk a little bit about the rate of margin that you're seeing in international in the new products and in your DTC businesses? And then finally, can you size the impact of some of these elevated and accelerated supply chain investments that you're making relative to your prior expectations as you look to diversify your supply chain? Thank you.

Yeah. Brooke, thanks for the question. Listen, this has been an incredibly innovative and growth driving year for us. I mean, we delivered 38% top line growth in the second quarter, 35% top line growth in the third quarter. Our market that we're in is kind of flat to down a little bit. So we're taking massive share growth, both in the existing categories, the new categories and international expansion. The investments that we've made in R&D have required a lot of spend. And we've got a great pipeline as we look forward into 2025. I mean, we're very fortunate, Brooke. We've hit with our Luxe Cafe. We've hit with our SLUSHi, we've hit with our CRISPi, FlexFusion, CryoGlow, our POWERDETECT vacuums. I mean, we launched 15 new products just in the third quarter. A lot of that revenue is not going to hit in 2024. I mean this is really all setting us up for 2025 and beyond and then continuing that pace of innovation in 2025 that we're investing now in the third, fourth quarter and as we get into next year. So that's one big piece of investment. The second is we're expanding into a lot of new markets. I mean, we're driving -- we drove 62% growth in our international business. And that growth is coming from lots of new countries. I mean, we're entering our first, what I would call, really massive scaled holiday season in Germany and France. And it's required a lot of upfront investment for us to position ourselves across a number of different product categories. And then third, on the supply chain side, I guess, I would put that, Brooke, into two buckets for you. One is we're making a conscious investment to move and accelerate our outside of China manufacturing…

Hey Brooke. Nice to hear from you. So what I'd like to say on the question around the international margin is, one, as you heard Mark say, everything that we do really follows our strategy, our three-pillar growth strategy. And so, what I'd like to say is, first of all, we see EMEA, we continue to see and we've spoken about this, is just a tremendous opportunity to extend the breadth and the reach of the SharkNinja brand. And so with that as kind of the backdrop, strategically, how we go into marketplaces is we typically test and learn. From an EMEA standpoint, you see that the UK is both our largest and our oldest marketplace that we've been in, although, still relatively youthful in terms of amount of years we've been there. And so that structurally has highest margin at this point in time. The next couple of markets that we're in, in a significant way, owning our business from a direct standpoint is France and Germany. And so we are in those markets both expanding but also building our margins within those two countries. And then structurally, how we're going about bringing the SharkNinja brands to the balance of EMEA is largely through our distributor strategy. And what this does is it lets us -- it allows us to enter into marketplaces in much more of a test and learn -- from a test-and-learn methodology standpoint. And the net of that is we typically go in, we split our profit model with our distributor. They take margin. We take a little bit less margin than we have in our other EMEA markets, but we have very little operating expense. So from an EBITDA standpoint, it's roughly in line with what we see from the balance of the SharkNinja operating model. So hopefully, that gives you a little bit of context in terms of international margin.

Thank you. [Operator Instructions] And we have the next question from the line of Randy Konik with Jefferies. Please go ahead.

Yes. Thanks a lot. I guess what I wanted to ask about is the evolution of your channel partnerships. I guess, first, maybe give us some perspective of how we've come so far with the key partners across Walmart, Costco, Amazon? Because I guess what we're seeing in the field is enhanced presentations, shelf space increases to your products? And then on top of that, can you give us an update on where we are in the beauty, grocery, and sporting goods channel and where we should expect that -- those areas of distribution to go in the next couple of years? Thanks guys.

Yes. Thanks, Randy, for the question. Look, on the channel partner side, I think you can just walk through those retailers that you mentioned and see increased placement that we've been able to generate. I mean we've got great placement in whether it's Costco or Walmart or Target or Best Buy or the European retailers as well. I mean we were placed extensively in Amazon's holiday gift book that's gone out. So, I think that these retailers are very, very supportive of our innovation. I mean we're driving growth for them. We're driving consumers into their stores. I think what's super exciting is you take a product like our Ninja Café Luxe at $499, I mean, we're bringing in great consumers into buying high ASP items into their stores or online. So, on the channel partnership side, we've got great support from these channel partners. I mean, at the same time, our direct-to-consumer business is growing as well. And we still continue to see that as a really viable growth channel that will grow even faster than our retail business over the course of the next couple of years. On the side of beauty, grocery, sporting goods, look, I'll start with beauty. We launched in the quarter -- at the end of the quarter, our Shark FlexFusion, our new hair-styler product that brings kind of hot tool finish without the hot tool damage. We launched our Shark CryoGlow that will go on sale in the U.K. and Mexico on November 4th. So, in the beauty space, you're going to see as we enter 2025, a lot more placement, a lot more placement in the Ultas and the Sephoras and also our regular retailers as well. I think everyone is really excited about our expansion into skin. It won't contribute a…

Thank you. We have the next questioner, Andrea Teixeira with JPMorgan. Your line is open.

Thank you, operator and good morning, everyone. I understand that you want to be prudent as usual, given the macro and political uncertainties. But what are you seeing in Q4 so far in terms of consumption? Looking at Nielsen in the US, you're up about 50% in consumer takeaway so far in the quarter, and it's just 3 weeks, but even with your raised guidance, the implied Q4 sales growth would be around 15% in the midpoint. I mean, acknowledging the shorter holiday season. But I understand there's also a policy of giving guidance more backward looking, meaning like just including the beat of the third quarter? Or are you seeing more of a slowdown due to the shift in Mexico and the UK and moving some of that -- some of that upside to the Q1 '25? And if you can please quantify those effects approximately as we speak about the underlying consumption -- and lastly, related to that, can you please speak to the inventory levels because it was super useful last quarter when you gave us perspective of how retail inventory had been unfolding and there was a destocking at that point and restocking, I'm assuming happened in the third quarter. So, how we should be positioned again into the holiday season vis-à-vis last year? Thank you.

Yes. So Andrea, on your first question, we're seeing solid demand in the fourth quarter. We have had a strong Amazon Second Prime Day. We took share in that. We hit our forecast. We're seeing good demand in North America. We're seeing good demand in international. I think if there's any challenge for us in Q4 right now is that, some of our hit products, in particular, SLUSHi, CRISPi, Café Luxe are going to be constrained from an inventory perspective, and we won't be able to capture all of the upside in Q4 that we would have anticipated. So, on the demand side, though, I think we're seeing solid demand, and I think we expect to see solid demand as we go through the holiday season. Also, our ASPs are strong. I mean we're not expecting to see more discounting this holiday season than last holiday season. So I think from that perspective, Q4 is off to a good start. On the ship and POS side, that story, Andrew, really in the US has kind of quieted down. I mean, roughly speaking, our ship and our POS were flat in Q3. We anticipate it being flat in Q4 as well. So there really isn't a lot of conversations around that. I think areas where we are inventory constrained probably has more to do with us, just not being able to capture the demand that we're seeing from some of the new products than it does from the retailers not buying the inventory. But I'll let Patraic talk about the inventory side.

Yes. Thanks, Andrea, for asking the question, something that we focus on every single day. So, I think there's really 3 quick things and then one overall overarching comment. One is, as I said in the prepared remarks, both our owned inventory and channel inventories are at very healthy levels, very clean levels. We feel really good about where we are as we closed out Q3 and look into Q4. As Mark mentioned, kind of the restocking, de-stocking, that's largely behind us. We don't really see that at play anywhere near the level of significance that we saw from more of a historical standpoint. So we think that's in the rearview largely. And then just more from like a data point standpoint, as we look at Q3 inventory, we finished up about 35%, 36%. And if you remember back to the last few calls, we also tried to guide and provide some transparency on our inventory to revenue relationship using a two year stack because we've had particularly low levels of inventory in the beginning part of 2024. That is now normalized. So if you now take a look at a two year stack, inventory is up roughly 50% on a two year basis and net revenue is up roughly 50% on a two year basis. So we feel really, really good, number one, about those levels. And then number two, as we've communicated to the community previously, that's what we expected to happen. And so I think from a data point standpoint, from an analytics standpoint, we feel good. And then finally, just to use a quick 30 seconds to say this really speaks to the strength of our supply chain. So we have a very nimble agile supply chain. You heard Mark speak a little bit earlier about the continued investments that we're continuing to make to preserve that nimbleness and that flexibility. And we view it as one of the core underlying strengths and competitive advantages of what we have here at SharkNinja.

Thank you. We have time for one more question and we have Megan Alexander with Morgan Stanley. Please go ahead.

Hi. Thanks so much for squeezing me in. I'll maybe just ask a follow-up to I think it was Brook's question a little bit earlier, just maybe ask it in a different way. I'm just trying to understand how to think about maybe the margin trajectory in 2025. As you think about some of the investments you're making, is there any way to kind of contextualize how much is pull forward in a way to kind of set you up for continued growth in 2025 versus maybe what could linger in 2025 related to some of the supply chain work, which is obviously prudent to get ahead of potential tariffs and move things out of China. But just trying to understand kind of the puts and takes around how we should think about the expense drivers into 2025?

Yeah. Look, I think the way that you should think about them, Megan, is that we want to make sure that our business is set up for long term success. And it's not in our interest to try to we need to spend in the quarters that we need to spend it in. And I think on the supply chain side, we looked at things and said, maybe we could drive this expense through 2025. I think what we're realizing is there's a number of things that are happening in our supply chain. We're having to scale much faster than what we anticipated just the overall total sheer volume of our supply chain. The complexity of the products that we're selling today, I mean, we're in a lot of new categories that are requiring a lot of new quality competencies and manufacturing expertise competencies. And then the diversification of the supply chain outside of China. And I think that we could either look at it and say, let's make these investments over the course of 12 months or let's really go after this and make very significant investments in the third and fourth quarter. And I think that's what we've chosen to do. Do I think that some of it is pulled forward from 2025? I would say that I think some of it is accelerated into 2024 from 2025. I think we anticipate our business growing in 2025, and we've got to make sure that our supply chain is well set up to be able to support it. So that's as it relates to the supply chain side. On the side of international growth, look, we're really driving scale right now in Germany and France and a number of other European markets. And again, I think we can look at the business and say, should we haircut it 4%, 5% spends as a percentage of sales right now? Or should we make the investments and set ourselves up really great for 2025 and beyond. And I think we've made the decision that we think we should spend now, in advance of what we think that could materialize for 2025. So I would say, look, we're not trying to manage this by quarter. We're not trying to manage this by year. We look at kind of what's in front of us right now. And we say what's the right thing for our business Christmas 2025 and the right thing for our business Christmas 2025 is to invest in R&D, to make the supply chain moves that we're making and to continue to keep investing in our brands in these new markets. And we do believe that long-term, it's going to pay off well for us. Patraic?

Yeah. I would just -- I would echo, exactly what Mark says. We really feel like at this point in time and for the foreseeable future, we're dealing from a position of strength. And so what we're trying to do at this moment is, if you think about the innovation that we brought into the marketplace just in the last three months, much less the last 12 or 18 months, it's been an incredible pipeline of innovation. And so how we think about that is very much on an end-to-end basis. It's like to bring that innovation to market to solve the consumer problems that requires investment in our product design, product development, engineering space to produce that product, especially in a shifting macroeconomic environment where at this point in time, we're not certain where tariffs may lie 180 days from now. We're building into -- and we're building flexibility into our supply chain. And then finally, as we get product into market, we have amazing, amazing product stories to tell that are solving consumers' problems. But the products just don't show up and sell themselves. We have to educate our consumers. The great thing is our consumers are discerning. They engage with our products on a very heightened level, but we do have to educate in terms of what's coming into the marketplace. And I think the Café Ninja, -- Ninja Café Luxe is a great example. It's like to the average consumer, an espresso machine is intimidating. But what we're bringing to market is something that is so streamlined, so easy to use, it pulls the consumer in. But we've got an obligation to the consumer to really educate him or her in terms of what that value proposition is and what that product can bring to his or her life. And so that's a little bit of the end-to-end strategy around investments. As I said, everything that we do from an investment standpoint is informed by our three-pillar growth strategy, so a little bit more context for you there.

But I don't know if they're going to cut me off, but could I -- like one quick follow-up. I guess from a supply chain standpoint, you obviously talked about you're not -- you're maybe missing some demand in the holiday season. What's your expectation for how quickly that can catch-up and you could get back to the point where you're able to supply to the demand? And do you -- how do you give thought to the pace of innovation in the context of you're maybe missing out on some demand this holiday season?

Yes. In terms of how fast can we catch up, I would say some products in first quarter, some products not until the second quarter. We are pushing out some of our new product launches from the UK just to keep that demand and be able to continue to fulfill US customers. So I would say some will catch in Q1 and some will catch in Q2. In terms of how does it impact our R&D or innovation approach, I don't think it does. Listen, it's hard to forecast new products. It's hard to think about which are the ones that are going to kind of be runaway successes and which are the ones that are just going to be really solid products that sell every day on the shelf. But I think what's encouraging, Megan, more than anything is the hit rate of the innovation is increasing. And I think that's a testament to our consumer insights approach to all the testing that we do before we launch these products, the price testing, the feature testing, the marketing testing. So if anything, I think what 2024 is showing us is we're just getting better and better at product developing and ensuring that we're giving the consumer the right performance at the right quality, at the right price. What we probably need to do as we move forward is kind of think about more flexibility in our supply chain and maybe how do we get kind of earlier read signals as it relates to which of these products are going to really take off and accelerate. But that's obviously a tough one that we're going to continue to work on for the next 10 years.

Thank you. I would now like to turn it back to Mark Barrocas, CEO for some final closing remarks.

Yes. Well, look, thank you for joining us, and we look forward to speaking with you again soon. So have a wonderful day. Thanks.

Thank you all for joining the SharkNinja third quarter 2024 earnings conference call. I can confirm today's call has now concluded, and you may now disconnect from the call, and please enjoy the rest of your day.