Solo Brands, Inc. (SBDS) Earnings Call Transcript & Summary

Good morning. Thank you, everybody, for joining. I'm here with John Merris, CEO of Solo Brands, recently public under ticker DTC.

How are you?

Doing great.

Thanks.

Why don't we start with -- not a lot of folks are familiar with your -- the details of your business and what you're trying to accomplish. Can you just talk about the business a bit?

Yes. So I have the good fortune of being able to run 4 really cool companies. Solo Stove is the kind of foundational core business that we started with. And then last year, we went through 3 acquisitions. So we acquired Chubbies Shorts. So many of you are probably familiar with the Chubbies brand. And then Oru Kayak, which is an origami foldable kayak that folds into the size of a box and weighs about 20 pounds. You can throw it on your back, like a backpack, and mountain bike up to a remote lake or throw it under the back seat of a cab in the city and go get a paddle in. And then ISLE Paddle Boards, which is the first direct-to-consumer surfboard and standup paddleboard business that existed in the U.S. that was founded in 2004. So we're building this suite of brands that are all about creating good moments and lasting memories for people. So it's really just about helping people spend more time outdoors, smiling, having fun and making it accessible for people that maybe historically have been intimidated to be "outdoors" person.

Well, let's talk about the outdoor maybe as an outdoor lifestyle as an industry a little bit. It's something that was growing at a reasonable pace kind of pre COVID and then accelerated, of course, during COVID. Where are we now?

Yes. I mean if you go back to the mid-1900s, like 1950 time frame, kind of post World War II, you saw a very similar thing to what we're seeing right now, which is a resurgence towards just spending time outdoors. And we think it's very sticky. So people definitely leaned into it during COVID. They were stuck at home. They were spending a lot of time on Zoom, a lot of time on the phone. And it was just, at the end of your workday, the last thing you wanted to do is stay inside your house because you've been there all day. And so you just figured it out. Go on a walk. Go to the dog park. Go on -- just whatever, get out of your house. And what we found is that the backyard kind of became an oasis for people. And so we've leaned into that pretty hard. And again, just realized -- kind of back to my original comment, it used to be when I was growing up as a kid, for instance, I grew up on a 50-acre ranch outside of Austin, Texas. And if my friends who lived in town -- and town was really not in Austin, but nearest town was like 25,000 people. But if my friends in town wanted to have a campfire experience, it was let's go out to Merris' place to go have a camp fire. They felt like you needed to go to the ranch to have a camp fire. And what we've tried to do is bring that campfire experience to the backyard and make it accessible for everyone. And as we think about outdoor lifestyle today, we hear it all the time, we talk about it. But even post -- in the post-COVID world, we keep hearing people aren't returning to the office. It's not going to be a 5-day work week and so on and so forth, or at least a 5-day in-office work week. And if that's the case and people are spending more time at home, then people's backyards and the outdoors are going to continue to be sticky from a lifestyle standpoint.

Yes, one of the things I think we found it's hard to get them to do it for the first time, the repeat rates are quite high.

That's very true.

How do you market something like the Solo Stove? The idea of a smokeless fire pit sounds like an oxymoron. So how do you...

If there's smoke, there's fire, so very counterintuitive.

That's what I've been told for a while, but you have a smokeless fire pit. So can you just talk about how do you sell that product? How do you convince the consumer that...

It's probably important to note, for those of you that aren't familiar with Solo Brands, that 80 -- about 85% of our business is direct-to-consumer online. So most of our business is actually coming through our own sites. All of our businesses were digitally native first. So something unique about what we put together. And the way that we found, you sell products that are unique, an origami kayak, a smokeless fire pit, 5.5 inch inseam shorts for men and doing that online is by getting your customers to fall in love with your brand and then sell it for you. If you have a great experience around your fire pit, the first thing you do is you want to bring your friends and family to come sit around your Solo Stove with you and show it off. There's something about fire when you make it that you just are so proud of it. It's like a piece of art. I still get pictures from my father-in-law like, "Look, at this fire that I made." And he showed me a picture of a Solo Stove fire. I've seen hundreds of thousands of images. But for him, it's like, "This is my fire." I made this thing. And we find the same with customers. Customers just love sharing with friends and family. You almost feel like you're doing your friends wrong by not telling them about this really cool product that you found. And then just inherently, it's very communal. All of our brands are very much connecting people. So friends, families, places is how we think about it.

Perhaps, primal in some way.

Yes. 50% of our new business is coming from referral. So if you think about all of our new business coming in, 50% is coming because of a friend or a family member told somebody else got to have this product.

So one of the things we struggle, I guess, investors will struggle with is what the TAM looks like. We'd like to categorize things. And your series of products, we struggle with what that is. Can you help us understand the sort of scope of the categories that you're in?

Sure. So Solo Stove historically has made up about 70% of the overall revenue of the platform. So I'll start there and then kind of work through the others. Last year was a good year for us because 2 grill companies went public and gave us lots and lots of data. And what we learned last year from those companies going public was that about 82 million to 83 million households in the U.S. own a grill. 1.2 million customers own a Solo Stove fire pit and every single one of our customers owns a grill. Because if you have a propensity to go outdoors and cook and barbecue, you also probably have a propensity for wanting to spend time outdoors eating that barbecue that you've just cooked. And it's like a way better experience to eat that burger around a Solo Stove than it is without it. So if we think about it that way, there are about 81 million, 82 million households in the U.S. that don't have a Solo Stove that should, that are owning a grill. And so massive market opportunity. We're still very much in any one. If you go the other direction and you just take total U.S. households, 126 million, and you discount for urban areas and places that can't really have a fire in their backyard, low income, even before the grilling companies last year went public and gave us that data, we had estimated about 76 million households in the U.S. And then there's the international opportunity which we just launched and started leaning into last year, which has been growing tremendously. So that's the market size and opportunity for Solo Stove. We estimate we're about 1.5% penetrated on the domestic opportunity and then, obviously, almost 0 internationally just getting started.

And how about for kayaks and boards?

So kayaks and paddleboards are playing in the nonmotorized water recreation category, which is well over $1 billion, and they're small. They're both in the dozens of millions in terms of revenue, so very early in capturing market share. One cool anecdotal data point for Oru Kayak is that 20% of their customers are first-time kayakers. So people that have been trying to get into kayaking, it's just not accessible. And now with a foldable 20-pound kayak that you can take, again, in an urban area in a cab or pack in a closet because you don't have room to store kayak, it becomes more accessible. And then Chubbies is in this active lifestyle, like outdoor, at leisure kind of apparel space that's $30-something billion and growing. So...

How does one define Chubbies?

Like the actual company?

The company. Yes, the company. This is shirts and shorts.

Chubbies is a -- their tagline is Friday at 5. And the whole mission around the Chubbies brand is -- it's a men's apparel business. So it's really heavily geared towards men's and men's mental health, but feeling comfortable in your skin and just being excited to live life. And one of the things a lot of people didn't necessarily -- it wasn't obvious at the time that we made that acquisition was how does Chubbies fit into this? And I'll share 2 quick things. The first one is that their top 3 retailers are the same top 3 retailers that Solo Stove has, which is really fascinating. So big player with Dick's, big player with REI. And that might surprise people like, "Oh, I didn't really see Chubbies kind of in that light." And then the second one is I just never interacted with a brand that is as good as Chubbies at putting smiles on people's spaces. I mean I don't know if you saw me yesterday, but the shirt I was wearing, I get -- I walked through the airport with that shirt and people just smile at me and they're like, "You look like you're having a good day." And you just -- that's just a cool place to be as a brand when you just -- automatically people smile just from interacting. And if you're not following Chubbies on TikTok, it will be the best decision you made all day. They have some incredible videos about what it's like to work from home or work virtually and some tactics to how to have a little bit more fun with it, and you should watch. But we're talking like videos that get 35 million views. So really innovative marketing at Chubbies as well.

I'm afraid I will lose 3 hours of my time if I go that route.

We lost 3 hours making the videos. The good news is that they're short, and we don't like launch one every day. So as long as you just stick to Chubbies and don't get sucked into the rest of the TikTok world, we'll take like 15 seconds of your day today. You'll maybe watch it over and over again, get up to it...

Yes, it's going to be a bridge to cats on trampolines or something.

Exactly, yes.

Let's talk about long-term customer value. You've got this innovation cycle. You have a series of accessories that you're adding. I guess the Solo Stove -- correct me if I'm wrong -- is kind of the first thing in the house you do -- so how do you -- you have very good data because you're so DTC. How do you think about the value of your customer?

Yes. So one of the biggest travesties for our business would be us not taking the direct relationship that we have with the customer being direct-to-consumer and then leveraging that to capture additional wallet share, but less about the money and more about taking great care of the customer. We do a ton of work to interact with our consumers, to survey our consumers, to listen to what they have to say. Again, they're shopping on our websites, 85% of our business is coming from a direct one-to-one relationship. So because of that relationship, we're able to ask the customer what would you like to be doing with our products that you're not? A great example, if you were to look at our space outside, we have a cooktop, a cast-iron cooktop on top of one of our Solo Stoves out there. That was just a customer idea. A customer said, "Hey, sometimes I'm sitting out around the fire pit for a while, and then we get hungry. We've got some burgers in the fridge. We'd love to just go grab and throw on the fire pit. We have a grill, but we've already got that going. Could you just come up with a cooking apparatus?" And so we were able to launch that product in 3 to 5 months and start capturing again another accessory add-on product, increased repeat purchase rate. Our LTV to CAC ratios go down. And these are all accessories that just enhance the experience with our core products and drive more repeat business. So we've gone from high teen repeat customer as a percent of our total customer base to 50% over the last few years. And obviously, now we're off of a much higher base. So you can imagine what that does to sustainability and growth and profit margins as the company continues to grow.

I don't know if you've shared it, so my apologies if you have, but have you shared an LTV to CAC ratio in the past?

I haven't.

Care to now?

But it's a solid. My CFO is in the audience and [indiscernible] throughout and a new data point that we haven't...

Thought I'd give it a go.

Thanks for asking, though.

No problem.

The answer is always no if you don't ask. My dad taught me that one...

It's good. Well, I guess, I've gotten plenty of nos over the course of this last 40 hours. In terms of customer acquisition costs and how you think about them, you are, I think, in a rare position where you're maybe not hyper growth, but growing very, very quickly but profitably. I think the story very recently is there are several other very quickly growing companies, but they're capturing their momentum, they're funding their momentum and so the profits aren't there at the moment. How are you thinking about that balance?

Yes. I mean it changes as market conditions change, but we've always -- we were a bootstrap business. Solo Stove founded in a garage with $15,000, never took on growth capital. The first transaction that we ever went through with the private equity fund was so that the founders could take out liquidity, but we've never really infused cash into the business. And for that reason, profit has always been very top of mind for us, but we just have not lived by this philosophy that exists in most companies, which is you either have growth or you have profit. You have to trade off between the 2. We've always believed that you can grow and you can just do that profitably, and that's exactly what we've done. In 2021, we grew 130% organically with 30%, 29% EBITDA margins. And that's a pretty unique profile. And because we're direct-to-consumer, we have very high free cash flow. So historically, high 90% free cash flow. And so when you have -- when you generate a lot of cash and you can reinvest that cash in innovation that's coming from customers telling you what they're willing to buy and what they're willing to pay for that new product, it becomes a really cool business model to be able to grow off of. And it's why we kind of leaned into some of the acquisitions last year because we saw what we were able to do with Solo Stove and felt that we could easily duplicate that with other direct-to-consumer [indiscernible] good businesses.

Okay. Let's talk about some of the acquisitions from last year. How has the integration been? And we're going to roll that into talking about the platform. Maybe let's start with you've known many of these for around a year. How is the process? Where are you now?

So we just had a year with our first with Oru Kayak. ISLE is coming up on a year, Chubbies will be a year in September. And the best way to think about the integration with the platform as we thought about it, in every business, there's art and there's science. And what we didn't want to do is take the art away from any of the brands inside of Solo Brands. And so all of the brands independently operate on all the stuff that's artistic in nature. So product development, community building, brand marketing, all of that is executed at the brand level. But we...

And then the founders, I think they stay on.

Founders stay on. So we're looking for founder-owned and operated businesses to pull in, and they're excited to continue to grow their business. They just are excited to do with us because they believe with us they can do it faster and more profitably. And that's our entire thesis is -- last year, I've said this many times, so I can say it again now, we bought all of the companies we parted with last year for 7x to 9x trailing EBITDA in a market last year that on private sale processes were easily trading at 12x to 15x for direct-to-consumer, high-growth, high-profit businesses. So the question you ask yourself is why would these founders take such a discount to partner with Solo Brands. And the reason is because we had shown the ability to scale a digitally native brand, $10 million to $40 million to $100 million to over $300 million of revenue online. And that was very intriguing to somebody that had a digitally native brand that was sitting at $10 million or $20 million or maybe $50 million of revenue that go on, holy smokes, like how in the world would I ever see myself getting to $100 million revenue and doing it profitably. Again, because they're just being -- they're in the cycle now where they're listening to what everybody else is saying, which is, "Oh, if you're going to do that, then you're going to go down to see a profit."

Yes, yes, yes. How do you do that? How do you scale digitally native brand? What's -- where is the process in that?

You in-source everything. So you stop using agencies. The moment -- our rule of thumb is the moment that we're paying a vendor as much as it would cost us to hire that in-house at a full time -- as a full-time resource, we hire the full-time resource, and we fire the vendor as long as it can be done in-house. And that led us to a model where we cut out marketing agencies, so we use in-source marketing execution, all of our video creation, all of our creative, our coffee, all of our digital ad spend is being executed in-house by our own team. And so you cut out the 10% to 15% margins that you're paying to agencies and actually go to your fulfillment. Everybody uses 3PLs. Because as you scale, it's -- oh, this isn't your competency. So you're not a garage business anymore. You're not just putting labels on 10 boxes and shipping them out. You're shipping out thousands of boxes a day, sometimes dozens of thousands of boxes a day. We decided to build that competency out. We felt like, initially, it was because our customers were just getting a bad -- having a bad experience with 3PLs and then eventually we realized that we were kind of told it's going to cost you double if you try to do this on your own. You just are -- you guys don't have the expertise. You don't have the economies of scale. Today, we have almost 1 million square feet globally of warehousing and fulfillment space, and we do all of our own fulfillment, which has saved us somewhere between 5 and 8 points of EBITDA.

Percentage points?

Percentage points, just by in-sourcing it and not paying. Just think about it. It's a big expense and they're not doing it for free. And frankly, they do it less efficiently than we do it because ours was custom designed just for our brands. And so we're not trying to lump in with hundreds of companies in the same warehouse. It's just our brands, and we're able to scale that up and down. We have very low fixed cost structure outside of our warehouses, which has also been an advantage for us because we're mostly direct to consumer, so we don't have a lot of receivables. We generate a lot of cash.

It sounds like by in-sourcing all this stuff that your fixed costs would actually be higher than one might guess. Why is it -- how are you able to keep it down?

Yes. Ultimately, because if you just think about it as SG&A as an overall percent and you follow the model that I just described, yes, you could fire your vendor. But as long as you're growing and building your business the right way, your overall SG&A goes down as a percent of the nut. And so your fixed cost structure goes up, but relative to the growth that you're seeing on top line, it's actually in line. So wages, as an example, is roughly around 7% of revenue. So not outsized by any stretch of imagination, even though we've in-sourced and cut all of our agencies. And that includes, by the way, all of our warehousing and fulfillment, which is a big nut to crack. So anyway, that's ultimately how. And again, our marketing -- because we're so heavy direct-to-consumer, our marketing spend is very variable, so we can scale that kind of up and down based on what we're seeing in growth.

The infrastructure that you have at the moment, how leverageable is it? If you were to plug in new brands, does it require expansion of the infrastructure that you have? Is there capacity available? Where are you now?

Yes. We have capacity for sure. There's a variety of moving parts with it, but we've been in expansion mode. I remember in 2018 we signed our first 20,000 square foot lease, and I thought we will never outgrow this. Like we could be here for the next decade. It was a really nerve-racking moment. And within 4 months, we had signed an additional 50,000 square feet. Today, our global headquarters is 500,000 square feet, 485,000 square feet in Dallas and then we have another...

So it includes warehousing?

It's a big warehouse and then our global headquarter kind office space is 50,000 to 70,000 square feet of the overall whole. So we've expanded as the business has required it. We can continue to do so. We have capacity in our existing facilities, but we also are very open-minded to expanding. We were very pleasantly surprised whenever Amazon recently announced that they had more square footage than they needed. We've actually seen and they have so much real estate and for the last couple of years have just scooped up so much in the warehousing space in the U.S. that it actually was impacting rates everywhere. And we've actually already seen some positive impacts in terms of rates with some of their real estate coming back online.

Something's happening with their labor as well. Let's talk about these different brands and how they -- if they work together. So certainly, from a business model perspective, you just explained how you can operate a bit of a plug-and-play on digitally native brands. But how does Chubbies interact with Oru? Or how do any of them interact with Solo Stove?

Yes. So up to now, it's been very small, not very meaningful ways. We announced earlier this year a big investment into a data platform, a data infrastructure strategy that we have which is ingesting all of the direct-to-consumer data. Again, all these brands are digitally native and ingesting all of that data into a centralized platform that will allow us to start cross-marketing and cross-pollinating these customer bases. So starting to get insights into the most likely path. For instance, if a customer joins us through the Chubbies brand first, what's the path to converting into a Solo Stove customer and then from Solo Stove to Oru Kayak and Oru Kayak to ISLE Paddle Boards. If you think about it, we have about 3.6 million customers in our ecosystem at Solo Brands and only about 40,000 -- a little over 40,000 of those customers have shopped for more than 1 brand. Solo Stove has 1.2 million customers roughly. So if we were just to not acquire any new customers except for just the customers inside of our platform and go from 1.2 to 3.6 with Solo Stove, we could triple the business without spending a dollar on advertising.

Interesting.

Pretty remarkable.

Let's talk a bit more on DTC and the leveragability of the data. If you could talk maybe more practically or procedurally on what you do, how do you take that data and then convert it into the incremental sale?

So the work is not done, but just as an example, I now, on a dashboard, on a daily basis can just pull up in real time. And I can see in that day on our website, how many of our customers that shopped at Solo Stove have previously shopped and bought from Chubbies, Oru or ISLE. So I can see what percent of Solo Stove customers are coming from existing customers somewhere else in the platform. You can do that across any of the brands. Once you take that, you can then go one step further and you can say, "Okay. What's the most likely path?" So is a customer the most likely to become a Solo Stove customer first and then convert over to Chubbies, which in early signs is what we're finding? Or are they more likely to become a Chubbies customer and then become a Solo Stove customer? So once you know that data, then you start building out marketing campaigns that tie into, okay, if you're a Chubbies customer and you live in this area and you fall into this kind of demographic profile, then we're going to show you Oru ads next or Oru e-mail campaigns versus Solo Stove because that's the conversion path that's going to get you to transact with more brands in the platform. This becomes especially meaningful in a world right now, where a year ago with iOS 14 and IDFA changes and what Apple did with privacy, put us in a position where we lost a ton of visibility that we had via social media channels to build out these personas and to see what people's behaviors are doing. So for a brand like ours that's digitally native, it puts us at a massive advantage to other consumer businesses don't have that first-party data like we have and aren't cross-pollinating that data to convert those customers across brands.

I see. Do you feel like you have the technology that's necessary to really sort of exploit the opportunity coming out of this data?

Yes. Not in-house, not in-sourced, but there's so many resources outsourced from a technology standpoint. We don't intend to be a technology company. Technology is changing so fast. We leverage the latest and greatest technology with a world-class team. And so our focus is more on building a team of people that are really connected to world-class tech that's outside and then leveraging that tech to do that.

How do you think about this -- the expansion into wholesale maybe in this context, but that's obviously -- you've got this goal of 20% wholesale kind of, I guess, you're early in the process. Where you are there and then -- how do you -- how is it different? How is the customer acquisition effort different?

Yes. We've always had a strategy with wholesale retail to be where our customers want us to be. And in the early stages of the business, a lot of people didn't know our brands. And so building the awareness on our own websites seemed like the best and easiest strategy, the margins were really good. And again, we were able to build this direct connection to the customer which, to your point, early on about educating a customer around a smokeless fire pit, which isn't a super easy task, seemed like better in our hands than in the hands of a retailer that also didn't understand how a fire could be smokeless. Once we built a big enough base around 2017 is when we started exploring retail opportunities, and actually our first retailer was REI. And still to this day, we haven't met them in person. We were told that there's -- it's really hard to get into REI. You've got to fly out. You've kind of got to do the dog and pony show. And we did it, in our opinion, the right way by building really strong awareness to the point that the buyer from REI picked up the phone and called us and said, "We want to carry your whole line. What's that going to take?" And we've been with REI ever since, and they've grown every year since then. But we want to be where our customers want us to be. And I think we're learning a lot. COVID, obviously, people wanted to buy online. And you saw a path towards really strong digital online selling happen during COVID. In Q1 this year, we saw really weird things happening with discretionary spend digitally, especially. I think people were like, "I got to get out of my house. I've been stuck. I'm starting to feel safe." And there were all kinds of other factors, right? You've got inflation, Ukrainian conflict and lapping stimulus checks and everything else that's factoring in, too. But ultimately, we saw, from a brick-and-mortar standpoint more people wanting to go and have the shopping experience in store. And so we leaned into wholesale. We grew 220% or so year-over-year in our retail wholesale business in Q1 this year. So we don't have -- I mean our ticker is DTC. We love direct-to-consumer. We're all in there. But when we think direct-to-consumer, we're thinking direct connection with our customers, right? How do we listen to the customers better? How do we innovate around that customer? And we also see retailers doing a great job at giving customers a gateway, an entryway into the brand, and then we see those customers coming to our website and shopping for accessories after the fact. So there is a path there, too, to even our digitally native business, but we do, just to reiterate, you alluded to this, but we are leaning into an 80-20 split between direct-to-consumer and wholesale. And we think that, that over time is a good balance for our brands.

You mentioned COVID. And one of the biggest questions that we get is were you a onetime big COVID beneficiary? And now we're on the other side of this. And there's a series of companies that we can look at that absolutely were and things aren't necessarily going according to plan in the out year. What's been your experience? And where do you feel like you are there?

Yes. For Solo Stove again, 70% of the business -- many the other brands have similar stories, but I'll just speak to that one because the easiest. We have 130% -- 132% 5-year CAGR with Solo Stove. So if you predate kind of before COVID, it was already growing over 100% every year for the several years leading into COVID. COVID definitely did not hurt our business. We saw a boost in online traffic. We saw a resurgence towards spending time outdoors. But what we also lost is our referral business during COVID, which is also interesting. People sit around a Solo Stove with friends and family, which totally stopped during COVID. So we went from 40% to 45% of our business being referral business from new business to 20% during COVID. So while we did see those surges, we also saw a hit in referrals and ultimately kind of navigated that path, and we've seen that referral rate kind of rebound and actually accelerate out of COVID. So listen, I said it at the beginning, I think that people spending time outdoors is sticky. I don't think that that's going away. This is halo conference. We're talking a lot about just leisure and health and wellness. And I don't know if you all saw the New York Times article just a couple of days ago about health and wellness, but there was a huge section of it just on the data behind spending time outdoors and how good for the soul it is to just spend time outside. And so we love the place that we're in as a platform of brands.

You have better data than most given the direct piece of your business. How are you feeling about the consumer? And you mentioned the various things that happened over the first quarter. What did you observe during that period?

Traffic basically stopped, like online traffic, just like...

Right at the conflict?

Yes, right at the conflict and maybe the weeks after the conflict. I personally -- this is an opinion, but I think it's actually much more tied to stimulus checks. The last stimulus checks, I think, were March 13, '21 and March 24. And you can even go back to our website data, and there's direct correlation with the weeks that those checks hit, and the spike in traffic and the spike in spend that happen when those checks at people's accounts. I mean it was like money in, money out. I mean it did what they wanted it to do, which is give people money to spend and then they didn't save it. They spent it, for sure. And we -- March was -- I mean, I haven't talked to any CEOs of especially digital direct-to-consumer businesses that did not see a brutal hit in March on a year-over-year basis. But again, when the government dumps $1 trillion into the economy and it all gets spent in the same month, how in the world are you going to lap that in a positive nature? You just not. And so the good news is we have some seasonal ramp that comes out. Q1's already our slowest quarter from a yearly -- on a yearly basis. And so coming out of March, you would expect an increase, and we saw the seasonal ramp that we expected going into April, which has been good.

Okay. Let's talk a little bit about M&A. You mentioned some of the multiples of what you've purchased. What does the environment look like today?

It's changing ever quickly right now. I would say that valuation expectations in the first few months of this year were still pretty elevated, kind of in line with last year. And especially in private sale, like private will lag behind public. And so there's still these very high expectations like we're going to get 15x trailing. In the last 3 to 5, 6 weeks, we're starting to see those things merge together. Expectations, seller expectations are starting to curb and to come down and be a little bit more realistic. And then Solo just continues to be an attractive platform for founder entrepreneurs to take potentially a lesser multiple now for a bigger bite of the apple so they'll have a bigger piece -- or a smaller piece of a bigger pie. And so we're still...

Rolling equity.

Exactly or some sort of call option with a predetermined multiple based on performance of the future so we can buy 55% today and then have a call option to buy the rest in 3 years once they hit a certain growth target, it allows us to mitigate risk. Right now, using equity is a terrible play because our valuations -- our trading multiples are low. But yes, single digits, we're still seeing the ability. We've had super, super active conversations over the last 4, 5 months. We've talked to about 300 companies.

300? So there's plenty to...

Off market, founder entrepreneur, digitally native, growing big TAM, profitable businesses, and it's just finding the right partners to fit into the platform.

You look at any businesses or brands that are not profitable?

No. Well, we look at them and then we see they're not profitable, and then we stop looking at them. They all look really pretty on the outset, and then you dig in, you're like, "Never mind." There were some really surprising ones, by the way, like brands that we all know and love that you would think like -- at least my perception is like this is an awesome brand, and then you meet them and you're like, "Holy c**p."

They make no money?

Yes. Like no wonder everybody knows you because you're spending literally every dollar that you make on awareness, but you don't make any money. I don't really do the whole not making money thing. It doesn't work for us.

Let's -- I want to ask you some follow-ups on that later. But let's talk a little bit about how you think about your margin profile. You had last year, supply chain, raw material, integration of deals -- there's a lot going on. How do you think about what the business -- like the underlying business model margin should look like?

Yes. So we were almost 30% EBITDA margins last year, 29-point something.

And 60 or something gross?

I think 66 or 68 or something like that gross margin. Being a digitally native brand is awesome. Really good gross margins. Pretty easy to make a profit. But mid-20s as a public company, it's just more expensive, just more infrastructure, more insurance, more audits. Our finance team is like 6x the size that it was pre public. But mid-20s in this environment -- and because we're making some sizable investments -- I talked about data. We're also making sizable investments in our international expansion. You could see us maybe started to trickle into lower levels in the mid-20s. But as we think long term, especially 2 to 3 years out and where we see ourselves kind of sustainably holding, it's in the mid-20s from EBITDA percent.

Can you give us a little bit of an update on supply chain, production, access, inventory?

Yes. So just for everybody's knowledge, we manufacture our products. We own manufacturing for our kayak business in Mexico, in Mexicali. But the other 3 brands use contract manufacturing in China, Vietnam and India. And COVID is definitely not over in Asia. I think everybody is aware of that. We made some strategic decisions in the last year to really invest heavily into inventory. Our inventory doesn't expire on the shelves, and we generate a lot of cash. We also had a sense, at least we were hearing rumblings that freight expenses, ocean freight expenses or costs were going to go up. And so we leaned heavily on our current -- or what was then our current agreements that expired on April 30 to kind of order as much inventory as possible and it's put us into a great spot. Our warehouses are full of inventory and kind of ready for the rest of Q2 and Q3 and then the ramp towards Q4. But we saw specifically on freight -- ocean freight contracts, we saw rates go up. We had forecasted for it. So we had anticipated about a 40% increase in ocean freight costs, which we saw come through in our agreements. However, since that's happened, so that was April 30, it's May 25. And already, we've seen softening demand, which ultimately means blank sailings, which means ocean freight carriers coming back and lowering rates. So spot rates have actually come down, and we've been using spot rates because they're lower than our contracted rates right now, which we have the flexibility to do. And we've already had some ocean freight companies coming back to us and lowering our contracted rate that we just signed 25 days ago, which is pretty fascinating. So it's still way early. It's super, super early. But we are expecting to pay 40% more than we paid last year on ocean freight. And if it ends up being better than that, then it will just -- it will be great for everybody.

I guess final question. We're out of time, but I don't want to skip international. You're in process of really kicking in brand awareness for a series of different brands, especially the Solo brand. It's an assisted sell. It's an explanation. It's a lot of communication. Why is now the right time to also be rolling out internationally?

We've had international demand for a long time. We've had -- because we're direct to consumer, we've had customers that find us online and want to buy the product. But when you're shipping a large fire pit from Texas to the U.K., it's not super -- it's a little cost prohibitive. When we opened our Rotterdam facility and then put up our localized sites in Europe, it was like an immediate hit, even faster than we anticipated. There's also just a lag behind e-commerce adoption between the U.S. and the rest of international markets, and we're seeing that play out well. So where 3 years ago it might have been a little bit of a stretch to get Europeans to really jump on the e-comm wagon and buy into a smokeless fire pit online without seeing it in a store, now is a really interesting time. There's still a lot of nervousness around COVID as well. So people just more wanting to stay home and shop, and we're seeing that play out. It's the kickoff to this year so far for international has been tremendous for us.

Okay. Great, John, thank you very much. Appreciate it.