Good afternoon, everyone. Thank you for attending CG's 45th Annual Growth Conference. I'm Brian McNamara, one of the analysts in the consumer space at CG. We are delighted to have SharkNinja here and to host CFO Patraic Reagan and James Lamb, who heads IR. Thank you very much for joining us. Patraic, the company just reported another strong beat-and-raise quarter. How do you guys do it? What's the secret sauce? Maybe kind of provide a quick overview of the company and your growth pillars.
Yeah, sure. First of all, great to be with everyone today. For those of you that are maybe less familiar with SharkNinja, really, kind of our approach is, in terms of growing the business, putting the consumer at the center of everything that we do. I think we aim to really out-innovate both our competition as well as creating compelling reasons for our consumers to spend his or her share of wallet with us. What does that look like in reality? From our business standpoint, we compete in 37 categories. That can range from anything that is more traditional in our business. You can think of vacuum cleaners and blenders to areas that we're getting into from more of an innovation standpoint. That could be ice cream makers, our slushie frozen drink makers , our Ninja Luxe, e spresso maker.
For us, what we're always focused on is innovating on behalf of the consumer. Brian, to answer your question, it's like, how do we do it? We do it because we put a high priority on innovation. As our P&L is constructed, really where we're able to generate that is, it starts with us, from an investment standpoint, prioritizing our product design and development, our research and development. Product design is creating it, R&D is building it, then investing in the supply chain to deliver it. Finally, we invest in an outsized way in our media and marketing organizations to communicate the value of our products to our customer. A little bit of the secret sauce in terms of how we grow and how we drive the growth. I think now we've been in the public space for about two years.
Each year that we've been in the public space, we've had double-digit top-line growth.
Tariffs have taken up a lot of investor focus, probably a lot of sleepless nights for you guys. We have not seen huge broad-based price increases on the shelf yet. In your view, do you expect tariffs to be a net positive or a net negative on your business longer term?
Yeah, yeah. I mean, you know, putting the words net positive and tariff into the same sentence is not something I can get myself to actually say. Maybe, you know, what I could do is, you know, I'll give you a little bit more of our approach to it. Certainly, you know, we were anticipating a kind of a heightened amount of tariffs as the new administration came in. What we weren't expecting necessarily was, you know, what happened in early April. However, we had been preparing for the moment in terms of how we were going to react, and in some ways, how we were already reacting in advance of that. For us, you know, what we've really been doing is we've been attacking it from three points. Number one is we look at our sourcing and manufacturing. We have deep long-term relationships with our sourcing and manufacturing partners.
We started moving out of China for our U.S.-based manufacturing about four years ago, four and a half, five years ago. As we started to see that there was a likelihood of a Trump II administration, we accelerated that. We started accelerating that in kind of the Q2 time frame of 2024. For those of you that have followed us from that point in time, you will have heard us a year ago talking about heightened investment, heightened OpEx investments as it related to how we were investing our money to kind of help us move U.S. production outside of China in a faster clip. That is kind of number one. Staying in the sourcing and manufacturing space, other actions that we've taken is, number one, we have kind of a, you know, what I would say a 24/7/365 initiative that is called Gross Margin High Impact Initiative.
Really what that is, is we're constantly looking at how we make and produce product and where we have opportunities to do so more efficiently. What does that look like? Really two main, you know, a lot of subcategories within that, but two main that I'd like to communicate with you guys. The first one is really in what we call our VAVE space, so Value Added Value Engineering. What that is, is that we have teams across the globe that are constantly looking at our product and where can we be more efficient in terms of how we produce and manufacture that product. How can we take cost out of the products that we produce? So that's number one. That was obviously a heightened focus in terms of what was happening from a tariff standpoint. The second one is, and this kind of comes in through more of consumer insights.
You might ask yourself, what's consumer insights have to do with manufacturing? What we get in terms of feedback from our consumer groups is, what do our consumers value in the product that we produce? As I said earlier, we compete on innovation. Not all innovation, though, is created equally. We're constantly in a feedback loop with our consumers to understand the features that we put into our products. Are they actually valued by our consumers? We go through the process of, if it is valued, then obviously we keep it. If it's kind of like, oh, it's nice to have, but it's not really something that drives value in the price value equation, then we'll look at taking that out. We call that defeaturing. It's taking a feature out of a product that the consumer doesn't really value. Those two components were really critical for us.
Brian, as you kind of hit on from a pricing standpoint, we want to be very careful and respectful of our relationship with the consumer and the sensitivity around price. Let me start with what we didn't do in terms of approaching pricing as it relates to potentially mitigating or partially mitigating or offsetting tariffs. What we didn't do is sit around in a room and say we're going to take a 5% price increase or an 8% price increase across the board. What we did do is we looked at the products where we truly compete from an innovation standpoint and looked at it on a case-by-case basis, asking ourselves, again, based on consumer data and insight, where do we have potential to take more price or set a different way? Where did we maybe leave some pricing on the table?
Internally, what does that look like or how do we talk about it? We talk about it in the sense of getting paid for our work. It's really important for us as an innovation company to get paid for our work. We get paid, we want to get paid for our work because we invest more in product design and development, more in R&D, more in media and marketing than any of our competitors. In areas where we're truly, truly competing from an innovation standpoint, we have the opportunity to take, you know, surgical price. That's part of what we did. The third pillar is just, you know, a continued, you know, efficiency of our operating spend, our investment spend, and how we spend from an OpEx side. When you take those three pillars together, that's really how we've been approaching the challenge of tariffs.
You guys reached your goal of being 90% out of China by the end of Q2. You're on pace to kind of be nearly completely out by the end of this year. How has that shift been? I'm assuming it's not that easy. You've probably run into some unexpected things along the way.
Sure. Just a great question. To be really clear, we're not, we are out of China at the 90% rate by the end of Q2 and nearly 100% by the end of the year for our U.S. production. China is still, and will remain, an important area of the world for us from a sourcing and manufacturing standpoint. From a U.S. standpoint, we're hitting that, which is what we committed to late last year. In terms of how that's gone, it hasn't been easy. It definitely hasn't been easy. Where I think that we have hit the mark in terms of what we said we were going to do is we leaned into our sourcing and manufacturing partners that we've had. In nearly all cases, they've been with us for a decade, decade plus.
What we did is we partnered with them starting back four or five years ago in terms of laying that kind of groundwork to move U.S. production outside of China. Where are we from a standpoint of quality, the production that's moved into other Southeast Asia countries is on par. From a cost standpoint, it's on par. We got there because we've been able to lean into some of those partnerships and the know-how to do that. Where we are not quite at parity right now is from a throughput standpoint. That obviously is getting better every day. The two most important components for us, quality and cost, we feel like we're on par and very proud of that.
Brian, maybe just one comment I would add is as we've diversified to these other Southeast Asian countries, we've built up subcomponents and tier two vendors in addition to our tier one suppliers, so that when we can produce in Vietnam, we can source all the parts in that local area, not be dependent on other countries for the subcomponents.
Yeah, got it. The company launches or targets to launch about 25 new products a year. How do you avoid the boom bust nature kind of inherent in new product launches?
Yeah, so, you know, for the group, 25 new products from the ground up each year. That's really kind of the ethos of, you know, our innovation, and also two categories a year. Right now, you know, as I mentioned earlier, we're in 37 new categories. You know, in terms of like the boom bust, I mean, maybe I'll give you some insight from one of our larger categories. We'll give the air fryer example. From an air fryer standpoint, what we really do is we don't look to introduce a product per se. Of course, it is a product that's coming to marketplace, but our longer-term view is that product becomes more of a franchise, and then that franchise gives us credibility to move into adjacent parts of the home or increasingly outside of the home in terms of what we're doing now.
What does that look like on just kind of like an evolution basis? We exist again from an innovation standpoint to compel the consumer to buy our products. In many cases, we're trying to out-innovate ourselves. Using the air fryer as an example, when we entered into the air fryer marketplace, we really disrupted it in a significant way. We went in initially through kind of single-basket air fryer for those of you who are familiar with the products and know what I'm talking about. Then we heard from our consumer insights folks that, launching primarily through a U.S. lens at that point in time in our history, it's like, well, we want even a bigger air fryer basket. The next innovation came in more like size and to a lesser extent, cooking technology. The next one was like, well, even bigger.
It's like, okay, well, we've got kind of like SUV style air fryers. We started to hear from our European consumers and consumers that are in more urban metropolitan areas say, hey, your SUV air fryer is taking up too much space on my counter. That's when we actually moved to a dual-stack air fryer, so kind of like an air fryer condominium almost. That was another innovation. We heard at the same time that parents with kids, they want to be able to cook their teriyaki salmon, and they want to be able to cook their chicken nuggets at the same time. Those things don't cohabitate well together. The next step in the innovation for that was the dual basket. You could cook your salmon on one side, you could cook your nuggets on the other side, and everybody's happy.
That's kind of how we go about trying to continue out-innovating ourselves. The next exciting product that's going to come in this space is just hitting the market right now and will start to gain more critical mass in the back part of this year. It is our crispy air fryer, which is completely different. It's a glass air fryer of varying sizes where you can actually physically watch whatever you're cooking, and you could cook a whole chicken in it, by the way. In the larger size, you can watch that cook. To get out of the boom bust because we don't think of anything as just a single product, we think of it as more of a franchise. That's part of the thought process behind.
Really helpful. Understanding the company kind of plans for singles and doubles and not home runs with new product launches, what new product or innovation that should be material to 2025's results kind of has surprised you the most in terms of success?
You know, we try not to get surprised because we do a lot of research in advance in terms of how product is going to resonate with consumers. I would say that I'd be remiss if I didn't talk about the slushy. It's just been an incredible consumer reaction. I remember talking about the potential of, and maybe by show of hands, when I say slushy, does anybody know what I'm talking about? Like two people, maybe like five. So slushie is like, think 7-Eleven or Stop & Shop, you know, the big, you know. About a year ago, as we were getting ready to bring this to market, we didn't necessarily know what we had. We had a lot of questions incoming. It's like, well, how do you know this is going to be a hit? It's like, what does the NPD data tell you?
We're like, well, there's no NPD data on slushy categories. It just doesn't exist. What we did do is along the way in all steps of development from whiteboarding this to bringing it into production is get consumer feedback. The overwhelming consumer feedback that we did, and we do hundreds and hundreds and hundreds of consumer interactions in their homes, in our testing facilities, in our headquarter space to gauge the reaction. We were becoming increasingly convinced that we had a hit on our hand. Even though we thought we had a hit on our hand with this, we were still aiming for just a double because as we go to market with these products, the one thing that we don't want to do is we don't want to get over-inventoried in the marketplace. We tend to take a cautious approach.
As we launched and kind of went through our initial cycles of launch, the consumer reaction was incredible. We found ourselves chasing demand in a significant way and it has just been an incredible success. What's important is that it's not a one-hit wonder. The plans behind the plans of the slushy, not dissimilar from what I talked about in the air fryer space. It's not like a one-and-done sort of thing. Think about it as growing into various iterations of a franchise that will help us prevent this kind of boom bust concern that we get a lot of questions on from investors in terms of how we keep the growth going.
Great. Let's talk about international. The U.K. is your largest market there. I think you brought that in-house into a direct distribution model in 2014. Mexico just shifted to a direct distribution model as well. What is the mile post you need to achieve to make that transition from maybe a distributor-oriented market into a direct distribution model?
Yeah. For the group, we really have two ways that we go to market in a territory. One is we can go through a distributor model, which is a little bit what I would say, lighter touch for us. We're working with a distributor. We sell to the distributor, and then the distributor just kind of blows out product to accounts. For us, it's kind of a low-maintenance way to enter a marketplace. The owned version of a marketplace is when we actually own the relationship with the retailers and market.
What we've been learning in the last couple of years or so is whereas we initially had concerns about our ability to own our distribution and execute in a successful way, as we've met with success in the U.K., in Germany, in France, and some of the Central European countries, it's given us the confidence to kind of move more from going primarily in through a distributor model to more of really having the confidence that we're better off owning our distribution and the relationships in the marketplace. Whereas maybe like a year ago or so, as Brian's alluding to, there probably would have been a mark of like $100 million or a couple hundred million dollars, and we're like, okay, that's critical mass. Now we want to own it.
We're getting more to the point now where we feel like it's better for us to own that distribution and that relationship and that marketing and that communication with the consumer from the jump versus going in through a distributor. Distributors will still play an important part of our business. Where will that be? You can think of countries that may be a little bit less stable from a macro standpoint, from a geopolitical standpoint, that we still have got a large customer base, but maybe we just don't want the exposure of what may happen in two years or four years, etc. What you'll see for us is, as Brian just mentioned, we bought back our distributor in Mexico this past Q1.
We did that because we feel that how we had grown with the distributor, we'd kind of gotten to the maximum kind of contribution that they were going to give us and that we could kind of take it over and run the business in a better way. You'll see us in Q4 of this year and Q1 of next year, we're going to convert Spain, Portugal, Italy, the Benelux countries, as well as the Nordics into owned distribution. We're excited about it. From a P&L standpoint, we'll capture more of the revenue. We think that longer term, there's more revenue to be captured that way. Our product gross margins will be higher. We'll invest a little bit more OpEx. From a net bottom line standpoint, it'll be more accretive going to market this way.
The growth of this company has seen, you know, since 2008, a CAGR north of 20%. You did 32% growth last year. You just guided last week to a 14% top line kind of midpoint this year. This all in a market that might grow low single digits each year. Like, what does a " normal" growth year look like for you guys?
I mean, I don't know if there's normal anymore, to be honest. What we aim for is, we've got our approach to growth really through what we call our three-pillar growth strategy. It's fairly simple on the surface, but it's complex to execute on. What it is, is really the three pillars of our growth strategy: growing our base business. As we talk to investors, the vast majority of the questions that we tend to get are around some of our more viral products that are out in the marketplace, kind of the one-hit wonders, or what we try to avoid as one-hit wonders. A lot of time is spent on that.
A lot of time in terms of what we do is spent educating the investment community that the base part of our business, the day-to-day, vacuum cleaners, blenders, carpet extraction, hair dryers, et cetera, that is, we have a very healthy, strong base business. We need to continue to preserve that. Why is that important for us? It's important because it is an investment engine for us. That strong, healthy business helps us to fuel the investment that we put into our product design and development, our research and development, into our supply chain, and into our marketing and media spend. First pillar, base business, exceptionally important, doesn't get a lot of play. It's the less sexy part of the business, but exceptionally important in terms of how we drive our business. The second pillar of the three pillars is growth in new products.
This tends to be the more sexy part. It's the things that you may have heard about recently. We launched a new grill this summer called the Woodfire electric grill and smoker. We launched our first foray into kind of med spa beauty with our Shark CryoGlow face mask that has red light, blue light, under-eye cooling, which is something I've needed as we've gone through the tariff challenges. The s lushie is out there. The c reamie is out there. That's really what kind of constitutes new products. That can also be in existing, it can be new categories, but it can also be new products in existing categories. That is kind of like to the franchise model that we talked about earlier. The other component is the international expansion.
When you think about the three pillars that we've got, it's the base business, it's the new product revenue that we've got, and then it's the international expansion roadmap that we're on.
Dyson's probably your closest comp out there. I think they last reported revenues of $9 billion in 2023. You'll be north of $6 billion if you hit the midpoint of your guidance this year. I'm sure Mark has a number in his head, but how big can this company get?
Mark definitely has a number in his head. Yeah, we feel like we've got a lot of white space. I'm not going to pin me into a number, but if you think about the prospects in terms of where we are, and you think about how I was just talking through international growth, I'll just give you a couple of stats, and you can kind of interpret it a little bit. We've only been in the UK in a meaningful way for about seven, eight years. We entered and then we kind of stumbled and we went back in. We've been really getting it right in just the last five, six years. We've just recently gone into Germany. We've just recently gone into France. In France and Germany, of the 37 categories of products that we've got, we're in roughly, what is it, 10 categories.
I'll let you do the math on that from a white space perspective. All those other countries that I named earlier that we're converting from distributor to owned business, de minimis in terms of revenue at this point in time as it relates to our P&L. If that's one leg, and then I've talked about how important and the focus on preserving and growing the base, the next leg is from a new product standpoint, a new category standpoint. Again, we stand by the new two categories per year. For those of you that are familiar with some of our investor materials, our investor presentation, which you can get on our investor website, one of my favorite depictions of where we are is it's kind of a diagram of the home and everywhere where we are and maybe importantly where we are not in the home space.
What we're trying to do, as I talked earlier at the top of the discussion, is how important it is for us to put the consumer first, solve problems on the behalf of the consumer, and really put the consumer at the center of everything we do from an innovation standpoint. When we do that right, it gives us the license to travel to different parts of his or her home. If you think about SharkNinja from its kind of nascent space of where we were 10 years, 12 years, 15 years ago as primarily a vacuum cleaner business and a blender business.
As you look at how we've built those two distinct brands, Shark and Ninja, and where it's allowed us to travel, both in the kitchen, outside of the kitchen, into the living room, into the bathroom from a hair dryer, a hair straightener standpoint, then additional license by getting into hair, how that's allowed us to go deeper into beauty, into the med spa space with the Shark CryoGlow. We've got a product that just launched yesterday in beauty and another one that's launching later on this year in beauty that we're really excited about. You kind of build that adjacency where by building credibility with the consumer, then you can go to the next thing and then the next thing.
That's where we and I and all of us are really excited about, we still feel like there's a lot of white space in terms of the home and problems that the consumer has. In some cases, problems the consumer doesn't even know that he or she has at this point in time that we can get behind.
Last question quickly since we're out of time, but we're asking this question of all of our consumer companies. How healthy is the consumer from your vantage point today versus a year ago? How do you see consumer spending shaping up in the back half of this year and as we enter 2026?
Yeah, I mean, listen, it obviously goes without saying it's something that we watch and are very concerned about. What I would say is, for us, we don't compete at the low end of the market in our industry and in our categories. We don't compete at the very high end. We're competing on innovation. We're competing on price value. For us, we haven't seen, and this is just a very SharkNinja specific, we have not seen at this point a slowdown in consumer spending with us. Very aware of the fact over the last couple of weeks, we've seen some remarks at the lower end of price point that there's seeming to be some slowdown in that space. We're very aware of that. We don't compete there, but you know that these things can tend to work their way through.
For us, what we're focused on is the consumer and creating that value for the consumer. Because what we know is, as you go back over the last 20 years, 30 years and you look at Great Recession or you look at Dotcom bust and all the other tremors that have been in the markets, the companies that win in the consumer space are the ones that are innovating on behalf of the consumer. The ones that are competing more on price tend to be the ones that don't win in kind of down cycles. Whether we're up or whether we're down or whether we're just kind of steady Eddie in the middle from an economy standpoint, I feel like we're positioned well.
Great. We're out of time, but thank you so much for joining us. Appreciate it.
Great. Thanks, Brian.