Traeger, Inc.

Thank you for joining and welcome to the Traeger fourth quarter and full year 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a question and answer session at the end. Please press star one on your telephone keypad to register a question. I would now like to turn the call over to Nick Rishish, Vice President of Investor Relations. So please go ahead.

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its fourth quarter and full year 2021 results, which will release this afternoon and can be found on our website at investors.traeger.com. I'm Nick Backus, Vice President of Investor Relations at Traeger. With me on the call today are Jeremy Andrus, our Chief Executive Officer, and Don Blossel, our Chief Financial Officer. Before we get started, I want to remind everyone that management's remarks on this call may contain forward-looking statements that are based on current educations but are subject to substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein. We encourage you to review our SEC filings for a discussion of these factors and uncertainties, which are also available on the investor relations portion of our website. You should not take undue reliance on these forward-looking statements. We speak only as of today, and we undertake no obligation to update or revise them for any new information. This call will also contain certain non-GAAP financial measures, which we believe are useful supplemental measures. The most comparable GAAP financial measures and reconciliations of the non-GAAP measures contained herein to such GAAP measures are included in our earnings release, which is available on the investor relations portion of our website at investors.traeger.com. This call will also include estimates regarding market and industry data that we prepared based on management's knowledge and experience in the markets in which we operate. together with information obtained from various sources, including publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research. Now I'd like to turn the call over to Jeremy Andrus, Chief Executive Officer of Traeger. Thank you, Nick.

Thank you for joining us for our fourth quarter earnings call. Today I will discuss highlights from our full year and quarterly results and share our progress in executing our long-term growth strategies. I will then turn the call over to Dom to discuss details on our fourth quarter financial performance and to provide an outlook for fiscal 2022. 2021 was a pivotal year for Traeger and we are pleased to have capped it off with a strong fourth quarter performance. We reached several milestones during the year, and I'm exceptionally proud of our team for driving the company to the next level as we continue to transform the way people cook at home. An important milestone in the history of Traeger was our successful IPO in July 2021. We also delivered record sales in 2021 and grew the top line by 44% on top of 50% growth in 2020, with grill revenues up 85% on a two-year static basis. We finished the year with strong momentum and grew fourth quarter sales by 31%, exceeding the high end of our sales guidance for the year. This growth came despite the significant challenges we face in the global supply chain. We estimate that in 2021, we grew our sales faster than the category and our market share at the end of the year increased by more than 50% relative to 2018. We also believe we are effectively increasing the grill industry's total addressable market as Traeger's premiumization of the category continues to drive industry ASPs. Furthermore, in 2021, we expanded our offering by launching our DTC business concept, Traeger Provisions, and by acquiring Meter, a highly innovative player in the wireless smart thermometer category. We believe these new business lines will enhance our relationship with our existing customer install base and drive incremental lifetime value and increased engagement beyond our core grill and consumables business. Looking beyond the incredible progress we made in 2021, I remain as excited as ever about the future of Traeger. We are still in the early stages of growth, and we have just scratched the surface in terms of our plans to penetrate the global outdoor cooking market. Before Dom discusses our fourth quarter results and our outlook for 2022, I want to spend some time reviewing our progress on our key strategic initiatives. As we continue to drive towards our long-term objectives, our growth strategy remains centered around four strategic pillars. I will briefly touch on each of these pillars. Our first strategic growth pillar is to accelerate brand awareness and penetration in the United States. We believe driving penetration in the U.S. with an estimated TAM of 75 million grill-owning households is our largest growth opportunity. We ended 2021 with an installed base of 2.5 million grills, up from 2 million in 2020. Our 3.5% household penetration in the U.S. implies that we have a long runway ahead of us, as evidenced by the mid-teens penetration rates we have achieved in some of our heritage markets. And what's more, in 2021, growth continued to be strong in our most penetrated markets, indicating that we haven't yet come close to hitting a ceiling in these markets. The momentum behind the Traeger brand is evidenced by the growth in unaided awareness, which increased meaningfully to 13% in 2021, up from 11% in 2020 and 7% in 2019. Our increasing share has been driven by our significant brand building efforts with a large emphasis on social. Our top of funnel efforts are working. In 2021, we added 138,000 Instagram followers and 67,000 Facebook followers, an increase of 14% and 16% respectively. At more than 1 million people, our Instagram follower base is the largest in the outdoor cooking sector and Outpace is our largest competitor by two and a half times. Engagement on our social channels remains very healthy. In the fourth quarter, Traeger had its most successful Thanksgiving campaign in brand history, which resulted in 7 million video views, more than double Thanksgiving 2020, and a mid-teens percentage increase in user-generated content submissions. Our market assault strategy continues to drive strong results and legitimizes our view of material upside opportunity awareness and market growth. Despite pulling back on incremental marketing spend as we entered a seasonally slower period during the fourth quarter, we continue to see awareness and demand in our salt markets well in excess of the company average, and we are pleased with the lift in sales we saw in the quarter relative to control markets. In 2022, we intend to expand our Market of Soil program to additional geographies, including eastward expansion to markets in the Midwest and Southeast, where we see tremendous upside opportunity and awareness of the Traeger brand. Our efforts to increase awareness are bearing fruit as our most important retail partners continue to allocate more floor space to the Traeger brand. Traeger continues to focus on driving productivity in the grilling category at retail, and we are not only selling more SKUs to our largest retailers, but our partners are investing alongside us in premium merchandising of our brand. For example, at the Home Depot, we are materially increasing our SKU count across 350 doors in 2022. These doors will have a more expansive merchandising assortment which historically has driven twice the productivity versus Home Depot doors with a more limited assortment. Furthermore, we are quadrupling the number of Home Depot doors with high-end fixturing, prominently displaying the Traeger assortment in a Traeger Island. These premium doors are significantly more productive than average, with materially higher conversion and a better brand presence. Our retail partnerships continue to strengthen and we have significant runway in front of us to expand our penetration. Moreover, we are also adding new channels of distribution. We recently launched at Best Buy in the fourth quarter and are encouraged by early results. Our next growth pillar is to disrupt outdoor cooking through game-changing product innovation. Innovation is in our DNA, and we have a demonstrated track record of continually bringing innovation to the market. We expect that 2022 will be an inflection point in our innovation cycle as next week we will be launching a new grill platform, which we believe will be one of the most important launches in the company's 35 year history. We are extremely excited about this new grill launch as it truly represents the innovation leadership of Traeger. This new grill line incorporates attributes from years of investment into consumer research and customer feedback. To put it simply, we listen to what our customer wants from a Traeger and we are delivering. Our confidence in this strategy is reflected in the fact that our consumer replaces their Traeger grill at a 20% faster rate than the overall grill industry average. We believe this is largely driven by our history of innovating the grill category and continually improving the consumer experience, thus setting the company up well for a strong multi-year replacement cycle. It's important to note that this launch will be a driver of innovation and newness in our grill assortment for several years, not just 2022. As in the past, Traeger's strategy is to launch powerful innovations with a select number of premium SKUs initially and to cascade new features through the rest of the assortment over the next few years. In the fourth quarter, we launched trader provisions and activated influencers and social media, as well as email campaigns to drive awareness. We continue to be optimistic around the long-term growth potential for trader provisions, and we will continue to refine the offering as we move through 2022. We aim to grow our provisions business in a thoughtful manner, focusing on perfecting the consumer experience and the unit economics before scaling and investing into the business more aggressively. We are also driving innovation in the connected cooking space through our meter acquisition. Much like Traeger, meter is a disruptive and premium player that is using technology to enhance both the outdoor and indoor cooking experience. meter has seen strong growth since her acquisition and this growth will continue in 2022 as we expand distribution into some of traeger's best retailer doors furthermore in 2022 our new grill line will incorporate elements of meters technology into the traeger app and ecosystem the third pillar of our growth strategy is to drive recurring revenues to our consumables business based on continued success we are increasing distribution of our consumables offering in the grocery channel. Our research shows that the Traegerhood wants consumables available where they shop every week, not just where grills are sold. In 2021, we doubled the number of grocery doors where Traeger's sauces and rubs are sold. We are excited to share their distribution into the grocery channel. It's planned to increase this year, driven by the launch of sauces and rubs in Kroger, in March of 2022. We are extremely excited to partner with Kroger and see tremendous opportunity to grow our consumables penetration and drive brand awareness beyond our existing retail footprint. As evidenced by this expansion in consumables distribution, Traeger's innovation extends across all our product categories, not just grills. We launched a number of successful consumables in the fourth quarter, These include two premium priced limited edition pellet offerings in the fall, followed by our launch of two more this quarter, a bold blend and a brisket blend. Traeger also entered into the hot sauce category with Traeger Original Hot Sauce and launched two new sauces, Show Me the Honey and Liquid Gold, plus two new rubs, Anything Rub and Perfect Pork Rub. Our fourth growth pillar is to expand the Traeger brand globally. 2021 was a banner year for our international business, which made up more than 10% of revenues for the year. We see a large opportunity to use the playbook that has been so successful in the U.S. to capture share abroad. In the fourth quarter, our international business continued its strong growth and more than doubled year over year. Our Canadian business, which is our largest market outside the US, is showing extremely strong momentum with sales more than tripling versus prior year in the fourth quarter. Our European business also continue to see strong growth in the fourth quarter. In 2022, we plan to continue driving awareness and penetration of the Traeger brand across international markets through targeted marketing and localized social campaigns. We remain highly enthusiastic about the opportunity to grow Traeger across the globe. While I'm very confident in our long-term prospects and our ability to execute on the strategic growth pillars, we are more cautious in how we are guiding to full year due to emerging macro headwinds facing the consumer. These include higher inflation, the conflict in Ukraine, and asset price volatility. These headwinds are coming at a time when our business is comparing to a two-year period that saw accelerated demand, which benefited from government stimulus and COVID restrictions. Despite the near-term headwinds, our three-year revenue CAGR remains very healthy and significantly above industry trends. I'd like to now discuss a topic that is impacting many companies, global supply chain and inflationary pressures. As we discussed during last quarter's call, We face significant supply chain challenges and inflationary pressures related to our supply chain the second half of 2021. I am proud of how well our team has navigated these unprecedented challenges. We have continued to prioritize delivery of product to ensure that we can adequately fulfill strong demand by increasing production and by warehousing product in Asia. This has been a winning strategy as evidenced not only by our fourth quarter, top line growth, but also by the record level of on time in full shipments we experienced during the quarter. As Don will discuss, we are not building in any improvement in the supply chain environment or related cost pressures in 2022 into our outlook. At the same time, we are not standing still. Rather, we are focusing on driving forward our key long-term growth strategies while simultaneously managing the business for the new near-term reality. We are actively implementing cost mitigation strategies to help bolster our short and medium-term gross margin profile. These strategies include price increases, which are our most immediate mitigation tool, as well as manufacturing, logistics, warehousing, and product design efficiencies, which will benefit margins over the medium to long term. We plan to open our New Mexico facility for mass production at the end of this year and are evaluating long-term opportunities to bring more of our manufacturing closer to our core market in the U.S. Further, our product team is bringing innovation to our production model with a focus on creating game-changing product more efficiently. The organization is hyper-focused on identifying and executing on gross margin enhancing initiatives. Additionally, in the face of increased costs and an uncertain macro environment, we are aggressively managing our cost structure. We are strategically reducing and deferring certain non-essential expenses and are thoughtfully reprioritizing near-term SG&A to manage the P&L. We believe this discipline is prudent given the environment. It is critical to note that we are focused on protecting the core drivers of our brand's health, and are not compromising in any way our customer experience or product innovation engine. Stepping back, we hit several major milestones in 2021 and ended the year with strong growth in the fourth quarter, allowing us to exceed our full-year revenue and EBITDA guidance. We are making significant progress on our key strategic growth pillars, yet remaining in the early stages of achieving our potential. Despite near-term challenges, I am extremely bullish on our business and on our ability to capitalize on our tremendous long-term growth opportunity. With that, I'll turn the call over to Dom.