Traeger, Inc.

Good afternoon. Thank you for attending today's Traeger first quarter fiscal 2022 earnings conference call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Nick Baucus, Vice President of Investor Relations of Traeger Grills. Please go ahead.

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its first quarter 2022 results, which were released this afternoon and could 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 expectations 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 annual report on Form 10-K for the year ended December 31st, 2021, and our other SEC filings for discussion of these factors and uncertainties, which are also available on the investor relations portion of our website. You should not take under 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.trigger.com. Now, I'd like to turn the call over to Jeremy Andrus, Chief Executive Officer of Trigger.

Thank you, Nick. Thank you for joining our first quarter earnings call. Today we'll discuss highlights for our first quarter 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 quarterly financial performance and to provide an update on our fiscal 2022 guidance. The Traeger team continues to work relentlessly to deliver an incredible experience to our consumers and to drive forward our key long-term growth initiatives. In the first quarter, While we face several near-term headwinds, including continued inflationary pressures and supply chain challenges, a highly dynamic consumer backdrop, and tough year-over-year comparisons, we are pleased with our execution. Our first quarter sales of $224 million were down 5% versus prior year, with particular softness in our grill business, with revenues down 16%. First quarter year-over-year growth was negatively impacted, by lapping a period where our retail partners were aggressively restocking channeled inventory and consumer demand was enhanced by government stimulus. Looking at first quarter's three-year CAGR of 32% and grill revenue CAGR of 27% demonstrates the strong gains that Traeger has experienced since 2019. We are pleased to have exceeded our first quarter guidance, which we provided in March, despite beating our quarterly guidance we are maintaining our full year 2022 sales and EBITDA outlook there are three central factors i'll touch on as it relates to our reiteration of guidance first our beat relative to guidance in the first quarter was largely driven by timing of shipments of grills and was not based on a change in underlying demand relative to our assumptions when we shared our outlook second We remain cautious on the macro environment with continued pressures on the consumer and tightening financial conditions, as well as a shift in consumer spending away from durables towards services. Lastly, we are in the beginning of our seasonally strongest selling period with our most important weeks at retail ahead of us. Therefore, it is early in the year to adjust our outlook. Despite near-term headwinds, our brand health has never been stronger. Our consumer continues to increase engagement with Traeger, with connected cooks continuing to grow in the first quarter, led by an incredible 55% increase in connected cooks on Super Bowl 2022. Moreover, our customers continue to tell their friends and family that they love their Traeger, and our NPS score is now at an all-time high, well above other players in the outdoor cooking category. and in line with great consumer brands like Starbucks, Airbnb, and Netflix. The excitement and passion around the Traeger brand continue to build momentum as we approach our summer selling season. In March, we launched our new Timberline Grill, which is Traeger's most innovative product since I've been with the company and is truly a game changer in outdoor cooking. The launch's reception for our consumers, our retail partners, and outdoor cooking influencers has been incredible and cements traeger's status as a disruptive force in the grilling category looking forward we are optimistic about our plans as we head into the summer grilling season whether smoking a 15 pound brisket overnight for a block party or using one of our fast and easy dinner recipe ideas for a weeknight meal to be enjoyed outdoors with the family our wood pellet grills versatility consistency and ease of use made Traeger the go-to grill for the summer. Similar to last year, we kicked off the beginning of the season with a promotion, this year setting around Mother's Day, with $150 off select grills and $2 off pellets and sauces. The promotion was a great gift-giving opportunity and directly addressed consumers looking to buy a Traeger grill or consumable ahead of the summer. On May 14th, we will be celebrating our fifth annual Traeger Day. Traeger Day is dedicated to bringing the global Traeger community together to cook outdoors and to share wood fire foods with friends and family as they celebrate the start of the growing season. Consumers and influencers share pictures and videos of their meals on social media and can win prizes based on their spread. We expect significant growth in consumer engagement, especially after two years of virtual Traeger days. We remain highly enthusiastic about the enormous upside potential for the Traeger brand and are confident in our growth strategy. Having said that, as we discussed in March on our fourth quarter earnings call, the near-term environment remains highly dynamic. We are seeing numerous companies across multiple parts of the consumer sector speak to a less favorable backdrop for the consumer, with inflation and geopolitical turmoil impacting consumer confidence. Furthermore, as the pandemic subsides, it is becoming evident that the consumer is shifting spend away from durable, home-related goods towards leisure and travel, which is also negatively impacting the grill category. On our fourth quarter call, we discussed having seen a deviation from our forecast in sell-through trends at retail in March, which coincided with worsening geopolitical headlines and a sharp rise in prices at the pump. Since then, sell-through trends have remained volatile, but are trending in line with the expectations we provided when we gave our 2022 guidance. It is important to note that it's still very early in the year, with our highest volume sales weeks at retail ahead of us. In fact, in a typical year, we would expect retail sell through volumes between now and Labor Day to make up nearly 50% of our yearly sell through. In terms of supply chain dynamics, as we have discussed on previous calls, given the size and weight of our product, Traeger is especially sensitive to the cost increases in freight and transportation that many companies are facing today. While we do expect that increased freight costs will normalize to some extent over time, our team remains hyper-focused on driving costs out of logistics, supply chain, and manufacturing. Specifically, earlier this year, we formed a gross margin task force led by our chief supply chain officer, Jim Hardy, to identify and execute on cost savings initiatives across the supply chain. While it is early in the process, we are encouraged by some initial learnings and wins and we expect to leverage efficiencies driven by this team over the medium to long term. Critically, while the team is focused on driving cost savings, we are committed to doing so without compromising the quality of our products or our consumer experience. Furthermore, given cost increases and the uncertain consumer backdrop, we are managing our expenses to better align the cost structure to the current environment. This includes reexamining our investment spend for the year and reducing, deferring, and reprioritizing certain expenses. We remain committed to fueling our long-term growth and continually improving our product and consumer experience. However, we believe that thoughtful cost discipline is appropriate given the highly dynamic backdrop. I want to shift my discussion to progress on our key strategic growth pillars, accelerating brand awareness and penetration in the United States, disrupting outdoor cooking through product innovation, driving recurring revenue through our consumables business, and expanding the Traeger brand globally. Increasing brand awareness and penetration in the United States remains our largest single growth driver. It is important to note that while door growth in the U.S. is a long-term opportunity for Traeger, increasing penetration in our existing retail footprint is at the core of our growth strategy. In the first quarter, we reset roughly 350 stores at the Home Depot with an expanded assortment of Traeger products and improving signage and fixturing. As we have noted, these locations have a larger assortment with more than double the number of Traeger SKUs and a significantly improved brand presence, which allows these locations to drive more than twice the sales productivity for Traeger products compared to the average Home Depot door. We will continue to drive future growth in Home Depot by increasing the product assortment across stores, particularly those with minimal brand presence in sales, and by investing in visual merchandising, fixtures, and retail training. On the marketing side, in the first quarter, we launched a new brand campaign, the Traeger Hood Tales, featured in TV spots and digital ads. The campaign focuses on funny family moments with a Traeger spin. and I would encourage everyone to watch these entertaining commercials on our YouTube channel. Going into the summer season, we'll focus our media efforts in the social, digital, and connected TV channels. Lastly, our DTC business continues to gain momentum, and in the first quarter, Traeger.com US saw solid growth with increases in both returning customer transactions as well as new customer transactions. We launched several new products across pellets, consumables, and apparel in our DTC channel, including Meat Sweats, a limited edition run of Traeger branded joggers that are the perfect pants to wear when grilling on a Traeger. Our consumers love the idea and Meat Sweats sold out in eight hours. These types of creative and limited run offerings bring significant energy to the Traeger brand. Our next growth pillar is product innovation. The launch of the new Timberline and Timberline Excel in March was an enormous occasion in the history of the company. Our new Timberline brings incredible innovation to the market, offering consumers an unparalleled level of consistency, convenience, and versatility. Full stainless steel insulation and a redesigned heat delivery system allow for hotter temperatures and improved searing. The grill includes the first outdoor-certified induction cooktop, which provides fast heating for sauteing, simmering sauces or searing, as well as a proprietary grease and ash keg system for easy cleanup, a new Wi-Fi-enabled controller for precision temperature control, and two wireless meter probes for easy monitoring of internal temperature, among other innovations. There is nothing else in the space that has all the innovative features that are included in this new Timberline. The excitement around the launch of the new Timberline was palpable, with 1.2 billion press coverage impressions and 70 million influencer-driven impressions in the first week post-launch. The reception of the new Timberline has been fantastic, with significant excitement from retail partners who have sent Timberline hero moment fixtures in over 1,000 doors as well as strong advocacy from influencers like Sam the Cooking Guy, Matt Didman at Meat Church, and How to Barbecue Rites Malcolm Reed. Importantly, we expect the innovations introduced in this product will power several years of upgrades and newness as technologies and features cascade through the rest of the Traeger product assortment. Shifting to our consumables business, we remain focused on driving recurring revenues through expanded distribution and new product introductions. In the first quarter, we added 2,200 grocery doors where Traeger rubs and sauces are being sold, led by our rollout at Kroger. We saw strong growth in our rubs and sauces business in Q1, driven by this increased distribution. We are also increasing distribution in our pellet business and added 600 additional grocery doors where pellets are sold. It is early in our consumables expansion at grocery. However, we are encouraged by early results and continue to believe that the consumer wants to buy our consumables where they shop every week, not just where they're buying their grill. In addition to distribution growth, we continue to expand our consumables assortment with new innovation. In February, we launched two new rubs, the Anything Rub and the Perfect Pork Rub, and two new sauces, Liquid Gold and Show Me the Honey. Moving to our final growth pillar, expanding the Traeger brand globally. Our international business had a strong first quarter with healthy growth both in Canada and Europe. The quarter benefited from strong pre-book and early season loadings, and our team did a great job delivering product on time and in full, to our international retailers and distributors. In the first quarter, we saw a deceleration in sell-through in our international markets, as we believe consumer sentiment in global geographies is being negatively impacted by the war in Ukraine and inflation. Similar to the US, we've planned our international business more conservatively for fiscal 22, based on the macro backdrop. We would note we have no direct exposure to Russia or Ukraine, and the European market makes up well below 5% of our total sales. We continue to see a significant long-term opportunity to grow the Traeger brand globally. In summary, the Traeger team continues to execute on our growth strategy, which we believe will drive meaningful value for our shareholders, consumers, and retail partners. In the first quarter, we launched our most innovative product in the company's history, which we believe sets the stage for a multi-year innovation cycle. and puts us significantly ahead of the competition. Despite facing near-term challenges, Traeger continues to be strongly positioned for long-term growth as a disruptor in the outdoor cooking sector. Before I pass it over to Dom, I'd like to thank the entire Traeger team for their hard work and passion in executing on our vision to bring people together to create a more flavorful world. And with that, I'll turn it over to Dom. Dom?