Traeger, Inc.

Hello and welcome to Traeger's first quarter Fiscal 2023 earnings conference call. My name is Terry and I'm the conference operator for today. All participants will have the opportunity to ask a question today and you can do this by pressing star followed by one on your telephone keypad. I would now like to hand the call over to Nick Backers to begin. Please go ahead.

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its first quarter 2023 results, which were released this afternoon. It 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 Bossel, 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, including regarding our anticipated full year 2023 results, which 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, 2022 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 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, including adjusted EBITDA, adjusted net income, and adjusted gross margin, which we believe are useful supplemental measures. The most directly 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 would like to turn the call over to Jeremy Andrus, Chief Executive Officer of Traeger.

Thank you, Nick. Thank you for joining our first quarter earnings call. Today we'll be discussing the first quarter results as well as our progress on executing our long-term strategies. I will then turn this call over to Don to discuss further details on our quarterly financial performance. In the first quarter, we continued to execute against our plan as we navigated challenging environments. and position the business for a return to top and bottom line growth in the second half of 2023. First quarter revenues of $153 million came in towards the higher end of our guidance range, while adjusted EBITDA of $22 million exceeded the high end of our range by $2 million. I am pleased with our ability to over deliver on our adjusted EBITDA guidance for the quarter, and believe our results demonstrate our strong organizational focus on positioning Traeger for improved profitability. While our top line continues to be pressured by retailer destocking, as well as lower consumer demand in our grill business, our first quarter results increase our confidence in our ability to achieve our full year guidance. And as a result, we are reiterating our prior guidance. During the quarter, sell-through of grills remained negative versus the first quarter last year, as we continued to lap our very strong multi-year comparisons. The impact of lower consumer demand in the first quarter was compounded by continued retailer stocking compared to the first quarter last year, when retailers were still building inventories. However, sell-through in the quarter was in line with our forecast coming into the year. Importantly, Following a holiday period in which we leaned into promotions at retail in an effort to accelerate demand and clear channel inventories, we reverted to a more typical promotional cadence in the first quarter that was similar to prior year. I am encouraged to see consumer demand return to a more predictable pattern despite less aggressive promotions and in the face of what continues to be an elevated promotional environment in the outdoor cooking industry more broadly. In the first quarter, we continue to execute against our near-term tactical priorities, which we have discussed over the last three quarterly calls. In terms of inventories, we are making substantial progress on our right-sizing efforts. Our initiatives to drive sell-through in channel and our retail partners' destocking efforts in conjunction with lower production levels have led to a materially improved picture on inventories. with both our balance sheet inventories and inventories in the channel declining sequentially relative to last quarter. We continue to expect that this inventory rationalization process will continue through the second quarter and believe that inventories will be more fully aligned in the second half, which will allow for more normalized replenishment rates of grills. On gross margin, our team remains highly focused on driving margin improvements. In the first quarter, we made a strategic decision to optimize our pellet manufacturing footprint by consolidating our pellet mill portfolio from seven mills to five. By divesting of two higher cost mills and increasing efficiencies in the other five facilities, we expect to drive meaningful improvement in capacity utilization and cost per pound. Moreover, we have ample capacity to fuel strong growth in our pellet business in the coming years. In terms of our cost structure, in the first quarter, we realized the benefit of the cost reduction efforts we undertook last year, which resulted in annualized cost savings north of $20 million. Further, we have planned our expense structure prudently for 2023, which will enable the company to deliver growth in adjusted EBITDA despite our guidance for lower sales. We plan to remain highly focused on expense efficiency as we move through the year while remaining nimble enough to invest into high-priority growth initiatives if investment capacity increases. Moving on to our strategic growth pillars. Our largest long-term opportunity continues to be accelerating brand awareness and penetration in the United States. Our strategy is to meaningfully increase household penetration from our current 3.5% by driving awareness of the Traeger brand and increasing the productivity of our existing distribution network. Through community engagement, enhanced retail merchandising, in-store marketing, and product innovation, we believe we can materially expand Traeger's share of space devoted to outdoor cooking on our retail partners' floors. Our brand awareness remains at an all-time high and has done materially from this time last year despite our limited top of funnel marketing investment capacity over the last 12 months. In the first quarter, engagement with our community on social media continued to demonstrate the growing awareness of and participation in our brand. We grew our followers by 19% versus last year, and user-generated content posts, which we view as a key medium for our brand evangelists, were up by 16%. For the Super Bowl, We offered up unique content and recipes for the game and encouraged our community to post content using the Traeger Game Day hashtag, resulting in another record year of UGC posts on the day. Our awareness also continues to benefit from consistent and increasing media coverage. With articles and reviews covering our new product launches, TV spots featuring Traeger recipes and cooking tips for the Super Bowl, and numerous mentions in top 10 grills of 2023 lists, our media reach has more than doubled versus first quarter of last year. Traeger continues to be the grill brand that everyone is talking about. Going into our peak summer selling season, the excitement and enthusiasm around the Traeger brand remains as strong as ever. Next week on May 20th, we will celebrate our sixth annual Traeger Day, our holiday dedicated to family, friends, and wood-fired food cooked on the Traeger. In anticipation of Traeger Day and ahead of the grilling season, we have released a series of videos featuring meat and church barbecues Matt Pittman with recipes cooked on our new Flat Rock in Ironwood. The content is designed to generate top of funnel awareness and to encourage our massive community to cook together and post about it on May 20th. Next, onto our second growth pillar. which is disrupting outdoor cooking with product innovation. The first quarter was a critical period in our product innovation roadmap with the launch of two new grills in February, our new Ironwood and our new Flat Rock Griddle. These launches were some of the most successful in our brand's history, and I'm extremely proud of the team's execution of our go-to-market strategy from product development to commercialization. Innovation is at the core of our company and the level of innovation that we are bringing to the outdoor cooking market is remarkable. The first quarter's product launches cement our position as an industry disruptor. Our new Ironwood offers unrivaled flavor and consistency through a series of upgrades and new features. Building on the innovation of last year's Tenderloin introduction, the new Ironwood includes features like smart combustion technology, free flow fire pot, and a touchscreen user interface. enabling consumers to master their cooks every time. The response from consumers and retailers has been fantastic. The Ironwood had over 400,000 views on social media during the launch period and received positive media from Rolling Stone, Men's Journal, GQ, and Forbes. The launch of our premium flat top grill, the Traeger Flat Rock, has been something of a phenomenon. We have seen the griddle category expand meaningfully over the last few years, And in speaking with our community, we understood that there was a gap in the marketplace for a premium griddle and an opportunity for Traeger to disrupt the space. Complementing the tried and true dishes of the wood pellet grill, our new flat top grill opens a Traeger hood up to an entirely new menu of foods like pancakes, Philly cheesesteaks, and smash burgers. The flat rock solves several common pain points for griddle users with innovations like our TrueZone heating system, with three separate cooking zones, triple U burner design for even cooking across the cooking surface, and flamelock construction, which locks in heat and blocks out wind. The launch has been the most engaging in our history with over 838,000 video views and over 27,000 engagements on social media during the launch period. We are extremely pleased with the consumer response thus far. And as we have launched Flat Rock with limited distribution, there's a significant opportunity to increase distribution as we move through this year. Our next strategic pillar is driving recurring revenues. As expected, our consumables business was pressured by lower demand from a large customer who introduced a private label pellet offering last year. Outside of this, our pellet business remains healthy And sell-through in the first quarter was relatively in line with the first quarter last year, excluding this customer, demonstrating the recurring nature of this revenue stream. We also continued to grow distribution of pellets into the grocery channel. In the first quarter, we added pellets into nearly 450 new grocery doors across Albertsons, Spartan, Nash, and Raley's. We also grew our pellet offering at Kroger by adding our new value-sized 30-pound barbecue select pellet in over 1,600 doors. On the food consumable side, we continue to execute on our growth strategy through channel expansion and new product offerings. Of note, we secure new distribution for Traeger rubs and sauces in over 250 doors of Meijer. We also launched three new rubs focused on the most popular griddle meals to support the launch of Flat Rock. burger rub, breakfast rub, and spicy fajita rub. Our final growth pillar is expanding the Traeger brand internationally. Similar to the U.S. market, our international business was pressured by the retailer de-stocking in the first quarter. However, results internationally for the quarter were in line with our expectations. In the first quarter, we introduced our new timber line in European markets and our new ironwood in Europe and Canada. The product newness drove excitement on retail floors and led to improved reorder activity. Overall, we were pleased to see the consumer respond to new product. And while we continue to expect near-term softness in our international markets, we do expect meaningful improvement in second half sales trends. In conclusion, I'm encouraged by the meaningful progress we have made in the last three quarters on our tactical priorities. Our team's focus on right-sizing inventories, reducing our cost structure, and driving gross margin improvements will position the business for return to growth in the second half of the year and beyond. Moreover, the excitement and exceptional consumer response to our new product launches bolsters my confidence in Traeger's long-term strategy and positioning as an innovator and disruptor in the outdoor cooking industry. And with that, I'll turn the call over to Dom. Dom?