Traeger, Inc.

Hello and welcome to the Traeger second quarter fiscal 2023 earnings conference call. My name is Lauren and I'll be coordinating your call today. There'll be an opportunity for questions at the end of the presentation. If you would like to ask a question then please press star moved by one on your telephone keypad. I'll now hand you over to your host Nick Backus to begin. Nick, please go ahead.

Good afternoon everyone. Thank you for joining Traeger's call to discuss the second quarter 2023 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 expectations, but are subject to substantial risks and uncertainties, which 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 31, 2022, our quarterly report on Form 10-Q for the quarter ended June 30, 2023, once filed, and our other SEC filings for discretion 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 to revise them for any new information. This call will also contain certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, adjusted net income per share, adjusted EBITDA margin, and adjusted net income margin, 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. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. 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 second quarter earnings call. Today, we'll be discussing our second quarter results and our progress on our key long-term strategies. I will then turn the call over to Dom to discuss further details on our quarterly financial performance and to provide an update on our fiscal year 2023 guidance. Today, I'm pleased to be able to announce better than expected results for the second quarter. As expected, our top line results were down to prior year as our retail partners continue to destock and work through grill inventories. However, results outpaced our expectations with upside in revenues driven by better than expected grill and consumable sales. Outperformance in our quarterly sales and the continued benefit of our cost efficiency actions drove better than anticipated adjusted EBITDA, allowing us to deliver $21 million of adjusted EBITDA up from $17 million in the prior year. I believe our results demonstrate our strong organizational focus on positioning Traeger for improved profitability in financial health In the outdoor cooking industry, the second quarter is the most critical selling period at retail, as consumers purchase grills for the summer grilling season. As always, our organization remained highly focused on sell-through in Q2, given this is the most important indicator of consumer demand for our products. As we moved through some of the most important weeks at retail in the second quarter, we were pleased to see sell-through results that were modestly ahead of our expectations. As we have discussed over the last several quarters, following a period of outsized growth and big-ticket home-related durables during the pandemic, consumers shifted their disposable expenditures towards travel and services, leading to one of the largest declines in the history of the grill industry on record last year. While we believe this shift largely remains in place today and grill sell-through continues to be negative, In the second quarter, we began to lap the declines in consumer demand that we experienced last year, and we saw continued stabilization in sell-through trends with year-over-year growth in certain key weeks. Improving sell-through along with our retail partners' destocking efforts over the last several quarters resulted in a materially healthier inventory position in channel at quarter end. We believe that in-channel inventory levels are now sufficiently balanced with demand, and we expect that replenishment rates in the second half will be closer to normalized levels following a period of aggressive destocking. Right-sizing inventories in-channel has been a critical focus of the organization, and the team's efforts allow us to enter into the second half of 2023 in a substantially improved position. Given our better than expected results in the first half of the year, we are increasing our full year guidance to $585 to $600 million in sales from a range of $560 to $590 million, and to $55 to $59 million in adjusted EBITDA from $45 to $55 million. Dom will add further color on our updated financial guidance for the year, However, I'd like to highlight a few points. First, while we are increasing our guidance, we remain keenly aware that the macroeconomic environment and consumer backdrop continue to be fluid. We will continue to manage the business with a disciplined approach. Next, our guidance continues to assume a return to top-line growth in the second half of the year. We are not building in any material improvement consumer demand in the second half, but rather we expect that our sales will benefit from more normalized replenishment rates as channel inventories are now balanced. Now I'd like to walk through each of our strategic growth pillars. Our first pillar is accelerating brand awareness and penetration in the United States. As a reminder, we ended 2022 with 3.5% penetration of the 76 million grill-owning households in the United States. We continue to believe that we have a long runway of growth in household penetration, as evidenced by the mid-teens penetration we have in our more mature markets. In the second quarter, the energy around the Traeger brand continued to build. We kicked off the grilling season with our annual Mother's Day promotion, with savings across our grill assortment and giftable items for mom, and content on social channels and our website featuring top Mother's Day brunch and breakfast recipes, Then on May 20th, we held our sixth annual Traeger Day, which we describe as our most epic day of the year. Traeger Day is a celebration of all things Traeger and is dedicated to bringing our community together to cook outdoors and to share food made on the Traeger with friends and family. Members of the Traegerhood were out in full force and were engaging with our brand by sharing pictures and videos of their food on social media. We had nearly 18,000 user-generated content posts and video views more than doubled versus last year's Traeger Day. Next, in June, we celebrated Father's Day with our annual promotion, including discounts on select grills and a Traeger gift guide for every dad. Our influencer network was very active on social media, highlighting the great deals available on Traeger products, driving over 6 million impressions. Father's Day is one of the most important selling periods at retail, and our sell-through trends exceeded expectations. We also leveraged our team of brand ambassadors in the second quarter. Our BAs conduct live demonstrations of our grills across the country, which not only creates energy and educates consumers about the brand, but also generates sales and locations where we may not be able to reach the consumer otherwise. In Q2, Our BAs focused on special events like county fairs and rodeos across the country. We had significant growth in sales generated at special events in the second quarter as compared to last year, in particular for our higher-end grill SKUs. Our brand continues to receive significant and favorable press coverage, which is another avenue of driving awareness of Traeger. In the second quarter, our total media impressions more than tripled compared to the second quarter of last year, with articles, product reviews, and mentions in Forbes, the Wall Street Journal, and the New York Times, amongst others. Our next growth pillar is disrupting outdoor cooking with product innovation. A key milestone for our organization in the second quarter was winning a Red Dot Product Design Award for our Timberline XL Grill. The Red Dot Award is a preeminent award recognizing product in conceptual design with a jury of roughly 50 international experts who test, discuss, and assess products for innovation, functionality, and longevity. Winning the Red Dot Award is truly an honor and speaks to the high level of innovation that Traeger is bringing to the outdoor cooking industry. Earlier this year, we launched two new grills, our Ironwood and new premium griddle, the Flat Rock. We have been pleased with a strong consumer reception of both products. Our new Ironwood has performed well at retail and has garnered positive media attention, including a positive review by Rolling Stone. The Ironwood is a great example of our strategy to cascade innovation from Halo products, in this case the Timberline XL, which launched last year, to other grills throughout the product line. We have been pleased with sell-through trends for our new Ironwood thus far. Our Flat Rock griddle has performed strongly as well. As we decided that initial distribution in the Flat Rock would be somewhat limited, we expect to ramp production in the second half to fulfill the solid demand at retail and expect Flat Rock volumes to grow as production accelerates into next year. In the second quarter, we made a key addition to the team in the area of innovation and design. In May, we hired Brendan Welch as EVP of Engineering. Brendan will play a critical role in the product development and technical execution and has extensive experience bringing amazing and innovative product to market that companies like Sonos and Bose make him a great addition to the Traeger leadership team. Welcome to the Traegerhood, Brendan. Our next strategic pillar is driving recurring revenues to our consumables business. In the second quarter, our consumables category continued to be pressured as compared to prior year, driven by lower sales at a customer who introduced a private label pellet offering. However, sell-through excluding this customer remains healthy and trended positively to the second quarter of last year, demonstrating the recurring nature of our pellet business, even in what remains a tough environment. Product innovation in our consumables business continues to be a key strategic imperative. In June, we launched our new steak blend pellet kit, which includes Traeger steak blend pellets, steak rub, and chimichurri sauce mix, giving the consumer everything they need to cook the ultimate steak this summer growing season. Consumers responded favorably as the kit is a great solution to make one of the most popular meals cooked on a Traeger. In the second quarter, we continued to make inroads in terms of increasing distribution of consumables in the grocery channel. Our new barbecue sauce portfolio launched in Kroger with new and improved formulas at a more competitive MSRP. The sauces are packaged in a new, easy-to-use squeeze bottle with a flip-top cap. The portfolio consists of Traeger Q, apricot, sweet and heat, and Texas spicy sauces, and they rolled out in roughly 2,200 Kroger locations. We also added distribution of three flavors of pellets at 129 Raley's doors and 100 Piggly Wiggly locations. Our last strategic growth pillar is expanding the Traeger brand internationally. In the second quarter, our international markets continue to be pressured as consumers in our key markets abroad contend with inflation and dealers work through excess inventories. However, similar to the US, dealer inventories ended the quarter in a substantially more balanced position, and we are optimistic this will allow for more normalized replenishment activity in the second half of the year. Despite a tough consumer environment in our international markets, the energy around the Traeger brand continues to grow. In international retail doors, we continue to be focused on driving productivity and awareness through our in-store marketing and sales efforts, including merchandising enhancements and product demonstrations. This year, we refreshed over 1,000 points of distribution across Europe with updated branding and imaging, including POS signage that explains Traeger's wood pellet system and Wi-Fi connectivity to the consumer. We have also grown our regional demo teams. These pitmasters demo Traeger grills and food every weekend from March to July outside of retail locations and key international locations in the UK, Germany, and other markets in Europe. We believe these on-the-ground initiatives in our core international markets should drive awareness of our brand, and we continue to see a meaningful long-term opportunity to grow Traeger outside of the US. Overall, I'm extremely pleased with the progress we have made over the past several quarters. Our strong efforts have allowed the company to be in a significantly improved position with balance sheet and channel inventories now better aligned with demand and improvement in gross margin and cost reduction efforts driving an expected improvement in EBITDA in fiscal 2023. Despite the progress we have made, we acknowledge that the macroeconomic environment remains uncertain. We will continue to manage the business with a focus on navigating the near term while also investing for long-term growth. And with that, I'll turn the call over to Don.