Traeger, Inc.

Hello everyone and thank you for joining us today. Welcome to the Traeger third quarter fiscal 2023 earnings conference call. My name is Emily and I'll be coordinating your call today. After the presentation there will be the opportunity for any questions which you can ask by pressing start followed by the number one on your telephone keypad. I will now turn the call over to our host, Nick Backus. Please go ahead.

Good afternoon everyone. Thank you for joining Traeger's call to discuss its third quarter 2023 results. which are released this afternoon and can be found on our website at investors.trigger.com. I'm Nick Backus, Vice President of Investor Relations at Trigger. 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 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 31, 2022, quarterly report on Form 10-Q for the quarter ended September 30, 2023, once filed, 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, 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, such GAAP measures are included in our earnings release, which is available on the investor relations portion of our website at investors.jager.com. Please note that our definition of these matters 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 Trader.

Thank you, Nick. Thank you for joining our third quarter earnings call. Today, we'll be discussing our third quarter results as well as reviewing our progress on our long-term strategic initiatives. I will then turn the call over to Dom to further discuss details on our quarterly financial performance. and to provide an update on our fiscal year 2023 guidance. I am pleased with our results for the third quarter, which exceeded our internal expectations. The third quarter marks our return to year-over-year top line growth, with sales improving 26% versus the third quarter of last year. Moreover, we delivered more than 1,000 basis points of gross margin expansion, which combined with expense discipline drove materially improved EBITDA as compared to the prior year. Our near-term strategic priorities over the last year have been centered around improving the financial health and profitability of the company to a highly challenging demand environment. Since the end of the second quarter of 2022, we have taken out in excess of $20 million of expenses from the business, reduced balance sheet inventories by more than a third, driven in-channel inventories to targeting levels, and have stood up a gross margin task force, which has implemented a number of near and long-term margin enhancing initiatives. This is in addition to launching two new grills earlier this year. The team's efforts have resulted in a substantially improved position for the company and are better than expected third quarter results, as well as our ability to increase the midpoint of our financial outlook for the year are the direct outcome of these efforts. In the third quarter, we delivered strong year-over-year sales growth as our retail partners entered into the quarter with inventories appropriately positioned and as we lapped the large declines in volume we experienced in the third quarter last year. Aligning channel inventories to current demand over the last several quarters allowed for a return to more normalized replenishment rates as compared to last year when retailers were aggressively destocking and lowering inventories. The growth in sales in the third quarter translated to a significant improvement in EBITDA, which benefited from expansion in our gross margin, as well as continued efficiencies from our cost reduction efforts. Consumer demand for grills remained soft in the third quarter and sell-through was down to the prior year. We believe that the pressures that have impacted our consumer over the past year, including the shift away from spending on big-ticket discretionary goods, as well as the impact of higher inflation and lower consumer confidence, remain firmly in place. Our sell-through trends this year indicate that the consumer is often willing to spend when there's a catalyst to purchase a grill, but is less likely to spend when there isn't a catalyst. So, during seasonally stronger periods, holidays and promotional events, we have seen relatively better demand with positive growth in grill sell-through in certain of these periods. Whereas in seasonally slower periods, in between holidays or promotional events, we have generally seen softer sell-through. Sell-through on a year-to-date basis remains largely in line with our plan. However, volatility and consumer demand persist, and sell-through continues to be lower than last year. In the face of a difficult macroeconomic backdrop, I am pleased with how the Traeger team is navigating the environment and executing on our strategic plan. Given stronger than expected third quarter performance, we are increasing the midpoint of our fiscal year 2023 guidance. Our updated guidance is for sales of $590 to $600 million and adjusted EBITDA of $57 to $59 million, compared to the prior range for sales of $585 to $600 million and EBITDA of $55 to $59 million. Moving on to our strategic growth pillars. In the third quarter, we continue to execute against our long-term growth strategy. Let me now review our strategic pillars and provide an update on each. Our first growth pillar is accelerating brand awareness and penetration in the United States. Increasing awareness of the Traeger brand is key to driving consumer adoption and household penetration of our brand, which is our largest long-term opportunity. In the third quarter, we continue to execute against this opportunity with brand building efforts in our social channels, as well as our key retail partners. In August, we kicked off the start of the football season with Traeger Game Day. The social campaign activates and engages our community over a four-week period with challenges, content, and recipes to ensure members of the Traegerhood deliver epic game day barbecues for their friends and family using their Traeger. This year's game day content included Los Angeles Chargers quarterback Justin Herbert and Traeger's Chad Ward cooking Justin's victory brisket recipe in his backyard on his Timberline XL. In the video, Chad walks through the steps to cooking an amazing brisket, and Justin shares insights on his introduction to the Traegerhood. Traegers always run weekly cooking challenges during game day, including a wings and a dips contest, with members of the Traegerhood posting their Game Day food on social media to win prizes. Game Day 2023 was a big success and drove energy and awareness to our brand, with social participation engagement up a strong 228% as compared to last year's Game Day. Promotion of the Traeger brand continues to be driven by our community of users and ambassadors, the Traegerhood, and social media remains an important medium for our brand, Evangelist. to talk about Traeger and to share their experiences. In the third quarter, we hit our major milestone and surpassed 2.5 million followers across social channels, ending the quarter with total followers up more than 20% compared to the prior year. We continue to lead the outdoor grilling industry in social media and have over 1 million more followers than our largest competitor in the grilling category. Our ability to drive awareness and penetration of the Traeger brand is heavily tied to retail execution and the presentation of Traeger product on retail floors. At the Home Depot, we made meaningful progress on our initiatives to elevate our merchandise in the third quarter. In the quarter, we added more than 300 Traeger islands at Home Depot locations across the country and ended with more than 800 Traeger islands. As a reminder, these islands are elevated fixtures that prominently featured Traeger grills, consumables, and accessories, and offer a more premium shopping experience. Home Depot locations with a Traeger Island are meaningfully more productive for our brand versus the chain average. In the third quarter, the Home Depot also added FlexWall, our Traeger-branded bay experience, to an additional 300 locations and relocated Traeger bays to be more optimally positioned adjacent to our grills in an additional 300 locations. Together, we expect that these merchandising initiatives will materially improve the visibility and positioning of Traeger at the Home Depot, and we have a lot of energy around continuing to roll out these and other enhancements across the Home Depot store base. Our next growth pillar is disrupting outdoor cooking with product innovation. In the third quarter, under the leadership of our recently hired EVP of Engineering, we focused on investing into our product development capabilities and building on the strength of our innovation engine. This includes adding resources behind our testing and engineering capacity and our sustaining engineering team who look for ways to innovate our product and manufacturing processes to drive efficiency and cost savings. We're also standing up a new platform R&D team whose mission is to drive innovation through consumer insights. Innovation is core to the long-term success of Draeger, and we are committed to investing into our capabilities in the areas of R&D, product development, and engineering to ensure that we continue to lead as a disruptor in the outdoor cooking industry. On the meter side of the house, this week we launched a transformational next generation of meter product, the Meter 2+. The Meter 2 Plus marks a significant step forward in smart thermometer technology, and its many innovations and upgraded features will allow users to achieve perfect results every time. The Meter 2 Plus is equipped with five internal temperature sensors and one ambient sensor to detect the core temperature of the meat, reducing human error in probe placement. It has an impressively high ambient temperature max of 932 degrees Fahrenheit, an internal temperature max of 221 degrees Fahrenheit, significantly higher than other smart thermometers on the market, allowing for cooking meat over the direct heat of an open flame. Other innovations include enhanced wireless connectivity, faster charging, and a 100% waterproof design, allowing for deep frying and sous vide cooking. The meter team has been hard at work designing the state-of-the-art product, since the launch of our original meter in 2015, and we believe this new thermometer is game-changing. Initial distribution of the Meter 2 Plus will be on meter.com, and distribution will broaden next year. Next, I'll provide an update on our consumables business. In the third quarter, we achieved slight growth in consumables as compared to the prior year, an improvement from the 21% sales decline we saw in the first half of 2023. while our consumables revenue continues to be impacted by a large customer's launch of private label pellets. Sell-through of pellets, excluding this customer, was up in the third quarter, and sales were modestly ahead of our plan for the quarter. This performance, in what remains a challenging demand backdrop, demonstrates the recurring revenue nature and resiliency of our pellet business. Ahead of Thanksgiving, we started shipping our limited edition turkey blend pellets in September. This artisanal mix of all natural hardwood features maple, hickory, and rosemary to elevate your turkey's flavor whether it's roasted or slow smoked. This bag also contains our brine kit to ensure users will cook a juicy and flavorful bird for their family and friends. We will be featuring our turkey blend pellets in our Thanksgiving social campaign along with tutorials on how to smoke a turkey on a tray. Earlier this year, we discussed our strategic decision to optimize our pellet manufacturing footprint by consolidating our pellet mill portfolio from seven mills to five. Our pellet business is starting to see the benefit of these actions. By divesting two higher cost mills and increasing capacity at the other mills, we have seen a material improvement capacity utilization. with utilization rates up materially across our mill facilities since earlier this year. We are pleased with our ability to drive efficiency in our pellets business and continue to see our vertical integration as a key long-term competitive advantage, as well as a means to bring the highest quality pellets to our consumers. On the Traeger Sauces and Rubs side, our food consumables business continues to grow and benefit from increased distribution into the grocery channel. As we mentioned last quarter, we relaunched our new barbecue sauce portfolio at Kroger in approximately 2,200 Kroger locations. Sell-through following this relaunch has been solid and turns for the sauce line at Kroger are up materially. Overall, our sauces and rubs business continues to be a nice and growing addition to our product lineup, and we are pleased with recent performance. Our final strategic growth pillar is growing the Traeger brand internationally. Similar to the U.S., in the third quarter we saw sequentially improved results and a return to top-line growth in many of our international markets, including Canada and Germany. In Germany, we had particularly strong results. with sales up strong double digits aided by a focused effort on demos and events where pitmasters serve up food cooked on Traeger grills outside retail locations. We also continue to see healthy sell-throughs in our new Timberline and Ironwood grills, which launched in Europe and Canada earlier this year. Consumer demand in many of our international markets remains challenged as consumers are cautious given pressures on discretionary spend due to inflation and lower confidence, as well as ongoing geopolitical tensions. However, we remain confident in our long-term strategy to grow Traeger abroad and continue to see a large opportunity going forward. Overall, I am pleased with our results for the third quarter. As demonstrated by our improved outlook for the year, our intense focus on improving Traeger's financial positioning and flexibility over the last year has positioned the company well to navigate a challenging environment. We are anticipating the likelihood of continued macroeconomic volatility going forward, and we'll take a prudent approach to managing the business while also leaning into our long-term growth opportunities, which I believe remain extremely robust. And with that, I'll turn the call over to Dom to provide more details on the quarter and our updated outlook. Dom?