Traeger, Inc.

Hello and welcome to the Traeger second quarter fiscal 2025 earnings conference call. My name is Alex and I'll be coordinating today's call. If you'd like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. And I hand it over to Nick Backus to begin. Please go ahead.

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its second quarter 2025 results, which were released this afternoon and can be found on our website at investors.traeger.com. I'm Nick Backus, Vice President of Investor Relations, Treasury, and Capital Markets at Traeger. With me on the call today are Jeremy Andrus, our Chief Executive Officer, and Joey Hoard, 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 within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and views of future events, including but not limited to outlook as to our anticipated full year 2025 results. Substatements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein. I encourage you to review our annual report on Form 10-K for the year ended December 31, 2024, and our other filings for discussion of these factors and uncertainties, which are available on the investor relations portion of our website. You should not take undue reliance on these forward-looking statements, which we speak to only as of today. We undertake no obligation to update or revise them for any new information. This call also contains certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income or loss, adjusted net income or loss per share, adjusted EBITDA margin, and net debt, which we believe are useful supplemental measures. The most comparable GAAP financial measures and reconciliation of the non-GAAP measures contained here into such GAAP measures are included in our earnings release and our investor presentation, which are available on the investor relations portion of our website at investors.trigger.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 Traeger. Jeremy?

Thanks, Nick, and thank you for joining our second quarter earnings call. During today's call, I will provide an update on key trends in our business, review second quarter results, and share our outlook for fiscal year 2025. I will also provide an overview of Project Gravity, a major streamlining effort aimed at driving efficiencies and improving margins in our business. You'll then be hearing from Joey Hoard, who is joining for his first quarterly call since stepping into the CFO role. As we entered the second quarter, uncertainty around the macroeconomic environment and trade policy was high. The rapidly changing tariff landscape and the potential downstream impacts on the consumer created challenges to our business. Amid that backdrop, we executed on two major imperatives. First, executing successfully at retail and driving healthy consumer sell-through in our peak season. And second, executing on our tariff mitigation strategies with the goal of preserving profitability and enhancing cash flow. Despite pressure on our results for the quarter, I am pleased with our team's efforts on these two critical fronts. I'll start by providing you with more detail around our tariff mitigation efforts. Overall, based on the current tariff regime, we expect the unmitigated impact of tariffs to be approximately $60 million in fiscal 2025. We believe that our mitigation efforts will allow us to offset approximately 80% of this impact during the fiscal year. Given the magnitude of the exposure, I am pleased with our expectation for mitigation of the substantial majority of the impact to adjusted EBITDA. Our tariff mitigation efforts are centered around three main pillars. First, supply chain efforts, which include identifying savings and efficiencies across the supply chain and cost negotiations with our contract manufacturers. We are also diversifying our manufacturing mix away from China over time and expect a meaningful reduction in the portion of our production in China by the end of 2026. Our second tariff mitigation strategy was pricing. As we discussed on our last call, we were extremely thoughtful when analyzing price changes, looking at features and product positioning on a skew-by-skew basis. We continue to believe that we have pricing power given the quality and innovation we bring to the market, as well as our premium positioning. And we expect that many of our competitors in the outdoor cooking industry have or will be increasing price. While our outlook does prudently assume a negative impact to grill volumes based on the price increases, we believe protecting our profitability is paramount. Last, We have implemented near-term cost savings measures, such as reduction in travel and entertainment expenses and the deferral of nonessential projects, as well as meaningful cost savings expected to be derived from Project Gravity. Moving on to our Project Gravity efficiency and margin improvement initiative. We believe that there is a meaningful opportunity to drive strategic transformation and to simplify processes and functions across our business. Project Gravity will elevate our entire company's focus on return on investment. And over time, this initiative will open up capacity to invest into the core long-term growth drivers of our business, including product innovation and brand. I firmly believe that Project Gravity will unlock significant long-term shareholder value. There are two phases to Project Gravity. The first phase consists of actions already taken or underway. This includes the very difficult decision to implement a reduction in force in the second quarter. Parting ways with many very talented and dedicated team members was not taken lightly. However, it was the right thing to do for our business. Next, we are centralizing METRS operations into our trader infrastructure. This integration consists of closing METRS headquarters in Leicester, United Kingdom, and substantially reducing meter personnel based in the UK. Meter will continue to be an important part of our product portfolio, and we will leverage our strong expertise in marketing and brand management at Traeger to stabilize revenues and return the business to growth. Simultaneously, we will reshape the P&L and drive profitability via cost savings related to our integration efforts. Overall, the first phase of Project Gravity is expected to drive approximately $30 million in run rate cost savings. Phase two of Project Gravity is a broad-based review of our business with a goal of driving efficiency, simplification, and margin enhancement. While it is too early to discuss details today, as this review is ongoing, larger picture, we believe there's a meaningful opportunity to realize significant structural improvements that can result in material cost efficiencies over time. Our review is comprehensive and we will be evaluating everything from skew level productivity to corporate overhead broadly. We expect that initiatives for phase two of Project Gravity will be implemented over the next 18 months. More to come on this front. Now let me touch on our outlook. Today we are reinstating guidance for fiscal year 2025. Our guidance for fiscal year 2025 includes revenues of $540 to $555 million, or down 8% to 11% versus prior year. Our revenue outlook for the year is being impacted by our assumption of pressure on grill volumes driven by the price increases we implemented to offset the cost of tariffs, as well as the assumption of continued softness and accessories revenue due to meter. In terms of adjusted EBITDA, we are guiding to $66 to $73 million. Joey will provide more detail here. However, while our guidance does imply a reduction in year-over-year adjusted EBITDA in fiscal 2025, our actions to mitigate the large majority of the tariff exposure, as well as our phase one project gravity cost savings, are allowing us to successfully navigate the near-term environment while position is for significant improvement in 2026 and beyond. Turning to our second quarter results and highlights. Second quarter revenues were down 14% versus prior year in the quarter and adjusted EBITDA was $14 million. Second quarter results were impacted by a number of factors. First, revenues were pressured by pacing shifts out of the quarter into both the first quarter and the third quarter. Much of these revenue pacing shifts were tied to tariff-related dynamics, including certain of our retail partners temporarily shifting to domestic fulfillment away from direct import or DI fulfillment. This shift impacts the timing of sales as we recognize the revenue when the retailer takes ownership of the product abroad versus after we transport and import the product in the domestic model. Lower mix of DI also impacts gross margin. as DI carries a higher margin rate. We also incurred tariff expenses of more than $3 million in the quarter, further pressuring gross margin. The good news is that we are expecting a return to a more normalized mix of direct import fulfillment in the second half of the year as we have worked with our retail partners to reduce overall tariff exposure and that our tariff mitigation and cost reduction efforts will more meaningfully benefit second half results. The second quarter is our peak selling season, and despite grill revenues being down 22%, we saw better than expected consumer demand of grills at retail with positive unit sell-through growth. In particular, consumers reacted favorably during our Memorial Day promotion period, which kicks off the grilling season, and during the Father's Day promotional period. One trend we continue to experience is strength at our lower price point grill offering, with substantial outperformance of grills sub $1,000 versus north of $1,000. We continue to see this shift as strong evidence of meaningful consumer appetite for Traeger grills at attainable price points. During the quarter, sell through was aided by our boots on the ground activation strategy. Our team of retail sales specialists We're out in full force during peak grilling season, and we conducted thousands of weekend selling events where we train and educate retail associates and demo trader grills to drive awareness of the brand. We also continue to leverage brand partnerships to engage new consumers and broaden our brand reach. Notably, we launched a partnership with Bud Light and Budweiser, two of America's best-selling beer brands with extremely large audiences. Bud's Grill Like a Pro campaign partnership with Traeger features content integration, retail displays, and cross merchandising efforts. We also established a partnership with Pepsi Frito-Lay, which highlights outdoor cooking and features Traeger products. This campaign includes significant retail displays, a large media campaign, and product sweepstakes. Partnering with brands like Bud and Pepsi allows Traeger reach a huge global audience in a cost-effective manner on the consumables front we achieved seven percent revenue growth in the second quarter we saw healthy replenishment of pellets across our retail channels we also continue to benefit from expanded distribution in our consumables business with a launch at walmart late last year and additional distribution gains in the grocery channel Finally, our accessories business continues to be pressured by declines at meter and was down 12% year-over-year. Having said that, the revenue declines at meter sequentially improved versus the first quarter. Our goal for meter in the next six months will be a successful integration of the business into our Salt Lake City infrastructure and strong execution in the critical holiday period. This will ultimately allow meter to return to growth and importantly, will allow for significantly improved profitability. Overall, while there are a number of plus currents from a macroeconomic and trade policy perspective, our brand remains extremely strong and consumer appetite for our grills was healthy in our peak season. Moreover, our team has executed well on an aggressive strategy to mitigate tariffs that will allow us to navigate the current environment. Finally, we believe Project Gravity will act as a powerful catalyst for transformation and efficiency and believe it will drive meaningful long-term value at Traeger. Before I finish, I'd like to thank the entire Traeger team for their hard work and commitment. And with that, I'll hand the call over to Joey.