Traeger, Inc.

Hello everyone and welcome to the Traeger third quarter fiscal 2025 earnings conference call. My name is Charlie and I'll be coordinating the call today. You'll have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. I'll now hand over to our host, Nick Backus, Vice President of Investor Relations, Treasury and Capital Markets at Traeger to begin. Nick, please go ahead.

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its third 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, statements made regarding our organizational focus, our mitigation efforts to offset the direct impact of tariffs, our Project Gravity initiative and its impact on our business, and our outlook as to our anticipated full-year 2025 results. Such statements 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 31st, 2024, And our other filings were a 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. Now, I'd like to turn the call over to Jeremy Andrus, Chief Executive Officer of Trader. Jeremy?

Thanks, Nick. Thank you for joining our third quarter earnings call. On today's call, I will provide an update on our third quarter results. I will also discuss our Project Gravity streamlining effort and review our outlook for fiscal 2025 before turning the call over to Joey. This afternoon, we released third quarter results that were ahead of expectations. Highlights include a sales increase of 3% to $125 million driven by growth in our grills and consumables categories. Adjusted EBITDA $14 million was up 12% over the prior year as our expense reduction initiatives are beginning to flow through the P&L. Third quarter results reflect our management team's unrelenting focus on navigating a highly dynamic environment. I am pleased with our ability to grow our revenues and adjusted EBITDA in the face of a challenging backdrop. Our results give us the confidence to reiterate our guidance for the fiscal year. In this environment, Preserving profitability and enhancing cash flow is our highest near-term priority. As such, we have made significant progress in executing our tariff mitigation strategies. We continue to believe that we are positioned to offset about 80% of the approximate $60 million in unmitigated tariff exposure in fiscal 2025, utilizing three main strategies that we have previously discussed. First, we are continuing to focus on driving savings and efficiencies in our supply chain, including successful cost reductions. Further, we are planning for and implementing our strategy to diversify our production away from China. We have had productive discussions with manufacturing partners and remain committed to materially diversifying production out of China by the end of fiscal 2026. We currently have plans in place to produce all new grill SKUs going forward in Vietnam and will continue to work towards shifting production on existing lines of product out of China as we move through the balance of this year and into next year. Next, we took price across our assortment to protect profit in the face of higher costs due to tariffs. As we expected, in the third quarter, we saw an impact on grill sell-through volumes tied to the pricing increase. However, elasticity at the consumer level was largely in line with our expectations. The final strategic pillar of our tariff mitigation strategy is cost management. This includes near-term cost savings measures, such as a reduction in travel and entertainment expenses and the deferral of nonessential projects, as well as our project gravity streamline initiative. With respect to Project Gravity, I continue to believe this effort will be transformative for our business and a significant driver of long-term value for the company. Last quarter, we discussed the two phases of Project Gravity. Phase one consists of the organizational structure changes we implemented in the second quarter, as well as the integration of our meter business into Salt Lake City infrastructure. In the third quarter, we made significant progress on the meter integration, significantly reducing headcount based in the UK and shifting most of the key functions of the business into our Utah headquarters and Traeger infrastructure. We believe meter's operations are well positioned to benefit from the significant pool of talent at Traeger. As we look to the future, we believe the integration of meter will reshape its P&L and will unlock the ability to focus on its long-term growth drivers, including the expansion of its retail channel penetration and new product development. Overall, we continue to target Project Gravity Phase 1 run rate cost savings of $30 million once fully implemented. Turning to Phase 2 of Project Gravity, the second phase of our transformation effort is being driven by a broad-based review of our business with a focus on increased efficiency, simplification, and return on investment. This strategic review is ongoing, and we have retained a global consulting firm to assist with the assessment and implementation of phase two initiatives. We have also established a transformation management office, which will act as a coordinating body during the implementation of gravity to help ensure consistency, transparency, and accountability between the executive team and working teams. Today, we are announcing a run rate cost savings target of $20 million identified in connection with phase two of Project Gravity. These savings are being enabled by channel optimization, supply chain, and manufacturing efficiencies, and other streamlining and productivity efforts. Phase two savings are incremental to the $30 million of run rate savings tied to gravity phase one for a cumulative $50 million run rate savings target. We expect to largely implement gravity initiatives by the end of 2026. One of the largest drivers tied to gravity phase two savings is channel optimization. As we review profitability by channel, geography, and retail customer, It became evident that there is a meaningful opportunity to streamline distribution and exit certain channels, which are not accretive to profit on a fully burdened cost basis. We are making several shifts to our distribution footprint, which we expect will drive increased efficiency and profitability in the years to come. First, we will be exiting the Costco Roadshow business. This program was an early driver of Traeger's brand awareness and growth. However, Over time, this business's profitability has been declining given increasing costs, including transportation rates and labor. Costco will remain an important partner to us, and we will continue to sell Traeger products through Costco's traditional inline business. Next, we are planning to shift our Traeger.com website to a content and brand storytelling focus, and we'll be exiting the direct-to-consumer commercial aspect. of the website after the fourth quarter. Consumers seeking to buy Traeger products on Traeger.com will be redirected to our retail partners' websites. Our website is a critical asset, and it is the first place where many of our consumers go to conduct research on our grills. However, profitability in this channel is not where we would like it to be, and we believe that by redirecting consumer traffic to our retail partners' websites, we can retain a meaningful portion of these sales at a higher incremental margin while reducing overhead and complexity tied to our own DTC business. We will also be partnering with our retailers to optimize the digital media and advertising strategy for Traeger Online in an effort to drive demand and return on advertising spend for these partners. Not only do we believe this shift will drive efficiency to our business, but we also believe the change will result in a better experience for our consumers. Last, we are shifting to a distributor model in our European markets, which are currently operating under a direct model. We believe employing a 100% distributor model in Europe offers a more cost-effective and asset-light approach, which will unlock savings going forward while retaining our presence in this key international market by partnering with experienced local distributors. We are also sunsetting certain unprofitable skews in the market as part of this shift. In total, these channel optimization initiatives will drive meaningful simplification and cost savings to our business. We expect that these initiatives, along with other phase two strategies, will drive $20 million of run rate savings once fully implemented. And while we anticipate a loss of revenue tied to channel optimization, this aligns to our strategy of transforming into a leaner, more efficient, and more profitable business, albeit with a smaller base of revenues in the short term. It is important to note that while the near-term focus on Project Gravity is to drive significant savings and efficiencies, this streamlining will serve to optimize our cost structure which will allow for continued focus on our key growth pillars of product, innovation, and brand. Driving increased household penetration for the Traeger brand remains core to our strategy, and we expect the transformation that will occur as a result of gravity will enable our long-term revenue growth. Let me now briefly discuss our outlook for fiscal year 2025. Today, we are reiterating our prior guidance of revenues of $540 to $555 million or down 8% to 11% and adjusted EBITDA of $66 to $73 million. I am pleased with our ability to reiterate guidance today, and we are planning the balance of the year prudently. Now, let me briefly touch on some highlights from the third quarter. In terms of our grill business, we saw 2% growth in revenues versus prior year. Growth in grills was driven by strong shipments of sub-$1,000 grill units, where we continue to see outperformance. The quarter also benefited from a resumption of direct import fulfillment with our larger retail partners, which was mostly paused in the second quarter. Direct import fulfillment allows for an optimization for both Traeger's and our retail partners' supply chains, creating value for both parties. Reinstating this process in a heavily tariffed environment demonstrates our resilience and represents a significant win for the team. On the consumables front, we achieved 12% revenue growth in the third quarter. We are pleased with our consumables performance, which was driven by positive sell-through of pellets, and we continue to see this part of our portfolio as a stable and recurring revenue. New distribution, including our launch into Walmart late last year, remains a growth driver for consumables, and we are seeing expanded distribution of consumables hitting the shelves across several of our largest grocery partners. In terms of consumables innovation, in August, we launched our first-ever sauce collaboration with our long-standing partner and world-famous pit master, Matt Pittman of Meat Church Barbecue, and also brought back the fan favorite meat church pellets. Both launches have seen a favorable reaction from consumers with the partnerships holy cola barbecue sauce quickly becoming one of our top selling sauces. Last, our accessories business was down 4% driven by a decline in meter revenues. We expect to see continued short-term pressure on meter revenues. However, we believe that the integration and P&L reshaping strategy in motion through Project Gravity will drive growth and expand profitability in the long term. Notably, Traeger branded accessories demonstrated strong double-digit growth in the third quarter as our significant install base of grills drove these attachment sales. In summary, the entire Traeger team is highly focused on navigating the current dynamic backdrop and executing against our plan to transform the business and reshape the P&L via our Project Gravity initiatives. I am pleased with the progress we have made thus far with respect to Gravity and believe the $50 million in run rate savings targeted thus far will meaningfully unlock significant value for our shareholders. And with that, I'll turn the call over to Joey. Joey?