Traeger, Inc. (NYSE:COOK) This autumn 2021 Earnings Convention Name March 23, 2022 4:30 PM ET
CompanyParticipants
Nick Bacchus – Vice President of Investor Relations
Dom Blosil – Chief Monetary Officer
Jeremy Andrus – Chief Government Officer
Convention Name Individuals
Operator
Thanks for becoming a member of, and welcome to the Traeger Fourth Quarter and Full Yr 2021 Earnings Convention Name. [Operator Instructions]
I might now like to show the decision over to Nick Bacchus, Vice President of Investor Relations. Sir, please go forward.
Nick Bacchus
Good afternoon, everybody. Thanks for becoming a member of Traeger’s name to debate its fourth quarter and full 12 months 2021 outcomes, which releases afternoon and could be discovered on our web site at buyers.traeger.com. I am Nick Bacchus, Vice President of Investor Relations at Traeger. With me on the decision at present are Jeremy Andrus, our Chief Government Officer; and Dom Blosil, our Chief Monetary Officer.
Earlier than we get began, I wish to remind everybody that administration’s remarks on this name might comprise forward-looking statements which can be primarily based on present expectations however are topic to substantial dangers and uncertainties that might trigger precise outcomes to vary materially from these expressed or implied herein. We encourage you to overview our SEC filings for a dialogue of those elements and uncertainties, that are additionally out there on the Investor Relations portion of our web site. You shouldn’t take undue reliance on these forward-looking statements. We converse solely as of at present, and we undertake no obligation to replace or revise them for any new info.
This name may even comprise sure non-GAAP monetary measures, which we imagine are helpful supplemental measures. Probably the most comparable GAAP monetary measures and reconciliations of the non-GAAP measures contained herein to such GAAP measures are included in our earnings launch, which is on the market on the Investor Relations portion of our web site at buyers.traegerr.com.
This name may even embrace estimates concerning market and business information that we ready primarily based on administration’s information and expertise within the markets through which we function, along with info obtained from numerous sources, together with publicly out there info launched by unbiased business analysts and third-party sources in addition to information from our inside analysis.
Now I might like to show the decision over to Jeremy Andrus, Chief Government Officer of Traeger.
Jeremy Andrus
Thanks, Nick. Thanks for becoming a member of us for our fourth quarter earnings name. At the moment, I’ll focus on highlights from our full 12 months and quarterly outcomes and share our progress in executing our long-term progress methods. I’ll then flip the decision over to Dom to debate particulars on our fourth quarter monetary efficiency and to supply an outlook for fiscal 2022.
2021 was a pivotal 12 months for Traeger, and we’re happy to have capped it off with a robust fourth quarter efficiency. We reached a number of milestones throughout the 12 months, and I am exceptionally pleased with our staff for driving the corporate to the subsequent degree as we proceed to remodel the way in which individuals prepare dinner at house. An essential milestone within the historical past of Traeger was our profitable IPO in July 2021.
We additionally delivered report gross sales in 2021 and grew the highest line by 44% on prime of fifty% progress in 2020, with grill revenues up 85% on a 2-year stack foundation. We completed the 12 months with sturdy momentum and grew fourth quarter gross sales by 31%, exceeding the excessive finish of our gross sales steerage for the 12 months. This progress got here regardless of the numerous challenges we confronted within the international provide chain. We estimate that in 2021, we grew our gross sales sooner than the class, and our market share on the finish of the 12 months elevated by greater than 50% relative to 2018. We additionally imagine we’re successfully growing the grill business’s complete addressable market as Traeger’s premiumization of the class continues to drive business ASPs.
Moreover, in 2021, we expanded our providing by launching our DTC enterprise idea, Traeger Provisions, and by buying MEATER, a extremely modern participant within the wi-fi good thermometer class. We imagine these new enterprise strains will improve our relationship with our present buyer put in base and drive incremental lifetime worth and improve engagement past our core grill and consumables enterprise.
Wanting past the unbelievable progress we made in 2021, I stay as excited as ever about the way forward for Traeger. We’re nonetheless within the early levels of progress, and we’ve simply scratched the floor by way of our plans to penetrate the worldwide out of doors cooking market.
Earlier than Dom discusses our fourth quarter outcomes and our outlook for 2022, I wish to spend a while reviewing our progress on our key strategic initiatives. As we proceed to drive in direction of our long-term aims, our progress technique stays centered round 4 strategic pillars. I’ll briefly contact on every of those pillars.
Our first strategic progress pillar is to speed up model consciousness and penetration in the USA. We imagine driving penetration within the U.S. with an estimated TAM of 75 million grill-owning households is our largest progress alternative. We ended 2021 with an put in base of two.5 million grills, up from 2 million in 2020. Our 3.5% family penetration within the U.S. implies that we’ve a protracted runway forward of us as evidenced by the mid-teens penetration charges we’ve achieved in a few of our heritage markets.
And what’s extra, in 2021, progress continued to be sturdy in our most penetrated markets, indicating that we have not but come near hitting the ceiling in these markets. The momentum behind the Traeger model is evidenced by the expansion in unaided consciousness, which elevated meaningfully to 13% in 2021, up from 11% in 2020 and seven% in 2019. Our growing share has been pushed by our important brand-building efforts with a big emphasis on social.
Our top-of-funnel efforts are working. In 2021, we added 138,000 Instagram followers and 67,000 Fb followers, a rise of 14% and 16%, respectively. At greater than 1 million individuals, our Instagram follower base is the most important within the out of doors cooking sector and outpaces our largest competitor by 2.5x. Engagement on our social channels stays very wholesome. Within the fourth quarter, Traeger had its most profitable Thanksgiving marketing campaign in model historical past, which resulted in 7 million video views, greater than double Thanksgiving 2020, and a mid-teens share improve in user-generated content material submissions.
Our market assault technique continues to drive sturdy outcomes and legitimizes our view of fabric upside alternative consciousness and market progress. Regardless of pulling again on incremental advertising spend as we entered a seasonally slower interval throughout the fourth quarter, we proceed to see consciousness and demand in our assault markets effectively in extra of the corporate common, and we’re happy with the elevate in gross sales we noticed within the quarter relative to regulate markets.
In 2022, we intend to broaden our market assault program to further geographies, together with eastward growth to markets within the Midwest and Southeast the place we see super upside alternative and consciousness of the Traeger model. Our efforts to extend consciousness are bearing fruit as our most essential retail companions proceed to allocate extra ground area to the Traeger model. Traeger continues to deal with driving productiveness within the grilling class at retail, and we aren’t solely promoting extra SKUs for our largest retailers, however our companions are investing alongside us in premium merchandising of our model.
For instance, on the Dwelling Depot, we’re materially growing our SKU depend throughout 350 doorways in 2022. These doorways can have a extra expansive merchandising assortment, which traditionally has pushed twice the productiveness versus Dwelling Depot doorways with a extra restricted assortment. Moreover, we’re quadrupling the variety of Dwelling Depot doorways with high-end fixturing, prominently displaying the Traeger assortment in a Traeger island. These premium doorways are considerably extra productive than common with materially greater conversion and a greater model presence.
Our retail partnerships proceed to strengthen, and we’ve important runway in entrance of us to broaden our penetration. Furthermore, we’re additionally including new channels of distribution. We just lately launched at Finest Purchase within the fourth quarter and are inspired by early outcomes.
Our subsequent progress pillar is to disrupt out of doors cooking by means of game-changing product innovation. Innovation is in our DNA, and we’ve a demonstrated observe report of frequently bringing innovation to the market. We anticipate that 2022 will likely be an inflection level in our innovation cycle as subsequent week, we will likely be launching a brand new grill platform, which we imagine will likely be one of the vital essential launches within the firm’s 35-year historical past.
We’re extraordinarily enthusiastic about this new grill launch because it actually represents the innovation management with Traeger. This new grill line incorporates attributes from years of funding into shopper analysis and buyer suggestions. To place it merely, we hearken to what our buyer desires from a Traeger, and we’re delivering. Our confidence on this technique is mirrored in the truth that our shopper replaces their Traeger grill at a 20% sooner charge than the general grill business common. We imagine that is largely pushed by our historical past of innovating the grill class and frequently enhancing the patron expertise, thus setting the corporate up effectively for a robust multiyear substitute cycle.
It is essential to notice that this launch will likely be a driver of innovation and newness in our grill assortment for a number of years, not simply 2022. As previously, Traeger’s technique is to launch highly effective improvements with a choose variety of premium SKUs initially and to cascade new options by means of the remainder of the assortment over the subsequent few years.
Within the fourth quarter, we launched Traeger Provisions and activated influencers and social media in addition to e-mail campaigns to drive consciousness. We proceed to be optimistic across the long-term progress potential for Traeger Provisions, and we are going to proceed to refine the providing as we transfer by means of 2022. We goal to develop our Provisions enterprise in a considerate method, specializing in perfecting the patron expertise and the unit economics earlier than scaling and investing into the enterprise extra aggressively.
We’re additionally driving innovation within the linked cooking area by means of our MEATER acquisition. Very like Traeger, MEATER is a disruptive and premium participant that’s utilizing know-how to reinforce each the out of doors and indoor cooking expertise. MEATER has seen sturdy progress since our acquisition, and this progress will proceed in 2022 as we broaden distribution within the sum of Traeger’s greatest retailer doorways. Moreover, in 2022, our new grill line will incorporate parts of MEATER’s know-how into the Traeger app and ecosystem.
The third pillar of our progress technique is to drive recurring income by means of our consumables enterprise. Based mostly on continued success, we’re growing distribution of our consumables providing within the grocery channel. Our analysis exhibits that the Traegerhood desires consumables out there the place they store each week, not simply the place grills are offered. In 2021, we doubled the variety of grocery doorways the place Traeger sauces and rubs are offered. We’re excited to share their distribution into the grocery channel is deliberate to extend this 12 months pushed by the launch of sauces and rubs in Kroger in March of 2022. We’re extraordinarily excited to accomplice with Kroger and see super alternative to develop our consumables penetration and drive model consciousness past our present retail footprint.
As evidenced by this growth in consumables distribution, Traeger’s innovation extends throughout all our product classes, not simply grills. We launched quite a few profitable consumables within the fourth quarter. These embrace 2 premium-priced, restricted version pellet choices within the fall, adopted by our launch of two extra this quarter, a daring mix and a brisket mix. Traeger additionally entered into the recent sauce class with Traeger Unique Scorching Sauce and launched 2 new sauces: Present Me The Honey and Liquid Gold; plus 2 new rubs: Something Rub and Excellent Pork Rub.
Our fourth progress pillar is to broaden the Traeger model globally. 2021 was a banner 12 months for our worldwide enterprise, which made up greater than 10% of revenues for the 12 months. We see a big alternative to make use of the playbook that has been so profitable within the U.S. to seize share overseas. Within the fourth quarter, our worldwide enterprise continued its sturdy progress and greater than doubled year-over-year. Our Canadian enterprise, which is our largest market exterior the U.S., is displaying extraordinarily sturdy momentum with gross sales greater than tripling versus prior 12 months within the fourth quarter. Our European enterprise additionally continued to see sturdy progress within the fourth quarter.
In 2022, we plan to proceed driving consciousness and penetration of the Traeger model throughout worldwide markets by means of focused advertising and localized social campaigns. We stay extremely enthusiastic concerning the alternative to develop Traeger throughout the globe.
Whereas I am very assured in our long-term prospects and our means to execute on the strategic progress pillars, we’re extra cautious in how we’re guiding to full 12 months as a result of rising macro headwinds dealing with the patron. These embrace greater inflation, the battle in Ukraine and asset worth volatility. These headwinds are coming at a time when our enterprise is evaluating to a 2-year interval that noticed accelerated demand, which benefited from authorities stimulus and COVID restrictions. Regardless of the near-term headwinds, our 3-year income CAGR stays very wholesome and considerably above business developments.
I might prefer to now focus on a subject that’s impacting many corporations: international provide chain and inflationary pressures. As we mentioned throughout final quarter’s name, we confronted important provide chain challenges and inflationary pressures associated to our provide chain within the second half of 2021. I’m pleased with how effectively our staff has navigated these unprecedented challenges. We’ve continued to prioritize supply of product to make sure that we are able to adequately fulfill sturdy demand by growing manufacturing and by warehousing product in Asia. This has been a successful technique as evidenced not solely by our fourth quarter prime line progress, but in addition by the report degree of on-time, in-full shipments we skilled throughout the quarter.
As Dom will focus on, we aren’t constructing in any enchancment within the provide chain surroundings or associated price pressures in 2022 into our outlook. On the identical time, we aren’t standing nonetheless. Somewhat, we’re specializing in driving ahead our key long-term progress methods whereas concurrently managing the enterprise for the brand new near-term actuality. We’re actively implementing cost-mitigation methods to assist bolster our short- and medium-term gross margin profile.
These methods embrace worth will increase, that are our most rapid mitigation device; in addition to manufacturing, logistics, warehousing, and product design efficiencies, which can profit margins over the medium to long run. We plan to open our new Mexico facility for mass manufacturing on the finish of this 12 months and are evaluating long-term alternatives to deliver extra of our manufacturing nearer to our core market within the U.S.
Additional, our product staff is bringing innovation to our manufacturing mannequin with a deal with creating game-changing product extra effectively. The group is hyper-focused on figuring out and executing on gross margin-enhancing initiatives. Moreover, within the face of elevated prices and an unsure macro surroundings, we’re aggressively managing our price construction. We’re strategically decreasing and deferring sure nonessential bills and are thoughtfully reprioritizing near-term SG&A calls for and P&L. We imagine this self-discipline is prudent given the surroundings.
It’s crucial to notice that we’re targeted on defending the core drivers of our model well being and are usually not compromising in any approach our buyer expertise or product innovation engine.
Stepping again, we hit a number of main milestones in 2021 and ended the 12 months with sturdy progress within the fourth quarter, permitting us to exceed our full 12 months income and EBITDA steerage. We’re making important progress on our key strategic progress pillars but stay within the early levels of reaching our potential. Regardless of near-term challenges, I’m extraordinarily bullish on our enterprise and on our means to capitalize on our super long-term progress alternative.
With that, I am going to flip the decision over to Dom.
Dom Blosil
Thanks, Jeremy, and good afternoon, everybody. As Jeremy famous, we’re happy with our efficiency within the fourth quarter and stay assured within the long-term progress alternative for Traeger. As a company, we’re targeted on driving in direction of our long-term objectives whereas additionally navigating a extremely fluid near-term surroundings.
I’ll begin by reviewing our fourth quarter outcomes, after which we’ll focus on our 2022 outlook in addition to present an replace on our first quarter developments. Fourth quarter revenues elevated 31% to $175 million pushed primarily by progress in grills and equipment. Grill’s income was up 9% to $101 million, following a 70% improve within the fourth quarter final 12 months. Development was attributable to a better common promoting worth pushed by worth will increase taken within the second half of 2021, partially offset by barely decrease unit volumes.
Fourth quarter unit volumes had been impacted by the exit of an unprofitable distribution channel and would have been up low double digits excluding prior 12 months gross sales to this channel. Consumables revenues declined 19% to $26 million in comparison with the fourth quarter of final 12 months, reflecting a normalization of seasonal ordering patterns towards a really sturdy fourth quarter 2020 when our consumables income was up 121%. Lastly, equipment revenues elevated 425% pushed by incremental income from the acquisition of MEATER and powerful progress in Traeger equipment.
efficiency by market. We proceed to see sturdy momentum within the U.S. in addition to distinctive progress in Canada and remainder of world. We’re within the early levels of progress overseas, and we stay extremely optimistic concerning the alternative to develop globally.
Gross revenue for the fourth quarter elevated to $65 million from $51 million final 12 months. Gross revenue margin was 37.4%, down 80 foundation factors to final 12 months. As we’ve mentioned beforehand, inbound freight charges spiked to unprecedented ranges within the second half of 2021 and proceed to be our largest year-over-year margin headwind within the fourth quarter. Increased inbound freight prices negatively impacted gross revenue by over 550 foundation factors within the fourth quarter. Amortization of intangible belongings associated to the MEATER acquisition and elevated warehousing expense pushed by investments in further capability had been additionally dilutive to margin.
Offsetting these pressures was margin favorability of 380 foundation factors pushed by our pricing actions and grill combine. Different constructive drivers of gross margin embrace decrease outbound freight pushed by the exit of a higher-cost gross sales channel, a better mixture of buyer orders fulfilled by way of our direct import program; and favorability in WiFIRE connectivity price per grill, largely as a result of a onetime accrual true-up.
Gross sales and advertising bills had been $39 million in comparison with $29 million within the fourth quarter of final 12 months. The rise was primarily pushed by promoting prices associated to MEATER, which isn’t a element of the 2020 comparable interval. The rise was additionally pushed by greater equity-based compensation expense of $3 million because of the restricted inventory items issued below the Traeger 2021 incentive award plan in addition to greater personnel-related bills related to a rise in headcount in our advertising, buyer expertise and gross sales capabilities.
Normal and administrative bills had been $44 million in comparison with $15 million within the fourth quarter of final 12 months. The rise generally and administrative bills was pushed primarily by greater equity-based compensation expense of $16 million because of the restrictive inventory items issued below the Traeger 2021 incentive award plan, greater personnel-related bills, elevated skilled service charges associated to nonroutine prices for our Traeger Provisions platform and nonroutine authorized bills.
On account of these elements, web loss for the fourth quarter was $34 million as in comparison with a web lack of $3 million within the fourth quarter of final 12 months. Web loss per diluted share was $0.29 in comparison with $0.03 within the fourth quarter of final 12 months. Adjusted web revenue for the quarter was $4 million or $0.03 per diluted share as in comparison with adjusted web revenue of $4 million or $0.03 per diluted share in the identical interval final 12 months. Adjusted EBITDA was $14 million within the fourth quarter as in comparison with $14 million in the identical interval final 12 months. Adjusted EBITDA for fiscal 12 months 2021 was $109 million, above the excessive finish of our prior steerage vary of $103 million to $108 million.
Now turning to the steadiness sheet. On the finish of the fourth quarter, money and money equivalents totaled $17 million in comparison with $12 million on the finish of the earlier fiscal 12 months. We ended the 12 months with $379 million of long-term debt. Moreover, on the finish of the 12 months, the corporate had drawn down $9 million on its revolving credit score facility and $41 million below its receivables financing settlement, leading to complete web debt of $413 million and a web leverage ratio of three.8%.
Stock on the finish of the fourth quarter was $145 million in comparison with $69 million on the finish of the earlier fiscal 12 months. The rise in stock was pushed by 3 elements. First, we’ve made a deliberate choice to lean into greater stock ranges to make sure satisfactory provide for demand as a result of provide chain constraints. Second, the price of inventories elevated as a result of sure macro pressures I referenced earlier, largely pushed by greater inbound transportation expense and better enter prices. Lastly, roughly $12 million of the stock improve is said to MEATER, which was not within the stock base in 2020.
We stay assured that we’ve the best stock steadiness to satisfy anticipated demand, and we proceed to take a position into greater ranges of security inventory in response to persistent provide chain challenges.
Turning to our steerage for fiscal 12 months 2022. For the 12 months, we anticipate revenues of $800 million to $850 million, implying a year-over-year improve of two% to eight%. We anticipate adjusted EBITDA of $70 million to $80 million. Let me present further colour round our working assumptions.
When it comes to gross sales, we’re guiding to prime line progress that’s beneath our historic progress charge, however that suggests progress that’s effectively in extra of our long-term targets on a multiyear foundation. There are 2 central elements which can be influencing our 2022 gross sales steerage. Firstly, we’re evaluating towards a 2-year interval of extraordinarily sturdy progress, and due to this fact, anticipate some normalization in our multiyear progress charge. That is mirrored each in sell-through, which benefited from authorities stimulus and accelerated materially within the first half of 2021 in addition to sell-in, which outpaced sell-through within the first half of as retailers restock low-channel inventories.
Secondly, we’re taking a extra cautious strategy relative to shopper habits in our 2022 planning given rising pressures on shopper confidence. These embrace broad-based inflationary pressures and rising geopolitical dangers.
present developments, we’ve seen a deceleration in sell-through at retail during the last a number of weeks coinciding with these rising pressures on the patron and are assuming a continuation of those developments in our 2022 income steerage. These dynamics will disproportionately impression first quarter income progress, which is our strongest progress quarter final 12 months. We anticipate that quarterly income seasonality after the primary quarter in 2022 will look just like 2019, with decrease seasonality in Q2 versus 2019 and better seasonality in This autumn, which is MEATER’s largest quarter.
Particularly for grills, the midpoint of our full 12 months steerage assumes that grill revenues within the first half of 2022 are down double digits as we lap the sturdy sell-in expertise within the first half of 2021. We anticipate sequential enchancment in grill income progress within the again half of the 12 months relative to the primary half. Nonetheless, we’re assuming detrimental grill income progress for the complete 12 months.
We all know our grill enterprise has delivered sturdy multiyear progress. And even with this decline, 2022 grill revenues are anticipated to have grown at a 3-year CAGR within the low to mid-20% vary.
When it comes to gross margin, we predict continued strain versus 2021’s full 12 months progress charge and are modeling a full 12 months gross margin vary of 34% to 35%. So as of magnitude, we anticipate the annualization of upper inbound freight charges and elevated enter prices to be the most important drags on our gross margin. We anticipate these pressures to be partially offset by pricing actions taken within the second half of 2021 and the primary quarter of 2022. From a pacing perspective, we anticipate gross margin within the first half of 2022 to be greater than our full 12 months charge.
I might prefer to spend a second placing inbound freight prices into perspective as that is the most important driver of gross margin decline relative to our 2020 gross margin charge of 43.1%. In comparison with prepandemic ranges, container prices have elevated by an element of three to 4 occasions, and we’re seeing will increase in extra of $10,000 per container. Having shipped over 6,000 containers in 2021, the price of inbound transportation materially impacted each gross margin and EBITDA. We anticipate that inbound container charges will observe above $10,000 by means of 2022, which can proceed to strain gross margin.
When it comes to SG&A, we’re tightly managing bills to assist offset the continued margin headwinds. And we’ll proceed to put money into the core progress engine, however we’ll delay different investments as we navigate a extremely fluid macro surroundings. Be aware that SG&A within the first half of 2022 will likely be evaluating to the interval earlier than MEATER was in our expense base.
Whereas we sometimes don’t give quarterly projections, we’re offering first quarter steerage as we’re 11 weeks into the quarter. We’re anticipating first quarter revenues to be between $208 million and $212 million, implying a decline of between 10% and 12%, with grill revenues anticipated to say no within the low to mid-20% vary, offset by materially greater equipment income pushed by MEATER. We anticipate first quarter gross margins to say no sequentially in comparison with fourth quarter’s charge and anticipate EBITDA within the vary of $22 million to $24 million.
Wanting past 2022, I wish to contact on a few of the medium- to long-term gross margin drivers we’ve in place. Firstly, worth is a key lever that we are going to proceed to guage to handle margins. We carried out 2 worth will increase within the again half final 12 months and raised worth once more on sure grills and equipment and on pellets in early 2022. Secondly, we’re pondering transformationally round design and manufacturing. We’re working collectively to drive adjustments in design, manufacturing and provide chain processes, which we imagine will end in greater product margins and decrease prices. Additional, we are going to look to optimize the assortment over the medium to long run, launching merchandise which can be accretive to our general margin profile.
General, we proceed to really feel extraordinarily optimistic about Traeger’s long-term progress path as we proceed to disrupt the out of doors cooking business with new product innovation, develop the Traegerhood, improve model consciousness and penetration and broaden Traeger overseas.
And with that, we’ll open the decision to questions. Operator?
Query-and-Reply Session
Operator
Jeremy Andrus
I simply need — thanks. I needed to say, to start with, we recognize the considerate questions and dialog and simply add that from my unique — my preliminary feedback, now we’ve deep confidence within the place of this enterprise, this model, long run however much more confidence within the high quality of our staff. This staff is dedicated. They’re fired up. They’re able to not simply grind out the present second however construct one thing considerably extra compelling for the long run. And we’re enthusiastic about it. So we recognize it and sit up for being in contact over the approaching weeks.
Operator
Thanks for becoming a member of. This does conclude at present’s name. It’s possible you’ll now disconnect your strains.
