Good afternoon, ladies and gentlemen. Thank you for joining today's Traeger Fourth Quarter and Full Year 2023 Conference Call. My name is Tia and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I will now pass the call over to Nick Bacchus, Vice President of Investor Relations. Please proceed.

Good afternoon everyone. Thank you for joining Traeger's call to discuss its fourth quarter and full year 2023 results, which were released this afternoon and can be found on our website at investors.traeger.com. I'm Nick Bacchus, Vice President of Investor Relations at Traeger. With me on the call today are Jeremy Andrus, our Chief Executive Officer; and Dom Blosil, 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 31st, 2023 and our other SEC filings for a 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, which speaks only as of today, and we can 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 loss, adjusted net loss per share, adjusted EBITDA margin, adjusted net loss margin, and total net debt, which we believe are useful supplemental measures. The most directly comparable GAAP financial measures and reconciliations of the non-GAAP measures contained herein to such GAAP measures are included under 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 Traeger.

Thank you, Nick and good afternoon everyone. On today's call, I will discuss our fourth quarter results and give an update on our execution against our strategic pillars. I will also provide some perspective on our outlook for 2024. I will then turn the call over to Dom to discuss our quarterly financial performance and to provide more details on our 2024 financial guidance. 2023 was an important year for Traeger, against the challenging backdrop of soft consumer demand for high-ticket goods, our organization executed against our strategic plan to navigate the current environment, putting the company in what we believe is a substantially improved position to drive our long-term strategy to increase household penetration. I am pleased with our fourth quarter results with our sales up 18% versus the same period last year, exceeding our expectations and allowing us to surpass the high end of our full year revenue and adjusted EBITDA guidance. Overall, for fiscal 2023, adjusted EBITDA grew 47% versus 2022 and we exceeded the midpoint of our initial revenue and adjusted EBITDA guidance ranges by approximately 5% and 22%, respectively. These better-than-expected results were enabled by our organizational focus on driving progress against the near-term strategic priorities we first laid out in mid-2022. At that time, it became evident that post-pandemic consumer spending has shifted dramatically and that the shift, along with gross margin degradation, would put pressure on our financial results. Given these pressures, we communicated three tactical priorities to ensure financial flexibility and to improve profitability. First, reduce costs; second, right-size inventories in channel and on our balance sheet; and third, drive gross margins. We made significant progress on all three of these strategic priorities in 2023. Following the implementation of our cost savings plan in mid-2022, which reduced run rate expenses by more…

Thanks Jeremy and good afternoon everyone. I am pleased with the progress we made in 2023, particularly given the difficult industry backdrop that we faced during the year. Despite lower sales compared to 2022, our adjusted EBITDA grew 47% year-over-year, with our adjusted EBITDA margin up 380 basis points. Our inventories ended the year down 37% versus the prior year and we believe that both our balance sheet inventories and channel inventories are appropriately positioned to the current demand outlook. In 2023, we executed on several gross margin enhancing initiatives, which we expect will position us for margin growth going forward. Last, we generated $64 million in cash flow from operations in 2023, driven by improved EBITDA and working capital efficiencies. Shifting now to fourth quarter results. Fourth quarter revenues increased 18% to $163 million. Grill revenue increased 24% to $60 million. Grill revenue benefited from higher unit volumes as we lap aggressive retailer destocking from the prior year, offset by lower average selling prices. Consumables revenues were $25 million, up 1% to the prior year. Our fourth quarter consumables performance represents a material improvement compared to the first half of the year as we have fully lapped the declines, driven by the introduction of a private label pellet offering by a large customer in 2022. Accessories revenue increased 21% to $79 million, driven by strong MEATER growth. Fourth quarter revenues were modestly ahead of our expectations and exceeded the high end of our full year revenue guidance range by $6 million, with the majority of the upside driven by stronger-than-expected revenue growth at MEATER. Geographically, North American revenues increased 13%, while our rest of world business was up 59% versus the prior year, driven by strong growth in MEATER's wholesale revenues internationally. Gross profit for the fourth quarter increased…

We will now begin the Q&A session. [Operator Instructions] The first question comes from the line of Megan Alexander with Morgan Stanley. Please proceed.

Hey good afternoon. Thanks for taking our questions. I was hoping we could just start with grill demand and maybe you can give us some context for how sell-through trended during the holiday season relative to your expectations? And then what you're seeing now as you get into the spring selling season? And maybe with that shift, Dom, you just talked about into the second quarter, is that more related to doing more direct import? Or is there a change in how retailers are taking on inventory?

Yes, thanks for the question, Megan. So, I'd say that sell-through generally met our expectations in the quarter, if not, we're slightly above what we were expecting. So, we're happy with how sell-throughs really have stabilized, even though they're still tracking roughly in line with prior year as measured by 2023. I think our forecast for 2024 really informs they keep underpinning of how we measure and forecast demand in 2024. And I think the key takeaway here really is the fact that we still expect pressure on high ticket items, right? So, that's really a fundamental underpinning of how we're forecasting demand over the course of the year. And although there may be some shifts in terms of the negative decline in grills from quarter-to-quarter, we do expect each quarter to be down over the course of the year. I think there's some nuances to that with respect to which quarters maybe see a larger decline and/or maybe splitting it up between first half, second half. And I think the dynamic at play in addition to a negative forecast on sell-through is the fact that we have a unique comp in H1 and H2. So in H1, we're comping the load-in of some new product that we launched last year. And then in H2, we're forecasting a bleed down of end-of-life SKUs ahead of inventory build and ultimately sales of new products that we plan to launch in 2025. So, those are two kind of nuances that contribute to what is ultimately a greater decline in grill sales as-reported compared to what we're forecasting and sell-through, which I think is good news. These are just sort of one-time items that we have to address now and again based on comp dynamics. And then the third piece is really around ASP. So, what we're seeing better performance in unit volumes relative to dollar volumes, those dollar volumes are being pressured by ASP, which in part is connected to a deliberate change to our pricing strategy where we brought prices across the portfolio of grills back to pre-pandemic levels. Additionally, we've been talking a lot about operational excellence and how we unlock profit pools across our supply chain to optimize gross margin, one of which is direct import business. And as that business grows, it does take some ASP investments. That's just how these contracts are structured and correspondingly, we see an uplift in gross margins. So, in essence, we're sharing in this profit pool that we can unlock the scale of our retailer supply chain. In turn, it does come at the cost of some ASP, but a lift in gross margin. So, that's really the dynamic at play.

Okay, got it. That's really helpful. And then I guess, maybe bigger picture, just trying to understand how you're thinking about managing the business. You've been somewhat constrained than candid in terms of your top-of-funnel marketing, just given the challenges in the industry. So, if the category does end up being better than you expect, how should we think about whether you'd look to take that upside and reinvest it back into the business and just some top-of-funnel marketing and go after share first maybe letting it flow through to the bottom-line and allowing you to deleverage a bit?

Sure. A good question. I'll let Jeremy follow on. Go ahead. Yes, why don't you hit that?

First of all, over the last couple of years as working capital has been scarce, there are things that we've continued to invest in the business that we think are really important to keep a long-term thesis intact, which is around growth and disruption. We've continued to invest meaningfully in product development, feel good about that pipeline. That's a longer lead-time investment. In terms of marketing and thinking about reinvestment, we continue to invest in brand. As we see industry headwinds start to turn to tailwinds, we will slowly lean into top-of-funnel marketing. As we think about the opportunity that we have with low unaided brand awareness in most markets where we have high unaided awareness, we have high penetration -- household penetration in those markets. So, we are -- I would say we are not in a hurry to reinvest in top-of-funnel marketing because we don't know the return is sufficient at this moment in time, but it's something that we have the ability to turn on fairly quickly and to the extent that we believe we get returns on our investment in a fairly near-term period of time, then we can fairly quickly pivot into that changing environment.

All right. Super helpful. Thank you.

Thank you. The next question comes from the line of Brian McNamara with Canaccord. Please proceed.

Hey, good afternoon guys. Can you provide a little more color on this bleed down of the older SKUs ahead of your new product launches in 2025? Is this typical? And in particular, what is being phased out and what should investors will be getting excited for in 2025?

Yes, it's typical within the context of our product lifecycle strategy. And so typically, if it's an incremental SKU that we're launching, you wouldn't see a corresponding bleed down of product. In certain situations, if there's an adjustment to our product strategy and/or we're sort of introducing new innovations at similar price points, we will bleed down the old SKU fairly methodically with the goal to sort of strike a balance between not starving demand, but also ensuring we're not left with too much inventory when we launched the new product. And this is a part of our strategy. We've been doing this since the beginning of time, and we're pretty good at sort of managing and kind of balancing those two dynamics. And so yes, we'll start to kind of bleed down, obviously, managing in-channel inventories to protect demand in channel, while we ramp up production for the new product. And then when we launched that product, ideally, we're at a point where we have minimal to no inventory left that -- for those SKUs that are end-of-life.

Yes, I guess like the question I expect to get is your gross sales were down, what, 16% last year, and you expected to be down high single to low doubles this year, you are a grill company. So, I feel like the expectation is you would see kind of flat to up kind of growth this year. So, could you kind of quantify your expectation for the grill market declines in 2024, kind of what's embedded in your outlook and how that's maybe influence your annual revenue guidance? Thank you.

Yes. So, we are forecasting the category to be down in 2024. And in excess of that, the dynamic in the first half where we're comping product load-in from last year, which is showing some excess declines in grills above the demand or the category forecast that's built into our model. And then the second half nuance where we're bleeding down inventory, which puts some pressure on sell-in or sort of two nuances to the year that are ultimately, creating a larger decline in our forecast from a grill sales standpoint than what's built into our forecast from a sell-through/category modeling standpoint.

Thank you.

Thank you. [Operator Instructions] The next question comes from the line of Justin Kleber with Baird. Please proceed.

Hey, good afternoon everyone. Thanks for taking the questions. First, I just wanted to try to assess market share trends. You mentioned grill industry was down high singles at retail in 2023. Just curious how that compared to your sell-through?

Yes. So, we believe, based on the industry reports and the work that we've done that, first of all, Traeger is relatively flat in terms of share. And this is something that we track on a quarterly basis. And as we think about what drives growth in share and how we think about this year and years going forward, our expectation is that our share will remain relatively flat. And as we lean back in the top-of-funnel and launched some of the products that are in pipeline, but the combination of these two factors will drive growth in share as they have during many years, pre-pandemic before we pulled back on top-of-funnel marketing spend.

Got it. Thanks for that Jeremy. And then just kind of a multipart question on promotions. I was hoping you could talk about maybe your promotional plans as we approach kind of the peak grilling season. This year relative to last year, should we expect less promotional intensity, just given inventories in a much better shape? And then bigger picture, given the promotional activity across the broader industry in the past few years, do you guys think the ability to kind of sell grill at full price, is there will be structural changes to that at all versus kind of how the industry operated prior to the pandemic?

It's a good question. The industry certainly has been more promotional over the last couple of years. Our belief is that promotions for a premium brand like Traeger can be used, but sparingly. We have typically had three promotional periods during the year. We deviated from that cadence once in 2022 as we were working on channel level inventories, getting them healthy again. Our inventories in channel are healthy, our balance sheet inventories are healthy. And so in 2023, we return to our more traditional promotional cadence and that's our intent in 2024 as well.

Very helpful. Thank you guys. Best of luck.

Thank you. The next question comes from the line of Joe Feldman with Telsey Advisory Group. Please proceed.

Yes, hi guys. Good afternoon. Thanks for the questions. I wanted to ask, how should we think about accessories in 2024. I mean MEATERs had some really strong run as of late and with the new product. And I'm just wondering, should we expect that same kind of low double-digit type growth again in 2024? Or maybe you could share some thoughts there?

Look, I would say we're not guiding specifically to accessories. But as Dom and I both alluded to in our comments, our accessory business -- accessories and consumable businesses have been robust, MEATER has been a strong grower. As I mentioned, we launched the MEATER 2 Plus, which was a very successful launch. It is -- there's a lot of innovation in that product, something that we've been working on for many years, even pre-acquisition. So, accessories are an important part of our business and we continue to invest in them, lean into them from a product/mix perspective, and believe that, that provides diversification, but it's a nice opportunity to drive margin over time.

That's helpful. Thank you. And then anything to note on the -- for those customers that are shopping and buying grills from you guys, anything to note with regard to what they're buying? Are they still gravitating towards the newer product, the product with the more fully-featured items?

Yes, I can jump in on that. Go ahead, Jerry. I'll go. So, just from what kind of we're seeing directionally, there's been a little bit more pressure on premium price points above $1,000 than we normally seen, which is consistent with our comments earlier on just the continued pressure on big ticket items. That said, I mean, we are still continuing to see appetite for our key innovations. And I think that the reception for these innovations has been strong. And as we kind of watch the mix between connected grills and unconnected grills evolve over time, I think our installed base is now over indexing to the connected grill where we're embedding more innovation and certainly, that's the case on a quarter-to-quarter basis. And so I think there's a growing appetite for innovations. We continue to see strong reception there. But there has been, as of late, some pressure above $1,000 just again, aligned to, I think, what we're seeing in kind of the broader consumer around big ticket items?

Okay. Thanks guys. Good luck with this quarter. Thank you.

Thanks.

Thank you. [Operator Instructions] There are no additional questions at this time. That concludes today's conference call. Thank you. You may now disconnect your lines.