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. [Operator Instructions] I will now hand over to our host, Nick Bacchus, 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 Bacchus, 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 Hord, 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 31, 2024, and our other filings for 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 Traeger. 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 of $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 3 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 we'll continue to work towards shifting production on existing lines of product out of China as we…

Thanks, Jeremy, and good afternoon, everyone. Today, I'll walk through our third quarter financial performance and provide some additional context on our results and guidance for fiscal '25. We are pleased with our third-quarter results and our ability to drive growth in both revenues and adjusted EBITDA. These results, along with additional efforts we are announcing on Project Gravity, demonstrate our ability to successfully navigate a dynamic environment. As a reminder, enhancing profitability and cash flow in the current environment remains our top priority. Third quarter revenues increased 3% year-over-year to $125 million. Growth was led by double-digit gains in our consumables business as well as a modest increase in our growth business. Looking at category performance, Grill revenues increased 2% in the third quarter. This was primarily driven by an increase in average selling prices tied to the pricing increase implemented earlier this year as part of our tariff mitigation efforts, which more than offset the decline in unit volumes. Third-quarter grill revenues also benefited from a pacing shift out of the fourth quarter. Consumables revenues grew 12% to $25 million with wood pellets seeing healthy replenishment and distribution gains contributing to growth. Accessories revenues decreased 4% to $24 million due to lower MEATER sales. We are pleased with our Traeger-branded accessories business in the quarter, which saw growth in excess of 20%. Gross profit for the third quarter decreased to $49 million from $52 million in the third quarter of '24. Gross profit margin for the third quarter contracted 360 basis points year-over-year to 38.7%, reflecting the impact of tariffs and other supply chain pressures. The reduction in gross margin was driven by tariff costs totaling $8 million and generating 670 basis points of unfavorability. This cost was partially offset by: one, pricing actions worth 170 basis points;…

[Operator Instructions] Our first question of the day comes from Brian McNamara of Canaccord Genuity.

I just wanted to drill in on your decision to kind of exit DTC and kind of redirect traeger.com traffic to retail partners' websites. Is that certain types of retailers? Or just any clarity there would be helpful.

Yes, Brian, thanks for the question. I'd say a couple of things. First of all, while in many consumer businesses, the direct channel is the margin monster, that's not the case in our business just due to the supply chain, the size and weight of shipments and dropping them on it's the last mile that's expensive. Frankly, it's the last mile that also suboptimizes the consumer experience. And so as we looked at both the economics, the bandwidth and cost needed to drive that channel from technology infrastructure through advertising to acquire customers. And then we looked at the end consumer experience. It was clear to us that this was not the right channel for us to be driving. And so as we think about what that will look like, I would say, first of all, we will -- we're working with retail partners so that we can offer choice to our end consumers. We're being thoughtful to the consumer experience that they can provide. First of all, ensuring that we can connect into inventory levels, send a transaction to a retailer that they can quickly service and that they can service in a high-quality way. We'll look at capabilities like assembly and delivery, which is clearly a better experience than the last-mile outsourced truck or van sort of dropping off a grilled box in someone's back porch. We think we can partner with retailers that improve this experience. And so we're in the process of defining exactly who that will be. And we've got technology selected. And we're confident that this will be an opportunity to continue to drive revenues, but at higher margins at better experience to the consumer. We're certainly going to be attentive to ensuring that we drive as much of that revenue there as we can. We want to make sure that there's minimal breakage in the process. But long-term, we really believe in this approach.

Great. That's helpful. And then just on your retail partners' attitudes towards inventories in the current market. We've heard from other players, obviously, smaller price points that several large retailers kind of are being tight on inventory, shifting their business from direct import to domestic fulfillment. I was just curious like what are you guys seeing, obviously, given a much higher price point?

Well, I would say there have been some meaningful shifts over the last couple of quarters. As the tariff landscape shifted, it didn't make sense for a period of time for retailers to direct import the inventory largely because the tariff exposure was so much higher on the wholesale cost than on our cost of goods. And so a lot of our partners did shift towards a domestic fulfillment model. Fortunately, we've worked very closely with them to implement a first sale process, which is an efficient way to direct import without driving higher aggregate tariff costs. And so that's actually one of the things that drove some of the some of the shift into the third quarter, we were fulfilling domestically, some of the revenue shift, I should clarify. We are filling domestically, but we've shifted the largest retail partners back to direct import. In terms of their behavior or their point of view around inventory in general, we're not really seeing that change. We're not seeing any change to the allocation of space at retail to the assortments. And we're not seeing a different strategy with regards to inventory than we were seeing pre-tariffs.

Great. And then finally, I'm just curious, it seems like that sub-$1,000 price point grill continues to outperform just probably 3 years running now. I'm just curious your thoughts on how that maybe changes or affects your overall pricing strategy? Clearly, you have a premium brand status, but does that change how you think about things? You launched a relatively upmarket grill earlier this year. Just curious your thoughts there.

So we talk a lot about pricing strategy vis-à-vis our brand position. And we continue to believe that Traeger is well-positioned in terms of the product experience, the brand, the perception of the brand to be an accessible premium brand. And we believe that will continue. And it will continue in part by how we position it, but also in part by how we think about our product road map strategically. What we learned in our consumer research and in our pricing studies is that the lower price points, getting to a sharper opening price point expanded the addressable audience for Traeger. I think it does a couple of things. Number one, it inspires a consumer who is spending closer to the average of a grill in the U.S., which is -- it's around $325 at retail. We're able to migrate them north, a consumer who is probably buying a propane grill before, but has been looking at Traeger is willing to step up a little bit. So we clearly have -- are reaching a new consumer. But I would also say that when we've reached that consumer and they come into the Traeger community, they start to appreciate the benefits and just the experience of cooking on a Traeger grill, a wood pellet grill, we believe that they stay. They stay not only to cook with the wood pellets, the accessories, the lifetime value of that consumer is meaningful. But I would say equally importantly, they tend to upgrade as later on their second purchase as they become committed to the brand and the solution. So we see it as a strategic opportunity to enhance the size of the market. We don't think it constrains our ability to position the brand or to grow. I do think there's -- one of the things that is clearly happening, not only expanding the audience of addressable consumers, but this has been -- it's been a tough consumer environment for high-ticket discretionary durable products. And I think in light of that, high interest rates, we've seen the consumer shift to lower price points. We think that is a temporary phenomenon, and we continue to position to drive higher ASPs going forward. But we like the strategy of getting a little bit sharper on that opening price point because we do think it brings in an incremental consumer.

Our next question comes from Peter Benedict of Baird.

First, I don't know if you could maybe frame the size of the revenue loss that you're expecting to incur from the Phase 2 distribution strategy plans. They make sense. Just kind of curious if you frame the size of that for us, maybe the timing on when that might -- we should expect that to play out? That's my first question.

Thanks for the call, Peter. I'll take that question. So overall, we're essentially walking away from approximately $60 million of revenue, but we do believe there's going to be a recapture of that revenue in either the channels that they're in, i.e., Costco inline or the other channels that we operate in. With that said, the timing of this, this is -- we're making the shifts in January and into February. And then the recapture and the value of this is going to be sequentially within the first half of FY '26 into -- sorry, the first half of '26 into the second half and then long term into '27. These are -- this is a structural shift in nature, and we just don't want to overcommit for next year. At the same time, this is absolutely a value capture of $20 million.

Let me just add to that, if I may. It was -- as we step back and think about what are we trying to get done right now, we're seeing an opportunity that I would say was originally driven by tariffs and a need to cut costs so that we could preserve profitability and financial health at the moment. But as we sort of moved into the late second quarter, early third quarter, we were very committed to doing this because we see a long-term benefit from -- for the business. This Project Gravity is fundamentally a transformation exercise, which early innings will drive profit. It will drive cash flow. It will delever our balance sheet. But ultimately, what it does is it streamlines the business and it opens up investment capacity so that we can reinvest back in growth. And so to the extent that revenues decline in the near term, we're going to be driving higher profitability, and we're going to be creating capacity to make sure that what the consumer cares about, which is a better product experience, it's a better interaction with the brand, the recipe content, all of the content that improves that experience that we can fund these things, that we can fund the experience at retail that a consumer has when they walk in there. It's been an interesting -- maybe challenging is a better word. It's been a challenging few years coming out of the pandemic. And as we've gone through these budget cycles and feel like we're not -- we don't have the investment capacity to adequately fund what we believe is really important to the consumer. We really saw this as an opportunity to shift to completely reshape the P&L and to shift how we go after to shift structurally so that we can really do the right thing for the brand long term. So we're actually really excited about the process that we're going through. There will be some decline in revenue as both Joey and I have said, but it will be really an enabler to medium-to longer-term growth.

Got it. That's a helpful perspective. My second question is around maybe you can give us a sense of the margin profile of going with the distributor model in Europe, kind of how that compares maybe to what you would see as going 1. Just kind of curious what the margin was on the distributor side of things.

Yes. So margins -- when you shift the distributor model, there's obviously an impact to margin overall because that's -- the third party we're going to work with has to drive a profit or deliver a profit as well. At the same time, if you look below margin, the cost structure that we're taking out of the business is going to make up for more than the margin loss. And so back to what Jeremy said in being smaller but more profitable, this is a perfect example. And then we're not -- we believe we can serve the consumer in Europe in the same way that we were serving them in the direct model, but just in a much more profitable way.

Got it. Makes sense. Last one is just -- can you maybe expand on the elasticity response? You've seen obviously price up, you saw units come down. Certainly, that was expected. I just I'm curious how that maybe informs your promotional plan for the fourth quarter and into next spring. Just kind of an open-ended question there.

Yes. It's a prudent question. So as far as elasticity in pricing, we took pricing in the low double digits. Generally speaking, we're very happy with our -- with the way sell-through is tracking. There is a divergence of above 1,000, below $1,000 in terms of performance. Speaking about promo overall, though, the consumer reacts when we promo. And it's something that we use to think about our inventory management, our profitability in your quarter-to-quarter management. And so we're going to -- we continue to be committed to promo. Keep in mind as well, promo is funded. We split promo costs with our channel partners. So it's a really great -- it's a good way to get grills into the hands of consumers, and we're committed to continue promo long term.

[Operator Instructions] Our next question comes from Joe Feldman of Telsey Advisory Group.

I wanted to clarify something. You mentioned this grill pacing shift that helped the third quarter, but maybe shifts out of the fourth. Can you explain that a little more? Like was that your -- the end market trying to get ahead of tariffs or -- and purchasing more goods early? Or what drove the shift basically?

Yes. So very simply put, we had around $8 million paced from Q4 into Q3, and it's just candidly an organic pacing shift. There was some revenue or grills that we were going to ship at the end of Q3 -- or sorry, in the beginning of Q4, and they shipped in Q3. There's not a lot more to it than that. At the same time, we have adjusted Q4, and we are reiterating guidance.

Got it. Right. Yes. No, that's fair. And then maybe -- I know it's maybe a little early for 2026, but you guys had a lot of newness and innovation this year. And I'm wondering how you guys were thinking about next year in terms of lapping that. Obviously, you've got a lot of work ahead with this Project Gravity and reshaping the P&L, but -- and so maybe that's going to be the answer. But I was just curious, from a product standpoint and the flow to drive the top line, how do you lap Woodridge and Flatrock launches?

So a couple of thoughts on that, Joe. The first is we really believe that a good product strategy that has -- that is consumer-centric, that has innovation at its core, it continues in a very consistent, steady fashion. And we don't think differently in some -- in one macroeconomic moment versus another. just because 2, 3 years out, we can't anticipate what that moment will look like. And so one of the things that we've really invested in over the last 3 years is the infrastructure from a team perspective and the process and tools internally so that we can predictably and consistently bring new products to market. So that's our intention. We'll continue to do that. If you look at the strategy that we laid out a few years ago in introducing products at a premium price point and bringing innovation downstream, you've seen us launch the Timberline XL, which is a $4,000 grill this year -- the year after that, we launched the Ironwood, which had elements of technology that were inspired by the Timberline. And then we saw a similar movement downstream in Woodridge. And so we will continue to do that. The focus will always be on our core wood pellet grill experience. We think that's really what drives our consumer and the community, and we've done some -- we've invested in accessories to enable that to make that experience better. We have done a little bit of work in adjacent categories with the Flatrock 3-zone and 2-zone products. But the wood pellet grill is the center of our universe. -- and we will continue that process to bring value downstream. And then as is, I think, the circle of life and product development, we'll then go back upstream, launch new innovation and bring it downstream. So we're going to continue that process. And we believe that over time, the consumer will see Traeger as the innovator as always being fresh in its portfolio, product portfolio, and that is an important foundation to our business.

[Operator Instructions] Our next question comes from Peter Keith of Piper Sandler.

Jeremy, I was wondering if you had an assessment of the overall grill market so far, whether it was Q3 or year-to-date, maybe how grills -- the grill industry is trending on a sales basis or unit basis? Are we starting to see some rebound in demand at this point?

Yes, Peter, boy, as we came into 2025 and as we think about the ownership life cycle of a grill and the pull-forward demand that happened in the pandemic, we really view this as a category growth year, and we were positioning our investments, not just in product, but in channel and in brand to drive growth consistent with what we thought was likely coming. Tariffs definitely shifted the landscape. I think it's -- a consumer goes to buy a grill. And if it's not broken, they see a grill at 10%, 15% higher. They will use what they have for another season or so. And so that driver that moment of a consumer retail, we generally believe has been muted just by the tariff environment. We think the market for grills is down slightly. There are a number of factors that we think contribute to that, including the higher price points, but the higher interest rates of -- where Americans heavily finance, their consumer discretionary purchases, housing relocations continue to be at all-time lows. But fortunately, as we think about some of these catalysts going forward, we seem to be entering a period of declining interest rates. We think that will be a positive from a house transaction perspective. certainly from a consumer borrowing perspective. And the further that we get from the pull forward of the pandemic, the more our conviction grows that we're entering into a robust replacement cycle, but it hasn't happened this year. The market is slightly down and our share in the market is about flat right now.

Okay. And then I think right at the end there, you're mentioning another topic I wanted to ask about, which was the sort of elusive replacement cycle. Given you can track Traeger customer usage quite closely, are you seeing any green shoots around replacements from some of those 2020 or 2021 purchases?

Let me step back and first say all of the data that we see on consumer engagement is robust. I think that we see that in the cook data that we get from our connected grills. And we also see it in the consumables business, which grew in the third quarter, both on a revenue and a sell-through basis. But I wouldn't say that we are seeing data suggesting the pandemic buyer is rebuying at this point in time. The word that you use is elusive. It is elusive. We've done the math 100 different ways, and we would have expected that absent some of the macro headwinds that have come that this year, we would have entered a sort of 2- to 3-year period of higher demand just based on the pandemic consumer rebuying. The one thing that I'll say that we view as a positive in our business is as we look at the market down, we're holding share on what I would consider to be relatively low demand creation investment. And in fact, we've actually seen our unaided brand awareness increase. We do a semiannual contract at a semiannual unaided brand awareness survey, and we saw that increase by about 100 basis points over the prior 6 months. So we continue to feel bullish on our brand position on the products that we're bringing to market. And boy, this elusive replacement cycle it's coming. And so on balance, we look at the next 2 to 3 years and say, we like our position, we like the market. And we feel like this project gravity is really positioning us not only to be -- to drive greater profitability, but to invest back strategically in the areas that will help us take advantage of this replacement cycle when it comes.

Okay. Maybe lastly, just with advertising, it's good to hear the unaided brand awareness is going up. But do you feel like your advertising is somewhat constrained today? And interesting on the discontinuation of the Costco roadshow, which in itself is a big marketing vehicle, would you look to sort of maybe some cost savings, but also reallocate those dollars to other, perhaps more effective media streams?

Yes, I can take that one. The underpinning of Project Gravity is really what you're speaking about is unlocking -- it's really thriving in the tariff environment. And we didn't want tariffs to suffocate the business just financially. So, unlocking investment capacity, reinvesting, and that's going to be -- that's something we're starting to think around about as we exit '25 into '26. So the short answer is yes.

And let me just add specifically on Costco roadshow since you mentioned it. I think that's a really good example of how we're stepping back and really assessing why we do what we do, how we do it, what the most profitable, scalable way to run this business is. And the Costco roadshow, I think, it's a great example of a program that's been great for our business. We're more than a decade doing Costco roadshows. And it was profitable. Supply chain costs increased, T&E costs increased, labor costs increased. It was neutral. And then we started to think about just the cost or the value of the impressions that we gained. And I would say that the tariffs were the last sort of the last piece of economics that really just made it not work anymore. With that said, it's been foundational. We now get an opportunity to redirect or redeploy the savings from that program into more scalable ways to drive awareness and conversion. So I'm actually really proud of the team for digging deep and deeply assessing elements of our business that were important and that have been sacred but being willing to really think about what is the better way to drive the business going forward.

Thank you. At this time, we have no further questions. So therefore, this concludes today's call. Thank you for joining. You may now disconnect your lines.