Traeger, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Traeger designs and sells wood-pellet grills, pellets, accessories and related products through retail and direct-to-consumer channels. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $117.7 | $93.8 | $442.4 | $517.8 |
| Gross profit | $44.7 | $25.1 | $163.4 | $181.2 |
| Gross margin | 37.9% | 26.7% | 36.9% | 35.0% |
| Operating loss | $(12.9) | $(200.5) | $(43.8) | $(324.7) |
| Net loss | $(19.3) | $(211.1) | $(60.4) | $(353.2) |
| Basic and diluted loss per share | $(0.16) | $(1.76) | $(0.49) | $(2.98) |
Q3 revenue increased 25.5% year over year, led by grills (+45.1%) and accessories (+20.7%); consumables were approximately flat. For the nine-month period, revenue declined 14.6%: grills fell 22.0% and consumables 15.5%, while accessories grew 8.5%, mainly on MEATER sales. Revenue by channel for the nine months was $359.7 million retail and $82.7 million direct-to-consumer.
Gross margin improved in both comparisons. Management attributed the gains mainly to lower freight and logistics costs, MEATER performance, foreign exchange and the absence of certain prior-year restructuring effects. Nine-month margin improvement was partly offset by grill pricing changes and sales-channel mix. Operating and net losses remain despite the year-over-year improvement; comparisons also reflect substantial prior-year goodwill impairment and stock-compensation charges.
Cash flow, debt and liquidity
- Cash: $11.3 million at September 30, 2023, down from $39.1 million at December 31, 2022. There was no restricted cash at quarter-end.
- Nine-month cash flow: $44.4 million provided by operating activities, versus $6.0 million used in 2022; $13.1 million used in investing and $71.5 million used in financing. Operating cash flow benefited chiefly from a $51.6 million inventory reduction. Financing cash use included net line-of-credit repayments and contingent-consideration payments.
- Debt and facilities: First-lien term-loan principal was $403.9 million; the balance sheet also reported $25.0 million outstanding on a line of credit. The term loan matures June 2028. At quarter-end the company reported $125.0 million available on its revolving facility and $5.9 million available under receivables financing; it reported compliance with credit-facility covenants.
- Liquidity outlook: Management stated that cash, available facilities and anticipated operating cash flows should meet working-capital and operating needs for at least 12 months from the filing date. The company remains exposed to debt service, borrowing availability and future financing terms.
Material changes, outlook and risks
- Management attributed nine-month demand weakness to macroeconomic pressure and reduced discretionary spending, including a mid-double-digit decline in grill unit demand and a low-double-digit decline in consumables unit demand. It expected these pressures to continue through the rest of 2023.
- Q3 grill growth benefited from comparison with 2022 retailer destocking, new products and pricing actions; grill average selling price declined at a low-double-digit rate. Freight container rates were down more than 60% year over year in Q3, but management warned renewed supply-chain pressure could raise costs.
- No quantitative revenue or earnings guidance is provided in the filing. Management described cost-saving and operational-efficiency measures, including overhead reductions, transportation contracts and pellet-mill efficiencies.
- On November 8, 2023, after quarter-end, the company amended its receivables facility: maturity was extended to June 27, 2025, maximum capacity reduced from $100 million to $75 million, and monthly capacity can vary from $30 million to $75 million. The amendment also changed the benchmark rate and increased the liquidity level for avoiding a “Liquidity Shortfall” to $75 million.
- Customer concentration is material: three large retailers represented 44% of Q3 sales combined; four customers represented 64% of accounts receivable at quarter-end. Traeger also relies on a limited number of third-party manufacturers and suppliers.
- Disclosure controls were deemed ineffective because a material weakness in accounting and reporting for derivative and hedging transactions remained unremediated. Management had begun remediation; it said remediation would require effective operation and testing of enhanced controls.
- The company recorded no goodwill impairment in 2023; it recorded $222.3 million in the first nine months of 2022. Q3 2023 included $6.2 million of stock-based compensation and $0.2 million of restructuring costs. The nine-month period included $27.5 million of compensation expense associated with cancellation of unearned executive performance awards.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. Other disclosed risks include macroeconomic conditions, product quality and warranty exposure, competition, uninsured bank deposits, and covenant or refinancing risk.
Important facts for investors to verify
- Whether the Q3 revenue rebound continues, particularly in grills, and whether nine-month demand declines stabilize.
- Whether improved gross margins persist as freight benefits, pricing, product mix and channel mix change.
- Current cash, receivables-facility availability and borrowing terms following the November 8 amendment, including the $75 million liquidity threshold.
- Debt levels, interest expense and covenant headroom; the filing reports covenant compliance but does not state the current leverage ratio.
- Progress and testing results for remediation of the material weakness in derivative and hedging controls.
- Exposure to concentrated retail customers and key manufacturers, and the assumptions supporting the 12-month liquidity outlook.