Traeger, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparison is with FY2020 unless noted. This is an annual report, not a standalone Q4 report. Traeger sells wood-pellet grills, consumables and accessories through retail and direct-to-consumer channels. Its common stock began trading on the NYSE as COOK in July 2021.
Key financial results
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Revenue | $785.5 million | $545.8 million | Up 43.9% |
| Gross profit / margin | $303.7 million / 38.7% | $235.4 million / 43.1% | Profit up 29.0%; margin down 4.4 percentage points |
| Operating income (loss) | $(58.2) million | $58.9 million | Turned to an operating loss |
| Net income (loss) | $(88.8) million | $31.6 million | Basic and diluted loss per share was $0.79 |
| Adjusted EBITDA | $109.0 million | $116.1 million | Adjusted EBITDA margin fell to 13.9% from 21.3% |
| Operating cash flow | $(28.4) million | $46.6 million | Declined by $75.0 million |
| Investing / financing cash flow | $(79.9) million / $113.5 million | $(27.3) million / $(14.8) million | Investing included the Apption Labs acquisition; financing included IPO and refinancing activity |
| Cash and cash equivalents | $16.7 million | $11.6 million | At December 31 |
| Debt and other borrowing | $388.2 million principal under term loan and revolver; $41.1 million drawn under receivables facility | $446.4 million principal under prior term loans | Company reported $429.3 million total indebtedness under its new credit facilities, including the receivables financing draw |
Revenue by category: grills $544.2 million, up 39.2%; consumables $136.2 million, up 13.3%; and accessories $105.1 million, up 204.9%. Accessories growth reflected MEATER thermometer sales following the July 2021 acquisition of Apption Labs. Retail revenue was $689.4 million and DTC revenue was $96.1 million.
At year-end, current assets were $269.7 million and current liabilities were $166.2 million. Available borrowing capacity was reported as $125.0 million on the revolving facility and up to $100.0 million on the receivables facility, before amounts drawn and other limitations. Management said cash, available facilities and operating cash flows should fund working capital, planned capital expenditures and debt service for at least the next 12 months.
Material changes and unusual items
- Gross margin declined amid higher freight and logistics costs, Chinese renminbi appreciation, commodity and product cost increases, acquired-intangible amortization, IPO-related equity compensation and a weather-related inventory write-off.
- Operating expenses rose sharply: sales and marketing increased 76.3% to $165.2 million, while general and administrative expense increased 215.6% to $158.6 million. The increases included substantial IPO-related stock compensation, greater advertising and staffing, public-company costs, Provisions start-up expenses and refinancing and acquisition costs.
- Equity-based compensation expense was $81.1 million, versus $12.8 million in FY2020. The IPO triggered accelerated vesting of prior awards; additional RSUs included 7.8 million shares for the CEO and 4.4 million for other recipients. The filing expects significant future compensation expense and related tax-withholding cash needs.
- Apption Labs was acquired in July for purchase consideration of approximately $78.3 million, net of cash acquired, including contingent consideration. The year-end contingent consideration liability was $25.3 million and was revalued upward by $3.8 million.
- FY2021 operating cash use reflected the net loss and working-capital investment, including increases of $70.8 million in inventory and $26.4 million in accounts receivable. Inventory had been constrained into early 2021; by the third quarter, constraints were attributed primarily to broader supply-chain disruption.
- The receivables financing agreement was not in covenant compliance at December 31, 2021 because of aged receivables related to a large customer’s payment program. Traeger obtained a waiver, collected most of the aged balance by February 1, 2022, and reported compliance then.
Outlook, risks and contingencies
The filing gives no specific revenue, earnings or margin guidance. Management expects continued investment in marketing, product development, infrastructure, international expansion and public-company capabilities, and cautions that historical growth may not be sustainable. It cites uncertain post-pandemic demand and seasonality, global supply constraints and freight costs, inflation, foreign exchange, competition and the discretionary nature of premium grills as important risks.
Other material risks include dependence on three retailers, which accounted for 20%, 17% and 16% of FY2021 revenue; reliance on a limited number of overseas grill manufacturers; product quality, warranty, fire and product-liability exposure; and substantial debt with variable-rate exposure and restrictive covenants. The company reported compliance with its new credit-facility covenants at year-end. It entered into a $379.2 million notional interest-rate swap in February 2022, fixing the rate at 2.08% through March 2026. The filing describes ordinary-course legal matters but says it did not believe any then-pending matter would materially affect operations or financial position.
The auditor issued an unmodified opinion on the consolidated financial statements. Management concluded disclosure controls were effective at December 31, 2021; the filing did not include management’s internal-control-over-financial-reporting assessment or auditor attestation because of the transition period for newly public companies.
Investor verification points
- Check whether revenue growth, particularly grill demand and MEATER contribution, persists as pandemic-related demand normalizes.
- Track gross margin recovery against freight, logistics, input-cost and currency pressures, and assess whether operating expenses and stock compensation moderate.
- Review operating cash flow, inventory levels, receivable collections and the status of the receivables-facility covenants and waiver.
- Reconcile debt balances and facility availability, monitor leverage-covenant headroom and interest costs, and assess the effect of the February 2022 hedge.
- Assess the concentration of sales and receivables among the three largest retailers and the exposure to limited manufacturers and suppliers.
- Monitor Apption Labs integration, contingent consideration payments, and the performance and funding needs of Traeger Provisions.
- Review dilution and future expense from outstanding IPO RSUs and performance awards; the filing reported 12.2 million outstanding RSUs at year-end.