Traeger, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. Traeger designs and sells wood-pellet grills, consumables and accessories through retail and direct-to-consumer channels. It completed its IPO on August 2, 2021.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $162.0 | $145.1 | $610.6 | $412.0 |
| Gross profit / margin | $54.3 / 33.5% | $65.8 / 45.3% | $238.3 / 39.0% | $184.2 / 44.7% |
| Operating income (loss) | $(81.8) | $13.7 | $(31.0) | $59.8 |
| Net income (loss) | $(89.2) | $8.1 | $(55.2) | $34.9 |
| Adjusted EBITDA | $4.1 | $34.4 | $95.2 | $102.3 |
Q3 revenue increased 11.7%; year-to-date revenue rose 48.2%. Q3 basic and diluted loss per share was $0.78, versus earnings per share of $0.07 in Q3 2020. Adjusted EBITDA is a non-GAAP measure.
Cash flow and balance sheet: Operating cash flow was $(0.9) for the nine months, compared with $42.4 provided in 2020. Investing cash outflow was $75.5, including $57.0 for the Apption Labs acquisition and $18.0 for property and equipment. Financing provided $82.9, including IPO proceeds and debt refinancing. Cash was $18.1 at quarter-end, versus $11.6 at December 31, 2020. Inventories were $114.6, up from $68.8.
At September 30, principal debt comprised $379.2 under the term loan and $19.0 drawn on the receivables facility, or $398.2 in total; the balance sheet reports notes payable net of financing costs at $370.1. The $125.0 revolving facility was undrawn. The receivables facility was expanded to a maximum capacity of $100.0, with $19.0 drawn. The company reported compliance with debt covenants and said available cash, borrowing capacity and operating cash flows should fund requirements and debt service for at least 12 months.
Material changes and notable items
- Gross margin fell 11.8 percentage points in Q3. Management cited higher freight and logistics costs, Chinese renminbi appreciation, higher commodity and product costs, acquired-intangible amortization, IPO-related equity compensation and a weather-related inventory write-off at a pellet facility.
- Q3 sales and marketing expense rose 82.2% to $48.5; general and administrative expense rose 337.6% to $75.8. Equity compensation and growth-related spending were major contributors. Total equity-based compensation was $59.2 in Q3 and $61.7 year to date.
- Q3 grill revenue increased 4.3%, with higher average selling prices partly offset by lower unit volume; consumables revenue fell 11.8% after unusually high prior-year pellet demand. Accessories revenue increased 181.5%, primarily reflecting Apption Labs.
- Traeger acquired Apption Labs, maker of the MEATER smart thermometer, on July 1 for approximately $78.5 net of cash acquired. The earn-out fair value was $24.4 at quarter-end, including a $2.9 revaluation expense; undiscounted potential earn-out payments range from $0 to $40.0. Purchase accounting remained preliminary.
- The IPO included 8.8 million newly issued shares at $18 per share. Proceeds were used in part to prepay $130.8 of term debt. The filing reports IPO net proceeds of $142.5 in its financial statements, but $140.5 in the use-of-proceeds discussion; investors may wish to reconcile the figures.
Outlook, risks and contingencies
The filing gives no quantified revenue, earnings or margin guidance. Management expects sales and marketing and general and administrative expenses to increase in absolute dollars as the company invests in growth, product development and public-company requirements; it also expects substantial ongoing equity-compensation expense from IPO awards. Management cautions that recent growth may not continue and that pandemic-related demand could normalize.
Key risks include persistent supply-chain and shipping constraints, rising input and logistics costs, reliance on a limited number of manufacturers and major retailers, and customer concentration: four retailers represented 56% of Q3 revenue. Other exposures include foreign exchange and floating-rate debt; a 100-basis-point rate increase would add approximately $3.8 of annual interest expense based on quarter-end debt. The New York wood-pellet facility sustained tropical-storm damage, with the extent still being assessed. The company reported no pending legal matter expected to materially affect its business or financial position.
Investor verification points
- Reconcile the filing’s $142.5 and $140.5 reported IPO net-proceeds figures and confirm the precise use of proceeds.
- Track gross-margin recovery, especially freight, product costs, currency effects and weather-related facility impacts.
- Assess inventory build, operating cash conversion and actual undrawn availability under the receivables facility.
- Monitor Apption integration and earn-out assumptions, future equity-compensation expense and dilution, retailer concentration, and covenant headroom.