Traeger, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results; comparisons are with the corresponding 2021 periods. Amounts below are in U.S. dollars.
Business context and results
Traeger designs, sources and sells wood-pellet grills, pellets, consumables and accessories through retail and direct-to-consumer channels. The filing reports lower grill volumes amid inflation and supply-chain pressures; accessory revenue benefited from the MEATER acquisition, completed in July 2021.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $200.3 million | $213.0 million | $424.0 million | $448.6 million |
| Gross profit / margin | $73.5 million / 36.7% | $83.3 million / 39.1% | $157.1 million / 37.0% | $183.9 million / 41.0% |
| Operating income (loss) | $(119.8) million | $2.9 million | $(122.8) million | $50.9 million |
| Net income (loss) | $(132.3) million | $(4.9) million | $(140.7) million | $34.0 million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(30.0) million | $16.2 million |
Financial position and liquidity
- At June 30, cash and cash equivalents were $13.6 million; current assets were $308.9 million and current liabilities $202.3 million.
- Term-loan principal outstanding was $391.7 million; $83.8 million was drawn under the receivables financing facility. The balance sheet reports notes payable of $386.6 million and line-of-credit borrowings of $83.8 million. The company had $122.0 million of stated revolver availability and no remaining receivables-facility borrowing capacity.
- Six-month investing cash use was $12.7 million, mainly property, plant and equipment purchases. Financing provided $39.6 million, primarily net line-of-credit borrowing and a $12.5 million delayed-draw term loan. Cash declined $3.1 million to $13.6 million.
- Inventory was $163.8 million, up from $145.0 million at year-end 2021; accounts receivable was $111.8 million, up from $92.9 million.
Material changes and unusual items
- Q2 revenue fell 6.0%; six-month revenue fell 5.5%. Q2 grill revenue declined 24.6%, while accessories rose 157.2%, largely reflecting MEATER sales and Traeger accessories. For six months, grills declined 19.9% and accessories increased 132.7%.
- Gross margin fell 2.4 percentage points in Q2 and 4.0 points for the first half. Management cited product mix and shipping costs in Q2, and higher inbound freight costs for the first half; price increases partly offset these pressures.
- A $111.5 million non-cash goodwill impairment drove the reported operating and net losses. The company cited inflation, supply-chain disruption, unfavorable demand, and sustained declines in its share price and market capitalization.
- Six-month general and administrative expense rose 87.1% to $71.8 million, including $24.9 million of equity-based compensation expense. Six-month equity compensation totaled $27.4 million, versus $2.5 million a year earlier.
- Three large U.S. retail customers together represented 54% of Q2 sales and 62% of accounts receivable at June 30, creating significant customer concentration exposure.
Outlook, commentary and risks
- Management stated that cash, expected operating cash flows and available borrowing capacity were expected to meet working-capital and operating needs for at least the next 12 months. This is not quantified earnings or revenue guidance.
- On August 9, 2022, after quarter-end, Traeger amended its credit agreement: through the earlier of June 30, 2023 or an earlier company election, the springing leverage covenant increases from 6.20:1 to 8.50:1, and a $35 million minimum-liquidity covenant applies when the company requests revolver borrowings. Certain restricted-payment capacity is also reduced. The company said it would have complied at June 30.
- In July 2022, the board approved workforce reductions, suspension of Traeger Provisions meal-kit operations, and postponement of Mexico nearshoring plans. These actions were expected to be substantially completed by Q3 2022 and to generate $6–$7 million in pretax charges, including $4.3–$5.0 million of future cash expenditures.
- Key disclosed risks include weaker discretionary demand, inflation and freight costs, supplier and supply-chain dependence, retailer concentration, foreign-currency exposure, debt covenant and liquidity requirements, and possible further goodwill or other asset impairments. The company reported compliance with its financing covenants at June 30. It said ordinary-course legal matters were not expected to have a material adverse effect.
- Management concluded disclosure controls were effective at the reasonable-assurance level as of June 30, 2022.
Important facts for investors to verify
- Whether grill demand, sales volumes and gross margins stabilize, and whether accessory growth offsets grill weakness.
- Cash conversion and working-capital trends, particularly receivables and inventory, alongside available borrowing capacity and covenant compliance.
- Whether further impairment charges are required, given the impairment assumptions and outlook for revenue, margins and cash flows.
- Actual costs, cash payments and savings from the workforce actions, Provisions suspension and delayed Mexico plans.
- Customer concentration and the continued financial health and purchasing behavior of the three major retail customers.