Traeger, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2021, compared with the same 2020 periods. Traeger designs and sells wood-pellet grills, pellets and other consumables, and accessories through retail and direct-to-consumer channels. The reporting entity was an LLC at quarter-end and converted to a Delaware corporation in July 2021; it completed its IPO in August.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $213.0 million | $153.2 million | $448.6 million | $267.0 million |
| Gross profit / margin | $83.3 million / 39.1% | $66.7 million / 43.5% | $183.9 million / 41.0% | $118.4 million / 44.4% |
| Operating income | $2.9 million | $28.3 million | $50.9 million | $46.2 million |
| Net income (loss) | $(4.9) million | $18.9 million | $34.0 million | $26.8 million |
| Adjusted EBITDA | $27.0 million | $39.3 million | $91.1 million | $67.9 million |
| Operating cash flow | — | $16.2 million | $12.6 million |
Q2 revenue grew 39.1%; first-half revenue grew 68.0%. Grills remained the largest category: $156.1 million in Q2 and $334.8 million in the first half. Retail sales were $195.9 million in Q2 and $425.7 million in the first half. Q2 Adjusted EBITDA margin was 12.7%, versus 25.6% a year earlier; first-half margin was 20.3%, versus 25.4%.
At June 30, cash and cash equivalents were $75.3 million, current assets $292.4 million, and current liabilities $113.1 million. Total assets were $1.12 billion and total liabilities $607.6 million. Debt included $510.0 million outstanding under the new first-lien term loan and $8.0 million drawn under the receivables facility. The company reported $125.0 million of undrawn revolver capacity and $100.0 million of receivables-facility capacity. Management said available cash, facilities, and operating cash flows should cover working capital, planned capital expenditures, and debt service for at least 12 months.
Material changes versus the prior comparable period
- Higher grill, consumables, and accessory volumes drove revenue growth, including repeat consumables sales from a larger installed grill base.
- Gross margin fell 4.4 percentage points in Q2 and 3.4 points for the first half. Management cited increased shipping costs and Chinese Renminbi appreciation; first-half margin was also affected by greater use of contract manufacturing for pellets.
- Q2 operating expenses rose sharply: sales and marketing increased 125% and general and administrative expense increased 167%. Management cited higher advertising, personnel, customer support, professional services, and legal costs. These increases contributed to the Q2 net loss despite revenue growth.
- First-half operating cash flow rose to $16.2 million, but receivables increased $55.2 million and inventory increased $17.3 million, absorbing cash. Investing outflow increased to $11.6 million, primarily for tooling, pellet-production equipment, and software.
- The June 29 debt refinancing replaced prior facilities with a $510.0 million term-loan draw and a $125.0 million revolver; the quarter included a $2.0 million debt-extinguishment loss. First-half financing cash flow was $59.1 million.
Outlook, commentary, risks, contingencies, and unusual items
- No quantified forward guidance was provided. Management expects sales and marketing and general and administrative expenses to rise in absolute dollars, including public-company compliance costs. It cautioned that interim results may not indicate full-year results.
- Management attributed recent demand growth in part to pandemic-related shifts toward home recreation, but warned that demand may not persist. The filing also identifies seasonality, weather, supply-chain delays, freight costs, and inventory forecasting as important uncertainties.
- Key risks include dependence on a small number of retailers and manufacturers, product concentration in grills, competition, product quality and liability, foreign-exchange and steel-price exposure, and COVID-19-related disruption. The three largest customers represented 49% of Q2 sales and 56% of first-half sales.
- On July 1, Traeger acquired Apption Labs for $60 million cash plus up to $40 million of contingent consideration; purchase accounting remained provisional. The company completed its IPO on August 2, issuing 8.8 million shares at $18 per share and receiving $140.5 million in net proceeds. It used $130.8 million to prepay term debt on August 11.
- IPO-related equity compensation is a significant prospective expense: approximately $47.4 million estimated from accelerated vesting of existing awards, plus IPO RSUs with estimated grant-date fair values of $116.6 million for the CEO award and $73.2 million for other awards. The filing expects these charges to weigh on future results; timing and actual expense may differ.
- The company reported no pending litigation expected to have a material adverse effect and said disclosure controls were effective at June 30. It disclosed a tropical-storm-related incident at its New York pellet facility and was still assessing the damage and operational impact.
Important facts for investors to verify
- Whether demand growth and margins remain durable as pandemic-related demand effects, shipping pressures, and currency movements change.
- Retailer concentration, current sell-through, and exposure to the three major customers, as well as manufacturer capacity and delivery performance.
- Cash conversion and working-capital requirements, particularly receivables and inventory growth, alongside available borrowing capacity.
- Post-IPO debt balances after the $130.8 million repayment, applicable interest rates, covenant headroom, and future debt-service requirements.
- Final Apption Labs purchase accounting, contingent consideration, integration costs, and the actual timing and amount of IPO-related stock-compensation expense.