Q2 2024 Traeger Inc Earnings Call

Okay.

Hello, everyone.

Karla: Hello everyone, and welcome to the Traeger second quarter fiscal 2024 conference call. My name is Karla, and I will be coordinating your call today. During the presentation, you will have the opportunity to ask questions by pressing a star followed by one on your telephone keypad. And if you change your mind, please press a star followed by two. I will now hand you over to Nick Bacchus, Vice President of Investor Relations, to begin. Nick, please go ahead.

Carla: Welcome to the he tried or a second quarter of fiscal 'twenty 'twenty Four conference call. My name is Carla and I will be coordinating your call today. During the presentation you will have opportunity to ask questions about press star followed by one on your telephone keypad and if you change your mind. Please press star followed by Chip I will now hand, you over to Nick <unk> Vice President.

Speaker Change: And then also the Investor relations to begin.

Nick: Nick Please go ahead.

Good afternoon, everyone. Thank you for joining figures call to discuss second quarter 2024 results, which were released this afternoon and can be found on our website at investors that trigger dot com, Nick packets, Vice President of Investor Relations that trigger with me on the call today are Jeremy Anderson, our Chief Executive Officer, and Don Basso.

Nick Bacchus: Good afternoon, everyone. Thank you for joining Traeger's call to discuss the second quarter 2024 results, which were released this afternoon and can be found on our website at investors.traeger.com. I'm Nick Bacchus, Vice President of Investor Relations at Traeger. With me on the call today are Jeremy Andrus, our Chief Executive Officer, and Dom Blosil, our Chief Financial Officer.

Don Basso: Chief Financial Officer.

Speaker Change: Before we get started I want to remind everyone that management's remarks on this call may contain certain forward looking statements that are based on current expectations, but are subject to substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein. We encourage you to review our annual report on Form 10-K for the year ended December 31 2000.

Nick Bacchus: Before we get started, I want to remind everyone that management's remarks in this call may contain certain forward-looking statements that are based on current expectations but are subject to substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein. We encourage you to review our annual report on Form 10-K for the year ended December 31, 2023, our quarterly report on Form 10-Q for the quarter ended June 30, 2024, once filed, and our other SEC filings for a discussion of these factors and uncertainties.

Speaker Change: 23, a quarterly report on Form 10-Q for the quarter ended June 32024, once filed and our other SEC filings for a discussion of these factors and uncertainties, which are also available on the Investor Relations portion of our website you should not take undue reliance on these forward looking statements speak only as of today and we undertake no obligation to update or.

Nick Bacchus: These forward-looking statements are also available on the investor relations portion of our website. However, you should not take undue reliance on these forward-looking statements. We speak only as of today, and we undertake no obligation to update or revise them for any new information. This call also contains certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, adjusted net income per share, and adjusted EBITDA margin, which we believe are useful supplemental measures. Most comparable GAAP financial measures and reconciliations of the non-GAAP measures contained herein to such GAAP measures are included in our earnings release, which is available on the investor relations portion of our website at investors.traeger.com. Please note that our definition of these measures may differ from similarly titled metrics presented by others.

Speaker Change: <unk> them for any new information.

Speaker Change: This call will also contain certain non-GAAP financial measures, including adjusted EBITDA. Adjusted net income adjusted net income per share and adjusted EBITDA margin, which we believe are useful as supplemental measures. The most comparable GAAP financial measures and reconciliations of the non-GAAP measures contained herein to such GAAP measures are included in our earnings release, which is available on the investor.

Speaker Change: <unk> portion of our website at investors that trigger dot com. Please note that our definition of these measures may differ from similarly, titled metrics presented by other companies.

Jeremy Andrus: I'll now turn the call over to our Chief Executive Officer, Jeremy Andrus.

Speaker Change: I'll now turn the call over to our Chief Executive Officer, Jeremy Andrews.

Jeremy Andrews: Thanks, Nick Thank you for participating in today's call to review, our second quarter performance and discuss our business outlook.

Jeremy Andrus: Thanks, Nick. Thank you for participating in today's call to review our second quarter performance and discuss our business outlook. I am very pleased with our second quarter results. Our performance underscores the hard work our entire organization has put into driving increased efficiencies in our business over the last two years and further demonstrates our team's ability to execute in what remains a challenging consumer environment. Well, our second quarter sales of $168 million represent a 2% decline versus last year.

Jeremy Andrus: Our grills business was up 2% year over year, a significant improvement from the 14% decline you saw in the first quarter. Moreover, we delivered a very strong second quarter gross margin of 42.9%, up 600 basis points compared to the prior year. This resulted in adjusted EBITDA of $27 million, a 25% improvement from the second quarter last year.

I'm very pleased with our second quarter results our performance underscores the hard work our entire organization has put into driving increased efficiencies in our business over the last two years and further demonstrates our team's ability to execute in what remains a challenging consumer environment.

Jeremy Andrews: While our second quarter sales of $168 million represents a 2% decline versus last year, our grilles business was up 2% year over year, a significant improvement from the 14% decline you saw in the first quarter.

Jeremy Andrews: Moreover, we delivered a very strong second quarter gross margin of 42, 9% up 600 basis points compared to the prior year.

This resulted in adjusted EBITDA of $27 million, a 25% improvement from second quarter last year.

Jeremy Andrus: Our better-than-expected results give us confidence in our outlook for the balance of fiscal 2024. Today, we are updating our Fiscal Year 2024 Revenue Guidance to a range of $590 to $605 million, and I am pleased to say that we are increasing our Adjusted EBITDA guidance to $74 to $79 million, an increase of 15% at the midpoint of the range as compared to prior guidance. Our improved adjusted EBITDA guidance is being driven by an increase in our gross margin outlook to 40.5 to 41.5 percent, up from the prior range of 39 to 40 percent.

Jeremy Andrews: Our better than expected results gives us confidence in our outlook for the balance of fiscal 2024.

Speaker Change: Hey, we are updating our fiscal year 2020 for revenue guidance to a range of $590 million to $605 million and I'm pleased to say that we are increasing our adjusted EBITDA guidance to $74 million to $79 million, an increase of 15% at the midpoint of the range.

Speaker Change: Just compared to prior guidance.

Speaker Change: Our improved adjusted EBITDA guidance is being driven by an increase in our gross margin outlook $2 45 to 41, 5% up from the prior range of 39% to 40%.

Jeremy Andrus: As an outdoor cooking company, the second quarter is our most important selling period at retail as consumers buy ahead of the summer grilling season. Coming into the quarter, we are anticipating that ongoing weakness in industry demand would continue to pressure our grill revenue. As we noted on our first quarter earnings call, sell-through trends for grills remained negative in the early part of the year.

Speaker Change: As an outdoor cooking company the second quarter is our most important selling period at retail as consumers buy ahead of the summer grilling season.

Speaker Change: Coming into the quarter, we were anticipating that ongoing weakness in industry demand would continue to pressure our gross revenue.

Speaker Change: As we noted on our first quarter earnings call sell through trends for grills remain negative in the early part of the year.

Jeremy Andrus: The second quarter is typically a promotional period for our industry. Given the soft demand backdrop, this year, we strategically leaned into promotions and offered incremental savings to the consumer. Consumers reacted favorably, and we saw a marked inflection point in sell-through trends as we kicked off the season with our Memorial Day promotion.

Speaker Change: Second quarter is typically a promotional period for our industry.

Speaker Change: Given the soft demand backdrop. This year, we strategically leaned into promotions and offered incremental savings to the consumer.

Speaker Change: Consumers reacted favorably and we assign marked an inflection point and sell through trends as we kicked off the season with our memorial day promotion.

Jeremy Andrus: Demand for our grills meaningfully improved as we moved to the second quarter and exceeded our expectations. I'm very encouraged by the strong consumer demand for our grills in the second quarter. In an economic environment that remains challenging for many consumers who are feeling pressures from inflation and with continued headwinds for big-ticket home-related purchases, our customers came out in full force in our peak season. I believe there are a couple of key learnings here.

Speaker Change: Demand for our Grilles meaningfully improved as we move through the second quarter and exceeded our expectations.

Speaker Change: I'm very encouraged by the strong consumer demand for our Grilles in the second quarter.

Speaker Change: In an economic environment that remains challenging for many consumers who are feeling pressure from inflation and with continued headwinds for big ticket home related purchases.

Speaker Change: Our consumer came out in full force in our peak season.

Speaker Change: I believe there are a couple of key learnings here.

Jeremy Andrus: First, notwithstanding the pressure we have faced in the last two years as consumers shift to a post-pandemic and inflationary environment, there continues to be a large and growing appetite for Traeger products. The strong demand in Q2 not only speaks to the strength of the Traeger brand but ultimately points to the long-term opportunity for Traeger as brand awareness expands over time. Next, it is clear that the consumer is currently very price conscious, and we saw particular strength in our lower price point grills, a continuation of a trend we have seen for several quarters now.

Speaker Change: Notwithstanding the pressure we faced in the last two years as consumers shifted to a post pandemic in inflationary environment. There continues to be a large and growing appetite for trigger products.

Speaker Change: The strong demand in Q2, not only speaks to the strength of the trigger brand, but ultimately points to the long term opportunity for trigger as brand awareness expands over time.

Speaker Change: Next it is clear that the consumer is currently very price conscious and we saw particular strength in our lower price point grills, a continuation of the trend we have seen for several quarters now long term. We view this as a positive development as consumers that come into the trade or hood exhibit high levels of re.

Jeremy Andrus: Long term, we view this as a positive development as consumers that come into the Traeger hood exhibit high levels of retention, purchase our consumables over their lifetime as users, and oftentimes trade up to higher price point grills. Furthermore, it's important to note that Traeger remains positioned as a premium brand.

Speaker Change: Tension purchased our consumables over their lifetime as users and oftentimes trade up to higher price point grills. Furthermore, it is important to note that frege remains positioned as a premium brand for example, our opening price point grill is still adding materially higher.

Jeremy Andrus: For example, our opening price point grill is still at a materially higher price point versus the industry average selling price. South through Strength and Grills during the quarter was further supported by our ground game initiative. One of our long-term strategic pillars is driving increased brand awareness, which remains our largest opportunity to expand household penetration over time. Brand awareness and perception are clearly tied to the consumer's experience of our brand at retail.

Speaker Change: <unk> point versus the industry average selling price.

Speaker Change: Sell through strengthened grills during the quarter was further supported by our ground game initiatives.

Speaker Change: One of our long term strategic pillars is driving increased brand awareness, which remains our largest opportunity to expand household penetration over time.

Speaker Change: Brand awareness and perception are clearly tied to the consumer's experience of our branded retail and during the second quarter, we focused on driving excitement and engagement with consumers in collaboration with our retail partners.

Jeremy Andrus: And during the second quarter, we focused on driving excitement and engagement with consumers in collaboration with our retail partners. This included completing over 4,000 weekend selling events at retail partner locations where retail sales specialists trained store associates for product demonstrations featuring Traeger grills and food cooked on the Traeger. The ability for consumers to see our product in action and to taste the flavor of wood-fired food makes all the difference in driving conversion at retail.

Speaker Change: This included completing over 4000 weekend selling events at retail partner locations.

Speaker Change: Retail sales specialists trained store associates for product demonstration, featuring trager grills and food cooked on the trader.

Speaker Change: The ability for consumers to see our product in action and to taste. The flavor of wood fired food makes all the difference in driving conversion at retail.

Jeremy Andrus: We also partner with key retailers in certain must-win markets to drive boots-on-the-ground activation, more targeted marketing efforts, and sales initiatives in-store. These efforts not only provide important learnings for scalable ground game and marketing activation strategies going forward but drove meaningful sell-through upside in these markets relative to control markets in the second quarter. From a selling perspective, better-than-anticipated consumer demand drove growth in grill revenues in the second quarter and is fueling an improved outlook for our grills business for the year. We now expect grill revenues to be approximately flat versus our prior outlook for a negative high single to low double digit percentage decline.

Speaker Change: We also partnered with key retailers in certain must win markets to drive boots on the ground activation more targeted marketing efforts and sales initiatives in store.

Speaker Change: These efforts not only provide important learnings for scalable ground game and marketing activation strategies going forward the drove meaningful sell through upside in these markets relative to control markets in the second quarter.

Speaker Change: From a selling perspective better than anticipated consumer demand drove growth and grill revenues in the second quarter and is fueling an improved outlook for our grilles business for the year.

Speaker Change: We now expect grille revenues to be approximately flat versus our prior outlook for a negative high single to low double digit percentage decline.

Jeremy Andrus: As channel inventories were very clean coming out of Q2, and with the inventory wind down with end-of-life SKUs tracking ahead of schedule, our outlook for replenishment sales in the second half has improved, and we also expect to benefit from the initial load in of new product in the fourth quarter. Importantly, despite improved trends in the second quarter, we continue to plan the balance of the year prudently with respect to sell-through of grills, as we expect that consumer demand in seasonally slower periods could decelerate and acknowledge that the economic backdrop remains highly dynamic.

Speaker Change: As channel inventories were very clean coming out of Q2 and was the inventory wind down with end of life Skus tracking ahead of schedule our outlet for replenishment sales in the second half has improved.

Speaker Change: We also expect to benefit from initial load in of new product in the fourth quarter.

Speaker Change: Importantly, despite improved trends in the second quarter, we continue to plan the balance of the year prudently with respect to sell through of Grilles as we expect that consumer demand and seasonally slower periods could decelerate and acknowledge that the economic backdrop remains highly dynamic.

Jeremy Andrus: The improved outlook in our grills business is being partially offset by reduced expectations for accessories revenues driven by meter. In the second quarter, meter experienced lower than anticipated sales in its e-commerce channels, which make up a majority of its revenue base.

Speaker Change: Improved outlook in our girls business is being partially offset by reduced expectations for accessories revenues driven by meter in the second quarter meter experienced lower than anticipated sales and e-commerce channels, which make up a majority of its revenue base.

Jeremy Andrus: We believe that meter is being impacted by changes in our demand creation strategy implemented earlier this year, which proved ineffective in driving top line. The good news is that we believe we have diagnosed the issues impacting the business and have implemented strategies to drive improvement going forward. This includes adjusting our demand creation strategy, as well as driving new product innovation in the second half of the year. Additionally, we are doubling down on expanding meters wholesale distribution and will be relaunching our retail offering with improved packaging and in-store fixtures ahead of the holiday.

Speaker Change: We believe that meter is being impacted by changes in our demand creation strategy implemented earlier, this year, which proved ineffective and driving top line.

Speaker Change: The good news is that we believe we are diagnosed the issues impacting the business and have implemented strategies to drive improvement going forward.

Speaker Change: This includes adjusting our demand creation strategy as well as driving new product innovation in the second half of the year.

Speaker Change: Also we are doubling down on expanding meters wholesale distribution and we'll be relaunching, our retail offering with improved packaging and in store fixtures and ahead of holiday.

Speaker Change: We remain confident in the long term opportunity for meter and believe the changes we are making position the business for improvement.

Jeremy Andrus: We remain confident in the long-term opportunity for metering and believe the changes we are making position the business for improvement. It is important to note that the majority of METER's year is in front of us with more than two-thirds of full-year revenues occurring in the second half, and so there's ample time to pivot effectively. Moving on to consumables.

Speaker Change: It is important to note that the majority of meters year is in front of us with more than two thirds of full year revenues occurring in the second half.

Speaker Change: So there is ample time to pivot effectively.

Jeremy Andrus: Second quarter consumables revenues were largely in line with our plan and were impacted by a timing shift into the first quarter. Looking at first half consumable sales to normalize for this timing shift, revenues were up 2% versus the prior year, which speaks to the recurring and stable nature of our consumables revenue. We continue to expand distribution of the consumables into the grocery channel, and we believe this is a natural extension of our current distribution footprint, which drives convenience for consumers to purchase our pellets, rubs, and sauces. In the second quarter, we added distribution of pellets, rubs, and sauces to 200 associated foods doors. We also added additional pellet SKUs at Lund's and Byerly's, Market of Choice, and Hy-Vee.

Speaker Change: Moving on to consumables.

Speaker Change: Second quarter consumables revenues were largely in line with our plan and we're impacted by timing shift into the first quarter.

Speaker Change: Looking at first half consumable sales to normalize for this timing shift revenues were up 2% versus prior year, which speaks to the recurring and stable nature of our consumables revenues.

Speaker Change: We continue to expand distribution of the consumables into the grocery channel and we believe this is a natural extension of our current distribution footprint, which drives convenience for consumers to purchase our pellets rubs and sources.

Speaker Change: In the second quarter, we added distribution of pellets rubs and sources to 200 associated foods doors.

Speaker Change: We also added additional pellet skus at London buyer lease market of choice and.

Jeremy Andrus: We continue to see meaningful opportunities to grow share, increased distribution, and share of shelf. Turning to international, our international business remains a meaningful long-term opportunity for us. In the second quarter, international results at Traeger were heavily dependent on region and channel of distribution. For example, in Canada, we saw a significant acceleration in sell-through trends in our big box channels as consumers responded favorably to our summer promotion. Specialty Channel in Canada, by contrast, saw challenging results in the quarter with pressure on grills north of $1,500; in Europe, sales through were softer versus last year, and our distributors continue to work through excess inventory.

Speaker Change: We continue to see meaningful opportunities to grow share the increased distribution and share of shelf.

Speaker Change: Turning to international.

Speaker Change: Our international business remains a meaningful long term opportunities for us in the second quarter International results at Trager, we're heavily dependent on region and channel of distribution. For example in Canada, we saw significant acceleration and sell through trends in our big box channels is consumed.

Speaker Change: <unk> responded favorably to our summer promotions.

Speaker Change: The specialty channel and Canada by contrast saw challenging results in the quarter with pressure on Grilles north of $500.

Speaker Change: In Europe sell through a softer versus last year and our distributors continued to work through excess inventories.

Speaker Change: The consumer environment in many of our international markets continues to be challenging. However, we remain focused on the long term opportunity to drive awareness and penetration of the trigger brand by replicating many of the strategies that have been successful in the U S.

Jeremy Andrus: The consumer environment in many of our international markets continues to be challenging, but we remain focused on the long-term opportunity to drive awareness and penetration of the Traeger brand by replicating many of the strategies that have been successful in the U.S. This includes implementing ground game strategies like in-store product demos and increasing brand presence with elevated merchandising and by activating the brand on social media.

Speaker Change: This includes implementing ground game strategy is like in store product demos, and increasing brand presence with elevated merchandising and by activating the brand on social media.

Jeremy Andrus: In closing, I'm incredibly proud of our organization's ability to execute and deliver strong results against a challenging backdrop. Our second quarter results demonstrate our commitment to delivering continued improvements to our business. My confidence in the long-term opportunity for Traeger remains very high, and our business is well positioned for long-term success. And with that, I'll turn it over to Dom to provide more detail on our second quarter performance and our updated outlook for fiscal 2024. Dom?

Speaker Change: In closing I'm incredibly proud of our organization's ability to execute and to deliver strong results against the challenging backdrop.

Speaker Change: Our second quarter results demonstrate our commitment to delivering continued improvements to our business my confidence in the long term opportunity for Tredegar remains very high and our business is well positioned for long term success.

Speaker Change: And with that I'll turn it over to Don to provide more detail on our second quarter performance and our updated outlook for fiscal 2020 for them.

Don Basso: Thanks, Jeremy and good afternoon, everyone.

Dom Blosil: Thanks, Jeremy, and good afternoon, everyone. Today I will review our second quarter performance and discuss our updated outlook for fiscal year 2024. Second quarter revenues declined 2% to $168 million. Grill revenues increased 2% to $95 million. Grill revenue benefited from better than expected sell through during the quarter as consumers responded favorably to our promotional strategy. Consumables revenues were $34 million, down 3% from the second quarter last year. Pellet revenues were negatively impacted in the quarter due to a timing shift which benefited the first quarter, partially offset by growth in food consumables in the quarter.

Don Basso: Today, I'll review, our second quarter performance and discuss our updated outlook for fiscal year 2024.

Don Basso: Second quarter revenues declined 2% to $168 million.

Speaker Change: Grille revenues increased 2% to $95 million.

Don Basso: Grill revenue benefited from better than expected sell through during the quarter as consumers responded favorably to our promotional strategy.

Don Basso: Consumables revenues were $34 million down 3% to second quarter last year.

Don Basso: Revenues were negatively impacted in the quarter due to a timing shift which benefited the first quarter, partially offset by growth in food consumables in the quarter.

Dom Blosil: When looking at the first half overall to adjust for the pacing shift in pellets, consumable sales were up 2% versus the first half of 2023. However, accessories revenues decreased 9% to $40 million, largely driven by lower sales at meters.

Don Basso: When looking at the first half overall to adjust for the pacing shipped in pellets consumable sales were up 2% versus the first half of 2023.

Don Basso: Accessories revenues decreased 9% to $40 million, largely driven by lower sales that meter.

Don Basso: Geographically North America revenues were down 5%, while rest of world revenues were up 32%.

Dom Blosil: Geographically, North America revenues were down 5%, while rest of world revenues were up 32%. Gross profit for the first quarter increased $72 million from $63 million in the second quarter of 2023. Gross profit margin was 42.9%, up 600 basis points versus the second quarter of 2023. I am pleased with our strong gross margin performance in the second quarter, which is being driven by both lower supply chain costs in addition to our margin enhancement initiative. The increase in gross margin was driven by one factor, lower freight and logistics costs, which drove 320 basis points of favorability. Optimization of operations, which drove 170 basis points of margin.

Don Basso: Gross profit for the first quarter increased $72 million from $63 million in the second quarter of 2023.

Don Basso: Profit margin was 42, 9% up 600 basis points versus the second quarter of 2023 I.

Don Basso: I am pleased with our strong gross margin performance in the second quarter, which is being driven by both lower supply chain costs. In addition to our margin enhancement initiatives.

Don Basso: The increase in gross margin was driven by one lower freight and logistics costs, which drove 320 basis points of favorability.

Don Basso: Optimization of operations, which drove 170 basis points of margin.

Dom Blosil: FX favorability, which positively impacted margin by 70 basis points, and four other favorable items worth 90 basis points. This was partially offset by increased dilution of 50 basis points related to promotional activity. The other marketing expenses were $28.2 million compared to $27.9 million in the second quarter of 2023. During the quarter, increased investment in brand awareness and employee-related costs were partially offset by reduced professional fees. General and administrative expenses were $30 million, compared to $52 million in the second quarter of 2023. The decrease in GNA expense was driven by lower stock-based compensation expense, partially offset by higher costs related to legal matters.

Don Basso: <unk>, FX favorability, which positively impacted margin by 70 basis points and four other favorable items worth 90 basis points.

Don Basso: This was partially offset by increased dilution at 50 basis points related to promotional activity.

Don Basso: Sales and marketing expenses were $28 2 million compared.

Don Basso: Compared to $27 $9 million in the second quarter of 2023.

Don Basso: During the quarter increased investment in brand awareness and employee related costs were partially offset by reduced professional fees.

Don Basso: General and administrative expenses were $30 million.

Don Basso: <unk> to $52 million in the second quarter of 2023.

Dom Blosil: Net loss for the second quarter was $3 million, as compared to a net loss of $30 million in the second quarter of 2023. Net loss per diluted share was $0.02, as compared to a loss of $0.25 in the second quarter of 2023. Adjusted net income for the quarter was $7 million, or $0.06 per diluted share, as compared to an adjusted net loss of $4 million, or $0.04 per diluted share, in the same period of 2023. Adjusted EBITDA was $27 million in the second quarter, as compared to $21 million in the same period of 2023.

Dom Blosil: Let me now discuss the balance sheet. At the end of the second quarter, cash and cash equivalents totaled $18 million, compared to $30 million at the end of the previous fiscal year. We ended the quarter with $427 million of short and long-term debt, resulting in total net debt of $409 million.

Dom Blosil: From a liquidity perspective, we ended the second quarter with total liquidity of $175 million. Inventory at the end of the second quarter was $91 million, compared to $96 million at the end of the fourth quarter of 2023 and $98 million at the end of the second quarter of 2023. We believe inventories on our balance sheet are appropriately positioned for our current demand outlook. Additionally, channel inventories were healthy exiting the second quarter, even better than anticipated sell-through of grills.

Don Basso: Effective the end of the second quarter with total liquidity of $175 million.

Don Basso: Inventory at the end of the second quarter was $91 million.

Don Basso: Compared to $96 million at the end of the fourth quarter of 2023 and $98 million at the end of the second quarter of 2023.

Don Basso: We believe inventories on our balance sheet are appropriately positioned for our current demand outlook.

Don Basso: Additionally, channel inventories were healthy exiting the second quarter, even better than anticipated sell through of grills.

Don Basso: Taking a step back I am very pleased with the progress. The organization has made in improving balance sheet health over the last two years.

Dom Blosil: Taking a step back, I am very pleased with the progress the organization has made in improving balance sheet health over the last two years. Since Q2 2022, balance sheet inventories are down more than 40%, and liquidity is up nearly 30%. Furthermore, the growth in adjusted EBITDA we have realized over the last four quarters has resulted in a reduction in our leverage ratio as defined by net debt to TTM adjusted EBITDA of more than five times compared to a year ago.

Don Basso: Since Q2, 2022 balance sheet inventories are down more than 40% and liquidity is up nearly 30%.

Don Basso: Furthermore, the growth in adjusted EBITDA, we have realized over the last four quarters has resulted in a reduction of our leverage ratio as defined by net debt to TTM adjusted EBITDA of more than five turns compared to a year ago.

Don Basso: Our organizational focus on driving continued improvements to our business positions us well to continue to drive deleverage over time.

Dom Blosil: Our organizational focus is driving continued improvements to our business positions as well as continuing to drive de-leverage over time. Now turning to our updated outlook for fiscal year 2024. For revenues, we are updating our range from $590 million to $605 million.

Don Basso: Now turning to our updated outlook for fiscal year 2024 for.

Don Basso: For revenues, we are updating our range to $590 million to $605 million.

Dom Blosil: The narrowing of our revenue outlook reflects our first half performance, as well as our updated view on the second half. For grill revenues, we are now forecasting approximately flat revenues compared to 2023, which is up substantially from our prior guidance for a high single digit to low double digit decline. Our improved outlook for grill revenues is being driven by our better than expected performance in Q2, as well as an improved outlook for the second half, as strong Q2 sell-through is driving improved replenishment.

Don Basso: The narrowing of our revenue outlook reflects our first half performance as well as our updated view on the second half.

Dom Blosil: The improvement in our outlook for our grills business is being partially offset by a reduction in our accessories revenues, driven by meter. As Jeremy discussed, meter performance missed our expectation in the second quarter, and our more conservative outlook is driving our view for negative accessory revenue growth in the second half of the year.

Dom Blosil: In terms of gross margin, we are increasing our full-year 2024 guidance to 40.5% to 41.5%, which implies growth of 360 to 460 basis points. I've been very pleased with our gross margin performance over the last two quarters, and our year-to-date gross margins have been ahead of our expectations. Our outlook continues to assume that our margin will benefit from lower realized supply chain costs, as well as internal margin improvement initiatives. However, we are seeing a greater than anticipated benefit from certain factors, including expected transportation costs and a higher mix of sales from our direct import program, which have contributed to upside in the first half of the year.

Dom Blosil: Furthermore, the improved outlook for our grills business is driving lower than expected D leverage. We expect to see greater gross margin growth in the fourth quarter as compared to the third quarter. For Projected EBITDA, we are increasing our guidance to a range of $74 million to $79 million, up from our prior outlook of $62 million to $71 million. This represents a 15 percent increase versus our prior year outlook at the midpoint of the range and implies 21 percent to 29 percent growth in adjusted EBITDA compared to full year 2023.

Don Basso: This represents a 15% increase versus our prior year outlook at the midpoint of the range and implies 21% to 29% growth in adjusted EBITDA compared to full year 2023.

Don Basso: Overall, I am very pleased with our team's strong execution in the second quarter and with our ability to substantially increase our adjusted EBITDA outlook for 2024.

Dom Blosil: Overall, I am very pleased with our team's strong execution in the second quarter and with our ability to substantially increase our adjusted EBITDA outlook for 2024. I'll now turn the call over to the operator for questions. Operator. We will now begin the question.

Don Basso: We have continued to make significant progress on driving efficiencies in our business, which I strongly believe position trigger for long term success.

Speaker Change: I will now turn the call over to the operator for questions operator.

Speaker Change: We will now begin the question and answer session, if you'd like to ask a question. Please press star followed by one of your telephone keypad. If you have changed your mind. Please press star followed by two.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you have changed your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Anna Glaessgen from Be Riley.

Speaker Change: I'd like to bring to ask your question. Please ensure your devices on mute locally.

Don Basso: Our first question comes from Anna Glasgow from B Riley.

Anna Glasgow: Hey, good afternoon, guys. Thanks for taking my question.

Anna Glaessgen: Hey, good afternoon, guys. Thanks for taking my question. I guess, first, thanks for the detail around, you know, you saw a meaningful inflection around the promotions. Just want to clarify, did you actually see positive sell through? Or did you just see a sequential improvement versus what you had expected? Yes, we did see positive sell through.

Anna Glasgow: I guess firstly, thanks for the detail around you know you saw a meaningful inflection around the promotion. So just want to clarify did you actually see positive sell through or did you just see a sequential improvement versus what you had expected.

Jeremy Andrus: Yes, we did see positive sell-through, and, you know, again, it's a trend of consumer price sensitivity that we've seen in our business that we've known in the past in terms of mix. We're certainly seeing that as headline commentary from other consumer brands, so we chose to lean into promotions, and, you know, it was well-received. And I would say, you know, the positive signal that we can take away from this is certainly that there is meaningful demand for the Traeger brand. When great brands go on sale, consumers react, and that's what we saw.

Operator: Anna, did you have another question?

Anna Glaessgen: Oops, sorry, I was muted, talking to myself. I wanted to touch on metering, expanding a little bit more on the demand creation issues. Was it marketing in the wrong place, just not getting the ROI, or maybe expanding on what was going on earlier in the year and now what you're changing as we approach the backup?

Jeremy Andrus: Yeah, so first of all, meter is largely an online business. We are certainly in the process of leveraging our channel synergies, Traeger being a heavily traditional retail business. But we came into the year with a hypothesis that we could more efficiently drive sell-through, focusing more on sort of lower funnel conversion and less on upper funnel prospect marketing. I think that strategy just didn't play out as expected. You know, we certainly have plenty of history with the brand investing in more prospecting in advance of key selling seasons, and we'll probably be back into that strategy that was effective for us in the past.

Speaker Change: But we came into the year with a with a hypothesis that we could.

Anna Glasgow: More efficiently drive sell through focusing on.

Speaker Change: More on more on.

Speaker Change: Sort of lower funnel conversion and less on upper funnel prospect marketing I think that that strategy just didn't play out as expected.

Speaker Change: We certainly have plenty of history with the brand in investing more prospecting in advance of key selling seasons.

Speaker Change: We'll probably be back into that strategy has been effective for us in the past.

Speaker Change: Great that's it for me thanks.

Jeremy Andrus: Great, that's it for me. Thanks guys. Thanks. Our next question comes from Simeon Siegel from BMO Cap2Market. Hey, good afternoon, guys. It's Dan here on behalf of Simeon.

Speaker Change: Thanks, guys.

Speaker Change: Thanks.

Speaker Change: Our next question comes from Simeon Siegel from BMO capital markets.

Speaker Change: Hey, good afternoon, guys, it's Dan here on for Simeon.

Operator: Our next question comes from Simeon Siegel from BMO Cup2Market. Hey, good afternoon, guys. It's Dan here.

Dan: So just two from us.

Dan: Firstly I just wanted to see if there's anything you could share in terms of new grille customers purchasing versus replenishment grill purchases. So anything there maybe how it was in the quarter or just how it's trended recently and then curious on the usage patterns pre COVID-19 cohort versus more of the newly acquired customers.

Speaker Change: Yes sure yes.

Jeremy Andrus: Yeah, sure. Yeah, so the fairly consistent thing you'd expect given our low penetration household penetration in the US is that a lion's share of, you know, consumers of the brand are new consumers. You know, we understand that there is a growing component of our installed base that sort of represents the loyalty loop back to the brand, and it's something that we're focused on, especially long-term. But, you know, given the life cycle that we're in, a lot of the new grill sales are new consumers that we're acquiring, which we certainly view as positive as we reinforce the loyalty loop on the other end of the funnel.

Jeremy Andrus: With respect to your second question around, you know, consumer engagement, I'd say that it's consistent across a couple of different measures, one being the connected data that we evaluate, month to month, quarter to quarter. The trends that we're seeing in connected cooks are actually growing. They grew in Q2, which we see as positive. And then I think the second element to that is, as we evaluate attach rates for consumables, they're trending consistently with pre-pandemic levels.

Jeremy Andrus: We've talked on previous calls that, you know, during the pandemic, there was a fairly dramatic spike in attach rates. Obviously, we've come back down to earth post-COVID. And when you sort of normalize for the private label customer that introduced a private label pellet, the attach rates are consistent with pre-pandemic. So we, again, view that as positive, and it's been a consistent theme from quarter to quarter.

Operator: Our next question comes from Megan Alexander from Morgan Stanley.

Megan Alexander: Hey, thanks. Good afternoon.

Speaker Change: Seems to be driven I guess by volumes is that fair and so would that suggest that you're actually expecting volumes to be up in 2024.

Speaker Change: Yeah.

Speaker Change: So to answer your first question yes.

Megan Alexander: Thanks for taking our question. Wanted to just start by wondering, sorry, if I missed it, if you could just tell us what units and ASPs were in the quarter on a year-over-year basis, and then just to follow up to that, Grille is now flat. That really seems to be driven, I guess, by volumes. Is that fair? And so would that suggest that you're actually expecting volumes to be higher in 2024?

Speaker Change: <unk> gross sales grew slightly 2%.

Dom Blosil: So to answer your first question, yeah, so, so grills, grill sales grew slightly by 2%. You know, the volume, you know, grill volumes did increase, kind of high double digits, the offset was ASP, which declined kind of mid double digits.

Speaker Change: The volume grow volumes did increase.

Speaker Change: High double digits.

Speaker Change: The offset was asps, which decline kind of mid double digits.

Dom Blosil: And, you know, we understood that dynamic going into the quarter. It's how we sort of designed our promotional strategy. We want to ensure that we're focusing and strategically planning our promotion around where, you know, consumer appetite is. There's pressure on high-ticket durables. We've seen a trend toward, you know, lower and opening price point grills for our brands of $1,000. And we leaned into that, and that, you know, proved to be, you know, an effective strategy, which drove a fairly nice lift to volumes, albeit offset by the decline in ASPs, given that mix shift.

Speaker Change: And we understood that dynamic going into the quarter. It's how are we sort of designed our promotional strategy. We want to ensure that we're focusing in strategically planning our promotion around where consumer appetite is there is pressure on high ticket durables, we've seen a trend toward lower and opening price point grills.

Speaker Change: For our brands of $1000, and we leaned into that and that proved to be.

Speaker Change: If an effective strategy, which drove a fairly nice lift to two volumes, albeit offset by the decline in asps given that that mix shift.

Speaker Change: Okay. That's helpful. And then I guess, you kind of touched on it there than you did in the prepared remarks as well, but just bigger picture I guess, how are you thinking about maintaining.

Jeremy Andrus: Okay, that's helpful. And then I guess, you know, you kind of touched on it there. And you did in your prepared remarks as well.

Jeremy Andrus: But just bigger picture, I guess, how are you thinking about maintaining that premium position and while, you know, leaning into clearly what's selling at lower price points and driving promotions to, you know, increase that awareness? I imagine it's a pretty fine balance. I would just be curious if you could expand a bit on how you're thinking about that.

Jeremy Andrus: Yeah, it definitely is a fine balance. You know, we have a fairly traditional promotional calendar, and we are largely in line with that. We had a longer promotion as opposed to two shorter promotions in the second quarter. We talk a lot about how we continue to maintain a premium position and also be sort of thoughtful about the environment that we're selling in. And we feel like we have the ability to thread that needle in the near term, in part given the consumer environment and the competitive environment for grills, but I'd also say, It's important to note that where we were more aggressive in promotion, we are also approaching the end-of-life of the product, which tends to be an even more appropriate time to be promotional.

Jeremy Andrus: You know, we get an opportunity to reset, both as the environment improves, but also as we launch new products, new innovation, and sort of ensure that we're always coming back to those important price points that we view as premium but accessible to a broader consumer. You know, our promotional strategy really hasn't deviated from our historical strategy, a little bit more aggressive on the opening price point, but not meaningfully different. You know, let me add just one other comment.

Jeremy Andrus: Hey, sorry, Megan, just one other comment, which I think is relevant, just for context setting. You know, our opening price point product, even on promotion, is meaningfully higher than the average selling price of a grill in the industry. So I think the context of where our brand still sits, even on promotion, is important to consider.

Megan Alexander: Got it. That's helpful. Thank you.

Operator: Our next question comes from Phillip Blee for William Blair.

Phillip Blee: Can you maybe speak a bit more about the trends you've seen in the third quarter to date and then how we should think about subsequent growth during the fourth quarter and holiday, driven by some of the newness you spoke about earlier versus maybe some expected volatility around the election and some multi-year choppy comparisons?

Speaker Change: Quarter to date and then how we should think about then subsequent growth during the fourth quarter and holiday driven by some of the newness you spoke about earlier versus maybe some expected volatility around the election and some multiyear choppy comparisons.

Speaker Change: Yes, I mean, we can't speak to the Q3 trend.

Jeremy Andrus: Yeah, I mean, we can't speak to the Q3 trend, certainly, and I don't know that we are going to be spending, you know, airtime on Q4 either. It's sort of baked into our guidance. And so you can sort of back into what that may look like based on how we've performed year to date. But there are three components that I think are worth noting in terms of what informed an update to our guidance, a lift to our guidance this year.

Speaker Change: Certainly and I don't know that we are.

Speaker Change: Going to be spending.

Speaker Change: Time on Q4, either it's sort of baked into our guidance. So you can sort of back into what that may look like based on how we performed year to date.

Speaker Change: But there are three components that I think are worth noting in terms of what informed.

Speaker Change: An update to our guidance a raise to our guidance this year and the first being the fact that sell through did outperform expectations in Q2, which lends itself to an improvement in and sell in.

Jeremy Andrus: And the first element is the fact that sell-through did outperform expectations in Q2, which lends itself to, you know, an improvement in sell-in. The second element is the fact that it should stimulate greater replenishment in Q3 as we rebuild inventory levels off of what was, you know, a more robust sell-through in Q2. And then the third piece that, you know, we referenced is just a catalyst that we have now baked into our plan in Q4, which is a load in of some, some product ahead of our 2025 launch of new product.

Speaker Change: The second element to that is the fact that it should stimulate greater replenishment in Q3, as we rebuild inventory levels.

Jeremy Andrus: You know, this is sort of the normal course where sometimes we load in some revenue for a new product launch in the following year, in late Q4. And that's sort of a new development that we've included in the plan, as you think about some of the catalysts in the back half of the year building on what was a solid, you know, first half of the year.

Phillip Blee: Okay, great. Yeah, that's really helpful.

Dom Blosil: And then just, a little bit of switching gears here, but you've done a lot to minimize some of the overhead and improve the efficiency of operations over the past couple of years. But as we think about maybe a more meaningful recovery in grills now on the horizon, are there areas in the business that maybe you've underinvested in that will need to ramp up? Or is there a pretty clean, fixed cost structure going forward that we can bank on some sales falling through?

Phillip Blee: Thank you.

Dom Blosil: Yeah, I'd say that the cost structure is pretty clean. You know, we spent the last 12-18 months really focused on sort of right sizing our cost structure, focusing on driving gross margin improvements, benefiting from macro trends. And I would say that how we've shaped the P&L over the course of, you know, this period of time puts us in a really good spot to now focus on a better cadence in terms of driving top-line growth and consistent leverage through the P&L into profitability.

Dom Blosil: And I think, you know, we've talked on past calls about how we've focused on right-sizing our cost structure without, you know, forsaking certain investments in the long-term, demand creation, some prospecting, although there have been some shifts across the funnel, as well as our product development engine, right? So, we feel pretty good about how we've positioned that, how our OPEX is oriented, and I think that, from this point forward, there should be better consistency across the P&L as we drive, you know, leverage through that cost structure and ensure that, you know, we continue to maintain the right resource allocation against our long-term plan.

Phillip Blee: Excellent. Great. Best of luck. Thanks.

Operator: Our next question comes from Brian McNamara from Kennecourt, General.

Brian McNamara: Hey, thanks, guys, for taking the question. I wanted to clarify your new outlook for grills, particularly as it relates to getting through the sunsetting of products a bit, maybe a bit faster than you initially thought and the initial loading of the new product in Q4. Is this just a function of promotions kind of driving the delta here? And are you pulling some of those planned 2025 innovations forward?

Dom Blosil: So definitely, sell through in Q2, you know, greatly influenced a shift in our forecast for grills in the year. You know, I would, as I mentioned in my previous comment, Q3 is also benefiting from some of that replenishment, you know, with an offset to the fact that we are seeing some pressure in accessories, mainly driven by meters. And then in terms of your question regarding the load-in of new products in Q4, it's not necessarily, you know, pulling from 2025.

Dom Blosil: It's more just a function of how, you know, timing works out in relation to when we're able to ship product from China when we're ready to do so. And also to ensure that, to the extent that it's possible, we're loading certain channels as early as possible, such that when we're ready to launch new products in the following year, there are SKUs on the floor that align with that marketing strategy and that launch strategy.

Speaker Change: Is that when we're ready to launch new products in the following year.

Speaker Change: There are skus on the floor.

Speaker Change: That aligned with that marketing strategy and that launch strategy.

Speaker Change: Got it understood there and then.

Brian McNamara: Got it understood there. And then on your revised gross margin guidance, I think it implies roughly a 400 basis point step down in H2 versus H1. What's driving that, apart from some seasonal elements?

Speaker Change: Your revised gross margin guidance I think it implies roughly a 400 basis points step down in <unk> versus H, one whats driving that apart from some seasonal elements I think you guys did.

Speaker Change: 43% gross margin in 2020, and we've got a bunch of noise in the market sense of like how should investors be thinking about a sustainable gross margin rates in the business moving forward.

Dom Blosil: I think you guys did 43% gross margin in 2020. And we've had a lot of noise in the market since. So like, how should investors be thinking about a sustainable gross margin rate in the business moving forward? That's a good question. So in the back half of the year, it's

Speaker Change: Hey, good question, so in the back half of the year.

Dom Blosil: Hey, good question. So in the back half of the year, it's, I think it's consistent with what we spoke to on the last call, which is that Q3 gross margin is the trough for the year. Just given the lower sales volume in the quarter, we see some deep leverage within COGS, and that pressures gross margin. Q4 is also sequentially lower than the first half of the year, you know, mainly connected to the fact that we are, you know, more promotional in Q4.

Speaker Change: Yes, I think it's consistent with what we spoke to on the last call, which is Q3 gross margin is the trough for the year.

Speaker Change: Just given the lower sales volume in the quarter, we see some deleverage within Cogs and that pressures.

Speaker Change: That pressures gross margin Q4 is also sequentially lower than the first half of the year.

Speaker Change: Mainly connected to the fact that we are more promotional in Q4.

Dom Blosil: I would say to your latter question, we are seeing sustainability in gross margin. You know, structurally, there have been shifts that we're benefiting from, and we view those structural shifts as, you know, sort of permanent, barring a surprise, which I think is a real positive for the brand. You know, that's the macro side that has really moved in our favor, especially when you compare it to, you know, some of the pandemic pressure that we felt.

Speaker Change: I would say to your latter question.

Speaker Change: We are seeing sustainability in gross margin.

Speaker Change: Structurally there have been shifts that we're benefiting from and we view those structural shifts.

Speaker Change: As you know.

Speaker Change: Sort of permanent barring a surprise, which I think is a real positive for the brand.

Speaker Change: That's the macro side that has really moved in our favor, especially when you compare it to.

Dom Blosil: We're also benefiting from structural changes that we've driven and controlled through operational efficiencies. And, you know, that's still a focus for the brand to continue to drive improvements across our supply chain within our product development process that should hopefully drive incrementality in gross margin. The only comment I would make is, year to year, we are still subject to, you know, and sensitive to, you know, macro shifts, right? So, where FX may move, where inbound rates may move, you know, we are sensitive to that from year to year, but the underlying theme is the structural changes that we've seen from the pandemic to now, we believe, will persist. And we view that as both structural and sustainable, on top of the fact that we continue to focus on gross margin improvements as a key pillar of our long-term strategy. Thank you.

Operator: As a reminder, to ask a question, please press star followed by one on your telephone keypad. And our next question comes from Justin Kepler from Bayer.

Justin Kepler: Yeah, good afternoon, guys. Thanks for taking the questions. Just to follow up on the gross margin question. You talked about the macro moving in your favor, but obviously being subject to shifts. I guess, based on what you know today, would you expect, you know, freight logistics costs to remain a gross margin tailwind as we move into 25?

Dom Blosil: It's a little early to speak about 25. I mean, I think the one point I would make is, and we baked this into our plan, I think we talked about this on our last call, is that we did see some, we have seen some increase in the spot market for inbound transportation, but we've captured that. So, hard to say where that moves in 2025. We actually think that more capacity will come online.

Dom Blosil: So, TBD, but otherwise, I don't know that we're in a position to start speculating on 25, but I feel good with the momentum that we've driven this year and certainly have a different viewpoint on what long-term gross margin looks like relative to where we've been the last couple of years.

Justin Kepler: That makes sense. Thank you for that. Two questions kind of related to innovation. I guess the first one would be on your 25 innovation pipeline, just given that consumers are still cautious and they're gravitating toward lower price points. I'm curious if those macro trends have influenced, you know, your innovation in any way as we think about next year.

Jeremy Andrus: Yes, so a couple of thoughts. One is, as we have articulated on past calls, we have been investing deeply in product development, innovation being a component of that. Over the last couple of years, notably as the consumer environment became difficult, we believe in steady investment in product. And I think the result of that is that products are concepted and launched in very different cycles. And we don't build, in the world of durables; just given what it takes to engineer and the time it takes to go to market, it would be difficult to react to market cycles.

Jeremy Andrus: And so, no, we don't change our product roadmap relative to the cycle. We believe that, number one, given the price points we're launching, we have the ability to sell those price points that are very appropriate for the brand, what's coming to market. The second is that, you know, it's been a contracting industry for multiple years.

Jeremy Andrus: And at some point, we get beyond that, and the consumer strengthens. And that'll happen over the course of many years of this product platform that we're launching. So, we feel good about the price points, the position for the consumer, the value, and we're getting better every year at product development. But we, you know, we take a fairly consistent, steady point of view on the development timeline. You know, to the extent that the environment's soft, that may influence how we forecast inventory at different price points. It may influence, it would influence mix. And it could influence promotion strategy, but it doesn't change how we think about the process and timing for bringing new products to market.

Justin Kepler: Okay, thanks for all that, Colonel Jeremy. I'll just leave it there. Thank you, guys.

Operator: Our next question comes from Peter Keith on behalf of Piper Sandler.

Peter Keith: Hey, thanks. Good afternoon.

Peter Keith: Nice results, guys. It's pleasing to see the race, the EBITDA guide. Maybe we'll just pick on the updated guide. It's the Aminogrel Outlook for Flat for the Year, impressive, I guess it implies 10% grill revenue growth in the back half. And I'm wondering what kind of visibility you have on that. Are you thinking sell-through continues to remain positive, or is it really just visibility around the replenishment and this early Q4 load-in?

Jeremy Andrus: Yeah, visibility around replenishment and then the load in Q4.

Jeremy Andrus: Right. So if sell-through were to remain positive in the back half, then there could potentially be some upside to that growth revenue outlook.

Peter Keith: Yeah, but yeah, but we're sort of maintaining caution there. We are not extrapolating the sell-through performance in Q2 out through the remainder of the year. I think right now the going assumption is sell-through will sort of revert back to how we were thinking about it as we built the plan early in the year. And, you know, we wouldn't necessarily expect positive comps in the back half of the year. So really, it's more driven by those two catalysts, replenishment and product load-in.

Speaker Change: Year, I think right now the going assumption is sell through over sort of revert back to how we were thinking about it as we built the plan early in the year end.

Speaker Change: We wouldn't necessarily expect positive comps in the back half of the year. So really it's more driven by those two catalysts the replenishment and the product load in.

Speaker Change: Okay.

Jeremy Andrus: Okay. And the ability to drive positive sell-through with promotions, I guess you're striking when the iron's hot, and that would be in Q2 around key holidays. Is it fair to think that Q2 has got some key holidays, and there's a little bit of a lull with Q3, and then maybe you could strike again when the iron's hot in Q4 around the Christmas holidays?

Speaker Change: The ability to drive the positive sell through with promotions I guess youre striking when the iron is hot and that would be in Q2 around key holidays is it fair to think about Q2s got some key holidays and there is a little bit of a lull in Q3, and then maybe you could strike again when the iron is hot in Q4 on around.

Speaker Change: The Christmas holidays.

Peter: Yes, Peter.

Peter Keith: Yeah, Peter, we generally have a promotion around the holidays built around cyber five, and so you know that that is planned. That has been planned. And I would say that, you know, consistent with sort of the type of promotion that we ran in the second quarter, we believe that continues to be appropriate for the environment that we're in. And that's also baked into the guidance that we provided.

Speaker Change: We generally have a promotion around the holidays built around cyber five and so.

Peter: Yes.

That is plan that has been planned and I would say that.

Peter: Consistent with sort of the type of promotion that we ran in the second quarter. We believe that continues to be appropriate for the environment that we're in and that's.

Peter: That is also baked into the guidance that we provided.

Peter: Yeah.

Speaker Change: Okay great.

Jeremy Andrus: And then just a big picture question as we think about the impact of lower interest rates on your business. I guess, how do you guys think about it? Is it, are there direct benefits regarding financing? Or do you think about it just more indirectly as if the consumer gets healthier and maybe housing improves? Just framing up a lower interest rate environment and its impact on Traeger would be helpful.

Speaker Change: Then just a big picture question.

Speaker Change: As we think about the impact of lower interest rates on your business.

Speaker Change: I guess, how do you guys think about it is it are there other direct benefits and regarding financing.

Peter: Or do you think about it just more indirect as consumer gets healthier than maybe housing improves.

Speaker Change: Just framing up.

Speaker Change: Lower interest rate environment, and its impact on trigger would be helpful.

Speaker Change: Yes so.

Jeremy Andrus: Yes, so I'll share a couple of thoughts on that. The first is, yes, there are absolutely direct, you know, direct sort of correlations between interest rates and grill demand. One is certainly consumer financing. Americans finance just about everything in some way, you know, from low price points all the way up to houses and, you know, a $1,000 purchase is often financed either on our website through a financing partner at retail through financing programs that they offer.

Speaker Change: So I'll share a couple of couple of thoughts on that.

Speaker Change: The first is yes, there are absolutely.

Speaker Change: Direct.

Speaker Change: Direct.

Speaker Change: Sort of a correlation between interest rates and grill demand. One is certainly consumer financing Americans finance just about everything in some way.

Speaker Change:

Speaker Change: From low price points, all the way up to.

Speaker Change: To houses.

Speaker Change: A thousand dollar purchase often is financed either on our website through a financing partner at retail through financing programs that they offer.

Jeremy Andrus: And there's no question that, you know, headline news would suggest American consumers have spent their cash, they've spent, they are meaningfully in debt, and financing costs do matter. There's also a correlation between housing transactions and new grill purchases. And while that doesn't drive most of our business, it certainly influences, you know, 15 to 20% of the business. And given where interest rates have been, housing transactions are very low.

Speaker Change: There's no question that.

Speaker Change: Headline news would suggest American consumers have spent their cash they've spent.

Speaker Change: They are meaningfully in debt and financing costs do matter.

Speaker Change: There is also.

Speaker Change: Correlation between housing transactions, and new new grille purchases and while that doesn't drive most of our business.

Speaker Change: No.

Speaker Change: It certainly influences.

Speaker Change: 15% to 20% of the business and given where interest rates have been housing transactions are very low.

Jeremy Andrus: But I think the, and so certainly some direct impact, from a broader consumer health perspective, I think that's where we see lower interest rates. You know, we begin a new cycle where interest rates come down, the consumer gets healthy, their debt is more manageable, and consumers begin to buy again. And I would say notably in durables, which tend to have some cyclicality around interest rates and the health of the consumer, oftentimes when interest rates are high and the consumer is relatively weak, purchases are pushed out unless they're absolutely necessary.

But I think the.

Speaker Change: So certainly some direct impact.

Speaker Change: From a broader consumer health perspective, I think that's where we see lower interest.

Speaker Change: <unk> rates.

Speaker Change: We begin a new cycle, where interest rates come down the consumer gets healthy.

Speaker Change: There that is more manageable and.

Speaker Change: And consumers begin to buy again.

Speaker Change: I would say, notably in <unk>.

Speaker Change: In durables, which tend to have some cyclicality around interest rates and health of the consumer.

Speaker Change: Often times when rates are when interest rates are high end consumer is is relatively weak.

Speaker Change: Purchases are pushed out unless absolutely necessary.

Jeremy Andrus: And so, you know, we expect to benefit from that. And I think the combination of a healthier consumer, but also the investments that we've been making in product and increased investments in brand and top of the funnel that we plan, we believe that will take share. And I think the combination of the two will be meaningful for our business. The last thing I would say is, just in sort of zooming out and thinking about where the industry is from a unit volume perspective, relative to where it's been historically, unit volumes are still meaningfully below pre-pandemic levels, you know, somewhere in the 20-plus percent range, and that's simply a function of pull-forward demand, which is probably now intersecting with a weakened consumer.

Speaker Change: So.

Speaker Change: We expect we expect to benefit from that and I think.

Speaker Change: The combination of the healthier consumer but also as investments that we've been making in product and increased investments in brand and top of funnel that we plan. We believe that will take share and I think the combination of the two.

Speaker Change: We'll be meeting will be meaningful for our business.

Speaker Change: The last thing I would say is just in sort of zooming out and thinking about where the industry is from a unit volume perspective relative to where it's been historically.

Speaker Change: Unit volumes are still meaningfully below pre pandemic levels.

Speaker Change: Somewhere in the 2020 plus percent range and Thats simply a function of pull forward demand, which is probably now intersecting with.

Jeremy Andrus: But if you look at the decade of industry data prior to the pandemic, this is a really resilient industry that just chugs along and grows at low single digits. And we expect that the industry will rebound, and it will ultimately be larger than it was in 2019 simply because of the adoption of outdoor cooking that happened during the pandemic. So I think there are multiple industry and macro drivers that will work in our favor. They have been headwinds, but those headwinds will ultimately turn to tailwinds, and it will be good for the business when they intersect with the investment that we've been making to bring new products to market.

Speaker Change: A weakened consumer but if you look at the decade of the industry data prior to the pandemic. This is a really resilient industry that just chugs along and grows at.

Speaker Change: Low low single digits, and we expect that the industry will rebound and it will.

Speaker Change: And it will ultimately be.

Speaker Change: Larger than it was in 2019 simply because of the adoption of <unk> because of the adoption of outdoor cooking that happened during the pandemic. So I think there are multiple.

Speaker Change: Industry and macro.

Speaker Change: Macro drivers that will work in our favor they have been headwinds, but those headwinds will ultimately turned to a tailwind.

Speaker Change: It will it will be good for the business when they intersect with the investments that we've been making to bring new product to market.

Speaker Change: Okay, Great I appreciate the thoughtful answer.

Peter Keith: Okay, I appreciate the thoughtful answer.

Peter: Thank you Peter.

Speaker Change: Our next question comes from Brian Mcnamara from Canaccord Genuity.

Operator: Our next question comes from Brian McNamara from Hanakor, Genoa.

Speaker Change: Yeah.

Brian McNamara: Thanks for taking the follow up, guys. Just a quick one on the replacement cycle of Traeger grills versus, I guess, the industry. It's still five years for the Traeger and maybe seven to eight for the industry, and presumably, with, you know, we'll be five years from the early days of the pandemic and Q1 of next year. So should we expect any kind of replacement tailwind there if this plays out next year? Yeah, you're right about that, you know.

Brian McNamara: Thanks for taking the follow up guys. Just a quick one on the replacement cycle of trigger Grilles versus I guess the industry is it still five years for the trigger and maybe seven to eight for the industry and presumably with.

Speaker Change: There will be five years.

Speaker Change: From the early didn't look pandemic Q1 of next year. So should we expect any kind of replacement tailwind there.

Speaker Change: Plays out next year.

Speaker Change: Yes, youre right in that.

Jeremy Andrus: Yeah, you're right in that we've continued to validate that about five, there's about a five-year replacement cycle for Traeger and for our consumer, and it's, you know, seven to eight years for the broader industry.

Speaker Change: We've continued to validate that about there's about a five year replacement cycle for trade are embarking sumer and its seven to eight years for the broader industry.

Jeremy Andrus: And yes, we are, you know, looking at as part of our strategy for the next couple of years is how we capitalize on what could be a wave of, you know, consumers who purchased four or five years ago that are looking to upgrade, and that lines up nicely with our innovation cycle. So that presents a nice opportunity to convert people to a new product that, you know, may have a legacy product and certainly speaks to the benefit of having a more condensed innovation cycle within what is, you know, largely a slow moving category.

Speaker Change: And yes, we are looking that as as part of our strategy heading into the next couple of years is how do we capitalize on.

Speaker Change: What could be.

Speaker Change: Dave.

Dave: Consumers who purchased.

Speaker Change: Four or five years ago that are looking to upgrade and that lines up nicely with our innovation cycles that presents a nice opportunity to convert people.

Speaker Change: On a new product that may have have a legacy product and certainly speaks to the benefit of having.

Speaker Change: A more condensed innovation cycle within what is largely a slow moving category.

Jeremy Andrus: And something that we do value, that loyalty loop is certainly something that we care about. And we want to ensure that we're designing strategies around how we unlock that growing base of consumers that are ready to upgrade. And something that we're most definitely focused on and have looked at it the same way as you and that, you know, those, those, those pandemic purchases are coming up on a period of time when they may be looking to upgrade. And, you know, as our installed base grows, as, you know, consumers age out, as that installed base grows, that represents a larger and larger opportunity over time.

Speaker Change: And something that we do value that loyalty loop is certainly something that we care about and we want to ensure that we're designing strategies around how we unlock that that growing base of consumers that are ready to upgrade and something that we're most definitely focused on and have looked at it the same way.

Speaker Change: As you in that.

Speaker Change: Those those pandemic purchases are coming up on a period of time, where they may be looking to upgrade and as our installed base grows as consumers age out.

Speaker Change: As that installed base grows that represents a larger and larger opportunity over time.

Speaker Change: Great. Thanks.

Speaker Change: And.

Operator: And a final reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. So that does conclude the question and answer session and the conference call as well. Thank you for joining us. You may now disconnect from the call.

Speaker Change: A final reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.

Speaker Change: So that does conclude our question and answer session and the conference call as well. Thank you for joining you may now disconnect from Nicol.

Speaker Change: [music].