Traeger, Inc. (COOK) Earnings Call Transcript & Summary

All right. Good morning, everybody. My name is Peter Benedict, senior research analyst at Baird, and welcome to the day 1 of the ICR conference. Really pleased to be hosting the next session here with Traeger. We've got the CEO, Jeremy Andrus. We've got the CFO, Dom Blosil, and as well as their new head of IR, Nick Bacchus, with us today. I think what we're going to do is kick this off with little bit of a video to give you a little flavor for Traeger, and then we're going to go through a Q&A session. [Operator Instructions] So Hanna, with that, can you put up the video? [Presentation]

Excellent. I'm still waiting for you guys to incorporate a shot on my Traeger with my beer can chicken in there, but I've got some more work to do. Maybe something for later this year. But anyway, thank you, guys, for spending some time here again, on behalf of Baird and ICR. Jeremy, Dom, let's just kick this off a little background quickly on the 2 of you and maybe just give folks a sense of what brought you to Traeger and then we'll start to jump into the industry and the company.

Yes. Happy to. I'll jump in just for a few seconds on this. I found Traeger 8.5 years ago. What was remarkable to me was how the product market fit and just the important nature that the brand played in people's lives and the level of energy that came from it. And it was predominantly a Pacific Northwest brand. It's been around for 27 years. It was an innovation and a disruptive platform that really didn't find its way geographically very, very many places or just from a product, a mass market perspective. And so our mission since that very first day has been to bring this cooking experience that people just fall in love with into other people's homes. And prior to that, I've always -- most of my crew have been an entrepreneur and have a real appreciation when you find this type of fit, you can't create it with money alone. And so it's been 8 years next week that I will be a CEO of the business and it has been an incredible run.

Yes. And I've been with Traeger now for almost 8 years as well. And I really view this as an opportunity to continue to work with Jeremy on really building a brand from the ground up. As Jeremy mentioned, it's really an incredible cooking platform. It has an amazing passionate community, and we're really excited about the building blocks that we saw 8 years ago. And it's been an awesome journey from point A to point B and really excited about the future and how we're positioned.

That's great. That's perfect. So let's start with the pellet grilling industry. There's a disruption going on within outdoor grilling, pellets taking share from gas. Maybe talk about kind of your guys view, kind of 10,000-foot view of the market, size of the market, what's happening with pellet grills? Why are they taking share from gas? And what you think kind of the opportunity is just from a sector standpoint?

Yes, sure. So first of all, I mean, everything in consumer starts with the experience that a consumer has with the product. And we've heard this qualitatively early on, and it took us some time to really unpack the attributes and why there was so much passion that a Traeger owner had for their Traeger grill. And it boils down to a simple set of attributes that accomplish our mission, which is bringing people together to creating more flavorful world. And it goes back to an acronym that we call TVECC, and that stands for taste, versatility, ease of use, consistency and community. This is what Traeger owners love about Traeger. And we went out and we started to really try to understand quantitatively what that meant in terms of product market fit. And it was interesting, too, as we surveyed owners of Traeger and some other competitive grill, it doesn't matter gas or charcoal. But we also looked at it head-to-head against the largest brands in the industry, Weber, Charbroil, Big Green Egg. And we saw back in 2016 that Traeger won hands down, and it was not even close. In fact, 90% of a consumer who owned a Traeger and a competitive grill brand use their Traeger and preferred their Traegers. So it's just overwhelming. And so that is the foundation of what we're building. Of course, we are always innovating and we are never satisfied with the status quo of the product experience. But we started with a platform that was overwhelmingly better and really positioned to be a disruptor. Our position has always been to gain share from a relatively low share base. So in 2015, for example, Traeger had about 5% share of -- a dollar share of the grilling market in the U.S., much, much lower in international markets that we play in. Fast forward to end of third quarter of last year, we were about 10% of that market. So we are taking share. We're taking unit share, and we're raising ASPs along the way. And so we're at 3% household penetration in the U.S. We have about 2 million installed grills, and there are 75 million households that own grills. And so if you think about much better product experience, a brand and community that people love and very low penetration in gaining share, that's a recipe for disruption. If you were to rewind 10 years ago and look at share by fuel type, it was all gas. It's 85% gas. Well, gas has declined to less than 55% share today, and wood pellet is up to about 20% share. And we're just over half of that market. So we are positioned to take share. We are a growth brand. We are methodically taking share with our channel strategy, but also our marketing strategy. And in some of our top markets, and I'll point to Utah as 1 of them, we were low single-digit penetrated 6 years ago when we moved the brand from Oregon to Utah. And our latest household penetration is 16%, which means if you think about the replacement cycle of grills, our market share is far higher than that. And so it just gives us a lot of confidence that at 3%, having no idea where the ceiling is, but knowing that Utah is still one of our fastest-growing markets, that this is a very, very significant disruptive opportunity.

Yes. No, for sure. And just before I get into some of the more specifics on you guys, just maybe can you give us a sense of how you see Traeger within that competitive set of other pellet grills? The price points can go pretty high. How would you explain to people where Traeger sits in terms of maybe the price continuum, the quality continuum, which is within the broader assortment of that full 20% of the share of grills that are out there that are pellet?

Yes, sure. So first of all, there are -- we started to see a lot of sort of knockoff pellet grill brands back in 2015, '16. Every trade show you went to, you saw something new. We don't see as many new entrants. I think the position is fairly well established. We are more than 50% of share in pellet grilling. And I would sort of describe the category by saying at a very premium level, you have a handful of very small brands, very high-quality fit, feel finish, many thousands of dollars price points and brands that most have never heard of. So a brand called Twin Eagles, for example, or a brand called Memphis. These are very expensive, many of which are made in the U.S., nice fit fuel finish, but really no scale from an innovation content or product development perspective. Most of the new players are at low price points. They're knock-off brands. They're followers, they are price and value driven, and that tends to be how most consumer categories form. Our position is -- it's, I would say, premium but mass premium, because we want to -- we want Traeger to be accessible to most people, not all people. We're not going after a highly price-driven consumers. That's why we don't sell into Walmart. I would say the -- if you were to think about the other brands that you might have heard of, there are 2, one called Pit Boss, largest customers, Walmart, much lower selling prices, but a brand that really doesn't -- or a company that really doesn't spend -- invest in marketing, doesn't invest in product innovation, service sales, there's a position for sort of a lower-end position in the market for that brand. Weber, as you've heard of, launched a wood pellet grill 2 years ago now. Weber definitely dominates as sort of mid-price point gas and low-price point charcoal. It struggled to get traction, doesn't show up on the share data at this point with that grill, and they do a nice job in gas and charcoal. But outside of that, there are just a lot of other cats and dogs. And again, we're carving out a premium but mass premium and accessible, innovative, experience-driven brand. ASP at retail is somewhere in the $850 range, and it's growing. Consumers are suggesting they are willing to spend more for a Traeger experience because they enjoy it, they appreciate it, and they are prioritizing discretionary spend in food around that.

Yes. No, for sure. One of the things that struck me as we started to do work on the business, one, this is much more than a grill, right? We've talked about the grill, but I want to maybe spend a minute here helping folks understand the kind of ecosystem that you've built around the grill. There's consumables. There's connectivity. And then maybe as part of that, the strength of the community which you guys referred to as the Traegerhood, that was the other part of the story that kind of jumped out at us as we started to do the work. So maybe talk about the ecosystem. Is this more than just a grill? And then also maybe a little bit about the Traegerhood.

Yes. It's -- I appreciate that question. It was interesting. It's been interesting as we research the industry. When you ask a consumer what grill they own, they usually refer to the fuel type, I have a gas grill. I have a charcoal grill, I have a have kamado grill unless you own a Traeger. Then you own a Traeger and you use the verb, I Traeger. And so there's this incredible passion that has always existed, and we've really -- we've used that passion to create a community. And the community is driven by this very grassroots, very authentic connection that happens in neighborhoods, in offices on Monday morning when you're talking about what you Traeger-ed over the weekend. And I would it say really dominates conversation on social media. And so whether you are spending time on Traeger social media, which is by far, has by far the most energy and following in the industry or you're following one of our 1,400 community ambassadors influencers or sort of micro influencers from Dan Patrick in Sports Radio and Joe Rogue and all the way down to someone local who's got a couple of thousand followers but is very credible. This community is very connected, and it's very evangelical. 80% of Traeger owners have recommended the brand to an average of 6 people. And as I look at the brands or products that are sitting around me in this room, I don't recommend any of them to anyone except maybe this brand. I've always been since the first iPhone, a high promoter at the brand Tesla and the brand Traeger. And so when a community with no referral program, no paid sharing just choose to share because they believe in it, it's part of their lifestyle, they self-identify with that brand, that's powerful. And I would just say one last note, as we came into the pandemic going nearly a couple of years ago, it was important to us to really rally our community knowing that everyone felt some level of fear and discomfort. People weren't traveling, they weren't eating out. What were they doing? They were Traeger-ing in their backyard. And so really leaning into the community, finding innovative ways to get into their backyard to teach them to share the passion of Traeger. And we feel like we had -- it was a really nice accelerant for the community as they began to share more really on social media their love for cooking at home.

Yes. No, for sure. I mean, look, the people who know the brand obviously love the brand. Maybe talk a little bit about, you mentioned the household penetration experience you've had in Utah, but then more broadly, how low it is internationally or across the country. Maybe talk about brand awareness, where that sits nationally and regionally, what the strategy is here to drive that. I mean, retail distribution is pretty widespread. I mean, you partner with Home Depot, with ACE, with Costco. So the product is there as well as on your website. It's able to be purchased. The question is how quickly will people kind of put you in that consideration set when they're going to buy a grill. Maybe talk about some of those factors.

Yes. So first of all, there -- I would point to 2 key ways that we get to our prospective commuters -- consumers to sort of communicate the brand and who we are. One is at retail. And so we have a very thoughtful omnichannel distribution strategy, where we've really partnered with retail partners who love Traeger and are willing to showcase the brand at retail. And we've always invested first and foremost in retail, the merchandising experience, the visual product marketing communication. And I would say, most importantly, a retail associate who cooks on Traeger and loves Traeger. And when someone walks up looking for a grill, there is no question what they are selling them. So we spend a lot of time doing that. We have narrow but deep channel partnerships. Home Depot has been an incredible partner. Ted Decker, President of Home Depot is an awesome evangelist for the brand and a really good friend of the brand. John Van Heusen, CEO of ACE, another real evangelist and great friend and partner to the brand. And so retail is an important way because we're talking about innovation. It's not always easy to describe. When they get it, it's sticking, it works, and we thought retail was a great way to -- it's a great opportunity to leverage captive audience. The other is through a marketing platform. We have a platform of social media, digital content influencers. And then we've started to really invest in what we call our market as sole program. And that's where we choose specific geographies and make really aligned sales and marketing investments in those geographies, acknowledging that we're competing with a lot of other product companies and brands for consumers' attention, and our best way to succeed is to go narrow in those geographies. So I talked about Utah. But if I were to sort of step back and broadly define awareness in the U.S., you're going to see Pacific Northwest, where the brand was founded in 1987. You're going to see more penetration in the Southwest in sort of Rocky Mountain, Utah, Colorado up to Idaho. And then you'll see smatterings in markets that we've invested in. And Dallas, Atlanta, some of those sort of traditional grilling markets, we're picking up steam. But fortunately, there's a direct correlation between unaided awareness and conversion, and we're very focused on both.

Excellent. I think I'd be negligent if I didn't ask about supply chain. It's the topic this year for every company in every sector right now. But maybe give us a sense of where you're sourcing your product, how you're addressing and dealing with the global supply chain challenges that are affecting everyone. And what kind of your view is on how things kind of maybe progress here in '22?

Yes, sure. So as we all know, it's a complicated environment right now from a transportation perspective, from a microprocessor component perspective. But I would start by saying we have a really strong operations team brought in about a year ago, a new Head of Global Supply Chain, a new Head of Manufacturing, new Head of Supply Chain strategy, and we are keeping up better than most brands, in fact, are on time and in full, which is a measurement of service to retailers is by far best in category, just quantitatively. But we've worked really hard to manage cost where we can. Transportation is expensive. We're being as thoughtful as we can. All of the controllables we are going after aggressively. Some of these costs will naturally come down over time. We're certainly not waiting for that. But we're also having this moment to think differently about our business in terms of how we efficiently design product for manufacturing, for transportation, where we manufacture product. We have begun early manufacturing in North America and plan to lean into that in the coming years. And so it's a painful environment. We are being very thoughtful around how we manage through it. And I would say on a positive, we're not only delivering product to our retailers best-in-class. But as we said in the third quarter, we didn't leave revenue on the table due to inventory. We are in stock. We're leaning into inventory positions. We're investing working capital in the inventory because we think it's the right way to run our business right now. And as painful as it is behind the scenes, we're keeping up just fine. Our retailer partners and our end consumers are very pleased with quality and timely delivery.

That's great to hear. And I'm getting a warning here. I think maybe I have 2 minutes or 1 minute, but maybe just on the M&A front, you guys acquired Meater last summer. Maybe just talk about the role that, that plays in connecting you with your consumers and maybe what different things that might open up for you or other avenues of growth?

Yes. So first of all, Meater was an opportunistic acquisition. We partnered with them to integrate their product into a new premium cooking experience that we'll launch later this quarter. But Meater was -- stood for exactly what we did. It's premium. It's innovative. Its consumers have a passion for home cooking. And so we acquired that. The meat probe, protein probe space is actually very large. There are 22 million probes sold in the U.S. every year. So it is a very large category, but very price point-driven. Meater is disrupting it. And they're doing it in a similar way through an app on the phone where you get content have this great cooking experience, strong -- as we announced in the third quarter, growing very nicely. It fits perfectly with our brand. And I would say the integration from the team and an operations perspective is going well, and we're very bullish on this partnership long term.

Right. Well, listen, Jeremy, thanks so much. I'm sorry, we're up against the time here. But we appreciate your time. Dom, Nick, thank you guys as well. So we can weave you into the conversation, but maybe for another day. But thanks, everybody, for watching and listening. And if you have any questions, please don't hesitate to reach out to me or anybody on my team at Baird as we'd be happy to help you as you come up the learning curve on Traeger. Thanks, everybody.