Traeger(COOK) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited H1 2023 financial statements show narrowed net losses and decreased assets due to no goodwill impairment and lower operating expenses Condensed Consolidated Balance Sheets Total assets and liabilities decreased as of June 30, 2023, primarily from reduced cash, inventories, and notes payable, with stable equity Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $14,496 | $39,055 | | Inventories | $97,803 | $153,471 | | Total current assets | $225,431 | $274,238 | | Total assets | $869,645 | $946,715 | | Liabilities & Equity | | | | Total current liabilities | $127,269 | $112,907 | | Notes payable, net | $396,722 | $468,108 | | Total liabilities | $542,120 | $611,846 | | Total stockholders' equity | $327,525 | $334,869 | Condensed Consolidated Statements of Operations and Comprehensive Loss Revenue declined in Q2 and H1 2023, but net loss significantly narrowed due to the absence of a prior-year goodwill impairment charge Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $171,512 | $200,270 | $324,673 | $423,980 | | Gross Profit | $63,331 | $73,441 | $118,754 | $156,085 | | Loss from operations | $(27,608) | $(120,674) | $(30,871) | $(124,189) | | Goodwill impairment | $0 | $111,485 | $0 | $111,485 | | Net loss | $(30,166) | $(133,134) | $(41,096) | $(142,094) | | Net loss per share | $(0.25) | $(1.13) | $(0.33) | $(1.20) | Condensed Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity decreased in H1 2023 due to net loss, partially offset by stock-based compensation - The accumulated deficit increased to $611.6 million as of June 30, 2023, from $570.5 million at the end of 2022, reflecting the net loss for the period[55] - Stock-based compensation added $33.0 million and $41.0 million to additional paid-in capital for the three and six months ended June 30, 2023, respectively[20][55] Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved in H1 2023 due to decreased inventories, though overall cash and equivalents still declined Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $25,856 | $(30,050) | | Net cash used in investing activities | $(6,627) | $(12,727) | | Net cash provided by (used in) financing activities | $(56,288) | $39,640 | | Net decrease in cash | $(37,059) | $(3,137) | - A significant source of operating cash flow was a $55.7 million decrease in inventories, compared to a $17.8 million increase in the prior year period[60] Notes to Unaudited Condensed Consolidated Financial Statements Notes detail significant customer concentration, varied product revenue trends, debt facilities, and increased stock-based compensation from PSU cancellations - The company has significant customer concentration risk. For the six months ended June 30, 2023, three customers (A, B, and C) accounted for 20%, 18%, and 13% of net sales, respectively[80] Revenue by Product Category (in thousands) | Product Category | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Grills | $182,871 | $268,111 | | Consumables | $64,945 | $81,748 | | Accessories | $76,857 | $74,121 | | Total revenue | $324,673 | $423,980 | - In April 2023, the Board approved the cancellation of unearned CEO and IPO PSUs, resulting in the recognition of $27.5 million of stock-based compensation expense. A new award of 1,037,728 performance-based restricted shares was granted to the CEO[139][140] - In July 2022, the company initiated a restructuring plan, eliminating approximately 14% of its global headcount and suspending its Traeger Provisions business to reduce costs[159] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes H1 2023 revenue decline to macroeconomic conditions, highlights reduced operating expenses from no goodwill impairment, and confirms sufficient liquidity Results of Operations H1 2023 saw revenue and gross profit decline, but operating loss significantly improved due to no goodwill impairment, despite increased G&A expenses Revenue Comparison (Six Months Ended June 30) | Category | 2023 (in millions) | 2022 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Grills | $182.9 | $268.1 | (31.8)% | | Consumables | $64.9 | $81.7 | (20.6)% | | Accessories | $76.9 | $74.1 | 3.7% | | Total | $324.7 | $424.0 | (23.4)% | - Gross margin for the first six months of 2023 was 36.6%, a slight decrease from 36.8% in the prior year period. The decrease was driven by lower average selling prices, partially offset by lower freight costs[217] - General and administrative expense for the first six months of 2023 increased by $6.9 million to $79.1 million, primarily due to higher stock-based compensation expense related to the cancellation of unearned CEO and IPO PSUs[220] - The company recorded no goodwill impairment in the first half of 2023, compared to a $111.5 million charge in the same period of 2022. This was the primary driver for the significant reduction in the operating loss[223][229] Liquidity and Capital Resources As of June 30, 2023, the company had $14.5 million cash and $140.2 million available credit, deemed sufficient for future liquidity needs - The company's primary sources of liquidity are cash from operations, cash on hand, and borrowings under its credit facilities[232] Liquidity Position as of June 30, 2023 (in millions) | Item | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $14.5 | | Revolving Credit Facility Capacity | $125.0 | | Receivables Financing Agreement Capacity | $15.2 | | First Lien Term Loan Outstanding | $403.9 | - In June 2023, the company amended its First Lien Credit Agreement to change the reference rate from Eurocurrency Base Rate to the Secured Overnight Financing Rate (SOFR)[252] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported compared to the prior Annual Report on Form 10-K - There have been no material changes to the company's market risk exposure as disclosed in the most recent Annual Report on Form 10-K[30] Controls and Procedures Disclosure controls and procedures were ineffective as of June 30, 2023, due to an un-remediated material weakness in derivative accounting - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were not effective as of June 30, 2023[32] - A material weakness was identified in internal controls related to the accounting and reporting of transactions under ASC 815, Derivatives and Hedging[36][43] - Management's remediation plan includes enhancing control design over the preparation of other comprehensive income (loss) and providing additional training. The material weakness cannot be considered remediated until the new controls operate effectively for a sufficient period[37][48] PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings not expected to materially impact operations or financial position - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business[40] Risk Factors A new risk factor highlights the material weakness in internal control over financial reporting, which could adversely affect the company if not remediated - A material weakness in internal control over financial reporting has been identified, specifically related to the accounting for derivatives and hedging (ASC 815)[42][43] - If the material weakness is not remediated, it could result in a material misstatement of future financial statements and adversely affect the company's ability to report financial information accurately and on time[47][50] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities No unregistered sales of equity securities or issuer purchases were reported during the period - The company reported no recent sales of unregistered securities or purchases of its equity securities[50] Defaults Upon Senior Securities No defaults upon senior securities occurred during the period - None[51] Mine Safety Disclosures This item is not applicable to the company - Not applicable[52] Other Information No other information to report for this period - None[53] Exhibits The report lists exhibits filed, including credit agreement amendments, CEO/CFO certifications, and XBRL data files - Key exhibits filed include Amendment No. 3 to the First Lien Credit Agreement and certifications by the CEO and CFO pursuant to SEC rules[271] Signatures The report was signed by the CEO and CFO on August 7, 2023 - The Form 10-Q was signed by the company's Principal Executive Officer and Principal Financial Officer on August 7, 2023[276]