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May 16, 2022, 8:55 a.m. EDT

10-Q: WEBER INC.

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. The section titled "Special Note Regarding Forward-Looking Statements" should be read for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year end is September 30, and our fiscal quarters end on December 31, March 31, June 30 and September 30. Our fiscal years ended September 30, 2022, 2021 and 2020 are referred to herein as Fiscal Year 2022, Fiscal Year 2021 and Fiscal Year 2020, respectively.

Our Company

Weber Inc. ("Weber," "Company," "we," and "our"), together with its subsidiaries, is the leading outdoor cooking company in the global outdoor cooking market. Our founder George Stephen, Sr., established the outdoor cooking category when he invented the original charcoal grill nearly 70 years ago. In the decades since, we have built a loyal and global following of both grilling enthusiasts and barbecue professionals in backyards all around the world. Our product portfolio includes traditional charcoal grills, gas grills, smokers, pellet and electric grills and recently our Weber Connect(TM) technology-enabled grills. Our full range of products are sold in 78 countries through an omni-channel network that consists of wholesale, direct-to-consumer and e-commerce.

We operate in the global outdoor cooking market, which is comprised of outdoor products that include gas grills, charcoal grills, wood pellet grills, electric grills, smokers, grilling accessories and solid fuel products (including charcoal briquettes, lump charcoal, pellets, and wood chips and chunks). Our mission at Weber is to lead the outdoor cooking industry by innovating breakthrough new products and services that enhance our global consumers' grilling experiences. Our purpose is to ignite inspiration and discovery through everything we do, at every touchpoint with our consumers. Grilling is about making delicious food, bringing people together and creating memories.

Key Factors Affecting Our Results of Operations

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled "Risk Factors" in our Annual Report on Form 10-K.

Economic Conditions

Demand for our products is significantly affected by a number of economic factors impacting our customers and consumers, such as the availability of credit, consumer confidence and spending, demographic trends, employment levels and other macroeconomic factors (e.g., lockdowns, government mandates, etc.) that may influence the extent to which consumers invest in household products such as grills, and associated accessories, consumables and services.

The Company is monitoring developments in Russia and Ukraine as well as financial and economic sanctions imposed by the U.S. and other countries. In March 2022, the Company suspended operations in Russia, including cessations of imports into Russia, sales to retailers in Russia and e-commerce activity in Russia. While the conflict has negatively impacted our results of operations for the three months ended March 31, 2022, the Company's net sales and total assets in Russia represented less than 1% of our total consolidated net sales and total assets.

Seasonality/Weather

Although we generally have demand for our products throughout the year, our sales have historically experienced some seasonality. We have typically experienced our highest level of sales of our products in the second and third fiscal quarters as retailers across North America and Europe changeover their floor sets, build inventory and fulfill consumer demand for outdoor cooking products. Sales are typically lower during our first and fourth fiscal quarters, with the exception of our Australia/ New Zealand business which is counter seasonal to the balance of our business. We have a long track record of investing in our business throughout the year, including in operating expenses, working capital and other growth initiatives. We typically borrow under our short-term revolving facility in the first and second fiscal quarters to fund working capital for building up inventory in anticipation of the higher demand we experience in the second and third fiscal quarters. While these investments drive performance during the primary selling season in our second and third fiscal quarters, they generally have a negative impact on cash flow and net income during our first and fourth fiscal quarters. Unfavorable weather during our higher sales season can also have a material adverse impact on our results, and can cause shifts in sales across fiscal quarters. A few examples are colder, wetter weather patterns during the key second and third Table of Contents

fiscal quarters in North America and Europe, or drought conditions leading to wildfires similar to what Australia experienced in early Fiscal Year 2020.

Impact of COVID-19

Since the onset of the COVID-19 pandemic, we have focused on protecting our employees' health and safety, meeting our customers' needs as they navigate an uncertain financial and operating environment, working closely with our suppliers to protect our ongoing business operations and rapidly adjusting our short-, medium- and long-term operational plans to proactively and effectively respond to the current and potential future public health crises. While the COVID-19 pandemic continues to present concerns for our business and operations, our employees and their families, our customers and our suppliers, we believe that we have adapted well to the wide-ranging changes that the global economy is currently undergoing. We remain confident in our business continuity strategy, our ability to produce and sell our products safely and our financial flexibility even in the event of a potentially extended economic downturn. For further discussion of the risks raised by the COVID-19 pandemic, see the section titled "Risk Factors" in our Annual Report on Form 10-K.

Although we have implemented measures to mitigate the impact of the COVID-19 pandemic on our business, these measures may not be fully effective. We cannot predict the degree to, or the period over, which we will be affected by the pandemic and resulting governmental and other measures. The economic effects of the COVID-19 pandemic could continue to affect demand for our products in the foreseeable future. As the COVID-19 pandemic continues, it may also have the effect of heightening many of the risks described in the section titled "Risk Factors" in our Annual Report on Form 10-K.

The severity, magnitude and duration of the current COVID-19 pandemic is uncertain. We continue to actively monitor the pandemic and adjust our mitigation strategies as necessary to address any changing health, operational or financial risks that may arise. After the onset of the pandemic, we experienced a significant increase in demand for our grills and accessories. While this demand has since moderated, we will continue to manage our production capacity during this period of volatility. We continue to monitor the business for adverse impacts of the pandemic, including volatility in the foreign exchange markets, supply chain disruptions in certain markets and potential disruptions in certain countries. In the event we experience adverse impacts from the above or other factors, we would also evaluate the need to perform interim impairment tests for our goodwill, intangible assets and property, equipment and leasehold improvements. There can be no assurance that volatility and/or disruption in the global capital and credit markets will not impair our ability to access these markets on terms acceptable to us, or at all.

Impact of Inflation

Changing costs of inbound freight, materials, components, equipment, labor and other inputs used to manufacture and sell our products and logistics costs, in particular, have impacted and may in the future impact operating costs and, accordingly, may affect the prices of our products. We are involved in continuing programs to mitigate the impact of cost increases through identification of sourcing and manufacturing efficiencies where possible. However, we may not be able to fully mitigate or pass through the increases in our operating costs and rising prices could also affect demand for our products.

Items Impacting Comparability

Business Combinations

RMC Acquisition. April 1, 2021, the Company acquired all aspects of the operations of R McDonald Co. Pty. Ltd. ("RMC"), that supported the Company's business units in Australia and New Zealand. This included certain fixed assets, members of the RMC workforce and their related employment liabilities and the reacquired right to sell and market the Company's products. The primary purpose of the acquisition was to re-acquire those operational and marketing rights. The acquisition was accounted for as a business combination, and RMC was acquired for approximately $26.3 million in cash and $14.6 million in equity.

June Acquisition. On January 12, 2021, the Company acquired all of the outstanding stock of June Life, Inc. ("June"), a smart appliance and technology company. The acquisition aligns with the Company's strategy of revolutionizing the outdoor cooking experience through connected products, services and experiences that make grilling the perfect meal simple with our smartphone-enabled step-by-step cooking experience. Weber Connect, powered by June OS, is our award-winning smart cooking software solution developed with June. The acquisition was accounted for as a business combination, and June was acquired for aggregate consideration of $142.2 million, including $108.3 million of cash.







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Gain on Disposal of Assets Held for Sale

During Fiscal Year 2020, the Company determined that one of our manufacturing sites was considered to be assets held for sale, since the asset group was being marketed for sale and all the criteria to be classified as held for sale under Accounting Standards Codification ("ASC") 360, Property, Plant and Equipment, had been met. The related buildings and its content were vacated and we no longer required these assets for our future operations. The carrying value of these assets was $8.3 million as of September 30, 2020. Assets held for sale are measured at the lower of their carrying value or the fair value less cost to sell. On December 30, 2020, we disposed of this manufacturing site, for net cash proceeds of $13.5 million, which resulted in a gain of $5.2 million.

Loss from Early Extinguishment of Debt

On October 30, 2020, the Company retired its existing senior credit facility and entered into a new credit facility ("Secured Credit Facility") with a syndicate of financial institutions and investors. During the three months ended December 31, 2020, the Company recorded a $5.4 million loss from early extinguishment of debt, of which $4.1 million related to the term loan of the Company's senior credit facility and $1.3 million related to revolving credit facility of the senior credit facility, representing a write-off of unamortized deferred financing costs.

Components of our Operating Results

We consider a variety of financial and operating measures in assessing the performance of our business. The key U.S. GAAP measures we use are net sales, gross profit, income (loss) from operations and net (loss) income.

Net Sales

We offer a broad range of products that consist of grills, accessories and consumables. Sales are recorded net of related discounts, allowances and taxes to be submitted to third parties. We discuss the net sales of our products in our three reportable segments, as defined below.

Gross Profit and Gross Margin

Gross profit is calculated by taking net sales less cost of goods sold, which includes the cost of direct materials, labor, purchased finished products and components, inbound freight, packaging, warranty and depreciation. Gross margin is defined as gross profit as a percentage of net sales.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of research and development, marketing, advertising and selling costs; non-manufacturing employee compensation and benefit costs; transportation costs of delivering our product to customers and the costs associated with a network of warehousing facilities to house inventory until the point of sale; outside services and fees; legal, insurance, accounting, audit and other administrative expenses; and general corporate infrastructure costs.

Reportable Segments

We operate and manage our business in three reportable segments: Americas, which consists of Canada, Chile, Mexico and the United States; the European, Middle East and African regions ("EMEA"); and the Asia-Pacific region ("APAC"), which includes Australia and New Zealand. We identify our reportable segments based on the information used by the Chief Operating Decision Maker ("CODM") to monitor performance and allocate resources. See Note 12 to our condensed consolidated financial statements for additional information regarding our reportable segments.

Non-GAAP Measures

In addition to the U.S. GAAP results provided in this Quarterly Report on Form 10-Q, we provide supplemental non-GAAP measures to evaluate our business, measure our performance, identify trends affecting our business and assist us in making strategic decisions. Our management team utilizes a combination of GAAP and non-GAAP financial measures to evaluate business results, to make decisions regarding the future direction of our business, and for resource allocation decisions. As a result, we believe the presentation of both GAAP and non-GAAP financial measures provides investors with increased transparency into financial measures used by our management team and improves investors' understanding of our underlying operating performance and in their analysis of ongoing operating trends. All historic non-GAAP financial measures have been reconciled with the most directly comparable GAAP financial measures. The use of non-GAAP financial information should not be considered as an alternative to, or more meaningful than, the comparable U.S. GAAP measures. In addition, because our non-GAAP measures are not determined in accordance with U.S. GAAP, it is susceptible to differing calculations, and not all comparable or peer companies may calculate their non-GAAP measures







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in the same manner. Our non-GAAP measures are adjusted income from operations, adjusted net (loss) income, EBITDA and Adjusted EBITDA.

Adjusted Income from Operations and Adjusted Net (Loss) Income

Adjusted income from operations and adjusted net (loss) income is income (loss) from operations and net (loss) income adjusted for stock/unit-based compensation expense, business transformation costs, operational transformation costs, impairment costs, financing and IPO costs, COVID-19 costs and gain on disposal of assets held for sale, and, in the case of adjusted net (loss) income, loss from early extinguishment of debt, net of the tax impact of such adjustments. Adjusted income from operations is also adjusted for foreign currency (loss) gain. Adjusted income from operations excludes loss from early extinguishment of debt, interest expense, net, income taxes, other expense and gain from investments in unconsolidated affiliates. We use adjusted income from operations and adjusted net (loss) income as indicators of the productivity of our business and our ability to manage expenses, after adjusting for certain expenses that we view as not indicative of regular operations. Adjusted income from operations and adjusted net (loss) income are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.

EBITDA and Adjusted EBITDA

EBITDA is net (loss) income before interest expense, net, income taxes and depreciation and amortization.

Adjusted EBITDA is a key metric used by management and our Board of Directors to assess our financial performance. Adjusted EBITDA is also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other U.S. GAAP measures. We use Adjusted EBITDA to supplement U.S. GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other companies using similar measures.

Adjusted EBITDA is defined as net (loss) income before interest expense, net, other expense, income taxes, depreciation and amortization, adjusted for stock/unit-based compensation expense, business transformation costs, operational transformation costs, financing and IPO costs, COVID-19 operational costs, loss from early extinguishment of debt and gain on disposal of assets held for sale. Adjusted EBITDA is not calculated in the same manner by all companies, and accordingly, is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a company's operating performance in isolation from, or as a substitute for, net (loss) income, cash flows from operations or cash flow data, all of which are prepared in accordance with U.S. GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. Adjusted EBITDA is not intended to represent, and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with U.S. GAAP. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.

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The following table reconciles income (loss) from operations to adjusted income from operations; net (loss) income to adjusted net (loss) income; net (loss) income to EBITDA; and EBITDA to Adjusted EBITDA for the periods presented:







                                                   Three Months Ended March 31,                   Six Months Ended March 31,
                                                     2022                   2021                   2022                   2021
                                                                             (dollars in thousands)
        Income (loss) from operations         $        37,413          $    97,992          $       (51,832)         $   120,862
        Adjustments:
        Foreign currency (loss) gain(1)                (4,053)              (3,493)                  (4,217)                  14
        Stock/unit-based compensation
        expense(2)                                     22,190               29,051                   47,701               32,479
        Business transformation costs(3)                7,272                2,053                   14,682                2,924
        Operational transformation costs(4)             7,190                4,835                   13,838                5,826
        Financing and IPO costs(5)                        877                  945                      877                3,706
        COVID-19 costs(6)                                   -                  453                        -                  480
        Gain on disposal of assets held for
        sale                                                -                    -                        -               (5,185)
        Adjusted income from operations       $        70,889          $   131,836          $        21,049          $   161,106
        Net (loss) income                     $       (51,313)         $    68,910          $      (125,866)         $    73,795
        Adjustments:
        Stock/unit-based compensation
        expense(2)                                     22,190               29,051                   47,701               32,479
        Business transformation costs(3)                7,272                2,053                   14,682                2,924
        Operational transformation costs(4)             7,190                4,835                   13,838                5,826
        Financing and IPO costs(5)                        877                  945                      877                3,706
        COVID-19 costs(6)                                   -                  453                        -                  480
        Loss from early extinguishment of
        debt                                                -                    -                        -                5,448
        Gain on disposal of assets held for
        sale                                                -                    -                        -               (5,185)
        Other expense                                     434                    -                      434                    -
        Tax impact of adjusting items(7)              (20,622)              (8,191)                 (32,080)              (8,405)
        Adjusted net (loss) income            $       (33,972)         $    98,056          $       (80,414)         $   111,068
        Net (loss) income                     $       (51,313)         $    68,910          $      (125,866)         $    73,795
        Adjustments:
        Interest expense, net                          17,015               17,276                   32,546               31,749
        Income tax expense                             67,224               15,223                   36,837               15,389
        Depreciation and amortization                  15,496               10,562                   29,283               20,328
        EBITDA                                $        48,422          $   111,971          $       (27,200)         $   141,261
        Stock/unit-based compensation
        expense(2)                                     22,190               29,051                   47,701               32,479
        Business transformation costs(3)                7,272                2,053                   14,682                2,924
        Operational transformation costs(4)             7,190                4,835                   13,838                5,826
        Financing and IPO costs(5)                        877                  945                      877                3,706
        COVID-19 costs(6)                                   -                  453                        -                  480
        Loss from early extinguishment of
        debt                                                -                    -                        -                5,448
        Gain on disposal of assets held for
        sale                                                -                    -                        -               (5,185)
        Other expense                                     434                    -                      434                    -
        Adjusted EBITDA                       $        86,385          $   149,308          $        50,332          $   186,939
        


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Results of Operations

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

The following table sets forth our summarized condensed consolidated statements of operations data in dollars, as percentage change between the respective periods and as a percentage of net sales (the table may not foot due to rounding):







                                             Three Months Ended March 31,             $ Variance             % Variance                     % of Net Sales
                                                                                       Increase/             Increase/
                                                2022                  2021            (Decrease)             (Decrease)                2022                 2021
                                                          (dollars in thousands)
        Net sales                        $       607,294          $ 654,431          $  (47,137)                     (7  %)              100  %               100  %
        Cost of goods sold(1)(2)                 398,777            368,709              30,068                       8  %                66  %                56  %
        Gross profit                             208,517            285,722             (77,205)                    (27  %)               34  %                44  %
        Operating expenses:
        Selling, general and
        administrative(1)(2)                     165,937            183,883             (17,946)                    (10  %)               27  %                28  %
        Amortization of intangible
        assets                                     5,167              3,847               1,320                      34  %                 1  %                 1  %
        Income from operations                    37,413             97,992             (60,579)                    (64  %)                6  %                15  %
        Foreign currency loss                      4,053              3,493                 560                      16  %                 1  %                 1  %
        Interest income                             (386)              (246)               (140)                     57  %                 -  %                 -  %
        Interest expense                          17,401             17,522                (121)                     (1  %)                3  %                 3  %
        . . .
        


May 16, 2022

COMTEX_407264745/2041/2022-05-16T08:54:57

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