Dom Blosil: Yes. So I think we spoke to our list of priorities I don’t know in Q3 Q4 last year, right? It all starts with liquidity. And we’ve been hyper focused on liquidity over the last 2.5 quarters and that will continue through the remainder of the year. And we’re actually feeling much better about our liquidity position. And so I think from a liquidity standpoint Q1 will be the trough. We saw a nice improvement in liquidity from Q3 to Q4 based on active management of working capital, using promotion as a lever to clear inventory and draw down on inventory, just driving more efficiency top line as well as the promotion that drove out performance from a top line standpoint and that carries forward into this year, right? So we’ll continue to actively manage working capital and we’ll see a nice drawdown on inventory between now and let’s say, Q3 which will be a nice a tailwind from a cash flow standpoint.
We’ll stay disciplined to OpEx. All of those different components of liquidity that are important and we’ll continue to stay focused on those, but we’re feeling better about the trend and believe that although Q1 is, sort of, the low watermark we’ll stay above a healthy level through the remainder of the year. So we can in essence check that box. But obviously we’re staying focused on it in the event that something changes. On leverage, I would say that as of today we do not — we really don’t anticipate having an issue with our ability to maintain compliance with our covenants. We’re clearly trending in leverage levels that are uncomfortable, but manageable. I’ll just highlight a few nuances there that I think are particularly important as you think about this dynamic and what it means in terms of how we manage our credit agreement given the amount of debt we have on the balance sheet.
The first thing I would say and I think we’ve spoken to this in the past, but I think it’s important to reaffirm the definition of the EBITDA as per our credit agreement is calculated very differently than the adjusted EBITDA figure that we report to in our public filings. And this definition effectively allows for onetime adjustments other pro forma add-backs that we wouldn’t include in reported adjusted EBITDA. So I think one example I would give you is the actions that we took in Q3 around restructuring and some other cost improvements. On a TTM basis, we can actually take those as if they were in place over a 12-month period and add those back into the current period EBITDA as per the definition of our credit agreement, right? So that’s a nice component to how we manage leverage because it gives us credit for actions that we’re taking to improve the run rate, but we get the full benefit of that over an annualized or TTM period.
And so I think that’s kind of the first piece is the definition is different. And those are components that we would ever add back into our adjusted EBITDA that we report. I think the second layer to that is the definition of first lien net leverage per the credit agreement is a little bit different than maybe what you would calculate — off of our balance sheet for your leverage purposes and specifically we exclude and are permitted to exclude the AR facility. So anything that’s drawn on the AR facility, we can exclude from the numerator of that calculation. As an example there in Q4, we would effectively exclude $12 million of what was drawn down on the AR facility. And so again how we manage leverage as per the credit agreement is a function of those components and it gives us some latitude to navigate these challenges and also get credit for actions we’re taking to improve the run rate view of leverage in kind of the immediate period, right?
So again to summarize, we don’t anticipate an issue here in terms of maintaining compliance with the covenant and believe that at this point in time, we’re comfortable with where we are. And then I guess the last question that you had assuming that answers your question on leverage is around the performance of connected grills. And I would say that at this point based on what we see through the end of 2022 there’s really no outlier that would suggest a meaningful shift in the behavior of our consumers and/or the engagement they have with the connected grills. I’d say first and foremost, we’ve seen an uptick in that year around the connected grills that are active as sort of being defined as active. And I think second to that as you sort of measure activity or average cooks per week or total cooks per year it stayed fairly consistent from 2020, right?
There’s probably some marginal shifts as the installed base of connected grills grows, but otherwise I’d say that the activity per grill as measured on a yearly basis is staying pretty steady between 2020 and 2022, which I think is a real positive as we measure the activity of our grills and how the consumers are effectively using the grills.
Peter Benedict: That’s very helpful. Thanks so much for the perspective.
Operator: Thank you. Our next question comes from the line of Brian Harbour with Morgan Stanley. Your line is now open.
Brian Harbour: Yes, thank you. Good afternoon guys. Maybe just to follow-up on those comments you were just making and specific to the consumables segment I assume that there’s kind of been growth on the food side. And so therefore probably the pellet side has been down a little bit more. And so could you address — is that mainly driven by just the new private label pellets that are in the market or has there been a change in kind of attach of your customers buying those pellets. What’s kind of driven that side of it? And how do you think that will trend in 2023?
Dom Blosil: Yes. Great question. And as a caveat the way we measure attach outside of the connected grill data that we gather is a sell-in metric. So, it’s not perfect. But I think it gives us good directionality in terms of consumption of these consumables. And so your first statement is accurate. We have seen growth in the food consumables side of consumables. And that’s partly a function of what Jeremy spoke to in his opening remarks around some load-in in grocery and then some nice demand for sauces, rubs, et cetera. On the pellet side, what we did know and I think what we saw over the course of the pandemic was a fairly dramatic spike in attach. And we’ve talked in the past that that’s partially a function likely of consumers stocking up in 2020 due to scarcity as well as being nested at home and probably cooking more than they normally would.
And so we knew that at some point consumables attach in particular pellets would normalize likely back to pre-pandemic levels which we’re seeing. And so I would say that in terms of the consistency and/or steadiness of demand and consumption of pellets, it’s trending roughly in line with what we’ve seen pre-pandemic. Say there has been a little bit of incremental pressure on that given the fact that what you mentioned earlier this large customer offering private label, which is eating into some sell-through just based on the cannibalization of our current offering there. We don’t believe that’s necessarily permanent. And so we have some strategies in place to try to offset some of that cannibalization and kind of bring that attach rate back up to what we believe is a normal level.
But otherwise it’s holding pretty steady. We’re happy with what the attach rate looks like and it’s actually providing nice stability from a revenue standpoint given that it’s just this predictable recurring revenue stream independent of the fact that grill sales have been down. I think the last point I would make there is there always is a component of correlation between pellet sales and grill sales. And so when grill sales are down, you do expect to see some impact to pellet sales, only because there’s an initial purchase of pellets when they buy a grill, right? And so that component moves correspondingly, but the embedded component tied to our installed base is holding pretty steady relative to pre-pandemic levels. So no surprises there.
Brian Harbour: Okay. Got it. Thanks. And then maybe could you talk about the Accessories side as well. It sounds like adding MEATER to Home Depot doors was a significant driver of that. Was there anything else in terms of products or any sort of promotions? And I guess the same question would you expect that segment to grow in 2023 or perhaps not?
