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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from         to
Commission File Number 001-40694
Traeger, Inc.
(Exact name of registrant as specified in its charter)
Delaware82-2739741
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
    
1215 E Wilmington Ave, Suite 200
Salt Lake City, Utah
84106
(Address of principal executive offices)(Zip code)

(801) 701-7180
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.0001 par valueCOOKNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☐
Emerging growth company☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of November 7, 2022, there were 122,616,477 shares of the registrant's common stock, par value $0.0001 outstanding.

TABLE OF CONTENTS
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i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates," “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, macroeconomic and market trends, equity compensation, business strategy, plans, market growth and our objectives for future operations.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, our history of operating losses, our ability to manage our future growth effectively, our ability to expand into additional markets, our ability to maintain and strengthen our brand to generate and maintain ongoing demand for our products, our ability to cost-effectively attract new customers and retain our existing customers, our failure to maintain product quality and product performance at an acceptable cost, the impact of product liability and warranty claims and product recalls, the highly competitive market in which we operate, the use of social media and community ambassadors, a decline in sales of our grills, our dependence on three major retailers, the impact of the COVID-19 pandemic on certain aspects of our business, risks associated with our international operations, our reliance on a limited number of third-party manufacturers and problems with (or loss of) our suppliers or an inability to obtain raw materials, and the ability of our stockholders to influence corporate matters and the other important factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 29, 2022, as updated by Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
BASIS OF PRESENTATION
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Traeger” and similar references refer: (1) following the consummation of our statutory conversion to a Delaware corporation on July 28, 2021 in connection with our initial public offering, to Traeger, Inc., and (2) prior to the completion of such conversion, to TGPX Holdings I LLC. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Initial Public Offering” in this Quarterly Report on Form 10-Q for further information.






ii
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
TRAEGER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
September 30,
2022		December 31,
2021
(unaudited)
ASSETS
Current Assets
Cash and cash equivalents$8,349 $16,740 
Accounts receivable, net34,370 92,927 
Inventories161,769 145,038 
Prepaid expenses and other current assets29,327 15,036 
Total current assets233,815 269,741 
Property, plant, and equipment, net75,135 55,477 
Goodwill74,725 297,047 
Intangible assets, net523,457 555,151 
Other non-current assets19,075 3,608 
Total assets$926,207 $1,181,024 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable$16,494 $42,694 
Accrued expenses68,704 69,773 
Line of credit13,451 41,138 
Current portion of capital leases457 420 
Current portion of contingent consideration7,570 12,200 
Other current liabilities3,129 — 
Total current liabilities109,805 166,225 
Notes payable430,898 379,395 
Capital leases, net of current portion1,058 677 
Contingent consideration, net of current portion8,950 13,100 
Deferred tax liability11,692 11,673 
Other non-current liabilities437 434 
Total liabilities562,840 571,504 
Commitments and contingencies—See Note 12
Stockholders' equity:
Preferred stock, $0.0001 par value; 25,000,000 shares authorized and no shares issued or outstanding as of September 30, 2022 and December 31, 2021
— — 
Common stock, $0.0001 par value; 1,000,000,000 shares authorized
Issued and outstanding shares - 122,587,393 and 117,547,916 as of September 30, 2022 and December 31, 2021
12 12 
Additional paid-in capital875,059 794,413 
Accumulated deficit
(536,169)(184,819)
Accumulated other comprehensive income (loss)
24,465 (86)
Total stockholders' equity363,367 609,520 
Total liabilities and stockholders' equity$926,207 $1,181,024 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
1
TRAEGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands, except share and per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue$93,788 $162,018 $517,768 $610,613 
Cost of revenue67,810 107,696 334,719 372,353 
Gross profit25,978 54,322 183,049 238,260 
Operating expenses:
Sales and marketing25,496 48,519 102,401 126,639 
General and administrative70,882 75,824 142,637 114,182 
Amortization of intangible assets8,889 8,889 26,666 25,491 
Change in fair value of contingent consideration1,820 2,900 3,775 2,900 
Goodwill impairment110,837 — 222,322 — 
Restructuring costs8,036 — 8,036 — 
Total operating expense225,960 136,132 505,837 269,212 
Loss from operations
(199,982)(81,810)(322,788)(30,952)
Other income (expense):
Interest expense(7,337)(5,704)(20,238)(21,393)
Loss on extinguishment of debt— (3,228)— (5,185)
Other income (expense), net
(3,545)(426)(8,351)1,112 
Total other expense
(10,882)(9,358)(28,589)(25,466)
Loss before benefit for income taxes
(210,864)(91,168)(351,377)(56,418)
Benefit for income taxes
(225)(1,983)(27)(1,255)
Net loss
$(210,639)$(89,185)$(351,350)$(55,163)
Net loss per share, basic and diluted
$(1.76)$(0.78)$(2.96)$(0.50)
Weighted average common shares outstanding, basic and diluted119,924,371 114,382,955 118,682,379 110,631,304 
Other comprehensive income (loss):
Foreign currency translation adjustments$(67)$11 $(58)$11 
Change in cash flow hedge12,285 — 24,609 — 
Total other comprehensive income
12,218 11 24,551 11 
Comprehensive loss
$(198,421)$(89,174)$(326,799)$(55,152)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2
TRAEGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S AND STOCKHOLDERS' EQUITY
(unaudited)
(in thousands, except unit and share amounts)
Three Months Ended September 30, 2022 and 2021
Common UnitsCommon StockMembers CapitalAdditional Paid-in CapitalAccumulated
Deficit		Accumulated
Other Comprehensive Income (Loss)		Total Member's and Stockholders' Equity
UnitsNo Par ValueSharesAmount
Balance at June 30, 2022
— $— 118,211,775 $12 $— $821,806 $(325,530)$12,247 $508,535 
Issuance of common stock under stock plan— — 4,375,618 — — — — — — 
Equity-based compensation— — — — — 53,253 — — 53,253 
Net loss
— — — — — — (210,639)— (210,639)
Foreign currency translation adjustments— — — — — — — (67)(67)
Change in cash flow hedge— — — — — — — 12,285 12,285 
Balance at September 30, 2022
— $— 122,587,393 $12 $— $875,059 $(536,169)$24,465 $363,367 
Balance at June 30, 2021
108,724,422 $— — $— $573,539 $— $(61,976)$— $511,563 
Effect of reorganization transaction(108,724,422)— 108,724,387 11 (573,539)573,528 — — — 
Issuance of common shares in IPO, net of issuance costs— — 8,823,529 1 — 142,544 — — 142,544 
Equity-based compensation — — — — — 59,210 — — 59,210 
Net loss
— — — — — — (89,185)— (89,185)
Foreign currency translation adjustments— — — — — — — 11 11 
Balance at September 30, 2021
— $— 117,547,916 $12 $— $775,282 $(151,161)$11 $624,144 
3
Nine Months Ended September 30, 2022 and 2021
Common UnitsCommon StockMembers CapitalAdditional Paid-in CapitalAccumulated
Deficit		Accumulated
Other Comprehensive Income (Loss)		Total Member's and Stockholders' Equity
UnitsNo Par ValueSharesAmount
Balance at December 31, 2021
— $— 117,547,916 $12 $— $794,413 $(184,819)$(86)$609,520 
Issuance of common stock under stock plan— — 5,045,003 — — — — — — 
Shares withheld related to net share settlement— — (5,526)— — (41)— — (41)
Equity-based compensation— — — — — 80,687 — — 80,687 
Net loss
— — — — — — (351,350)— (351,350)
Foreign currency translation adjustments— — — — — — — (58)(58)
Change in cash flow hedge— — — — — — — 24,609 24,609 
Balance at September 30, 2022
— $— 122,587,393 $12 $— $875,059 $(536,169)$24,465 $363,367 
Balance at December 31, 2020
108,724,422 $— — $— $571,038 $— $(95,998)$— $475,040 
Effect of reorganization transaction(108,724,422)— 108,724,387 11 (571,038)571,027 — — — 
Issuance of common shares in IPO, net of issuance costs— — 8,823,529 1 — 142,544 — — 142,544 
Equity-based compensation— — — — — 61,711 — — 61,711 
Net loss
— — — — — — (55,163)— (55,163)
Foreign currency translation adjustments— — — — — — — 11 11 
Balance at September 30, 2021
— $— 117,547,916 $12 $— $775,282 $(151,161)$11 $624,144 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4
TRAEGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine Months Ended September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$(351,350)$(55,163)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment9,703 6,647 
Amortization of intangible assets32,025 27,622 
Amortization of deferred financing costs1,468 1,871 
Loss on disposal of property, plant and equipment707 104 
Loss on extinguishment of debt— 5,185 
Equity-based compensation expense80,687 61,711 
Bad debt expense(317)634 
Unrealized loss on foreign currency contracts
4,567 4,800 
Change in fair value of contingent consideration495 2,900 
Goodwill impairment222,322 — 
Restructuring costs1,419 — 
Change in operating assets and liabilities:
Accounts receivable58,874 (19,192)
Inventories(16,731)(40,331)
Prepaid expenses and other current assets(7,118)(7,479)
Other non-current assets64 (219)
Accounts payable and accrued expenses(42,838)10,031 
Other non-current liabilities22 9 
Net cash used in operating activities
(6,001)(870)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment(15,128)(17,986)
Capitalization of patent costs(403)(424)
Business combination, net of cash acquired— (57,041)
Net cash used in investing activities
(15,531)(75,451)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit166,978 84,000 
Repayments on line of credit(156,666)(65,000)
Proceeds from long-term debt12,500 510,000 
Repayments of long-term debt— (579,915)
Payment of deferred financing costs— (8,478)
Principal payments on capital lease obligations(355)(283)
Proceeds from initial public offering, net of issuance costs— 142,544 
Payment of acquisition related contingent consideration(9,275)— 
Taxes paid related to net share settlement of equity awards(41)— 
Net cash provided by financing activities
13,141 82,868 
Net increase (decrease) in cash and cash equivalents
(8,391)6,547 
Cash and cash equivalents at beginning of period16,740 11,556 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$8,349 $18,103 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5
TRAEGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
(Continued)Nine Months Ended September 30,
20222021
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest$18,403 $18,974 
Cash paid for income taxes$2,250 $1,665 
NON-CASH FINANCING AND INVESTING ACTIVITIES
Equipment purchased under capital leases$952 $534 
Property, plant, and equipment included in accounts payable and accrued expenses$15,512 $3,395 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
6
TRAEGER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Nature of Operations – Traeger, Inc. and its wholly owned Subsidiaries (collectively "Traeger" or the "Company") design, source, sell, and support wood pellet fueled barbecue grills sold to retailers, distributors, and direct to consumers. The Company produces and sells the pellets used to fire the grills and also sells Traeger-branded rubs, spices and sauces, as well as grill accessories (including covers, barbecue tools, trays, liners, MEATER smart thermometers and merchandise). A significant portion of the Company’s sales are generated from customers throughout the United States ("U.S."), and the Company continues to develop distribution in Canada and Europe. The Company’s headquarters are in Salt Lake City, Utah.
In July 2021, the Company effected a forward split of its 10 common units into 108,724,422 common units. All unit, per unit and related information presented in the accompanying consolidated financial statements have been retroactively adjusted, where applicable, to reflect the impact of the split of common units.
Immediately prior to the effectiveness of the registration statement pertaining to the Company’s initial public offering ("IPO") on July 28, 2021, the Company converted from a Delaware limited liability company into a Delaware corporation, and changed its name from TGPX Holdings I LLC to Traeger, Inc. Pursuant to the statutory corporate conversion (the "Corporate Conversion"), all of the outstanding limited liability company interests of TGPX Holdings I LLC were converted into shares of common stock of Traeger, Inc., and TGP Holdings LP (the "Partnership") became the holder of such shares of common stock of Traeger, Inc. In connection with the Corporate Conversion, the Partnership liquidated and distributed these shares of common stock to the holders of partnership interests in the Partnership in direct proportion to their respective interests in the Partnership based upon the value of Traeger, Inc. at the time of the IPO, with a value implied by the initial public offering price of the shares of common stock sold in the IPO. Based on the IPO price of $18.00 per share, following the Partnership’s liquidation and distribution, including the elimination of any fractional shares resulting therefrom, and the Corporate Conversion, the Company had 108,724,387 shares of common stock outstanding immediately prior to the IPO.
Basis of Presentation and Principles of Consolidation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 29, 2022 (the "Annual Report on Form 10-K").
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to fairly present the consolidated financial position, results of operations and cash flows for the interim periods presented. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of results that may be expected for any other interim period or for the year ended December 31, 2022.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Emerging Growth Company Status – The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised financial accounting standards until such time as those standards apply to private companies. The Company has elected to use the extended transition period for complying with the adoption of new or revised accounting standards and as a result of this election, its financial statements may not be comparable to companies that comply with public company effective dates. The Company will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of its common stock that is held by non-affiliates is at least $700 million as of the last business day of its most recently completed second fiscal quarter, (ii) the end of the fiscal year in which the Company has total annual gross revenues of $1.07 billion or more during such fiscal year, (iii) the date on which the Company issues more than $1.0 billion in non-convertible debt in a three-year period, or (iv) December 31, 2026.
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2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates – The preparation of these financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and the assumptions made by management that present the greatest amount of estimation uncertainty include business combination accounting for the fair value of assets acquired, liabilities assumed, and contingent considerations, customer credits and returns, obsolete inventory reserves, valuation and impairment of intangible assets including goodwill, unrealized positions on derivatives and reserves for warranty. Actual results could differ from these estimates.
Concentrations – Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash in banks, trade accounts receivable, foreign currency contracts, and business activity with certain third-party contract manufacturers of our products. Credit is extended to customers based on an evaluation of the customer’s financial condition and collateral is not generally required in the Company’s sales transactions. Four customers (each large U.S. retailers) that accounted for a significant portion of net sales are as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Customer A14 %11 %15 %18 %
Customer B5 %16 %18 %19 %
Customer C17 %18 %17 %17 %
Customer D6 %11 %5 %6 %
As of September 30, 2022, customers A, B, C, and D accounted for a significant portion of trade accounts receivable of 23%, 12%, 11%, and 13% compared to 45%, 13%, 13%, and 5% as of December 31, 2021. Concentrations of credit risk exist to the extent credit terms are extended with these four large customers. A business failure on the part of any one of the four customers could result in a material amount of exposure to the Company. No other single customer accounted for greater than 10% of the Company’s net sales for the three and nine months ended September 30, 2022 and 2021, respectively. Additionally, no other single customer accounted for greater than 10% of trade accounts receivable as of September 30, 2022 or December 31, 2021.
The Company’s sales to dealers and distributors located outside the United States are generally denominated in U.S. dollars. The Company does have sales to certain dealers located in the European Union, the United Kingdom and Canada which are denominated in Euros, British Pounds and Canadian Dollars, respectively.
The Company relies on a limited number of suppliers for its contract manufacturing of grills and accessories. A significant disruption in the operations of certain of these manufacturers, or in the transportation of parts and accessories would impact the production of the Company’s products for a substantial period of time, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
Goodwill – Goodwill represents the excess of consideration transferred over the fair value of tangible and identifiable intangible net assets acquired and the liabilities assumed in a business combination. Substantially all of the Company’s goodwill was recognized in the purchase price allocation when the Company was acquired in 2017, with smaller incremental amounts recognized in subsequent business combinations. Goodwill is not amortized, but is tested for impairment at the reporting unit level annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. In conducting the impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. We currently operate as a single reporting unit under the guidance in Topic 350, Intangibles - Goodwill and Other.
When testing goodwill for impairment, the Company has the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that carrying value exceeds its fair value, we perform a quantitative goodwill impairment test. Under the quantitative goodwill impairment test, if our reporting unit’s carrying amount exceeds its fair value, we will record an impairment charge based on that difference.
To determine reporting unit fair value as part of the quantitative test, we use a weighting of fair values derived from the income approach and the market approach. Under the income approach, the Company projects the future cash flows and discount these cash flows to reflect their relative risk. The cash flows used are consistent with those the Company uses in its internal planning,
8
which reflects actual business trends experienced and our long-term business strategy. Under the market approach, we use the guideline company method to develop valuation multiples and compare our reporting unit to similar publicly traded companies.
In order to further validate the reasonableness of fair value as determined by the income and market approaches described above, a reconciliation to market capitalization is then performed by estimating a reasonable control premium and other market factors. Future changes in the judgments, assumptions and estimates that are used in the impairment testing for goodwill could result in significantly different estimates of fair value. As part of our annual goodwill impairment tests as of December 31, 2021, no impairment was recorded as the events or changes in circumstances indicated that it was not more likely than not that the fair value of the single reporting unit is less than its carrying amount. In addition to the annual goodwill impairment test, the Company performed an interim goodwill impairment test and concluded that the carrying value of the single reporting unit exceeded its fair value and recorded a $110.8 million and $222.3 million non-cash goodwill impairment charge for the three and nine months ended September 30, 2022, respectively. For details associated with the Company's interim goodwill impairment testing, see Note 8 – Goodwill.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and the FASB has also certain subsequent related ASUs that supplement and amend Topic 842. The guidance in Topic 842 replaces the leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize right of use assets related to the leases and lease liabilities on the balance sheet. For leases with terms of 12 months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2021 and for interim periods within fiscal years beginning after December 15, 2022.
The Company has adopted this guidance effective January 1, 2022 and will present the impact of the new guidance in its annual statements as of December 31, 2022 and its interim statements thereafter. Management is currently in the process of evaluating its existing portfolio of operating leases for right of use assets and lease liabilities that would need be recognized upon implementation and the impact of this guidance on its consolidated financial statements and related disclosures.
There have been no material changes to the implementation or evaluation of “Recently Issued Accounting Standards” as described in the Company's annual audited financial statements for the period ended December 31, 2021.
3 – REVENUE
The following table disaggregates revenue by product category, geography, and sales channel for the periods indicated (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
Revenue by product category2022202120222021
Grills$38,994 $108,799 $307,105 $443,495 
Consumables25,151 28,029 106,899 110,067 
Accessories29,644 25,190 103,764 57,051 
Total revenue$93,788 $162,018 $517,768 $610,613 
Three Months Ended September 30,Nine Months Ended September 30,
Revenue by geography2022202120222021
North America$82,638 $151,862 $477,338 $581,805 
Rest of world11,150 10,156 40,430 28,808 
Total revenue$93,788 $162,018 $517,768 $610,613 
Three Months Ended September 30,Nine Months Ended September 30,
Revenue by sales channel2022202120222021
Retail$68,060 $138,376 $433,001 $564,133 
Direct to consumer25,728 23,642 84,767 46,480 
Total revenue$93,788 $162,018 $517,768 $610,613 
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4 – BUSINESS COMBINATION
On July 1, 2021 (the "Acquisition Date"), pursuant to a share purchase agreement (the "Share Purchase Agreement"), the Company acquired all outstanding shares of Apption Labs Limited and its subsidiaries (collectively "Apption Labs"), a technology company that specializes in the manufacture and design of innovative hardware and software related to small kitchen appliances, including the MEATER smart thermometer and related technology. The total purchase consideration was approximately $78.3 million, net of cash acquired, which is comprised of cash paid, contingent consideration, net working capital adjustments, and escrow consideration. The acquisition of Apption Labs will help facilitate the Company's entry into the adjacent accessories markets with a highly complementary product that the Company believes will bolster our existing portfolio, create efficiencies for consumers and expose the Company to new growth channels.
The purchase consideration includes contingent cash consideration payable to the sellers based on achievement of certain revenue thresholds for fiscal years 2021 and 2022 as detailed in the Share Purchase Agreement. The acquisition date fair value of contingent consideration obligation of $21.5 million is estimated based on the probability assessments with respect to the likelihood of achieving the performance targets and discount rates consistent with the level of risk of achievement. In April 2022, the Company paid $12.6 million associated with the contingent cash consideration to the sellers based on achievement of certain revenue thresholds for fiscal year 2021. The range of the remaining undiscounted amounts the Company may be required to pay under the contingent consideration arrangement is between $0 and $27.4 million for fiscal year 2022. See Note 10 – Fair Value Measurements for subsequent measurements of this contingent liability as of September 30, 2022.
On November 10, 2022, the Company entered into Amendment No. 2 to the Share Purchase Agreement to extend the earn out period through the end of 2023. This amendment also modified the contingent consideration calculation associated with the achievement of certain revenue, EBITDA, and successful product launch thresholds.
The Company recognized $1.8 million of acquisition-related costs during fiscal year 2021 that were recorded in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.
The operating results of Apption Labs have been included in the Company's condensed consolidated statements of operations and comprehensive loss since the acquisition date. Actual and pro forma revenue and results of operations for the acquisition have not been presented because they do not have a material impact to the consolidated revenue and results of operations, either individually or in the aggregate.
In July 2022, the Company completed the determination and allocation of the consideration transferred and concluded no adjustments to the provisional amounts recognized in the Company's initial accounting for the acquisition.
The acquisition was accounted for under the acquisition method in accordance with ASC 805. The following table summarizes the fair values of the consideration transferred, assets acquired, and liabilities assumed as of the Acquisition Date (in thousands):
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Consideration TransferredFair Value
Cash paid, net of cash acquired$36,957 
Contingent consideration21,500 
Other closing consideration19,890 
Total purchase consideration, net of cash acquired$78,347 
Assets acquired
Accounts receivable, net$2,190 
Inventory, net5,431 
Prepaid and other current assets293 
Property and equipment1,357 
Intangible Assets53,100 
Goodwill40,200 
Total assets acquired102,571 
Liabilities assumed
Accounts payable and accrued liabilities8,474 
Deferred tax liability12,646 
Other current liabilities 344 
Other non-current liabilities2,760 
Total liabilities assumed24,224 
Total net assets, net of cash acquired$78,347 
The excess purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill generated from these transactions is attributable to the expected synergies to be achieved upon consummation of the business combinations and the assembled workforce values.
The following table details the identifiable intangible assets acquired at their fair value and their corresponding useful lives at the Acquisition Date (amounts in thousands):
Identifiable Intangible AssetsFair ValueEstimated Useful Life (in years)
Technology$32,300 5
Trademarks17,700 10
Distributor relationships2,400 8
Non-compete arrangements700 2.5
$53,100 
Identifiable intangible assets acquired primarily include technology, trademarks, distributor relationship, and non-compete arrangements. The fair value of technology acquired in the acquisition was determined using the excess earnings model, the trademarks acquired was determined using a relief from royalty model, the distributor relationships acquired was determined using the distributor model, and the non-compete arrangements acquired were determined using the with and without model. These models utilize certain unobservable inputs, including discounted cash flows, historical and projected financial information, royalty rates, distributor attrition rates, and technology obsolescence rates, classified as Level 3 measurements as defined by Fair Value Measurement (Topic 820). Amortization of technology is recorded in cost of revenue and amortization of trademarks, distributor relationships and non-compete arrangements are recorded in amortization of intangible assets in the condensed consolidated statements of operations and comprehensive loss.
5 – ACCOUNTS RECEIVABLES, NET
Accounts receivable consists of the following (in thousands):
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September 30,
2022		December 31,
2021
Trade accounts receivable$49,473 $108,620 
Allowance for doubtful accounts(723)(1,090)
Reserve for returns, discounts and allowances(14,380)(14,603)
Total accounts receivable, net$34,370 $92,927 
6 – INVENTORIES
Inventories consisted of the following (in thousands):
September 30,
2022		December 31,
2021
Raw materials$2,229 $3,106 
Work in process11,743 11,523 
Finished goods147,797 130,409 
Inventories$161,769 $145,038 
Included within inventories are adjustments of $0.3 million and $0.7 million at September 30, 2022 and December 31, 2021, respectively, to record inventory to net realizable value.
7 – ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
September 30,
2022		December 31,
2021
Accrual for inventories in-transit$4,394 $28,536 
Warranty accrual7,285 8,326 
Accrued compensation and bonus4,458 7,025 
Build-to-suit lease liability23,456 4,273 
Other29,111 21,613 
Accrued expenses$68,704 $69,773 
The changes in the Company’s warranty accrual, included in accrued expenses on the accompanying condensed consolidated balance sheets, were as follows for the fiscal periods indicated (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Warranty accrual, beginning of period$8,647 $8,094 $8,326 $6,728 
Warranty claims(2,239)(2,544)(6,327)(6,224)
Warranty costs accrued877 2,886 5,286 7,929 
Warranty accrual, end of period$7,285 $8,436 $7,285 $8,436 
8 – GOODWILL
As a result of sustained decreases in the Company’s publicly quoted share price, market capitalization and lower than expected operating results, the Company conducted an analysis of its goodwill and long-lived assets. As a result of this analysis, the Company concluded there were no events or changes in circumstances which indicated that the carrying value of the long-lived assets may not be recoverable. However, the Company did identify indicators of goodwill impairment for the single reporting unit and concluded that a triggering event had occurred which required an interim goodwill impairment assessment. The primary indicators of impairment remain to be the adverse impacts from the macroeconomic conditions such as inflationary pressures and supply chain disruption, unfavorable demand, and the sustained decreases in the Company’s publicly quoted share price and market capitalization. As a result of these factors, the operating results for the three and nine months ended September 30, 2022 were lower than expected.
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Consistent with the prior goodwill impairment testing, the Company estimated the reporting unit's fair value under an income and market approach using a discounted cash flow model and guideline company model, respectively. The income approach used the reporting unit's projections of estimated operating results and cash flows that were discounted using a market participant discount rate based on the weighted-average cost of capital. The main assumptions supporting the cash flow projections include, but are not limited to, revenue growth, margins, discount rate, and terminal growth rate. The financial projections reflect management's best estimate of economic and market conditions over the projected period, including forecasted revenue growth, margins, capital expenditures, depreciation, and amortization. Under the market approach, the Company uses the guideline company method to develop valuation multiples and compare the single reporting unit to similar publicly traded companies.

As a result of the interim quantitative impairment assessment, the carrying value of the single reporting unit exceeded its fair value, and the Company recorded $110.8 million and $222.3 million of non-cash goodwill impairment charge for the three and nine months ended September 30, 2022, respectively.
9 – DERIVATIVES
Interest Rate Swap
On February 25, 2022, the Company entered into a floating-to-fixed interest rate swap agreement to hedge or otherwise protect against the Eurocurrency Base Rate (as defined in the First Lien Credit Agreement) fluctuations on a portion of the Company's variable rate debt. The agreement provides for a notional amount of $379.2 million, fixed rate of 2.08% and a maturity date of February 28, 2026. This agreement was designated as a cash flow hedge on the exposure of the variability of future cash flows subject to the variable monthly interest rates on $379.2 million of the term loan portion under the First Lien Term Loan Facility (as defined below). The Company assessed hedge effectiveness at the time of entering into the agreement, utilizing a regression analysis, and determined the hedge is expected to be highly effective.
As a cash flow hedge, the interest rate swap is revalued at current market rates, with the changes in valuation being recorded in other comprehensive income within the condensed consolidated statements of operations and comprehensive loss, to the extent that the hedge is effective. The gains or losses on the interest rate swaps are recorded in accumulated other comprehensive loss within the condensed consolidated balance sheets and are reclassified into interest expense in the periods in which the interest rate swap affects earnings. The cash flows related to interest settlements and changes in valuation are classified consistent with the treatment of the hedged monthly interest payments generally as operating activities on the condensed consolidated statement of cash flows.
The Company evaluates hedge effectiveness of the interest rate swap quarterly, or more frequently if necessary, by verifying the critical terms of the interest rate swap continue to match the critical terms of the hedged monthly interest payments and the hedge was expected to be highly effective as of September 30, 2022. Thus, the change in fair value of the derivative instrument offsets the change in fair value on the hedged debt, and there is no ineffectiveness to be recorded in earnings.
As of September 30, 2022, the net asset balance derived from the monthly interest settlements related to the single cash flow hedge contract was $24.6 million.
Realized gains (losses) and unrealized gains from the interest rate swap were recorded in interest expense and other comprehensive income, respectively, within the accompanying condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Realized gains (losses)$84 $— $(1,521)$— 
Unrealized gains12,285 — 24,609 — 
Total gains$12,369 $— $23,088 $— 
Foreign Currency Contracts
The Company is exposed to foreign currency exchange rate risk related to its purchases and international operations. The Company utilizes foreign currency contracts to manage foreign currency risk in purchasing inventory and capital equipment, and future settlement of foreign denominated assets and liabilities. The volume of the Company’s foreign currency contract activity is limited by the amount of transaction exposure in each foreign currency and the Company’s election as to whether to hedge the transactions. There are no derivative instruments entered into for speculative purposes.
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The Company had outstanding foreign currency contracts as of September 30, 2022 and December 31, 2021. The Company did not elect hedge accounting for any of these contracts. All outstanding contracts are with the same counterparty and thus the fair market value of the contracts in an asset position are offset by the fair market value of the contracts in a liability position to reach a net position. For periods where the net position is an asset balance, the balance is recorded within prepaid expenses and other current assets on the condensed consolidated balance sheets and for periods where the net position is a liability balance, the balance is recorded within derivative liabilities on the condensed consolidated balance sheets. Changes in the net fair value of contracts are recorded in other expense in the condensed consolidated statements of operations and comprehensive loss.
The gross and net balances from foreign currency contract positions were as follows (in thousands):
September 30,
2022		December 31,
2021
Gross Asset Fair Value$— $1,439 
Gross Liability Fair Value3,129 — 
Net Fair Value$3,129 $1,439 
Gains (losses) from foreign currency contracts were recorded in other income (expense) within the accompanying condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Realized gains (losses)
$(964)$1,301 $(250)$6,749 
Unrealized losses
(1,703)(689)(4,567)(4,800)
Total gains (losses)
$(2,667)$612 $(4,817)$1,949 
10 – FAIR VALUE MEASUREMENTS
Financial assets and liabilities valued using Level 1 inputs are based on unadjusted quoted market prices within active markets. Financial assets and liabilities valued using Level 2 inputs are based primarily on observable trades and/or prices for similar assets or liabilities in active or inactive markets. Financial assets and liabilities valued using Level 3 inputs are primarily valued using management’s assumptions about the assumptions market participants would utilize in pricing the asset or liability.
The following table presents information about the fair value measurement of the Company’s financial instruments (in thousands):
Financial Instruments Recorded at Fair Value on a Recurring Basis:Fair Value
Measurement
Level
As of
September 30,
2022
As of
December 31,
2021
Assets:
Derivative assets—foreign currency contracts (1)
2$— $1,439 
Derivative assets—interest rate swap contract (2)
224,609 — 
Total assets$24,609 $1,439 
Liabilities:
Derivative liabilities—foreign currency contracts (3)
2$3,129 $— 
Contingent consideration—earn out (4)
316,520 25,300 
Total liabilities$19,649 $25,300 
(1)Included in prepaid expenses and other current assets in the condensed consolidated balance sheets
(2)Included in prepaid expenses and other current assets and other non-current assets in the condensed consolidated balance sheets
(3)Included in other current liabilities in the condensed consolidated balance sheets
(4)Included in current and non-current contingent consideration in the condensed consolidated balance sheets
Transfers of assets and liabilities among Level 1, Level 2 and Level 3 are recorded as of the actual date of the events or change in circumstances that caused the transfer. As of September 30, 2022 and December 31, 2021, there were no transfers between levels of the fair value hierarchy of the Company’s assets or liabilities measured at fair value.
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The fair value of the Company’s derivative assets through its foreign currency contracts is based upon observable market-based inputs that reflect the present values of the differences between estimated future foreign currency rates versus fixed future settlement prices per the contracts, and therefore, are classified within Level 2. The fair value of the Company's interest rate swap contracts held with financial institutions are classified as Level 2 financial instruments, which are valued using observable underlying interest rates and market-determined risk premiums at the reporting date.
The fair values of the Company's contingent consideration earn out obligation associated with the Apption Labs business combination is estimated using a Monte Carlo model. Key assumptions used in the estimate include probability assessments with respect to the likelihood of achieving the performance target consistent with the level of risk of achievement. As these are significant unobservable inputs, the contingent consideration earn out obligation is included in Level 3 inputs.
At each reporting date, the Company revalues the contingent consideration obligation to its fair value and records increases and decreases in fair value in the revaluation of contingent consideration in our condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of the contingent consideration obligation results from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets.
The following table presents the fair value contingent consideration (in thousands):
Balance at December 31, 2021
$25,300 
Payments of contingent consideration(12,555)
Change in fair value of contingent consideration3,775 
Balance at September 30, 2022
$16,520 
The following financial instruments are recorded at their carrying amount (in thousands):
As of September 30, 2022
As of December 31, 2021
Financial Instruments Recorded at Carrying Amount:Carrying
Amount		Estimated
Fair Value		Carrying
Amount		Estimated
Fair Value
Liabilities:
Debt—Credit Facilities (1)
$438,696 $353,749 $388,195 $386,139 
Total liabilities$438,696 $353,749 $388,195 $386,139 
(1)Included in notes payable in the consolidated balance sheets. Due to the unobservable nature of the inputs these financial instruments are considered to be Level 3 instruments in the fair value hierarchy.
11 – DEBT AND FINANCING ARRANGEMENTS
Notes Payable
On June 29, 2021, the Company refinanced its existing credit facilities and entered into a new first lien credit agreement, as borrower, with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and other lenders party thereto as joint lead arrangers and joint bookrunners (the "First Lien Credit Agreement"). The First Lien Credit Agreement provides for a $560.0 million senior secured term loan facility (the "First Lien Term Loan Facility"), including a $50.0 million delayed draw term loan, and a $125.0 million revolving credit facility (the "Revolving Credit Facility" and, together with the First Lien Term Loan Facility, the "Credit Facilities").
The First Lien Term Loan Facility accrues interest at a rate per annum that considers both fixed and floating components. Following the completion of the Company's IPO in July 2021, the fixed component ranges from 3.00% to 3.25% per annum based on the Company's Public Debt Rating (as defined in the First Lien Credit Agreement). The floating component is based on the Eurocurrency Base Rate (as defined in the First Lien Credit Agreement) for the relevant interest period. The First Lien Term Loan Facility requires periodic principal payments from December 2021 through June 2028, with any remaining unpaid principal and any accrued and unpaid interest due on the maturity date of June 29, 2028. The delayed draw term loan includes a variable commitment fee, which is based on the fixed interest rate and ranges from 0% to the Applicable Rate (as defined in the First Lien Credit Agreement). As of September 30, 2022, the total principal amount outstanding on the First Lien Term Loan Facility was $391.7 million, including a $12.5 million outstanding principal balance under the delayed draw term loan, which the Company borrowed for purposes of financing the earn out obligation associated with the acquisition of Apption Labs as described in Note 4 – Business Combination.
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Loans under the Revolving Credit Facility accrue interest at a rate per annum that considers both fixed and floating components. Following completion of the Company's IPO in July 2021, the fixed component ranges from 2.75% to 3.25% per annum based on the Company's most recently determined First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement). The floating component is based on the Eurocurrency Base Rate for the relevant interest period. The Revolving Credit Facility also has a variable commitment fee, which is based on the Company's most recently determined First Lien Net Leverage Ratio and ranges from 0.25% to 0.50% per annum on undrawn amounts. Letters of credit may be issued under the Revolving Credit Facility in an amount not to exceed $15.0 million which, when issued, lower the overall borrowing capacity of the facility. The Revolving Credit Facility expires on June 29, 2026 and no principal payments are due before such date. As of September 30, 2022, the Company had drawn down $47.0 million under the Revolving Credit Facility for general corporate and working capital purposes.
The First Lien Credit Agreement contains certain affirmative and negative covenants that limit the Company's ability to, among other things, incur additional indebtedness or liens (with certain exceptions), make certain investments, engage in fundamental changes or transactions including changes of control, transfer or dispose of certain assets, make restricted payments (including dividends), engage in new lines of business, make certain prepayments and engage in certain affiliate transactions. In addition, the Company is subject to a financial covenant and is required to maintain a First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement) not to exceed 6.20 to 1.00. As of September 30, 2022, the Company was in compliance with the covenants under the Credit Facilities.
On August 9, 2022, the Company entered into a second amendment (the “Amendment”) to the First Lien Credit Agreement to provide for a “Covenant Amendment Period” (as defined therein) through and including the earlier of June 30, 2023 and the date on which the Company, in its sole discretion, delivers written notice to the Administrative Agent of the Company's election to end the Covenant Amendment Period. During that period, the Company's springing First Lien Net Leverage Ratio covenant will be increased from 6.20 : 1.00 to 8.50 : 1.00 and a minimum liquidity covenant of $35.0 million will be in effect. Liquidity will be calculated as the sum of cash on the Company's balance sheet, availability under the Revolving Credit Facility and availability under the Receivables Financing Agreement (as defined below), and the minimum liquidity covenant will be tested only if and when the Company requests borrowings under the Revolving Credit Facility. During the Covenant Amendment Period, the fixed dollar portion of the “Fixed Dollar Amount” definition shall decrease from $127.0 million to $102.0 million, and the use of certain restricted payments baskets will be reduced or eliminated entirely. As of September 30, 2022, the Company was in compliance with these amended covenants under the Amendment.
Accounts Receivable Credit Facility
On November 2, 2020, the Company entered into a receivables financing agreement (as amended, the "Receivables Financing Agreement"). Through the Receivables Financing Agreement, the Company participates in a trade receivables securitization program, administered on its behalf by MUFG Bank Ltd. ("MUFG"), using outstanding accounts receivable balances as collateral, which have been contributed by the Company to its wholly owned subsidiary and special purpose entity, Traeger SPE LLC (the "SPE"). While the Company provides operational services to the SPE, the receivables are owned by the SPE once contributed to it by the Company. The Company is the primary beneficiary and holds all equity interests of the SPE, thus the Company consolidates the SPE without any significant judgments.
On June 29, 2021, the Company entered into Amendment No. 1 to the Receivables Financing Agreement and increased the net borrowing capacity from the prior range of $30.0 million to $45.0 million up to $100.0 million. The borrowing capacity fluctuates at each month end based upon the amount of eligible outstanding domestic accounts receivables to be used as collateral. On August 19, 2022, the Company entered into Amendment No. 4 to the Receivables Financing Agreement to increase the liquidity level that must be maintained to avoid a “Liquidity Shortfall” (as defined in the agreement) from $7.5 million to $42.5 million. As of September 30, 2022, the Company had drawn down $13.5 million under this facility for general corporate and working capital purposes. The Company is required to pay an annual upfront fee for the facility, along with fixed interest on outstanding cash advances of 1.7%, a floating component based on the CP Rate (as defined in the Receivables Financing Agreement), and an unused capacity charge that ranges from 0.25% to 0.5%. The facility is set to terminate on June 29, 2024.
The Company was not in compliance with the covenants under the Receivables Financing Agreement as of September 30, 2022 due to a minimum dilution ratio as defined in the Receivables Financing Agreement. Such non-compliance did not result in the acceleration or increase of a direct financial obligation or an obligation under an off-balance sheet arrangement. On November, 8, 2022, the Company obtained a waiver for the breach of compliance to the covenants as of September 30, 2022 and entered into Amendment No. 7 under the Receivables Financing Agreement with MUFG, amending the definition of the dilution ratio
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and the net receivable pool balance to factor in certain contractual dilution amounts (as defined in the agreement) for future periods.
12 – COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is subject to various claims, complaints and legal actions in the normal course of business. The Company does not believe it has any currently pending litigation of which the outcome will have a material adverse effect on its operations or financial position.
13 – EQUITY-BASED COMPENSATION
Incentive Units
On September 25, 2017, AEA Investors LP, TCP Traeger Holdings SPV LLC, Ontario Limited, and other management and limited partners purchased a 100% equity stake (the "Transaction") in Traeger Pellet Grills Holdings LLC through a merger agreement in which TGP Holdings LP was formed. In connection with the Transaction, TGP Holdings LP established a management incentive equity pool, authorizing a maximum of 99,389 total units, or 15% of the total authorized units, for purposes of issuing compensatory awards to employees and certain directors of the Company, and its subsidiaries. Pursuant to the Amended and Restated Limited Partnership Agreement of TGP Holdings LP, dated as of September 25, 2017, eligible management employees and directors were granted a certain number of Class B Units of TGP Holdings LP which were intended to be treated as profit interests for tax purposes. The participation threshold of the Class B Units was historically established for each grant based on the fair market value of TGP Holdings LP membership units at the date of the grant.
On July 12, 2021, the board of directors of TGP Holdings GP Corp, a Delaware corporation and the then general partner of TGP Holdings LP, approved the acceleration of vesting of all unvested and outstanding Class B Units, subject to the successful completion of the Company's IPO. The approval for the acceleration of vesting was determined to be a modification. As a result, the Company evaluated each of the modified awards to determine the necessary accounting. At the time of the IPO, awards where vesting was probable prior to and after the modification, resulted in an acceleration of the remaining expense based on the original grant date fair value and awards where vesting was not probable, resulted in recognition of the fair value of the modified awards as of the modification date.
In connection with the completion of the Company’s IPO, Class B Units that were outstanding and vested were, as part of the Corporate Conversion, converted into shares of common stock of the Company. The Company recorded equity compensation expense of approximately $47.4 million as a result of the acceleration of vesting of the unvested Class B Units based on the IPO price of $18.00. Given the proximity of the modification to the IPO, the expense recorded by the Company was based on the actual conversion of the Class B Unit into common stock and the valuation of the Company at time of the IPO.
Restricted Stock Unit Awards
The Traeger, Inc. 2021 Incentive Award Plan (the "2021 Plan"), became effective as of July 28, 2021, the day prior to the first public trading date of our common stock. The 2021 Plan provides for the grant of stock options, including incentive stock options, and nonqualified stock options, restricted stock, dividend equivalents, restricted stock units, stock appreciation rights, and other stock or cash awards to the Company’s employees and consultants and directors of the Company and its subsidiaries. Subject to the adjustment described in the following sentence, the initial number of shares of the Company's common stock available for issuance under awards granted pursuant to the 2021 Plan is equal to 14,105,750 shares, which shares may be authorized but unissued shares, treasury shares, or shares purchased in the open market. On January 1, 2022, an additional 5,877,395 shares of common stock became available for issuance under awards granted pursuant to the 2021 Plan, as a result of the operation of an automatic annual increase provision in the 2021 Plan. Notwithstanding anything to the contrary in the 2021 Plan, no more than 100,000,000 shares of our common stock may be issued pursuant to the exercise of incentive stock options under the 2021 Plan.
The Company's equity-based compensation was classified as follows in the condensed consolidated statements of operations and comprehensive loss (in thousands):
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Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Cost of revenue$34 $568 $185 $580 
Sales and marketing603 12,444 3,012 12,975 
General and administrative52,616 46,198 77,490 48,156 
Total equity-based compensation$53,253 $59,210 $80,687 $61,711 
On July 20, 2021, the board of directors of the Company (the "Board") approved grants of restricted stock units ("RSUs") covering 12,163,242 shares of common stock that became effective in connection with the completion of the Company’s IPO, which include RSUs covering 7,782,957 shares granted to the Company's Chief Executive Officer ("CEO") and RSUs covering 4,380,285 shares granted to other employees, directors, and certain non-employees.
CEO Awards
The awards include a combination of time-based and performance-based awards. Specifically, time-based RSUs covering 2,594,319 shares ("RSU CEO Award") and performance-based RSUs ("PSUs") covering 5,188,638 shares ("PSU CEO Award") were granted to the CEO.
RSU CEO Award
The RSU CEO Award will vest as to 20% of the underlying shares on each of the first, second, third, fourth and fifth anniversaries of the closing of the IPO, subject to continued service with the Company as its CEO or executive chairman of its Board.
Upon a termination of the CEO's service by the Company without cause, by the CEO for good reason, or due to the CEO's disability (each as defined in his award agreement) or due to his death (each, a "CEO Qualifying Termination"), then, subject to the CEO's (or his estate's) timely execution and non revocation of a general release of claims and continued compliance with the restrictive covenants to which the CEO is bound through the effective date of the general release of claims, any unvested portion of the RSU CEO Award will vest. To the extent any of the RSU CEO Award vests, the CEO must hold the vested and settled shares for two years following their vesting date, subject to certain exceptions set forth in the award agreement.
PSU CEO Award
The PSU CEO Awards will become earned based on the achievement of stock price goals (measured as a volume-weighted stock price over 60 consecutive trading days) at any time until the tenth anniversary of the closing of the IPO. The PSU CEO Award is divided into five tranches, with the first tranche having a stock price goal of 125% of the IPO price, and each of the next four stock prices goals equal to 125% of the immediately preceding stock price goal. As of September 30, 2022, the first vesting tranche of the PSU CEO Award has been earned based upon achievement of the applicable stock price goal and will vest based on the table below. The PSU CEO Award will vest on the applicable vesting date described in the following table or, if later, the date on which the applicable stock price goal is achieved, subject to the CEO's continued service as the Company's CEO or executive chairman of the Board:
Earned PSUs’ Vesting TrancheVesting Date
First Vesting Tranche
50% on the first anniversary and 50% on the second anniversary of the closing of the IPO
Second Vesting Tranche
50% on the second anniversary and 50% on the third anniversary of the closing of the IPO
Third Vesting Tranche
50% on the third anniversary and 50% on the fourth anniversary of the closing of the IPO
Fourth Vesting Tranche
50% on the fourth anniversary and 50% on the fifth anniversary of the closing of the IPO
Fifth Vesting Tranche
50% on the fifth anniversary and 50% on the sixth anniversary of the closing of the IPO
Upon a CEO Qualifying Termination, then, subject to the CEO’s (or his estate's) timely execution and non-revocation of a general release of claims and continued compliance with the restrictive covenants to which the CEO is bound, any previously earned PSUs subject to the CEO PSU Award will vest, and any remaining PSUs that were not previously earned will be forfeited and terminated without consideration. To the extent any of the PSUs subject to the CEO PSU Award vest, the CEO must hold such vested shares for two years following their vesting date, subject to certain exceptions set forth in the award agreement. If the CEO experiences a termination of service other than a CEO Qualifying Termination, all PSUs (including earned PSUs) subject to the PSU CEO Award which have not become vested will be automatically forfeited and terminated as of the termination date without consideration.
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In the event the Company incurs a change in control, then any previously-earned PSUs will vest and any remaining PSUs will vest based on the price per share received by or payable with respect to the common stockholders in connection with the transaction, pro-rated to reflect a price per share that falls between two stock price goals.
PSUs that remain unvested as of the expiration date automatically will be forfeited and terminated without consideration.
Letter Agreement
On August 31, 2022, the Board approved a letter agreement between the Company and the Company’s CEO (the “Letter Agreement”) intended to facilitate a personal tax planning initiative.
The Letter Agreement provided for the accelerated vesting of 2,075,455 unvested RSUs and 518,864 earned but unvested PSUs held by the CEO, and required the CEO to pay the withholding tax associated with the acceleration of the awards by cash or check, rather than by selling vested shares to cover the tax obligation.
In addition, the Letter Agreement imposes certain clawback rights intended to maintain the retention incentives of the RSUs and PSUs by mirroring their former vesting schedule. If the CEO experiences a termination of service, other than due to a qualifying termination (as defined in the award agreements), prior to an original vesting date of an RSU or PSU, the CEO will forfeit and return to the Company that number of shares of the Company’s common stock that would not otherwise have vested pursuant to the terms of the original award agreements or, if he has disposed of or transferred such shares, he will deliver to the Company the corresponding value of those shares plus any gain realized in connection with such sale or other transfer.
The approval for the acceleration of vesting was determined to be a modification and therefore, the Company evaluated each of the modified awards to determine the necessary accounting treatment. Vesting of the awards was assessed as probable immediately prior to and after the modification resulting in an acceleration of the remaining expense based on the original grant date fair value. As a result of the modification, the Company recorded approximately $39.4 million of accelerated equity-based compensation for the three and nine months ended September 30, 2022.
Other IPO Awards
The RSUs granted to other employees, directors, and certain non-employees, included 3,635,287 time-based RSUs ("IPO RSUs") and 744,998 performance-based RSUs ("IPO PSUs") granted to certain senior level executives of the Company.
IPO RSUs
The IPO RSUs vest based on certain time-based conditions set forth in the applicable award agreement. IPO RSUs granted to certain senior executives of the Company vest as to 50% of the underlying shares on each of the third and fourth anniversaries of the closing of the IPO, subject to continued employment with the Company or one of its subsidiaries.
Amendments to RSUs
In August 2022, the Board approved an amendment to the vesting schedule applicable to the IPO RSUs held by certain directors. Pursuant to the amendment, the IPO RSUs are eligible to vest as to one-third of the underlying shares on each of the first, second and third anniversaries of the closing of the IPO, subject to continued employment with the Company or one of its subsidiaries.
In addition, in August 2022, the Board approved an amendment to RSUs previously granted to certain employees impacted by the Company’s reduction in workforce. The amendment provided for accelerated vesting of one-third of the RSUs underlying each award then-held by such employees upon any termination of service (as defined in the 2021 Plan), subject to the holder’s timely execution and delivery to the Company (and, as applicable, non-revocation) of a general release of claims in favor of the Company.
The approval for the amendment to the vesting schedule was determined to be a modification and therefore, the Company evaluated each of the modified awards to determine the necessary accounting treatment. Awards where vesting was probable prior to and after the modification resulted in an acceleration of a portion of the remaining expense, consistent with the accelerated vesting schedule, based on the original grant date fair value. Awards where vesting was not probable prior to modification resulted in remeasurement of the fair value as of the modification date, which resulted in a decrease in total fair value of awards of approximately $6.7 million due to a decrease in the fair value between the original grant date and the modification date. Due to the decrease in the fair value between the original grant date and modification date, the Company recorded a cumulative-effect adjustment. As a result of the accelerated vesting schedule, net of the cumulative-effect
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adjustment, the Company recorded $1.1 million of accelerated equity-based compensation for the three and nine months ended September 30, 2022.
IPO PSUs
The IPO PSUs consist of two equal tranches, with the first tranche having a stock price goal of 200% of the IPO price and the second tranche having a stock price goal of 300% of the IPO price. Once earned, the applicable IPO PSU will vest as to (i) 50% of the earned PSU upon the later of the first anniversary of the closing of the IPO or the achievement of the applicable stock price goal and (ii) 50% of the earned PSUs upon the later of the second anniversary of the closing of the IPO or the first anniversary of when the respective stock price goal is achieved with respect to the applicable vesting tranche, in each case, subject to continued employment with the Company or one of its subsidiaries.
Upon a termination of employment due to an executive’s disability (each defined in the applicable award agreement) or due to his or her death, then, subject to such executive’s (or his or her estate’s) timely execution and non-revocation of a general release of claims and continued compliance with the restrictive covenants to which such executive is bound, any previously earned PSUs subject to the IPO PSUs will vest, and any remaining PSUs subject to the IPO PSU award that were not previously earned will be automatically forfeited and terminated as of the termination date without consideration.
In the event the Company incurs a change in control, then any previously-earned PSUs will vest and any remaining PSUs will vest based on the price per share received by or payable with respect to the common stockholders in connection with the transaction, pro-rated to reflect a price per share that falls between two stock price goals.
PSUs that remain unvested as of the expiration date automatically will be forfeited and terminated without consideration.
For RSUs and PSUs, the compensation expense is recognized on a straight-line basis over the vesting schedule and on an accelerated basis over the tranche's requisite service period, respectively. In addition, when an award is forfeited prior to the vesting date, the Company will recognize an adjustment for the previously recognized expense in the period of the forfeiture, with the exception of performance-based awards for which the requisite service period has been provided.
The Company uses the Monte Carlo pricing model to estimate the fair value of its PSUs as of the grant date, and uses various simulations of future stock prices through the Stochastic model to estimate the fair value over the remaining term of the performance period as of the grant date.
A summary of the time-based restricted stock unit activity during the nine months ended September 30, 2022 was as follows:
UnitsWeighted Average Grant Date Fair Value
Outstanding at December 31, 2021
6,274,860 $18.08 
Modified(449,179)18.05 
Granted4,433,330 3.78 
Vested(4,007,275)17.56 
Forfeited(567,531)15.35 
Outstanding at September 30, 2022
5,684,205 $7.57 
As of September 30, 2022, the Company had $37.2 million of unrecognized equity-based compensation expense related to unvested time-based restricted stock units that is expected to be recognized over a weighted-average period of 2.29 years.
A summary of the performance-based restricted stock unit activity during the nine months ended September 30, 2022 was as follows:
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UnitsWeighted Average Grant Date Fair Value
Outstanding at December 31, 2021
5,933,636 $13.25 
Granted at fair value— — 
Vested(1,037,728)16.51 
Forfeited(93,333)11.84 
Outstanding at September 30, 2022
4,802,575 $12.57 
As of September 30, 2022, the Company had $41.8 million of unrecognized equity-based compensation expense related to unvested performance-based units that is expected to be recognized over a weighted-average period of 3.43 years.
14 – INCOME TAXES
For the three months ended September 30, 2022 and 2021, the Company recorded income tax benefit of $225,000 and $2,000,000, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded income tax benefit of $27,000 and $1,300,000, respectively.
The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all the deferred tax assets will not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax planning strategies. Generally, more weight is given to objectively verifiable evidence, such as the cumulative loss in recent years, as a significant piece of negative evidence to overcome. As of September 30, 2022, the Company's U.S. operations have resulted in losses, and as such, the Company maintains a valuation allowance against substantially all its U.S. deferred tax assets.
15 – RELATED PARTY TRANSACTIONS
The Company outsources a portion of its customer service and support through a third party who is an affiliate of the Company through common ownership. The total amount of expenses the Company recorded associated with such services totaled $5.0 million and $8.2 million for the nine months ended September 30, 2022, and 2021, respectively. Amounts payable to the third party as of September 30, 2022, and December 31, 2021 was $0.9 million and $1.2 million, respectively.
16 – EARNINGS (LOSS) PER SHARE
The Company computes basic earnings (loss) per share ("EPS") attributable to common stockholders by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is calculated by adjusting weighted average shares outstanding for the dilutive effect of potential common shares, determined using the treasury-stock method. For purposes of the diluted EPS calculation, restricted stock units are considered to be potential common shares.
The following table sets forth the computation of the Company’s basic and diluted EPS attributable to common stockholders for the fiscal periods indicated (in thousands, except share and per share amounts):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net loss
$(210,639)$(89,185)$(351,350)$(55,163)
Weighted-average common shares outstanding—basic119,924,371 114,382,955 118,682,379 110,631,304 
Effect of dilutive securities:
Restricted stock units— — — — 
Weighted-average common shares outstanding—diluted119,924,371 114,382,955 118,682,379 110,631,304 
Earnings (loss) per share
Basic and diluted$(1.76)$(0.78)$(2.96)$(0.50)
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The following table includes the number of units that may be dilutive common shares in the future, and were not included in the computation of diluted earnings (loss) per share because the effect was anti-dilutive for the fiscal periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Restricted stock units10,486,780 12,081,024 10,486,780 12,081,024 
17 – RESTRUCTURING PLAN
In July 2022, the Board approved a restructuring plan (the "2022 restructuring plan") as part of its efforts to reduce the Company’s costs and drive long-term operational efficiencies due to challenging macroeconomic pressures. As part of the 2022 restructuring plan, the Company eliminated approximately 14% of its global headcount, suspended operations of Traeger Provisions (the Company's premium frozen meal kit business), and postponed nearshoring efforts to manufacture product in Mexico. These actions were substantially completed in the third quarter of fiscal 2022.
The following table summarizes the costs recorded in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022 in connection with the 2022 restructuring plan (in thousands):
Three and Nine Months Ended
September 30, 2022
Costs recorded in cost of revenue:
Inventory write-off and contract cancellation costs$1,608 
Total costs recorded in cost of revenue1,608 
Costs recorded in restructuring costs:
Employee related costs2,229 
Contract exit costs4,255 
Other restructuring related costs1,552 
Total costs recorded in restructuring costs8,036 
Total restructuring costs$9,644 

A summary of the activity in the restructuring reserve in connection with the Company's 2022 restructuring plan recorded in accrued expenses within the condensed consolidated balance sheets as follows (in thousands):
Employee Related CostsContract Exit CostsOther Restructuring Related Costs
Balance at December 31, 2021
$— $— $— 
Net additions charged to expense2,229 5,640 — 
Cash payments against reserve(1,591)(833)— 
Balance at September 30, 2022
$638 $4,807 $— 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021 (our "Annual Report on Form 10-K"), filed with the Securities and Exchange Commission (the “SEC”), on March 29, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. As a result of many important factors, such as those set forth in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K and Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation, some of the numbers have been rounded in the text below.
Overview
Traeger is the creator and category leader of the wood pellet grill, an outdoor cooking system that ignites all-natural hardwoods to grill, smoke, bake, roast, braise, and barbecue. Our grills are versatile and easy to use, empowering cooks of all skill sets to create delicious meals with a wood-fired flavor that cannot be replicated with gas, charcoal, or electric grills. Grills are at the core of our platform and are complemented by Traeger wood pellets, rubs, sauces and accessories.
Our marketing strategy has been instrumental in building our brand and driving customer advocacy and revenue. We have disrupted the outdoor cooking market and created a passionate community, the Traegerhood, which includes foodies, pitmasters, backyard heroes, moms and dads, professional athletes, outdoorsmen and outdoorswomen, and world-class chefs. This community, together with our various marketing initiatives, has helped to promote our brand and products to the wider consumer population and supported our efforts to redefine outdoor cooking as an experience accessible to everyone. We have an active online and social media presence and a content-rich website that drives significant customer engagement and brings our Traegerhood together. We also directly engage with our current and target customers by sponsoring and participating in a variety of events, including live shows, outdoor festivals, rodeos, music and film festivals, barbecue competitions, fishing tournaments, and retailer events. We believe the style and authenticity of our customer engagement reinforces our brand and drives new and existing customer interest in our products and community.
Our revenue is primarily generated through the sale of our wood pellet grills, consumables and accessories. We currently offer three series of grills – Pro, Ironwood and Timberline – as well as a selection of smaller, portable grills. Our grills are available in a number of different sizes and can be upgraded through a variety of accessories. A growing number of our grills feature WiFIRE technology, which allows users to monitor and adjust their grills remotely using our Traeger app. Our consumables include our wood pellets, which are made from natural, virgin hardwood and are available in a variety of flavors, as well as rubs and sauces. Our accessories include grill covers, liners, tools, MEATER smart thermometers, apparel and other ancillary items.
We sell our grills using an omnichannel distribution strategy that consists primarily of retail and direct to consumer ("DTC") channels. Our retail channel covers brick-and-mortar retailers, e-commerce platforms, and multichannel retailers, who, in turn, sell our grills to their end customers. Our retailers include Ace Hardware, Amazon.com, Costco, The Home Depot, and William Sonoma, among others, as well as a significant number of independent retailers that cater to local communities and specific categories, such as hardware, camping, outdoor, farm, ranch, barbecue and other categories. Our DTC channel covers sales directly to customers through our website and Traeger app, as well as certain country- and region-specific Traeger or distributor websites. Our consumables and accessories are available through the same channels as our grills.
Over the last several years, we have made significant investments in our supply chain and manufacturing operations. Our supply chain includes third party manufacturers for our grills and accessories and pellet production facilities for our wood pellets that we own or lease. We work closely with our manufacturers to evolve on design, manufacturing process and product quality. Our grills are currently manufactured in China and Vietnam, and our wood pellets are produced at facilities located in New York, Oregon, Georgia, Virginia, and Texas. We have entered into manufacturing agreements covering the supply of substantially all of our grills and accessories, pursuant to which we make purchases on a purchase order basis. We rely on several third-party suppliers for the components used in our grills, including integrated circuits, processors, and system on chips.
Our revenue decreased by 42.1% and 15.2% for the three and nine months ended September 30, 2022, respectively, as compared to the three and nine months ended September 30, 2021, respectively, and was $93.8 million and $517.8 million for the three and nine months ended September 30, 2022, respectively, down from $162.0 million and $610.6 million for the three
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and nine months ended September 30, 2021, respectively. We recorded a net loss of $210.6 million and $351.4 million for the three and nine months ended September 30, 2022, respectively, compared to net loss of $89.2 million and net income of $55.2 million for the three and nine months ended September 30, 2021, respectively.
Cost Reduction Actions
As previously disclosed, in July 2022, our Board approved, a restructuring plan (the "2022 restructuring plan") as part of efforts to reduce the Company's costs and drive long-term operational efficiencies due to challenging macroeconomic pressures. As part of the 2022 restructuring plan, the Company eliminated approximately 14% of its global headcount, suspended operations of Traeger Provisions (our premium frozen meal kit business), and postponed nearshoring efforts to manufacture product in Mexico. These actions were substantially completed in the third quarter of fiscal 2022.
Impact of COVID-19
The COVID-19 pandemic has caused various elements of disruption to economies, businesses, markets and communities around the globe. In the interest of public health, many governments closed physical stores and business locations deemed to be non-essential, which drove higher unemployment levels and resulted in the closure of certain businesses. The COVID-19 pandemic has had a variety of impacts to the businesses of our retailers and suppliers, as well as customer behavior and discretionary spending. Although we cannot predict when the United States and global economy will fully recover from the COVID-19 pandemic, we believe that our business is well positioned to attract new customers, capitalize on existing and growing trends in our industry and benefit from the revival of the economy and discretionary spending. Nevertheless, we do not have certainty that a full economic recovery will happen in the near future, and it is possible that the prolonging of the COVID-19 pandemic could have certain adverse effects on our business, financial condition, and results of operations. Furthermore, our growth in the past year may obscure the extent to which seasonality and other trends have affected our business and may continue to affect our business. For more information regarding the potential impact of the COVID-19 pandemic on our business, refer to Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K.
In response to the COVID-19 pandemic, we have focused on business continuity across our value chain and operations, and made strategic pivots and reprioritized key initiatives to focus on our immediate response to the COVID-19 pandemic and maintain a nimble approach to our long-term strategy as we continued to monitor the situation.
Macroeconomic Conditions
Continuing global economic uncertainty, political conditions and fiscal challenges in the U.S. and abroad could result in adverse macroeconomic conditions, including inflation, slower growth or recession. In particular, in the period ended September 30, 2022, we experienced inflationary pressure, slowdown in consumer demand, and constraints in our supply chain. These challenging macroeconomic pressures have resulted in a a decline in our revenue in the third quarter of 2022 compared to the prior year period. We expect these macroeconomic trends to continue through the fourth quarter of 2022, with lower revenue and margins anticipated as compared to the corresponding prior year period.
Supply chain constraints have led to higher product component and freight costs, which have increased our cost of revenues. If these macroeconomic uncertainties or supply chain challenges persist or worsen in the future, we may observe reduced customer demand for our offerings, increased competition for critical components, challenges fulfilling certain customer orders or continued increases in component and freight costs which could impact our operating results, including our ability to achieve historical levels of revenue.
Components of Results of Operations
Revenue
We derive substantially all of our revenue from the sale of grills, consumables and accessories in North America, which includes the United States and Canada. We recognize revenue, net of product returns, for our grills, consumables and accessories generally at the time of delivery to retailers through our retail channel and to customers through our DTC channel. Estimated product returns are recorded as a reduction of revenue at the time of recognition and are calculated based on product returns history, observable changes in return behavior, and expected returns based on sales volume and mix. We also have certain contractual programs that can give rise to elements of variable consideration, such as volume incentive rebates, with estimated amounts of credits recorded as a reduction to revenue.
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Although we experience demand for our products throughout the year, we believe there can be certain seasonal fluctuations in our revenue. We have typically experienced moderately higher levels of sales of our grills in the first and second quarters of the year as our retailers purchase inventory in advance of warmer weather, when demand for outdoor cooking products is the highest across our key markets. Higher sales also coincide with social events and national holidays, which occur during the same warm weather timeframe.
Gross Profit
Gross profit reflects revenue less cost of revenue. Cost of revenue consists of product costs, including the costs of components, costs of products from our third-party manufacturers, direct and indirect manufacturing costs across all products, packaging, inbound freight and duties, warehousing and fulfillment, warranty costs, product quality testing and inspection costs, excess and obsolete inventory write-downs, cloud-hosting costs for our WiFIRE connected grills, depreciation of tooling and manufacturing equipment, amortization of internal use software and patented technology, and certain employee-related expenses.
We calculate gross margin as gross profit divided by revenue. Gross margin can be impacted by several factors, including, in particular, product mix and sales channel mix. For example, gross margin on sales through our DTC channel is generally higher than gross margin on sales through our retail channel. If our DTC sales grow faster than sales from our retail channel, and if we are able to realize greater economies of scale or product cost improvements through engineering and sourcing, we would expect a favorable impact to overall gross margin over time. Additionally, gross margin on sales of certain of our products is higher than for others. If revenue from sales of wood pellets increased as a percentage of total revenue, we would expect to see an increase in overall gross margin. These favorable anticipated gross margin impacts may not be realized, or may be offset by other unfavorable gross margin factors. Additionally, any new products that we develop, or our planned expansion into new geographies, may impact our future gross margin. External factors beyond our control, such as duties and tariffs and costs of doing business in certain geographies can also impact gross margin.
Sales and Marketing
Sales and marketing expense consists primarily of the costs associated with advertising and marketing of our products and employee-related expenses, including salaries, benefits, and equity-based compensation expense, as well as sales incentives and professional services. These costs can include print, internet and television advertising, travel-related expenses, direct customer acquisition costs, costs related to conferences and events, and broker commissions. We expect our sales and marketing expense to decrease as we continue to reduce our costs to drive long-term operational efficiencies due to challenging macroeconomic pressures. We also anticipate that sales and marketing expense as a percentage of revenue will fluctuate from period to period based on revenue for such period and the timing of the expansion of our sales and marketing functions, as these activities may vary in scope and scale over future periods.
General and Administrative
General and administrative expense consists primarily of employee-related expenses and facilities for our executive, finance, accounting, legal, human resources, information technology and other administrative functions. General and administrative expense also includes fees for professional services, such as external legal, accounting, and information and technology services, and insurance.
In addition, general and administrative expense includes research and development expenses incurred to develop and improve our future products and processes, which primarily consist of employee and facilities-related expenses, including salaries, benefits and equity-based compensation expense, as well as fees for professional services, costs related to prototype tooling and materials, and software platform costs. Research and development expense was $8.6 million and $13.1 million for the nine months ended September 30, 2022 and 2021, respectively, and was $1.9 million and $7.3 million for the three months ended September 30, 2022, and 2021, respectively.
As a result of the 2022 restructuring plan, we expect general and administrative expense, including our research and development expenses and external legal and accounting expenses, to normalize as we continue to manage our investments to support our growth and develop new and enhance existing products. We also anticipate increased administrative and compliance costs as a result of being a public company. We anticipate that general and administrative expense as a percentage of revenue will vary from period to period, but we expect to leverage these expenses over time as we grow our revenue.
Amortization of Intangible Assets
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Amortization of intangible assets primarily consists of amortization of identified finite-lived customer relationships, distributor relationships, non-compete arrangements and trademark assets that were allocated a considerable portion of the purchase price from the corporate reorganization and acquisition of our Company in 2017, as well as the July 2021 acquisition of Apption Labs Limited and its subsidiaries (collectively, "Apption Labs") pursuant to a share purchase agreement (the "Share Purchase Agreement"). These costs are amortized on a straight-line basis over 2.5 to 25 year useful lives and, as a result, amortization expense on these assets is expected to remain stable over the coming years. Future business acquisitions may result in incremental amortization of intangible assets acquired in any such transactions.
Change in Fair Value of Contingent Consideration
The fair values of our contingent consideration earn out obligation associated with the Apption Labs business combination is estimated based on probability adjusted present values of the consideration expected to be transferred using significant inputs. At each reporting date, we revalue the contingent consideration obligation to its fair value and records increases and decreases in fair value in the general and administrative expenses in our condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of the contingent consideration obligation results from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets in the Share Purchase Agreement.
Goodwill Impairment
Goodwill represents the excess of consideration transferred over the fair value of tangible and identifiable intangible net assets acquired and the liabilities assumed in a business combination. Substantially all of our goodwill was recognized in the purchase price allocation when our Company was acquired in 2017, with smaller incremental amounts recognized in subsequent business combinations. Goodwill is not amortized, but is tested for impairment at the reporting unit level annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. In conducting the impairment test, we first review qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. We currently operate as a single reporting unit under the guidance in Topic 350, Intangibles - Goodwill and Other.
When testing goodwill for impairment, we have the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that carrying value exceeds its fair value, we perform a quantitative goodwill impairment test. Under the quantitative goodwill impairment test, if our reporting unit’s carrying amount exceeds its fair value, we will record an impairment charge based on that difference. The Company performed an interim goodwill impairment test and concluded that the carrying value of the single reporting unit exceeded its fair value and recorded a $110.8 million and $222.3 million non-cash goodwill impairment charge for the three and nine months ended September 30, 2022, respectively.
Restructuring Costs
The Board approved the 2022 restructuring plan as part of its efforts to reduce our costs and drive long-term operational efficiencies due to challenging macroeconomic pressures. As part of the 2020 restructuring plan, we eliminated approximately 14% of its global headcount, suspended operations of Traeger Provisions, our premium frozen meal kit business, and postponed nearshoring efforts to manufacture product in Mexico. These actions were substantially completed in the third quarter of fiscal 2022.
Total Other Income (Expense)
Total other income (expense) consists of interest expense and other income (expense). Interest expense includes interest and other fees associated with our Credit Facilities, Receivables Financing Agreement (each as defined below), and settlements from our interest rate swap agreement. Other income (expense) also consists of any gains (losses) on the sale of long-lived assets, foreign currency realized and unrealized gains and losses resulting from exchange rate fluctuations on transactions denominated in a currency other than the U.S. Dollar, and from the foreign currency contracts that we use to manage our exposure to foreign currency exchange rate risk related to our purchases and international operations.
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Results of Operations
The following tables summarize key components of our results of operations for the periods presented. The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future.
 Three Months Ended
September 30,		ChangeNine Months Ended
September 30,		Change
 20222021Amount%20222021Amount%
 (unaudited)
 (dollars in thousands)
Revenue$93,788 $162,018 $(68,230)(42.1)%$517,768 $610,613 $(92,845)(15.2)%
Cost of revenue67,810 107,696 (39,886)(37.0)%334,719 372,353 (37,634)(10.1)%
Gross profit25,978 54,322 (28,344)(52.2)%183,049 238,260 (55,211)(23.2)%
Operating expenses:
Sales and marketing25,496 48,519 (23,023)(47.5)%102,401 126,639 (24,238)(19.1)%
General and administrative70,882 75,824 (4,942)(6.5)%142,637 114,182 28,455 24.9 %
Amortization of intangible assets8,889 8,889 — — %26,666 25,491 1,175 4.6 %
Change in fair value of contingent consideration1,820 2,900 (1,080)(37.2)%3,775 2,900 875 30.2 %
Goodwill impairment110,837 — 110,837 100.0 %222,322 — 222,322 100.0 %
Restructuring costs8,036 — 8,036 100.0 %8,036 — 8,036 100.0 %
Total operating expense225,960 136,132 89,828 66.0 %505,837 269,212 236,625 87.9 %
Loss from operations(199,982)(81,810)(118,172)144.4 %(322,788)(30,952)(291,836)942.9 %
Other income (expense):
Interest expense(7,337)(5,704)1,633 28.6 %(20,238)(21,393)(1,155)(5.4)%
Loss on extinguishment of debt— (3,228)3,228 (100.0)%— (5,185)5,185 (100.0)%
Other income (expense), net(3,545)(426)(3,119)(732.2)%(8,351)1,112 (9,463)851.0 %
Total other expense(10,882)(9,358)1,524 16.3 %(28,589)(25,466)3,123 12.3 %
Loss before benefit for income taxes(210,864)(91,168)(119,696)131.3 %(351,377)(56,418)(294,959)522.8 %
Benefit for income taxes(225)(1,983)1,758 (88.7)%(27)(1,255)1,228 (97.8)%
Net loss$(210,639)$(89,185)$(121,454)136.2 %$(351,350)$(55,163)$(296,187)536.9 %
Comparison of the Three Months Ended September 30, 2022 and 2021
Revenue
Three Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Revenue:
Grills$38,994 $108,799 $(69,805)(64.2)%
Consumables25,151 28,029 (2,878)(10.3)%
Accessories29,644 25,190 4,454 17.7 %
Total Revenue$93,788 $162,018 $(68,229)(42.1)%
Revenue decreased by $68.2 million, or 42.1%, to $93.8 million for the three months ended September 30, 2022 compared to $162.0 million for the three months ended September 30, 2021. The decrease was driven by lower unit volume for grills and consumables primarily due to challenging global macroeconomic conditions. The decrease was partially offset by
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increased revenue from accessories due to continued growth of MEATER smart thermometer business and higher selling prices for grills.
Revenue from our grills decreased by $69.8 million, or 64.2%, to $39.0 million for the three months ended September 30, 2022 compared to $108.8 million for the three months ended September 30, 2021. The decrease was primarily driven by lower unit volume due to challenging global macroeconomic conditions, partially offset by a higher average selling price resulting from price increases taken in September 2021 and early 2022 and the introduction of higher average selling priced product in 2022.
Revenue from our consumables decreased by $2.9 million, or 10.3%, to $25.2 million for the three months ended September 30, 2022 compared to $28.0 million for the three months ended September 30, 2021. The decrease was driven by lower unit volume of wood pellets partially offset by higher unit volume of sauces and rubs primarily due to an increase in distribution channels. The increase in the average selling price of sauces and rubs also partially offset the decrease.
Revenue from our accessories increased by $4.5 million, or 17.7%, to $29.6 million for the three months ended September 30, 2022 compared to $25.2 million for the three months ended September 30, 2021. The increase was driven primarily by continued growth of the MEATER smart thermometers business.
Gross Profit
Three Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Gross profit$25,978 $54,322 $(28,344)(52.2)%
Gross margin (Gross profit as a percentage of revenue)27.7 %33.5 %
Gross profit decreased by $28.3 million, or 52.2%, to $26.0 million for the three months ended September 30, 2022 compared to $54.3 million for the three months ended September 30, 2021. Gross margin decreased to 27.7% for the three months ended September 30, 2022 from 33.5% for the three months ended September 30, 2021. The decrease in gross margin was driven primarily by increased logistics and warehousing costs, promotional discounts to reduce inventory levels, and restructuring costs. The decrease was partially offset by higher selling prices of grills and accessories.
Sales and Marketing
Three Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Sales and marketing$25,496 $48,519 $(23,023)(47.5)%
As a percentage of revenue27.2 %29.9 %
Sales and marketing expense decreased by $23.0 million, or 47.5%, to $25.5 million for the three months ended September 30, 2022 compared to $48.5 million for the three months ended September 30, 2021. As a percentage of revenue, sales and marketing expense decreased to 27.2% for the three months ended September 30, 2022 from 29.9% for the three months ended September 30, 2021. The decrease in sales and marketing expense was driven by a reduction of $11.8 million in equity-based compensation primarily due to the prior period accelerated vesting of $10.2 million in connection with the unvested and outstanding Class B unit awards upon completion of the initial public offering, lower professional fees and sales commission expense as revenue declined, and reduced investments in advertising costs for brand awareness, demand, and conversion.
General and Administrative
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Three Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
General and administrative$70,882 $75,824 $(4,942)(6.5)%
As a percentage of revenue75.6 %46.8 %
General and administrative expense decreased by $4.9 million, or 6.5%, to $70.9 million for the three months ended September 30, 2022 compared to $75.8 million for the three months ended September 30, 2021. As a percentage of revenue, general and administrative expense increased to 75.6% for the three months ended September 30, 2022 from 46.8% for the three months ended September 30, 2021. The decrease in general and administrative expense was driven by lower professional service fees primarily due to the suspension of the Traeger Provisions' business, a reduction in research and development costs, lower bonus expense, and lower employee related expenses. The decrease was partially offset by an increase in equity-based compensation of $6.4 million, due to an accelerated vesting of $40.5 million in connection with the current period modifications related to awards held by the CEO and certain directors compared to equity-based compensation of $36.9 million in connection with the prior period acceleration of vesting of all unvested and outstanding Class B unit awards upon completion of the initial public offering.
Amortization of Intangible Assets
Three Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Amortization of intangible assets$8,889 $8,889 $— — %
As a percentage of revenue9.5 %5.5 %
Amortization of intangible assets, substantially attributable to the 2017 corporate reorganization and acquisition of our Company and the July 2021 acquisition of Apption Labs remained flat at $8.9 million for the three months ended September 30, 2022 compared to $8.9 million for the three months ended September 30, 2021.
Change in Fair Value of Contingent Consideration
Three Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Change in fair value of contingent consideration$1,820 $2,900 $(1,080)(37.2)%
As a percentage of revenue1.9 %1.8 %
Change in fair value of contingent consideration, attributable to the revalued earn out obligation associated with the Apption Labs business combination, decreased $1.1 million, or 37.2%, to $1.8 million for the three months ended September 30, 2022 compared to $2.9 million for the three months ended September 30, 2021. The change in fair value was primarily driven by the increase in the likelihood of achieving the performance targets in the Share Purchase Agreement.
Goodwill Impairment
Three Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Goodwill impairment$110,837 $— $110,837 100.0 %
As a percentage of revenue118.2 %— %
The Company recorded non-cash goodwill impairment of $110.8 million for the three months ended September 30, 2022 compared to no impairment for the three months ended September 30, 2021. The non-cash goodwill impairment was primarily driven by our reporting unit's sustained decrease in discounted projections of estimated operating results and cash flows as well as decreased valuation multiples compared to publicly traded companies, resulting in our reporting units carrying amount exceeding its fair value.
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Restructuring Costs
Three Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Restructuring costs$8,036 $— $8,036 100.0 %
As a percentage of revenue8.6 %— %
The Company recorded restructuring costs of $8.0 million for the three months ended September 30, 2022 compared to no restructuring costs for the three months ended September 30, 2021. The restructuring costs were primarily due to the reduction in force, suspended operations of Traeger Provisions, and postponed nearshoring efforts to manufacture product in Mexico.
Total Other Expense
Three Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Interest expense$(7,337)$(5,704)$1,633 28.6 %
Loss on extinguishment of debt— (3,228)(3,228)(100.0)%
Other expense, net
(3,545)(426)3,119 732.2 %
Total other expense
$(10,882)$(9,358)$1,524 16.3 %
As a percentage of revenue(11.6)%(5.8)%
Total other expense increased by $1.5 million, or 16.3%, to $10.9 million for the three months ended September 30, 2022 compared to $9.4 million for the three months ended September 30, 2021. This increase was due primarily to an unfavorable change in our foreign currency derivative instruments, as well as losses recorded associated with foreign currency denominated transactions, and an increase in interest expense due to higher utilization of the accounts receivable credit facility and a draw down of the delayed draw term loan. These increases were partially offset by the loss on extinguishment of debt in the prior period as a result of refinancing of our long-term debt in June 2021.
Comparison of the Nine Months Ended September 30, 2022 and 2021
Revenue
Nine Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Revenue:
Grills$307,105 $443,495 $(136,390)(30.8)%
Consumables106,899 110,067 (3,168)(2.9)%
Accessories103,764 57,051 46,713 81.9 %
Total Revenue$517,768 $610,613 $(92,845)(15.2)%
Revenue decreased by $92.8 million, or 15.2%, to $517.8 million for the nine months ended September 30, 2022 compared to $610.6 million for the nine months ended September 30, 2021. The decrease was driven by lower unit volume for grills and consumables primarily due to challenging global macroeconomic conditions, partially offset by higher selling prices for grills. Accessories revenue benefited from incremental revenue in the first half of 2022 due to sales of MEATER smart thermometers following the July 2021 acquisition of Apption Labs.
Revenue from our grills decreased by $136.4 million, or 30.8%, to $307.1 million for the nine months ended September 30, 2022 compared to $443.5 million for the nine months ended September 30, 2021. The decrease was primarily driven by lower unit volume, partially offset by a higher average selling price resulting from price increases taken in September 2021 and early 2022.
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Revenue from our consumables decreased by $3.2 million, or 2.9%, to $106.9 million for the nine months ended September 30, 2022 compared to $110.1 million for the nine months ended September 30, 2021. The decrease was driven by lower unit volume of wood pellets partially offset by higher average selling prices of wood pellets and other consumables.
Revenue from our accessories increased by $46.7 million, or 81.9%, to $103.8 million for the nine months ended September 30, 2022 compared to $57.1 million for the nine months ended September 30, 2021. The increase was driven primarily by incremental revenue in the first half of 2022 due to sales of MEATER smart thermometers following the July 2021 acquisition of Apption Labs combined with growth in of the Meater business in the third quarter of 2022 compared to the prior comparable period.
Gross Profit
Nine Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Gross profit$183,049 $238,260 $(55,211)(23.2)%
Gross margin (Gross profit as a percentage of revenue)35.4 %39.0 %
Gross profit decreased by $55.2 million, or 23.2%, to $183.0 million for the nine months ended September 30, 2022 compared to $238.3 million for the nine months ended September 30, 2021. Gross margin decreased to 35.4% for the nine months ended September 30, 2022 from 39.0% for the nine months ended September 30, 2021. The decrease in gross margin was driven primarily by a shift in product mix in the grills category, increased shipping costs, a decrease in margin for the Meater business, and restructuring costs. The decrease was partially offset by higher selling prices of grills and accessories.
Sales and Marketing
Nine Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Sales and marketing$102,401 $126,639 $(24,238)(19.1)%
As a percentage of revenue19.8 %20.7 %
Sales and marketing expense decreased by $24.2 million, or 19.1%, to $102.4 million for the nine months ended September 30, 2022 compared to $126.6 million for the nine months ended September 30, 2021. As a percentage of revenue, sales and marketing expense decreased to 19.8% for the nine months ended September 30, 2022 from 20.7% for the nine months ended September 30, 2021. The decrease in sales and marketing expense was driven by a decrease in professional services fees, a $10.0 million reduction in equity-based compensation primarily due to the prior period accelerated vesting of $10.2 million in connection with the unvested and outstanding Class B unit awards upon completion of the initial public offering, lower commissions expense, and a decrease in advertising costs in response to slowing demand.
General and Administrative
Nine Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
General and administrative$142,637 $114,182 $28,455 24.9 %
As a percentage of revenue27.5 %18.7 %
General and administrative expense increased by $28.5 million, or 24.9%, to $142.6 million for the nine months ended September 30, 2022 compared to $114.2 million for the nine months ended September 30, 2021. As a percentage of revenue, general and administrative expense increased to 27.5% for the nine months ended September 30, 2022 from 18.7% for the nine months ended September 30, 2021. The increase in general and administrative expense was driven by an increase in equity-based compensation of $29.3 million, due to an accelerated vesting of $40.5 million in connection with the current period modifications related to awards held by the CEO and certain directors compared to equity-based compensation of $36.9 million in connection with the prior period acceleration of vesting of all unvested and outstanding Class B unit awards upon completion
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of the initial public offering, combined with higher personnel-related expenses. The increase was partially offset by lower professional service fees primarily due to the suspension of the Traeger Provisions' business.
Amortization of Intangible Assets
Nine Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Amortization of intangible assets$26,666 $25,491 $1,175 4.6 %
As a percentage of revenue5.2 %4.2 %
Amortization of intangible assets, substantially attributable to the 2017 corporate reorganization and acquisition of our Company and the July 2021 acquisition of Apption Labs, increased $1.2 million, or 4.6%, to $26.7 million for the nine months ended September 30, 2022 compared to $25.5 million for the nine months ended September 30, 2021.
Change in Fair Value of Contingent Consideration
Nine Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Change in fair value of contingent consideration$3,775 $2,900 $875 30.2 %
As a percentage of revenue0.7 %0.5 %
Change in fair value of contingent consideration, attributable to the revalued earn out obligation associated with the Apption Labs business combination, increased $0.9 million, or 30.2%, to $3.8 million for the nine months ended September 30, 2022 compared to $2.9 million for the nine months ended September 30, 2021. The change in fair value was primarily driven by the increase in the likelihood of achieving the performance targets in the Share Purchase Agreement.
Goodwill Impairment
Nine Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Goodwill impairment$222,322 $— $222,322 100.0 %
As a percentage of revenue42.9 %— %
The Company recorded non-cash goodwill impairment of $222.3 million for the nine months ended September 30, 2022, compared to no impairment for the nine months ended September 30, 2021. The non-cash goodwill impairment was primarily driven by our reporting unit's sustained decrease in discounted projections of estimated operating results and cash flows as well as decreased valuation multiples compared to publicly traded companies, resulting in our reporting units carrying amount exceeding its fair value.
Restructuring Costs
Nine Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Restructuring costs$8,036 $— $8,036 100.0 %
As a percentage of revenue1.6 %— %
The Company recorded restructuring costs of $8.0 million for the nine months ended September 30, 2022 compared to no restructuring costs for the nine months ended September 30, 2021. The restructuring costs were primarily due to reduction in force, suspended operations of Traeger Provisions, and postponed nearshoring efforts to manufacture product in Mexico.
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Total Other Expense
Nine Months Ended
September 30,		Change
20222021Amount%
(dollars in thousands)
Interest expense$(20,238)$(21,393)$(1,155)(5.4)%
Loss on extinguishment of debt— (5,185)(5,185)(100.0)%
Other income (expense), net
(8,351)1,112 9,463 851.0 %
Total other expense
$(28,589)$(25,466)$3,123 12.3 %
As a percentage of revenue(5.5)%(4.2)%
Total other expense increased by $3.1 million, or 12.3%, to $28.6 million for the nine months ended September 30, 2022 compared to $25.5 million for the nine months ended September 30, 2021. This increase was primarily due to an unfavorable change in our foreign currency derivative instruments, as well as losses recorded associated with foreign currency denominated transactions. These increases were offset by the loss on extinguishment of debt in the prior period and lower interest expense due to a reduction of the applicable interest rate on our First Lien Term Loan Facility (as defined below) as a result of refinancing of our long-term debt in June 2021.
Liquidity and Capital Resources
Historically, our cash requirements have principally been for working capital purposes, capital expenditures, and debt service payments. We have funded our operations through cash flows from operating activities, cash on hand, and borrowings under our Credit Facilities and Receivables Financing Agreement.
As of September 30, 2022, we had cash and cash equivalents of $8.3 million, $78.0 million borrowing capacity under our Revolving Credit Facility (as defined below) and no borrowing capacity under our Receivables Financing Agreement (as defined below). As of September 30, 2022, we had drawn down $47.0 million on the Revolving Credit Facility and $13.5 million on the Receivables Financing Agreement. As of September 30, 2022, the total principal amount outstanding under our First Lien Term Loan Facility was $391.7 million. Based on our current business plan and revenue prospects, we continue to believe that our existing cash and cash equivalents, availability under our Revolving Credit Facility and Receivables Financing Agreement, and our anticipated cash flows from operating activities will be sufficient to meet our working capital and operating resource expenditure requirements for at least the next twelve months from the date of this Quarterly Report on Form 10-Q. However, our future working capital requirements will depend on many factors, including our rate of revenue growth and profitability, the timing and size of future acquisitions, and the timing of introductions of new products and investments in our supply chain and implementation of technologies. We may from time to time seek to raise additional equity or debt financing to support our growth or in connection with the acquisition of complementary businesses. Any equity financing we may undertake could be dilutive to our existing stockholders, and any additional debt financing we may undertake could require debt service and financial and operational requirements that could adversely affect our business. There is no assurance we would be able to obtain future financing on acceptable terms or at all. See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q.
Cash Flows
The following table sets forth cash flow data for the periods indicated therein:
Nine Months Ended
September 30,
20222021
(in thousands)
Net cash used in operating activities$(6,001)$(870)
Net cash used in investing activities(15,531)(75,451)
Net cash provided by financing activities13,141 82,868 
Net increase (decrease) in cash and cash equivalents$(8,391)$6,547 
Cash Flow from Operating Activities
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During the nine months ended September 30, 2022, net cash used in operating activities consisted of a net loss of $351.4 million and non-cash adjustments to net loss of $353.1 million, partially offset by net changes in operating assets and liabilities of $7.7 million. Non-cash adjustments consisted of depreciation of property, plant, and equipment of $9.7 million, amortization of intangible assets of $32.0 million, equity-based compensation of $80.7 million, goodwill impairment of $222.3 million, and unrealized loss on derivative contracts of $4.6 million. The decrease in net cash from net changes in operating assets and liabilities during the nine months ended September 30, 2022 was primarily due to an increase in inventories of $16.7 million, partially offset by a decrease in accounts receivable of $58.9 million and a decrease in accounts payable and accrued expenses of $42.8 million.
During the nine months ended September 30, 2021, net cash used in operating activities consisted of net loss of $55.2 million and non-cash adjustments to net loss of $111.5 million, partially offset by net changes in operating assets and liabilities of $57.2 million. Non-cash adjustments consisted of depreciation of property, plant, and equipment of $6.6 million, amortization of intangible assets of $27.6 million, equity-based compensation of $61.7 million, unrealized losses on derivative contracts of $4.8 million. The decrease in net cash from net changes in operating assets and liabilities during the nine months ended September 30, 2021 was primarily due to an increase in accounts receivable of $19.2 million, partially offset by an increase in inventories of $40.3 million and an increase in accounts payable and accrued expenses of $10.0 million.
Cash Flow from Investing Activities
During the nine months ended September 30, 2022, net cash used in investing activities was $15.5 million. The cash flow used was driven primarily by the purchase of property, plant, and equipment of $15.1 million primarily related to the purchase of tooling equipment, the purchase of wood pellet production equipment, and internal-use software and website development costs.
During the nine months ended September 30, 2021, net cash used in investing activities was $75.5 million. The cash flow used was driven by the acquisition of Apption Labs in July 2021 as well as the purchase of property, plant, and equipment of $18.0 million primarily related to internal-use software and website developments costs.
Cash Flow from Financing Activities
During the nine months ended September 30, 2022, net cash provided by financing activities was $13.1 million. The cash flow provided was driven primarily by net borrowings on our lines of credit under the Revolving Credit Facility, Receivables Financing Agreement, of $10.3 million for general corporate and working capital purposes, as well as the borrowings under the delayed draw term loan of $12.5 million for purposes of financing the earn out obligation associated with the acquisition of Apption Labs.
During the nine months ended September 30, 2021, net cash provided by financing activities was $82.9 million. The cash flow used was driven primarily by $142.5 million of proceeds from the issuance of common stock upon the initial public offering, net of offering costs, as well as net proceeds from our First Lien Term Loan Facility of $510.0 million partially offset by repayment of the previous First and Second Lien Agreements of $577.1 million and $2.8 million in connection with the acquisition of Apption Labs.
Credit Facilities
On June 29, 2021, we refinanced our existing credit facilities and entered into a new first lien credit agreement, as borrower, with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and other lenders party thereto as joint lead arrangers and joint bookrunners (the "First Lien Credit Agreement"). The First Lien Credit Agreement provides for a senior secured term loan facility (the "First Lien Term Loan Facility") and a revolving credit facility (the "Revolving Credit Facility" and, together with the First Lien Term Loan Facility, the "Credit Facilities").
First Lien Credit Agreement
The First Lien Credit Agreement provides for a $560.0 million First Lien Term Loan Facility (including a $50.0 million delayed draw term loan) and a $125.0 million Revolving Credit Facility.
The First Lien Term Loan Facility accrues interest at a rate per annum that considers both fixed and floating components. Following the completion of our IPO in July 2021, the fixed component ranges from 3.00% to 3.25% per annum based on our Public Debt Rating (as defined in the First Lien Credit Agreement). The floating component is based on the Eurocurrency Base Rate (as defined in the First Lien Credit Agreement) for the relevant interest period. The First Lien Term Loan Facility requires
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periodic principal payments from December 2021 through June 2028, with any remaining unpaid principal and any accrued and unpaid interest due on the maturity date of June 29, 2028. The delayed draw term loan includes a variable commitment fee, which is based on the fixed interest rate and ranges from 0% to the Applicable Rate (as defined in the First Lien Credit Agreement). As of September 30, 2022, the total principal amount outstanding on the First Lien Term Loan Facility was $391.7 million, including a $12.5 million outstanding principal balance under the delayed draw term loan, which the Company borrowed for purposes of financing the earn out obligation associated with the acquisition of Apption Labs as described in Note 4 – Business Combination.
Loans under the Revolving Credit Facility accrue interest at a rate per annum that considers both fixed and floating components. Following completion of our IPO in July 2021, the fixed component ranges from 2.75% to 3.25% per annum based on our most recently determined First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement). The floating component is based on the Eurocurrency Base Rate for the relevant interest period. The Revolving Credit Facility also has a variable commitment fee, which is based on our most recently determined First Lien Net Leverage Ratio and ranges from 0.25% to 0.50% per annum on undrawn amounts. Letters of credit may be issued under the Revolving Credit Facility in an amount not to exceed $15.0 million which, when issued, lower the overall borrowing capacity of the facility. The Revolving Credit Facility expires on June 29, 2026 and no principal payments are due before such date. As of September 30, 2022, we had drawn down $47.0 million under the Revolving Credit Facility for general corporate and working capital purposes.
Except as noted below, the Credit Facilities are collateralized by substantially all of the assets of TGP Holdings III LLC, TGPX Holdings II LLC, Traeger Pellet Grills Holdings LLC and certain subsidiaries of Traeger Pellet Grills Holdings LLC, including intellectual property, mortgages and the equity interest of each of these respective entities. The assets of Traeger SPE LLC, substantively consisting of our accounts receivable, collateralize the receivables financing agreement discussed below and do not collateralize the Credit Facilities. There are no guarantees from parent entities above Traeger, Inc.
The First Lien Credit Agreement contains certain affirmative and negative covenants that limit our ability to, among other things, incur additional indebtedness or liens (with certain exceptions), make certain investments, engage in fundamental changes or transactions including changes of control, transfer or dispose of certain assets, make restricted payments (including dividends), engage in new lines of business, make certain prepayments and engage in certain affiliate transactions. In addition, we are subject to a financial covenant whereby we are required to maintain a First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement) not to exceed 6.20 to 1.00.
On August 9, 2022, we entered into a second amendment (the “Amendment”) to the First Lien Credit Agreement to provide for a “Covenant Amendment Period” (as defined therein) through and including the earlier of June 30, 2023 and the date on which we, in our sole discretion, deliver written notice to the Administrative Agent of our election to end the Covenant Amendment Period. During that period, our springing First Lien Net Leverage Ratio covenant will be increased from 6.20 : 1.00 to 8.50 : 1.00 and a minimum liquidity covenant of $35.0 million will be in effect. Liquidity will be calculated as the sum of cash on our balance sheet, availability under our Revolving Credit Facility and availability under our Receivables Financing Agreement (as defined below), and the minimum liquidity covenant will be tested only if and when we request borrowings under our Revolving Credit Facility. During the Covenant Amendment Period, the fixed dollar portion of the “Fixed Dollar Amount” definition shall decrease from $127.0 million to $102.0 million, and the use of certain restricted payments baskets will be reduced or eliminated entirely. As of September 30, 2022, we were in compliance with the covenants under the Credit Facilities.
Accounts Receivable Credit Facility
On November 2, 2020, we entered into a receivables financing agreement (as amended, the “Receivables Financing Agreement”). Through the Receivables Financing Agreement, we participate in a trade receivables securitization program, administered on our behalf by MUFG Bank Ltd. ("MUFG"), using outstanding accounts receivables balances as collateral, which have been contributed by us to our wholly owned subsidiary, Traeger SPE LLC (the "SPE"). While we provide operational services to the SPE, the receivables are owned by the SPE once contributed to it by us. We are the primary beneficiary and hold all equity interests of the SPE, thus we consolidate the SPE without any significant judgments.
On June 29, 2021, we entered into Amendment No. 1 to the Receivables Financing Agreement and increased the net borrowing capacity from the prior range of $30.0 million to $45.0 million up to $100.0 million. The borrowing capacity fluctuates at each month end based upon the amount of eligible outstanding domestic accounts receivables to be used as collateral. On August 19, 2022, the Company entered into Amendment No. 4 to the Receivables Financing Agreement to increase the liquidity level that must be maintained to avoid a “Liquidity Shortfall” (as defined in the agreement) from $7.5 million to $42.5 million. As of September 30, 2022, we had drawn down $13.5 million under this facility for general corporate and working capital purposes. We are required to pay an annual upfront fee for the facility, along with fixed interest on
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outstanding cash advances of 1.7%, a floating component based on the CP Rate (as defined in the Receivables Financing Agreement), and an unused capacity charge that ranges from 0.25% to 0.50%. The facility is set to terminate on June 29, 2024.
The Company was not in compliance with the covenants under the Receivables Financing Agreement as of September 30, 2022 due to a minimum dilution ratio as defined in the Receivables Financing Agreement. Such non-compliance did not result in the acceleration or increase of a direct financial obligation or an obligation under an off-balance sheet arrangement. On November, 8, 2022, the Company obtained a waiver for the breach of compliance to the covenants as of September 30, 2022 and entered into Amendment No. 7 under the Receivables Financing Agreement with MUFG, amending the definition of the dilution ratio and the net receivable pool balance to factor in certain contractual dilution amounts (as defined in the agreement) for future periods.
Initial Public Offering
On August 2, 2021, after our statutory conversion and related transactions, we completed our initial public offering ("IPO") in which we issued and sold 8,823,529 shares of common stock at a public offering price of $18.00 per share, generating aggregate gross proceeds of $158.8 million before underwriter discounts and commissions, fees and expenses totaling $20.3 million. Additionally, certain selling stockholders sold an aggregate of 18,235,293 shares (including 3,529,411 shares pursuant to the underwriters’ exercise of their option to purchase additional shares).
Contractual Obligations
There have been no material changes to our contractual obligations as of September 30, 2022 from those disclosed in our Annual Report on Form 10-K. Refer to the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" above for a discussion of our debt and operating lease obligations, respectively.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.
Our critical accounting policies are described under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K, the notes to the consolidated financial statements included therein and Note 2 – Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2022, there were no material changes to our critical accounting policies from those discussed in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 2 – Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our disclosures regarding our exposure to market risk as described in Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints
36
and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2022, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are from time to time subject to various legal proceedings, claims, and governmental inspections, audits, or investigations that arise in the ordinary course of our business. We believe that the ultimate resolution of these matters would not be expected to have a material adverse effect on our business, financial condition, or operating results.
ITEM 1A. RISK FACTORS
Other than the risk factor disclosed below, there have been no material changes with respect to the risk factors disclosed in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K.
We have recently recognized impairment charges for goodwill and we may need to recognize further impairments in the future, which could materially adversely impact our financial condition and results of operations.
As of September 30, 2022, the net carrying value of goodwill totaled $185.6 million prior to concluding that a triggering event had occurred which required an interim goodwill impairment assessment . We periodically assess the value of these assets for impairment in accordance with U.S. generally accepted accounting principles (GAAP). Significant negative industry or economic trends, disruptions to our businesses, significant unexpected or planned changes in use of the assets, divestitures and market capitalization declines may result in impairments to goodwill and other long-lived assets.
As discussed in Note 8 – Goodwill to the accompanying consolidated financial statements, for the three months ended September 30, 2022, we recorded a $110.8 million non-cash goodwill impairment charge, which reflects that the fair value of the reporting unit is less than its carrying amount. This impairment was generally driven by macroeconomic conditions such as inflationary pressures and supply chain disruption, a sustained decrease in our stock price, and the current outlook for sales and projected profitability in the impacted reporting unit. This impairment charge negatively impacted our results of operations for the period ended September 30, 2022 and future impairment charges could have a further adverse effect on our results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser
None.
Use of Proceeds
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
37
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Incorporated by Reference
Exhibit No.
Exhibit Description
Form
Date
Number
Filed/Furnished
Herewith
3.1
8-K
08/03/21
3.1
3.2
8-K
08/03/21
3.2
10.110-Q8/15/2210.2
10.210-Q8/15/2210.3
10.3*
10.48-K8/31/2210.1
10.5*
10.6*
10.7+*
31.1
*
31.2
*
32.1
**
32.2
**
38
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*
101.SCH
Inline XBRL Taxonomy Extension Schema Document
*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
*
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
*
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
* Filed herewith.
** Furnished herewith.
+ Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the SEC upon request.
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TRAEGER, INC.
Date: November 14, 2022
By:/s/ Jeremy Andrus
Name:Jeremy Andrus
Title:Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2022
By:/s/ Dominic Blosil
Name:Dominic Blosil
Title:Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
40
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