Traeger, Inc. - Quarter Report: 2022 June (Form 10-Q)

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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 June 30, 2022


☐			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)


Delaware						82-2739741
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value	COOK	New 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	☒

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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 August 8, 2022, there were 118,236,891 shares of the registrant's common stock, par value $0.0001 outstanding.

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			Page
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (U N A U D I T E D )			1
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)			2
Condensed Consolidated Statements of Changes in Member's and Stockholders' Equity			3
Condensed Consolidated Statements of Cash Flows			5
Notes to Unaudited Condensed Consolidated Financial Statements			7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			33
ITEM 4. CONTROLS AND PROCEDURES			33

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS			34
ITEM 1A. RISK FACTORS			34
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			34
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			35
ITEM 4. MINE SAFETY DISCLOSURES			35
ITEM 5. OTHER INFORMATION			35
ITEM 6. EXHIBITS			35
SIGNATURES			37

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. 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.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

TRAEGER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	June 30, 2022		December 31, 2021
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	13,609	$	16,740
Accounts receivable, net	111,763		92,927
Inventories	163,804		145,038
Prepaid expenses and other current assets	19,695		15,036
Total current assets	308,871		269,741
Property, plant, and equipment, net	69,807		55,477
Goodwill	185,562		297,047
Intangible assets, net	534,058		555,151
Other non-current assets	11,895		3,608
Total assets	$	1,110,193	$	1,181,024
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	27,636	$	42,694
Accrued expenses	74,207		69,773
Line of credit	83,811		41,138

Current portion of capital leases	472		420
Current portion of contingent consideration	14,700		12,200
Other current liabilities	1,425		—
Total current liabilities	202,251		166,225
Notes payable	386,564		379,395
Capital leases, net of current portion	717		677
Contingent consideration, net of current portion	—		13,100
Deferred tax liability	11,683		11,673
Other non-current liabilities	443		434
Total liabilities	601,658		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 June 30, 2022 and December 31, 2021	—		—
Common stock, $0.0001 par value; 1,000,000,000 shares authorized

Issued and outstanding shares - 118,211,775 and 117,547,916 as of June 30, 2022 and December 31, 2021	12		12
Additional paid-in capital	821,806		794,413
Accumulated deficit	(325,530)		(184,819)
Accumulated other comprehensive income (loss)	12,247		(86)
Total stockholders' equity	508,535		609,520
Total liabilities and stockholders' equity	$	1,110,193	$	1,181,024

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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TRAEGER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue	$	200,270	$	213,022	$	423,980	$	448,595
Cost of revenue	126,764		129,715		266,909		264,657
Gross profit	73,506		83,307		157,071		183,938
Operating expenses:
Sales and marketing	43,811		47,269		76,905		78,120
General and administrative	28,886		24,802		71,755		38,358
Amortization of intangible assets	8,888		8,301		17,777		16,602
Change in fair value of contingent consideration	255		—		1,955		—
Goodwill impairment	111,485		—		111,485		—
Total operating expense	193,325		80,372		279,877		133,080
Income (loss) from operations	(119,819)		2,935		(122,806)		50,858
Other income (expense):
Interest expense	(7,064)		(7,877)		(12,901)		(15,689)
Loss on extinguishment of debt	—		(1,957)		—		(1,957)
Other income (expense), net	(5,350)		1,996		(4,806)		1,538
Total other expense	(12,414)		(7,838)		(17,707)		(16,108)
Income (loss) before provision for income taxes	(132,233)		(4,903)		(140,513)		34,750
Provision for income taxes	46		4		198		728
Net income (loss)	$	(132,279)	$	(4,907)	$	(140,711)	$	34,022
Net income (loss) per share, basic and diluted	$	(1.12)	$	(0.05)	$	(1.19)	$	0.31
Weighted average common shares outstanding, basic and diluted	118,211,168		108,724,387		118,051,090		108,724,387
Other comprehensive income:
Foreign currency translation adjustments	$	12	$	—	$	9	$	—
Change in cash flow hedge	5,735		—		12,324		—
Total other comprehensive income	5,747		—		12,333		—
Comprehensive income (loss)	$	(126,532)	$	(4,907)	$	(128,378)	$	34,022

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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TRAEGER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER'S AND STOCKHOLDERS' EQUITY

(unaudited)

(in thousands, except unit and share amounts)


	Three Months Ended June 30, 2022 and 2021
	Common Units			Common Stock			Members Capital		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Member's and Stockholders' Equity
	Units	No Par Value		Shares	Amount
Balance at March 31, 2022	—	$	—	118,077,546	$	12	$	—	$	809,896	$	(193,251)	$	6,500	$	623,157
Issuance of common stock under stock plan	—	—		139,755	—		—		—		—		—		—
Shares withheld related to net share settlement	—	—		(5,526)	—		—		(41)		—		—		(41)
Equity-based compensation	—	—		—	—		—		11,951		—		—		11,951
Net loss	—	—		—	—		—		—		(132,279)		—		(132,279)
Foreign currency translation adjustments	—	—		—	—		—		—		—		12		12
Change in cash flow hedge	—	—		—	—		—		—		—		5,735		5,735
Balance at June 30, 2022	—	$	—	118,211,775	$	12	$	—	$	821,806	$	(325,530)	$	12,247	$	508,535

Balance at March 31, 2021	108,724,422	$	—	—	$	—	$	571,994	$	—	$	(57,069)	$	—	$	514,925
Equity-based compensation	—	—		—	—		1,545		—		—		—		1,545
Net loss	—	—		—	—		—		—		(4,907)		—		(4,907)
Balance at June 30, 2021	108,724,422	$	—	—	$	—	$	573,539	$	—	$	(61,976)	$	—	$	511,563


	Six Months Ended June 30, 2022 and 2021
	Common Units			Common Stock			Members Capital		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Member's and Stockholders' Equity
	Units	No Par Value		Shares	Amount
Balance at December 31, 2021	—	$	—	117,547,916	$	12	$	—	$	794,413	$	(184,819)	$	(86)	$	609,520
Issuance of common stock under stock plan	—	—		669,385	—		—		—		—		—		—
Shares withheld related to net share settlement	—	—		(5,526)	—		—		(41)		—		—		(41)
Equity-based compensation	—	—		—	—		—		27,434		—		—		27,434
Net loss	—	—		—	—		—		—		(140,711)		—		(140,711)
Foreign currency translation adjustments	—	—		—	—		—		—		—		9		9

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Change in cash flow hedge	—	—		—	—		—		—		—		12,324		12,324
Balance at June 30, 2022	—	$	—	118,211,775	$	12	$	—	$	821,806	$	(325,530)	$	12,247	$	508,535

Balance at December 31, 2020	108,724,422	$	—	—	$	—	$	571,038	$	—	$	(95,998)	$	—	$	475,040
Equity-based compensation	—	—		—	—		2,501		—		—		—		2,501
Net loss	—	—		—	—		—		—		34,022		—		34,022
Balance at June 30, 2021	108,724,422	$	—	—	$	—	$	573,539	$	—	$	(61,976)	$	—	$	511,563

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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TRAEGER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Six Months Ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(140,711)	$	34,022
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of property, plant and equipment	6,023		4,497
Amortization of intangible assets	21,337		16,942
Amortization of deferred financing costs	979		1,373
Loss on disposal of property, plant and equipment	1,176		51
Loss on extinguishment of debt	—		1,957
Equity-based compensation expense	27,434		2,501
Bad debt expense	(127)		107
Unrealized loss on derivative contracts	2,864		4,112
Change in fair value of contingent consideration	(1,325)		—
Goodwill impairment	111,485		—
Change in operating assets and liabilities:
Accounts receivable	(18,709)		(55,165)
Inventories, net	(18,767)		(17,316)
Prepaid expenses and other current assets	(2,394)		(1,420)
Other non-current assets	23		(279)
Accounts payable and accrued expenses	(19,351)		24,798

Other non-current liabilities	19		13
Net cash provided by (used in) operating activities	(30,044)		16,194
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment	(12,422)		(11,248)
Capitalization of patent costs	(305)		(327)

Net cash used in investing activities	(12,727)		(11,575)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit	110,600		65,000
Repayments on line of credit	(73,927)		(57,000)
Proceeds from long-term debt	12,500		510,000
Repayments of long-term debt	—		(446,355)
Payment of deferred financing costs	—		(8,478)
Principal payments on capital lease obligations	(217)		(184)
Payment of deferred offering costs	—		(3,906)
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	39,640		59,077
Net increase (decrease) in cash and cash equivalents	(3,131)		63,696
Cash and cash equivalents at beginning of period	16,740		11,556
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	13,609	$	75,252

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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TRAEGER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)



(Continued)	Six Months Ended June 30,
	2022		2021
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	11,781	$	13,898
Cash paid for income taxes	$	1,988	$	874
NON-CASH FINANCING AND INVESTING ACTIVITIES
Equipment purchased under capital leases	$	344	$	511
Property, plant, and equipment included in accounts payable and accrued expenses	$	8,736	$	662

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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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 six months ended June 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. Three customers (each large U.S. retailers) that accounted for a significant portion of net sales are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Customer A	13	%	17	%	15	%	20	%
Customer B	20	%	16	%	21	%	20	%
Customer C	21	%	16	%	18	%	16	%

As of June 30, 2022, customers A, B, and C accounted for a significant portion of trade accounts receivable of 22%, 23%, and 17%, compared to 45%, 13%, and 13% as of December 31, 2021. Concentrations of credit risk exist to the extent credit terms are extended with these three large customers. A business failure on the part of any one of the three 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 six months ended June 30, 2022 and 2021, respectively. Additionally, no other single customer accounted for greater than 10% of trade accounts receivable as of June 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, 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.

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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 and 2020, 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 $111.5 million non-cash goodwill impairment charge for the three and six months ended June 30, 2022. 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 June 30,				Six Months Ended June 30,
Revenue by product category	2022		2021		2022		2021
Grills	$	117,680	$	156,101	$	268,111	$	334,756
Consumables	42,097		41,178		81,748		81,991
Accessories	40,493		15,743		74,121		31,848
Total revenue	$	200,270	$	213,022	$	423,980	$	448,595


	Three Months Ended June 30,				Six Months Ended June 30,
Revenue by geography	2022		2021		2022		2021
North America	$	187,359	$	203,692	$	394,701	$	429,943
Rest of world	12,911		9,330		29,279		18,652
Total revenue	$	200,270	$	213,022	$	423,980	$	448,595


	Three Months Ended June 30,				Six Months Ended June 30,
Revenue by sales channel	2022		2021		2022		2021
Retail	$	162,137	$	195,921	$	365,354	$	425,748
Direct to consumer	38,133		17,101		58,626		22,847
Total revenue	$	200,270	$	213,022	$	423,980	$	448,595

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

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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 Measurement for subsequent measurements of this contingent liability as of June 30, 2022.

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 income (loss).

The operating results of Apption Labs have been included in the Company's condensed consolidated statements of operations and comprehensive income (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):


Consideration Transferred	Fair Value
Cash paid, net of cash acquired	$	36,957
Contingent consideration	21,500
Other closing consideration	19,890
Total purchase consideration, net of cash acquired	$	78,347
Assets acquired
Accounts receivable, net	$	2,190
Inventory, net	5,431
Prepaid and other current assets	293
Property and equipment	1,357
Intangible Assets	53,100
Goodwill	40,200
Total assets acquired	102,571
Liabilities assumed
Accounts payable and accrued liabilities	8,474
Deferred tax liability	12,646
Other current liabilities	344
Other non-current liabilities	2,760
Total liabilities assumed	24,224
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

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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 Assets	Fair Value		Estimated Useful Life (in years)
Technology	$	32,300	5
Trademarks	17,700		10
Distributor relationships	2,400		8
Non-compete arrangements	700		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 income (loss).

5 – ACCOUNTS RECEIVABLES, NET

Accounts receivable consists of the following (in thousands):


	June 30, 2022		December 31, 2021
Trade accounts receivable	$	129,534	$	108,620
Allowance for doubtful accounts	(927)		(1,090)
Reserve for returns, discounts and allowances	(16,844)		(14,603)
Total accounts receivable, net	$	111,763	$	92,927

6 – INVENTORIES

Inventories consisted of the following (in thousands):


	June 30, 2022		December 31, 2021
Raw materials	$	3,168	$	3,106
Work in process	12,153		11,523
Finished goods	148,483		130,409
Inventories	$	163,804	$	145,038

Included within inventories are adjustments of $1.0 million and $0.7 million at June 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):

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	June 30, 2022		December 31, 2021
Accrual for inventories in-transit	$	11,837	$	28,536
Warranty accrual	8,647		8,326
Accrued compensation and bonus	5,580		7,025
Build-to-suit lease liability	16,548		4,273
Other	31,595		21,613
Accrued expenses	$	74,207	$	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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Warranty accrual, beginning of period	$	8,731	$	8,071	$	8,326	$	6,728
Warranty claims	(2,604)		(2,205)		(4,088)		(3,666)
Warranty costs accrued	2,520		2,228		4,409		5,032
Warranty accrual, end of period	$	8,647	$	8,094	$	8,647	$	8,094

8 – GOODWILL

In connection with the preparation of the condensed consolidated financial statements for three and six months ended June 30, 2022, the Company conducted additional testing of its goodwill and long-lived assets. As a result of this review, 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 were 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 six months ended June 30, 2022 were lower than expected.

In performing the quantitative assessment of goodwill, 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 a $111.5 million non-cash goodwill impairment charge for the three and six months ended June 30, 2022.

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.

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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 income (loss), to the extent that the hedge is effective. The gains or losses on the interest rate swaps are recorded in accumulated other comprehensive income (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 June 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 June 30, 2022, the net asset balance derived from the monthly interest settlements related to the single cash flow hedge contract was $12.3 million.

Realized 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 income (loss) as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Realized losses	$	(1,171)	$	—	$	(1,605)	$	—
Unrealized gains	5,735		—		12,324		—
Total gains	$	4,564	$	—	$	10,719	$	—

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.

The Company had outstanding foreign currency contracts as of June 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 income (loss).

The gross and net balances from foreign currency contract positions were as follows (in thousands):


	June 30, 2022		December 31, 2021
Gross Asset Fair Value	$	—	$	1,439
Gross Liability Fair Value	1,425		—
Net Fair Value	$	1,425	$	1,439

Gains (losses) from foreign currency contracts were recorded in other income (expense) within the accompanying condensed consolidated statements of operations and comprehensive income (loss) as follows (in thousands):

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	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Realized gains (losses)	$	(451)	$	2,899	$	714	$	5,448
Unrealized losses	(2,294)		(763)		(2,864)		(4,112)
Total gains (losses)	$	(2,745)	$	2,136	$	(2,150)	$	1,336

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 June 30, 2022		As of December 31, 2021
Assets:
Derivative assets—foreign currency contracts (1)	2	$	—	$	1,439
Derivative assets—interest rate swap contract (2)	2	12,324		—
Total assets		$	12,324	$	1,439

Liabilities:
Derivative liabilities—foreign currency contracts (3)	2	$	1,425	$	—
Contingent consideration—earn out (4)	3	14,700		25,300

Total liabilities		$	16,125	$	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 June 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.

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 and discount rate of 14.49%, 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 income (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.

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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 consideration	1,955
Balance at June 30, 2022	$	14,700

The following financial instruments are recorded at their carrying amount (in thousands):


	As of June 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)	$	394,695	$	333,395	$	388,195	$	386,139
Total liabilities	$	394,695	$	333,395	$	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 June 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 Combinations.

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 June 30, 2022, the Company had drawn down $3.0 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

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First Lien Credit Agreement) not to exceed 6.20 to 1.00. As of June 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 June 30, 2022, the Company would have been 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. As of June 30, 2022, the Company had drawn down $83.8 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. As of June 30, 2022, the Company was in compliance with the covenants under the Receivables Financing Agreement.

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,

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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 income (loss) (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Cost of revenue	$	13	$	6	$	151	$	12
Sales and marketing	646		380		2,409		595
General and administrative	11,292		1,159		24,874		1,894
Total equity-based compensation	$	11,951	$	1,545	$	27,434	$	2,501

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

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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 June 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 Tranche						Vesting 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.

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.

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.

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.

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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 six months ended June 30, 2022 was as follows:


	Units	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021	6,274,860	$	18.08
Granted at fair value	1,153,821	6.81
Vested	(669,385)	18.65
Forfeited	(392,201)	17.16
Outstanding at June 30, 2022	6,367,095	$	16.04

As of June 30, 2022, the Company had $81.5 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 3.58 years.

A summary of the performance-based restricted stock unit activity during the six months ended June 30, 2022 was as follows:


	Units	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021	5,933,636	$	13.25
Granted at fair value	—	—
Vested	—	—
Forfeited	(93,333)	11.84
Outstanding at June 30, 2022	5,840,303	$	13.27

As of June 30, 2022, the Company had $52.2 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 3.33 years.

14 – INCOME TAXES

For the three months ended June 30, 2022 and 2021, the Company recorded income tax provision of $46,000 and $4,000, respectively. For the six months ended June 30, 2022 and 2021, the Company recorded income tax provision of $198,000 and $728,000, 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 June 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.

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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 $3.6 million and $4.2 million for the six months ended June 30, 2022 and 2021, respectively. Amounts payable to the third party as of June 30, 2022 and December 31, 2021 was $1.3 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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income (loss)	$	(132,279)	$	(4,907)	$	(140,711)	$	34,022

Weighted-average common shares outstanding—basic (1)	118,211,168		108,724,387		118,051,090		108,724,387
Effect of dilutive securities:
Restricted stock units	—		—		—		—
Weighted-average common shares outstanding—diluted (1)	118,211,168		108,724,387		118,051,090		108,724,387

Earnings (loss) per share
Basic and diluted	$	(1.12)	$	(0.05)	$	(1.19)	$	0.31

(1)For the three and six months ended June 30, 2021, the Company retrospectively applied shares of common stock outstanding upon the Corporate Conversion, immediately prior to the IPO. Refer to Note 1 – Description of Business and Basis of Presentation for a description of the Corporate Conversion.

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 June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Restricted stock units	12,207,398	—	12,207,398	—

17 – SUBSEQUENT EVENTS

In July 2022, the Board approved a planned reduction in workforce, as part of a plan to reduce the Company’s costs and drive long-term operational efficiencies. Additionally, the Company took steps to suspend operations of Traeger Provisions, the Company's premium frozen meal kit business, and postpone nearshoring efforts to manufacture product in Mexico. These actions are expected to be substantially completed by the third quarter of fiscal year 2022.

As a result of these actions, the Company expects to incur total pre-tax charges of between approximately $6.0 million and $7.0 million (the “Total Costs”), of which approximately $4.3 million to $5.0 million will result in future cash expenditures. Of the Total Costs, the Company expects pre-tax charges of between approximately $3.9 million and $4.3 million related to severance, termination and suspending operations of Traeger Provisions; and pre-tax charges of between approximately $2.1 million and $2.7 million related to postponing plans to manufacture product in Mexico.

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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 6.0% and 5.5% for the three and six months ended June 30, 2022, respectively, as compared to the three and six months ended June 30, 2021, respectively, and was $200.3 million and $424.0 million for the three and six months ended June 30, 2022, respectively, down from $213.0 million and $448.6 million for the three and six months ended

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June 30, 2021, respectively. We recorded a net loss of $132.3 million and $140.7 million for the three and six months ended June 30, 2022, respectively, compared to net loss of $4.9 million and net income of $34.0 million for the three and six months ended June 30, 2021, respectively.

Cost Reduction Actions

As previously disclosed, in July 2022, our Board approved a planned reduction in workforce, as part of a plan to reduce our costs and drive long-term operational efficiencies. Additionally, we took steps to suspend operations of Traeger Provisions, our premium frozen meal kit business, and postpone nearshoring efforts to manufacture product in Mexico. These actions are expected to be substantially completed by the end of the third quarter of fiscal year 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 June 30, 2022, we experienced inflationary pressure and constraints in our supply chain.

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.

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.

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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 increase on an absolute dollar basis for the foreseeable future as we continue to increase the scope of outreach to potential new customers to drive our revenue growth. 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 $6.7 million and $5.8 million for the six months ended June 30, 2022 and 2021, respectively, and was $1.8 million and $3.8 million for the three months ended June 30, 2022, and 2021, respectively.

As part of our plan to reduce our costs and drive long-term operational efficiencies, we expect general and administrative expense, including our research and development expenses and external legal and accounting expenses, to stabilize as we continue to manage our investments to support our growth and develop new and enhance existing products and interactive software. 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

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,

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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.

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 $111.5 million non-cash goodwill impairment charge for the three and six months ended June 30, 2022.

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 income (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.

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 June 30,				Change				Six Months Ended June 30,				Change
	2022		2021		Amount		%		2022		2021		Amount		%
	(unaudited)
	(dollars in thousands)
Revenue	$	200,270	$	213,022	$	(12,752)	(6.0)	%	$	423,980	$	448,595	$	(24,615)	(5.5)	%
Cost of revenue	126,764		129,715		(2,951)		(2.3)	%	266,909		264,657		2,252		0.9	%
Gross profit	73,506		83,307		(9,801)		(11.8)	%	157,071		183,938		(26,867)		(14.6)	%
Operating expenses:
Sales and marketing	43,811		47,269		(3,458)		(7.3)	%	76,905		78,120		(1,215)		(1.6)	%
General and administrative	28,886		24,802		4,084		16.5	%	71,755		38,358		33,397		87.1	%
Amortization of intangible assets	8,888		8,301		587		7.1	%	17,777		16,602		1,175		7.1	%
Change in fair value of contingent consideration	255		—		255		100.0	%	1,955		—		1,955		100.0	%
Goodwill impairment	111,485		—		111,485		100.0	%	111,485		—		111,485		100.0	%
Total operating expense	193,325		80,372		112,953		140.5	%	279,877		133,080		146,797		110.3	%
Income (loss) from operations	(119,819)		2,935		(122,754)		(4,182.4)	%	(122,806)		50,858		(173,664)		(341.5)	%
Other income (expense):
Interest expense	(7,064)		(7,877)		(813)		(10.3)	%	(12,901)		(15,689)		(2,788)		(17.8)	%
Loss on extinguishment of debt	—		(1,957)		1,957		(100.0)	%	—		(1,957)		1,957		(100.0)	%
Other income (expense), net	(5,350)		1,996		(7,346)		368.0	%	(4,806)		1,538		(6,344)		412.5	%
Total other expense	(12,414)		(7,838)		4,576		58.4	%	(17,707)		(16,108)		1,599		9.9	%
Income (loss) before provision for income taxes	(132,233)		(4,903)		(127,330)		2,597.0	%	(140,513)		34,750		(175,263)		(504.4)	%
Provision for income taxes	46		4		42		n.m.		198		728		(530)		(72.8)	%
Net income (loss)	$	(132,279)	$	(4,907)	$	(127,372)	2,595.7	%	$	(140,711)	$	34,022	$	(174,733)	(513.6)	%

Comparison of the Three Months Ended June 30, 2022 and 2021

Revenue


	Three Months Ended June 30,				Change
	2022		2021		Amount		%
	(dollars in thousands)
Revenue:
Grills	$	117,680	$	156,101	$	(38,421)	(24.6)	%
Consumables	42,097		41,178		919		2.2	%
Accessories	40,493		15,743		24,750		157.2	%
Total Revenue	$	200,270	$	213,022	$	(12,752)	(6.0)	%

Revenue decreased by $12.8 million, or 6.0%, to $200.3 million for the three months ended June 30, 2022 compared to $213.0 million for the three months ended June 30, 2021. The decrease was driven by lower unit volume for grills and consumables, partially offset by higher selling prices. Accessories revenue benefited from incremental revenue due to sales of MEATER smart thermometers following the July 2021 acquisition of Apption Labs.

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Revenue from our grills decreased by $38.4 million, or 24.6%, to $117.7 million for the three months ended June 30, 2022 compared to $156.1 million for the three months ended June 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 the second half of 2021 and early 2022.

Revenue from our consumables increased by $0.9 million, or 2.2%, to $42.1 million for the three months ended June 30, 2022 compared to $41.2 million for the three months ended June 30, 2021. The increase was driven by increased average selling prices for wood pellets and other consumables, offset by lower unit volume of pellets.

Revenue from our accessories increased by $24.8 million, or 157.2%, to $40.5 million for the three months ended June 30, 2022 compared to $15.7 million for the three months ended June 30, 2021. The increase was driven primarily by incremental revenue due to sales of MEATER smart thermometers following the July 2021 acquisition of Apption Labs combined with high demand for Traeger-branded accessories.

Gross Profit


	Three Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Gross profit	$	73,506		$	83,307		$	(9,801)	(11.8)	%
Gross margin (Gross profit as a percentage of revenue)	36.7		%	39.1		%

Gross profit decreased by $9.8 million, or 11.8%, to $73.5 million for the three months ended June 30, 2022 compared to $83.3 million for the three months ended June 30, 2021. Gross margin decreased to 36.7% for the three months ended June 30, 2022 from 39.1% for the three months ended June 30, 2021. The decrease in gross margin was driven primarily by a shift in product mix relating to the grills category, increased shipping costs, and partially offset by increased selling prices.

Sales and Marketing


	Three Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Sales and marketing	$	43,811		$	47,269		$	(3,458)	(7.3)	%
As a percentage of revenue	21.9		%	22.2		%

Sales and marketing expense decreased by $3.5 million, or 7.3%, to $43.8 million for the three months ended June 30, 2022 compared to $47.3 million for the three months ended June 30, 2021. As a percentage of revenue, sales and marketing expense decreased to 21.9% for the three months ended June 30, 2022 from 22.2% for the three months ended June 30, 2021. The decrease in sales and marketing expense was driven by reduced investments in advertising costs for brand awareness, demand, and conversion, and lower professional fees, offset by higher advertising costs associated with Apption Labs, which was not reflected in the comparable period results, and higher employee and travel expenses.

General and Administrative


	Three Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
General and administrative	$	28,886		$	24,802		$	4,084	16.5	%
As a percentage of revenue	14.4		%	11.6		%

General and administrative expense increased by $4.1 million, or 16.5%, to $28.9 million for the three months ended June 30, 2022 compared to $24.8 million for the three months ended June 30, 2021. As a percentage of revenue, general and administrative expense increased to 14.4% for the three months ended June 30, 2022 from 11.6% for the three months ended June 30, 2021. The increase in general and administrative expense was driven by higher equity-based compensation expense of $11.3 million, as well as higher personnel-related expenses primarily associated with Apption Labs, which was not reflected in

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the comparable period results, and to support our growth. The increases were partially offset by lower professional fees and research and development costs.

Amortization of Intangible Assets


	Three Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Amortization of intangible assets	$	8,888		$	8,301		$	587	7.1	%
As a percentage of revenue	4.4		%	3.9		%

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 $0.6 million, or 7.1%, to $8.9 million for the three months ended June 30, 2022 compared to $8.3 million for the three months ended June 30, 2021.

Change in Fair Value of Contingent Consideration


	Three Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Change in fair value of contingent consideration	$	255		$	—		$	255	100.0	%
As a percentage of revenue	—		%	—		%

Change in fair value of contingent consideration, attributable to the revalued earn out obligation associated with the Apption Labs business combination, increased $0.3 million, or 100.0%, to $0.3 million for the three months ended June 30, 2022 compared to $0 for the three months ended June 30, 2021. The change in fair value was primarily driven by the increase in the likelihood of achieving the revenue performance targets in the Share Purchase Agreement, and a shorter discount period.

Goodwill impairment


	Three Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Goodwill impairment	$	111,485		$	—		$	111,485	100.0	%
As a percentage of revenue	56		%	—		%

The Company recorded non-cash goodwill impairment of $111.5 million for the three months ended June 30, 2022 compared to no impairment for the three months ended June 30, 2021. The non-cash goodwill impairment was primarily driven by the adverse impacts from 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.

Total Other Expense


	Three Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Interest expense	$	(7,064)		$	(7,877)		$	(813)	(10.3)	%
Loss on extinguishment of debt	—			(1,957)			(1,957)		(100.0)	%
Other income (expense), net	(5,350)			1,996			(7,346)		(368.0)	%
Total other expense	$	(12,414)		$	(7,838)		$	4,576	58.4	%
As a percentage of revenue	(6.2)		%	(3.7)		%

Total other expense increased by $4.6 million, or 58.4%, to $12.4 million for the three months ended June 30, 2022 compared to $7.8 million for the three months ended June 30, 2021. This increase was due primarily to an unfavorable change

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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.

Comparison of the Six Months Ended June 30, 2022 and 2021

Revenue


	Six Months Ended June 30,				Change
	2022		2021		Amount		%
	(dollars in thousands)
Revenue:
Grills	$	268,111	$	334,756	$	(66,645)	(19.9)	%
Consumables	81,748		81,991		(243)		(0.3)	%
Accessories	74,121		31,848		42,273		132.7	%
Total Revenue	$	423,980	$	448,595	$	(24,615)	(5.5)	%

Revenue decreased by $24.6 million, or 5.5%, to $424.0 million for the six months ended June 30, 2022 compared to $448.6 million for the six months ended June 30, 2021. The decrease was driven by lower unit volume for grills and consumables, partially offset by higher selling prices. Accessories revenue benefited from incremental revenue due to sales of MEATER smart thermometers following the July 2021 acquisition of Apption Labs.

Revenue from our grills decreased by $66.6 million, or 19.9%, to $268.1 million for the six months ended June 30, 2022 compared to $334.8 million for the six months ended June 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 the second half of 2021 and early 2022.

Revenue from our consumables decreased by $0.2 million, or 0.3%, to $81.7 million for the six months ended June 30, 2022 compared to $82.0 million for the six months ended June 30, 2021. The decrease was driven by reduced unit volume of wood pellets, partially offset by higher average selling prices of wood pellets and other consumables.

Revenue from our accessories increased by $42.3 million, or 132.7%, to $74.1 million for the six months ended June 30, 2022 compared to $31.8 million for the six months ended June 30, 2021. The increase was driven primarily by incremental revenue due to sales of MEATER smart thermometers following the July 2021 acquisition of Apption Labs.

Gross Profit


	Six Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Gross profit	$	157,071		$	183,938		$	(26,867)	(14.6)	%
Gross margin (Gross profit as a percentage of revenue)	37.0		%	41.0		%

Gross profit decreased by $26.9 million, or 14.6%, to $157.1 million for the six months ended June 30, 2022 compared to $183.9 million for the six months ended June 30, 2021. Gross margin decreased to 37.0% for the six months ended June 30, 2022 from 41.0% for the six months ended June 30, 2021. The decrease in gross margin was driven primarily by higher inbound shipping costs, partially offset by increased selling prices.

Sales and Marketing

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	Six Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Sales and marketing	$	76,905		$	78,120		$	(1,215)	(1.6)	%
As a percentage of revenue	18.1		%	17.4		%

Sales and marketing expense decreased by $1.2 million, or 1.6%, to $76.9 million for the six months ended June 30, 2022 compared to $78.1 million for the six months ended June 30, 2021. As a percentage of revenue, sales and marketing expense increased to 18.1% for the six months ended June 30, 2022 from 17.4% for the six months ended June 30, 2021. The decrease in sales and marketing expense was driven by a decrease in professional fees, commissions expense, and advertising costs, partially offset by increases in employee expense associated with Apption Labs, which was not reflected in the comparable period results, equity-based compensation expense, and disposal of assets.

General and Administrative


	Six Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
General and administrative	$	71,755		$	38,358		$	33,397	87.1	%
As a percentage of revenue	16.9		%	8.6		%

General and administrative expense increased by $33.4 million, or 87.1%, to $71.8 million for the six months ended June 30, 2022 compared to $38.4 million for the six months ended June 30, 2021. As a percentage of revenue, general and administrative expense increased to 16.9% for the six months ended June 30, 2022 from 8.6% for the six months ended June 30, 2021. The increase in general and administrative expense was driven by higher equity-based compensation expense of $24.9 million, as well as higher personnel-related expenses to support our growth and expense related to Apption Labs that are not reflected in the comparable period results, occupancy costs primarily related to insurance, and license fees, partially offset by reduced professional fees primarily related to consulting.

Amortization of Intangible Assets


	Six Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Amortization of intangible assets	$	17,777		$	16,602		$	1,175	7.1	%
As a percentage of revenue	4.2		%	3.7		%

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 7.1%, to $17.8 million for the six months ended June 30, 2022 compared to $16.6 million for the six months ended June 30, 2021.

Change in Fair Value of Contingent Consideration


	Six Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Change in fair value of contingent consideration	$	1,955		$	—		$	1,955	100.0	%
As a percentage of revenue	0.5		%	—		%

Change in fair value of contingent consideration, attributable to the revalued earn out obligation associated with the Apption Labs business combination, increased $2.0 million, or 100.0%, to $2.0 million for the six months ended June 30, 2022 compared to $0 for the six months ended June 30, 2021. The change in fair value was primarily driven by a shorter discount period.

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Goodwill impairment


	Six Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Goodwill impairment	$	111,485		$	—		$	111,485	100.0	%
As a percentage of revenue	26.3		%	—		%

The Company recorded non-cash goodwill impairment of $111.5 million for the six months ended June 30, 2022 compared to no impairment for the six months ended June 30, 2021. The non-cash goodwill impairment was primarily driven by 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.

Total Other Expense


	Six Months Ended June 30,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Interest expense	$	(12,901)		$	(15,689)		$	(2,788)	(17.8)	%
Loss on extinguishment of debt	—			(1,957)			(1,957)		(100.0)	%
Other income (expense), net	(4,806)			1,538			(6,344)		(412.5)	%
Total other expense	$	(17,707)		$	(16,108)		$	1,599	9.9	%
As a percentage of revenue	(4.2)		%	(3.6)		%

Total other expense increased by $1.6 million, or 9.9%, to $17.7 million for the six months ended June 30, 2022 compared to $16.1 million for the six months ended June 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 June 30, 2022, we had cash and cash equivalents of $13.6 million, $122.0 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 June 30, 2022, we had drawn down $3.0 million on the Revolving Credit Facility and $83.8 million on the Receivables Financing Agreement. As of June 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

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The following table sets forth cash flow data for the periods indicated therein:


	Six Months Ended June 30,
	2022		2021
	(in thousands)
Net cash provided by (used in) operating activities	$	(30,044)	$	16,194
Net cash used in investing activities	(12,727)		(11,575)
Net cash provided by financing activities	39,640		59,077
Net increase (decrease) in cash and cash equivalents	$	(3,131)	$	63,696

Cash Flow from Operating Activities

During the six months ended June 30, 2022, net cash used in operating activities consisted of a net loss of $140.7 million and non-cash adjustments to net loss of $169.8 million, partially offset by net changes in operating assets and liabilities of $59.2 million. Non-cash adjustments consisted of depreciation of property, plant, and equipment of $6.0 million, amortization of intangible assets of $21.3 million, equity-based compensation of $27.4 million, goodwill impairment of $111.5 million, and unrealized losses on derivative contracts of $2.9 million. The decrease in net cash from net changes in operating assets and liabilities during the six months ended June 30, 2022 was primarily due to an increase in accounts receivable of $18.7 million and an increase in inventories of $18.8 million, partially offset by a decrease in accounts payable and accrued expenses of $19.4 million.

During the six months ended June 30, 2021, net cash provided by operating activities consisted of net income of $34.0 million and non-cash adjustments to net income of $31.5 million, partially offset by net changes in operating assets and liabilities of $49.4 million. Non-cash adjustments consisted of depreciation of property, plant, and equipment of $4.5 million, amortization of intangible assets of $16.9 million, unrealized losses on derivative contracts of $4.1 million, equity-based compensation of $2.5 million, and amortization of deferred financing costs of $1.4 million. The decrease in net cash from net changes in operating assets and liabilities during the six months ended June 30, 2021 was primarily due to an increase in accounts receivable of $55.2 million, partially offset by an increase in inventories of $17.3 million and an increase in accounts payable and accrued expenses of $24.8 million.

Cash Flow from Investing Activities

During the six months ended June 30, 2022, net cash used in investing activities was $12.7 million. The cash flow used was driven primarily by the purchase of property, plant, and equipment of $12.4 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 six months ended June 30, 2021, net cash used in investing activities was $11.6 million. The cash flow used was driven by the purchase of property, plant, and equipment of $11.2 million primarily related to internal-use software and website developments costs.

Cash Flow from Financing Activities

During the six months ended June 30, 2022, net cash provided by financing activities was $39.6 million. The cash flow provided was driven primarily by net borrowings on our lines of credit under the Revolving Credit Facility and Receivables Financing Agreement of $36.7 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 six months ended June 30, 2021, net cash provided by financing activities was $59.1 million. The cash flow used was driven primarily by net borrowings on our line of credit under the Receivables Financing Agreement of $8.0 million combined with principal repayments under our old first lien term loan of $446.4 million.

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

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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 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 June 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 Combinations.

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 June 30, 2022, we had drawn down $3.0 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. As of June 30, 2022, we were in compliance with the covenants under the Credit Facilities.

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 June 30, 2022, we would have been in compliance with these amended covenants under the Amendment.

Accounts Receivable Credit Facility

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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. As of June 30, 2022, we had drawn down $83.8 million under this facility for general corporate and working capital purposes. Absent any cash advances that exceed the SPE’s available cash, the SPE collects proceeds from the receivables and transfers available cash to us on a regular basis. We are 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 0.50%. The facility is set to terminate on June 29, 2024. As of June 30, 2022, we were in compliance with the covenants under the Receivables Financing Agreement.

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 June 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 six months ended June 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

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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 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 June 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 June 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 June 30, 2022, the net carrying value of goodwill totaled $297.0 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 period ended June 30, 2022, we recorded a $111.5 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 June 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

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Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

Certificate of Incorporation of Traeger, Inc.

8-K

08/03/21

3.1

3.2

Bylaws of Traeger, Inc.

8-K

08/03/21

3.2

10.1

Traeger, Inc. Executive Change in Control Severance Plan

8-K

04/26/22

10.1

10.2

Amendment No. 3 to the Receivables Financing Agreement, by and among Traeger SPE LLC, MUFG Bank, Ltd., Traeger Pellet Grills LLC and the lenders party thereto, dated July 20, 2022

10.3

Amendment No. 2 to First Lien Credit Agreement by and among TGP Holdings III LLC, Traeger Pellet Grills Holdings LLC, TGPX Holdings II LLC, Credit Suisse AG, as administrative agent, and the lenders party thereto, dated August 9, 2022

31.1

Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)

31.2

Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)

32.1

Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2

Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350

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)

Table of Contents

* Filed herewith.

** Furnished herewith.

Table of Contents

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: August 15, 2022
	By:	/s/ Jeremy Andrus
	Name:	Jeremy Andrus
	Title:	Chief Executive Officer
		(Principal Executive Officer)
Date: August 15, 2022
	By:	/s/ Dominic Blosil
	Name:	Dominic Blosil
	Title:	Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)