Traeger, Inc 10-Q for FY2023 Q2
Traeger, Inc. (COOK)
10-Q
2023-08-08
For: 2023-06-30
View Original
Added on
April 07, 2026
About this 10-Q
Traeger, Inc filed this 10-Q on August 8, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $171.51M
- down 14.4% from $200.27M a year earlier
- Net loss
- $30.17M
- compared with a net loss of $133.13M a year earlier
- Diluted EPS
- -$0.25
- compared with -$1.13 a year earlier
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, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For transition period from to
Commission File Number 001-40694
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
| (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 | ||||||
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 | ☐ | ☒ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of July 31, 2023, there were 123,968,189 shares of the registrant's common stock, par value $0.0001 per share, outstanding.
TABLE OF CONTENTS
| Page | |||||
i
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, general macroeconomic trends, industry and business 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, 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, 2022, filed with the Securities and Exchange Commission on March 16, 2023. 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.
ii
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRAEGER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| June 30, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant, and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Line of credit | |||||||||||
| Current portion of notes payable | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Current portion of contingent consideration | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Notes payable, net of current portion | |||||||||||
| Operating leases liabilities, net of current portion | |||||||||||
| Contingent consideration, net of current portion | |||||||||||
| Deferred tax liability | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies—See Note 10 | |||||||||||
| Stockholders' equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
Issued and outstanding shares - | |||||||||||
| Additional paid-in capital | |||||||||||
Accumulated deficit | ( | ( | |||||||||
Accumulated other comprehensive income | |||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
1
TRAEGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands, except share and per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||
| Change in fair value of contingent consideration | |||||||||||||||||||||||
| Goodwill impairment | |||||||||||||||||||||||
| Total operating expense | |||||||||||||||||||||||
Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
Other income (expense), net | ( | ( | |||||||||||||||||||||
Total other expense | ( | ( | ( | ( | |||||||||||||||||||
Loss before provision for income taxes | ( | ( | ( | ( | |||||||||||||||||||
Provision for income taxes | |||||||||||||||||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average common shares outstanding, basic and diluted | |||||||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments | $ | $ | $ | $ | |||||||||||||||||||
| Change in cash flow hedge | ( | ||||||||||||||||||||||
| Amortization of dedesignated cash flow hedge | ( | ( | |||||||||||||||||||||
Total other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2
TRAEGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
(in thousands, except share amounts)
| Three Months Ended June 30, 2023 and 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Stockholders' Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of common stock under stock plan | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | |||||||||||||||||||||||||||||||
| Amortization of dedesignated cash flow hedge | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Balance at June 30, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
Balance at March 31, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of common stock under stock plan | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | |||||||||||||||||||||||||||||||
| Change in cash flow hedge | — | — | — | — | |||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Six Months Ended June 30, 2023 and 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income | Total Member's and Stockholders' Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of common stock under stock plan | — | — | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | |||||||||||||||||||||||||||||||
| Change in cash flow hedge | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Amortization of dedesignated cash flow hedge | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Balance at June 30, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
3
Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock under stock plan | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | |||||||||||||||||||||||||||||||
| Change in cash flow hedge | — | — | — | — | |||||||||||||||||||||||||||||||
Balance at June 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
4
TRAEGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation of property, plant and equipment | |||||||||||
| Amortization of intangible assets | |||||||||||
| Amortization of deferred financing costs | |||||||||||
| Loss on disposal of property, plant and equipment | |||||||||||
| Stock-based compensation expense | |||||||||||
| Bad debt expense | ( | ||||||||||
Unrealized loss (gain) on derivative contracts | ( | ||||||||||
| Amortization of dedesignated cash flow hedge | ( | ||||||||||
| Change in fair value of contingent consideration | ( | ||||||||||
| Goodwill impairment | |||||||||||
| Other non-cash adjustments | ( | ||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories, net | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Other non-current assets | ( | ||||||||||
| Accounts payable and accrued expenses | ( | ( | |||||||||
| Other non-current liabilities | ( | ||||||||||
Net cash provided by (used in) operating activities | ( | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Purchase of property, plant, and equipment | ( | ( | |||||||||
| Capitalization of patent costs | ( | ( | |||||||||
| Proceeds from sale of property, plant, and equipment | |||||||||||
Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from line of credit | |||||||||||
| Repayments on line of credit | ( | ( | |||||||||
| Proceeds from long-term debt | |||||||||||
| Repayments of long-term debt | ( | ||||||||||
| Principal payments on capital lease obligations | ( | ( | |||||||||
| Payment of acquisition related contingent consideration | ( | ( | |||||||||
| Taxes paid related to net share settlement of equity awards | ( | ||||||||||
Net cash provided by (used in) financing activities | ( | ||||||||||
Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5
TRAEGER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| (Continued) | Six Months Ended June 30, | ||||||||||
| 2023 | 2022 | ||||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| NON-CASH FINANCING AND INVESTING ACTIVITIES | |||||||||||
| Equipment purchased under finance leases | $ | $ | |||||||||
| Property, plant, and equipment included in accounts payable and accrued expenses | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
6
TRAEGER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Nature of Operations – Traeger, Inc. and its wholly owned Subsidiaries (collectively "Traeger" or the "Company") design, source, sell, and support wood pellet fueled barbecue grills sold to retailers, distributors, and direct to consumers. The Company produces and sells the pellets used to fire the grills and also sells Traeger-branded rubs, spices and sauces, as well as grill accessories (including covers, barbecue tools, trays, liners, MEATER smart thermometers and merchandise). A significant portion of the Company’s sales are generated from customers throughout the United States ("U.S."), and the Company continues to develop distribution in Canada and Europe. The Company’s headquarters are in Salt Lake City, Utah.
Traeger, Inc. was incorporated in July 2021 in connection with the conversion of TGPX Holdings I LLC from a Delaware limited liability company into a Delaware corporation at the time of the Company's initial public offering ("IPO") and has no material assets and liabilities or standalone operations other than its ownership in its consolidated subsidiaries. TGPX Holdings II LLC is the only direct subsidiary of Traeger, Inc. TGPX Holdings II LLC is a holding company with no other operations, cash flows, material assets or liabilities other than the equity interest in TGP Holdings III LLC. 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.
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, 2022 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, 2022 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 16, 2023 (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, 2023 are not necessarily indicative of results that may be expected for any other interim period or for the year ended December 31, 2023.
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 $1.24 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.
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
7
Restricted Cash – The Company considers cash to be restricted when withdrawal or general use is legally restricted. The restricted cash balance is associated with borrowings from the delayed draw term loan facility that are restricted in use and were drawn down to fund payments of contingent consideration associated with the acquisition of Apption Labs.
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, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Customer A | % | % | % | % | |||||||||||||||||||
| Customer B | % | % | % | % | |||||||||||||||||||
| Customer C | % | % | % | % | |||||||||||||||||||
As of June 30, 2023, customers A, B and C accounted for a significant portion of trade accounts receivable of 33 %, 18 %, and 11 % compared to 31 %, 20 %, and 8 % as of December 31, 2022. 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, 2023 and 2022, respectively. Additionally, no other single customer accounted for greater than 10% of trade accounts receivable as of June 30, 2023 or December 31, 2022.
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.
Revenue Recognition and Sales Returns and Allowances – The Company recognizes revenue at the amount to which it expects to be entitled when a contract exists with a customer that specifies the goods and services to be provided at an agreed upon sales price and when the performance obligation is satisfied. The performance obligation for most of the Company’s sales transactions is considered complete when control transfers, which is determined when products are shipped or delivered to the customer depending on the terms of the contract. Sales are made on normal and customary short-term credit terms or upon delivery of point-of-sale transactions.
Shipping charges billed to customers are included in net sales and related shipping costs are included in cost of sales. The company has elected to account for shipping and handling activities performed after control has been transferred to the customer as a fulfillment cost.
The Company enters into contractual arrangements with customers in the form of individual customer orders which specify the goods, quantity, pricing, and associated order terms. The Company does not have long-term contracts that are satisfied over time. Due to the nature of the contracts, no significant judgment exists in relation to the identification of the customer contract or satisfaction of the performance obligation. The Company expenses incremental costs of obtaining a contract due to the short-term nature of the contracts.
The Company has certain contractual programs and practices with customers that can give rise to elements of variable consideration such as customer cooperative advertising and volume incentive rebates. The Company estimates the variable consideration using the most likely amount method based on sales and contractual rates with each customer and records the estimated amount of credits for these programs as a reduction to net sales.
8
The Company has entered into contracts with some customers that allow for credits to be claimed for certain matters of operational compliance or for returns to the retail customer from end consumers. Credits that will be issued associated with these items are estimated using the expected value method and are based on actual historical experience and are recorded as a reduction of revenue at the time of recognition or when circumstances change resulting in a change in estimated returns. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.
New Accounting Pronouncements Recently Adopted – In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial instruments measured at amortized cost and also applies to some off-balance sheet credit exposures. The Company has adopted this guidance effective January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s accompanying condensed consolidated financial statements.
3 – REVENUE
The following tables 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 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Grills | $ | $ | $ | $ | ||||||||||||||||||||||
| Consumables | ||||||||||||||||||||||||||
| Accessories | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| Revenue by geography | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||||||||||||
| Rest of world | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| Revenue by sales channel | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| Retail | $ | $ | $ | $ | ||||||||||||||||||||||
| Direct to consumer | ||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||||||||||||
4 – ACCOUNTS RECEIVABLES, NET
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| June 30, 2023 | December 31, 2022 | ||||||||||
| Trade accounts receivable | $ | $ | |||||||||
| Allowance for expected credit losses | ( | ( | |||||||||
| Reserve for returns, discounts and allowances | ( | ( | |||||||||
| Total accounts receivable, net | $ | $ | |||||||||
5 – INVENTORIES
Inventories consisted of the following (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Inventories | $ | $ | |||||||||
Included within inventories are adjustments of $1.1 million and $1.3 million at June 30, 2023 and December 31, 2022, respectively, to record inventory to net realizable value.
6 – ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Accrual for inventories in-transit | $ | $ | |||||||||
| Warranty accrual | |||||||||||
| Accrued compensation and bonus | |||||||||||
| Other | |||||||||||
| Accrued expenses | $ | $ | |||||||||
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, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Warranty accrual, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Warranty claims | ( | ( | ( | ( | |||||||||||||||||||
| Warranty costs accrued | |||||||||||||||||||||||
| Warranty accrual, end of period | $ | $ | $ | $ | |||||||||||||||||||
7 – 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 fluctuations on a portion of the Company's variable rate debt. The agreement provides for a notional amount of $379.2 million, fixed rate of 2.08 % and a maturity date of February 28, 2026. This agreement was designated as a cash flow hedge on the exposure of the variability of future cash flows subject to the variable monthly interest rates on $379.2 million of the term loan portion under the First Lien Term Loan Facility (as defined below). The Company assessed hedge effectiveness at the time of entering into the agreement, utilizing a regression analysis, and determined the hedge is expected to be highly effective.
As a cash flow hedge, the interest rate swap is revalued at current market rates, with the changes in valuation being recorded in other comprehensive income within the accompanying condensed consolidated statements of operations and comprehensive
10
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 within the accompanying 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 accompanying condensed consolidated statement of cash flows.
In January 2023, the Company changed the interest reset period from one month to three months on the term loan portion under the First Lien Term Loan Facility (as defined below). As a result, the Company dedesignated it hedging relationship. At the time of dedesignation total amount recorded in accumulated other comprehensive income ("AOCI") was $21.3 million and will be amortized into earnings as a reduction of interest expense over the term of the previously hedged interest payments.
The gross and net balances from the interest rate swap contract position were as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Gross Asset Fair Value | $ | $ | |||||||||
| Gross Liability Fair Value | |||||||||||
| Net Asset Fair Value | $ | $ | |||||||||
For the three and six months ended June 30, 2023, as a result of the discontinued cash flow hedge accounting treatment, realized gain and unrealized gain from the interest rate swap were recorded in other income (expense), net within the accompanying condensed consolidated statements of operations and comprehensive loss and the amortization of the amounts recorded within AOCI were recorded within interest expense. For the three and six months ended June 30, 2022, realized loss and unrealized gain from the interest rate swap were recorded in interest expense and other comprehensive loss, respectively, within the accompanying condensed consolidated statements of operations and comprehensive loss.
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, 2023 and December 31, 2022. The Company did not elect hedge accounting for any of these contracts. 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 accompanying condensed consolidated balance sheets and for periods where the net position is a liability balance, the balance is recorded within other current liabilities on the accompanying condensed consolidated balance sheets. Changes in the net fair value of contracts are recorded in other income (expense), net within the accompanying condensed consolidated statements of operations and comprehensive loss.
The gross and net balances from foreign currency contract positions were as follows (in thousands):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Gross Asset Fair Value | $ | $ | |||||||||
| Gross Liability Fair Value | |||||||||||
| Net Fair Value | $ | $ | |||||||||
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| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Realized gains (losses) | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| Unrealized losses | ( | ( | ( | ( | |||||||||||||||||||
| Total losses | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
8 – FAIR VALUE MEASUREMENTS
For financial assets and liabilities recorded at fair value on a recurring or non-recurring basis, fair value is the price the Company would receive to sell an asset, or pay to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In the absence of such data, fair value is estimated using internal information consistent with what market participants would use in a hypothetical transaction. In determining fair value, observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. These two types of inputs create the following fair value hierarchy:
•Level 1: Quoted prices for identical instruments in active markets.
•Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•Level 3: Significant inputs to the valuation model are unobservable.
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, 2023 | As of December 31, 2022 | |||||||||||||||||
| Assets: | ||||||||||||||||||||
Derivative assets—interest rate swap contract (1) | 2 | $ | $ | |||||||||||||||||
| Total assets | $ | $ | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
Derivative liabilities—foreign currency contracts (2) | 2 | $ | $ | |||||||||||||||||
Contingent consideration—earn out (3) | 3 | |||||||||||||||||||
| Total liabilities | $ | $ | ||||||||||||||||||
(1)Included in prepaid expenses and other current assets and other non-current assets in the accompanying condensed consolidated balance sheets.
(2)Included in other current liabilities in the accompanying condensed consolidated balance sheets.
(3)Included in current contingent consideration in the accompanying 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, 2023 and December 31, 2022, 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 contract held with a financial institution is classified as a Level 2 financial instrument, which is valued using observable underlying interest rates and market-determined risk premiums at the reporting date.
On November 10, 2022, the Company entered into the second amendment to the share purchase agreement associated with the Apption Labs business combination to extend the earn out period through the end of fiscal year 2023. This amendment also modified the contingent consideration calculation associated with the achievement of certain revenue, earnings, and successful product launch thresholds for fiscal years 2022 and 2023. In April 2023, the Company used the restricted cash balance to pay $12.4 million associated with the contingent cash consideration to the sellers based on the achievement of certain thresholds for fiscal year 2022. The remaining undiscounted amounts the Company may be required to pay under the contingent consideration arrangement is $15.0 million, becoming due during the first half of fiscal year 2024.
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The fair values of the Company's contingent consideration earn out obligation is estimated using a Black Scholes model. Key assumptions used in these estimates include the weighted average cost of capital and the probability assessments with respect to the likelihood of achieving the forecasted performance targets 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 accompanying condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of the contingent consideration obligation results from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets.
The following table presents the fair value contingent consideration (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Contingent consideration, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Payments of contingent consideration | ( | ( | ( | ( | |||||||||||||||||||
| Change in fair value of contingent consideration | |||||||||||||||||||||||
| Contingent consideration, end of period | $ | $ | $ | $ | |||||||||||||||||||
The following financial instruments are recorded at their carrying amount (in thousands):
As of June 30, 2023 | As of December 31, 2022 | |||||||||||||||||||||||||
| Financial Instruments Recorded at Carrying Amount: | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
Debt—Credit Facilities (1) | $ | $ | $ | $ | ||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||||||||||||
(1)Included in current portion of notes payable and notes payable, net of current portion within the accompanying condensed 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.
9 – 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). Until June 2023, as described further below, the floating component was 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). During 2022, the Company borrowed $25.0 million under the delayed draw term loan, for purposes of financing the Company's earn out obligation. The borrowing took place prior to the expiration of the delayed draw term commitment date of December 29, 2022. As of June 30, 2023, the total principal amount outstanding on the First Lien Term Loan Facility was $403.9 million.
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
13
annum based on the Company's most recently determined First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement). Until June 2023, as described further below, the floating component was 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, 2023, the Company had no outstanding loan amounts under the Revolving Credit Facility.
The First Lien Credit Agreement contains certain affirmative and negative covenants that limit the Company's ability to, among other things, incur additional indebtedness or liens (with certain exceptions), make certain investments, engage in fundamental changes or transactions including changes of control, transfer or dispose of certain assets, make restricted payments (including dividends), engage in new lines of business, make certain prepayments and engage in certain affiliate transactions. In addition, the Company is subject to a financial covenant and is required to maintain a First Lien Net Leverage Ratio (as defined in the First Lien Credit Agreement) not to exceed 6.20 to 1.00. As of June 30, 2023, 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, 2023, the Company was in compliance with these amended covenants under the Amendment.
In June 2023, the Company entered into a third amendment to the First Lien Credit Agreement which, amongst other things, implements certain changes in the reference rate from the Eurocurrency Base Rate to the Secured Overnight Financing Rate (as defined in the First Lien Credit Agreement).
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, 2023, the Company had drawn down $40.0 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, 2023, the Company was in compliance with the covenants under the Receivables Financing Agreement.
As of June 30, 2023, the Company had drawn down $40.0 million under this facility for general corporate and working capital purposes.
10 – COMMITMENTS AND CONTINGENCIES
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11 – STOCK-BASED COMPENSATION
The Traeger, Inc. 2021 Incentive Award Plan (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 19,983,145 shares, which shares may be authorized but unissued shares, treasury shares, or shares purchased in the open market. On January 1, 2023, an additional 6,131,220 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 stock-based compensation was classified as follows in the accompanying condensed consolidated statements of operations and comprehensive loss (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | |||||||||||||||||||
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.
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
Letter Agreement
On August 31, 2022, the Board approved a letter agreement between the Company and the Company’s CEO (the “Letter Agreement”) intended to facilitate a personal tax planning initiative.
The Letter Agreement provided for the accelerated vesting of 2,075,455 unvested shares subject to the RSUs CEO Award and 518,864 earned but unvested shared subject to the PSU CEO Award, and required the CEO to pay the withholding tax associated with the acceleration of the awards by cash or check, rather than by selling vested shares to cover the tax obligation with respect to such accelerated vesting.
In addition, the Letter Agreement imposes certain clawback rights intended to maintain the retention incentives of the RSU CEO Award and the PSU CEO Award by mirroring their former vesting schedule. If the CEO experiences a termination of
15
service, other than due to a qualifying termination (as defined in the applicable award agreements), prior to an original vesting date of an RSU or PSU, the CEO will forfeit and return to the Company that number of shares of the Company’s common stock that would not otherwise have vested pursuant to the terms of the original award agreements or, if he has disposed of or transferred such shares, he will deliver to the Company the corresponding value of those shares plus any gain realized in connection with such sale or other transfer.
The approval for the acceleration of vesting was determined to be a modification and therefore, the Company evaluated each of the modified awards to determine the necessary accounting treatment. Vesting of the awards was assessed as probable immediately prior to and after the modification resulting in an acceleration of the remaining expense based on the original grant date fair value. As a result of the modification, the Company recorded approximately $39.4 million of accelerated stock-based compensation for the year ended December 31, 2022.
CEO and IPO PSU Cancellations; Performance Shares
On April 13, 2023, following mutual agreement between the Company and each named executive officer, the Board approved the cancellation and termination of the unearned CEO PSUs and IPO PSUs originally granted to the executives on August 2, 2021. As a result, the Company recognized $27.5
On the same day, the Board approved a grant to the CEO of an award of 1,037,728 performance-based restricted shares (the “Performance Shares”). The Performance Shares were issued under the 2021 Plan and are intended to retain and incentivize the CEO to lead the Company to sustained, long-term superior financial performance.
The Performance Shares are eligible to be earned upon the achievement of an Adjusted EBITDA goal during the fiscal year ending on December 31, 2023. If the Adjusted EBITDA goal is achieved, the earned Performance Shares will vest on March 31, 2024.
If the Adjusted EBITDA goal is not achieved, then the Performance Shares instead will become eligible to be earned based on the achievement of a stock price goal of $18.00 per share (the "Stock Price Goal") for the period beginning on January 1, 2024 and ending on August 2, 2031. If the Stock Price Goal is achieved, the earned Performance Shares will vest on the later of March 31, 2024 or the date on which the Stock Price Goal is achieved.
The vesting of the Performance Shares is in all cases subject to the CEO’s continued service as the Company's Chief Executive Officer or Executive Chairman of our Board.
Upon a termination of the CEO’s service to the Company without cause, by the CEO for good reason, or due to the CEO’s death or disability (each as defined in his award agreement), any previously earned Performance Shares will vest, and any remaining Performance Shares will be forfeited and terminated without consideration as of the date of termination. The vesting of any Performance Shares upon a qualifying termination will be subject to the CEO’s timely execution and non-revocation of a general release of claims, and continued compliance with customary restrictive covenants.
In the event the Company incurs a change in control (as defined in the 2021 Plan), then any previously-earned Performance Shares will vest, and any remaining Performance Shares will vest if the Stock Price Goal is achieved based on the price per share received by or payable to our holders of our common stock in connection with the transaction. Any remaining Performance Shares will be forfeited and terminated without consideration as of immediately prior to the change in control. The CEO is required to make an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to the Performance Shares, and to pay the withholding tax associated with the issuance of the Performance Shares. To the extent the Performance Shares vest, the CEO must hold such shares for two years following the applicable vesting date, subject to certain exceptions set forth in the award agreement.
For RSUs, PSUs, and Performance Shares, 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 and Performance Shares 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.
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A summary of the time-based restricted stock unit activity during the six months ended June 30, 2023 was as follows:
| Units | Weighted Average Grant Date Fair Value | ||||||||||
Outstanding at December 31, 2022 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
Outstanding at June 30, 2023 | $ | ||||||||||
As of June 30, 2023, the Company had $33.1 million of unrecognized stock-based compensation expense related to unvested time-based restricted stock units that is expected to be recognized over a weighted-average period of 1.98 years.
A summary of the performance-based restricted stock unit activity during the six months ended June 30, 2023 was as follows:
| Units | Weighted Average Grant Date Fair Value | ||||||||||
Outstanding at December 31, 2022 | $ | ||||||||||
| Modified | ( | ||||||||||
| Granted | |||||||||||
| Vested | |||||||||||
| Forfeited or cancelled | ( | ||||||||||
Outstanding at June 30, 2023 | $ | ||||||||||
As of June 30, 2023, the Company had no unrecognized stock-based compensation expense related to unvested performance-based units.
A summary of the performance-based restricted share activity during the six months ended June 30, 2023 was as follows:
| Shares | Weighted Average Grant Date Fair Value | ||||||||||
Outstanding at December 31, 2022 | $ | ||||||||||
| Granted | |||||||||||
| Vested | |||||||||||
| Forfeited | |||||||||||
Outstanding at June 30, 2023 | $ | ||||||||||
As of June 30, 2023, the Company had $5.6 million of unrecognized stock-based compensation expense related to unvested performance-based restricted shares that is expected to be recognized over a weighted-average period of 3.08 years.
12 – INCOME TAXES
For the three months ended June 30, 2023 and 2022, the Company recorded income tax provision of $198,000 and $46,000 , respectively. For the six months ended June 30, 2023 and 2022, the Company recorded income tax provision of $362,000 and $198,000 , 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, 2023, 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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13 – RELATED PARTY TRANSACTIONS
14 – EARNINGS (LOSS) PER SHARE
The Company computes basic earnings (loss) per share ("EPS") attributable to common stockholders by dividing net 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 and performance shares 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, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average common shares outstanding—basic | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Restricted stock units and performance shares | |||||||||||||||||||||||
| Weighted-average common shares outstanding—diluted | |||||||||||||||||||||||
| Earnings (loss) per share | |||||||||||||||||||||||
| Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The following table includes the number of units and shares 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, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Restricted stock units and performance shares | |||||||||||||||||||||||
15 – RESTRUCTURING PLAN
In July 2022, the Board approved a restructuring plan (the "2022 restructuring plan") as part of its efforts to reduce the Company’s costs and drive long-term operational efficiencies due to challenging macroeconomic pressures. As part of the 2022 restructuring plan, the Company eliminated approximately 14 % of its global headcount, suspended operations of Traeger Provisions (the Company's premium frozen meal kit business), and postponed nearshoring efforts to manufacture product in Mexico. These actions were substantially completed in the third quarter of fiscal 2022.
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| Employee Related Costs | Contract Exit Costs | ||||||||||
Balance at December 31, 2022 | $ | $ | |||||||||
| Net additions charged to expense | |||||||||||
| Cash payments against reserve | ( | ( | |||||||||
| Balance at June 30, 2023 | $ | $ | |||||||||
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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 condensed 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, 2022 (our "Annual Report on Form 10-K"), filed with the Securities and Exchange Commission (the “SEC”), on March 16, 2023. 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, 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 six series of grills – Pro (with and without WiFIRE), Ironwood and Timberline – as well as a selection of smaller, portable grills within our Town and Travel Series and a special Club Lineup through targeted channels. 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, Costco, The Home Depot, and Best Buy, 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, our wood pellets are produced at facilities located in New York, Oregon, Georgia, Virginia, and Texas, and our MEATER smart thermometer accessories are currently manufactured in Hong Kong. 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 14.4% and 23.4% for the three and six months ended June 30, 2023, respectively, as compared to the three and six months ended June 30, 2022, respectively, and was $171.5 million and $324.7 million for the three and six months ended June 30, 2023, respectively, down from $200.3 million and $424.0 million for the three and six months ended
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June 30, 2022, respectively. We recorded a net loss of $30.2 million and $41.1 million for the three and six months ended June 30, 2023, respectively, compared to net loss of $133.1 million and $142.1 million for the three and six months ended June 30, 2022, respectively.
Key Factors Affecting Our Financial Condition and Results of Operations
We believe that our financial condition and results of operations have been, and will continue to be, affected by a number of factors that present significant opportunities for us but also pose risks and challenges, including those below and in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K.
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 second quarter of 2023, we continued to experience inflationary pressure and a slowdown in consumer demand. These challenging macroeconomic pressures have resulted in a decline in our revenue in the first half of 2023 compared to the prior year period. If these macroeconomic trends continue through the remainder of fiscal year end 2023, we could experience lower revenue and margins as compared to the corresponding prior year period.
Supply chain constraints have led to higher product component and freight costs, which have increased our cost of revenues. If these macroeconomic uncertainties or supply chain challenges persist or worsen in the future, we may observe reduced customer demand for our offerings, increased competition for critical components, challenges fulfilling certain customer orders or continued increases in component and freight costs which could impact our operating results, including our ability to achieve historical levels of revenue.
Components of Results of Operations
Revenue
We derive substantially all of our revenue from the sale of grills, consumables and accessories in North America, which includes the United States and Canada. We recognize revenue, net of product returns, for our grills, consumables and accessories generally at the time of delivery to retailers through our retail channel and to customers through our DTC channel. Estimated product returns are recorded as a reduction of revenue at the time of recognition and are calculated based on product returns history, observable changes in return behavior, and expected returns based on sales volume and mix. We also have certain contractual programs that can give rise to elements of variable consideration, such as volume incentive rebates, with estimated amounts of credits recorded as a reduction to revenue.
Although we experience demand for our products throughout the year, we believe there can be certain seasonal fluctuations in our revenue. We have typically experienced moderately higher levels of sales of our grills in the first and second quarters of the year as our retailers purchase inventory in advance of warmer weather, when demand for outdoor cooking products is the highest across our key markets. Higher sales also coincide with social events and national holidays, which occur during the same warm weather timeframe.
Gross Profit
Gross profit reflects revenue less cost of revenue. Cost of revenue consists of product costs, including the costs of components, costs of products from our third-party manufacturers, direct and indirect manufacturing costs across all products, packaging, inbound freight and duties, warehousing and fulfillment, warranty costs, product quality testing and inspection costs, excess and obsolete inventory write-downs, cloud-hosting costs for our WiFIRE connected grills, depreciation of tooling and manufacturing equipment, amortization of internal use software and patented technology, and certain employee-related expenses.
We calculate gross margin as gross profit divided by revenue. Gross margin can be impacted by several factors, including, in particular, product mix and sales channel mix. For example, gross margin on sales through our DTC channel is generally higher than gross margin on sales through our retail channel. If our DTC sales grow faster than sales from our retail channel, and if we are able to realize greater economies of scale or product cost improvements through engineering and sourcing, we would expect a favorable impact to overall gross margin over time. Additionally, gross margin on sales of certain of our products is higher than for others. If revenue from sales of wood pellets increased as a percentage of total revenue, we would expect to see an increase in overall gross margin. These favorable anticipated gross margin impacts may not be realized, or may be offset by other unfavorable gross margin factors. Additionally, any new products that we develop, or our planned
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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 stock-based compensation expense, as well as sales incentives and professional services. These costs can include print, internet and television advertising, travel-related expenses, direct customer acquisition costs, costs related to conferences and events, and broker commissions. We expect our sales and marketing expense to decrease in the short-term and increase on an absolute dollar basis in the long-term as we continue to reduce our costs to drive operational efficiencies while continuing to increase the scope of outreach to potential new customers to drive long-term 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 stock-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 $3.0 million and $1.8 million for the three months ended June 30, 2023, and 2022, respectively, and $5.2 million and $6.7 million for the six months ended June 30, 2023 and 2022, respectively.
As a result of the 2022 restructuring plan, we expect general and administrative expense, including our research and development expenses and external legal and accounting expenses, to normalize as we continue to manage our investments to support our growth and develop new and enhance existing products. We 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, amortization expense on these assets is expected to remain stable over the coming years. Future business acquisitions may result in incremental amortization of intangible assets acquired in any such transactions.
Change in Fair Value of Contingent Consideration
The fair values of our contingent consideration earn out obligation associated with the Apption Labs business combination is estimated based on probability adjusted present values of the consideration expected to be transferred using significant inputs. At each reporting date, we revalue the contingent consideration obligation to its fair value and records increases and decreases in fair value in the general and administrative expenses in our accompanying condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of the contingent consideration obligation results from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets in the Share Purchase Agreement.
Goodwill Impairment
Goodwill represents the excess of consideration transferred over the fair value of tangible and identifiable intangible net assets acquired and the liabilities assumed in a business combination. Substantially all of our goodwill was recognized in the
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purchase price allocation when our Company was acquired in 2017 and when Apption Labs was acquired in July 2021, 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.
Total Other Income (Expense)
Total other expense consists of interest expense and other income (expense), net. Interest expense includes interest and other fees associated with our Credit Facilities, Receivables Financing Agreement (each as defined below) as well as the amortization of amounts recorded within accumulated comprehensive income (loss) prior to the dedesignation of the interest rate swap derivative contracts as a cash flow hedge. Other income (expense), net also consists of any realized and unrealized gains (losses) from our interest rate swap derivative contract subsequent to the dedesignation of the swap contract from a cash flow hedge, 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 | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Amount | % | 2023 | 2022 | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 171,512 | $ | 200,270 | $ | (28,758) | (14.4) | % | $ | 324,673 | $ | 423,980 | $ | (99,307) | (23.4) | % | |||||||||||||||||||||||||||||||
| Cost of revenue | 108,181 | 126,829 | (18,648) | (14.7) | % | 205,919 | 267,895 | (61,976) | (23.1) | % | |||||||||||||||||||||||||||||||||||||
| Gross profit | 63,331 | 73,441 | (10,110) | (13.8) | % | 118,754 | 156,085 | (37,331) | (23.9) | % | |||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 27,915 | 42,051 | (14,136) | (33.6) | % | 49,990 | 76,905 | (26,915) | (35.0) | % | |||||||||||||||||||||||||||||||||||||
| General and administrative | 52,371 | 31,436 | 20,935 | 66.6 | % | 79,050 | 72,152 | 6,898 | 9.6 | % | |||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 8,888 | 8,888 | — | — | % | 17,777 | 17,777 | — | — | % | |||||||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | 1,765 | 255 | 1,510 | 592.2 | % | 2,808 | 1,955 | 853 | 43.6 | % | |||||||||||||||||||||||||||||||||||||
| Goodwill impairment | — | 111,485 | (111,485) | (100.0) | % | — | 111,485 | (111,485) | (100.0) | % | |||||||||||||||||||||||||||||||||||||
| Total operating expense | 90,939 | 194,115 | (103,176) | (53.2) | % | 149,625 | 280,274 | (130,649) | (46.6) | % | |||||||||||||||||||||||||||||||||||||
| Loss from operations | (27,608) | (120,674) | 93,066 | (77.1) | % | (30,871) | (124,189) | 93,318 | (75.1) | % | |||||||||||||||||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (7,810) | (7,064) | (746) | (10.6) | % | (15,891) | (12,901) | (2,990) | (23.2) | % | |||||||||||||||||||||||||||||||||||||
| Other income (expense), net | 5,450 | (5,350) | 10,800 | 201.9 | % | 6,028 | (4,806) | 10,834 | 225.4 | % | |||||||||||||||||||||||||||||||||||||
| Total other expense | (2,360) | (12,414) | 10,054 | 81.0 | % | (9,863) | (17,707) | 7,844 | 44.3 | % | |||||||||||||||||||||||||||||||||||||
| Loss before provision for income taxes | (29,968) | (133,088) | 103,120 | (77.5) | % | (40,734) | (141,896) | 101,162 | (71.3) | % | |||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 198 | 46 | 152 | 330.4 | % | 362 | 198 | 164 | 82.8 | % | |||||||||||||||||||||||||||||||||||||
| Net loss | $ | (30,166) | $ | (133,134) | $ | 102,968 | (77.3) | % | $ | (41,096) | $ | (142,094) | $ | 100,998 | (71.1) | % | |||||||||||||||||||||||||||||||
Comparison of the Three Months Ended June 30, 2023 and 2022
Revenue
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Grills | $ | 93,133 | $ | 117,680 | $ | (24,547) | (20.9) | % | |||||||||||||||
| Consumables | 34,900 | 42,097 | (7,197) | (17.1) | % | ||||||||||||||||||
| Accessories | 43,479 | 40,493 | 2,986 | 7.4 | % | ||||||||||||||||||
| Total Revenue | $ | 171,512 | $ | 200,270 | $ | (28,758) | (14.4) | % | |||||||||||||||
Revenue decreased by $28.8 million, or 14.4%, to $171.5 million for the three months ended June 30, 2023 compared to $200.3 million for the three months ended June 30, 2022. The decrease was driven by lower average selling prices for grills and consumables in addition to lower unit volume for consumables, partially offset by increased accessory revenue.
Revenue from our grills decreased by $24.5 million, or 20.9%, to $93.1 million for the three months ended June 30, 2023 compared to $117.7 million for the three months ended June 30, 2022. The decrease was primarily driven by lower average selling prices in addition to decreased unit volumes.
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Revenue from our consumables decreased by $7.2 million, or 17.1%, to $34.9 million for the three months ended June 30, 2023 compared to $42.1 million for the three months ended June 30, 2022. The decrease was driven by lower unit volumes in addition to decreased average selling prices.
Revenue from our accessories increased by $3.0 million, or 7.4%, to $43.5 million for the three months ended June 30, 2023 compared to $40.5 million for the three months ended June 30, 2022. The increase was driven primarily by increased average selling prices for Traeger branded accessories, along with increased revenue due to sales of MEATER smart thermometers.
Gross Profit
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Gross profit | $ | 63,331 | $ | 73,441 | $ | (10,110) | (13.8) | % | |||||||||||||||
| Gross margin (Gross profit as a percentage of revenue) | 36.9 | % | 36.7 | % | |||||||||||||||||||
Gross profit decreased by $10.1 million, or 13.8%, to $63.3 million for the three months ended June 30, 2023 compared to $73.4 million for the three months ended June 30, 2022. Gross margin increased to 36.9% for the three months ended June 30, 2023 from 36.7% for the three months ended June 30, 2022. The increase in gross margin was driven primarily by favorability from freight costs and foreign exchange rates, offset by increased dilution.
Sales and Marketing
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Sales and marketing | $ | 27,915 | $ | 42,051 | $ | (14,136) | (33.6) | % | |||||||||||||||
| As a percentage of revenue | 16.3 | % | 21.0 | % | |||||||||||||||||||
Sales and marketing expense decreased by $14.1 million, or 33.6%, to $27.9 million for the three months ended June 30, 2023 compared to $42.1 million for the three months ended June 30, 2022. As a percentage of revenue, sales and marketing expense decreased to 16.3% for the three months ended June 30, 2023 from 21.0% for the three months ended June 30, 2022. The decrease in sales and marketing expense was driven by reduced investments in advertising costs for brand awareness, demand, and conversion, and lower costs for commissions and travel related expenses related to decreased sales in commissionable channels.
General and Administrative
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| General and administrative | $ | 52,371 | $ | 31,436 | $ | 20,935 | 66.6 | % | |||||||||||||||
| As a percentage of revenue | 30.5 | % | 15.7 | % | |||||||||||||||||||
General and administrative expense increased by $20.9 million, or 66.6%, to $52.4 million for the three months ended June 30, 2023 compared to $31.4 million for the three months ended June 30, 2022. As a percentage of revenue, general and administrative expense increased to 30.5% for the three months ended June 30, 2023 from 15.7% for the three months ended June 30, 2022. The increase in general and administrative expense was driven by higher stock-based compensation expense of $32.1 million primarily due to the cancellation of the unearned CEO PSUs and IPO PSUs, as well as higher costs for professional fees. The increases were partially offset by lower employee related costs.
Amortization of Intangible Assets
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| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Amortization of intangible assets | $ | 8,888 | $ | 8,888 | $ | — | — | % | |||||||||||||||
| As a percentage of revenue | 5.2 | % | 4.4 | % | |||||||||||||||||||
Amortization of intangible assets, substantially attributable to the 2017 corporate reorganization and acquisition of the Company and the July 2021 acquisition of Apption Labs, remained flat at $8.9 million for the three months ended June 30, 2023 compared to $8.9 million for the three months ended June 30, 2022.
Change in Fair Value of Contingent Consideration
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Change in fair value of contingent consideration | $ | 1,765 | $ | 255 | $ | 1,510 | 592.2 | % | |||||||||||||||
| As a percentage of revenue | 1.0 | % | 0.1 | % | |||||||||||||||||||
Change in fair value of contingent consideration, attributable to the revalued earn out obligation associated with the Apption Labs business combination, increased $1.5 million, or 592.2%, to $1.8 million for the three months ended June 30, 2023 compared to $0.3 million for the three months ended June 30, 2022. The change in fair value was primarily driven by a shorter discount period.
Goodwill Impairment
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Goodwill impairment | $ | — | $ | 111,485 | $ | (111,485) | (100.0) | % | |||||||||||||||
| As a percentage of revenue | — | % | 55.7 | % | |||||||||||||||||||
The Company recorded no goodwill impairment for the three months ended June 30, 2023 compared to $111.5 million non-cash goodwill impairment for the three months ended June 30, 2022, which was primarily attributable to 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 Income (Expense)
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Interest expense | $ | (7,810) | $ | (7,064) | $ | (746) | (10.6) | % | |||||||||||||||
Other income (expense), net | 5,450 | (5,350) | 10,800 | 201.9 | % | ||||||||||||||||||
Total other expense | $ | (2,360) | $ | (12,414) | $ | 10,054 | 81.0 | % | |||||||||||||||
| As a percentage of revenue | (1.4) | % | (6.2) | % | |||||||||||||||||||
Total other expense decreased by $10.1 million, or 81.0%, to $2.4 million for the three months ended June 30, 2023 compared to $12.4 million for the three months ended June 30, 2022. This decrease was primarily due to the realized and unrealized gains from our interest rate swap, partially offset by increased interest expense on our First Lien Term Loan Facility.
Comparison of the Six Months Ended June 30, 2023 and 2022
Revenue
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| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Grills | $ | 182,871 | $ | 268,111 | $ | (85,240) | (31.8) | % | |||||||||||||||
| Consumables | 64,945 | 81,748 | (16,803) | (20.6) | % | ||||||||||||||||||
| Accessories | 76,857 | 74,121 | 2,736 | 3.7 | % | ||||||||||||||||||
| Total Revenue | $ | 324,673 | $ | 423,980 | $ | (99,307) | (23.4) | % | |||||||||||||||
Revenue decreased by $99.3 million, or 23.4%, to $324.7 million for the six months ended June 30, 2023 compared to $424.0 million for the six months ended June 30, 2022. The decrease was driven by lower unit volume and lower average selling prices for grills and consumables. Accessories revenue benefited from increased revenue due to sales of MEATER smart thermometers.
Revenue from our grills decreased by $85.2 million, or 31.8%, to $182.9 million for the six months ended June 30, 2023 compared to $268.1 million for the six months ended June 30, 2022. The decrease was primarily driven by lower unit volume and lower average selling prices.
Revenue from our consumables decreased by $16.8 million, or 20.6%, to $64.9 million for the six months ended June 30, 2023 compared to $81.7 million for the six months ended June 30, 2022. The decrease was driven by reduced unit volume of wood pellets and other consumables.
Revenue from our accessories increased by $2.7 million, or 3.7%, to $76.9 million for the six months ended June 30, 2023 compared to $74.1 million for the six months ended June 30, 2022. The increase was driven primarily by increased revenue due to sales of MEATER smart thermometers.
Gross Profit
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Gross profit | $ | 118,754 | $ | 156,085 | $ | (37,331) | (23.9) | % | |||||||||||||||
| Gross margin (Gross profit as a percentage of revenue) | 36.6 | % | 36.8 | % | |||||||||||||||||||
Gross profit decreased by $37.3 million, or 23.9%, to $118.8 million for the six months ended June 30, 2023 compared to $156.1 million for the six months ended June 30, 2022. Gross margin decreased to 36.6% for the six months ended June 30, 2023 from 36.8% for the six months ended June 30, 2022. The decrease in gross margin was driven primarily by lower average selling prices and increased dilution, partially offset by freight costs and foreign exchange rates.
Sales and Marketing
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Sales and marketing | $ | 49,990 | $ | 76,905 | $ | (26,915) | (35.0) | % | |||||||||||||||
| As a percentage of revenue | 15.4 | % | 18.1 | % | |||||||||||||||||||
Sales and marketing expense decreased by $26.9 million, or 35.0%, to $50.0 million for the six months ended June 30, 2023 compared to $76.9 million for the six months ended June 30, 2022. As a percentage of revenue, sales and marketing expense decreased to 15.4% for the six months ended June 30, 2023 from 18.1% for the six months ended June 30, 2022. The decrease in sales and marketing expense was driven by a decrease in advertising costs, commissions and other employee expenses, travel related expenses, and professional fees.
General and Administrative
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| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| General and administrative | $ | 79,050 | $ | 72,152 | $ | 6,898 | 9.6 | % | |||||||||||||||
| As a percentage of revenue | 24.3 | % | 17.0 | % | |||||||||||||||||||
General and administrative expense increased by $6.9 million, or 9.6%, to $79.1 million for the six months ended June 30, 2023 compared to $72.2 million for the six months ended June 30, 2022. As a percentage of revenue, general and administrative expense increased to 24.3% for the six months ended June 30, 2023 from 17.0% for the six months ended June 30, 2022. The increase in general and administrative expense was driven by higher stock-based compensation expense of $39.3 million primarily due to the cancellation of the unearned CEO PSUs and IPO PSUs, as well as losses on the disposal of property, plant and equipment, partially offset by lower professional fees and employee related costs.
Amortization of Intangible Assets
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Amortization of intangible assets | $ | 17,777 | $ | 17,777 | $ | — | — | % | |||||||||||||||
| As a percentage of revenue | 5.5 | % | 4.2 | % | |||||||||||||||||||
Amortization of intangible assets, substantially attributable to the 2017 corporate reorganization and acquisition of the Company and the July 2021 acquisition of Apption Labs, remained flat at $17.8 million for the six months ended June 30, 2023 compared to $17.8 million for the six months ended June 30, 2022.
Change in Fair Value of Contingent Consideration
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Change in fair value of contingent consideration | $ | 2,808 | $ | 1,955 | $ | 853 | 43.6 | % | |||||||||||||||
| As a percentage of revenue | 0.9 | % | 0.5 | % | |||||||||||||||||||
Change in fair value of contingent consideration, attributable to the revalued earn out obligation associated with the Apption Labs business combination, increased $0.9 million, or 43.6%, to $2.8 million for the six months ended June 30, 2023 compared to $2.0 million for the six months ended June 30, 2022. The change in fair value was primarily driven by a shorter discount period.
Goodwill Impairment
| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Goodwill impairment | $ | — | $ | 111,485 | $ | (111,485) | (100.0) | % | |||||||||||||||
| As a percentage of revenue | — | % | 26.3 | % | |||||||||||||||||||
The Company recorded no goodwill impairment for the six months ended June 30, 2023 compared to $111.5 million non-cash goodwill impairment for the six months ended June 30, 2022 which was primarily attributable to 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 Income (Expense)
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| Six Months Ended June 30, | Change | ||||||||||||||||||||||
| 2023 | 2022 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Interest expense | $ | (15,891) | $ | (12,901) | $ | (2,990) | (23.2) | % | |||||||||||||||
Other income (expense), net | 6,028 | (4,806) | 10,834 | 225.4 | % | ||||||||||||||||||
Total other expense | $ | (9,863) | $ | (17,707) | $ | 7,844 | 44.3 | % | |||||||||||||||
| As a percentage of revenue | (3.0) | % | (4.2) | % | |||||||||||||||||||
Total other expense decreased by $7.8 million, or 44.3%, to $9.9 million for the six months ended June 30, 2023 compared to $17.7 million for the six months ended June 30, 2022. This decrease was primarily due to the realized and unrealized gains from our interest rate swap, partially offset by increased interest expense on our First Lien Term Loan Facility.
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. The Company maintains the majority of its cash and cash equivalents in accounts with major U.S. and multi-national financial institutions including JPMorgan Chase Bank, HSBC, World First Bank, Handelsbanken, and Stadtsparkasse München, and our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.
As of June 30, 2023, we had cash and cash equivalents of $14.5 million, $125.0 million borrowing capacity under our Revolving Credit Facility (as defined below) and $15.2 million borrowing capacity under our Receivables Financing Agreement (as defined below). As of June 30, 2023, we had no outstanding loan amounts under the Revolving Credit Facility and had drawn down $40.0 million on the Receivables Financing Agreement. As of June 30, 2023, the total principal amount outstanding under our First Lien Term Loan Facility was $403.9 million. Based on our current business plan and revenue prospects, we continue to believe that our existing cash and cash equivalents, availability under our Revolving Credit Facility and Receivables Financing Agreement, and our anticipated cash flows from operating activities will be sufficient to meet our working capital and operating resource expenditure requirements for at least the next twelve months from the date of this Quarterly Report on Form 10-Q. However, our future working capital requirements will depend on many factors, including our rate of revenue growth and profitability, the timing and size of future acquisitions, and the timing of introductions of new products and investments in our supply chain and implementation of technologies.
We may from time to time seek to raise additional equity or debt financing to support our growth or in connection with the acquisition of complementary businesses. Any equity financing we may undertake could be dilutive to our existing stockholders, and any additional debt financing we may undertake could require debt service and financial and operational requirements that could adversely affect our business. There is no assurance we would be able to obtain future financing on acceptable terms or at all. See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K and Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q.
Cash Flows
The following table sets forth cash flow data for the periods indicated therein (in thousands):
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net cash provided by (used in) operating activities | $ | 25,856 | $ | (30,050) | |||||||
| Net cash used in investing activities | (6,627) | (12,727) | |||||||||
| Net cash provided by (used in) financing activities | (56,288) | 39,640 | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (37,059) | $ | (3,137) | |||||||
Cash Flow from Operating Activities
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During the six months ended June 30, 2023, net cash provided by operating activities consisted of a net loss of $41.1 million and non-cash adjustments to net loss of $68.1 million, partially offset by net changes in operating assets and liabilities of $1.1 million. Non-cash adjustments consisted of depreciation of property, plant, and equipment of $7.5 million, amortization of intangible assets of $21.4 million, stock-based compensation of $41.0 million, and unrealized gains on derivative contracts of $2.1 million. The decrease in net cash from net changes in operating assets and liabilities during the six months ended June 30, 2023 was primarily due to an increase in accounts receivable of $41.0 million, partially offset by a decrease in inventories of $55.7 million and a decrease in accounts payable and accrued expenses of $14.2 million.
During the six months ended June 30, 2022, net cash used in operating activities consisted of net loss of $142.1 million and non-cash adjustments to net loss of $169.8 million, partially offset by net changes in operating assets and liabilities of $57.8 million. Non-cash adjustments consisted of depreciation of property, plant, and equipment of $6.0 million, amortization of intangible assets of $21.3 million, stock-based compensation of $27.4 million, goodwill impairment of $111 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 $17.8 million, partially offset by a decrease in accounts payable and accrued expenses of $19.0 million.
Cash Flow from Investing Activities
During the six months ended June 30, 2023, net cash used in investing activities was $6.6 million. The cash flow used was driven primarily by the purchase of property, plant, and equipment of $8.9 million primarily related to the purchase of tooling equipment, and internal-use software and website development costs, partially offset from the sale of property, plant, and equipment of $2.5 million.
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.
Cash Flow from Financing Activities
During the six months ended June 30, 2023, net cash used in financing activities was $56.3 million. The cash flow used was driven primarily by net repayments on our lines of credit under the Revolving Credit Facility and Receivables Financing Agreement of $43.7 million, as well as the payment of our acquisition related contingent consideration of $12.2 million.
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 line 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.
Credit Facilities
On June 29, 2021, we refinanced our existing credit facilities and entered into a new first lien credit agreement, as borrower, with Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent, and other lenders party thereto as joint lead arrangers and joint bookrunners (the "First Lien Credit Agreement"). The First Lien Credit Agreement provides for a senior secured term loan facility (the "First Lien Term Loan Facility") and a revolving credit facility (the "Revolving Credit Facility" and, together with the First Lien Term Loan Facility, the "Credit Facilities").
First Lien Credit Agreement
The First Lien Credit Agreement provides for a $560.0 million First Lien Term Loan Facility (including a $50.0 million delayed draw term loan) and a $125.0 million Revolving Credit Facility.
The First Lien Term Loan Facility accrues interest at a rate per annum that considers both fixed and floating components. Following the completion of our IPO in July 2021, the fixed component ranges from 3.00% to 3.25% per annum based on our Public Debt Rating (as defined in the First Lien Credit Agreement). Until June 2023, as described further below, 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
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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). During 2022, we borrowed $25.0 million under the delayed draw term loan, for purposes of financing our earn out obligation. The borrowing took place prior to the expiration of the delayed draw term commitment date of December 29, 2022. As of June 30, 2023, the total principal amount outstanding on the First Lien Term Loan Facility was $403.9 million.
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). Until June 2023, as described further below, 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, 2023, we had no outstanding loan amounts under the Revolving Credit Facility.
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, 2023, 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, 2023, we would have been in compliance with these amended covenants under the Amendment.
In June 2023, we entered into a third amendment to the First Lien Credit Agreement which, amongst other things, implements certain changes in the reference rate from the Eurocurrency Base Rate to the Secured Overnight Financing Rate (as defined in the First Lien Credit Agreement).
Accounts Receivable Credit Facility
On November 2, 2020, we entered into a receivables financing agreement (as amended, the “Receivables Financing Agreement”). Through the Receivables Financing Agreement, we participate in a trade receivables securitization program, administered on our behalf by MUFG Bank Ltd. ("MUFG"), using outstanding accounts receivables balances as collateral, which have been contributed by us to our wholly owned subsidiary, Traeger SPE LLC (the "SPE"). While we provide operational services to the SPE, the receivables are owned by the SPE once contributed to it by us. We are the primary beneficiary and hold all equity interests of the SPE, thus we consolidate the SPE without any significant judgments.
On June 29, 2021, we entered into Amendment No. 1 to the Receivables Financing Agreement and increased the net borrowing capacity from the prior range of $30.0 million to $45.0 million up to $100.0 million. The borrowing capacity fluctuates at each month end based upon the amount of eligible outstanding domestic accounts receivables to be used as collateral. As of June 30, 2023, we had drawn down $40.0 million under this facility for general corporate and working capital
31
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, 2023, we were in compliance with the covenants under the Receivables Financing Agreement.
As of June 30, 2023, we had drawn down $40.0 million under this facility for general corporate and working capital purposes.
Contractual Obligations
There have been no material changes to our contractual obligations as of June 30, 2023 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" included in our Annual Report on Form 10-K 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 and estimates 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 accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. During the six months ended June 30, 2023, there were no material changes to our critical accounting policies and estimates from those discussed in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 2 – Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our disclosures regarding our exposure to market risk as described in Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints 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 Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023, due to the existence of a material weakness in our internal controls over financial reporting described below, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective to provide reasonable assurance that the information
32
required to be disclosed in the reports that we file or submit under the Exchange Act as recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As previously disclosed in our Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2023, we identified a material weakness in our internal controls over financial reporting related to the Company’s controls related to the accurate accounting and reporting of transactions subject to ASC 815 Derivatives and Hedging, which did not operate effectively to identify a misstatement within the condensed consolidated financial statements.
Remediation Plan of Previously Disclosed Material Weakness
In order to remediate the material weakness, the Company’s management plans to enhance the design of its control activity over the preparation of other comprehensive income (loss) within the consolidated statement of operations and other comprehensive income (loss). The material weakness cannot be considered remediated until the newly designed control activity operates for a sufficient period of time and management has concluded, through testing, that the control is operating effectively.
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, 2023 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.
Risks Related to Our Common Stock
We have identified a material weakness in our internal control over financial reporting, and we cannot provide assurances that the material weakness will be effectively remediated or that additional weaknesses will not occur in the future.
During the preparation of our unaudited condensed consolidated financial statements for the period ended June 30, 2023, our internal controls over evaluating and assessing guidance in accordance within ASC 815 Derivatives and Hedging did not detect an error related to the treatment of amounts within AOCI upon cash flow hedge dedesignation during the period ending March 31, 2023 which resulted in an misstatement of the unaudited condensed consolidated financial statements for that period. As a result of the misstatement we identified a material weakness in our internal controls over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Our internal controls over financial reporting did not detect the omission of an adjustment to comprehensive income (loss) associated with the change in cash flow hedge during the period ending March 31, 2023; however, management identified this error through financial reporting controls when preparing the financial statements for the period ending June 30, 2023. This control deficiency resulted in the restatement of the Company’s unaudited consolidated financial statements contained in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and if not remediated, could result in a material
33
misstatement to future annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.
To remediate the material weakness in the Company’s internal control over financial reporting, the Company plans to initiate a remediation plan that includes: (i) implementing additional review procedures within our accounting department, (ii) implementing additional training of accounting personnel, and (iii) enhancing documentation and financial statement preparation process, specifically including updates to accounting policies for derivatives and hedge instruments. to ensure completion of financial reporting and proper accounting in accordance with U.S. GAAP.
The material weakness cannot be considered remediated until the controls operate for a sufficient period and management has concluded, through testing, that our internal controls are operating effectively. While management believes that the remediation efforts will resolve the identified material weakness, there is no assurance that management’s efforts conducted to date will be sufficient or that additional remediation actions will not be necessary to remediate this material weakness or will be sufficient to prevent future material weaknesses from occurring. We also cannot assure you that we have identified all of our existing material weaknesses.
If we are unable to remediate the material weakness, our ability to record, process, and report financial information accurately, and to prepare financial statements within the time periods specified by the rules and forms of the SEC, could be adversely affected which, in turn, to may adversely affect our reputation and business and the market price of our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser
None.
Use of Proceeds
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
(a) None.
(b) None.
(c) Not applicable.
ITEM 6. EXHIBITS
Incorporated by Reference | ||||||||||||||||||||||||||||||||
Exhibit No. | Exhibit Description | Form | Date | Number | Filed/Furnished Herewith | |||||||||||||||||||||||||||
3.1 | 8-K | 08/03/21 | 3.1 | |||||||||||||||||||||||||||||
3.2 | 8-K | 08/03/21 | 3.2 | |||||||||||||||||||||||||||||
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| 10.1 | 10-Q | 05/10/23 | 10.1 | |||||||||||||||||||||||||||||
| 10.2 | * | |||||||||||||||||||||||||||||||
| 10.3 | * | |||||||||||||||||||||||||||||||
31.1 | * | |||||||||||||||||||||||||||||||
31.2 | * | |||||||||||||||||||||||||||||||
32.1 | ** | |||||||||||||||||||||||||||||||
32.2 | ** | |||||||||||||||||||||||||||||||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | * | ||||||||||||||||||||||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | * | ||||||||||||||||||||||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * | ||||||||||||||||||||||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | * | ||||||||||||||||||||||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | * | ||||||||||||||||||||||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | ||||||||||||||||||||||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | * | ||||||||||||||||||||||||||||||
* Filed herewith.
** Furnished herewith.
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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 7, 2023 | ||||||||
| By: | /s/ Jeremy Andrus | |||||||
| Name: | Jeremy Andrus | |||||||
| Title: | Chief Executive Officer | |||||||
(Principal Executive Officer) | ||||||||
Date: August 7, 2023 | ||||||||
| By: | /s/ Dominic Blosil | |||||||
| Name: | Dominic Blosil | |||||||
| Title: | Chief Financial Officer | |||||||
(Principal Financial Officer and Principal Accounting Officer) | ||||||||
36
Exhibit 10.2
AMENDMENT NO. 8 TO
RECEIVABLES FINANCING AGREEMENT
This AMENDMENT NO. 8 TO RECEIVABLES FINANCING AGREEMENT, dated as of June 23, 2023 (this “Amendment”), among TRAEGER SPE LLC, a Delaware limited liability company (the “Borrower”), TRAEGER PELLET GRILLS LLC, a Delaware limited liability company (in such capacity, the “Servicer”), as initial Servicer, the Persons identified as such on the signature pages hereto as Lenders and Group Agents and MUFG BANK, LTD. (“MUFG”), as a Committed Lender, as a Group Agent and as Administrative Agent.
W I T N E S S E T H:
WHEREAS, the parties hereto have heretofore entered into that certain Receivables Financing Agreement, dated as of November 2, 2020 (as amended by that certain Amendment No. 1 to Receivables Financing Agreement dated as of June 29, 2021, that certain Amendment No. 2 to Receivables Financing Agreement dated February 18, 2022, that certain Amendment No. 3 to Receivables Financing Agreement dated July 20, 2022, that certain Amendment No. 4 to Receivables Financing Agreement dated August 19, 2022, that certain Amendment No. 5 to Receivables Financing Agreement dated September 21, 2022, that certain Amendment No. 6 to Receivables Financing Agreement dated September 30, 2022, and that certain Waiver and Amendment No. 7 to Receivables Financing Agreement dated November 8, 2022 and as further amended, restated, supplemented, assigned or otherwise modified from time to time prior to the date hereof, the “Original Receivables Financing Agreement” and, as further modified by this Amendment, the “Amended Receivables Financing Agreement”); and
WHEREAS, the parties hereto desire to modify the Original Receivables Financing Agreement pursuant to Section 13.01 thereof upon the terms hereof.
NOW, THEREFORE, in exchange for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged and confirmed), each of the parties hereto agree as follows:
A G R E E M E N T:
1.Definitions. Unless otherwise defined or provided herein, capitalized terms used herein have the meanings attributed thereto in (or by reference in) Section 1.01 of the Amended Receivables Financing Agreement.
2.Amendment to the Original Receivables Financing Agreement. The Dynamic Loss Reserve Percentage for any day that occurred in the Fiscal Month of April 2023 shall be calculated after giving effect to the following modification to the Original Receivables Financing Agreement’s definition of “Loss Ratio”: any Pool Receivable for which Ace Hardware Corporation is the Obligor shall be excluded from clause (a)(i) of the definition of “Loss Ratio”. For the avoidance of doubt, the foregoing shall not modify the definition or calculation of “Dynamic Loss Reserve Percentage” or “Loss Ratio” for any other purpose (including for purposes of Section 9.01(i) of the Amended Receivables Financing Agreement) or for any Fiscal Month other than April 2023, and the Dynamic Loss Reserve Percentage and Loss Ratio for April 2023 shall be calculated in accordance with the current definitions thereof except as expressly provided in this Section 2.
3.Conditions to Effectiveness. This Amendment shall be effective as of the date hereof upon satisfaction of the conditions precedent that the Administrative Agent shall have received a counterpart of this Amendment duly executed by each of the other parties hereto.
4.Certain Representations and Warranties. Each of the Servicer and the Borrower represents and warrants to each Credit Party as of the date hereof, as follows:
(a)Representations and Warranties. After giving effect to this Amendment and the transactions contemplated hereby, all of its respective representations and warranties contained in the Amended Receivables Financing Agreement and each other Transaction Document to which it is a party are true and correct.
(b)Power and Authority; Due Authorization. That it has all necessary limited liability company power, and authority (as applicable) to (i) execute and deliver this Amendment and the transactions contemplated hereby and (ii) perform its obligations under this Amendment, the Amended Receivables Financing Agreement and each of the other Transaction Documents to which it is a party and the execution, delivery and performance of, and the consummation of the transactions provided for in, this Amendment, the Amended Receivables Financing Agreement and the other Transaction Documents to which it is a party have been duly authorized by all necessary corporate or limited liability company action, as applicable.
(c)Binding Obligations. This Amendment, the Amended Receivables Financing Agreement and each of the other Transaction Documents to which it is a party constitute the legal, valid and binding obligations of such Person enforceable against such Person in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.
(d)No Event of Default, Unmatured Event of Default, or Purchase and Contribution Termination Event. After giving effect to this Amendment, (i) no Event of Default, Unmatured Event of Default or Purchase and Contribution Termination Event has occurred that is continuing, and (ii) no Event of Default, Unmatured Event of Default or Purchase and Contribution Termination Event would result from this Amendment or the transactions contemplated hereby.
5.Reference to and Effect on the Original Receivables Financing Agreement and the Other Transaction Documents.
(a)From and after the effectiveness of this Amendment, each reference in the Original Receivables Financing Agreement to “this Agreement”, “hereof”, “herein”, “hereunder” or words of like import, and each reference in each of the other Transaction Documents to the “Receivables Financing Agreement”, “thereunder”, “thereof” or words of like import, in each case referring to the Original Receivables Financing Agreement, shall mean and be, a reference to the Amended Receivables Financing Agreement.
(b)The Original Receivables Financing Agreement (except as specifically amended herein) and the other Transaction Documents are hereby ratified and confirmed in all respects by each of the parties hereto and shall remain in full force and effect in accordance with its respective terms.
(c)The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of or amendment to, any right,
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power or remedy of the Administrative Agent or any other Credit Party under, nor constitute a waiver of or amendment to, any other provision or condition under, the Original Receivables Financing Agreement or any other Transaction Document.
6.Costs and Expenses. The Borrower agrees to pay on demand all reasonable and documented out-of-pocket costs and expenses of the Administrative Agent and the other Credit Parties in connection with the preparation, negotiation, execution and delivery of this Amendment and the transactions contemplated hereby.
7.GOVERNING LAW. THIS AMENDMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO ANY OTHER CONFLICT OF LAWS PROVISIONS THEREOF).
8.Transaction Documents. This Amendment is a Transaction Document executed pursuant to the Original Receivables Financing Agreement and shall be construed, administered and applied in accordance with the terms and provisions thereof.
9.Integration. This Amendment, the Amended Receivables Financing Agreement and the other Transaction Documents contain the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings.
10.Severability. Any provisions of this Amendment that are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
11.Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed signature page of this Amendment by facsimile transmission, emailed pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of an original executed counterpart hereof or any other electronic means as provided in the immediately following sentence. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Amendment and the transactions contemplated hereby shall be deemed to include an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
12.Mutual Negotiations. This Amendment is the product of mutual negotiations by the parties hereto and their counsel, and no party shall be deemed the draftsperson of this Amendment or any provision hereof or to have provided the same. Accordingly, in the event of any inconsistency or ambiguity of any provision of this Amendment, such inconsistency or
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ambiguity shall not be interpreted against any party because of such party’s involvement in the drafting thereof.
13.Headings. The captions and headings of this Amendment are included herein for convenience of reference only and shall not affect the interpretation of this Amendment.
14.Reaffirmation of Performance Guaranty. By executing a counterpart to this Amendment, the Performance Guarantor hereby unconditionally reaffirms its obligations under the Performance Guaranty and acknowledges and agrees that such obligations continue in full force and effect (including, without limitation, with respect to the Guaranteed Obligations, as defined in the Performance Guaranty), and the Performance Guaranty is hereby ratified and confirmed.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.
TRAEGER SPE LLC By: /s/ Dominic Blosil Name: Dominic Blosil Title: Chief Financial Officer | |||||
TRAEGER PELLET GRILLS LLC, as the Servicer By: /s/ Dominic Blosil Name: Dominic Blosil Title: Chief Financial Officer | |||||
TRAEGER PELLET GRILLS HOLDINGS LLC, as the Performance Guarantor By: /s/ Dominic Blosil Name: Dominic Blosil Title: Chief Financial Officer | |||||
S-1 Amendment No. 8 to RFA
MUFG BANK, LTD., as Administrative Agent By:/s/ Eric Williams Name: Eric Williams Title: Managing Director | |||||
MUFG BANK, LTD., as Group Agent for the MUFG Group By:/s/ Eric Williams Name: Eric Williams Title: Managing Director | |||||
MUFG BANK, LTD., as a Committed Lender By:/s/ Eric Williams Name: Eric Williams Title: Managing Director | |||||
GOTHAM FUNDING CORPORATION, as a Conduit Lender By:/s/ Kevin J. Corrigan Name: Kevin J. Corrigan Title: Vice President | |||||
S-2 Amendment No. 8 to RFA
Exhibit 10.3
AMENDMENT NO. 3
TO FIRST LIEN CREDIT AGREEMENT
TO FIRST LIEN CREDIT AGREEMENT
THIS AMENDMENT NO. 3 TO FIRST LIEN CREDIT AGREEMENT (this “Amendment”), dated as of June 2, 2023, is entered into by and between TGP HOLDINGS III LLC, a Delaware limited liability company (the “Borrower”), and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH (“CS”), as Administrative Agent (in such capacity, the “Administrative Agent”).
RECITALS
WHEREAS, the Borrower, Traeger Pellet Grills Holdings LLC, a Delaware limited liability company, TGPX Holdings II LLC, a Delaware limited liability company, the several Lenders from time to time party thereto and the Administrative Agent have entered into that certain First Lien Credit Agreement, dated as of June 29, 2021 (as amended by Amendment No. 1, dated as of August 18, 2021, and Amendment No. 2, dated as of August 8, 2022, and as further amended, restated, supplemented or otherwise modified from time to time prior to the date hereof, the “Existing Credit Agreement” and, as amended by this Amendment, the “Amended Credit Agreement”);
WHEREAS, the Administrative Agent and the Borrower have reasonably determined that a Benchmark Transition Event (as defined in the Existing Credit Agreement) and its corresponding Benchmark Transition Start Date (as defined in the Existing Credit Agreement) have occurred; and
WHEREAS, in accordance with Section 3.09 of the Existing Credit Agreement, the Administrative Agent and the Borrower have determined that Adjusted Term SOFR should be the Benchmark Replacement (as defined in the Existing Credit Agreement), replacing the Eurocurrency Rate under the Existing Credit Agreement and the other Loan Documents on the terms set forth herein, and such changes shall become effective at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date that the draft of this Amendment was provided to the Lenders, so long as the Administrative Agent has not received, by such time, written notice of objection to this proposed Amendment from the Required Lenders.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
SECTION I. DEFINED TERMS; INTERPRETATION; ETC.
Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the Amended Credit Agreement. The rules of construction specified in Sections 1.02 through 1.11 of the Existing Credit Agreement also apply to this Amendment, mutatis mutandis, as if fully set forth herein. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Existing Credit Agreement or any other Loan Document shall, after this Amendment becomes effective, refer to the Amended Credit Agreement.
SECTION II. AMENDMENTS.
The Borrower and the Administrative Agent agree that on the Amendment No. 3 Effective Date (as defined below), (a) the Existing Credit Agreement shall be amended to delete the stricken text (indicated textually in the same as the following example: stricken text) and to add the underlined text (indicated textually in the same manner as the following example: underlined text) as set forth in the pages of the Amended Credit Agreement attached as Annex A hereto, (b) Schedule 2.01 of the Existing Credit Agreement shall be amended and restated in its entirety in the form attached as Annex B hereto (solely to reflect the assignment of the Revolving Credit Commitment of MUFG Union Bank, N.A. to MUFG Bank, Ltd.) and (c) Exhibit A of the Existing Credit Agreement shall be amended and restated in its entirety in the form attached as Annex C hereto.
SECTION III. PRE-AMENDMENT EUROCURRENCY LOANS.
Notwithstanding the foregoing, all Eurocurrency Rate Loans (as defined in the Existing Credit Agreement) outstanding under the Existing Credit Agreement as of the Amendment No. 3 Effective Date (collectively, the “Existing Eurocurrency Rate Loans”) shall remain outstanding under the Existing Credit Agreement as Eurocurrency Rate Loans until the expiration of the then-current Interest Period applicable to such Existing Eurocurrency Rate Loans, at which time such Existing Eurocurrency Rate Loans shall be converted in full (the “Specified Conversion”) to Base Rate Loans in accordance with Section 2.02 of the Amended Credit Agreement or Term SOFR Loans, with an Interest Period as specified in the notice of conversion or continuation, effective as of the expiration date of such then-current Interest Period, as applicable. Any such Existing Eurocurrency Rate Loans shall continue to be governed by the relevant provisions of the Existing Credit Agreement applicable to Eurocurrency Rate Loans until the earlier of (x) the repayment of such Loans and (y) the conversion of such Loans to Term SOFR Loans pursuant to the Specified Conversion. For the avoidance of doubt, the Borrower shall not have the ability to draw, or convert, to Loans that accrue interest based on Adjusted Term SOFR prior to the Amendment No. 3 Effective Date.
SECTION IV. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent to enter into this Amendment, the Borrower represents and warrants to the Administrative Agent as of the Amendment No. 3 Effective Date (as defined below) that, immediately before and after giving effect to this Amendment:
A. the Borrower has all requisite power and authority to execute, deliver and perform its obligations under this Amendment and perform its obligations under the Amended Credit Agreement;
B. the execution, delivery and performance by the Borrower of this Amendment, and the consummation of the transactions described herein, are within the Borrower’s corporate or other powers, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (i) contravene the terms of the Borrower’s Organization Documents; (ii) conflict with or result in any breach or contravention of, or the creation of any Lien under (other than any Lien to secure the Secured Obligations pursuant to the Collateral Documents), or require any payment to be made under (x) any Contractual Obligation to which the Borrower is a party or affecting the Borrower or the properties of the Borrower or any of its Restricted Subsidiaries, or (y) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which the Borrower or its property is subject; or (iii) violate any Law; except with respect to any breach or contravention or payment referred to in Section IV(B)(ii) or (iii) of this Amendment to the extent that such conflict, breach, contravention or payment would not reasonably be expected to have a Material Adverse Effect;
C. no material approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Borrower of this Amendment or the Amended Credit Agreement or for the consummation of the transactions described herein, except for the approvals, consents, exemptions, authorizations, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect and those approvals, consents, exemptions, authorizations or other actions, notices or filings, the failure of which to obtain or make would not reasonably be expected to have a Material Adverse Effect;
D. this Amendment has been duly executed and delivered by the Borrower, and each of this Amendment and the Amended Credit Agreement constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other Laws affecting creditors’ rights generally and by general principles of equity; and
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E. each of the representations and warranties contained in the Existing Credit Agreement and each other Loan Document is true and correct in all material respects (and in all respects if qualified by materiality) on and as of the Amendment No. 3 Effective Date, as if made on and as of such date and except to the extent that such representations and warranties specifically relate to a specific date, in which case such representations and warranties shall be true and correct in all material respects (and in all respects if qualified by materiality) as of such specific date (provided that for purposes of the foregoing the reference to “Closing Date” in Section 5.17 of the Existing Credit Agreement (Solvency) shall be deemed to be a reference to the “Amendment No. 3 Effective Date”).
SECTION V. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT
The effectiveness of this Amendment is subject to the following conditions (the date of satisfaction or waiver of all such conditions, the “Amendment No. 3 Effective Date”):
A. each of the representations and warranties made by the Borrower set forth in Section IV of this Amendment shall be true and correct in all material respects (and in all respects if qualified by materiality) on and as of the Amendment No. 3 Effective Date;
B. the Administrative Agent shall have received a counterpart signature page of this Amendment, duly executed and delivered by the Borrower; and
C. the Administrative Agent shall have posted this Amendment to all Lenders and the Administrative Agent shall not have received written notice of objection to this Amendment from the Lenders comprising the Required Lenders as of 5:00 p.m. (New York City time) on June 2, 2023, the fifth (5th) Business Day after such posting.
SECTION VI. EFFECT ON THE AMENDED CREDIT AGREEMENT.
A. Except as provided hereunder, the execution, delivery and performance of this Amendment shall not constitute a waiver or novation of any provision of, or operate as a waiver of any right, power or remedy of any Agent or Lender under, the Existing Credit Agreement.
B. This Amendment shall be deemed to be a “Loan Document” as defined in the Amended Credit Agreement.
C. Except as specifically amended by this Amendment, the Existing Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed.
SECTION VII. AMENDMENT, MODIFICATION AND WAIVER.
This Amendment may not be amended, restated, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto.
SECTION VIII. CONSENT AND REAFFIRMATION.
On behalf of each Loan Party, the Borrower hereby (i) reaffirms and acknowledges and agrees to the continuing force and effect of each Loan Party’s pledges, grants of security interests and Liens and other obligations under the Guaranty, the Security Agreement and the other Loan Documents to which each such Loan Party is a party, (ii) reaffirms (x) each Lien granted by each Loan Party to the Administrative Agent for the benefit of the Secured Parties and (y) the guaranties made by each Loan Party pursuant to the Guaranty and (iii) acknowledges and agrees that the grants of security interests and Liens by, and the guaranties of, the Guarantors contained in the Guaranty, the Security Agreement and the other Loan Documents are and shall remain in full force and effect on and after the Amendment No. 3 Effective Date.
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SECTION IX. ENTIRE AGREEMENT.
This Amendment, the Amended Credit Agreement and the other Loan Documents constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the subject matter hereof.
SECTION X. GOVERNING LAW; JURISDICTION; ETC.
THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
THE PROVISIONS OF SECTIONS 10.15(B), (C) AND (D) OF THE AMENDED CREDIT AGREEMENT ARE INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS, AND MADE A PART HEREOF.
SECTION XI. WAIVER OF RIGHT TO TRIAL BY JURY.
EACH PARTY TO THIS AMENDMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING HEREUNDER OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AMENDMENT OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AMENDMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION XI WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
SECTION XII. SEVERABILITY.
Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
SECTION XIII. COUNTERPARTS.
This Amendment may be executed in counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same instrument. Any signature to this Amendment may be delivered by facsimile, electronic mail (including pdf) or any electronic signature complying with the U.S. federal ESIGN Act of 2000 or the New York Electronic Signature and Records Act or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes to the fullest extent permitted by applicable Law. For the avoidance of doubt, the foregoing also applies to any amendment, extension or renewal of this Amendment.
Each of the parties hereto represents and warrants to the other parties hereto that it has the corporate capacity and authority to execute the Amendment through electronic means and there are no restrictions for doing so in that party’s constitutive documents.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
BORROWER:
TGP HOLDINGS III LLC By: /s/ Dominic Blosil Name: Dominic Blosil Title: Chief Financial Officer | ||
CREDIT SUISSE AG, CAYMAN ISLAND BRANCH, as Administrative Agent By: /s/ D. Andrew Maletta Name: D. Andrew Maletta Title: Authorized Signatory | ||
By: /s/ Nawshaer Safi Name: Nawshaer Safi Title: Authorized Signatory | ||
[Signature Page to Amendment No. 3 to First Lien Credit Agreement]
Annex A
Amended Credit Agreement
[See attached.]
Annex B
Schedule 2.01 to Amended Credit Agreement
[See attached.]
Schedule 2.01 to
the First Lien Credit Agreement
the First Lien Credit Agreement
TERM COMMITMENTS, REVOLVING CREDIT COMMITMENTS
AND PRO RATA SHARES
AND PRO RATA SHARES
Lender | Closing Date Term Commitment | Pro Rata Share | ||||||
| Credit Suisse AG, Cayman Islands Branch | $510,000,000 | 100% | ||||||
Total | $510,000,000 | 100% | ||||||
Lender | Delayed Draw Term Commitment | Pro Rata Share | ||||||
| Credit Suisse AG, Cayman Islands Branch | $50,000,000 | 100% | ||||||
Total | $50,000,000 | 100% | ||||||
Lender | Revolving Credit Commitment | Pro Rata Share | ||||||
| Credit Suisse AG, Cayman Islands Branch | $30,000,000 | 24.0% | ||||||
| Morgan Stanley Senior Funding, Inc. | $38,000,000 | 30.4% | ||||||
| MUFG Bank, Ltd. | $26,000,000 | 20.8% | ||||||
| Royal Bank of Canada | $12,500,000 | 10.0% | ||||||
| Jefferies Finance LLC | $12,500,000 | 10.0% | ||||||
| Bank of Montreal | $6,000,000 | 4.8% | ||||||
Total | $125,000,000 | 100.0% | ||||||
Schedule 2.01 Commitments and Pro Rata Shares
Annex C
Exhibit A to Amended Credit Agreement
[See attached.]
EXHIBIT A
FORM OF COMMITTED LOAN NOTICE
Date:_____________, ___
To: Credit Suisse AG, Cayman Islands Branch, as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain First Lien Credit Agreement, dated as of June 29, 2021 (as amended, amended and restated, extended, supplemented or otherwise modified from time to time in accordance with its terms, the “Agreement”; the capitalized terms defined therein being used herein as therein defined), among TGP HOLDINGS III LLC, a Delaware limited liability company, as Borrower, TRAEGER PELLET GRILLS HOLDINGS LLC, a Delaware limited liability company, as Revolving Loan Co-Borrower, TGPX HOLDINGS II LLC, a Delaware limited liability company, as Holdings, the Lenders from time to time party thereto and CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Administrative Agent and as Collateral Agent. The undersigned hereby requests (select one):
❑ A Borrowing of Loans ❑ A conversion or continuation of Loans
❑ Revolving Credit Loan | ❑ Term Loan | ❑ Closing Date Term Loans | ❑ Delayed Draw Term Loans | |||||||||||
| Date of Loan (a Business Day) | ||||||||||||||
| Amount | ||||||||||||||
| Type of Loan | ❑ Base Rate Loan ❑ Term SOFR Loan | ❑ Base Rate Loan ❑ Term SOFR Loan | ❑ Base Rate Loan ❑ Term SOFR Loan | ❑ Base Rate Loan ❑ Term SOFR Loan | ||||||||||
| Interest Period in months (for Term SOFR Loan) | ||||||||||||||
| Wire Instructions | ||||||||||||||
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EXHIBIT A
[For Revolving Credit Loans:] [The Borrowing requested herein complies with the proviso to the first sentence of Section 2.01(c) of the Agreement.]
| [TGP HOLDINGS III LLC][ TRAEGER PELLET GRILLS HOLDINGS LLC] | |||||
| By: | |||||
| Name: | |||||
Title: | |||||
Exhibit 31.1
CERTIFICATION
I, Jeremy Andrus, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Traeger, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 7, 2023 | By: | /s/ Jeremy Andrus | |||||||||
| Jeremy Andrus | |||||||||||
| Chief Executive Officer | |||||||||||
(Principal Executive Officer) | |||||||||||
Exhibit 31.2
CERTIFICATION
I, Dominic Blosil, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Traeger, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 7, 2023 | By: | /s/ Dominic Blosil | |||||||||
| Dominic Blosil | |||||||||||
| Chief Financial Officer | |||||||||||
(Principal Financial Officer and Principal Accounting Officer) | |||||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Traeger, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeremy Andrus, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 7, 2023 | By: | /s/ Jeremy Andrus | |||||||||
| Jeremy Andrus | |||||||||||
| Chief Executive Officer | |||||||||||
(Principal Executive Officer) | |||||||||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Traeger, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dominic Blosil, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 7, 2023 | By: | /s/ Dominic Blosil | |||||||||
| Dominic Blosil | |||||||||||
| Chief Financial Officer | |||||||||||
(Principal Financial Officer and Principal Accounting Officer) | |||||||||||