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Traeger, Inc.

Traeger, Inc.COOKEarnings & Financial Report

NYSE · Consumer Discretionary · Household Appliances

Traeger, Inc. designs, manufactures, and sells premium wood pellet grills, related accessories, and wood pellet fuel for outdoor cooking users. It primarily operates in North America, Europe, and Australia, serving residential consumers and commercial food service clients via retail partners and direct-to-consumer channels.

What changed in Traeger, Inc.'s 10-K — 2022 vs 2023

Top changes in Traeger, Inc.'s 2023 10-K

469 paragraphs added · 435 removed · 363 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

52 edited+8 added−8 removed83 unchanged
We summarize these values as follows: • We emphasize quality, taking pride in masterful execution, down to the tiniest detail. • We test the status quo, take calculated risks, and think disruptively. • We work as a team and strive to bring out the best in our teammates. • We continuously learn, develop, and refine ourselves. • We create a positive experience for every retailer and customer, no matter what it takes.
We summarize these values we aspire to as follows: • We emphasize quality, taking pride in masterful execution, down to the tiniest detail. • We test the status quo, take calculated risks, and think disruptively. • We work as a team and strive to bring out the best in our teammates. • We continuously learn, develop, and refine ourselves. • We create a positive experience for every retailer and customer, no matter what it takes.
At our Investor Relations website, investors.traeger.com, we make available free of charge a variety of information for investors, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the Securities and Exchange Commission (“SEC”).
On our Investor Relations website, investors.traeger.com, we make available free of charge a variety of information for investors, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with, or furnish it to, the Securities and Exchange Commission (“SEC”).
Any changes in environmental laws and regulations or re-interpretation of enforcement policies that result in more stringent and costly requirements could have a material adverse effect on our operations and products, particularly with respect to our wood pellet production facilities, and financial position.
Any changes in environmental laws and regulations or re-interpretation of such laws and regulations, or enforcement policies, that result in more stringent and costly requirements could have a material adverse effect on our operations and products, particularly with respect to our wood pellet production facilities, and financial position.
Similar to our experience regarding competition for our wood pellet grills, we have experienced an increase in competitors and competing offerings of wood pellets in recent years. In July 2021, we acquired Apption Labs and began selling the MEATER smart thermometer. We compete in this space with brands such as Weber, Thermoworks and ThermoPro, among others.
Similar to our experience regarding competition for our wood pellet grills, we have experienced an increase in competitors and competing offerings of wood pellets in recent years. In July 2021, we acquired Apption Labs and began selling the MEATER smart thermometer. We compete in this space with brands such as ThermoWorks, OXO, and ThermoPro, among others.
Investors and others should note we announce material financial and operational information to our investors press releases, SEC filings and public conference call webcasts, and by postings on our investor relations site at investor.traeger.com. We may also use our website as a distribution channel of material Company information.
Investors and others should note we announce material financial and operational information through our investors press releases, SEC filings and public conference call webcasts, and by postings on our investor relations site at investor.traeger.com. We may also use our website as a distribution channel of material Company information.
However, we also leverage our network of chefs, recipe developers, and pitmasters to source recipes and insights. Traeger Kitchen Live We offer weekly, live-streaming cooking classes to consumers through our Traeger Kitchen Live series, where our community ambassadors welcome consumers into their kitchens and instruct on how to use a Traeger for everything from barbecue brisket to baked goods.
However, we also leverage our network of chefs, recipe developers, and pitmasters to source recipes and insights. Traeger Kitchen Live Traeger offers live-streaming cooking classes to consumers through our Traeger Kitchen Live series, where our community ambassadors welcome consumers into their kitchens and instruct on how to use a Traeger for everything from barbecue brisket to baked goods.
We believe these intellectual property rights, combined with our innovation and distinctive product design, performance, and brand name and reputation, contribute to our competitive position and success of our business. The original patent for the wood pellet grill, which was filed by Joe Traeger in 1986, expired in 2006.
We believe these intellectual 5 Table of Contents property rights, combined with our innovation and distinctive product design, performance, and brand name and reputation, contribute to our competitive position and success of our business. The original patent for the wood pellet grill, which was filed by Joe Traeger in 1986, expired in 2006.
We produce our wood pellets through a vertically integrated network of seven wood pellet production facilities and a select number of contract manufacturers capable of meeting our specifications in the United States. This network includes an owned and operated facility in New York and leased facilities in Oregon, Georgia, Texas, and Virginia.
We produce our wood pellets through a vertically integrated network of five wood pellet production facilities and a select number of contract manufacturers capable of meeting our specifications in the United States. This network includes an owned and operated facility in New York and leased facilities in Oregon, Georgia, and Texas.
Our flagship wood pellet grills are internet of things, or IoT, devices that allow owners to program, monitor, and control their grill through our Traeger app, which is used on more than 2.4 million mobile devices per month. We complement our innovative cooking technologies with an extensive digital library of original recipes and Traeger Kitchen Live cooking classes.
Our flagship wood pellet grills are internet of things, or IoT, devices that allow owners to program, monitor, and control their grill through our Traeger app, which is used on more than 3.0 million mobile devices per month. We complement our innovative cooking technologies with an extensive digital library of original recipes and Traeger Kitchen Live cooking classes.
The wood pellet industry has received increased scrutiny from civil society groups and the media for environmental impacts associated with wood sourcing and pellet burning. To address these stakeholder concerns, we have committed to reducing the environmental impact of our wood pellet business.
The wood pellet industry has 6 Table of Contents received increased scrutiny from civil society groups and the media for environmental impacts associated with wood sourcing and pellet burning. To address these stakeholder concerns, we have committed to reducing the environmental impact of our wood pellet business.
We believe our providers have sufficient expansion capacity to meet our future needs, and that our distribution and fulfillment strategy has improved the efficiency and scalability of our operations. We manage inventory through a third-party MRP system. We forecast demand based on market inputs and generate SKU and rolling 18-month forecasts.
We believe our providers have sufficient expansion capacity to meet our future needs, and that our distribution and fulfillment strategy has improved the efficiency and scalability of our operations. We manage inventory through a third-party MRP system. We forecast demand based on market inputs and generate stock keeping unit and rolling 18-month forecasts.
The Traeger app is free to download from the Apple App Store or Google Play, is free to use, and is used on more than 1.8 million mobile devices per month. Our Consumables We offer a variety of Traeger-branded wood pellets, rubs, and sauces for use when cooking with our grills.
The Traeger app is free to download from the Apple App Store or Google Play, is free to use, and is used on more than 3.0 million mobile devices per month. Our Consumables We offer a variety of Traeger-branded wood pellets, rubs, and sauces for use when cooking with our grills.
Our inventory is managed by these third-party logistics providers, which interface with our material resources planning, or MRP, system to enable us to maintain visibility and control over inventory levels and customer shipments. We maintain a third-party logistics providers in the Netherlands and Canada to support our international growth.
Our inventory is managed by these third-party logistics providers, which interface with our material resources planning ("MRP") system to enable us to maintain visibility and control over inventory levels and customer shipments. We maintain a third-party logistics providers in the Netherlands, United Kingdom, Germany and Canada to support our international growth.
We hire for risk tolerance, intellectual curiosity, passion, humility, and a drive to do “big things.” We teach hires the Traeger culture and strategy and then toss them into the proverbial deep end. We celebrate their successes and help them learn from their mistakes, but do not allow them to fail.
We hire for risk tolerance, intellectual curiosity, passion, humility, and a drive to do “big things.” We teach hires the Traeger culture and strategy and then toss them into the proverbial deep end. We celebrate their successes and help them learn from their mistakes.
Using software, internet connectivity, and cloud technology, we reinvented the original Traeger to be an IoT, device featuring a variety of modern technologies, including: • WiFIRE technology – Utilizes cloud-computing, our Traeger app, and our cloud-connected grills to enable users to automate recipe steps and control and monitor their grill from anywhere in the world using their smartphone. • D2 Direct Drive – An automated control system that maintains grill temperature to +/-5 degrees of set temperature through fans and DC auger control. • Super Smoke Mode – A proprietary cooking mode that maximizes production of hardwood smoke to infuse flavors into food. 1 Table of Contents • Pellet Sensor – A connected sensor that measures wood pellet levels and communicates with our Traeger app, enabling users to monitor fuel levels and receive alerts when fuel gets low. • TurboTemp – A rapid startup system that brings the grill to cooking temperature and reacts quickly to temperature changes.
Using software, internet connectivity, and cloud technology, we reinvented the original Traeger to be an IoT, device featuring a variety of modern technologies, including: • WiFIRE technology – Utilizes cloud-computing, our Traeger app, and our cloud-connected grills to enable users to automate recipe steps and control and monitor their grill from anywhere in the world using their smartphone. • D2 Direct Drive – An automated control system that maintains grill temperature to +/-5 degrees of set temperature through fans and DC auger control. • Super Smoke Mode – A proprietary cooking mode that maximizes production of hardwood smoke to infuse flavors into food. • Pellet Sensor – A connected sensor that measures wood pellet levels and communicates with our Traeger app, enabling users to monitor fuel levels and receive alerts when fuel gets low. 1 Table of Contents • TurboTemp – A rapid startup system that brings the grill to cooking temperature and reacts quickly to temperature changes. • Smart Combustion – A proprietary technology that helps our grills maintain consistent cooking temperatures. • EZ Clean – A 2-in-1 grease and ash collection system.
Sustainability and ESG We are committed to seeking to reduce adverse environmental impacts in our operations, supply chain and product lifecycles to the extent possible. To reinforce our commitment to our stakeholders, we launched sustainability and ESG 6 Table of Contents initiatives across our organization to address our potential and actual environmental impacts.
Sustainability and ESG We are committed to seeking to reduce adverse environmental impacts in our operations, supply chain and product lifecycles to the extent possible. To reinforce our commitment to our stakeholders, we launched sustainability and ESG initiatives across our organization to address our potential and actual environmental impacts.
Many of our employees live the Traeger lifestyle at home with their own grills and at our office, with its outdoor barbecue deck and test kitchen. As of December 31, 2022, we had approximately 690 employees, of which approximately 685 were full-time. We also retain consultants, independent contractors and temporary and part-time workers.
Many of our employees live the Traeger lifestyle at home with their own grills and at our office, with its outdoor barbecue deck and test kitchen. As of December 31, 2023, we had approximately 641 employees, of which 640 were full-time. We also retain consultants, independent contractors and temporary and part-time workers.
Our grills represented 54.2% and 69.3% of our revenue for the year ended December 31, 2022 and 2021, respectively. Our Digital Content We produce a library of digital content including instructional recipes and videos that demonstrate tips, tricks, and cooking techniques that empower Traeger owners to progress their cooking skills.
Our grills represented 49.4% and 54.2% of our revenue for the year ended December 31, 2023 and 2022, respectively. Our Digital Content We produce a library of digital content including instructional recipes and videos that demonstrate tips, tricks, and cooking techniques that empower Traeger owners to progress their cooking skills.
Our accessories represented 25.8% and 13.4% of our revenue for the year ended December 31, 2022 and 2021, respectively. Marketing Following the launch of the original Traeger in 1987, a dedicated community began to form around the Traeger experience.
Our accessories represented 31.6% and 25.8% of our revenue for the year ended December 31, 2023 and 2022, respectively. Marketing Following the launch of the original Traeger in 1987, a dedicated community began to form around the Traeger experience.
We also compete with providers of wood pellets for use in grilling, including well-known brands like Weber, Kingsford and Dansons, among others, whose pellets may be used with our grills. These competitors offer a broad array of pellet types and flavors.
We also compete with providers of wood pellets for use in grilling, including well-known brands like Dansons, Bear Mountain BBQ, and Kirkland among others, whose pellets may be used with our grills. These competitors offer a broad array of pellet types and flavors.
For example, we generally enter into confidentiality agreements and invention or work product assignment 5 Table of Contents agreements with our employees and consultants to control access to, and clarify ownership of, our proprietary information. We protect our intellectual property rights in the United States and certain international jurisdictions.
For example, we generally enter into confidentiality agreements and invention or work product assignment agreements with our employees and consultants to control access to, and clarify ownership of, our intellectual property rights. We protect our intellectual property rights in the United States and certain foreign jurisdictions.
Prolonged adverse weather conditions could significantly reduce our sales in one or more periods. These conditions may shift sales to subsequent reporting periods, cause our results of operations to fluctuate on a quarterly basis or decrease overall sales. Please see Part I, Item 1A.
These conditions may shift sales to subsequent reporting periods, cause our results of operations to fluctuate on a quarterly basis or decrease overall sales. Please see Part I, Item 1A.
Our Accessories We offer a variety of grill accessories (including covers, drip trays, bucket liners and shelves), tools to aid in meal prep, cooking, and cleanup (including pellet storage systems, cleaning solutions, barbecue tools and the MEATER smart thermometer), replacement parts, and apparel and merchandise (including t-shirts, hooded sweatshirts and baseball hats, in various styles).
Pop-And-Lock accessory rail, covers, drip trays, bucket liners, storage bins and shelves), tools to aid in meal prep, cooking, and cleanup (including pellet storage systems, cleaning solutions, barbecue tools and the MEATER smart thermometer), replacement parts, and apparel and merchandise (including t-shirts, hooded sweatshirts and baseball hats, in various styles).
However, the designation of previously unidentified endangered or threatened species or habitat could cause us to incur additional costs or become subject to operating restrictions or bans in the affected areas, which could have an adverse impact on the availability or price of raw materials.
While the ESA has not historically had a material impact on our operations, the designation of previously unidentified endangered or threatened species or habitat could cause us or our suppliers to incur additional costs or become subject to operating restrictions or bans in the affected areas, which could have an adverse impact on the availability or price of raw materials.
Our employees are located in 37 states and 6 countries, with approximately 560 located in the United States. Our employees are divided across several core functions, including sales and marketing, supply chain management, product development, wood pellet manufacturing, and culinary and talent management.
As of December 31, 2023, our employees were located in 36 states and 6 countries, with 490 located in the United States. Our employees are divided across several core functions, including sales and marketing, supply chain management, product development, wood pellet manufacturing, and culinary and talent management.
Although we are not presently aware of any material contamination on our properties or any material remediation liabilities, we cannot assure you that we will not be exposed to significant remediation obligations or liabilities in the future.
Although we are not presently aware of any material contamination on our properties or any material remediation liabilities, we cannot assure you that we will not be exposed to significant remediation obligations or liabilities in the future. Moreover, certain substances that have not historically been considered hazardous substances may subsequently be designated as such.
The Reinvented Original We’ve come a long way since 1987 and have made significant improvements to our grills and technologies. Along the way, our product design has been centered on our core concepts of taste, versatility, ease of use, consistency, and community. Beginning in 2014, we pioneered a digital outdoor cooking experience.
Along the way, our product design has been centered on our core concepts of taste, versatility, ease of use, consistency, and community. Beginning in 2014, we pioneered a digital outdoor cooking experience.
Our internal supply chain management team supports product introductions and evolving channel strategies, researches materials and equipment, qualifies direct suppliers and potential manufacturers, 4 Table of Contents directs internal demand and production planning, manages product purchasing plans and oversees product transportation. Our personnel also work with our third-party manufacturers to monitor product quality and manufacturing process efficiency.
Our internal supply chain management team supports product introductions and evolving channel strategies, researches materials and equipment, qualifies direct suppliers and potential manufacturers, directs internal demand and production planning, manages product purchasing plans and oversees product transportation.
A drip tray funnels the grease, fat, and oil to an external bucket to help prevent flareups and simplify cleanup. Our Integrated Platform Our integrated platform includes four types of products: wood pellet grills, digital content, the Traeger app and consumables. We integrate these products to optimize the cooking experience and produce valuable feedback loops with consumers.
A drip tray funnels the grease, fat, and oil to an external bucket to help prevent flareups and simplify cleanup. Our Integrated Platform Our integrated platform includes six types of products: wood pellet grills, gas griddles, grilling accessories, digital content, the Traeger app and consumables.
We also compete against other wood pellet grill brands, such as Dansons. Moreover, the outdoor cooking market is expanding to include alternatives beyond traditional grills, and we also compete against companies that manufacture griddles, such as Blackstone, and companies that manufacture pizza ovens, such as Ooni.
Moreover, the outdoor cooking market is expanding to include alternatives beyond traditional grills, and we also compete against companies that manufacture griddles, such as Blackstone, and companies that manufacture pizza ovens, such as Ooni. We have experienced an increase in competitors and competing offerings of gas and charcoal grills, wood pellet grills and other outdoor cooking devices in recent years.
As of December 31, 2022, we had approximately 525 trademark registrations and 324 issued patents and pending patent applications in the United States and other countries. As of December 31, 2022, we had approximately 59 issued U.S. patents and 20 U.S. patent applications pending.
As of December 31, 2023, we had approximately 559 trademark registrations and 371 issued patents and pending patent applications in the United States and other countries. As of December 31, 2023, we had approximately 71 issued U.S. patents and 17 U.S. patent applications pending and had approximately 208 issued foreign patents and 75 foreign patent applications pending.
We compete with established, well-known, and legacy grill brands, including Weber and Pit Boss, among others, as well as numerous other brands and grill manufacturers that offer competing products. These competitors offer a broad array of grills at different price points, including traditional gas, charcoal and electric grill offerings, as well as a significant number of wood pellet grills.
Numerous other companies offer a wide variety of products, including traditional gas, charcoal and electric grills, that compete with our grills, accessories and other products. We compete with established, well-known, and legacy grill brands, including Weber and Pit Boss, among others, as well as numerous other brands and grill manufacturers that offer competing products.
Although our facilities are presently in compliance with these requirements, 8 Table of Contents changes to the terms and conditions of our permits in future renewals or new or modified regulations could require us to incur additional capital or operating expenditures which may be material.
Although our facilities have not historically incurred material costs for compliance with these requirements, changes to the terms and conditions of our permits in future renewals or new or modified regulations could require us to incur additional capital or operating expenditures which may be material. 8 Table of Contents Endangered Species Act The federal Endangered Species Act, as amended ("ESA"), restricts activities that may affect endangered and threatened species or their habitats.
The Biden administration also issued an executive order in January 2021 focused on addressing climate change. As a result of these recent developments, our operations could be subject to a series of regulatory, litigation and financial risks associated with the production, transportation and sale of our products.
As a result of these developments, our operations could be subject to a series of regulatory, litigation and financial risks associated with the production, transportation and sale of our products.
As a result, our integrated platform can drive grill usage, brand affinity, word of mouth, and purchases of our consumables. Products Our Grills We offer six primary grill lines: Timberline Series, Ironwood Series, Pro Series with WiFIRE, Pro Series without WiFIRE, Town and Travel Series, and Club Lineup. These grills vary in size, price, construction, materials, and digital technologies.
Products Our Grills We offer seven primary grill lines: Timberline Series, Ironwood Series, Pro Series with WiFIRE, Pro Series without WiFIRE, Town and Travel Series, Club Lineup, and Flatrock flat top grill. These grills vary in size, price, construction, materials, and digital technologies.
We utilize third-party manufacturers to manufacture and supply our grills and accessories. Our grills are manufactured by three manufacturers located in China and one manufacturer located in Vietnam, and we outsource the production of our accessories and apparel to a global network of suppliers.
Our grills are manufactured by three manufacturers located in China and one manufacturer located in Vietnam, and we outsource the production of our accessories and apparel to a global network of suppliers. The raw materials and components used in our grills are sourced either directly by us or on our behalf by our manufacturers from a variety of suppliers.
Prior to the original Traeger, cooking with wood fire was difficult and there was no efficient way to ignite the wood, maintain consistent temperatures, and create the right amount of smoke. The original Traeger helped to solve these challenges, making it easier for home cooks to achieve extraordinary culinary results.
The original Traeger helped to transform outdoor cooking by making it easy to enjoy the delicious flavors of wood-fired food. Prior to the original Traeger, cooking with wood fire was difficult and there was no efficient way to ignite the wood, maintain consistent temperatures, and create the right amount of smoke.
Our supply chain management team coordinates the relationships and commercial terms between our manufacturers and the suppliers of raw material and components that we have sourced directly.
Similarly, the raw materials for our hardwood pellets produced in the United States are sourced directly by us, and from local sources wherever possible. Our supply chain management team coordinates the relationships and commercial terms between our manufacturers and the suppliers of raw material and components that we have sourced directly.
Our products are available at more than 13,200 retail locations in the United States as of December 31, 2022. We have built relationships with well-known national retailers, such as The Home Depot, Ace Hardware and Costco.
Our products are available at more than 13,200 retail locations globally as of December 31, 2023. We have built relationships with well-known national retailers, such as The Home Depot, Ace Hardware and Costco. We also work with a significant number of independent retailers that cater to local communities and specific categories, such as hardware, camping, outdoor, farm, ranch, and barbecue.
We have a proactive online marketplace monitoring and seller/listing termination program to disrupt any online counterfeit offerings. In addition, we work to shut down counterfeit stand-alone sites through litigation and administrative procedures. We aggressively pursue and defend our intellectual property rights to protect our brand, designs, and inventions.
In addition, we work to shut down counterfeit stand-alone websites through litigation and administrative procedures. We aggressively pursue and defend our intellectual property rights to protect our brand, designs, and inventions. We have processes and procedures in place to identify, protect, and optimize our intellectual property assets on a global basis.
Product Development Our Product team’s mission is to develop world-class innovation with flawless product commercialization and 4.8-star or higher consumer ratings to enhance the consumer cooking experience from beginning to end. These high standards are essential to our strategy of selling a premium product with mass market appeal.
Our DTC channel covers sales directly to customers through our website and Traeger app. Product Development Our Product team’s mission is to develop world-class innovation with flawless product commercialization and 4.8-star or higher consumer ratings to enhance the consumer cooking experience from beginning to end.
Our material U.S. patents for our current products generally expire between March 2026 and May 2039, and cover rights related to our WiFIRE technology, D2 Direct Drive, and Super Smoke, among others. We also had approximately 178 issued foreign patents and 67 foreign patent applications pending.
Our material U.S. patents for our current products generally expire between March 2026 and May 2039, and cover rights related to our WiFIRE technology, D2 Direct Drive, and Super Smoke, among others. We have a proactive online marketplace monitoring and seller/listing termination program to disrupt any online counterfeit offerings.
Today, we estimate that 76 million households in the United States own a grill, representing the total addressable market. With approximately 2.7 million Traegers sold in the United States from 2018 to 2022, we estimate that our U.S. household penetration is only 3.5% of this total addressable market.
With approximately 2.7 million Traeger grills sold in the United States from 2019 to 2023, we estimate that our U.S. household penetration is only 3.5% of this total addressable market. As a result, we believe our potential market opportunity is massive and that our ability to grow within and beyond the outdoor grill market is unrivaled.
Higher sales also coincide with social events and national holidays, which occur during the same timeframe. Although our products can be used year-round, unusually adverse weather conditions can negatively impact the timing of the sales of certain of our products, causing reduced sales and negatively impacting profitability when such conditions exist.
Although our products can be used year-round, unusually adverse weather conditions can negatively impact the timing of the sales of certain of our products, causing reduced sales and negatively impacting profitability when such conditions exist. Prolonged adverse weather conditions could significantly reduce our sales in one or more periods.
Although we believe that we are in substantial compliance with existing environmental laws and regulations and that continued compliance with existing requirements will not materially affect us, there is no assurance that the current level of regulation will continue in the future.
Although compliance with existing environmental laws and regulations has not historically had a material impact on our results of operations, there is no assurance that the current level of regulation will continue in the future.
Since 2014, our team has re-envisioned the outdoor cooking archetype with digital experiences and has developed and leveraged our intellectual property to help build a moat around our business.
Our team aims to build upon our core concepts of taste, versatility, ease of use, consistency, and community. Since 2014, our team has re-envisioned the outdoor cooking archetype with digital experiences and has developed and leveraged our intellectual property and proprietary rights to help protect and enhance our business and competitive position.
Our consumables represented 20.0% and 17.3% of our revenue for the year ended December 31, 2022 and 2021, respectively.
Our consumables represented 19.0% and 20.0% of our revenue for the year ended December 31, 2023 and 2022, respectively. Our Accessories We offer a variety of grill accessories (including the P.A.L.
We have processes and procedures in place to identify, protect, and optimize our intellectual property assets on a global basis. In the future, we intend to continue to seek intellectual property protection for our new products, technologies and processes that we believe are innovative, and will prosecute those who infringe on these valuable assets.
In the future, we intend to continue to seek intellectual property protection for our products, technologies and processes that we believe are innovative, and we will pursue legal action against those who infringe, misappropriate or otherwise violate these valuable assets. Competition We operate in the highly competitive outdoor cooking market.
As a result, we believe our potential market opportunity is massive and that our ability to grow within and beyond the outdoor grill market is unrivaled. We see opportunities to expand our integrated, connected cooking platform with new types of technologies and experiences. Together with the Traegerhood, we are disrupting home cooking.
We see opportunities to expand our integrated, connected cooking platform with new types of technologies and experiences. Together with the Traegerhood, we are disrupting home cooking. Overview of Our Products and Integrated, Connected Cooking Platform The Original In 1987, we invented the original wood pellet grill.
Product innovation can also increase our pricing and encourage customers to replace their grills more often than the average grill owner. As of December 31, 2022, our Product team consisted of approximately 27 members. Our team aims to build upon our core concepts of taste, versatility, ease of use, consistency, and community.
These high standards are essential to our strategy of selling a premium product with mass market appeal. Product innovation can also increase our pricing and encourage customers to replace their grills more often than the average grill owner. As of December 31, 2023, our Product team consisted of 48 members.
For example, our Sustainable Wood Sourcing Policy requires that all upstream harvesting activities be conducted legally and aims to promote alignment with sustainable forestry best practices including sourcing wood from sustainably managed forests, where forest stewards (owners, operators) grow, harvest, and process wood in a way that leaves the landscape intact and local ecosystems healthy .
For example, our Sustainable Wood Sourcing Policy requires that all upstream harvesting activities be conducted legally and aims to promote alignment with sustainable forestry best practices, such as by working to understand and document Traeger’s wood pellet supply chain to promote the sourcing of wood pellet materials from responsibly managed forests and/or recycled sources.
We complement this retail channel with direct to consumer sales through our website and Traeger app. We believe this accessibility has fueled our growth, as we have increased our revenue from $545.8 million in 2020 to $655.9 million in 2022, representing a compound annual growth rate, or CAGR, of 9.6%.
We complement this retail channel with direct to consumer ("DTC") sales through our website and Traeger app. Today, we estimate that 76 million households in the United States own a grill, representing the total addressable market.
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Overview of Our Products and Integrated, Connected Cooking Platform The Original In 1987, we invented the original wood pellet grill. The original Traeger helped to transform outdoor cooking by making it easy to enjoy the delicious flavors of wood-fired food.
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The original Traeger helped to solve these challenges, making it easier for home cooks to achieve extraordinary culinary results. The Reinvented Original We’ve come a long way since 1987 and have made significant improvements to our grills and technologies.
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We also work with a significant number of independent retailers that cater to local communities and specific categories, such as hardware, camping, outdoor, farm, ranch, and barbecue. Our DTC channel covers sales directly to customers through our website and Traeger app.
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We integrate these products to optimize the cooking experience and produce valuable feedback loops with consumers. As a result, our integrated platform can drive grill usage, brand affinity, word of mouth, and purchases of our consumables.
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The raw materials and components used in our grills are sourced either directly by us or on our behalf by our manufacturers from a variety of suppliers. Similarly, the raw materials for our hardwood pellets are sourced directly by us, and from local sources wherever possible.
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Our personnel also work with our third-party manufacturers to monitor product quality and manufacturing process efficiency. 4 Table of Contents We utilize third-party manufacturers to manufacture and supply our grills and accessories.
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Competition We operate in the highly competitive outdoor cooking market. Numerous other companies offer a wide variety of products, including traditional gas, charcoal and electric grills, that compete with our grills, accessories and other products.
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These competitors offer a broad array of grills at different price points, including traditional gas, charcoal and electric grill offerings, as well as a significant number of wood pellet grills. We also compete against other wood pellet grill brands, such as Dansons.
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We have experienced an increase in competitors and competing offerings of gas and charcoal grills, wood pellet grills and other outdoor cooking devices in recent years.
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Higher sales also coincide with social events and national holidays, which occur during the same timeframe. Additionally, we have experienced higher sales volume of our accessories during the fourth quarter of the year, due in part to seasonal holiday demand.
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The Working Group set interim estimates consistent with the estimates developed by the Obama administration, in February 2021, and was tasked with producing final recommendations no later than January 2022. The Working Group has not yet released its final recommendations. However, in February 2022, a federal judge of the U.S.
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Various figures have been used for this social cost of carbon, and certain regulatory actions have faced challenge for such figures, either due to their use at all or due to the particular figure used in calculations.
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District Court for the Western District of Louisiana issued a preliminary injunction preventing federal agencies from using the social cost of carbon after finding that the metric's application had increased regulatory costs. The Biden administration has appealed the decision, and the outcome of the litigation is uncertain at this time.
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While the details of a social cost of carbon for federal decision-making remain uncertain, to the extent such a figure is adopted or increased it may result in more stringent GHG emission or forestry standards that may adversely impact our operations. The Biden administration also issued an executive order in January 2021 focused on addressing climate change.
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Endangered Species Act The federal Endangered Species Act, as amended ("ESA"), restricts activities that may affect endangered and threatened species or their habitats. We believe that we are in substantial compliance with the ESA.
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For example, there is increased scrutiny on various per- and polyfluoroalkyl substances (“PFAS”) at the federal and state level, and the U.S. EPA has proposed to designate certain PFAS as hazardous substances under CERCLA.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

202 edited+66 added−44 removed434 unchanged
We believe that our revenue, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks, and difficulties described elsewhere in this report and the extent to which our various products grow and 10 Table of Contents contribute to our results of operations.
We believe that our revenue, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our 10 Table of Contents ability to address the challenges, risks, and difficulties described elsewhere in this report and the extent to which our various products grow and contribute to our results of operations.
We maintain relationships with many community ambassadors, which others may refer to as influencers, and engage in sponsorship 14 Table of Contents initiatives. As existing e-commerce and social media platforms continue to rapidly evolve and new platforms develop, we must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media platforms.
We 14 Table of Contents maintain relationships with many community ambassadors, which others may refer to as influencers, and engage in sponsorship initiatives. As existing e-commerce and social media platforms continue to rapidly evolve and new platforms develop, we must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media platforms.
Moreover, actions or statements that we may take based on based on expectations, assumptions, or third-party information that we currently believe to be reasonable may subsequently be determined to be erroneous or be subject to misinterpretation.
Moreover, actions or statements that we may take based on expectations, assumptions, or third-party information that we currently believe to be reasonable may subsequently be determined to be erroneous or be subject to misinterpretation.
Such requirements may adversely impact our business, by requiring us to amend of processes to source wood pellets that we sell on the EU market, increasing the cost of wood pellets to us and our customers, reducing demand and adversely impacting our revenue and results of operations.
Such requirements may adversely impact our business, by requiring us to amend our processes to source wood pellets that we sell on the EU market, increasing the cost of wood pellets to us and our customers, reducing demand and adversely impacting our revenue and results of operations.
Such important data may only be transferred outside of China subject to compliance with certain data transfer restrictions, such as passing a security assessment organized by the relevant The Cybersecurity Review Measures, which took effect on February 15, 2022 in China, clarifies when entities must apply for a mandatory cybersecurity review from the Chinese government authorities.
Such important data may only be transferred outside of China subject to compliance with certain data transfer restrictions, such as passing a security assessment organized by the relevant authorities. The Cybersecurity Review Measures, which took effect on February 15, 2022 in China, clarifies when entities must apply for a mandatory cybersecurity review from the Chinese government authorities.
We may make fewer sales to our retailers for a variety of reasons, including, but not limited to: • failure to accurately identify the needs of our retailers; • a lack of acceptance of new products, consumables, accessories, or services; • failure to obtain shelf space or prominent digital placement from our retailers; • loss of business relationships, including due to brand or reputational harm; • breaches of contracts with retailers, or our failure to enter into or renew our contracts or purchase orders with major retailers; • consolidation within the retail industry among retailers and retail chains; • reduced, delayed or material changes to the business requirements or operations of our retailers; • failure to fulfil orders from our retailers in full or on a timely basis; 15 Table of Contents • strikes or other work stoppages affecting sales and inventory of our major retailers; • increasing competition by our competitors or the competitors of our major retailers that do not offer or sell our products; • store closures, decreased foot traffic, recession or other adverse effects resulting from public health crises such as the current COVID-19 pandemic (or other future pandemics or epidemics); or • general failure or bankruptcy of any of our major retailers.
We may make fewer sales to our retailers for a variety of reasons, including, but not limited to: • failure to accurately identify the needs of our retailers; • a lack of acceptance of new products, consumables, accessories, or services; • failure to obtain shelf space or prominent digital placement from our retailers; • loss of business relationships, including due to brand or reputational harm; • breaches of contracts with retailers, or our failure to enter into or renew our contracts or purchase orders with major retailers; • consolidation within the retail industry among retailers and retail chains; • reduced, delayed or material changes to the business requirements or operations of our retailers; • failure to fulfil orders from our retailers in full or on a timely basis; 15 Table of Contents • strikes or other work stoppages affecting sales and inventory of our major retailers; • increasing competition by our competitors or the competitors of our major retailers that do not offer or sell our products; • store closures, decreased foot traffic, recession or other adverse effects resulting from public health crises such as the COVID-19 pandemic (or other future pandemics or epidemics); or • general failure or bankruptcy of any of our major retailers.
Factors that could affect our ability to accurately forecast demand for our products include: (a) an increase or decrease in demand for our products; (b) our failure to accurately forecast customer acceptance for our new products; (c) product introductions by competitors; (d) unanticipated changes in general market conditions or other factors, which may result in cancellations of orders or a reduction or increase in the rate of reorders or at-once orders placed by retailers; (e) the impact of unseasonable weather conditions; (f) weakening of economic conditions or consumer confidence in future economic conditions, which could reduce demand for discretionary items, such as our products; and (g) terrorism or acts of war, or the threat thereof, or political or labor instability or unrest, riots, public health crises such as the current COVID-19 pandemic (or other future pandemics or epidemics), which could adversely affect consumer confidence and spending or interrupt production and distribution of product and raw materials.
Factors that could affect our ability to accurately forecast demand for our products include: (a) an increase or decrease in demand for our products; (b) our failure to accurately forecast customer acceptance for our new products; (c) product introductions by competitors; (d) unanticipated changes in general market conditions or other factors, which may result in cancellations of orders or a reduction or increase in the rate of reorders or at-once orders placed by retailers; (e) the impact of unseasonable weather conditions; (f) weakening of economic conditions or consumer confidence in future economic conditions, which could reduce demand for discretionary items, such as our products; and (g) terrorism or acts of war, or the threat thereof, or political or labor instability or unrest, riots, public health crises such as the COVID-19 pandemic (or other future pandemics or epidemics), which could adversely affect consumer confidence and spending or interrupt production and distribution of product and raw materials.
For example, disruptions to or increases in the cost of local, regional domestic or international transportation services for our products and other forms of infrastructure, such as electricity, due to shortages of vessels, barges, railcars or trucks, weather-related problems, flooding, droughts, accidents, mechanical difficulties, bankruptcy, strikes, lockouts, bottlenecks (such as the recent blockage of the Suez Canal in March 2021) or other events could increase our costs, temporarily impair our ability to deliver products to our customers on time or at all and might, in certain circumstances, constitute a force majeure event under our customer contracts, permitting our customers to suspend taking delivery of and paying for our products or resulting in a charge to us for our customers’ lost profits as a result of our failure to timely deliver our products.
For example, disruptions to or increases in the cost of local, regional domestic or international transportation services for our products and other forms of infrastructure, such as electricity, due to shortages of vessels, barges, railcars or trucks, weather-related problems, flooding, droughts, accidents, mechanical difficulties, bankruptcy, strikes, lockouts, bottlenecks (such as the blockage of the Suez Canal in March 2021) or other events could increase our costs, temporarily impair our ability to deliver products to our customers on time or at all and might, in certain circumstances, constitute a force majeure event under our customer contracts, permitting our customers to suspend taking delivery of and paying for our products or resulting in a charge to us for our customers’ lost profits as a result of our failure to timely deliver our products.
Our reliance on suppliers and manufacturers in foreign markets creates risks inherent in doing business in foreign jurisdictions, including: (a) the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions and laws relating to the importation and taxation of goods; (b) changes in the U.S. or international regulations requiring the enactment of more restrictive environmental regulations in markets where we manufacture our products, including China and/or Vietnam; (c) weaker protection for intellectual property and other legal rights than in the United States, and practical difficulties in enforcing intellectual property and other rights outside of the United States; (d) compliance with U.S. and foreign laws relating to foreign operations and business activities, including the FCPA and the UK Bribery Act (which generally prohibit U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business), regulations of the U.S.
Our reliance on suppliers and manufacturers in foreign markets creates risks inherent in doing business in foreign jurisdictions, including: (a) the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions and laws relating to the importation and taxation of goods; (b) changes in the U.S. or international regulations requiring the enactment of more restrictive environmental regulations in markets where we manufacture our products, including China, Vietnam, and/or Taiwan; (c) weaker protection for intellectual property and other legal rights than in the United States, and practical difficulties in enforcing intellectual property and other rights outside of the United States; (d) compliance with U.S. and foreign laws relating to foreign operations and business activities, including the FCPA and the UK Bribery Act (which generally prohibit U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business), regulations of the U.S.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management, including the following: 40 Table of Contents • amendments to certain provisions of our certificate of incorporation or amendments to our bylaws will generally require the approval of at least two-thirds of the voting power of our outstanding capital stock; • our staggered board; • at any time when the parties to our Stockholders Agreement, dated as of July 28, 2021 (the “Stockholders Agreement”), with AEA Investors (the “AEA Fund”), Ontario Teachers’ Pension Plan Board (“OTPP”) and Trilantic Capital Partners (“TCP”), beneficially own, in the aggregate, at least a majority of the voting power of our outstanding capital stock, our stockholders may take action by consent without a meeting, and at any time when the parties to our Stockholders Agreement beneficially own, in the aggregate, less than the majority of the voting power of our outstanding capital stock, our stockholders may not take action by written consent, but may only take action at a meeting of stockholders; • our certificate of incorporation does not provide for cumulative voting; • vacancies on our board of directors are able to be filled only by our board of directors and not by stockholders, subject to the rights granted pursuant to the Stockholders Agreement and the Management Stockholders Agreement, dated as of July 28, 2021 (the “Management Stockholders Agreement, and together with the Stockholders Agreement, the "New Stockholders Agreements"), between the Company and Jeremy Andrus; • a special meeting of our stockholders may only be called by the chairperson of our board of directors, our Chief Executive Officer or a majority of our board of directors; • our certificate of incorporation restricts the forum for certain litigation against us to Delaware or the federal courts, as applicable, unless we otherwise consent in writing; • our board of directors has the authority to issue shares of undesignated preferred stock, the terms of which may be established and shares of which may be issued without further action by our stockholders; and • advance notice procedures apply for stockholders (other than the parties to our New Stockholders Agreements for nominations made pursuant to the terms of the New Stockholders Agreements) to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management, including the following: • amendments to certain provisions of our certificate of incorporation or amendments to our bylaws will generally require the approval of at least two-thirds of the voting power of our outstanding capital stock; • our staggered board; • at any time when the parties to our Stockholders Agreement, dated as of July 28, 2021 (the “Stockholders Agreement”), with AEA Investors (the “AEA Fund”), Ontario Teachers’ Pension Plan Board (“OTPP”) and Trilantic Capital Partners (“TCP”), beneficially own, in the aggregate, at least a majority of the voting power of our outstanding capital stock, our stockholders may take action by consent without a meeting, and at any time when the parties to our Stockholders Agreement beneficially own, in the aggregate, less than the majority of the voting power of our outstanding capital stock, our stockholders may not take action by written consent, but may only take action at a meeting of stockholders; • our certificate of incorporation does not provide for cumulative voting; 41 Table of Contents • vacancies on our board of directors are able to be filled only by our board of directors and not by stockholders, subject to the rights granted pursuant to the Stockholders Agreement and the Management Stockholders Agreement, dated as of July 28, 2021 (the “Management Stockholders Agreement, and together with the Stockholders Agreement, the "New Stockholders Agreements"), between the Company and Jeremy Andrus; • a special meeting of our stockholders may only be called by the chairperson of our board of directors, our Chief Executive Officer or a majority of our board of directors; • our certificate of incorporation restricts the forum for certain litigation against us to Delaware or the federal courts, as applicable, unless we otherwise consent in writing; • our board of directors has the authority to issue shares of undesignated preferred stock, the terms of which may be established and shares of which may be issued without further action by our stockholders; and • advance notice procedures apply for stockholders (other than the parties to our New Stockholders Agreements for nominations made pursuant to the terms of the New Stockholders Agreements) to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
Our operations are subject to many hazards and operational risks inherent to our business, including: (a) general business risks; (b) product liability; (c) product recall; and (d) damage to third parties, our infrastructure, or properties caused by fires, explosions, floods, and other natural disasters, power losses, telecommunications failures, terrorist attacks, riots, public health crises such as the current COVID-19 pandemic (and other future pandemics or epidemics), human errors, and similar events.
Our operations are subject to many hazards and operational risks inherent to our business, including: (a) general business risks; (b) product liability; (c) product recall; and (d) damage to third parties, our infrastructure, or properties caused by fires, explosions, floods, and other natural disasters, power losses, telecommunications failures, terrorist attacks, riots, public health crises such as the COVID-19 pandemic (and other future pandemics or epidemics), human errors, and similar events.
The limited geographical scope of our distribution and fulfillment centers makes us vulnerable to natural disasters, weather-related disruptions, accidents, system failures, public health issues such as the current COVID-19 pandemic (or other future pandemics or epidemics), or other unforeseen events that could delay or impair our ability to fulfill orders to retail channel customers and/or ship products to DTC customers, which could harm our sales.
The limited geographical scope of our distribution and fulfillment centers makes us vulnerable to natural disasters, weather-related disruptions, accidents, system failures, public health issues such as the COVID-19 pandemic (or other future pandemics or epidemics), or other unforeseen events that could delay or impair our ability to fulfill orders to retail channel customers and/or ship products to DTC customers, which could harm our sales.
If we or our third-party partners experienced any significant disruption to our systems that we are unable to mitigate, our ability to timely report our financial results could be impacted, which could negatively impact our stock price. We also communicate electronically throughout the world with our employees and with third parties, such as customers, suppliers, vendors and consumers.
If we or our third-party partners experienced any significant disruption to our IT Systems that we are unable to mitigate, our ability to timely report our financial results could be impacted, which could negatively impact our stock price. We also communicate electronically throughout the world with our employees and with third parties, such as customers, suppliers, vendors and consumers.
In addition, the business of our independent manufacturers in China and Vietnam may also be disrupted by currency exchange rate fluctuations by making their purchases of raw materials more expensive and more difficult to finance. Changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and results of operations.
In addition, the business of our independent manufacturers in China, Taiwan, and Vietnam may also be disrupted by currency exchange rate fluctuations by making their purchases of raw materials more expensive and more difficult to finance. Changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and results of operations.
The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or damage to their operations caused by fire, terrorist attack, riots, natural disaster, public health issues such as the current COVID-19 pandemic (or other future pandemics or epidemics), or other events.
The ability of our manufacturers to effectively satisfy our production requirements could also be impacted by manufacturer financial difficulty or damage to their operations caused by fire, terrorist attack, riots, natural disaster, public health issues such as the COVID-19 pandemic (or other future pandemics or epidemics), or other events.
These estimates and forecasts relating to the size and expected growth of the markets in which we operate, and our penetration of those markets, may change or prove to be inaccurate. While we believe the information on which we base our U.S. TAM and U.S. SAM is generally reliable, such information is inherently imprecise.
These estimates and forecasts relating to the size and expected growth of the markets in which we operate, and our penetration of those markets, may change or prove to be inaccurate. While we believe the information on which we base our U.S. TAM is generally reliable, such information is inherently imprecise.
For example, a significant natural disaster or adverse weather event, such as an earthquake, fire, or flood, could harm our business, results of operations, and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur.
For example, a significant natural disaster or adverse weather event, such as an earthquake, fire, storm or flood, could harm our business, results of operations, and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur.
Any of these factors could depress economic activity and restrict our access to suppliers or customers, and could have a material adverse effect on our business, financial condition, and results of operations and affect our strategy in China, Vietnam, and elsewhere around the world.
Any of these factors could depress economic activity and restrict our access to suppliers or customers, and could have a material adverse effect on our business, financial condition, and results of operations and affect our strategy in China, Vietnam, Taiwan, and elsewhere around the world.
Congress, the U.S. federal courts, and the United States Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future.
Congress, the U.S. federal courts, and the United States Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain or license in the future.
Nevertheless, the steps we take to protect our proprietary rights against infringement or other violation may be inadequate, and we may experience difficulty in effectively limiting the unauthorized use of our patents, trademarks, trade dress, and other intellectual property and proprietary rights worldwide.
Nevertheless, the steps we take to protect our intellectual property and proprietary rights against infringement or other violation may be inadequate, and we may experience difficulty in effectively limiting the unauthorized use of our patents, trademarks, trade dress, copyrights and other intellectual property and proprietary rights worldwide.
Similarly, changes in patent laws or regulations in other countries or jurisdictions, changes in the governmental bodies that enact them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future.
Similarly, changes in patent laws or regulations in other countries or jurisdictions, changes in the governmental bodies that enact them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain or license in the future.
While we actively develop and protect our intellectual property rights, there can be no assurance that we will be adequately protected in all countries in which we conduct our business or that we will prevail when defending our patent, trademark, and proprietary rights.
While we actively develop and protect our intellectual property rights, there can be no assurance that we will be adequately protected in all countries in which we conduct our business or that we will prevail when defending our patent, trademark, and other intellectual property and proprietary rights.
Our business faces increasing scrutiny related to ESG issues, including renewable resources, environmental stewardship, supply chain management, climate change, safety, diversity and inclusion, workplace conduct, human rights, philanthropy and support for local communities.
Our business faces increasing scrutiny related to ESG issues, including renewable resources, environmental stewardship (including deforestation), supply chain management, climate change, safety, diversity and inclusion, workplace conduct, human rights, philanthropy and support for local communities.
Our business is vulnerable to damage or interruption from earthquakes, fires, explosions, floods, power losses, telecommunications failures, terrorist attacks, acts of war, riots, public health crises, human errors, criminal acts, and similar events.
Our business is vulnerable to damage or interruption from earthquakes, fires, explosions, floods, storms, power losses, telecommunications failures, terrorist attacks, acts of war, riots, public health crises, human errors, criminal acts, and similar events.
Only a portion of the intellectual property used in the manufacture and design of our products is patented, and we therefore rely on other forms of protection, including trade and service marks, trade dress, trade secrets, and the strength of our brand.
Only a portion of the intellectual property used in the manufacture and design of our products is patented, and we therefore rely on other forms of protection, including trade and service marks, copyrights, trade dress, trade secrets, and the strength of our brand.
The actions that will require prior written consent include: (i) change in control transactions, (ii) acquiring or disposing of assets or any business enterprise or division thereof for consideration excess of $250.0 million in any single transaction or series of transactions, (iii) increasing or decreasing the size of our board of directors, (iv) terminating the employment of our chief executive officer or hiring a new chief executive officer, (v) initiating any liquidation, dissolution, bankruptcy or other insolvency proceeding involving us or any of our significant subsidiaries, and (vi) any transfer, issue, 41 Table of Contents issuance, sale or disposition of any shares of common stock, other equity securities, equity-linked securities or securities that are convertible into equity securities of us or our subsidiaries to any person or entity that is a non-strategic financial investor in a private placement transaction or series of transactions.
The actions that will require prior written consent include: (i) change in control transactions, (ii) acquiring or disposing of assets or any business enterprise or division thereof for consideration excess of $250.0 million in any single transaction or series of transactions, (iii) increasing or decreasing the size of our board of directors, (iv) terminating the employment of our chief executive officer or hiring a new chief executive officer, (v) initiating any liquidation, dissolution, bankruptcy or other insolvency proceeding involving us or any of our significant subsidiaries, and (vi) any transfer, issue, issuance, sale or disposition of any shares of common stock, other equity securities, equity-linked securities or securities that are convertible into equity securities of us or our subsidiaries to any person or entity that is a non-strategic financial investor in a private placement transaction or series of transactions.
In December 2015, the United States and 194 other countries adopted the Paris Agreement, committing to work towards addressing climate change and agreeing to a monitoring and review process for greenhouse gas emissions.
For example, in December 2015, the United States and 194 other countries adopted the Paris Agreement, committing to work towards addressing climate change and agreeing to a monitoring and review process for greenhouse gas emissions.
Unauthorized use or invalidation of our patents, trademarks, copyrights, trade dress, trade secrets, or other intellectual property or proprietary rights may cause significant damage to our brand and harm our results of operations.
Unauthorized use or invalidation of our patents, trademarks, copyrights, trade dress, trade secrets, or other intellectual property or proprietary rights may cause significant damage to our brand and harm our business and results of operations.
This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an 43 Table of Contents opinion on the effectiveness of our internal control over financial reporting, provided that our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an emerging growth company, as defined in the JOBS Act.
This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting, provided that our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an emerging growth company, as defined in the JOBS Act.
We expect our operating expenses related to equity-based compensation and goodwill impairment charges, to decrease in the future, however, we expect an increase in other operating expenses in the long-term as we continue our sales and marketing efforts, expand our operating and retail infrastructure, add content and software features to our platform, expand into new geographies, develop new products, and in connection with legal, accounting, and other expenses related to operating as a public company.
We expect our operating expenses related to stock-based compensation and goodwill impairment charges, to decrease in the future, however, we expect an increase in other operating expenses in the long-term as we continue our sales and marketing efforts, expand our operating and retail infrastructure, add content and software features to our platform, expand into new geographies, develop new products, and in connection with legal, accounting, and other expenses related to operating as a public company.
We cannot be certain that United States or foreign patents or patent applications of other companies do not exist or will not be issued that would prevent us from commercializing our products. Third parties may sue us for allegedly infringing or misappropriating their patent or other intellectual property rights. Intellectual property litigation is time consuming and costly.
We cannot be certain that United States or foreign patents or patent applications of other companies do not exist or will not be issued that would prevent us from commercializing our products. Third parties may sue us for allegedly infringing, misappropriating or otherwise violating their patent or other intellectual property rights. Intellectual property litigation is time consuming and costly.
We sell to the large majority of retail channel customers on open account terms and do not require collateral or a security interest in the inventory we sell them. Consequently, our accounts receivable for our retail channel customers are unsecured. We also rely on third-party distributors to distribute our products to our retail channel and DTC customers.
We sell to the large majority of retail channel customers on open account terms and do not always require collateral or a security interest in the inventory we sell them. Consequently, our accounts receivable for our retail channel customers are largely unsecured. We also rely on third-party distributors to distribute our products to our retail channel and DTC customers.
Any such action could be expensive to defend, damage our reputation and adversely affect our business, results of operations, and financial condition.
Any such action could be expensive to defend, damage our reputation and materially adversely affect our business, results of operations, and financial condition.
Our ability to effectively manage and maintain our inventory and internal reports, and to ship products to customers and invoice them on a timely basis, depends significantly on our enterprise resource planning, warehouse management, and other information systems, including those operated by certain of our third-party partners.
Our ability to effectively manage and maintain our inventory and internal reports, and to ship products to customers and invoice them on a timely basis, depends significantly on our enterprise resource planning, warehouse management, and other IT Systems, including those operated by certain of our third-party partners.
Further, delays or disruptions in obtaining wood fiber may result from a number of factors affecting our suppliers, including extreme weather or forest fires, production or delivery disruptions, inadequate logging capacity, labor disputes, impaired financial condition of a particular supplier, the inability of suppliers to comply with regulatory or sustainability requirements (including increased sustainability standards, such as the FSC) or decreased availability of raw materials.
Further, delays or disruptions in obtaining wood fiber may result from a number of factors affecting our suppliers, including extreme weather or forest fires, production or delivery disruptions, inadequate logging capacity, labor disputes, impaired financial condition of a particular supplier, the inability of suppliers to comply with regulatory or sustainability requirements (including increased sustainability standards, such as the FSC or the EU Deforestation Regulation) or decreased availability of raw materials.
Our success depends on the value and reputation of our brand, which, in turn, 11 Table of Contents depends on factors such as the quality, market fit, design, performance, and functionality of our physical and digital products, our communication and marketing activities, including live and digital advertising, social media, online content, and public relations, the image of our retailers’ floor spaces and e-commerce platform, and our management of the customer experience, including direct interfaces through customer service.
Our success depends on the value and reputation of our brand, which, in turn, depends on factors such as the quality, market fit, design, performance, and functionality of our physical and digital products, our communication and marketing activities, including live and digital advertising, social media, online content, and public relations, the image of our retailers’ floor spaces and e-commerce platform, and our management of the customer experience, including direct interfaces through customer service.
As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment. 45 Table of Contents General Risks We may engage in merger and acquisition activities, which could require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our results of operations.
As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment. General Risks We may engage in merger and acquisition activities, which could require significant management attention, disrupt our business, dilute stockholder value, and adversely affect our results of operations.
If we are unable to protect or preserve the value of our patents, trade dress, trademarks, copyrights, or other intellectual property rights for any reason, or if we fail to maintain our brand image due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brand and reputation could be damaged, and our business may be harmed.
If we are unable to protect or preserve the value of our patents, trade dress, trademarks, copyrights, or other intellectual property and proprietary rights for any reason, or if we fail to maintain our brand image due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, our brand and reputation could be damaged, and our business and results of our operations may be harmed.
If we are not successful in our defenses or are not successful in obtaining dismissals of any such lawsuit and/or subsequent appeals, legal fees or settlement costs could have a material adverse effect on our results of operations and financial condition.
If we are not successful in our defenses or are not successful in obtaining dismissals of any such litigation and/or subsequent appeals, legal fees or settlement costs could have a material adverse effect on our results of operations and financial condition.
These risks include the following: • adverse changes in foreign currency exchange rates can have a significant effect upon our results of operations, financial condition and cash flows; • increased difficulty in protecting our intellectual property rights and trade secrets, including litigation costs and the outcome of such litigation; • increased exposure to events that could impair our ability to operate internationally with third parties such as problems with such third parties’ operations, finances, insolvency, labor relations, manufacturing capabilities, costs, insurance, natural disasters or other catastrophic events; 20 Table of Contents • unexpected legal or government action or changes in legal or regulatory requirements; • social, economic or political instability, including the conflict between Russia and Ukraine; • potential negative consequences from changes to taxation or tariff policies; • the effects of any anti-American sentiments on our brands or sales of our products; • increased difficulty in ensuring compliance by employees, agents and contractors with our policies as well as with the laws of multiple jurisdictions, including but not limited to the U.S.
These risks include the following: • adverse changes in foreign currency exchange rates can have a significant effect upon our results of operations, financial condition and cash flows; • increased difficulty in protecting our intellectual property rights and trade secrets, including litigation costs and the outcome of such litigation; • increased exposure to events that could impair our ability to operate internationally with third parties such as problems with such third parties’ operations, finances, insolvency, labor relations, manufacturing capabilities, costs, insurance, natural disasters or other catastrophic events; • unexpected legal or government action or changes in legal or regulatory requirements; • social, economic or political instability, including the conflicts between Russia and Ukraine and Israel and Hamas; • potential negative consequences from changes to taxation or tariff policies; • the effects of any anti-American sentiments on our brands or sales of our products; • increased difficulty in ensuring compliance by employees, agents and contractors with our policies as well as with the laws of multiple jurisdictions, including but not limited to the U.S.
Additionally, many of our suppliers may be subject to similar expectations, which may augment or create additional risks, including risks that may not be known to us. Significant increases in the cost of raw materials for our wood pellet facilities or our suppliers suffering from operating or financial difficulties could adversely impact revenue and our ability to satisfy customer demand.
Additionally, many of our suppliers may be subject to similar expectations, which may augment or create additional risks, including risks that may not be known to us. 23 Table of Contents Significant increases in the cost of raw materials for our wood pellet facilities or our suppliers suffering from operating or financial difficulties could adversely impact revenue and our ability to satisfy customer demand.
As of December 31, 2022, our substantial indebtedness also could have exposed us to the risk of increased interest rates, as our borrowings under our First Lien Term Loan Facility and Revolving Credit Facility are at variable rates of interest.
As of December 31, 2023, our substantial indebtedness also could have exposed us to the risk of increased interest rates, as our borrowings under our First Lien Term Loan Facility and Revolving Credit Facility are at variable rates of interest.
Increasing environmental and climate consciousness among customers may impact other aspects of our products, including our grills or non-wood pellet consumables, and developing products that satisfy the market’s evolving expectations for product composition and environmental profiles may require us to incur significant costs. We are subject to risks related to sustainability and ESG issues.
Increasing environmental and climate consciousness among customers may impact other aspects of our products, including our grills or 22 Table of Contents non-wood pellet consumables, and developing products that satisfy the market’s evolving expectations for product composition and environmental profiles may require us to incur significant costs. We are subject to risks related to sustainability and ESG issues.
Use of social media and community ambassadors may materially and adversely affect our reputation or subject us to fines or other penalties. We use third-party social media platforms as marketing tools, among other things. For example, we maintain Instagram, Facebook, Twitter, YouTube, and Pinterest accounts, as well as our own content on our website and Traeger app.
Use of social media and community ambassadors may materially and adversely affect our reputation or subject us to fines or other penalties. We use third-party social media platforms as marketing tools, among other things. For example, we maintain Instagram, Facebook, X, YouTube, TikTok, and Pinterest accounts, as well as our own content on our website and Traeger app.
On September 14, 2022, the Cyberspace Administration of China (“CAC”), China’s top cybersecurity regulator, released new amendments to China’s Cybersecurity Law for public consultation and if the amendments are passed, the amended law will increase the penalties for violations of 37 Table of Contents cybersecurity obligations under the Cybersecurity Law to up to RMB 50 million, in line with those under the Data Security Law and PIPL.
On September 14, 2022, the Cyberspace Administration of China (“CAC”), China’s top cybersecurity regulator, released new amendments to China’s Cybersecurity Law for public consultation and if the amendments are passed, the amended law will increase the penalties for violations of cybersecurity obligations under the Cybersecurity Law to up to RMB 50 million, in line with those under the Data Security Law and PIPL.
In July 2021, we acquired Apption Labs Limited and its subsidiaries (collectively "Apption Labs") and began selling the MEATER smart thermometer. We compete in this space with brands such as Weber, Thermoworks and ThermoPro, among others.
In July 2021, we acquired Apption Labs Limited and its subsidiaries (collectively "Apption Labs") and began selling the MEATER smart thermometer. We compete in this space with brands such as ThermoWorks, OXO, and ThermoPro, among others.
Competitors have imitated and attempted to imitate, and will likely continue to imitate or attempt to imitate, our products, and technology. If we are unable to protect or preserve our brand image and proprietary rights, our business may be harmed.
Competitors have imitated and attempted to imitate, and will likely continue to imitate or attempt to imitate, our products, and technology. If we are unable to protect or preserve our brand image, intellectual property and proprietary rights, our business may be harmed.
We are also subject to laws, regulations, and standards in many jurisdictions outside of the United States, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal data.
We are also subject to laws, regulations, and standards in many jurisdictions outside of the United States, which apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information.
The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of sublimits, large deductible or co-insurance requirements, could have a material adverse effect on our results of operations, financial condition and cash flows.
The successful 36 Table of Contents assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of sublimits, large deductible or co-insurance requirements, could have a material adverse effect on our results of operations, financial condition and cash flows.
We cannot predict what impact the new laws and regulations or the increased costs of compliance, if any, will have on our operations in China, in particular the Data Security Law or PIPL, or the increased costs of compliance, if any, will have on 38 Table of Contents our operations in China due to their recent enactment and the limited guidance available, particularly on PIPL, which entities are awaiting further guidance on.
We cannot predict what impact the new laws and regulations or the increased costs of compliance, if any, will have on our operations in China, in particular the Data Security Law or PIPL, or the increased costs of compliance, if any, will have on our operations in China due to their recent enactment and the limited guidance available, particularly on PIPL, which entities are awaiting further guidance on.
We have recently recognized impairment charges for goodwill and we may need to recognize further impairments in the future, which could materially adversely impact our financial condition and results of operations.
We have in the past recognized impairment charges for goodwill and we may need to recognize further impairments in the future, which could materially adversely impact our financial condition and results of operations.
Our failure to successfully manage these risks could harm our international operations and have an adverse effect on our business, financial condition, and results of operations. We are subject to governmental export and import controls, customs, and economic and trade sanctions laws that could subject us to liability and impair our ability to compete in international markets.
Our failure to successfully manage these risks could harm our international operations and have an adverse effect on our business, financial condition, and results of operations. 20 Table of Contents We are subject to governmental export and import controls, customs, and economic and trade sanctions laws that could subject us to liability and impair our ability to compete in international markets.
The effect of the pandemic and global supply chain constraints may exceed the quarterly changes in our results of operations that we have typically experienced from seasonality and weather conditions. If our plan to increase sales through our direct to customer channel is not successful, our business and results of operations could be harmed.
The effect of the general macroeconomic conditions and global supply chain constraints may exceed the quarterly changes in our results of operations that we have typically experienced from seasonality and weather conditions. If our plan to increase sales through our direct to customer channel is not successful, our business and results of operations could be harmed.
Our wood pellet production facility in New York is located in a flood zone and has experienced flooding and other damage in connection with adverse weather events, such as hurricanes and tropical storms. Most recently, this facility incurred damage as a result of a tropical storm, and we continue to assess the extent of the damage to operations.
Our wood pellet production facility in New York is located in a flood zone and has experienced flooding and other damage in connection with adverse weather events, such as hurricanes and tropical storms. In 2022, this facility incurred damage as a result of a tropical storm, and we continue to assess the extent of the damage to operations.
As we rely heavily on our information technology and communications systems and the Internet to conduct our business and provide high-quality customer service, these disruptions could harm our ability to 47 Table of Contents run our business and either directly or indirectly disrupt our suppliers’ or manufacturers’ businesses, which could harm our business, results of operations, and financial condition.
As we rely heavily on our information technology and communications systems and the Internet to conduct our business and provide high-quality customer service, these disruptions could harm our ability to run our business and either directly or indirectly disrupt our suppliers’ or manufacturers’ businesses, which could harm our business, results of operations, and financial condition.
For example, New York recently implemented the Climate Leadership and Community Protection Act, which aims to reduce greenhouse gas emissions 40% below 1990 levels by 2030 and 85% below 1990 levels by 2050.
For example, New York has implemented the Climate Leadership and Community Protection Act, which aims to reduce greenhouse gas emissions 40% below 1990 levels by 2030 and 85% below 1990 levels by 2050.
State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we would become subject if it is enacted.
State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we may become subject if it is enacted.
The level of customer traffic and volume of customer purchases through our websites or other e-commerce initiatives are substantially dependent on our ability to provide a content-rich and user-friendly website, a hassle-free customer experience, sufficient product availability, and reliable, timely delivery of our products.
The level of customer traffic and volume of 19 Table of Contents customer purchases through our websites or other e-commerce initiatives are substantially dependent on our ability to provide a content-rich and user-friendly website, a hassle-free customer experience, sufficient product availability, and reliable, timely delivery of our products.
It is also possible that a union seeking to organize one subset of our employee population, such as the employees in our manufacturing facility, could also mount a corporate campaign, resulting in negative publicity or other actions that require attention by our management team and our employees.
It is also possible that a union seeking to organize one subset of our employee population, such as the employees in our manufacturing facility, could also mount a 24 Table of Contents corporate campaign, resulting in negative publicity or other actions that require attention by our management team and our employees.
While we maintain liability insurance, the amount of such coverage may not be adequate to cover fully all claims, and we may be forced to bear substantial losses from an accident or safety incident resulting from our manufacturing, warehousing, or last-mile activities.
While we maintain liability insurance, the amount of such coverage may not be adequate to cover fully all claims, 21 Table of Contents and we may be forced to bear substantial losses from an accident or safety incident resulting from our manufacturing, warehousing, or last-mile activities.
Our financial statements could fail to reflect adequate reserves to cover such a contingency. Changes in tax laws or regulations in the various tax jurisdictions we are subject to that are applied adversely to us or our customers could increase the costs of our products and harm our business.
Our financial statements could fail to reflect adequate reserves to cover such a contingency. 32 Table of Contents Changes in tax laws or regulations in the various tax jurisdictions we are subject to that are applied adversely to us or our customers could increase the costs of our products and harm our business.
The concentration of ownership could deprive us of what we perceive as an attractive business combination opportunity, or investors of an opportunity to receive a premium for their shares of common stock as part of a sale of the Company and ultimately may affect the market price of our common stock.
The concentration of ownership could deprive us of what we perceive as 42 Table of Contents an attractive business combination opportunity, or investors of an opportunity to receive a premium for their shares of common stock as part of a sale of the Company and ultimately may affect the market price of our common stock.
We have incurred and expect to continue to incur substantial stock-based compensation expense and incurring substantial obligations related to the vesting and settlement of RSUs granted in connection with the completion of our IPO, which may have an adverse effect on our financial condition and results of operations and may result in substantial dilution.
We have incurred substantial stock-based compensation expense and incurring substantial obligations related to the vesting and settlement of RSUs granted in connection with the completion of our IPO, which may have an adverse effect on our financial condition and results of operations and may result in substantial dilution.
Although our products can be used year-round, unusually adverse weather conditions can negatively impact the timing of the sales of certain of our products, causing reduced sales and negatively impacting profitability when such conditions exist. Prolonged adverse weather conditions could significantly reduce our sales in one or more periods.
Although our products can be used year-round, unusually adverse weather conditions can negatively impact the timing of the sales of certain of our products, causing reduced sales and negatively impacting profitability when such conditions exist. Prolonged adverse weather conditions, or chronic changes in weather patterns, could significantly reduce our sales in one or more periods.
In addition, the Regulation would require many entities selling batteries in the EU to develop and implement due diligence policies to address social and environmental risks 27 Table of Contents linked to the sourcing of batteries, and a number of other requirements such as in relation to minimum levels of recycled minerals.
In addition, the Regulation would require many entities selling batteries in the EU to develop and implement due diligence policies to address social and environmental risks linked to the sourcing of batteries, and a number of other requirements such as in relation to minimum levels of recycled minerals.
We have obtained modifications of our financial covenants in the past and, depending on our future financial performance, may need to request further modifications in the future. 33 Table of Contents A breach of the covenants, including the financial covenants, or restrictions under our First Lien Credit Agreement could result in a default or an event of default.
We have obtained modifications of our financial covenants in the past and, depending on our future financial performance, may need to request further modifications in the future. A breach of the covenants, including the financial covenants, or restrictions under our First Lien Credit Agreement could result in a default or an event of default.
Certain aspects of our business, particularly our website, heavily depend on consumers entrusting personal financial information to be transmitted securely over public networks. We have experienced increasing e-commerce sales over the past several years, which increases our exposure to cybersecurity risks.
Certain aspects of our business, particularly our website, heavily depend on consumers entrusting Confidential Information to be transmitted securely over public networks. We have experienced increasing e-commerce sales over the past several years, which increases our exposure to cybersecurity risks.
Revenues and certain expenses in markets outside of the United States are recognized in local foreign currencies, and we are exposed to potential gains or losses from the translation of those amounts into U.S. dollars for consolidation into our financial statements.
Revenues and certain expenses in markets outside of the United States are recognized in local foreign currencies, and we are exposed to potential gains or losses from the translation of those amounts into U.S. dollars for consolidation into our 47 Table of Contents financial statements.
Climate change may impact the frequency or intensity of certain catastrophic events, as well as contribute to chronic changes in the physical environment (such as rising sea levels or changes in ambient temperature or precipitation patterns) which may disrupt our operations or those of our suppliers, require us to incur additional operating or capital expenditures, or otherwise adversely impact our business, financial condition, or results of operations.
Climate change may impact the frequency or intensity of certain catastrophic events, as well as contribute to chronic changes in the physical environment (such as rising sea levels or changes in ambient temperature or precipitation patterns) which may disrupt our operations or those of our suppliers, require us to incur additional operating or capital expenditures, adversely affect the cost or availability of insurance, or otherwise adversely impact our business, financial condition, or results of operations.
If customer demand for sustainably produced products (including FSC-certified sources) increases, there may be reduced demand, and we may only be able to charge lower prices for our products relative to our competitors who can supply products sourced from forests certified to such standards.
If customer demand for sustainably produced products (including FSC-certified sources) increases and we are unable to meet such demand, there may be reduced demand, and we may only be able to charge lower prices for our products relative to our competitors who can supply products sourced from forests certified to such standards.
Such remediation obligations may be imposed regardless of whether such contamination resulted in whole or in part from the conduct of others and whether such contamination resulted from actions (by us or third parties) that complied with all applicable laws in effect at the time of those actions.
Such remediation obligations may be imposed regardless of whether such contamination resulted in whole or in part from the conduct of others and whether such contamination resulted from actions (by us or third 25 Table of Contents parties) that complied with all applicable laws in effect at the time of those actions.
Accordingly, if the primary transportation services we use to transport our products are disrupted, and 29 Table of Contents we are unable to find alternative transportation providers, it could have a material adverse effect on our results of operations, business, and financial position.
Accordingly, if the primary transportation services we use to transport our products are disrupted, and we are unable to find alternative transportation providers, it could have a material adverse effect on our results of operations, business, and financial position.
If we or our customers or users were to violate a Provider’s terms of service, guidelines, certifications or policies, or if a Provider believes that we or our customers or users have violated, its terms of 39 Table of Contents service, guidelines, certifications or policies, then that Provider could limit or discontinue our or our customers’ or users’ access to its platform or app store.
If we or our customers or users were to violate a Provider’s terms of service, guidelines, certifications or policies, or if a Provider believes that we or our customers or users have violated, its terms of service, guidelines, certifications or policies, then that Provider could limit or discontinue our or our customers’ or users’ access to its platform or app store.
Expectations around company’s management of ESG matters For example, continues to evolve rapidly, in many instances due to factors that are out of our control.
Expectations around company’s management of ESG matters continues to evolve rapidly, in many instances due to factors that are out of our control.
An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
An independent assessment of the effectiveness of our internal controls could detect problems that our 44 Table of Contents management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
As we increase the extent of our international operations, such 46 Table of Contents foreign currency exchange rate fluctuations could make it more difficult to detect underlying trends in our business and results of operations, such as our margins and cash flows.
As we increase the extent of our international operations, such foreign currency exchange rate fluctuations could make it more difficult to detect underlying trends in our business and results of operations, such as our margins and cash flows.
In addition, potential climate change regulations or carbon or emissions taxes could result in higher production costs for electricity, which may be passed on to us in whole or in part and we may not have the ability to pass such costs through to 24 Table of Contents the customer, which could adversely affect our gross margins.
In addition, potential climate change regulations or carbon or emissions taxes could result in higher production costs for electricity, which may be passed on to us in whole or in part and we may not have the ability to pass such costs through to the customer, which could adversely affect our gross margins.
Many of our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, political, and public health risks associated with international trade and those markets. Many of our primary products are manufactured by entities located in China. In addition, we have a third-party manufacturer in Vietnam.
Many of our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, political, and public health risks associated with international trade and those markets. Many of our primary products are manufactured by entities located in China. In addition, we have third-party manufacturers in Vietnam and Taiwan.
However, in February 2022, to reduce this interest rate risk, we entered into an interest rate hedge contract as described in further detail in Note 8 – Derivatives to the accompanying consolidated financial statements. The First Lien Term Loan Facility and Revolving Credit Facility will mature on June 2028 and June 2026, respectively.
However, in February 2022, to mitigate this interest rate risk, we entered into an interest rate swap contract as described in further detail in Note 8 – Derivatives to the accompanying consolidated financial statements. The First Lien Term Loan Facility and Revolving Credit Facility will mature on June 2028 and June 2026, respectively.
These retailers service customers by stocking and displaying our products, explaining our product 30 Table of Contents attributes and capabilities, and sharing our brand story. Our relationships with these retailers are important to the authenticity of our brand and the marketing programs we continue to deploy.
These retailers service customers by stocking and displaying our products, explaining our product attributes and capabilities, and sharing our brand story. Our relationships with these retailers are important to the authenticity of our brand and the marketing programs we continue to deploy.

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Item 2. Properties

Properties — owned and leased real estate

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The table below provides an overview of our wood pellet production facilities as of December 31, 2022.
The table below provides an overview of our wood pellet production facilities as of December 31, 2023.
We produce our wood pellets at wood pellet production facilities in Tuscarora, New York; Molalla, Oregon; Redmond, Oregon; Sweet Home, Oregon; Menlo, Georgia; Jasper, Texas; and Rural Retreat, Virginia. We own the land and buildings at facilities in Tuscarora, New York and lease the land and buildings at the other facilities.
We produce our wood pellets at wood pellet production facilities in Addison, New York; Molalla, Oregon; Sweet Home, Oregon; Menlo, Georgia; and Jasper, Texas. We own the land and buildings at facilities in Addison, New York and lease the land and buildings at the other facilities.
Tuscarora, NY Molalla, OR Redmond, OR Sweet Home, OR Menlo, GA Jasper, TX Rural Retreat, VA Raw Material Storage (sq. ft.) 5,000 12,000 n/a 6,000 n/a 8,000 10,400 Manufacturing Size (sq. ft.) 3,750 5,280 20,000 5,000 6,000 8,400 12,000 Warehousing Size (sq. ft.) 36,000 12,800 45,000 15,000 47,000 34,000 21,600 Average Production (tons of wood pellets per year) (1) 13,967 10,508 18,778 15,520 18,965 13,718 20,224 Maximum Production (tons of wood pellets per year) 54,338 19,924 39,848 19,924 39,848 19,924 54,338 Ownership Owned Leased Leased Leased Leased Leased Leased Lease End — 2027 2023 2026 2026 2035 2025 Average Headcount (2) 17 11 14 13 16 12 14 (1) Based on actual production for the fiscal year ended December 31, 2022.
Addison, NY Molalla, OR Sweet Home, OR Menlo, GA Jasper, TX Raw Material Storage (sq. ft.) 5,000 12,000 6,500 n/a 8,000 Manufacturing Size (sq. ft.) 3,750 5,280 4,800 6,000 8,400 Warehousing Size (sq. ft.) 36,000 12,800 39,000 47,000 34,000 Average Production (tons of wood pellets per year) (1) 18,244 12,820 17,090 23,274 15,520 Maximum Production (tons of wood pellets per year) 54,338 19,924 19,924 39,848 19,924 Ownership Owned Leased Leased Leased Leased Lease End — 2027 2029 2026 2035 Average Headcount (2) 17 10 14 16 11 (1) Based on actual production for the fiscal year ended December 31, 2023.
(2) Average headcount for the fiscal year ended December 31, 2022.
(2) Average headcount for the fiscal year ended December 31, 2023. 50 Table of Contents
In the meantime and until the construction of our new headquarters is complete, we have leased temporary space under a lease expected to expire on September 30, 2023. These temporary facilities are used for accounting and finance, sales and marketing, customer support, product development and supply chain management functions.
Item 2. Properties. On December 2023, the Company moved into our new headquarters located in Salt Lake City, Utah, where we lease approximately 94,000 square feet of space under a lease that expires in 2037. Our headquarters are used for accounting and finance, sales and marketing, customer support, product development and supply chain management functions.
Removed
Item 2. Properties. We have plans to move to new headquarters of approximately 94,000 square feet in Salt Lake City, Utah in late 2023, with the lease expected to expire in 2037. In anticipation of this move, we have agreed to sublease our previous headquarters of approximately 80,000 square feet in three phases until the lease expires in 2026.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. 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.
Item 3. 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 4.
Removed
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. 48 Table of Contents Item 4. Mine Safety Disclosures. Not applicable. 49 Table of Contents PART II
Added
Mine Safety Disclosures. Not applicable. 51 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Performance Graph The following graph and table illustrate the total return from July 29, 2021 through December 31, 2022, for (i) our common stock, (ii) the Standard and Poor's SmallCap 600 Stock Index ("S&P 600 Index") and (iii) the Standard and Poor's SmallCap 600 Consumer Discretionary Index.
Performance Graph The following graph and table illustrate the total return from July 29, 2021 through December 31, 2023, for (i) our common stock, (ii) the Standard and Poor's SmallCap 600 Stock Index ("S&P 600 Index") and (iii) the Standard and Poor's SmallCap 600 Consumer Discretionary Index.
The comparisons reflected in the graph and table are not intended to forecast the future performance of our stock and may not be indicative of our future performance. Comparison of Cumulative Total Return Since July 29, 2021 Assumes Initial Investment of $100 50 Table of Contents Item 6. [Reserved]. 51 Table of Contents
The comparisons reflected in the graph and table are not intended to forecast the future performance of our stock and may not be indicative of our future performance. Comparison of Cumulative Total Return Since July 29, 2021 Assumes Initial Investment of $100 52 Table of Contents Item 6. [Reserved]. 53 Table of Contents
Holders As of March 9, 2023, there were 21 holders of record of our common stock.
Holders As of March 1, 2024, there were 21 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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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.
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.
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.
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.
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.
Liquidity was 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.
In addition, general and administrative expense includes research and development expenses incurred to develop and improve our future products and processes, which primarily consist of employee and facilities-related expenses, including salaries, benefits and equity-based compensation expense, as well as fees for professional services, costs related to prototype tooling and materials, and software platform costs.
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.
Cash Flow from Investing Activities During the year ended December 31, 2022, net cash used in investing activities was $18.9 million. The cash flow used was driven by the purchase of property, plant, and equipment of $18.4 million primarily related to internal-use software and website developments costs, the purchase of tooling equipment, and wood pellet production equipment.
During the year ended December 31, 2022, net cash used in investing activities was $18.9 million. The cash flow used was driven primarily by the purchase of property, plant, and equipment of $18.4 million mainly related to internal-use software and website developments costs, the purchase of tooling equipment, and wood pellet production equipment.
We use the Monte Carlo pricing model to estimate the fair value of our performance-based RSU awards as of the grant date, and use 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
We use the Monte Carlo pricing model to estimate the fair value of our performance-based RSU and restricted share awards as of the grant date, and use various simulations of future stock prices through the Stochastic model to estimate the fair value over the remaining term of the performance period as of the grant date.
A discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020 has been reported previously in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 29, 2022, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." 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.
A discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021 has been reported previously in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 16, 2023, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." 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.
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 54 Table of Contents its carrying amount. We currently operate as a single reporting unit under the guidance in Topic 350, Intangibles - Goodwill and Other.
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.
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.
We currently offer seven series of grills – Pro (with and without WiFIRE), Ironwood, Timberline, and Flatrock – 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.
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.
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 65 Table of Contents revenue at the time of recognition or when circumstances change resulting in a change in estimated returns.
The Company recorded equity compensation expense of approximately $47.4 million as a result of the acceleration of vesting of the unvested Class B Units based on the IPO price of $18.00.
The Company recorded stock-based compensation expense of approximately $47.4 million as a result of the acceleration of vesting of the unvested Class B Units based on the IPO price of $18.00.
As of December 31, 2022, the future minimum value of our non-cancellable unconditional purchase obligations was $6.1 million. See Note 14 – Commitments and Contingencies to the accompanying consolidated financial statements for additional information regarding our purchase obligations. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP.
As of December 31, 2023, the future minimum value of our non-cancellable unconditional purchase obligations was $6.7 million. See Note 14 – Commitments and Contingencies to the accompanying consolidated financial statements for additional information regarding our purchase obligations. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP.
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 any entities above TGPX Holdings II LLC, including Traeger, Inc.
Upon an event of default, 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 any entities above TGPX Holdings II LLC, including Traeger, Inc.
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.
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 Taiwan.
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.
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 55 Table of Contents generally higher than gross margin on sales through our retail channel.
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. As of December 31, 2022, we have drawn down $11.7 million under this facility for general corporate and working capital purposes.
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. As of December 31, 2023, we have drawn down $28.4 million under this facility for general corporate and working capital purposes.
We recorded a net loss of $382.1 million for the year ended December 31, 2022, compared to a net loss of $91.8 million for the year ended December 31, 2021. 52 Table of Contents Key Factors Affecting Our Financial Condition and Results of Operation 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.
We recorded a net loss of $84.4 million for the year ended December 31, 2023, compared to a net loss of $382.1 million for the year ended December 31, 2022. 54 Table of Contents Key Factors Affecting Our Financial Condition and Results of Operation 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.
In addition, 61 Table of Contents 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.
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.
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. 55 Table of Contents Results of Operations The following tables summarize key components of our results of operations for the periods presented.
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. 57 Table of Contents Results of Operations The following tables summarize key components of our results of operations for the periods presented (dollars in thousands).
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.
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 MEATER smart thermometers, P.A.L.
In connection with the completion of our IPO, we recorded equity-based compensation as a result of the acceleration of vesting of all unvested and outstanding Class B Units. 64 Table of Contents In addition, we award equity-based compensation to employees and directors under the 2021 Plan.
In connection with the completion of our IPO, we recorded stock-based compensation as a result of the acceleration of vesting of all unvested and outstanding Class B Units. In addition, we award stock-based compensation to employees and directors under the 2021 Plan.
Supply chain constraints have led to higher product component and freight costs, which have increased our cost of revenues.
Supply chain constraints have led to higher product component and freight costs, which have increased our cost of revenues relative to historical rates.
The change in fair value of contingent consideration was driven primarily by the increase in the likelihood of achieving the performance targets.
The change in fair value of contingent consideration was driven primarily by the increase in the likelihood of achieving the fiscal year 2023 performance targets.
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.
During that period, our springing First Lien Net Leverage Ratio covenant was increased from 6.20 : 1.00 to 63 Table of Contents 8.50 : 1.00 and a minimum liquidity covenant of $35.0 million was in effect.
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.
Pop-And-Lock accessory rails, grill covers, liners, tools, 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.
We measure compensation expense for time-based and performance-based RSU awards on a straight-line basis over the vesting schedule and on an accelerated attribution basis over the tranche's requisite service period, respectively.
We measure compensation expense for time-based restricted stock unit ("RSU") awards on a straight-line basis over the vesting schedule and for the performance-based RSU and restricted share awards we measure compensation expense on an accelerated attribution basis over the requisite service period.
As part of the 2022 restructuring plan, we eliminated approximately 14% of our global headcount, suspended operations of Traeger Provisions, our premium frozen meal kit business, and postponed nearshoring efforts to manufacture product in Mexico. These actions were substantially completed in the third quarter of fiscal 2022.
As part of the 2022 restructuring plan, we eliminated approximately 14% of our global headcount, suspended operations of Traeger Provisions, our premium frozen meal kit business, and postponed nearshoring efforts to manufacture product in Mexico.
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.
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.
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 consolidated statements of operations and comprehensive income (loss).
At each reporting date, we revalue the contingent consideration obligation to its fair value and records increases and decreases in fair value within the change in fair value of contingent consideration in our accompanying consolidated statements of operations and comprehensive loss.
We expect our sales and marketing expense to increase on an absolute dollar basis in the long-term as we continue to increase the scope of outreach to potential new customers to drive our revenue growth.
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.
Research and development expense was $10.8 million, $18.8 million and $6.8 million for the year ended December 31, 2022, 2021 and 2020, respectively.
Research and development expense was $11.5 million, $10.8 million and $18.8 million for the year ended December 31, 2023, 2022 and 2021, respectively.
The increase in net cash from net changes in operating assets and liabilities during the year ended December 31, 2022 was primarily due to a decrease in accounts receivable of $51.1 million, partially offset by an increase in inventories of $11.9 million and a decrease in accounts payable and accrued expenses of $28.2 million.
The increase in net cash from net changes in operating assets and liabilities during the year ended December 31, 2022 was primarily due to a decrease in accounts receivable of $51.1 million as a result of reduction in revenue and increased cash collections, partially offset by an increase in inventories of $11.9 million from increased inventory spending and a decrease in accounts payable and accrued expenses of $28.2 million due to the seasonality and timing of our payments.
Following completion of our IPO in July 2021, the fixed component ranges from 3.00% to 3.25% per annum based on our Public Debt Rating (as defined in the First Lien Credit Agreement). The floating component is based on the Eurocurrency Base Rate (as defined in the First Lien Credit Agreement) for the relevant interest period.
Following 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).
For the annual impairment tests conducted in the fourth quarters of 2022 and 2021, the Company performed qualitative assessments of goodwill and determined that it was more likely than not that the fair value of goodwill was greater than its carrying value, therefore the quantitative impairment test was not performed and no impairment of goodwill was recorded in connection with the annual impairment tests.
For the annual impairment tests conducted in the fourth quarters of 2023 and 2022, the Company performed qualitative assessments of goodwill and determined that it was more likely than not that the fair value of goodwill was greater than its carrying value.
As a result of the modification, we recorded approximately $39.4 million of accelerated equity-based compensation for the year ended December 31, 2022.
As a result of the modification, we recorded approximately $40.5 million of accelerated stock-based compensation for the year ended December 31, 2022.
Change in Fair Value of Contingent Consideration Year-ended December 31, Change 2022 2021 Amount % (dollars in thousands) Change in fair value of contingent consideration $ 10,002 $ 3,800 $ 6,202 163.2 % As a percentage of revenue 1.5 % 0.5 % Change in fair value of contingent consideration, attributable to the revalued earn out obligation associated with the Apption Labs business combination, increased $6.2 million, or 163.2%, to $10.0 million for the year ended December 31, 2022 compared to $3.8 million for the year ended December 31, 2021.
Change in Fair Value of Contingent Consideration Year-ended December 31, Change 2023 2022 Amount % (dollars in thousands) Change in fair value of contingent consideration $ 4,698 $ 10,002 $ (5,304) (53.0) % As a percentage of revenue 0.8 % 1.5 % Change in fair value of contingent consideration, attributable to the revalued earn out obligation associated with the Apption Labs business combination, decreased by $5.3 million, or 53.0%, to $4.7 million for the year ended December 31, 2023 compared to $10.0 million for the year ended December 31, 2022.
As a percentage of revenue, general and administrative expense increased to 25.4% for the year ended December 31, 2022 from 20.2% for the year ended December 31, 2021.
As a percentage of revenue, general and administrative expense decreased to 21.4% for the year ended December 31, 2023 from 25.4% for the year ended December 31, 2022.
Accounts Receivable Credit Facility On November 2, 2020, we entered into a receivables financing agreement, as amended, or the Receivables Financing Agreement. Pursuant to the Receivables Financing Agreement, we participate in a trade receivables securitization program administered by MUFG Bank Ltd.
As of December 31, 2023, we were in compliance with the covenants under the New Credit Facilities. Accounts Receivable Credit Facility On November 2, 2020, we entered into a receivables financing agreement, as amended, or the Receivables Financing Agreement. Pursuant to the Receivables Financing Agreement, we participate in a trade receivables securitization program administered by MUFG Bank Ltd.
Our revenue decreased by 16.5% for the year ended December 31, 2022 as compared to the year ended December 31, 2021, and was $655.9 million for the year ended December 31, 2022, down from $785.5 million for the year ended December 31, 2021.
Our revenue decreased by 7.6% for the year ended December 31, 2023 as compared to the year ended December 31, 2022, and was $605.9 million for the year ended December 31, 2023, down from $655.9 million for the year ended December 31, 2022.
As a result of the 2022 restructuring plan (as described below), 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 continue to expect our general and administrative expenses, 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.
The Company performed interim goodwill impairment tests during the second and third quarters of 2022 and concluded that the carrying value of the single reporting unit exceeded its fair value and recorded a $222.3 million non-cash goodwill impairment charge for the year ended December 31, 2022.
As a result of the interim goodwill impairment tests we concluded that the carrying value of the single reporting unit exceeded its fair value and recorded $222.3 million of non-cash goodwill impairment charges for the fiscal year ended December 31, 2022.
Non-cash adjustments consisted of depreciation of property, plant, and equipment of $9.2 million, amortization of intangible assets of $38.4 million, equity-based compensation of $81.1 million, and unrealized losses on foreign currency contracts of $4.8 million.
Non-cash adjustments consisted of depreciation of property, plant, and equipment of $13.8 million, amortization of intangible assets of $42.7 million, stock-based compensation of $87.7 million, and unrealized losses on foreign currency contracts of $2.4 million.
As of December 31, 2022, we had cash and cash equivalents of $39.1 million, restricted cash of $12.5 million, $125.0 million borrowing capacity under our Revolving Credit Facility (as defined below) and up to $15.0 million borrowing capacity under our Receivables Financing Agreement (as defined below).
As of December 31, 2023, we had cash and cash equivalents of $29.9 million, $125.0 million borrowing capacity under our Revolving Credit Facility (as defined below) and up to $30.0 million borrowing capacity under our Receivables Financing Agreement (as defined below).
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. 62 Table of Contents While our significant accounting policies are described in further detail in Note 2 – Summary of Significant Accounting Policies to the accompanying consolidated financial statements included in this Annual Report on Form 10-K, we believe that the following critical accounting policies reflect our more significant judgments and estimates used that management believes are particularly important in the preparation of our consolidated financial statements and that require the use of estimates, assumptions and judgments to determine matters that are inherently uncertain.
While our significant accounting policies are described in further detail in Note 2 – Summary of Significant Accounting Policies to the accompanying consolidated financial statements included in this Annual Report on Form 10-K, we believe that the following critical accounting policies reflect our more significant judgments and estimates used that management believes are particularly important in the preparation of our consolidated financial statements and that require the use of estimates, assumptions and judgments to determine matters that are inherently uncertain.
Sales and Marketing Year-ended December 31, Change 2022 2021 Amount % (dollars in thousands) Sales and marketing $ 130,688 $ 165,180 $ (34,492) (20.9) % As a percentage of revenue 19.9 % 21.0 % Sales and marketing expense decreased by $34.5 million, or 20.9%, to $130.7 million for the year ended December 31, 2022 compared to $165.2 million for the year ended December 31, 2021.
Sales and Marketing Year-ended December 31, Change 2023 2022 Amount % (dollars in thousands) Sales and marketing $ 108,727 $ 130,688 $ (21,961) (16.8) % As a percentage of revenue 17.9 % 19.9 % Sales and marketing expense decreased by $22.0 million, or 16.8%, to $108.7 million for the year ended December 31, 2023 compared to $130.7 million for the year ended December 31, 2022.
An impairment loss on intangible assets exists when the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
We assess the impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss on intangible assets exists when the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
As of December 31, 2022, the future minimum rental payments under non-cancelable operating leases was $15.6 million. See Note 4 – Leases to the accompanying consolidated financial statements for additional information regarding our non-cancellable operating leases. We also have purchase obligations consisting of agreements to purchase goods and services entered into in the ordinary course of business.
See Note 4 – Leases to the accompanying consolidated financial statements for additional information regarding our non-cancellable operating leases. 64 Table of Contents We also have purchase obligations consisting of agreements to purchase goods and services entered into in the ordinary course of business.
As of December 31, 2022, we had drawn down $72.0 million on the Revolving Credit Facility and $11.7 million under the Receivables Financing Agreement. As of December 31, 2022, the total principal amount outstanding under our First Lien Term Loan Facility (as defined below) was $404.1 million.
As of December 31, 2023, we had no outstanding loan amounts under the Revolving Credit Facility and had drawn down $28.4 million under the Receivables Financing Agreement. As of December 31, 2023, the total principal amount outstanding under our First Lien Term Loan Facility (as defined below) was $403.8 million.
Cash Flows The following table sets forth cash flow data for the periods indicated therein (in thousands): Year-ended December 31, 2022 2021 Net cash provided by (used in) operating activities $ 5,094 $ (28,427) Net cash used in investing activities (18,904) (79,897) Net cash provided by financing activities 48,625 113,508 Net increase in cash, cash equivalents, and restricted cash $ 34,815 $ 5,184 Cash Flow from Operating Activities During the year ended December 31, 2022, net cash provided by operating activities consisted of a net loss of $382.1 million and net non-cash adjustments to net loss of $381.0 million, partially offset by net changes in operating assets and liabilities of $6.2 million.
Cash Flows The following table sets forth cash flow data for the periods indicated therein (in thousands): Year-ended December 31, 2023 2022 Net cash provided by operating activities $ 64,042 $ 5,094 Net cash used in investing activities (17,378) (18,904) Net cash provided by (used in) financing activities (68,298) 48,625 Net increase (decrease) in cash, cash equivalents, and restricted cash $ (21,634) $ 34,815 Cash Flow from Operating Activities During the year ended December 31, 2023, net cash provided by operating activities consisted of a net loss of $84.4 million and net non-cash adjustments to net loss of $111.3 million, partially offset by net changes in operating assets and liabilities of $37.2 million.
Gross Profit Year-ended December 31, Change 2022 2021 Amount % (dollars in thousands) Gross profit $ 228,772 $ 300,765 $ (71,993) (23.9) % Gross margin (Gross profit as a percentage of revenue) 34.9 % 38.3 % Gross profit decreased by $72.0 million, or 23.9%, to $228.8 million for the year ended December 31, 2022 compared to $300.8 million for the year ended December 31, 2021.
Gross Profit Year-ended December 31, Change 2023 2022 Amount % (dollars in thousands) Gross profit $ 223,557 $ 228,772 $ (5,215) (2.3) % Gross margin (Gross profit as a percentage of revenue) 36.9 % 34.9 % Gross profit decreased by $5.2 million, or 2.3%, to $223.6 million for the year ended December 31, 2023 compared to $228.8 million for the year ended December 31, 2022.
During the year ended December 31, 2021, net cash used in operating activities consisted of net loss of $91.8 million and net non-cash adjustments to net income of $145.7 million, partially offset by net changes in operating assets and liabilities of $82.3 million.
During the year ended December 31, 2022, net cash provided by operating activities consisted of net loss of $382.1 million and net non-cash adjustments to net loss of $379.7 million, partially offset by net changes in operating assets and liabilities of $7.5 million.
General and Administrative Year-ended December 31, Change 2022 2021 Amount % (dollars in thousands) General and administrative $ 166,824 $ 158,555 $ 8,269 5.2 % As a percentage of revenue 25.4 % 20.2 % General and administrative expense increased by $8.3 million, or 5.2%, to $166.8 million for the year ended December 31, 2022 compared to $158.6 million for the year ended December 31, 2021.
General and Administrative Year-ended December 31, Change 2023 2022 Amount % (dollars in thousands) General and administrative $ 129,800 $ 166,824 $ (37,024) (22.2) % As a percentage of revenue 21.4 % 25.4 % General and administrative expense decreased by $37.0 million, or 22.2%, to $129.8 million for the year ended December 31, 2023 compared to $166.8 million for the year ended December 31, 2022.
Restructuring Costs Year-ended December 31, Change 2022 2021 Amount % (dollars in thousands) Restructuring costs $ 9,324 $ — $ 9,324 100.0 % As a percentage of revenue 1.4 % — % 58 Table of Contents The Company recorded restructuring costs of $9.3 million for the year ended December 31, 2022 compared to no restructuring costs for the year ended December 31, 2021.
Restructuring Costs Year-ended December 31, Change 2023 2022 Amount % (dollars in thousands) Restructuring costs $ 225 $ 9,324 $ (9,099) (97.6) % As a percentage of revenue 0.0 % 1.4 % Restructuring costs decreased by 97.6% to $0.2 million for the year ended December 31, 2023 compared to $9.3 million restructuring costs for the year ended December 31, 2022.
During the year ended December 31, 2021, net cash used in investing activities was $79.9 million.
Cash Flow from Investing Activities During the year ended December 31, 2023, net cash used in investing activities was $17.4 million.
Restructuring Costs The Board approved the 2022 restructuring plan as part of its efforts to reduce our costs and drive long-term operational efficiencies due to challenging macroeconomic pressures.
Therefore the quantitative impairment test was not performed and no impairment of goodwill was recorded in connection with the annual impairment tests. Restructuring Costs The Board approved the 2022 restructuring plan as part of its efforts to reduce our costs and drive long-term operational efficiencies due to challenging macroeconomic pressures.
The units granted by TGP Holdings LP have been issued for services performed on behalf of us. Therefore, the expense associated with these awards is pushed down to us. The incentive unit grants are measured for expensing purposes at the grant date based on the fair value of the award.
Therefore, the expense associated with these awards is pushed down to us. The incentive unit grants are measured for expensing purposes at the grant date based on the fair value of the award. The incentive unit grants consist of time-based vesting units, ordinary performance vesting units, and extraordinary performance vesting units.
Other income (expense) also consists of any gains (losses) on the sale of long-lived assets, foreign currency realized and unrealized gains and losses resulting from exchange rate fluctuations on transactions denominated in a currency other than the U.S.
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 as 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.
Non-cash adjustments consisted of depreciation of property, plant, and equipment of $13.8 million, amortization of intangible assets of $42.7 million, equity-based compensation of $87.7 million, goodwill impairment of $222.3 million, change in fair value of contingent consideration of $6.7 million, and unrealized losses on derivative contracts of $2.4 million.
Non-cash adjustments consisted of depreciation of property, plant, and equipment of $15.0 million, amortization of intangible assets of $42.8 million, stock-based compensation of $53.2 million, amortization of the dedesignated cash flow hedge of $10.4 million, change in fair value of contingent consideration of $4.5 million, and unrealized losses on derivative contracts of $4.0 million.
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 December 31, 2022, we were in compliance with the covenants under the New Credit Facilities.
During the Covenant Amendment Period, the fixed dollar portion of the “Fixed Dollar Amount” definition decreased from $127.0 million to $102.0 million, and the use of certain restricted payments baskets were reduced or eliminated entirely.
"Risk Factors" of this 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 fourth quarter of 2022, we continued to experience inflationary pressure, and a slowdown in consumer demand.
"Risk Factors" of this Annual Report on Form 10-K. Macroeconomic Conditions Continuing global economic uncertainty, terrorism and conflicts, political conditions and fiscal challenges in the United States and abroad could result in adverse macroeconomic conditions, including inflation, slower growth or recession.
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).
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 describe further below, the floating component was based on the Eurocurrency Base Rate for the relevant interest period.
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.
Higher sales also coincide with social events and national holidays, which occur during the same warm weather timeframe. Additionally, we have experienced higher sales volume of our accessories during the fourth quarter of the year, due in part to seasonal holiday demand. Gross Profit Gross profit reflects revenue less cost of revenue.
In addition, in connection with the completion of the Company’s IPO, Class B Units that were outstanding and vested were, as part of the statutory corporate conversion effected in July 2021, converted into shares of common stock of the Company.
As a result of the cancellation and termination of the unearned CEO PSUs and IPO PSUs, we recognized $27.5 million of stock-based compensation for the year ended December 31, 2023. 61 Table of Contents In addition, in connection with the completion of the Company’s IPO, Class B Units that were outstanding and vested were, as part of the statutory corporate conversion effected in July 2021, converted into shares of common stock of the Company.
For details associated with the Company's interim goodwill impairment testing, see Note 11 – Goodwill and Intangibles . Equity-Based Compensation We record equity-based compensation expense related to Class B incentive units awards issued by TGP Holdings LP, formerly our parent company, consistent with the compensation expense associated with the holder of the incentive units.
Stock-Based Compensation We record stock-based compensation expense related to Class B incentive units awards issued by TGP Holdings LP, formerly our parent company, consistent with the compensation expense associated with the holder of the incentive units. The units granted by TGP Holdings LP have been issued for services performed on behalf of us.
We are currently amortizing acquired intangible assets, including customer relationships, distributor relationships, non-compete arrangements, business trademarks, technology and other intangible assets over periods ranging between 2.5 years and 25 years.
We are currently amortizing acquired intangible assets, including customer relationships, distributor relationships, non-compete arrangements, business trademarks, technology and other intangible assets over periods ranging between 2.5 years and 25 years. These assets were recognized in the purchase price allocation when we underwent a corporate restructuring and acquisition in 2017, as well as when we acquired Apption Labs in July 2021.
External factors beyond our control, such as duties and tariffs and costs of doing business in certain geographies can also impact gross margin. 53 Table of Contents Sales and Marketing Sales and marketing expense consists primarily of the costs associated with advertising and marketing of our products and employee-related expenses, including salaries, benefits, and equity-based compensation expense, as well as sales incentives and professional services.
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.
The decrease was driven primarily by lower unit volume of wood pellets partially offset by increased volume on food consumables and higher average selling prices of wood pellets and other consumables.
The decrease was driven primarily by lower double-digit percentage reduction in unit volume of wood pellets and food consumables, and mid double-digit percentage reduction in average selling price of food consumables.
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.
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. 56 Table of Contents 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.
Projected interest costs on variable rate instruments were calculated using market rates at December 31, 2022. See Note 12 – Notes Payable to the accompanying consolidated financial statements for additional information regarding our Credit Facilities. We have various lease agreements related to office space, warehouses, vehicles, and office equipment that expire at various dates through 2034.
See Note 12 – Notes Payable to the accompanying consolidated financial statements for additional information regarding our Credit Facilities. We have various lease agreements related to office space, warehouses, vehicles, and office equipment that expire at various dates through 2037. As of December 31, 2023, the future minimum rental payments under non-cancelable operating leases was $50.9 million.
Total Other Expense Year-ended December 31, Change 2022 2021 Amount % (dollars in thousands) Interest expense $ (27,885) $ (26,646) $ 1,239 4.6 % Loss on extinguishment of debt — (5,185) (5,185) (100.0) % Other income (expense) (7,127) 2,702 9,829 363.8 % Total other expense $ (35,012) $ (29,129) $ 5,883 20.2 % As a percentage of revenue (5.3) % (3.7) % Total other expense increased by $5.9 million, or 20.2%, to $35.0 million for the year ended December 31, 2022 compared to $29.1 million for the year ended December 31, 2021.
Total Other Expense 60 Table of Contents Year-ended December 31, Change 2023 2022 Amount % (dollars in thousands) Interest expense $ (31,275) $ (27,885) $ 3,390 12.2 % Other income (expense) 4,305 (7,127) (11,432) (160.4) % Total other expense $ (26,970) $ (35,012) $ (8,042) (23.0) % As a percentage of revenue (4.5) % (5.3) % Total other expense decreased by $8.0 million, or 23.0%, to $27.0 million for the year ended December 31, 2023 compared to $35.0 million for the year ended December 31, 2022.
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 as we continue to reduce our costs to drive long-term operational efficiencies.
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.
Amortization of Intangible Assets Year-ended December 31, Change 2022 2021 Amount % (dollars in thousands) Amortization of intangible assets $ 35,554 $ 34,379 $ 1,175 3.4 % As a percentage of revenue 5.4 % 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, increased $1.2 million, or 3.4%, to $35.6 million for the year ended December 31, 2022 compared to $34.4 million for the year ended December 31, 2021.
Andrus and certain directors partially offset by the year-over-year net increase in expense of certain unearned PSUs subject to the IPO Awards that were cancelled in 2023. 59 Table of Contents Amortization of Intangible Assets Year-ended December 31, Change 2023 2022 Amount % (dollars in thousands) Amortization of intangible assets $ 35,554 $ 35,554 $ — — % As a percentage of revenue 5.9 % 5.4 % Amortization of intangible assets, substantially attributable to the 2017 corporate reorganization and acquisition of us and the July 2021 acquisition of Apption Labs, remained flat at $35.6 million for the year ended December 31, 2023 compared to $35.6 million for the year ended December 31, 2022.
The facility is set to terminate on June 29, 2024. Contractual Obligations As of December 31, 2022, significant contractual obligations related to debt were $476.1 million of principal borrowings and $189.4 million of related interest, which will become due on the maturity date of June 29, 2028.
Contractual Obligations As of December 31, 2023, significant contractual obligations related to debt were $403.8 million of principal borrowings and $158.0 million of related interest, which will become due on the maturity date of June 29, 2028. Projected interest costs on variable rate instruments were calculated using market rates at December 31, 2023.
Goodwill Impairment Year-ended December 31, Change 2022 2021 Amount % (dollars in thousands) Goodwill impairment $ 222,322 $ — $ 222,322 100.0 % As a percentage of revenue 33.9 % — % The Company recorded non-cash goodwill impairment of $222.3 million for the year ended December 31, 2022, compared to no impairment for the year ended December 31, 2021.
Goodwill Impairment Year-ended December 31, Change 2023 2022 Amount % (dollars in thousands) Goodwill impairment $ — $ 222,322 $ (222,322) (100.0) % As a percentage of revenue — % 33.9 % We recorded no goodwill impairment for the year ended December 31, 2023, compared to $222.3 million non-cash goodwill impairment for the year ended December 31, 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 our publicly quoted share price and market capitalization.
Additionally, any new products that we develop, or our planned expansion into new geographies, may impact our future gross margin.
Additionally, any new products that we develop, or our planned expansion into new geographies, may impact our future gross margin. External factors beyond our control, such as duties and tariffs and costs of doing business in certain geographies can also impact gross margin.
Total Other Expense Total other expense consists of interest expense and other income (expense). Interest expense includes interest and other fees associated with our Credit Facilities and Receivables Financing Agreement (each as defined below), and settlements from our interest rate swap agreement.
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 other comprehensive income prior to the dedesignation of the interest rate swap derivative contracts as a cash flow hedge.
As a percentage of revenue, sales and marketing expense decreased to 19.9% for the year ended December 31, 2022 from 21.0% for the year ended December 31, 2021.
Gross profit as a percentage of revenue increased to 36.9% for the year ended December 31, 2023 from 34.9% for the year ended December 31, 2022.
Cash Flow from Financing Activities 60 Table of Contents During the year ended December 31, 2022, net cash provided by financing activities was $48.6 million.
Cash Flow from Financing Activities During the year ended December 31, 2023, net cash used in financing activities was $68.3 million.
Gross profit as a percentage of revenue decreased to 34.9% for the year ended December 31, 2022 from 38.3% for the year ended December 31, 2021. The decrease in gross margin was driven primarily by decreased leverage on fixed costs and expenses, restructuring costs, and limited discounting.
As a percentage of revenue, sales and marketing expense decreased to 17.9% for the year ended December 31, 2023 from 19.9% for the year ended December 31, 2022. The decrease in sales and marketing expense was driven primarily by a decrease in advertising costs, travel related expenses, commissions and other employee expenses, and professional fees.
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.
We have funded our operations through cash flows from operating activities, cash on hand, and borrowings under our credit facilities and receivables financing agreement. Market conditions can impact the viability of these institutions.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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While inflation has had a manageable impact our financial position and results of operations to date, a sustained high rate of inflation may have an adverse effect on our gross margin and operating expenses, if the selling prices of our products do not increase with these increased costs. 66 Table of Contents
While inflation has had a manageable impact our financial position and results of operations to date, a sustained high rate of inflation may have an adverse effect on our gross margin and operating expenses, if the selling prices of our products do not increase with these increased costs. 68 Table of Contents
We had outstanding foreign currency contracts as of December 31, 2022 and 2021 but did not elect hedge accounting for any of these contracts.
We had outstanding foreign currency contracts as of December 31, 2023 and 2022 but did not elect hedge accounting for any of these contracts.
We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with respect to investments. We had $476.1 million and $388.2 million of outstanding debt as of December 31, 2022 and 2021, respectively. Certain amounts under our Credit Facilities accrue interest at a floating interest rate.
We hold cash and cash equivalents for working capital purposes. We do not have material exposure to market risk with respect to investments. We had $403.8 million and $476.1 million of outstanding debt as of December 31, 2023 and 2022, respectively. Certain amounts under our Credit Facilities accrue interest at a floating interest rate.
Our market risk exposure is primarily a result of fluctuations in interest rates, foreign currency exchange risk and commodity price risk. We do not hold or issue financial instruments for speculative or trading purposes. Interest Rate Risk We had cash and cash equivalents of $39.1 million and $16.7 million as of December 31, 2022 and 2021, respectively.
Our market risk exposure is primarily a result of fluctuations in interest rates, foreign currency exchange risk and commodity price risk. We do not hold or issue financial instruments for speculative or trading purposes. Interest Rate Risk We had cash and cash equivalents of $29.9 million and $39.1 million as of December 31, 2023 and 2022, respectively.
For periods where the net position is an asset balance, the balance is recorded within prepaid expenses and other current assets on our consolidated balance sheet, and for periods where the net position is a liability balance, the balance is recorded within derivative liabilities on the consolidated balance sheet.
For periods where the net position is an asset balance, the balance is recorded within prepaid expenses and other current assets on our accompanying 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 consolidated balance sheets.
Changes in the net fair value of contracts are recorded in other income (expense) in the consolidated statements of operations. At December 31, 2022 and 2021, the net liability and asset fair values of our foreign currency contract positions was $1.0 million and $1.4 million, respectively.
Changes in the net fair value of contracts are recorded in other income (expense), net in the accompanying consolidated statements of operations and comprehensive loss. At December 31, 2023 and 2022, the net asset and liability fair values of our foreign currency contract positions was $0.1 million and $1.0 million, respectively.
At December 31, 2022, a 10% favorable or unfavorable exchange rate movement in the Chinese Renminbi in our portfolio of foreign currency contracts would have resulted in an incremental unrealized gain of approximately $3.5 million or loss of approximately $2.9 million, respectively.
At December 31, 2023, a 10% favorable or unfavorable exchange rate movement in the Chinese Renminbi in our portfolio of foreign currency contracts would have resulted in an incremental unrealized gain of approximately $5.0 million or unrealized loss of approximately $4.1 million, respectively.
These foreign currency contract positions resulted 65 Table of Contents in a net loss of $3.9 million and a net gain of $3.4 million for the year ended December 31, 2022 and 2021, respectively.
These foreign currency contract positions resulted in a net loss of $2.0 million and a net gain of $3.9 million for the year ended December 31, 2023 and 2022, respectively.
Based on the outstanding balance of the New Credit Facilities as of December 31, 2022, for every 100 basis point increase in the interest rates, we would incur approximately $4.8 million of additional annual interest expense excluding the impact of our interest rate swap.
Based on the outstanding balance of the 67 Table of Contents New Credit Facilities as of December 31, 2023, for every 100 basis point increase in the interest rates, we would incur approximately $4.0 million of additional annual interest expense.

Other COOK 10-K year-over-year comparisons