Hello and welcome to the Traeger's Third Quarter Fiscal 2021 Earnings Conference Call. My name is Alex, and I will be coordinating your call today. [Operator Instructions] I will now hand over to our host, Tom Burton, General Counsel. Tom, please go ahead when you're ready.

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its third quarter results, which were released this afternoon and can be found on our website at investors.traeger.com. Hosting the call are Jeremy Andrus, Chief Executive Officer of Traeger; and Dom Blosil, Chief Financial Officer. Before we get started, I want to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on current management expectations. These may include, without limitations, predictions, expectations, targets or estimates, including regarding our anticipated financial performance, and actual results could differ materially from those mentioned. These forward-looking statements also involve substantial risks and uncertainties. Some of these may be outside of our control and could cause actual results to differ materially from those expressed in or implied by such statements. These factors and uncertainties, among others, are discussed in our filings with the SEC. We encourage you to review these filings for a discussion of these factors, including our quarterly report on Form 10-Q filed today, which is also available on the Investor Relations portion of our website at investors.traeger.com. You should not take undue reliance on these forward-looking statements. We speak only as of today, and we undertake no obligation to update or revise them for any new information. This call will also contain certain non-GAAP financial measures, including net income as adjusted, diluted EPS as adjusted, adjusted EBITDA and adjusted EBITDA margin, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past performance and facilitate period-to-period comparison of our core operating results and the results of peer companies. Adjusted EBITDA and adjusted net income and loss are both used by our management team as an additional measure of our performance for purposes of business decision-making, including managing expenditures and evaluating potential acquisitions. They help to identify additional trends in our financial results that may not be shown solely by period-to-period comparisons of net income or income from continuing operations. Each of adjusted EBITDA and adjusted net income has inherent limitations because of the excluded items and may not be directly comparable to similarly titled metrics used by other companies. Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our quarterly report on Form 10-Q and in our earnings release, both of which are available on the Investor Relations portion of our website at investors.traeger.com. Now, I would like to turn the call over to Jeremy Andrus, Chief Executive Officer of Trader.

Thank you, Tom. Thank you for joining us for our third quarter earnings call. Before we begin, I want to welcome our new VP of Investor Relations, Nick Backus, who will be joining our team later this month. I couldn't be more excited to have Nick at Traeger and look forward to working with him. I would also like to thank the entire Traeger team for their contributions as we continue to transform the way people cook and empower everyone to create delicious meals. Today, I will discuss highlights from our quarterly results and share our progress in executing our long-term growth strategies as well as how we are navigating the supply chain headwinds. I will then turn the call over to Dom to discuss details of our third quarter financial performance and provide an outlook for the remainder of 2021. We are pleased with the momentum in our business for the third quarter with revenues increasing 12% year-over-year. On a two-year stack basis, our growth was 110% in the third quarter, clearly highlighting ongoing strength in consumer demand for Traeger across our product categories. We remain obsessed with sell-through. Our strong growth at retail continues to earn us additional floor space with our retailers. We continue to see encouraging results from our market assault strategies in the form of increased demand and brand awareness. We deployed these strategies in 14 markets during the second quarter and saw brand awareness double and a significant lift in sales. Following our Q2 seasonal marketing campaign, we continue to see substantially faster growth in our focus markets relative to the company average. More consumers are entering the purchase funnel and recognizing that Traeger's innovations make cooking with wood simple. By leveraging technology, premium quality and a thoughtful digital experience, everyone can become a…

Thank you, Jeremy, and good afternoon, everyone. Thank you for joining us. To start, we are pleased to share our third quarter results and our outlook for the future of Traeger. Lapping an extremely strong third quarter 2020 comparison, our business performed well across channels and geographies, and we are excited about the returns generated from our investments to drive brand awareness. As Jeremy discussed, our investments in innovation are a key differentiator for Traeger, and we are excited to share our latest innovation, Traeger Provisions, with you. Looking back at the third quarter, we're happy with our strong revenue and EBITDA performance. For the third quarter, revenue increased 12% to $162 million compared to the third quarter last year, driven by growth in grills and accessories. Grills revenue increased 4% to $109 million, attributable to a higher average selling price, partially offset by lower unit volumes. We are extremely pleased by the performance of our grill category given that we were comping against a grill revenue growth rate of 98% in the third quarter of 2020, further illustrating the extraordinary demand for our products. Consumables revenue declined 12% to $28 million compared to the third quarter of last year, driven by a return to normal seasonal retail ordering patterns. We're up against an unusually tough third quarter 2020 comparison during which consumables revenue grew 72% over the prior year, reflecting the pandemic's impact on seasonal shifts in our business. Lastly, accessories revenue increased 182% to $25 million, driven by the incremental revenue from the acquisition of MEATER and the strong growth in Traeger accessories. Looking at our performance by market. We continue to see great momentum in consumer demand in the U.S. as well as exceptional revenue growth in Canada and Rest of World. We remain in the early…

Thank you for our Q&A. [Operator Instructions] Our first question today comes from Randy Konik from Jefferies. Randy, your line is now open.

Yes, thanks a lot. So I guess first, Jeremy, you talked about, I guess, North American production coming online in 2022. I think it's in Mexico, correct me if I'm wrong. Can you just give us some more color on, a) when exactly do you think in 2022 that goes live? And then, b) how that – how much capacity you can do out of that facility or facilities, whatever you're building down there or procuring? And how you kind of think about your building long-term kind of nodes of manufacturing and supply going forward for the next few years? Thanks.

Hi, Randy, thanks for the question. I would say a couple of things. First of all, it's been our objective to diversify our base of manufacturing from a – just from a portfolio risk perspective, always looking to add high-quality manufacturers. As I said in my prepared remarks, we had a facility in China that was opportunistic. It's not where we're looking to increase concentration, but we partnered with someone that was as turnkey from a partnership perspective as we've seen. But in terms of when we would bring that manufacturing operations online in 2022, I think sometime in the middle part of the year. Second, third quarter is probably likely. We've been working on that for – boy, for a year now. And I think safe to say, sometime second quarter, maybe as late as early third quarter. The typical – I wouldn't say it's as easy as turning on a facility. We start with a single SKU. We optimize process, we manage quality, and there's sort of a long process of optimization with a manufacturing partner that happens over the course of many years. But this is in line with our strategy to bring manufacturing to North America. Frankly, we'll be looking at other options to get – to bring manufacturing even closer to our customer base, which is all about the quality of the partnership, but also the level of automation. Clearly, inbound transportation from Asia is very, very painful now. We suffer from that disproportionately to other brands given the size and weight of our inventory. And so we clearly don't believe that those costs stay there, but we think there's value in having a diversified source. I could also see at some point in time when Europe is large enough to support manufacturing that there are some opportunities there as well. So quality production, ability of partners to innovate and as close as is economically feasible to our base of customers given size and weight of inventory is sort of the context around our strategy.

Super helpful. And then I guess my last question is I just wanted to unpack and get more color around Traeger Provision. Seems like a really interesting and good idea strategically. So can you maybe give us some perspective on what you learned out of those? I think you said 4 markets you had a test run in. And what was kind of the key level takeaways from consumers were ordering, repeat purchase behavior or anything like that? And then just to give us some flavor on how – you made a lot of investments to get this strategy off the ground. Kind of give us some perspective of how you can kind of roll that out across the country, I guess, set for that now and just give us some perspective of how that – the business may look from a margin profile perspective or anything of that nature you can share with us. Thanks.

Yes. So let me – I'm going to go in a little bit of different order. First of all, why the concept. The mission of our business is to create better culinary experiences in people's homes. And that started with the grill. It's – which we have innovated and will continue to innovate, has led to great recipe content. We connected the grill to the cloud to make the cooking experience better. And this is part of the journey in creating a cooking experience that is – that's better that removes the friction that actually makes – that makes cooking more fun. Cooking is not fun for a lot of people. The heavy-lifting effort in not only procuring good cuts of protein, unique cuts of protein from unique sources, it takes time. It's – they are often or usually not available in many markets. And if you think about preparing 2, 3, 4 sides, the number of ingredients and the amount of time that it takes to purchase and to create those sides, it's a lot of work. And so we learned as we spend time with our consumers that this was a service they would really value. When we launched, I think it was interesting to read comments on social media. I read thousands of comments on social media, and they very consistently said, "I can't believe Traeger thought of this. This makes so much sense." Did not read any comments otherwise. And so the concept makes sense. There is value in the offering. It's sort of restaurant – better than restaurant quality at a restaurant competitive price. But what a Traeger owner told us in the process is they get to cook it themselves. And there's a little bit of preparation. There's a little bit of cooking, but…

That was very thorough and very helpful. Thank you.

Sure.

Our next question comes from John Glass from Morgan Stanley. John, please go ahead.

Thanks very much. I did first, Jeremy, just want to follow up on that. First, you said it's not something that's going to be revenue- or profit-accretive near term. I just want to understand the context of that. Is it just going to be small and ramp? And to be clear, is there – if it does scale and when it does scale, is it a similar margin business ultimately to the base business so that we won't see that on the accretive revenue? Or do you think this is a different model somehow from a profitability standpoint over the long term?

Yes. I can jump in. This is Dom. Thanks for the question, and it's certainly a good one. I mean we're early in terms of how we're defining shape of the P&L specific to Provisions. In the short term, I mean that's an accurate statement. As we as we develop the supply chain, as we build out our sourcing network, one of the key focuses is building nimbleness into that sourcing network, which would allow us to grow and scale over time, and thereby, drive expansion of margins to a steady-state point. And so there is infrastructure, there is cost upfront around sourcing that as we begin to amortize over more and more units, we'll start to scale on. But the shape of the P&L will be different from Traeger's core business, and that's something that we'll plan to share next year as part of our annual 2022 guidance. But I think it is worth noting that it will be a different makeup than what you're seeing in Traeger's core business today. I think where we see value is, number one, in the size of the total addressable market. This could be as big or bigger than Traeger's core business today. And two, that does provide some flexibility in how we think about the margin structure to ensure that we're delivering the right customer experience; that we're smart about customer acquisition costs as we think about the first sale versus the fourth or the fifth; how we think about AOV or pricing of the model, which I believe is at a premium compared to other product offerings in the space. But certainly, we'll also be profitable over time as we continue to scale the program and the business. And it could be fairly strong and flow through as top line scales in relation to the leverage we're getting through our supplier network, the leverage we're getting through the investments we're making in logistics and third-party warehousing and fulfillment to how we think about the unfair advantage that we believe we have from a customer acquisition cost and how that will scale and effectively provide for more value upfront versus having to start from scratch without a large community and sort of captive audience that's listening and wanting to purchase the product. And so that's really how we think about it today. And certainly, we'll follow up with more details as we head into 2022 and share more guidance on the full year as well as specific to our thinking about provisions at that point in time.

Thanks for that. And maybe back into here and now. Can you just talk a little bit more about the grill business in the third quarter? Volumes were down. I think ASPs or mix was up. Can you just unpack where you were on a volume basis versus expectations? Is it a better quarter worse? And how do you – was it pricing or mix that helped to offset that or both? And maybe if you could just quantify what the moving pieces were in the grill business this quarter. Thanks.

Sure. Yes. So units were down, and that's something that we had expected. I'd say the unit volumes were better than we were originally planning earlier in the year. We're still seeing, I think, sell-through indicators that are in line with our expectations as we think about how the business begins to normalize from a seasonality standpoint that a return to normal in terms of like retail ordering patterns. Clearly, there were components of the pandemic that made for an interesting comp in Q3. And so as we see these things normalize, really no surprises emerge from a unit volume standpoint. And really, the growth did come via ASP, as you had mentioned. And that's largely driven by a shift in mix. We saw a fairly sizable shift in mix for our price point, starting with the Pro 780 and up. That's where all of the volume effectively shifted. And so from that standpoint, our ASPs grew as a result of that, and that's effectively what drove the growth from a grill standpoint in the quarter.

Okay. And the benefit, therefore, pricing would come and the surcharges on freight would come more in the fourth quarter than those are taken late in the third quarter and fourth quarter.

That's right. Exactly.

Okay. Thank you.

Our next question comes from Kaumil Gajrawala from Credit Suisse. Kaumil, your line is now open.

Thanks. Good evening everybody. I guess a couple of questions on the comments on 3Q being the GM floor. Can you maybe just talk about what you're seeing specifically that would suggest gross margins start to get better from here? Obviously, there's a price increase that you mentioned. And I'm sorry if I missed the amount of the price increase, but also just in terms of what you're seeing in terms of cost of supply, bottlenecks, all the other things that, of course, we're observing across a series of different industries and why you feel confident on this GM number?

Yes. So I would say that number – I guess to answer your first question, yes, we view Q3 as really the floor for the year. I think that based on the price increase and the surcharge, we should see sequential improvement over Q3 from a gross margin standpoint. However, if you look at kind of a world index of container rates where we're most sensitive to some of these macro trends that we're seeing that are impacting gross margin, you see a fairly aggressive ramp in those rates over the course of Q3, which for our business has a longer tail given when we recognize those expenses relative to when we're purchasing containers. So that's kind of number one. That's something that will continue to flow through the P&L. So I think, two, we're just seeing those rates sustain. I'd say that as you look at kind of the current environment where index container rigs peaked around $11,000, $12,000, over the last couple of weeks, we've seen those taper down to, call it, $9,000. And so they're really sitting still at peak levels. But clearly, there has been an improvement in the trend over the last couple of weeks that I think is favorable. And there is some indication that, that will continue through the end of Q4, and ultimately, will create a slight tailwind as we head into Q1 as well. However, I think that the general consensus is that where we may see some tapering of those rates, they'll likely rebound or accelerate in the first half of next year. So something that we'll watch closely. We clearly don't have a crystal ball, but it's something that we think will be transitory, hopefully, by the end of 2022, which is why we implemented these price increases, which is ultimately critical for our business given the fact that the rates have increased over $2,000 average container rates from the prior year or two and so it's a fairly dramatic increase. And the price increase in and of itself should provide for some sequential improvement over Q3, which is probably what gives us the most confidence in terms of the ability to see some sequential improvement over Q3 in gross margins.

Okay. Great. And then I know you mentioned you're quite pleased with your ability to supply and fulfill. I just wanted to confirm that – the inventory condition sounds like it's better. But over the course of the quarter, was – were you out of stock? Was any money left on the table? Or were you able to kind of get by?

Yes, we were able to get by. I think we're feeling pretty good both about our own inventory position. It's certainly seasonally higher than its normally been, which we've talked about as being by design. We've deliberately leaned into inventory just given the complexity within the supply chain, the ability to procure or secure containers in Asia to the current bottlenecks that we're seeing, especially at the Port of L.A., where there's some record number of vessels sitting out in the water. It's like 80 vessels as of today, and that's been climbing over the last quarter. We're also seeing vessels wait roughly 18 days before you're able to be in the process containers through the yard. And so these are clearly bottlenecks that can complicate supply chains and make it very challenging to fulfill demand, which is why we've been strategically investing more in inventory. And so number one, we do feel comfortable with the level of our inventory today to fill demand through the end of the year. Two, we've done a fairly good job of keeping product in stock with core retail on the website and don't believe we've really missed any turns there. And then three, it's ultimately something that we'll continue to watch. But at the end of the day, we feel like in-channel inventory levels are in a pretty good spot as well. And so I think those three things combined give us confidence through year-end that we'll be able to meet demand in a fairly decent spot coming into the new year.

All right. Okay, great. Thank you.

Our next question comes from Sharon Zackfia from William Blair. Sharon, please go ahead.

Hi, good afternoon. I guess a question on the price increases. What has the customer response been to the grill price increases?

I mean, if you're talking about our retail partners, I think that they were expecting it. And ultimately, they've partnered with Traeger to implement those price increases. And so I think we have great partnerships. We're not the only brand raising prices right now. And ultimately, I believe our retailers have come to expect it. I'd say if you think about it through the lens of the consumer, the main data point that we have is really coming via sell-through indicators. And up to this point through to October, we really haven't seen any meaningful deviation that would signal a change or an outlier impact to kind of run rate volume performance compared to prior year based on those price increases. And so that's something that we'll continue to watch, and we'll clearly see more data flow through as we head through November and into December. But at least quarter-to-date and Q4, we're feeling pretty confident that the price increase didn't have a dramatic impact on volumes.

That's really helpful. And I know you mentioned the freight component. I remember on the last call, there was a conversation about rolled steel. Is that still elevated? Or have you seen that roll over? And I guess on the container side, too, is there the possibility of looking to lock in your inbound freight for next year at some point?

Yes. So on the first question, I don't know that we've seen any real movement in steel. The last price increase that rolled through for Traeger was in Q3, and that's something that we'll watch every quarter. At this point, I believe they've been fairly stable, and it's something that we'll continue to watch. But no material changes to that trend there. On the inbound side, as you think about kind of fixed or floating container rates, we typically lock in our fixed allocation every April. And so that's something that we will do. There is some indication based on some industry research that we have that the momentum that we're seeing in spot rates and some of the dynamics that may take shape in 2022 may indicate higher fixed contract rates. So that's something that we'll approach carefully. And clearly, there's an advantage to locking in as high a fixed allocation as possible. As an example, this year, one of the challenges that we're facing is you can't lock in 100%. We were able to lock in, call it, 50% to 60%. And our partners have honored that, which has been a real advantage for Traeger. And so to the extent that we can manage more allocation to fixed versus the bookings that are tied to spot and premium rates, the better position that we're in. But again, it's something that is kind of an unknown until we head into kind of that April time frame when we're renegotiating our contract rates as well as to what extent we can lock in fixed.

Okay, thank you.

Our next question comes from Peter Benedict from Baird. Peter, your line is now open.

All right guys. Thank you. My first question, just – I don't know, Dom, if you could maybe size or frame the impact the price increase you think will have on kind of 4Q revenue and then maybe full year 2022, just to kind of isolate that impact. I'm curious how you guys are thinking about the fourth quarter revenue outlook here maybe relative to nine years ago. It looks like you've got a lot more inventory. I'm not sure how much of that is sellable inventory versus kind of on its way here. But just kind of curious about your view just on the fourth quarter relative to maybe where you were about 90 days ago. That's my first question.

Yes. So on the price increase, as we kind of evaluated the impact of that, we think that it's probably 150 to 250 basis points of sequential improvement. And so that's something that will have a larger impact on the first half of next year just given the higher volumes that, obviously, we drive in that period of time. So that's generally what we've kind of estimated to be the impact of the price increases and certainly something that we can share an update on as we proceed through the quarter. Sorry, can you repeat your second question?

Yes. That's helpful. And then just how you're thinking about the fourth quarter revenue in general relative to maybe where we were 90 days ago. I know you guys held the full year guidance, but you've got a lot – looks like you've got more inventory on hand than maybe you were expecting or again, the balance sheet inventory number is higher, but I'm not sure how much of that is sellable inventory, if it's on its way here. But just as your view of kind of the revenue opportunity in the fourth quarter changed here in the last few months.

Yes. No, I think, if anything, the Q3 performance just reaffirmed our confidence in Q4. And so we effectively held the range the same or reaffirmed guidance for full year. So no real deviations there. From an inventory standpoint, again, we're in full control of what we have. I'd say that more of that is sitting in our warehouse than on the water than last year because we have been fairly deliberate in bringing inventory in, securing containers and ensuring that we're protected or building cushion into our supply chain via higher inventory levels. As I mentioned in my comments earlier, part of that is – part of the increase in inventory is due to the fact that inventory gets costs more. And that's because of the burden of inbound freight that's associated with the inventory that we're purchasing today. And so that number actually looks bigger than it normally would just on a unit-adjusted basis. But I'd say kind of under normal sort of seasonal levels of inventory, we're probably holding the burden component constant for inbound freight, but probably 20 days ahead of where we normally like to be from an inventory standpoint. But again, we feel really good about that position given the fact that it's sort of built ahead of any potential future risks that could emerge from within the supply chain. And it's all good inventory, right? And so at the end of the day, we're going to sell through it. We don't have challenges with obsolete inventory. Obviously, we're not tied to fashion trends or anything like that. And so we actually have the luxury of being able to moving into higher inventory balances in order to obviously offset some of the risks that we're seeing in the supply chain. And at some point in time, if we believe that we're slightly heavier on inventory and things begin to subside on the supply chain or macro front, we don't have any challenges in moving that inventory, and we'll just adjust our inventory plan accordingly.

Okay. That's helpful. And then my next question, just on the gross margin. Any way you can maybe take a stab at sizing the sequential improvement you're expecting in the fourth quarter versus the third quarter? And I understand 2022 has a lot of moving parts, including Provisions. But just do you think at this point, there's an opportunity to claw back the divot you've seen here in 2021 from a gross margin perspective? Or is that a tall order at this point?

In Q4? Is that your question, specifically in Q4?

I guess, in Q4 just was – yes, Q4 the sequential change from 3Q to 4Q and then for 2022 as I think it's not a.

I mean – right, it's a good question. I mean the sequential improvement won't be dramatic. We're not going to claw back to first half levels. But like I said, on sort of a normal or volume-adjusted basis, as you look at the impact of the price increase, it could be 150, 200-plus basis points of improvement. There are other components in gross margin that we've referenced, such as the amortization that we acquired from MEATER. And so there are a couple of aspects to that, that if you normalize really slightly improved gross margin over what we're showing in Q3. For example, the amortization that we acquired like 100 basis points of margin. And so there's a little bit of noise in there. But I'd say, sequentially, the price increase should add 150 to 200 basis points of improvement.

Got it. Okay, thanks so much.

You're welcome.

Our next question comes from Peter Keith from Piper Sandler. Peter, your line is now open.

Yes, thanks so much guys. You had talked earlier in the script around your market assault strategy hitting 14 markets. I was curious if you could just unpack that a little bit with some of the specific marketing attempts that you've made. And then maybe even what are some of the specific markets you've gone after?

Yes. So happy to take that question. Let me start by saying the intent of the market assault strategy is to align all of our discretionary and incremental sales and marketing resources into narrow geographies. And so there is a meaningful investment in top-of-funnel media, broadcast television, advanced TV, digital, digital investment. There is incremental investment in the market in terms of boots on the ground. We are very – we have a lot of energy around activation with account manager, salespeople at a local level. We think that drives meaningful merchandising improvements and education at retail. We spend a lot of time training and helping retail associates understand the brand, how it works, how to sell it. And so across those 14 markets, we really saw a meaningful lift, and there are a number of components – In addition, radio, sports radio, local talk radio and then the investments around merchandising, fixturing, POP that we make at the point of sale. So the intent is to be very narrowly focused into – as opposed to spreading the dollars across a broad geography to really have a number of touch points that we think are required as part of the consideration phase of buying a Traeger. Those 14 markets range in size and they range in geographic location. There are some Intermountain region. Utah is one; Colorado has been one; Oregon, Portland, I should say, we organized around DMAs. And we've done some smaller markets, markets like Spokane, for example. Our expectation heading into next year is that we will edit a couple of those markets and simply based on the return on spend that we believe we're getting, and we will add some additional markets. I would expect that we will keep and continue to invest in 12 of the 14 markets and that we will add an additional six or seven markets. We'll focus – in markets, we'll focus in the Southeast. We've got three markets that we'll focus on there, traditional outdoor cooking markets that remarkably our penetration is still very low. But where we have a customer base, we're winning. And we will likely add a market in the Midwest in Rustbelt region. And again, the intent is to add these markets slowly over time and to continue to invest in and maintain the markets that we think are performing well.

Okay, great. That's an excellent summary. And then maybe to follow up a little bit, but at the very end of the closing – or the opening remarks – prepared remarks, you were talking about 2022 will be an important investment year. I don't know if that's directly with some of the early reads on Traeger Provisions. Has there been any change in recent months that you want to ramp up the investments to drive future growth?

No. I wouldn't say there's any change from steady state. I mean 2021 was a meaningful investment year. The investment that we made in Provisions was very significant. And it has started to generate some revenue, not profit yet, but we'll manage that carefully. We'll certainly manage any of the losses associated with it as tightly as we're able to. And – but I don't believe that there will be a change in investment strategy. We believe in investing in innovation, investing in brand and that there's a long tail on both these investments, and of course, any of the infrastructure that goes along with it to make the business run more efficiently. And so you won't see any meaningful change in terms of the types or level of investments that we make in the business next year.

Okay. Thanks so much and good luck for the holiday season.

Thank you.

Our final question today comes from Joe Feldman from Telsey Advisory Group. Joe, your line is now open.

Yes. H, guys. Thanks for taking my questions. Just two quick ones. With regard to the freight pressure that you're seeing, and Dom, I think you mentioned it was $25 million to $30 million of headwind you're expecting this year. Can you remind us how many months that really is for? Because it seems like it's more of like a second half thing, so I'm wondering – I'm just trying to think about how we should think about annualizing that next year. Or does the pressure last longer next year? We're hearing that from some companies that it could last a bit longer. So that's why I was trying to think about it from that standpoint, like on a monthly accrual, so to speak.

Right. No, good question. It's – I mean it's – we've seen the – really, we started to see inbound freight rates change course back in Q4 of last year. And so there's been sort of a steady increase in inbound freight rates through the first half of this year. And then if you look at this kind of world index of container rates, they really accelerated in the back half kind of starting in Q3, I mean, fairly dramatically. And that's kind of really what surprised us is we were seeing rates that were kind of double what they were last year, maybe slightly higher, going from, call it, an average container rate of $2,000, $3,000 upwards of $4,000 or $5,000. And then they really took off in Q3 and have really sustained at those levels. And so you've seen these rates go from, call it, $4,000 or $5,000 to $11,000, $12,000 on average with certain containers going for $25,000-plus. And so it's really definitely back-weighted in the year. And depending on where we see these rates move or sort of normalize in 2022 will dictate to what extent we feel that burden. And so as you think about the $25 million to $30 million impact, that is largely weighted toward the back half of the year, which on an annualized basis, if you sort of extrapolate that into 2022, if these rates sustain at sort of Q3, Q4 levels, that number could look bigger than the $25 million to $30 million. Now our price increase will offset – plus our freight surcharge will offset a component of that. And to the extent that rates taper and maybe they will go back to $4,000 to $5,000, but they're better than kind of what we're seeing today, that will show some improvement compared to the back half of this year, but hard to say. And I think that we share that sentiment with other brands. Just based on what we're reading and kind of – are kind of on the – kind of boots-on-the-ground read, we just don't see a catalyst that would shift this dynamic meaningfully into a tailwind in 2022 and something – it's something that we're watching and preparing for accordingly.

Look, I would just add that the good news for us, it is a challenging moment in terms of the transportation cost, but it gave us the ability to raise price not once but twice. And we like how our consumers responding to that. And we believe, like most brands, that these meaningfully increased levels of transportation costs are transitory. And when they do mitigate, when they come back down to more normalized levels, whatever that may be and whenever that may be, we will be a net beneficiary from a flow-through perspective. And I don't think that will be the case with all brands, but we have a strong brand, and our consumer has responded well to a fairly meaningful increase.

Got it. That's really helpful. Thanks for clarifying that for me. And then the last one, maybe a quick one, Dom. I know that grill units were down year-over-year. How did they compare to 2019, though, the third quarter? Presumably, they were up pretty nicely, much like the revenue number was? Or am I mistaken?

Yes. No, they were Yes, that's right, at least we saw a nice growth from a – standpoint, yes on a two-year stack.

Okay, that's great.

We have no further questions. I'll now hand back to the management team for any closing remarks.

Look, it's – we appreciate the thoughtful questions. It's been a unique moment in time for this brand. And I would say that we feel really good about how the brand, the business is positioned. We are investing in areas that we believe our consumers care about. We are taking share, and we're doing it in an environment that's been unprecedented. And to grow over the third quarter of 2020, we think, is remarkable. That's a – it was a year where sell-through was robust and when inventory levels were depleted, and so there was a lot of channel load and there was load seasonality. And so we like how we're positioned. We spend our time obsessing over the experience that our consumer has, and we believe long term that's a winning formula. Anything that we can do to service our consumer, we're doing. And anything that we can do to mitigate some of these challenging components of supply chain, we are doing as well. I'm very proud of the team for how they have responded to a difficult environment. Long term, I think it makes us better, and we will always look to the future with our consumer and very strong position in mind, and we feel good about where we are from that perspective. So I appreciate the question, and thanks for the interest, and we look forward to staying connected in – over the coming quarters.

This concludes today's call. You may now disconnect your lines, and we thank you for joining.