Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 3, 20212, 2022

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to 

Commission file number: 001-40358

LATHAM GROUP, Inc.

(Exact name of registrant as specified in its charter)

Delaware
83-2797583

Delaware

83-2797583

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

787 Watervliet Shaker Road, Latham, NY

12110

(Address of principal executive offices)

(Zip Code)

(800) (800) 833-3800

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common

Common stock, par value $0.0001 per share

SWIM

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No x

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesxNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filers

¨

Accelerated filers

¨

Non-accelerated filers

x

Smaller reporting companiescompany

¨

Emerging growth companiescompany

x

If an emerging growth companies,company, indicate by check mark if the registrants haveregistrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrants areregistrant is a shell companiescompany (as defined in Rule 12b-212b-2 of the Exchange Act). Yes ¨ No x

As of June 1, 2021, 120,409,271May 10, 2022, 119,573,789 shares of the registrant’s common stock, $0.0001 par value were outstanding.

Table of Contents

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

3

Item 1. Financial Statements

3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

24

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

34

Item 4. Controls and Procedures

33

34

PART II — OTHER INFORMATION

34

35

Item 1A. Risk Factors

34

35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

34
Item 6. Exhibits

35

37

SIGNATURES

36

2

2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Index to Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

4

Condensed Consolidated Statements of Operations

5

Condensed Consolidated Statements of Comprehensive (Loss) Income (Loss)

6

Condensed Consolidated Statements of Stockholders’ Equity

7

Condensed Consolidated Statements of Cash Flows

8

9

Notes to Condensed Consolidated Financial Statements

9

10

3

3

Latham Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 April 3,  December 31, 
 2021  2020 
  Unaudited    
Assets      
Current assets:      
Cash $19,945  $59,310 
Trade receivables, net  92,960   32,758 
Inventories, net  74,131   64,818 
Income tax receivable  2,107   4,377 
Prepaid expenses and other current assets  5,685   6,063 
Total current assets  194,828   167,326 
Property and equipment, net  50,605   47,357 
Equity method investment  25,460   25,384 
Deferred tax assets  345   345 
Deferred offering costs  4,684   1,041 
Goodwill  115,610   115,750 
Intangible assets, net  283,617   289,473 
Total assets $675,149  $646,676 
Liabilities and Stockholders’ Equity       
Current liabilities:       
Accounts payable $39,977  $29,789 
Accounts payable – related party  1,000   500 
Current maturities of long-term debt  23,047   13,042 
Accrued expenses and other current liabilities  49,679   50,606 
Total current liabilities  113,703   93,937 
Long-term debt, net of discount and current portion  382,917   208,454 
Related party note payable  -   64,938 
Deferred income tax liabilities, net  55,472   55,193 
Liability for uncertain tax positions  5,562   5,540 
Other long-term liabilities  2,061   1,943 
Total liabilities  559,715   430,005 
Commitments and contingencies      
Stockholders’ equity:      
Common stock, $0.0001 par value; 500,000,000 shares authorized as of April 3, 2021 and December 31, 2020; 109,673,709 shares issued and outstanding as of April 3, 2021 and December 31, 2020  11   11 
Additional paid-in capital  91,943   200,541 
Retained earnings  22,298   13,765 
Accumulated other comprehensive income  1,182   2,354 
Total stockholders’ equity  115,434   216,671 
Total liabilities and stockholders’ equity $675,149  $646,676 

April 2,

December 31,

    

2022

    

2021

Assets

Current assets:

 

  

 

  

Cash

$

18,658

$

43,952

Trade receivables, net

 

139,016

 

60,753

Inventories, net

 

140,067

 

109,556

Income tax receivable

 

4,065

 

4,039

Prepaid expenses and other current assets

 

11,578

 

10,766

Total current assets

 

313,384

 

229,066

Property and equipment, net

 

67,841

 

63,506

Equity method investment

 

23,904

 

23,362

Deferred tax assets

 

10,619

 

10,603

Operating lease right-of-use assets

33,310

Goodwill

 

129,592

 

128,871

Intangible assets, net

 

331,589

 

338,310

Other assets

4,612

765

Total assets

$

914,851

$

794,483

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

55,849

$

37,998

Accounts payable – related party

 

900

 

850

Current maturities of long-term debt

 

3,250

 

17,220

Current operating lease liabilities

6,784

Accrued expenses and other current liabilities

 

57,261

 

59,097

Total current liabilities

 

124,044

 

115,165

Long-term debt, net of discount, debt issuance costs and current portion

 

320,891

 

263,188

Deferred income tax liabilities, net

 

56,343

 

56,343

Liability for uncertain tax positions

 

5,732

 

5,689

Non-current operating lease liabilities

27,031

Other long-term liabilities

 

714

 

453

Total liabilities

 

534,755

 

440,838

Commitments and contingencies

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock, $0.0001 par value; 100,000,000 shares authorized as of both April 2, 2022 and December 31, 2021; 0 shares issued and outstanding as of both April 2, 2022 and December 31, 2021

Common stock, $0.0001 par value; 900,000,000 shares authorized as of April 2, 2022 and December 31, 2021; 119,469,747 and 119,445,611 shares issued and outstanding, as of April 2, 2022 and December 31, 2021, respectively

 

12

 

12

Additional paid-in capital

 

430,208

 

401,846

Accumulated deficit

 

(51,714)

 

(48,583)

Accumulated other comprehensive income

 

1,590

 

370

Total stockholders’ equity

 

380,096

 

353,645

Total liabilities and stockholders’ equity

$

914,851

$

794,483

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

4

4

Latham Group, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

  Fiscal Quarter Ended 
  April 3, 2021  March 28, 2020 
Net sales $148,746  $51,134 
Cost of sales  96,306   41,035 
Gross profit  52,440   10,099 
Selling, general and administrative expense  27,172   15,432 
Amortization  5,595   4,063 
Income (loss) from operations  19,673   (9,396)
Other expense (income):        
Interest expense  9,056   5,333 
Other expense (income), net  (555)  3,741 
Total other expense (income), net  8,501   9,074 
Earnings from equity method investment  244   - 
Income (loss) before income taxes  11,416   (18,470)
Income tax (benefit) expense  2,883   (3,019)
Net income (loss) $8,533  $(15,451)
Net income (loss) per share attributable to common stockholders:        
Basic and diluted $0.08  $(0.14)
Weighted-average common shares outstanding – basic and diluted        
Basic and diluted  109,673,709   109,673,709 

Fiscal Quarter Ended

   

April 2, 2022

    

April 3, 2021

Net sales

$

191,614

$

148,746

Cost of sales

 

120,960

 

96,306

Gross profit

 

70,654

 

52,440

Selling, general and administrative expense

 

45,225

 

27,172

Underwriting fees related to offering of common stock

11,437

Amortization

 

7,192

 

5,595

Income from operations

 

6,800

 

19,673

Other expense (income):

 

  

 

  

Interest expense

 

1,765

 

9,056

Loss on extinguishment of debt

3,465

Other (income) expense, net

 

(355)

 

(555)

Total other expense, net

 

4,875

 

8,501

Earnings from equity method investment

542

244

Income before income taxes

 

2,467

 

11,416

Income tax expense

 

5,307

 

2,883

Net (loss) income

$

(2,840)

$

8,533

Net (loss) income per share attributable to common stockholders:

 

  

 

  

Basic

$

(0.02)

$

0.08

Diluted

$

(0.02)

$

0.07

Weighted-average common shares outstanding – basic and diluted

 

  

 

  

Basic

 

113,698,513

 

109,069,310

Diluted

 

113,698,513

 

121,273,854

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

5

5

Latham Group, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income (Loss)

(in thousands)

(unaudited)

  Fiscal Quarter Ended 
  April 3,  March 28, 
  2021  2020 
Net income (loss) $8,533  $(15,451)
Other comprehensive loss, net of tax:        
Foreign currency translation adjustments  (407)  (1,938)
Total other comprehensive loss, net of tax  (407)  (1,938)
Comprehensive income (loss) $8,126  $(17,389)

Fiscal Quarter Ended

   

April 2, 2022

    

April 3, 2021

Net (loss) income

$

(2,840)

$

8,533

Other comprehensive income (loss), net of tax:

 

  

 

  

Foreign currency translation adjustments

 

1,220

 

(1,201)

Comprehensive (loss) income

$

(1,620)

$

7,332

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

6

6

Latham Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)

  Shares  Amount  

Additional

Paid-in Capital

  

Retained

Earnings

(Accumulated Deficit)

  

Accumulated

Other

Comprehensive

Income (Loss)

  

Total

Stockholders’ Equity

 

Balances at December 31, 2019

  109,673,709  $11  $196,473  $(2,218) $(471) $193,795 
Net loss              (15,451)      (15,451)
Foreign currency translation adjustments                  (1,938)  (1,938)
Distributions to parent          (400)          (400)
Stock-based compensation expense          224           224 

Balances at March 28, 2020

  109,673,709  $11  $196,297  $(17,669) $(2,409) $176,230 
                         

Balances at December 31, 2020

  109,673,709  $11  $200,541  $13,765  $2,354  $216,671 
Net income              8,533       8,533 
Foreign currency translation adjustments                  (1,172)  (1,172)
Dividend ($1.00 per share)          (110,033)          (110,033)
Distributions to parent          (29)          (29)
Stock-based compensation expense          1,464           1,464 

Balances at April 3, 2021

  109,673,709  $11  $91,943  $22,298  $1,182  $115,434 

    

    

    

    

Retained 

    

Accumulated 

    

Additional

Earnings

Other

Total

 Paid-in 

 (Accumulated

 Comprehensive

 Stockholders'

Shares

Amount

Capital

 Deficit)

 Income (Loss)

 Equity

Balances at December 31, 2020

 

118,854,249

$

12

$

265,478

$

13,765

$

2,354

$

281,609

Net income

 

 

 

 

8,533

 

 

8,533

Foreign currency translation adjustments

 

 

 

 

 

(1,201)

 

(1,201)

Dividend to Class A unitholders ($1.00 per share)

(110,033)

(110,033)

Repurchase and retirement of common stock

(21,666,653)

(2)

(64,936)

(64,938)

Stock-based compensation expense

 

 

 

1,464

 

 

 

1,464

Balances at April 3, 2021

 

97,187,596

$

10

$

91,973

$

22,298

$

1,153

$

115,434

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

7

7

Latham Group, Inc.

Condensed Consolidated Statements of Cash FlowsStockholders’ Equity

(in thousands)thousands, except share amounts)

(unaudited)

 Fiscal Quarter Ended 
  April 3,  March 28, 
 2021  2020 
Cash flows from operating activities:      
Net income (loss) $8,533  $(15,451)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Depreciation and amortization  7,900   5,755 
Amortization of deferred financing costs and debt discount  2,804   912 
Stock-based compensation expense  1,464   224 
Other non-cash  1,433   739 
Earnings from equity method investment  (244)  - 
Distribution received from equity method investment  168   - 
Changes in operating assets and liabilities:        
Trade receivables  (60,963)  (13,322)
Inventories  (9,238)  (10,914)
Prepaid expenses and other current assets  119   784 
Income tax receivable  (2,107)  (2,866)
Accounts payable  8,642   9,468 
Accrued expenses and other current liabilities  (4,074)  (1,652)
Other long-term liabilities  4,545   35 
Net cash used in operating activities  (41,018)  (26,288)
Cash flows from investing activities:        
Purchases of property and equipment  (4,608)  (2,790)
Proceeds from the sale of property and equipment  -   1 
Net cash used in investing activities  (4,608)  (2,789)
Cash flows from financing activities:        
Proceeds from borrowings on the term loan  172,813   - 
Payments on term loan borrowings  (5,762)  - 
Proceeds from borrowings on the revolving credit facility  16,000   5,000 
Deferred financing fees paid  (1,250)  - 
Distributions to parent  (29)  (400)
Payment of related party note payable  (64,938)  - 
Dividend to parent  (110,033)  - 
Payments of initial public offering costs  (747)  - 
Net cash provided by financing activities  6,054   4,600 
Effect of exchange rate changes on cash  207   (1,694)
Net decrease in cash  (39,365)  (26,171)
Cash at beginning of period  59,310   56,655 
Cash at end of period $19,945  $30,484 
Supplemental cash flow information:        
Cash paid for interest $5,892  $4,420 
Income taxes paid, net $502  $63 
Supplemental disclosure of non-cash investing and financing activities:        
Purchases of property and equipment included in accounts payable and accrued expenses $1,144  $269 
Capitalized internal-use software included in accounts payable – related party $500  $- 
Deferred offering costs included in accrued expenses $2,896  $- 

    

    

    

    

Retained 

    

Accumulated 

    

Additional

Earnings

Other

Total

 Paid-in 

 (Accumulated

 Comprehensive

 Stockholders'

Shares

Amount

Capital

 Deficit)

 Income (Loss)

 Equity

Balances at December 31, 2021

 

119,445,611

$

12

$

401,846

$

(48,583)

$

370

$

353,645

Cumulative effect of adoption of new accounting standard- leases

(291)

(291)

Net loss

 

 

 

 

(2,840)

 

 

(2,840)

Foreign currency translation adjustments

 

 

 

 

 

1,220

 

1,220

Sale of common stock

13,800,000

1

269,099

269,100

Repurchase and retirement of common stock

(13,800,244)

(1)

(257,662)

(257,663)

Retirement of restricted stock

(53,961)

Issuance of common stock upon release of restricted stock units

78,341

Stock-based compensation expense

 

 

 

16,925

 

 

 

16,925

Balances at April 2, 2022

 

119,469,747

$

12

$

430,208

$

(51,714)

$

1,590

$

380,096

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

8

8

Latham Group, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Fiscal Quarter Ended

April 2,

April 3,

    

2022

    

2021

Cash flows from operating activities:

Net (loss) income

$

(2,840)

$

8,533

Adjustments to reconcile net (loss) income to net cash used in operating activities:

 

  

 

  

Depreciation and amortization

 

9,494

 

7,900

Amortization of deferred financing costs and debt discount

 

280

 

2,804

Stock-based compensation expense

 

16,925

 

1,464

Underwriting fees related to offering of common stock

11,437

Loss on extinguishment of debt

3,465

Other non-cash, net

373

1,433

Earnings from equity method investment

(542)

(244)

Distributions received from equity method investment

0

168

Changes in operating assets and liabilities:

 

  

 

  

Trade receivables

 

(78,947)

 

(60,963)

Inventories

 

(30,490)

 

(9,238)

Prepaid expenses and other current assets

 

(790)

 

119

Income tax receivable

 

(26)

 

(2,107)

Other assets

(328)

Accounts payable

 

17,494

 

8,642

Accrued expenses and other current liabilities

 

(3,234)

 

(4,103)

Other long-term liabilities

 

261

 

4,545

Net cash used in operating activities

 

(57,468)

 

(41,047)

Cash flows from investing activities:

 

  

 

  

Purchases of property and equipment

 

(6,666)

 

(4,608)

Net cash used in investing activities

 

(6,666)

 

(4,608)

Cash flows from financing activities:

 

  

 

  

Proceeds from long-term debt borrowings

 

320,125

 

172,813

Payments on long-term debt borrowings

 

(284,009)

 

(5,762)

Proceeds from borrowings on revolving credit facilities

20,000

16,000

Payments on revolving credit facilities

(10,000)

0

Deferred financing fees paid

(6,865)

(1,250)

Dividend to Class A unitholders

(110,033)

Proceeds from sale of common stock

257,663

Repurchase and retirement of common stock

(257,663)

(64,938)

Payments of initial public offering costs

 

 

(747)

Net cash provided by financing activities

 

39,251

 

6,083

Effect of exchange rate changes on cash

 

(411)

 

207

Net decrease in cash

 

(25,294)

 

(39,365)

Cash at beginning of period

 

43,952

 

59,310

Cash at end of period

$

18,658

$

19,945

Supplemental cash flow information:

 

  

 

  

Cash paid for interest

$

1,628

$

5,892

Income taxes paid, net

578

502

Supplemental disclosure of non-cash investing and financing activities:

 

  

 

  

Purchases of property and equipment included in accounts payable and accrued expenses

$

337

$

1,144

Capitalized internal-use software included in accounts payable – related party

900

500

Deferred offering costs included in accounts payable and accrued expenses

2,896

Right-of-use operating assets obtained in exchange for lease liabilities

33,839

Increase in goodwill from measurement period adjustments related to business combinations

384

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

9

Notes to Condensed Consolidated Financial Statements 

1. NATURE OF THE BUSINESS

Latham Group, Inc. (“the Company”(the “Company”) wholly owns Latham Pool Products, Inc. (“Latham Pool Products”) (together, “Latham”) and is a designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand. Latham offers a portfolio of pools and related products, including in-ground swimming pools, pool liners and pool covers.

Latham Topco, Inc. was incorporated in the State of Delaware on December 6, 2018. Latham Topco, Inc. changed its name to Latham Group, Inc. on March 3, 2021. On December 18, 2018, Latham Investment Holdings, LP (“Parent”), an investment fund managed by affiliates of Pamplona Capital Management (the “Sponsor”), Wynnchurch Capital, L.P. and management acquired all of ourthe outstanding equity interests throughof Latham Topco., Inc., a newly incorporated entity in the newly formed entities (the “Acquisition”).State of Delaware. Latham Topco, Inc. changed its name to Latham Group, Inc. on March 3, 2021.

Stock Split, Initial Public Offering and Reorganization

On April 13, 2021, the Company’s certificate of incorporation was amended and restated. On April 13, 2021, the Company effected a 109,673.709-for-one stock split of its issued and outstanding shares of common stock. Accordingly, all share and per share data included in these condensed consolidated financial statements and notes thereto have been adjusted retroactively to reflect the impact of the amended and restated certificate of incorporation and the stock split.

On April 27, 2021, the Company completed its initial public offering (the “IPO”), pursuant to which it issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $400.1$399.3 million, after deducting underwriting discounts and commissions and other offering costs. The Company used the net proceeds to (i) pay down $152.7 million of the Amended Term Loan (as defined below) under the Credit Agreement (as defined below), (ii) repay the $16.0 million outstanding on the Revolving Credit Facility (as defined below), (iii) repurchase 12,264,438 shares of common stock from certain existing shareholders for $216.7 million and (iv) fund general corporate requirements, including working capital, for $14.7 million.

Prior to the closing of the Company’s IPO on April 27, 2021 (the “Closing of the IPO”), the Company’s parent entity, Latham Investment Holdings, LP (“Parent”)Parent, merged with and into Latham Group, Inc., with Latham Group, Inc. surviving the merger (the “Reorganization”). The purpose

Offering of Common Stock

On January 11, 2022, the Reorganization was to reorganize the Company’s structure so that its existing investors would own onlyCompany completed an offering of 13,800,000 shares of common stock, rather than limited partnership interestspar value $0.0001 per share, including the exercise in full by the Company’s Parent. In connection with the Reorganization, holdersunderwriters of Class A unitstheir option to purchase up to 1,800,000 additional shares of the Parentcommon stock, at a public offering price of $19.50 per share. The Company received proceeds of $257.7 million from this offering, net of $11.4 million of underwriting fees. The proceeds of $257.7 million were used to purchase 13,800,000 shares of common stock from certain of the Company’s stockholders, primarily investment funds managed by the Sponsor and Wynnchurch Capital, L.P., and also a small percentage of shares of common stock owned by some of our directors and Class B unitsexecutive officers.

As of the Parent were exchanged for an economically equivalent number of restrictedApril 2, 2022 and unrestrictedDecember 31, 2021, 113,720,584 and 113,642,487 shares of the Company’s common stock. During the fiscal quarter ended July 3, 2021, the Company recorded a stock-based compensation charge of $49.5 million in connection with the Reorganization due to modifications made to the Class B units upon their exchange for common stock that provided accelerated vesting of certain time-vesting unitsare issued and removed the performance vesting criteria on the performance-vesting units, which resulted in incremental fair value resulting from the replacement of Class B time-vesting units and performance-vesting units into common stock.

Impact of COVID-19 Pandemic

Since the onset of the COVID-19 pandemic, the Company has been focused on protecting its employees’ health and safety, meeting its customers’ needs as they navigate an uncertain financial and operating environment, working closely with its suppliers to protect its ongoing business operations and rapidly adjusting its short-, medium- and long-term operational plans to proactively and effectively respond to the current and potential future public health crises.

The Company continues to monitor the evolving COVID-19 pandemic and the impact on its business and financial results. We expect the impact of the pandemic on our business and financial results in 2021 will continue to vary by location and depend on numerous evolving factors that we are not able to accurately predict. These factors include the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken (or may be taken in the future) in response to the pandemic and changes in customer and supplier behavior in response to the pandemic.

9

outstanding for accounting purposes, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The consolidated balance sheet at December 31, 20202021 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of April 3, 20212, 2022 and for the fiscal quarters ended April 2, 2022 and April 3, 2021 and March 28, 2020 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures

10

normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with Latham Group, Inc.’s audited consolidated financial statements and the notes thereto for the year ended December 31, 20202021 included in the Company’s Registration Statement2021 Annual Report on Form S-1, as amended, File No. 333-254930 on file10-K, filed with the SEC.SEC on March 10, 2022 (the “Annual Report”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’sthese condensed consolidated financial position as of April 3, 2021 and results of operations for the fiscal quarters ended April 3, 2021 and March 28, 2020 and cash flows for the fiscal quarters ended April 3, 2021 and March 28, 2020 have been made.statements. The Company’s results of operations for the fiscal quarter ended April 3, 20212, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.2022.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are evaluated on an ongoing basis and revised as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known.

Segment Reporting

SeasonalityThe Company identifies operating segments based on how the chief operating decision maker (“CODM”) manages the business, allocates resources, makes operating decisions and evaluates operating performance. The Company conducts its business as 1 operating and reportable segment that designs, manufactures and markets in-ground swimming pools, liners and covers. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information presented on a consolidated basis for purposes of assessing financial performance and allocating resources.

Seasonality

Although the Company generally has demand for its products throughout the year, its business is seasonal and weather is one of the principal external factors affecting the business. Historically, net sales and net income are highest during spring and summer, representing the peak months of swimming pool use, pool installation and remodeling and repair activities. Sales periods having severe weather may also affect net sales.

Accounting Policies

Refer to the Company’s final prospectus for the IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on April 26, 2021 (“the Prospectus”) Annual Report for a discussion of the Company’s accounting policies, as updated below.below for recently adopted accounting standards.

Equity Method Investments

Investments and ownership interests in common stock or in-substance common stock are accounted for under the equity method accounting if the Company has the ability to exercise significant influence over the entity, but does not have a controlling financial interest. Under the equity method, investments are initially recognized at cost and adjusted to reflect the Company’s interest in net earnings, dividends received and other-than-temporary impairments. The Company records its interest in the net earnings of its equity method investee, along with adjustments for amortization of basis differences, investee capital transactions and other comprehensive income (loss), within earnings from equity method investment in the condensed consolidated statements of operations. Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to the underlying basis differences. Profits or losses related to intra-entity sales with its equity method investee are eliminated until realized by the investor or investee.

The Company records its proportionate share of earnings or losses of Premier Holdco, LLC (“Premier Pools & Spas”) within earnings from equity method investment in the condensed consolidated statements of operations on a three-month lag. The Company recorded its interest in the net earnings of Premier Pools & Spas of $0.2 million for the period from October 30, 2020 through December 31, 2020, which included a $0.1 million adjustment for the amortization of basis differences, within earnings from equity method investment in the condensed consolidated statements of operations during the fiscal quarter ended April 3, 2021. The Company also received a distribution of $0.2 million during the fiscal quarter ended April 3, 2021.

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For presentation in the condensed consolidated statements of cash flows, the Company utilizes the cumulative earnings approach for purposes of determining whether distributions should be classified as either a return on investment, which are be included in operating activities, or a return of investment, which would be included in investing activities. Under the cumulative earnings approach, the Company compares the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings are be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.

Equity method goodwill is not amortized or tested for impairment; instead the Company evaluates equity method investments for impairment when events or changes in circumstances indicate that the decline in value below the carrying amount of its equity method investment is determined to be other than temporary. In such a case, the decline in value below the carrying amount of its equity method investment is recognized in the condensed consolidated statements of operations in the period the impairment occurs.

Recently Issued Accounting Pronouncements

The Company qualifies as “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to “opt in” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. In addition, a lessee is required to record (i) a right-of-use asset and a lease liability on its balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an operating or financing lease and (ii) lease expense in its consolidated statement of operations

11

for operating leases and amortization and interest expense in its consolidated statement of operations for financing leases. Leases with a term of 12 months or less may be accounted for similar to prior guidance forhow operating leases today.were accounted for under the prior guidance. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which added an optional transition method that allows companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented. In November 2019, the FASB issued guidance delaying the effective date for all entities, except for public business entities. For nonpublic entities, this guidance is effective for annual periods beginning after December 15, 2020. In June 2020, the FASB issued additional guidance delaying the effective date for all entities, except for public business entities. For public entities,The Company adopted ASU 2016-02 was effectiveon January 1, 2022 using the modified retrospective approach and elected the package of practical expedients to use in transition, which permitted us not to reassess, under the new standard, our prior conclusions about lease identification and lease classification. The adoption resulted in the addition of $33.5 million of operating lease right-of-use assets, and $34.0 million of operating lease liabilities, a decrease of $0.2 million to deferred rent and a decrease of $0.3 million to retained earnings for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For nonpublic entities, this guidance is effectivethe cumulative effect of initially applying the new standard. The adoption did not have a material impact on the Company’s Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flows. See Note 9, “Leases” for annual periods beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluatingadditional information related to the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

Company’s leases and accounting policy elections.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, which narrowed the scope and changed the effective date for nonpublic entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are SEC filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.

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In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its consolidated financial statements. In addition to that main objective, the amendments in the update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. Additional updates to further clarify the guidance in ASU 2017-12 were issued by the FASB in October 2018 within ASU 2018-16. For public entities, the amendment is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For nonpublic entities, ASU 2017-12 is effective for fiscal years beginning after December 15, 2020 and interim periods beginning after December 15, 2021. Early application is permitted in any interim period after the issuance of the update. The Company is currently evaluating the impact that the adoption of ASU 2017-12 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. For public entities, ASU 2019-12 is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. For nonpublic companies, ASU 2019-12 is effective for annual periods beginning after December 15, 2021, and interim periods within those reporting periods. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. For public entities, ASU 2020-01 is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. For nonpublic companies, ASU 2020-01 is effective for annual periods beginning after December 15, 2021, and interim periods within those reporting periods. The Company is currently evaluating the impact that the adoption of ASU 2020-01 willthis standard did not have an impact on itsthe Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. This guidance is effective for all entities upon issuance on March 12, 2020 and may be applied through December 31, 2022. The expedients and exceptions in this guidance are optional, and the Company is evaluating the potential future financial statement impact of any such expedient or exception that it may elect to apply as the Company evaluates the effects of adopting this guidance on its consolidated financial statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, this guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The ASU becameThis guidance is effective as offor all entities upon issuance on March 12, 2020 and canmay be adopted anytime during the period of January 1, 2020applied through December 31, 2022. The expedients and exceptions in this guidance are optional. The Company elected the optional expedient in connection with amending its interest rate swap to replace the reference rate from LIBOR to SOFR to consider the amendment as a continuation of the existing contract without having to perform an assessment that would otherwise be required under GAAP.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which amends ASC 805 by requiring acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combination. For public entities, ASU 2021-08 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. For all

12

other entities, ASU 2021-08 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Company is currently evaluating theASU 2021-08 and its potential impact that the adoption of ASU 2021-01 will have on itsour consolidated financial statements.

3. ACQUISITIONS

GL International,Trojan Leisure Products, LLC

d/b/a Radiant Pools

On October 22, 2020,November 24, 2021, Latham Pool Products acquired GL International,Trojan Leisure Products, LLC d/b/a Radiant Pools (“GLI”Radiant”) for a total purchase price of $79.7$90.7 million (the “GLI“Radiant Acquisition”). The results of GLI’sRadiant’s operations have been included in the condensed consolidated financial statements since that date. GLIRadiant specializes in manufacturing custom pool liners and safety covers.proprietary vinyl liner aluminum swimming pools which can be built completely in-ground, semi-inground, or above ground. As a result, this acquisition expanded the Company’s liner and safety cover product offerings. In connection with the GLIRadiant Acquisition, consideration paid was $79.7$90.7 million in cash, or $74.7$90.5 million net of cash acquired of $5.0$0.2 million. The cash consideration was funded, in part, through long-term debt proceeds of $50.0 million. The Company incurred $2.9 million and excluding ain transaction costs.

Subsequent to the acquisition date, there was an additional amount due to the seller of $0.4 million related to the finalization of the net working capital adjustment, receivablewhich was accounted for as a measurement period adjustment. The measurement period adjustment resulted in an increase in the total consideration transferred of $0.8$0.4 million and an increase to goodwill of $0.4 million. The net working capital adjustment receivablepayable was settled during fiscal quarter endedrecorded in accrued expenses and other current liabilities in the condensed consolidated balance sheet as of April 3, 2021. The cash consideration was funded from existing cash on hand. The Company incurred $2.4 million in transaction costs.

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2, 2022.

The Company accounted for the GLIRadiant Acquisition using the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations (“ASC 805”).805. This requires that the assets acquired and liabilities assumed be measured at fair value. The Company estimated, using Level 3 inputs, the fair value of certain fixed assets using a combination of the cost approach and the market approach. Inventories were valued using the comparative sales method, less the cost of disposal. Specific to intangible assets, dealercustomer relationships and backlog were valued using the multi-period excess earnings method, whereas trade names, technology and pool designs were valued using the relief from royalty method. The Company recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date.

The following summarizes the purchase price allocation for the GLIRadiant Acquisition:

(in thousands) October 22, 2020 

    

November 24, 2021

Total consideration $79,743 

$

91,109

Allocation of purchase price:    

 

  

Cash  5,007 

 

217

Trade receivables  10,639 

 

2,805

Inventories  11,854 

 

5,528

Prepaid expenses and other current assets  3,949 

 

396

Property and equipment  1,402 

 

1,263

Intangible assets  46,700 

 

72,500

Total assets acquired  79,551 

 

82,709

Accounts payable  3,536 

 

1,744

Accrued expenses and other current liabilities  8,853 

 

1,038

Other long-term liabilities  524 

 

2,920

Total liabilities assumed  12,913 

 

5,702

Total fair value of net assets acquired, excluding goodwill:  66,638 

 

77,007

Goodwill $13,105 

$

14,102

The excess of the purchase price over the fair value of the identifiable assets acquired and the liabilities assumed in the acquisitionRadiant Acquisition was allocated to goodwill in the amount of $13.1$14.1 million. Goodwill resulting from the GLIRadiant Acquisition was

13

attributable to the expanded market share and product offerings. Goodwill resulting from the GLIRadiant Acquisition is deductible for tax purposes.

The Company allocated a portion of the purchase price to specific intangible asset categories as follows:

Fair Value

Amortization

Definite-lived intangible assets: 

Fair Value

(in thousands)

  

Amortization Period

(in years)

 

    

(in thousands)

    

Period

Dealer relationships

$

37,000

 

13 years

Trade names $9,500   9 

 

13,000

 

25 years

Dealer relationships  37,200   8 
 $46,700     

Technology

13,000

15 years

Pool designs

7,900

15 years

Backlog

1,600

10 months

$

72,500

Pro Forma Financial Information (Unaudited)

The following pro forma financial information presents the statements of operations of the Company combined with GLI as if the acquisition occurred on January 1, 2020. The pro forma results do not include any anticipated synergies, cost savings or other expected benefits of an acquisition. The pro forma financial information is not necessarily indicative of what the financial results would have been had the acquisition been completed on January 1, 2020 and is not necessarily indicative of the Company’s future financial results.

 

Fiscal Quarter Ended

March 28,2020

 
(in thousands) 
Net sales$58,920 
Net loss $(20,828)

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The pro forma financial information presented above has been calculated after adjusting for the results of the GLI Acquisition for the first fiscal quarter ended March 28, 2020 to reflect the accounting effects as a result of the acquisition, including the amortization expense from acquired intangible assets, the depreciation and amortization expense from acquired property and equipment, the additional cost of sales from acquired inventory, interest expense from debt financing, and any related tax effects.

4. EQUITY METHOD INVESTMENT

On October 30, 2020, the Company entered into a securities purchase agreement to purchase 28% of the common units of Premier Pools & Spas for $25.4 million. The Company concluded that it holds common stock of Premier Pools & Spas and has the ability to exercise significant influence over Premier Pools & Spas, but does not have a controlling financial interest. Accordingly, the Company accounts for this investment using the equity method of accounting. The Company’s proportionate share of the earnings or losses of the investee are reported as a separate line in the condensed consolidated statements of operations.

Premier Pools & Spas is a holding company for its manufacturing and franchising companies including PFC LLC, Premier Franchise Management LLC, Premier Pools Management LLC, and Premier Fiberglass LLC (the “Premier Companies”). The Premier Companies are a leading swimming pool-building brand that uses its franchisee network to sell and install pools around the United States.

In connection with Latham’s Investment in Premier Pools & Spas, the Company entered into an exclusive supply agreement with Premier Pools & Spas, the Premier Companies, and Premier Pools & Spas’ franchisees (“Premier Franchisees”) (together, the “Customer”). Premier Pools & Spas does not consolidate the operations of the Premier Franchisees. Per the supply agreement, Latham is the exclusive supplier of the Premier Franchisees for specific pool and pool products. These products include fiberglass products and package pool products. The initial term of the supply agreement is ten years.

For the first three years of the supply agreement, the Customer is entitled to a low-teens percentage rebate for all fiberglass pools sold and an additional growth rebate of a low single-digit to low-teens percentage based on year over year sales growth on fiberglass pools (the “Rebates”). The Rebates will be paid directly to Premier Pools Management Corp. Holdco.

As of April 3, 2021, the Company’s carrying amount for the equity method investment in Premier Pools & Spas was $25.4 million. In March, Premier Pools & Spas paid the Company a dividend of $0.2 million that is presented on the condensed consolidated statement of cash flows as distributions received from equity method investment. Because of the three-month financial reporting lag, the Company recorded its interest in the net earnings of Premier Pools & Spas for the period from October 30, 2020 through December 31, 2020, along with adjustments for amortization of basis differences and any investee capital transactions, during the fiscal quarter ended April 3, 2021.

5. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value.

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3 — Unobservable inputs that reflect the Company’s own assumptions incorporated into valuation techniques. These valuations require significant judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When there is more than one input at different levels within the hierarchy, the fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assessment of the significance of a particular input to the fair value measurement in its entirety requires substantial judgment and consideration of factors specific to the asset or liability. Level 3 inputs are inherently difficult to estimate. Changes to these inputs can have significant impact on fair value measurements. Assets and liabilities measured at fair value using Level 3 inputs are based on one or more of the following valuation techniques: market approach, income approach or cost approach. There were no transfers between fair value measurement levels during the fiscal quarters ended April 2, 2022 or April 3, 2021 or March 28, 2020.2021.

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Assets and liabilities measured at fair value on a nonrecurring basis

The Company’s non-financial assets such as goodwill, intangible assets and property and equipment are measured at fair value upon acquisition or remeasured to fair value when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 2 and Level 3 inputs.

Assets and liabilities measured at fair value on a recurring basis

On May 31, 2019 (the “Acquisition Date”), Latham Pool Products acquired Narellan Group Pty Limited and its subsidiaries (collectively “Narellan”) for a total purchase price of $35.2 million (the “Narellan Acquisition”). In connection with the Narellan Acquisition, consideration paid included $20.2 million in cash, $7.6 million in equity consideration and $7.4 million of contingent consideration as of the Acquisition Date. The Company agreed to pay the contingent consideration in the form of cash and equity consideration to the seller if certain EBITDA targets were achieved for any of the trailing twelve months periods ended December 31, 2019, June 30, 2020 or the year ended December 31, 2020 (the “Contingent Consideration”). The fair value of the Contingent Consideration at the Acquisition Date was $7.4 million. On September 25, 2020, the Company amended the terms of the Narellan Share Purchase Agreement and settled the Contingent Consideration with the selling shareholders of Narellan based upon estimated EBITDA for the year ended December 31, 2020.

The fair value of the Company’s Contingent Consideration is measured and recorded on the condensed consolidated balance sheets using Level 3 inputs because it is valued based on unobservable inputs and other estimation techniques due to the absence of quoted market prices. The Company values the Contingent Consideration using a Monte Carlo simulation, which relies on management’s projections of EBITDA and the estimated probability of achieving such targets. The change in the fair value of the Contingent Consideration for the fiscal quarter ended March 28, 2020 of $(1.1) million was due to foreign currency translation.

Estimates of fair value are subjective in nature, involve uncertainties and matters of significant judgment, and are made at a specific point in time. Thus, changes in key assumptions from period to period could significantly affect the estimate of fair value.

The Monte Carlo simulation utilized the following unobservable inputs to determine the fair value of the Contingent Consideration as of March 28, 2020:

Fiscal Quarter Ended

March 28, 2020

EBITDA risk adjustment17.30%
Annual EBITDA volatility55.00%
Risk-free rate of return2.10%

Pension Plan

The fair value of the benefit plan assets related to the Company’s pension plan is measured and was recorded on the condensed consolidated balance sheets using Level 2 inputs. The fair value of the Company’s plan assets was $1.2 million as of March 28, 2020. During the year ended December 31, 2020, the Company terminated its defined benefit pension plan.

Fair value of financial instruments

The Company considers the carrying amounts of cash, trade receivables, prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities, to approximate fair value due to the short-term maturities of these instruments.

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14

Term loans

Term loan

The term loan isloans (see Note 7) are carried at amortized cost; however, the Company estimates the fair value of the term loanloans for disclosure purposes. The fair value of the term loanloans is determined using inputs based on observable market data of a non-public exchange using, which are classified as Level 2 inputs. The following table sets forth the carrying amount and fair value of theits term loanloans (in thousands):

 April 3, 2021  December 31, 2020 
 

Carrying

Value

  

Estimated

Fair Value

  

Carrying

Value

  

Estimated

Fair Value

 
Term loan $389,964  $390,638  $221,496  $221,081 

April 2, 2022

December 31, 2021

Carrying

Estimated

Carrying

Estimated

    

Value

    

Fair Value

    

Value

    

Fair Value

New Term Loan

$

314,141

$

309,429

$

$

Amended Term Loan

$

$

$

280,408

$

281,926

Interest rate swap

The Company estimates the fair value of the interest rate swap (see Note 8)7) on a quarterly basis using Level 2 inputs, including the forward LIBORSOFR curve. The fair value is estimated by comparing (i) the present value of all future monthly fixed rate payments versus (ii) the variable payments based on the forward LIBORSOFR curve. As of April 3, 20212, 2022 and December 31, 2020,2021, the fair value of the Company’s interest rate swap liabilityasset was $0.5$3.3 million and $0.3$0.5 million, respectively, which was recorded within other long-term liabilitiesassets on the condensed consolidated balance sheets.

6.5. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The carrying amount of goodwill for the fiscal quarter endedas of April 3, 20212, 2022 and the year endedas of December 31, 20202021 was $115.6$129.6 million and $115.8$128.9 million, respectively. The change in the carrying value during the fiscal quarter ended April 3, 20212, 2022 was solely due to an increase of $0.4 million as a result of a measurement period adjustment (see Note 3) and fluctuations in foreign currency exchange rates.

Intangible Assets

Intangible assets, net as of April 3, 20212, 2022 consisted of the following (in thousands):

 April 3, 2021
 

Gross

Carrying

Amount

 

Foreign

Currency

Translation

 

Accumulated

Amortization

 Net
Amount

April 2, 2022

Gross

Foreign

Carrying

Currency

Accumulated

Net

    

Amount

    

Translation

    

Amortization

    

Amount

Trade names and trademarks $135,100  $912  $11,808  $124,204 

$

148,100

$

718

$

18,034

$

130,784

Patented technology  16,126   134   3,898   12,362 

 

16,126

 

95

 

5,644

 

10,577

Technology

13,000

289

12,711

Pool designs  5,728   547   752   5,523 

 

13,628

 

412

 

1,336

 

12,704

Franchise relationships  1,187   113   546   754 

 

1,187

 

83

 

842

 

428

Dealer relationships  160,376   45   20,989   139,432 

 

197,376

 

81

 

34,881

 

162,576

Backlog

1,600

640

960

Non-competition agreements  2,476   -   1,134   1,342 

 

2,476

 

 

1,627

 

849

 $320,993  $1,751  $39,127  $283,617 

$

393,493

$

1,389

$

63,293

$

331,589

The Company recognized $7.2 million and $5.6 million of amortization expense related to intangible assets during the fiscal quarterquarters ended April 2, 2022 and April 3, 2021.2021, respectively.

15

Intangible assets, net as of December 31, 20202021 consisted of the following (in thousands):

December 31, 2021

Gross

Foreign

Carrying

Currency

Accumulated

Net

    

Amount

    

Translation

    

Amortization

    

Amount

Trade names and trademarks

$

148,100

$

439

$

16,382

$

132,157

Patented technology

 

16,126

 

65

 

5,205

 

10,986

Technology

13,000

72

12,928

Pool designs

 

13,628

 

265

 

1,101

 

12,792

Franchise relationships

 

1,187

 

54

 

767

 

474

Dealer relationships

 

197,376

 

22

 

30,838

 

166,560

Backlog

1,600

160

1,440

Non-competition agreements

 

2,476

 

 

1,503

 

973

$

393,493

$

845

$

56,028

$

338,310

  December 31, 2020
 

Gross

Carrying

Amount

 

Foreign

Currency

Translation

 

Accumulated

Amortization

 Net
Amount
Trade names and trademarks $135,100  $1,047  $10,258  $125,889 
Patented technology  16,126   155   3,452   12,829 
Pool designs  5,728   629   648   5,709 
Franchise relationships  1,187   130   470   847 
Dealer relationships  160,376   52   17,697   142,731 
Non-competition agreements  2,476   -   1,008   1,468 
  $320,993  $2,013  $33,533  $289,473 

16

The Company recognized $4.1 million of amortization expense related to intangible assets during the fiscal quarter ended March 28, 2020.

The Company estimates that amortization expense related to definite-lived intangible assets will be as follows in each of the next five years and thereafter (in thousands):

Estimated Future 

Year Ended 

Estimated Future

Amortization Expense

 

    

Amortization Expense

Remainder of fiscal 2021 $16,364 
2022  21,959 

Remainder of fiscal 2022

$

20,984

2023  21,768 

 

26,528

2024  20,948 

 

25,708

2025  20,791 

 

25,550

2026

 

25,550

Thereafter  181,787 

 

207,269

 $283,617 

$

331,589

7.

6. INVENTORIES, NET

Inventories, net consisted of the following (in thousands):

 

April 3, 2021

  December 31,2020 

    

April 2, 2022

    

December 31, 2021

Raw materials $44,472  $37,010 

$

92,333

$

77,510

Finished goods  29,659   27,808 

 

47,734

 

32,046

 $74,131  $64,818 

$

140,067

$

109,556

8.

7. LONG-TERM DEBT

The components of the Company’s outstanding debt obligations consisted of the following (in thousands):

 

April 3,2021

  December 31, 2020 
Term loan $397,385  $228,147 
Revolver  16,000    

    

April 2, 2022

    

December 31, 2021

New Term Loan

$

325,000

$

Amended Term Loan

284,009

New Revolving Credit Facility

10,000

Less: Unamortized discount and debt issuance costs  (7,421)  (6,651)

 

(10,859)

 

(3,601)

Total debt  405,964   221,496 

 

324,141

 

280,408

Less: Current portion of long-term debt  (23,047)  (13,042)

 

(3,250)

 

(17,220)

Total long-term debt $382,917  $208,454 

$

320,891

$

263,188

Revolving Credit Facility

On December 18, 2018, theFebruary 23, 2022, Latham Pool Products entered into an agreement (the “Credit“New Credit Agreement”) with Nomura Corporate Funding Americas, LLC (“Nomura”) that includedBarclays Bank PLC, which provides a senior secured multicurrency revolving line of credit (the “Revolver”“New Revolving Credit Facility”) in an initial principal amount of $75.0 million and lettersa U.S. Dollar senior secured term loan facility (the “New Term Loan Facility”) in an initial principal

16

amount of $325.0 million (the “Refinancing”). On the closing date, proceeds under the agreement were used to repay $294.0 million and terminate the Credit Agreement (as defined below) and for general corporate purposes.

New Revolving Credit Facility

On February 23, 2022, Latham Pool Products entered into the New Credit Agreement with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit (“Lettersin an initial principal amount of Credit” or collectively with the Revolver, the “Revolving Credit Facility”), as well as a term loan (as described below).$75.0 million. The New Revolving Credit Facility wasmay be utilized to finance ongoing general corporate and working capital needs with the Revolver of upand permits Latham Pools Products to $30.0 million.borrow loans in U.S. Dollars, Canadian Dollars, Euros and Australian Dollars. The New Revolving Credit Facility matures on December 18, 2023.

TheFebruary 23, 2027. Loans outstanding under the New Revolving Credit Facility allows for either Eurocurrency borrowings, bearingdenominated in U.S. Dollars and Canadian Dollars bear interest, ranging from 4.50% to 4.75%,at the borrower’s option, at a rate per annum based on Term SOFR or base rate borrowings, bearing interest ranging from 3.50% to 3.75% depending on the First Lien Net Leverage Ratio,CDO (each, as defined in the New Credit Agreement.Agreement), as applicable, plus a margin of 3.50%, or at a rate per annum based on the Base Rate or the Canadian Prime Rate (each, as defined in the New Credit Agreement), plus a margin of 2.50%. Loans outstanding under the New Revolving Credit Facility denominated in Euros or Australian Dollars bear interest based on EURIBOR or the AUD Rate (each, as defined in the New Credit Agreement), respectively, plus a margin of 3.50%. A commitment fee accrues on any unused portion of the commitments under the New Revolving Credit Facility. The commitment fee is due and payable quarterly in arrears and is, equalinitially, 0.375% per annum and will, thereafter, accrue at a rate per annum ranging from 0.25% to 0.50%, depending on the applicable margin times the actual daily amount by which the $30.0 million initial commitment exceeds the sum of the outstanding borrowings under the Revolver and outstanding Letters of Credit obligations. The applicable margin ranges from 0.375% to 0.500% as determined by the Company’s First Lien Net Leverage Ratio as defined inRatio. Borrowings under the New Revolving Credit Agreement.Facility are due at maturity.

17

The Company incurred debt issuance costs of $0.8 million related to the New Revolving Credit Facility. The debt issuance costs were recorded within other assets on the condensed consolidated balance and are being amortized over the life of the New Revolving Credit Facility.

The Company is required to meet certain financial covenants, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on the Company’s ability to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates, make prepayments with respect to certain indebtedness and make prepayments. restricted payments and other distributions.

As of April 3, 2021 and December 31, 2020,2, 2022, there was $10.0 million outstanding on the Company was in compliance with all financial-related covenants relatedNew Revolving Credit Facility.

New Term Loan Facility

Pursuant to the New Credit Agreement. There was $16.0Agreement, Latham Pool Products also borrowed $325.0 million in term loans. The New Term Loan Facility matures on February 23, 2029. Loans outstanding as of April 3, 2021 and no amounts outstanding as of December 31, 2020under the New Term Loan Facility bear interest, at the borrower’s option, at a rate per annum based on Term SOFR (as defined in the New Credit Agreement), plus a margin ranging from 3.75% to 4.00%, depending on the Revolving Credit Facility or Letters of Credit.

Term Loan Facility

On December 18, 2018,First Lien Net Leverage Ratio (as defined in connection with the Acquisition, the Company entered into the Credit Agreement, with Nomurathe “First Lien Net Leverage Ratio”), or based on the Base Rate (as defined in the Credit Agreement), plus a margin ranging from 2.75% to borrow $215.0 million (the “Original Term Loan”). The Company incurred debt issuance costs of $11.5 million related to the transaction.

The Original Term Loan was amended3.00%, depending on May 29, 2019, to provide additional borrowings of $23.0 million at a discount of $0.7 million (the “First Amendment”) to fund the Narellan Acquisition. Any portion of the First Amendment not used to fund the Narellan Acquisition was required to be applied to repay the First Amendment in an aggregate amount equal to such portion of the First Amendment, without any premium or penalty.

On August 6, 2020, the Company entered into a Form of Affiliated Lender Assignment and Assumption with Nomura (the “Assignment”). Under the Assignment, the Company repaid $5.0 million of the outstanding principal balance.

On October 14, 2020, the Company entered into a subsequent amendmentLien Net Leverage Ratio. Loans under the Original Term Loan with Nomura to borrow an additional $20.0 million (the “Second Amendment” and collectively with the Original Term Loan and the First Amendment, the “Term Loan”). The Company accounted for the borrowings under the Second Amendment as new debt and recorded $0.1 million of third-party costs as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheet. There were no financing costs incurred with the Second Amendment. The Term Loan has a maturity date of June 18, 2025. Interest and principal payments are due quarterly.

On January 25, 2021, the Company entered into a subsequent amendment to the Term Loan with NomuraFacility are subject to borrow an additional $175.0 million (the “Third Amendment” and collectively with the “Term Loan”, the “Amended Term Loan”). In connection with the Third Amendment, the Company is requiredscheduled quarterly amortization payments equal to repay the outstanding principal balance0.25% of the Amended Term Loan in fixed quarterly payments of $5.8 million, commencing March 31, 2021. The amendment did not change the maturity dateinitial principal amount of the Term Loan Facility. The New Credit Agreement contains customary mandatory prepayment provisions, including requirements to make mandatory prepayments with 50% of any excess cash flow and the Amended Term Loan bears interest under the same terms as the Term Loan. The Company accounted for $165.0 millionwith 100% of the borrowings undernet cash proceeds from the Third Amendment as new debtincurrence of indebtedness not otherwise permitted to be incurred by the covenants, asset sales and $10.0 million of the borrowings under the Third Amendment as a debt modification. casualty and condemnation events, in each case, subject to customary exceptions.

The Company recorded an aggregate of $1.2$6.1 million of debt issuance costs and $4.9 million of debt discount related to the New Term Loan Facility as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheet.

The Amended Term Loan allowed for the $175.0 million of proceeds to be distributed to Parent. On February 2, 2021, the Company used the proceeds of the Amended Term Loan to settle in full the note payable to Parent of $64.9 million and to pay a dividend to Parent of $110.0 million.

The Term Loan bears interest at (1) a base rate equal to the highest of (i) the Federal Funds Rate plus 1∕2 of 1%, (ii) the “prime rate” published in the Money Rates section of the Wall Street Journal and (iii) LIBOR plus 1.00% (2) plus a Loan Margin of (i) 6.00% for Eurocurrency Rate Loans and (ii) 5.00% for Base Rate Loans, as defined in the Credit Agreement. Principal payments under the First Amendment were calculated as 0.629% of the outstanding principal balance. Outstanding borrowings atas of April 3, 2021 and December 31, 20202, 2022 were $390.0$314.1 million, and $221.5 million, respectively, net of discount and debt issuance costs of $7.4 million and $6.7 million, respectively.$10.9 million. In connection with the New Term Loan, the Company is subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measurements.

18

As of April 3, 2021,2, 2022, the unamortized debt issuance costs and discount on the New Term Loan were $5.6$6.0 million and $1.8 million, respectively. As of December 31, 2020, the unamortized debt issuance costs and discount on the Term Loan were $6.3 million and $0.4$4.8 million, respectively. The effective interest rate was 9.36%4.96% at April 2, 2022.

As of April 2, 2022, the Company was in compliance with all financial covenants under the New Credit Agreement.

17

Revolving Credit Facility

On December 18, 2018, Latham Pool Products entered into an agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC that included a revolving line of credit (the “Revolver”) and 8.03%letters of credit (“Letters of Credit” or collectively with the Revolver, the “Revolving Credit Facility”), as well as a Term Loan (as described and defined below). The Revolving Credit Facility was utilized to finance ongoing general corporate and working capital needs with the Revolver of up to $30.0 million. The Revolving Credit Facility was terminated in connection with the Refinancing.

Term Loan Facility

Pursuant to the Credit Agreement, Latham Pool Products also borrowed $215.0 million in term loans (the “Term Loan”). The Term Loan was amended on May 29, 2019, to provide additional borrowings of $23.0 million, which was accounted for as a modification to the fiscal quarter ended April 3,Term Loan, to fund our acquisition of Narellan Group Pty Limited and its subsidiaries (the “Narellan Acquisition”) (the “First Amendment”). On October 14, 2020, we amended the First Amendment to provide additional borrowings of $20.0 million, which was accounted for as new debt (the “Second Amendment”). The Second Amendment was further amended on January 25, 2021, to provide an additional incremental term loan of $175.0 million (the “Third Amendment”). On January 25, 2021, Latham Pool Products borrowed the incremental term loan, and year ended Decemberthe proceeds were used on February 2, 2021 to purchase and retire equity interests and to pay a distribution. On March 31, 2020, respectively.2021, we amended our Term Loan to revise the applicable reporting requirements (the “Fourth Amendment”). On November 24, 2021, we amended the Term Loan to provide additional borrowings of $50 million (the “Fifth Amendment”). The proceeds from this incremental term loan were used to finance the Radiant Acquisition in part. The Term Loan, collectively with the First Amendment, Second Amendment, Third Amendment, the Fourth Amendment and the Fifth Amendment, is referred to as the “Amended Term Loan.” The Amended Term Loan was repaid and terminated in connection with the Refinancing.

Interest Rate Risk

Interest rate risk associated with the Company’sNew Credit Agreement is managed through an interest rate swap whichthat the Company executed on April 30, 2020. The swap has an effective date of May 18, 2020 and a termination date of May 18, 2023. In February of 2022, the Company amended its interest rate swap to change the index rate from LIBOR to SOFR in connection with the entry into the New Credit Agreement. Under the terms of the amended swap, the Company fixed its LIBORSOFR borrowing rate at 0.442%0.496% on a notional amount of $200.0 million. The interest rate swap is not designated as a hedging instrument for accounting purposes (see Note 2 and Note 5)4).

The Company recorded interest expense associated with the Revolving Credit Facility, Second Amendment, Third Amendment and interest rate swap, as follows (in thousands):

  April 3, 2021  

March 28, 2020

 
Interest expense $5,892  $4,420 
Amortization of debt issuance costs  2,073   859 
Amortization of original issue discount  732   54 
Interest rate swap  359   - 
Total interest expense $9,056  $5,333 

Debt Maturities

Principal payments due on the outstanding debt in the next five fiscal years, excluding any potential payments based on excess cash flow levels, are as follows (in thousands):

Year Ended  Term Loan Facility 

    

Term Loan Facility

Remainder of fiscal 2021  $17,284 
2022   23,047 

Remainder of fiscal 2022

$

2,438

2023   23,047 

 

3,250

2024   23,047 

 

3,250

2025   310,960 

 

3,250

  $397,385 

2026

3,250

Thereafter

 

319,562

$

335,000

The obligations under the New Credit Agreement are guaranteed by certain wholly owned subsidiaries (the “Guarantors”) of the Company as defined in the security agreement. The obligations under the New Credit Agreement are secured by substantially all of the Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts. The New Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict the Company’s ability to pay dividends.

19

18

9.8. PRODUCT WARRANTIES

The warranty reserve activity consisted of the following (in thousands):

  Fiscal
Quarter
Ended
April 3,
2021
  Year
Ended
December 
31, 2020
 
Balance at the beginning of the period $2,882  $2,846 
Accruals for warranties issued  1,706   3,966 
Warranty liabilities assumed in GLI Acquisition  -   118 
Less: Settlements made (in cash or in kind)  (1,077)  (4,048)
Balance at the end of the period  3,511   2,882 
Less: Current portion of accrued warranty costs  (3,313)  (2,705)
Accrued warranty costs – less current portion $198  $177 

Fiscal Quarter Ended

    

April 2, 2022

    

April 3, 2021

Balance at the beginning of the year

$

4,909

$

2,882

Accruals for warranties issued

 

1,300

 

1,706

Less: Settlements made (in cash or in kind)

 

(1,074)

 

(1,077)

Balance at the end of the year

$

5,135

$

3,511

9. LEASES

On January 1, 2022, the Company adopted ASU 2016-02, "Leases (Topic 842)," and the related amendments (collectively "ASC 842"). The optional transition method of adoption was used, in which the cumulative effect of initially applying the new standard to existing leases was $0.3 million to record the operating lease right-of-use assets and the related liabilities as of January 1, 2022. Under this method of adoption, the comparative information has not been revised and continues to be reported under the previously applicable lease accounting guidance (ASC 840).

For leases with initial terms greater than 12 months, the Company considers these right-of-use assets and records the related asset and obligation at the present value of lease payments over the term. For leases with initial terms equal to or less than 12 months, the Company does not consider them as right-of-use assets and instead considers them short-term lease costs that are recognized on a straight-line basis over the lease term. The Company’s leases may include escalation clauses, renewal options and/or termination options that are factored into the Company’s determination of lease term and lease payments when it is reasonably certain the option will be exercised. The Company has elected to take the practical expedient and not separate lease and non-lease components of contracts. The Company estimates an incremental borrowing rate to discount the lease payments based on information available at lease commencement because the implicit rate of the lease is generally not known.

The Company leases vehicles, manufacturing facilities, office space, land, and equipment under operating leases. The Company determines if an arrangement is a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company does not have material finance leases.

The components of lease expense for the fiscal quarter ended April 2, 2022 were as follows (in thousands):

Fiscal Quarter Ended

    

April 2, 2022

    

Operating lease expense

$

2,138

Short-term lease expense

 

20

Variable lease expense

 

178

Total lease expense

$

2,336

The table below presents supplemental information related to leases as of April 2, 2022:

    

April 2, 2022

Weighted-average remaining lease term (years)

Operating leases

6.3

Weighted-average discount rate

Operating leases

4.5

%

19

The table below presents supplemental information related to the cash flows for operating leases recorded on the condensed consolidated statements of cash flows (in thousands):

Fiscal Quarter Ended

    

April 2, 2022

    

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

1,785

The following table summarizes maturities of operating lease liabilities as of April 2, 2022 (in thousands):

    

Operating Leases

Remainder of fiscal 2022

$

6,534

2023

6,753

2024

6,155

2025

5,508

2026

4,416

Thereafter

10,386

Total lease payments

39,752

Less: Interest

(5,937)

Present value of lease liability

$

33,815

10. NET SALES

The following table sets forth the Company’s disaggregation of net sales by product line (in thousands):

 Fiscal Quarter Ended, 
 April 3, 2021  March 28, 2020 

Fiscal Quarter Ended

April 2, 2022

    

April 3, 2021

In-ground Swimming Pools $93,643  $29,458 

$

111,803

$

93,643

Covers  24,006   11,011 

 

32,525

 

24,006

Liners  31,097   10,665 

 

47,286

 

31,097

 $148,746  $51,134 

$

191,614

$

148,746

11. INCOME TAXES

The effective income tax rate for the fiscal quarter ended April 3, 20212, 2022 was 25.26%215.1%, compared to 16.34%25.3% for the fiscal quarter ended March 28, 2020.April 3, 2021. The difference between the U.S. federal statutory income tax rate and ourthe Company’s effective income tax rate for the tax expense during the fiscal quarter ended April 3, 20212, 2022 was impacted primarily by state incomeattributable to the discrete impact of stock compensation expense for which there is no associated tax expense.benefit. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the tax benefit during the fiscal quarter ended March 28, 2020 was primarily attributable to the benefit related to the year-to-date foreign losses in Canada.

12. PROFITS INTEREST UNITS

On January 29, 2021 an employee holder of profits interest units terminated his employment with the Company, at which time all 1,055,057 of his performance-vesting units were forfeited. At the time of his termination, the employee held 527,528 of time-vesting units, of which 211,011 time-vesting units were vested. Per the terms of his termination agreement, the Company accelerated the vesting of an additional 105,506 time-vesting units, such that the total time-vesting units vested were equal to 316,517 upon his termination and the remaining 211,011 of unvested time-vesting units were forfeited upon his termination. As the employee’s profits interest units had not vested from an accounting perspective, the retention and immediate vesting of the retained time-vesting units was accounted for as a cancellation of the original award and a new grant under the revised terms. A cumulative catch-up charge of $1.1 million was recorded during the fiscal quarter ended April 3, 2021 to reflect the incremental fair value of the awards as of the date of the modification, as compared to the grant-date fair value.

The effective income tax rate for the fiscal quarter ended April 3, 2021 was 25.26%, compared to 16.34% for the fiscal quarter ended March 28, 2020. The difference between the U.S. federal statutory income tax rate and ourCompany’s effective income tax rate for the fiscal quarter ended April 3, 2021 was impacted primarily by state income tax expense . The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended March 28, 2020 was impacted by a variety of factors, primarily attributable to the benefit related to the year-to-date foreign losses in Canada.

13. NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data):

  Fiscal Quarter Ended, 
  April 3, 2021  March 28, 2020 
Numerator:        
Net income (loss) attributable to common stockholders $8,533  $(15,451)
Denominator:        
Weighted-average common shares outstanding, basic and diluted  109,673,709   109,673,709 
Net income (loss) per share attributable to common stockholders, basic and diluted $0.08  $(0.14)

There were no potentially dilutive securities outstanding during the fiscal quarters ended April 3, 2021 or March 28, 2020.

20

14. RELATED PARTY TRANSACTIONS

impact of state taxes.

BrightAI Services12. STOCK-BASED COMPENSATION

Starting in 2020, BrightAI rendered services to the Company, for which the cost was capitalized as internal-use software. A co-founder of BrightAI Services has served on the Company’s board of directors since December 9, 2020. During the fiscal quarter ended April 3, 2021 and the year ended December 31, 2020, the Company incurred $0.5 million and $0.5 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net and accounts payable — related party on the condensed consolidated balance sheets as of April 3, 2021. There were no services rendered by BrightAI during the fiscal quarter ended March 28, 2020.

Purchase of Treasury Stock

On October 14 and 20, 2020, Parent contributed an aggregate of $64.9 million to the Company in exchange for an aggregate of 32,902,113 shares of the Company’s common stock. On December 28, 2020, the Company repurchased and retired those 32,902,113 shares in exchange for a note payable in the amount of $64.9 million.

Expense Reimbursement and Management Fees

The Company had an expense reimbursement agreement (the “management fee arrangement”) with the Sponsor and Wynnchurch Capital, L.P. for ongoing consulting and advisory services. The management fee arrangement provided for the aggregate payment of up to $1.0 million each year for reimbursement of expenses incurred with services provided and, depending on the extent of services provided, management fees. The management fee arrangement terminated upon consummation of the Company’s IPO.

There were no management fees incurred by the Company during the fiscal quarters ended April 3, 2021 and March 28, 2020. As of April 3, 2021 and March 28, 2020, there were no outstanding amounts payable to the Sponsor and Wynnchurch Capital, L.P.

Operating Lease

In May 2019, in connection with the Narellan Acquisition, the Company assumed an operating lease for the manufacture, sale and storage of swimming pools and associated equipment with Acquigen Pty Ltd, which is owned by an employee who is also a shareholder of the Company. The lease expires in June 2028. As of April 3, 2021 and December 31, 2020, future minimum lease payments totaled $3.7 million and $4.2 million, respectively, related to this lease. The Company recognized $0.1 million of rent expense related to this lease during each of the fiscal quarters ended April 3, 2021 and March 28, 2020, which is recognized within selling, general and administrative expense on the condensed consolidated statements of operations.

15. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

During 2020, the Company made operational changes in how its CODM manages the business including organizational alignment, performance assessment and resource allocation. The segment disclosure is based on the intention to provide the users of the financial statements with a view of the business from the Company’s perspective. The Company conducts its business as one operating and reportable segment that designs, manufactures and markets in-ground swimming pools, liners and covers.

21

Geographic Information

Net sales by geography is based on the delivery address of the customer as specified in purchase order. Net sales by geographic area was as follows (in thousands):

  Fiscal Quarter Ended 
  April 3, 2021  March 28, 2020 
Net sales        
United States $119,070  $39,006 
Canada  21,115   5,942 
Australia  5,750   4,117 
New Zealand  1,756   647 
Other  1,055   1,422 
Total $148,746  $51,134 

Our long-lived assets by geographic area, which consist of property and equipment, net assets were as follows (in thousands):

  April 3,
2021
  December
31, 2020
 
Long-lived assets        
United States $41,458  $37,680 
Canada  2,899   3,050 
Australia  4,582   4,979 
New Zealand  1,666   1,648 
Total $50,605  $47,357 

16. SUBSEQUENT EVENTS

In connection with the Company’s IPO, on April 12, 2021, the Company’s stockholders approved the 2021 Omnibus Incentive Plan (the ‘‘Omnibus“Omnibus Incentive Plan’’Plan”), which became effective on April 22, 2021, upon pricing of the date on which the Registration Statement was declared effective.IPO. The Omnibus Incentive Plan provides for the issuance of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based and cash-based awards. The maximum aggregate number of shares reserved for issuance under the Omnibus Incentive Plan is 13,170,212 shares. The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the Omnibus Incentive Plan during any one fiscal year, together with any cash fees paid to such non-employee director during such fiscal year, will be $750 thousand. If any award granted underis $750,000.

Stock-based compensation expense for the Omnibus Incentive Plan expires, terminates, or is canceled or forfeited without being settled, vested or exercised, sharesfiscal quarters ended April 2, 2022 and April 3, 2021 was $16.9 million and $1.5 million, respectively. Stock-based compensation expense of $1.2 million and $15.7 was recorded in cost of sales and selling, general and administrative expense, respectively, for the Company's common stock subject to such award will again be made available for future grants. Any shares that are surrendered or tendered to pay the exercise price of an award or to satisfy withholding taxes owed, or any shares reserved for issuance, but not issued, with respect to settlement of a stock appreciation right, will not again be available for grant under the Omnibus Incentive Plan.

Onfiscal quarter ended April 13, 2021, the Company’s certificate of incorporation was amended, which amended and restated certain terms of the certificate of incorporation. Under the amended certificate of incorporation, the Company had authority to issue 500,000,000 shares of common stock, par value $0.0001 per share. On April 12, 2021, the Company’s board of directors declared and on April 13, 2021, the Company effected a 109,673.709-for-one stock split of its issued and outstanding shares of common stock. Accordingly, all share and per share data included in these unaudited condensed consolidated financial statements and notes thereto have been adjusted retroactively to reflect the impact of the amended certificate of incorporation and the stock split.

Contemporaneous with the pricing of the Company’s IPO, on April 22, 2021 the Company granted 8,340,126 of restricted stock awards, 341,301 of restricted stock units and 886,862 of option awards under the Omnibus Incentive Plan to employees of the Company. Of the 8,340,126 restricted stock awards granted, (i) 6,799,414 vest every six months in equal installments beginning on December 27, 2021 and ending on December 27, 2023, and (ii) 1,540,712 vest every six months in equal installments, beginning on December 27, 2021 and ending on December 27, 2024. Of the 341,301 restricted stock unit awards granted, (i) 251,828 vest 1/3 on the nine-month anniversary of April 27, 2021 (“the closing of the IPO”), 1/3 on the first anniversary of the closing of the IPO, and 1/3 on the two-year anniversary of the closing of the IPO; (ii) 22,367 vest on the first anniversary of the closing of the IPO; (iii) 51,316 vest on the nine-month anniversary of the closing of the IPO; and (iv) 15,790 vest evenly on each of the first three anniversaries of the closing of the IPO. All 886,862 of the option awards vest 25% annually on each of the first four anniversaries of the closing of the IPO. The option awards were granted with a strike price of $19.00 per share. The tax effects of the Omnibus Incentive Plan have not been considered as part of tax2, 2022. Stock-based compensation expense for the fiscal quarter ended April 3, 2021. On May 24, 2021 was recorded in selling, general and administrative expense on the compensation committee accelerated the vestingcondensed consolidated statements of 84,687 shares

20

operations. As of April 2, 2022, total unrecognized stock-based compensation expense of $1.6 million related to all unvested stock-based awards was $64.1 million, which is expected to be recognized over a weighted-average period of 1.45 years.

The following table sets forth the acceleration.significant assumptions used in the Black-Scholes option-pricing model on a weighted-average basis to determine the fair value of option awards granted:

Fiscal Quarter Ended

April 2, 2022

Risk-free interest rate

1.79

%

Expected volatility

39.80

%

Expected term (in years)

6.25

Expected dividend yield

0.00

%

Restricted Stock Awards

The following table represents the Company’s restricted stock awards activity during the fiscal quarter ended April 2, 2022:

Weighted-

Average Grant-

    

Shares

    

Date Fair Value

Outstanding at January 1, 2022

 

5,803,124

$

19.00

Granted

 

 

Vested

 

 

Forfeited

 

(53,961)

 

19.00

Outstanding at April 2, 2022

 

5,749,163

$

19.00

Restricted Stock Units

The following table represents the Company’s restricted stock units activity during the fiscal quarter ended April 2, 2022:

    

    

Weighted-

Average Grant-

Shares

Date Fair Value

Outstanding at January 1, 2022

 

278,591

$

19.08

Granted

 

73,556

 

16.66

Vested

 

(78,341)

 

19.00

Forfeited

 

(2,806)

 

19.00

Outstanding at April 2, 2022

 

271,000

$

18.45

21

Stock Options

The following table represents the Company’s stock option activity during the fiscal quarter ended April 2, 2022:

    

Weighted-

    

Weighted-

    

Average 

Average 

Exercise Price

Remaining 

Aggregate 

    

Shares

    

 per Share

    

Contract Term

    

Intrinsic Value

 

 

(in years)

(in thousands)

Outstanding on January 1, 2022

 

822,886

$

19.08

 

Granted

 

1,114,637

15.65

 

  

 

  

Exercised

 

 

 

  

 

  

Forfeited

 

(3,308)

 

19.00

 

  

 

  

Outstanding at April 2, 2022

 

1,934,215

$

17.11

 

8.76

$

Vested and expected to vest at April 2, 2022

 

1,934,215

$

17.11

 

8.76

$

Options exercisable at April 2, 2022

 

 

 

 

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The weighted average grant-date fair value of stock options granted during the fiscal quarter ended April 2, 2022 was $6.51 per share.

13. NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data):

Fiscal Quarter Ended

    

April 2, 2022

    

April 3, 2021

Numerator:

  

  

Net (loss) income attributable to common stockholders

$

(2,840)

$

8,533

Denominator:

  

 

  

Weighted-average common shares outstanding

Basic

113,698,513

109,069,310

Diluted

113,698,513

121,273,854

Net (loss) income per share attributable to common stockholders:

Basic

$

(0.02)

$

0.08

Diluted

$

(0.02)

$

0.07

The following table includes the number of shares that may be dilutive common shares in the future that were not included in the computation of diluted net income (loss) per share because the effect was anti-dilutive:

Fiscal Quarter Ended

April 2, 2022

April 3, 2021

Restricted stock awards

2,166,308

Restricted stock units

147,606

Stock options

14. RELATED PARTY TRANSACTIONS

BrightAI Services

Starting in 2020, BrightAI rendered services to the Company, for which the cost was capitalized as internal-use software. A co-founder of BrightAI Services has served on the Company’s board of directors since December 9, 2020. During the fiscal quarter ended April 2, 2022 and the year ended December 31, 2021, the Company incurred $0.3 million and $2.1 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the

22

condensed consolidated balance sheet as of April 2, 2022. As of both April 2, 2022 and December 31, 2021, the Company had accounts payable - related party to BrightAI of $0.9 million.

Expense Reimbursement and Management Fees

The Company had an expense reimbursement agreement (the “management fee arrangement”) with the Sponsor and Wynnchurch Capital, L.P. for ongoing consulting and advisory services. The management fee arrangement provided for the aggregate payment of up to $1.0 million each year for reimbursement of expenses incurred with services provided and, depending on the extent of services provided, management fees. The management fee arrangement terminated upon consummation of the Company’s IPO.

The Company entered into a Stockholders’ Agreement with the Sponsor and Wynnchurch Capital, L.P. on April 27, 2021. The Stockholders’ Agreement requires the Company to reimburse the Sponsor and Wynnchurch Capital, L.P. the reasonable out-of-pocket costs and expenses in connection with monitoring and overseeing their investment in the Company.

There were 0 management fees incurred by the Company during the fiscal quarters ended April 2, 2022 and April 3, 2021. The Company did not reimburse any out-of-pocket costs or expenses to the Sponsor and Wynnchurch Capital, L.P. during both the fiscal quarters ended April 2, 2022 and April 3, 2021. As of both April 2, 2022 and December 31, 2021, there were 0 outstanding amounts payable to the Sponsor and Wynnchurch Capital, L.P.

15. SUBSEQUENT EVENTS

On April 22, 2021,May 10, 2022, the Company’s certificateCompany approved a stock repurchase program (the “Repurchase Program”), which authorized the Company to repurchase up to $100 million of incorporation was further amended and restated to, among other things, increase the authorized shares to 1,000,000,000, of which 900,000,000 areCompany’s shares of common stock par value $0.0001 per share and 100,000,000 areover the next three years. The Company may effect these repurchases in open market transactions, privately negotiated purchases or other acquisitions. The Company is not obligated to repurchase any of its shares of preferredits common stock par value 0.0001 per share.under the Repurchase Program and the timing and amount of any repurchases will depend on market conditions, the Company’s stock price, alternative uses of capital, the terms of the Company’s debt instruments and other factors.

22

23

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our final prospectus for our initial public offering2021 Annual Report on Form 10-K filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange Commission, or SEC, on April 26, 2021March 10, 2022 (the “Prospectus”“Annual Report”).

Cautionary Note Regarding Forward-Looking Statements

This discussion contains forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions and forecasts. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “confident,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth under the section of this Quarterly Report on Form 10-Q titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from expectations include, but are not limited to secular shifts in consumer demand for swimming pools and spending on outdoor living spaces; slow pace of material conversion from concrete pools to fiberglass pools in the pool industry; general economic conditions and uncertainties affecting markets in which we operate and economic volatility that could adversely impact our business, including the COVID-19 pandemic; the impact of the war between the Russian Federation and Ukraine, including impact of sanctions imposed by Western governments; changes in access to consumer credit or increases in interest rates impacting consumers’ ability to finance their purchases of pools; the impact of weather on our business; our ability to attract new customers and retain existing customers; our ability to sustain further growth and to manage it effectively; the ability of our suppliers to continue to deliver the quantity or quality of materials sufficient to meet our needs to manufacture our products; the availability and cost of third-party transportation services for our products and raw materials; product quality issues; our ability to successfully defend litigation brought against us; our ability to adequately obtain, maintain, protect and enforce our intellectual property and proprietary rights and claims of intellectual property and proprietary right infringement, misappropriation or other violation by competitors and third parties; failure to hire and retain qualified employees and personnel; exposure to risks associated with international sales and operations, including foreign currency exchange rates, corruption and instability; security breaches, cyber-attacks and other interruptions to our and our third-party service providers’ technological and physical infrastructures; catastrophic events, including war, terrorism and other international conflicts, public health issues or natural catastrophes and accidents; risk of increased regulation of our operations, particularly related to environmental laws; fluctuations in our operating results; inability to compete successfully against current and future competitors; and other risks, uncertainties and factors set forth in this Quarterly Report on Form 10-Q, including those set forth under section titled “Risk Factors.” These forward-looking statements reflect our views with respect to future events as of the date of this Quarterly Report on Form 10-Q and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.

Overview

We are the largest designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand. We hold the #1 market position in North America in every product category in which we compete. We believe that we are the most sought-after brand in the pool industry and the only pool company that has established a direct relationship with the homeowner. We are Latham, The Pool Company.CompanyTM.

24

With an operating history that spans over 65 years, we offer the industry’s broadest portfolio of pools and related products, including in-ground swimming pools, pool liners and pool covers.

We have a heritage of innovation. In an industry that has traditionally marketed on a business-to-business basis (pool manufacturer to dealer), we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey. Through this marketing strategy, we are able to create demand for our pools and generate and provide high quality, purchase-ready consumer leads to our dealer partners.

Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. In 2020, we sold to over 6,000 dealers; we also entered into a new and exclusive long-term strategic partnership with the nation’s largest franchised dealer network. We support our dealer network with business development tools, co-branded marketing programs and in-house training, as well as a coast-to-coastan operations platform consisting of over 2,0002,300 employees across 32over 30 facilities. The broad geographic reach of our manufacturing and distribution network allows us to deliver a fiberglass pool in a cost-effective manner to approximately 95% of the U.S. population in two days. No other competitor in the residential in-ground swimming pool industry has more than three manufacturing facilities.

The full resources of our company are dedicated to designing and manufacturing high-quality pool products with the homeowner in mind, and positioning ourselves as a value-added partner to our dealers.

We conduct our business as one operating and reportable segment that designs, manufactures and markets in-ground swimming pools, liners and covers.

Recent Developments

Highlights for the fiscal quarter ended April 3, 2021

2, 2022

·Increase in net sales of 190.9%28.8%, or $97.6$42.9 million, to $191.6 million for the fiscal quarter ended April 2, 2022, compared to $148.7 million for the fiscal quarter ended April 3, 2021, compared2021.
Increase in net loss of $11.3 million, to $51.1$2.8 million for the fiscal quarter ended March 28, 2020.
·Increase inApril 2, 2022, compared to a net income of $24.0 million, to $8.5 million for the fiscal quarter ended April 3, 2021, compared to arepresenting an 1.5% net loss of $15.5 millionmargin for the fiscal quarter ended March 28, 2020.
April 2, 2022.
·Increase in Adjusted EBITDA (as defined below) of $35.4$14.5 million, to $48.0 million for the fiscal quarter ended April 2, 2022, compared to $33.5 million for the fiscal quarter ended April 3, 2021, compared to $(1.9) million for the fiscal quarter ended March 28, 2020.2021.

Share Repurchase Program

Initial Public Offering

On April 27, 2021,May 10, 2022, we completedapproved a stock repurchase program (the “Repurchase Program”), which authorized us to repurchase up to $100 million of our initial public offering (the “IPO”) in which we sold 23,000,000 shares of common stock inclusiveover the next three years. We may effect these repurchases in open market transactions, privately negotiated purchases or other acquisitions. We are not obligated to repurchase any of 3,000,000our shares sold by us pursuant toof our common stock under the full exerciseRepurchase Program and the timing and amount of any repurchases will depend on market conditions, our stock price, alternative uses of capital, the underwriters’ option to purchase additional shares. The aggregate net proceeds received by us from the IPO were $400.1 million, after deducting underwriting discounts and commissionsterms of our debt instruments and other offering costs. We used the net proceeds to (i) pay down $152.7factors.

Debt Refinancing

On February 23, 2022, we entered into an agreement (the “New Credit Agreement”) with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit (the “New Revolving Credit Facility”) in an initial principal amount of $75.0 million of the Amendedand a U.S. Dollar senior secured term loan facility (the “New Term Loan (as defined below)Facility”) in an initial principal amount of $325.0 million (the “Refinancing”). On the closing date, proceeds under the agreement were used to repay $294.0 million and terminate the Credit Agreement (as defined below), (ii) repay and for general corporate purposes.

Offering of Common Stock

On January 11, 2022, we completed an offering of 13,800,000 shares of common stock, including the $16.0exercise in full by the underwriters of their option to purchase up to 1,800,000 additional shares of common stock, at a public offering price of $19.50 per share. We received proceeds of $257.7 million outstanding on the Revolving Credit Facility (as defined below), (iii) repurchase 12,264,438from this offering, net of $11.4 million of underwriting fees. The proceeds of $257.7 million were used to purchase 13,800,000 shares of common stock from certain existing shareholders for $216.7 million and (iv) fund general corporate requirements, including working capital, for $14.7 million.

Reorganization

Prior to the closing of the IPO, our parent entity, Latham Investment Holdings, LP (“Parent”) merged with and into Latham Group, Inc., with Latham Group, Inc. surviving the merger (the “Reorganization”). The purpose of the Reorganization was to reorganize our structure so that our existing investors would own only common stock rather than limited partnership interests in our Parent. In connection with the Reorganization, holders of Class A units of our Parent received sharesstockholders, primarily investment funds

25

managed by Pamplona Capital Management LLC (“Pamplona”) and Class B unitsWynnchurch Capital, L.P., and also a small percentage of our Parent were exchanged for an economically equivalent number of vested and unvested shares of our common stock.

23

Stock Split

On April 13, 2021, our Board of Directors approved a 109,673.709-for-one stock split of our common stock, par value $0.0001. Accordingly, all share and per share data for all periods presented have been adjusted retroactively to reflect the impact of the amended certificate of incorporation and the stock split.

Charter Amendment

On April 13, 2021, our certificate of incorporation was amended, which amended and restated certain terms of the certificate of incorporation. Under the amended certificate of incorporation, we had the authority to issue 500,000,000 shares of common stock par value $0.0001 per share.

On April 22, 2021, as partowned by some of the Reorganization, our certificate of incorporation was further amendeddirectors and restated to, among other things, increase the authorized shares to 1,000,000,000, of which 900,000,000 are shares of common stock, par value $0.0001 per share and 100,000,000 are shares of preferred stock, par value 0.0001 per share.

executive officers.

Impact of COVID-19 Pandemic

Since the onset of the COVID-19 pandemic, we have been focused on protecting our employees’ health and safety, meeting our customers’ needs as they navigate an uncertain financial and operating environment, working closely with our suppliers to protect our ongoing business operations and rapidly adjusting our short-, medium- and long-term operational plans to proactively and effectively respond to the current and potential future public health crises. We continue to monitor the evolving COVID-19 pandemic and the impact on its business and financial results. We expect the impact of the pandemic on our business and financial results in 2021 will continue to vary by location and depend on numerous evolving factors that we are not able to accurately predict. These factors include the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken (or may be taken in the future) in response to the pandemic and changes in customer and supplier behavior in response to the pandemic.

Key Performance Indicators

Net Sales

We derive our revenue from the design, manufacture and sale of in-ground swimming pools, pool covers and liners. We sell fiberglass pools, which are one-piece manufactured fiberglass pools that are ready to be installed in a consumer’s backyard and custom vinyl pools, which are manufactured pools that are made out of non-corrosive steel or composite polymer frame, on top of which a vinyl liner is installed. We sell liners for the interior surface of vinyl pools (including pools that were not manufactured by us). We also sell all-season covers, which are winterizing mesh and solid pool covers that protect pools against debris and cold or inclement weather and automatic safety covers for pools that can be operated with a switch.

Our sales are made through one-step and two-step business-to-business distribution channels. In our one-step distribution channel, we sell our products directly to dealers who, in turn, sell our products to consumers. In our two-step distribution channel, we sell our products to distributors who warehouse our products and sell them on to dealers, who ultimately sell our products to consumers.

Each product shipped is considered to be one performance obligation. With the exception of our extended service warranties and our custom product contracts, we recognize our revenue when control of our promised goods is transferred to our customers, either upon shipment or arrival at our customer’s destination depending upon the terms of the purchase order. Sales are recognized net of any estimated rebates, cash discounts or other sales incentives. Revenue that is derived from our extended service warranties, which are separately priced and sold, is recognized over the term of the contracts. Revenue from custom products is recognized over time utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation. Custom products are generally delivered to the customer within three days of receipt of the purchase order.

Gross Margin

Gross margin is gross profit as a percentage of our net sales. Gross margin is dependent upon several factors, such as changes in prices of raw materials, the volume and relative sales mix among product lines, the average price of our products sold and plant performance, among other factors. Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary.

Our gross profit is variable in nature and generally follows changes in net sales. The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of other companies. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies.

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Adjusted EBITDA and Adjusted EBITDA Margin

We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to establish our annual management incentive bonus plan compensation and to compare our performance against that of other peer companies using similar measures. We define Adjusted EBITDA as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, (iii) income tax (benefit) expense, (iv) loss on sale and disposal of property and equipment, (v) restructuring charges, , (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) other non-cash items, (ix) strategic initiative costs, (x)(ix) acquisition and integration related costs, (x) loss on extinguishment of debt, (xi) other, (xii) IPO costs,underwriting fees related to offering of common stock and (xiii) COVID-19-related expenses (income).IPO costs. We believe excluding these items allows for better comparison of our financial results across reporting periods.

We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. Our definitions of Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies.

For a discussion of Adjusted EBITDA and Adjusted EBITDA margin and the limitations on their use, and the reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, and our calculation of Adjusted EBITDA margin see “—Non-GAAP Financial Measures” below.

26

Results of Operations

Fiscal Quarter endedEnded April 3, 20212, 2022 Compared to Fiscal Quarter ended March 28, 2020

Ended April 3, 2021

The following table summarizes our results of operations for the fiscal quarters ended April 2, 2022 and April 3, 2021 and March 28, 2020:2021:

  Fiscal Quarter Ended 
  April 3,
2021
  % of
Net Sales
  March 28,
2020
  % of
Net Sales
  Change
Amount
  Change %
of Net
Sales
 
  (dollars in thousands) 
Net sales $148,746   100.0% $51,134   100.0% $97,612    
Cost of sales  96,306   64.7%  41,035   80.2%  55,271   (15.5%)
Gross profit  52,440   35.3%  10,099   19.8%  42,341   15.5%
Selling, general and administrative expense  27,172   18.3%  15,432   30.2%  11,740   (11.9%)
Amortization  5,595   3.8%  4,063   7.9%  1,532   (4.1%)
Income (loss) from operations  19,673   13.2%  (9,396)  18.4%  29,069   (5.2%)
Other expense (income):                        
Interest expense  9,056   6.1%  5,333   10.4%  3,723   (4.3%)
Other expense (income), net  (555)  0.4%  3,741   7.3%  (4,296)  (6.9%)
Total other expense (income), net  8,501   5.7%  9,074   17.7%  (573)  (12.0%)
Earnings from equity method investment  244   0.2%  -      244   0.2%
Income (loss) before income taxes  11,416   7.7%  (18,470)  36.1%  29,886   (28.4%)
Income tax (benefit) expense  2,883   1.9%  (3,019)  5.9%  5,902   (4.0%)
Net income (loss) $8,533   5.7% $(15,451)  30.2% $23,984   (24.5%)
Adjusted EBITDA(a) $33,520   22.5% $(1,885)  3.7% $35,405   18.8%

Fiscal Quarter Ended

 

% of Net 

% of Net 

Change 

Change % 

 

    

April 2, 2022

    

Sales

    

April 3, 2021

    

Sales

    

Amount

    

of Net Sales

 

 

(dollars in thousands)

Net sales

$

191,614

 

100.0

%  

$

148,746

 

100.0

%  

$

42,868

 

0.0

%

Cost of sales

 

120,960

 

63.1

%  

 

96,306

 

64.7

%  

 

24,654

 

(1.6)

%

Gross profit

 

70,654

 

36.9

%  

 

52,440

 

35.3

%  

 

18,214

 

1.6

%

Selling, general and administrative expense

 

45,225

 

23.6

%  

 

27,172

 

18.3

%  

 

18,053

 

5.3

%

Underwriting fees related to offering of common stock

11,437

6.0

%  

%  

11,437

6.0

%  

Amortization

 

7,192

 

3.8

%  

 

5,595

 

3.8

%  

 

1,597

 

0.0

%

Income from operations

 

6,800

 

3.5

%  

 

19,673

 

13.2

%  

 

(12,873)

 

(9.7)

%

Other expense (income):

 

 

 

 

  

 

 

  

Interest expense

 

1,765

 

0.9

%  

 

9,056

 

6.1

%  

 

(7,291)

 

(5.2)

%

Loss on extinguishment of debt

3,465

1.8

%  

%  

3,465

1.8

%

Other (income) expense, net

 

(355)

 

(0.2)

%  

 

(555)

 

(0.4)

%  

 

200

 

0.2

%

Total other expense, net

 

4,875

 

2.5

%  

 

8,501

 

5.7

%  

 

(3,626)

 

(3.2)

%

Earnings from equity method investment

 

542

 

0.3

%  

 

244

 

0.2

%  

 

298

 

0.1

%

Income before income taxes

 

2,467

 

1.3

%  

 

11,416

 

7.7

%  

 

(8,949)

 

(6.4)

%

Income tax expense

 

5,307

 

2.8

%  

 

2,883

 

2.0

%  

 

2,424

 

0.8

%

Net (loss) income

$

(2,840)

 

(1.5)

%  

$

8,533

 

5.7

%  

$

(11,373)

 

(7.2)

%

Adjusted EBITDA(a)

$

47,962

 

25.0

%  

$

33,520

 

22.5

%  

$

14,442

 

2.5

%

(a)Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Measures” for a reconciliation to net (loss) income, (loss), the most directly comparable GAAP measure, and for information regarding our use of Adjusted EBITDA.

25

Net Sales

Net sales was $191.6 million for the fiscal quarter ended April 2, 2022, compared to $148.7 million for the fiscal quarter ended April 3, 2021, compared to $51.1 million for the fiscal quarter ended March 28, 2020.2021. The $97.6$42.9 million, or 190.9%28.8%, increase in net sales was due to a $89.7$7.3 million increase from volume and a $7.9$35.6 million increase from pricing. The $89.7$35.6 million volumeprice increase across our product lines primarily relatedreflects the impact of pricing actions to in-ground pools and includes $15.9 million due to having three months of GLI in our net sales in the fiscal quarter ended April 3, 2021.address inflationary pressures. The increase in total net sales of $97.6$42.9 million across our product lines was $64.2$18.2 million for in-ground swimming pools, $20.4$16.2 million for liners and $13.0$8.5 million for covers.

Cost of Sales and Gross Margin

Cost of sales was $121.0 million for the fiscal quarter ended April 2, 2022, compared to $96.3 million for the fiscal quarter ended April 3, 2021, compared2021. Gross margin increased by 1.6%, to $41.0 million36.9% of net sales for the fiscal quarter ended March 28, 2020. Gross margin increased by 15.5%April 2, 2022 compared to 35.3% of net sales for the fiscal quarter ended April 3, 2021 compared to 19.8% of net sales for the fiscal quarter ended March 28, 2020.2021. The $55.3$24.7 million, or 134.7%25.6%, increase in cost of sales was primarily the result of the overall increase in sales volume, as well ascost inflation in the costand $1.2 million of our raw materials.non-cash stock-based compensation expense. The 15.5%1.6% increase in gross margin was primarily duedriven by benefits from pricing actions to higher utilizationaddress inflation, improved resin supply, benefits from the build of our fixed cost structure, price increases and a favorable shift in product mix within our in-ground swimming pools product line,inventory, partially offset by inflation in thenegative fixed cost of our raw materials.leverage due to investments to support future growth.

Selling, General and Administrative Expense

Selling, general and administrative expense was $45.2 million for the fiscal quarter ended April 2, 2022, compared to $27.2 million for the fiscal quarter ended April 3, 2021, compared to $15.4 million for the fiscal quarter ended March 28, 2020, and decreasedincreased as a percentage of net sales by 11.9%5.3%. The $11.7$18.0 million, or 76.1%66.4%, increase in selling, general and administrative expense was primarily due to $3.7a $14.3 million increase in stock-based compensation

27

expense, $0.8 million in wages from an increase in headcount, particularly for customer-facing activities to support future business growth, and ongoing public company costs.

Underwriting Fees Related to Offering of Common Stock

Underwriting fees related to our offering of common stock were $11.4 million for the business and as a result offiscal quarter ended April 2, 2022, related to the increase in employees from GLI; $2.9 million increase due to legal, accounting and professional fees incurred in connection with our initial public offering that were not capitalizable; $2.2 million increasewas completed in employee-related costs driven by increased management incentive costs; and $1.2 million increase in stock compensation expense primarily due to the modification of awards of one of our executives upon his departure.January 2022.

Amortization

Amortization was $7.2 million for the fiscal quarter ended April 2, 2022, compared to $5.6 million for the fiscal quarter ended April 3, 2021, compared to $4.1 million for the fiscal quarter ended March 28, 2020.2021. The $1.5$1.6 million, or 37.7%28.5%, increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of GLIRadiant in October 2020.November 2021.

Interest Expense

Interest expense was $1.8 million for the fiscal quarter ended April 2, 2022, compared to $9.1 million for the fiscal quarter ended April 3, 2021, compared to $5.3 million for the fiscal quarter ended March 28, 2020.2021. The $3.7$7.3 million, or 69.8% increase80.5%, decrease in interest expense was primarily due to an increasea decrease in the average outstanding balance of long-term debt, and increasedlower amortization of deferred financing fees from entering into an amendment to the Term Loan,costs and debt discount and a lower effective interest rate, compared to the fiscal quarter ended March 28, 2020.April 3, 2021. In addition, interest expense for the fiscal quarter ended April 2, 2022 was partially offset by an unrealized gain of $2.8 million related to the change in fair value of our interest rate swap.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $3.5 million for the fiscal quarter ended April 2, 2022, compared to none for the fiscal quarter ended April 3, 2021 as the Refinancing was completed in February 2022.

Other (Income) Expense, (Income), Net

Other (income) expense, (income), net was $(0.6)($0.4) million for the fiscal quarter ended April 2, 2022, compared to ($0.6) million for the fiscal quarter ended April 3, 2021, compared to $3.72021. The $0.2 million for the fiscal quarter ended March 28, 2020. The $(4.3) million increasedecrease in other expense (income), netincome was primarily due to a $4.3 million favorablean unfavorable change in net foreign currency transaction gains and losses associated with our international subsidiaries, compared to the fiscal quarter ended March 28, 2020.subsidiaries.

Earnings from Equity Method Investment

Earnings from equity method investment of Premier Pools & Spa was $0.5 million for the fiscal quarter ended April 2, 2022, compared to $0.2 million for the fiscal quarter ended April 3, 2021, comparedprimarily due to no equity in net earningsthe financial performance of Premier Pools & SpaSpa.

Income Tax Expense

Income tax expense was $5.3 million for the fiscal quarter ended March 28, 2020 as the equity method investment was made in October 2020.

26

Income Tax (Benefit) Expense

Income tax (benefit) expense wasApril 2, 2022, compared to $2.9 million for the fiscal quarter ended April 3, 2021, compared to $(3.0) million2021. Our effective tax rate was 215.1% for the fiscal quarter ended March 28, 2020. Our effective tax rate wasApril 2, 2022, compared to 25.3% for the fiscal quarter ended April 3, 2021, compared to 16.3%2021. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended March 28, 2020.April 2, 2022 was primarily attributable to the discrete impact of stock compensation expense for which there is no associated tax benefit. The primary differences in the effective rate anddifference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended April 3, 2021 was impacted by a variety of factors, primarily the impact of state income tax expense. The primary difference in the effective rate and the U.S. federal statutory rate for the fiscal quarter ended March 28, 2020 was due to the benefit related to the year to date foreign losses in Canada.taxes.

Net (Loss) Income (Loss)

Net income (loss)loss was $8.5$2.8 million for the fiscal quarter ended April 3, 2021,2, 2022, compared to a $(15.5)$8.5 million of net lossincome for the fiscal quarter ended March 28, 2020.April 3, 2021. The $24.0$11.3 million, or 155.2% 133.3%increase in net incomeloss was primarily due to the factors described above.

28

Net (Loss) Income (Loss) Margin

Net loss margin was 1.5% for the fiscal quarter ended April 2, 2022, compared to net income margin wasof 5.7% for the fiscal quarter ended April 3, 2021, compared to a net loss margin (30.2)% for the fiscal quarter ended March 28, 2021.2, 2022. The 35.9%7.2% increase in net income (loss)loss margin was due to a $24.0$11.3 million increase in net incomeloss and an $97.6a $42.9 million increase in net sales, compared to the fiscal quarter ended March 28, 2020April 3, 2021 due to the factors described above.

Adjusted EBITDA

Adjusted EBITDA was $48.0 million for the fiscal quarter ended April 2, 2022, compared to $33.5 million for the fiscal quarter ended April 3, 2021, compared to $(1.9) million for the fiscal quarter ended March 28, 2020.2021. The $35.4$14.5 million, or 1,878.2%43.1%, increase in Adjusted EBITDA was primarily due to a $35.8 millionthe increase in earnings before depreciation and amortization, interest expense and income tax (benefit) expense, as well as a $2.9 million increase in legal, accounting and professional fees incurred in connection with our initial public offering that are not capitalizable, both partially offset by a $3.8 million decrease in unrealized (gains) losses on foreign currency transactions, which included changes in the fair value of the contingent consideration recorded in connection with the acquisition of Narellan Group Pty Limited and its subsidiaries, which was settled in September 2020.net sales.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 25.0% for the fiscal quarter ended April 2, 2022, compared to 22.5% for the fiscal quarter ended April 3, 2021, compared to (3.7)% for the fiscal quarter ended March 28, 2020.2021. The 26.2%2.5% increase in Adjusted EBITDA margin was primarily due to a $35.4$14.5 million increase in Adjusted EBITDA and an $97.6a $42.9 million increase in net sales, compared to the fiscal quarter ended March 28, 2020.

April 3, 2021.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management and our board of directors to assess our financial performance. Adjusted EBITDA and Adjusted EBITDA margin are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other companies using similar measures. We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures because we believe they allow for a more complete analysis of results of operations and assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as (i) depreciation and amortization, (ii) interest expense, (iii) income tax (benefit) expense, (iv) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs, (x) loss on extinguishment of debt, (xi) other, (xii) underwriting fees related to offering of common stock and (xi)(xiii) IPO costs.

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and should not be considered as alternatives to net income as a measure of financial performance or any other performance measure derived in accordance with GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. There can be no assurance that we will not modify the presentation of Adjusted EBITDA and Adjusted EBITDA margin following this offering, and any such modification may be material. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by any such adjustments. In addition, other companies, including companies in our industry, may not calculate Adjusted EBITDA and Adjusted EBITDA margin at all or may calculate Adjusted EBITDA and Adjusted EBITDA margin differently and accordingly, are not necessarily comparable to similarly entitled measures of other companies, which reduces the usefulness of Adjusted EBITDA and Adjusted EBITDA margin as tools for comparison.

27

Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA and Adjusted EBITDA margin:

·do not reflect every expenditure, future requirements for capital expenditures or contractual commitments;

·do not reflect changes in our working capital needs;

29

·do not reflect the interest expense, or the amounts necessary to service interest or principal payments, on our outstanding debt;

·do not reflect income tax (benefit) expense, and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate;

·do not reflect non-cash equity compensation, which will remain a key element of our overall equity-based compensation package; and

·do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations.

Although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA and Adjusted EBITDA margin, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA margin do not reflect any costs of such replacements.

Management compensates for these limitations by primarily relying on our GAAP results, while using Adjusted EBITDA and Adjusted EBITDA margin as supplements to the corresponding GAAP financial measures.

The following table provides a reconciliation of our net income to Adjusted EBITDA for the periods presented and the calculation of Adjusted EBITDA margin:

  Fiscal Quarter Ended 
  April 3,
2021
  March 28,
2020
 
 (dollars in thousands) 
Net income (loss) $8,533  $(15,451)
Depreciation and amortization  7,900   5,755 
Interest expense  9,056   5,333 
Income tax (benefit) expense  2,883   (3,019)
Loss on sale and disposal of property and equipment  165   3 
Restructuring charges(a)  371   286 
Stock-based compensation expense  1,464   224 
Unrealized (gains) losses on foreign currency transactions(b)  (61)  3,741 
Strategic initiative costs(c)  -   1,092 
Acquisition and integration related costs(d)  68   112 
Other(e)  264   39 
IPO costs(f)  2,877   - 
Adjusted EBITDA $33,520  $(1,885)
Net sales $148,746  $51,134 
Net income (loss) margin  5.7%  (30.2)%
Adjusted EBITDA margin  22.5%  (3.7)%

 

Fiscal Quarter Ended

    

April 2, 2022

    

April 3, 2021

Net (loss) income

$

(2,840)

$

8,533

Depreciation and amortization

9,494

7,900

Interest expense

1,765

9,056

Income tax expense

5,307

2,883

Loss on sale and disposal of property and equipment

165

Restructuring charges(a)

13

371

Stock-based compensation(b)

16,925

1,464

Unrealized (gains) losses on foreign currency transactions(c)

(4)

(61)

Strategic initiative costs(d)

1,818

Acquisition and integration related costs(e)

257

68

Loss on extinguishment of debt (f)

3,465

Other(g)

325

264

Underwriting fees related to offering of common stock (h)

11,437

IPO Costs(i)

2,877

Adjusted EBITDA

$

47,962

$

33,520

Net sales

$

191,614

$

148,746

Net (loss) income margin

(1.5)

%

5.7

%

Adjusted EBITDA margin

25.0

%

22.5

%

28

(a) Represents severance and other costs for our executive management changes.

(b) Represents non-cash stock-based compensation expense.

(c) Represents unrealized foreign currency transaction (gains) and losses associated with our international subsidiaries and changes in the fair value of the contingent consideration recorded in connection with the acquisition of Narellan Group Pty Limited and its subsidiaries, which was settled in September 2020.subsidiaries.

(c)(d) Represents fees paid to external consultants for our strategic initiatives, including our rebranding initiative.initiatives.

(d)(e) Represents acquisition and integration costs primarily related to the acquisition of GLI,Radiant, the equity investment in Premier Pools & Spas, as well as other costs related to a transaction that was abandoned.potential transactions.

(e)(f) Represents the loss on extinguishment of debt in connection with our Refinancing.

(g) Other costs consist of other discrete items as determined by management, primarily including (i) fees paid to external consultantsadvisors for tax restructuring,various matters, (ii) the cost for legal defense of a specified matter, (iii) the cost incurred and insurance proceeds related to our production facility fire in Picton, Australia in 2020, (iv) temporary cleaning, equipment and salary costs incurred in response to the COVID-19 pandemic, offset by government grants received in the United States, Canada and New Zealand and (v) non-cash adjustments to record the step-up in the fair value of inventory related to the acquisitionacquisitions of GLI,GL

30

International, LLC and Radiant, which are amortized through cost of sales in the condensed consolidated statements of operations.operations, and (iii) other items.

(f)(h) Represents items management believes are not indicativeunderwriting fees related to our offering of ongoing operating performance.common stock that was completed in January 2022.

(i) These expenses are primarily composed of legal, accounting and professional fees incurred in connection with the IPOour initial public offering that are not capitalizable, which are included within selling, general and administrative expense.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are net cash provided by operating activities and availability under our New Revolving Credit Facility. Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, and debt service requirements with internally generated cash on hand and through our Amended Term Loanterm loan and Revolving Credit Facility (each asrevolving credit facilities (as defined below under “—Our Indebtedness”) and through the issuance of shares of our common stock. Our primary cash needs are to fund working capital, capital expenditures, debt service requirements and any acquisitions we may undertake. As of April 3, 2021,2, 2022, we had $19.9$18.7 million of cash, $406.0$324.1 million of outstanding borrowings and an additional $14.0$65.0 million of availability under our New Revolving Credit Facility, which was undrawn. In April 2021, we completed our IPO, pursuant to which we issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by us pursuant to the full exercise of the underwriters’ option to purchase additional shares. We received net proceeds of $400.1 million.

Our primary working capital requirements are for the purchase of inventory, payroll, rent, facility costs and other selling, general and administrative costs. Our working capital requirements fluctuate during the year, driven primarily by seasonality and the timing of raw material purchases. Our capital expenditures are primarily related to growth, including production capacity, storage and delivery equipment. We are in the midst of a multi-year capital plan to invest in our facilities, technology and systems, including investments to expand our fiberglass manufacturing capacity. We expect to fund these capital expenditures from net cash provided by operating activities.

We believe that the net proceeds from our IPO remaining for general corporate purposes of $14.7 million, our existing cash, cash generated from operations and availability under our New Revolving Credit Facility, will be adequate to fund our operating expenses and capital expenditure requirements over the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Our Indebtedness

On February 23, 2022, Latham Pool Products, Inc. (“Latham Pool Products”), our wholly owned subsidiary, entered into the New Credit Agreement with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit in an initial principal amount of $75.0 million and a U.S. Dollar senior secured term loan facility in an initial principal amount of $325.0 million. On the closing date, proceeds under the agreement were used to repay and replace $294.0 million under, and terminate, the Credit Agreement (as defined below) and for general corporate purposes.

New Revolving Credit Facility

The New Revolving Credit Facility may be utilized to finance ongoing general corporate and working capital needs and permits Latham Pools Products to borrow loans in U.S. Dollars, Canadian Dollars, Euros and Australian Dollars. The New Revolving Credit Facility matures on February 23, 2027. Loans outstanding under the New Revolving Credit Facility denominated in U.S. Dollars and Canadian Dollars bear interest, at the borrower’s option, at a rate per annum based on Term SOFR or CDO (each, as defined in the New Credit Agreement), as applicable, plus a margin of 3.50%, or at a rate per annum based on the Base Rate or the Canadian Prime Rate (each, as defined in the New Credit Agreement), plus a margin of 2.50%. Loans outstanding under the New Revolving Credit Facility denominated in Euros or Australian Dollars bear interest based on EURIBOR or the AUD Rate (each, as defined in the New Credit Agreement), respectively, plus a margin of 3.50%. A commitment fee accrues on any unused portion of the commitments under the New Revolving Credit Facility. The commitment fee is due and payable quarterly in arrears and is, initially, 0.375% per annum and will, thereafter, accrue at a rate per annum ranging from 0.25% to 0.50%, depending on the First Lien Net Leverage Ratio. The New Revolving Credit Facility is not subject to amortization.

We are also required to meet certain financial covenants, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on our ability to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates, make prepayments with respect to certain indebtedness and make restricted payments and other distributions.

31

As of April 2, 2022 we had $10.0 million of outstanding borrowings under the New Revolving Credit Facility.

New Term Loan Facility

The New Term Loan matures on February 23, 2029. Loans outstanding under the New Term Loan bear interest, at the borrower’s option, at a rate per annum based on Term SOFR (as defined in the New Credit Agreement), plus a margin ranging from 3.75% to 4.00%, depending on the First Lien Net Leverage Ratio (as defined in the New Credit Agreement, the “First Lien Net Leverage Ratio”), or based on the Base Rate (as defined in the New Credit Agreement), plus a margin ranging from 2.75% to 3.00%, depending on the First Lien Net Leverage Ratio. Loans under the New Term Loan are subject to scheduled quarterly amortization payments equal to 0.25% of the initial principal amount of the New Term Loan.

The obligations under the New Credit Agreement are guaranteed by certain of our wholly owned subsidiaries as defined in the security agreement. The obligations under the New Credit Agreement are secured by substantially all of the guarantors’ tangible and intangible assets, including, but not limited to, their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts. The New Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict our ability to pay dividends.

As of April 2, 2022 we had $314.1 million of outstanding borrowings under the New Term Loan.

As of April 2, 2022, we were in compliance with all covenants under the New Revolving Credit Facility and the New Term Loan.

Revolving Credit Facility

On December 18, 2018, Latham Pool Products entered into an agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC (“Nomura”) that included a revolving line of credit (the “Revolver”) and letters of credit (“Letters of Credit” or collectively with the Revolver, the “Revolving Credit Facility”), as well as a Term Loan (as described and defined below). The Revolving Credit Facility iswas utilized to finance ongoing general corporate and working capital needs with the Revolver of up to $30.0 million. The Revolving Credit Facility matures on December 18, 2023.

The Revolving Credit Facility allows for either Eurocurrency borrowings, which bear interest ranging from 4.50% to 4.75%, or U.S. dollar base rate borrowings, which bear interest ranging from 3.50% to 3.75% depending onwas terminated in connection with the First Lien Net Leverage Ratio, as defined in the Credit Agreement. A commitment fee accrues on any unused portion of the commitments under the Revolving Credit Facility. The commitment fee is due and payable quarterly in arrears and is equal to the applicable margin times the actual daily amount by which the $30.0 million initial commitment exceeds the sum of the outstanding borrowings under our Revolving Credit Facility. The applicable margin ranges from 0.375% to 0.500% as determined by our First Lien Net Leverage Ratio as defined in the Credit Agreement.

29

We are required to meet certain financial covenants, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on our ability to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates and make prepayments.

As of April 3, 2021 we had $16.0 million of outstanding borrowings under the Revolving Credit Facility. We used $16.0 million of our net proceeds from our IPO to repay the $16.0 million outstanding on the Revolving Credit Facility. The amount repaid under the Revolving Credit Facility can be reborrowed.

Refinancing.

Term Loan Facility

Pursuant to the Credit Agreement, Latham Pool Products also borrowed $215.0 million in term loans (the “Term Loan”). The Term Loan was amended inon May 29, 2019, and October 2020 to provide additional borrowings of $23.0 million, which was accounted for as a modification to the Term Loan, to fund our acquisition of Narellan Group Pty Limited and its subsidiaries (the “Amended Term Loan”“First Amendment”). On October 14, 2020, we amended the First Amendment to provide additional borrowings of $20.0 million, which was accounted for as new debt (the “Second Amendment”). The Term LoanSecond Amendment was further amended on January 25, 2021, to provide an additional incremental term loan of $175.0 million (the “Third Amendment”). We accounted for $165.0 million of the borrowings under the Third Amendment as new debt and $10.0 million of the borrowings under the Third Amendment as a debt modification. We recorded an aggregate of $1.2 million of debt issuance costs as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheets. On January 25, 2021, Latham Pool Products borrowed the incremental term loan, and the proceeds were used on February 2, 2021 to repaypurchase and retire equity interests and to pay a note payabledistribution. On March 31, 2021, we amended our Term Loan to our Parent inrevise the amountapplicable reporting requirements (the “Fourth Amendment”). On November 24, 2021, we amended the Term Loan to provide additional borrowings of $64.9$50.0 million (the “Parent Note”“Fifth Amendment”). The proceeds from this incremental term loan were used to finance the Radiant Acquisition in full and to make a $110.0 million dividend to our Parent.part. The Term Loan, togethercollectively with the First Amendment, Second Amendment, Third Amendment, arethe Fourth Amendment and the Fifth Amendment, is referred to as the “Amended Term Loan.”

The Amended Term Loan bears interest at (1) a base rate equal to the highest of (i) the Federal Funds Rate, as definedwas terminated in the Credit Agreement, plus 1∕2 of 1.00%, (ii) the “prime rate” published in the Money Rates section of the Wall Street Journal and (iii) LIBOR plus 1.00% (2) plus a Loan Margin, as defined in the Credit Agreement, of (i) 6.00% for Eurocurrency Rate Loans and (ii) 5.00% for Base Rate Loans, as defined in the Credit Agreement. The Amended Term Loan has a maturity date of June 18, 2025. Interest and principal payments are due quarterly.

In connection with the Third Amendment, we are required to repay the outstanding principal balanceRefinancing.

32

The obligations under the Credit Agreement are guaranteed by certain of our wholly owned subsidiaries as defined in the security agreement. The obligations under the Credit Agreement are secured by substantially all of the guarantors’ tangible and intangible assets, including, but not limited to, their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts. The Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict our ability to pay dividends.

As of April 3, 2021, we were in compliance with all covenants under the Revolving Credit Facility and the Amended Term Loan.

As of April 3, 2021 we had $390.0 million of outstanding borrowings under the Amended Term Loan. On April 27, 2021, we used a portion of the net proceeds of our IPO to repay $152.7 million of the Amended Term Loan.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Fiscal Quarter Ended

    

April 2, 2022

    

April 3, 2021

 Fiscal Quarter Ended 
 

April 3,

2021

 

March 28,

2020

 
 (in thousands) 

(in thousands)

Net cash used in operating activities $(41,018) $(26,288)

$

(57,468)

$

(41,047)

Net cash used in investing activities  (4,608)  (2,789)

 

(6,666)

 

(4,608)

Net cash provided by financing activities  6,054   4,600 

 

39,251

 

6,083

Effect of exchange rate changes on cash  207   (1,694)

 

(411)

 

207

Net decrease in cash $(39,365) $(26,171)

$

(25,294)

$

(39,365)

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Operating Activities

During the fiscal quarter ended April 2, 2022, operating activities used $57.5 million of cash. Net income, after adjustments for non-cash items, provided cash of $38.6 million. Cash used in operating activities was further driven by changes in our operating assets and liabilities, which used $96.1 million. Net cash used in changes in our operating assets and liabilities for the fiscal quarter ended April 2, 2022 consisted primarily of a $78.9 million increase in trade receivables, a $30.5 million increase in inventories, a $0.8 million increase in prepaid expenses and other current assets, a $0.3 million increase in other assets, a $3.2 million decrease in accrued expenses and other current liabilities, partially offset by a $17.5 million increase in accounts payable, and a $0.3 million increase in other long-term liabilities. The change in trade receivables was primarily due to the timing of, and increase in, net sales, and the increase in inventories was primarily due to a strategic decision to carry more inventory in an attempt to minimize the impact of any supply chain interruptions as well as higher costs. The changes in accrued expenses and other current liabilities and accounts payable were primarily due to volume of purchases and timing of payments.

During the fiscal quarter ended April 3, 2021, operating activities used $41.0 million of cash. Net income, after adjustments for non-cash items, provided cash of $22.1 million. Cash used in operating activities was further driven by changes in our operating assets and liabilities, of $(63.1)which used $63.1 million. Net cash used inprovided by changes in our operating assets and liabilities for the fiscal quarter ended April 3, 2021 consisted primarily of a $61.0 million increase in trade receivables, a $9.2 million increase in inventories, a $2.1 increase in income tax receivable, and a $4.1 decrease in accrued expenses and other current liabilities, partially offset by a $8.6 million increase in accounts payable and a $4.5 million increase in other long-term liabilities. The change in trade receivables was primarily due to the timing of, and increase in, net sales, and the increase in inventories was primarily due to increased production and inventory build in response to existing and anticipated customer demand. The change in income tax receivable was due to estimated tax payments made in excess of the actual annual tax provision. The changes in accrued expenses and other current liabilities and accounts payable were primarily due to the decrease and timing of payments for rebate accruals.

Investing Activities

During the fiscal quarter ended March 28, 2020, operatingApril 2, 2022, investing activities used $26.3$6.7 million of cash. Net income, after adjustments for non-cash items, used cash, consisting of $7.8 million. Cash used in operating activities was further driven by changes in our operating assetspurchases of property and liabilitiesequipment. The purchase of $(18.5) million. Net cash used in changes in our operating assetsproperty and liabilities for the fiscal quarter ended March 28, 2020 consisted primarily of a $13.3 million increase in trade receivables, a $10.9 million increase in inventories, a $2.9 increase in income tax receivable, and a $1.7 decrease in accrued expenses and other current liabilities, partially offset by a $9.5 million increase in accounts payable. The change in trade receivablesequipment was primarily due to the timing of net sales, and the increase in inventories was primarily due to increasedexpand capacity for inventory production in responseorder to meet increasing customer demand. The change in income tax receivable was due to estimated tax payments made in excess of the actual annual tax provision. The changes in accrued expenses and other current liabilities and accounts payable were primarily due to the decrease and timing of payments for rebate accruals, partially offset by payments for management incentives.

Investing Activities

During the fiscal quarter ended April 3, 2021, investing activities used $4.6 million of cash, consisting of purchases of property and equipment for $4.6 million.equipment. The purchase of property and equipment was to expand capacity for inventory production in order to meet increasing customer demand.

Financing Activities

During the fiscal quarter ended March 28, 2020, investingApril 2, 2022, financing activities used $2.8provided $39.3 million of cash, primarily consisting of purchasesproceeds from long-term debt borrowings in connection with the Refinancing of property$320.1 million, proceeds from the sale of common stock of $257.7 million and equipmentborrowings on revolving credit facilities of $2.8$20.0 million, partially offset by repayments on long-term debt borrowings of $284.0 million, the repurchase and retirement of common stock of $257.7 million, repayments on revolving credit facility borrowings of $10.0 million, and deferred financing fees paid of $6.9 million.

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Financing ActivitiesTable of Contents

During the fiscal quarter ended April 3, 2021, financing activities provided $6.1 million of cash, primarily consisting of proceeds from borrowings on the term loan of $172.8 million and borrowings on the revolving credit facility of $16.0 million, partially offset by paymentthe repurchase of common stock of $64.9 million, used to pay down the Parent Note, dividends to parentClass A unitholders of $110.0 million, and payments on long-term debt borrowings of $5.8 million.

During the fiscal quarter ended March 28, 2020, financing activities provided $4.6 million of cash, consisting of proceeds from borrowings on the revolving credit facility of $5.0 million, partially offset by distributions to parent of $0.4 million.

Contractual Obligations

Long-term indebtedness and interest on long-term indebtedness changed materially due to the Third Amendment dated January 25, 2021, which increased the outstanding principal balance of the Term Loan by $175.0 million. A portion of these proceeds were used to pay down the Parent Note of $64.9 million in its entirety on February 2, 2021, which would have matured on October 20, 2023. The Third Amendment did not change the Term Loan’s maturity date of June 18, 2025, at which time the remaining principal is due. The Third Amendment increased the fixed quarterly principal payments from $3.3 million under the Second Amendment to $5.8 million. Due to the increased principal payments under the Amended Term Loan and the settlement of the Parent Note, the required principal payments are $17.3 million in the next year, $46.1 million in the next one to three years, and $334.0 million in the next four to five years. At the new assumed interest rate of 7.73% as of January 25, 2021, the interest payments are $28.1 million in the next year, $51.3 million in the next one to three years, and $34.1 million in the next four to five years.

Upon completion of the IPO we used $152.7 million of the net proceeds from the IPO to repay $152.7 million of the Amended Term Loan under our Credit Agreement. The required principal payments after the use of the net proceeds to repay $152.7 million of the Amended Term Loan are $17.3 million in the next year, $46.1 million in the next one to three years and $181.3 million in the next four to five years.

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There have been no other material changes, outside of the ordinary course of business, to theseour contractual obligations during the fiscal quarter ended April 3, 20212, 2022 from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our Prospectus with the exception of long-term indebtedness. See “—Our Indebtedness.”

Annual Report.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. Throughout the preparation of these financial statements, we have made estimates and assumptions that impact the reported amounts of assets, liabilities and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Prospectus.Annual Report. These estimates are based on historical results, trends and other assumptions we believe to be reasonable. We evaluate these estimates on an ongoing basis. Actual results may differ from estimates. There have been no significant changes toFor additional information about our critical accounting policies from those describedand estimates, see the disclosure included in our Prospectus.

Annual Report as well as Note 2 - Summary of Significant Accounting Policies in the notes to the condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss that may result from market changes associated with our business or with an existing or forecasted financial transaction. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through variable rate debt instruments and denominate some of our transactions in foreign currencies. Changes in these rates may have an impact on future cash flow and earnings. We manage these risks through normal operating and financing activities. During the fiscal quarter ended April 3, 2021,2, 2022, there have been no material changes to the information included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Quantitative and Qualitative Disclosures about Market Risk” in our Prospectus.Annual Report.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of April 3, 2021,2, 2022, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide

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reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be involved in disputes or litigation relating to claims arising out of our operations. We are not currently a party to any legal proceedings that could reasonably be expected to have a material adverse effect on our business, financial condition and results of operations.

Item 1A. Risk Factors

We have disclosed under the heading “Risk Factors” in our Prospectus,Annual Report, the risk factors that materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed.disclosed other than the risk factors set forth below. You should carefully consider the risk factors set forth in the ProspectusAnnual Report and the other information set forth elsewhere in this Form 10-Q. You should be aware that these risk factors and other information may not described every risk that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered SalesWe depend on a global network of Equity Securitiesthird-party suppliers to provide components and Use of Proceeds

Initial Public Offering

On April 22, 2021, we completed our IPO, which closed on April 27, 2021. Pursuantraw materials essential to the Registration Statement on Form S-1 (Registration No. 333-254930), which was declared effective by the SEC on April 22, 2021, we registered 23,000,000 shares of common stock. All 23,000,000 sharesmanufacturing of our common stock were soldpools and price increases or deviations in the IPOquality of the raw materials used to manufacture our products could adversely affect our net sales and operating results.

We rely on manufacturers and other suppliers to provide us with the components and raw materials to manufacture our products. The primary raw materials used in our products are polyvinyl chloride (“PVC”) plastic, galvanized steel, fiberglass, aluminum, carbon fiber, Kevlar fiber, various resins, gelcoat, polypropylene fabric and roving. Other than occasional strategic purchases of larger quantities of certain raw materials, we generally buy materials on an as-needed basis. We are dependent upon the ability of our suppliers to consistently provide raw materials and components that meet our specifications, quality standards and other applicable criteria. Our suppliers’ failure to provide raw materials and components that meet such criteria on a timely basis could adversely affect production schedules and our product quality, which in turn could materially adversely affect our business, financial condition and results of operations. While we believe that our relationships with our current suppliers are sufficient to provide the materials necessary to meet present production demand, these relationships may not continue or the quantity or quality of materials available from these suppliers may not be sufficient to meet our future needs, irrespective of whether we successfully implement our growth strategy, and we may not be able to obtain supplies on favorable terms. In the event of a shortage of our raw materials, we may not be able to arrange for alternative sources of such materials on a timely basis or on equally favorable terms. For example, in 2021 and continuing in 2022, we experienced and continue to experience raw material shortages, particularly of resin, which limited our fiberglass pool production and decreased our profitability in 2021 and may impact us similarly in 2022. Although we have taken

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actions to increase and diversify our resin and other raw materials supply base, we may not succeed in procuring sufficient supply of resin and other raw materials that we need, which could result in lost sales and a decline in our profitability.

In addition, increases in the cost of the raw materials used to manufacture our products could adversely affect our operating results. The cost of many of the raw materials we use in the manufacture of our products, such as steel, is subject to price volatility. Changes in prices of our raw materials have a direct impact on our cost of sales. Accordingly, we are exposed to the risk of increases in the market prices of raw materials used in the manufacture of our products. We are experiencing inflationary pressures in certain areas of our business, including with respect to prices of our raw materials and employee wages, although, to date, we have been able to offset such pressures, to some extent, through price increases and other measures. If we are unable to increase our prices or experience a delay in our ability to increase our prices or to recover such increases in our costs, our gross profit will suffer. In addition, increases in the price of our products to compensate for increased costs of raw materials may reduce demand for our products and adversely affect our competitive position.

An interruption of our production capability at one or more of our manufacturing facilities from accident, calamity or other causes, or events affecting the global economy, could adversely affect our business and results of operations.

We manufacture our products at a price per sharelimited number of manufacturing facilities, and shifting production rapidly to another facility in the publicevent of $19.00 for an aggregate offering pricea loss of $437.0 million. Barclays Capital Inc., BofA Securities, Inc., Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC were the representativesone of the underwriters. The following tables show the per share and total underwriting discounts and commissions paid by us to the underwriters:

Underwriting Discounts and

Commissions Paid By Us

   
Per Share $1.33 
Total $30,590,000 

The total gross proceedsor a portion of the IPO were approximately $437.0 million and the total net proceeds of the IPO were approximately $400.1 million. Of the proceeds, approximately $30.6 million was used to pay underwriting discounts and commissions and $6.3 million was used to pay other offering costs. Of the remaining proceeds, $168.7 million was used to repay $168.7 millionone of our indebtedness under our Amended Term Loan and the Revolving Credit Facility and $216.7 million was usedmanufacturing facilities could lead to purchase 12,264,438 sharesincreased costs. A temporary or permanent loss of common stock from our principal stockholders and a current employee. The remaining $14.7 million of the proceeds will be used for general corporate purposes, including working capital.

There has been no material change in the planned use of the IPO net proceeds from the use of proceeds describedone or more of our manufacturing facilities due to accidents, fire (such as the fire at our Texas facility in April 2022 that resulted in a total loss of the manufacturing facility), explosions, labor issues, tornadoes, other weather conditions, natural disasters, condemnation, cancellation or non-renewals of leases, terrorist attacks or other acts of violence or war or otherwise could have a material adverse effect on our operating costs. An interruption in our production capabilities could also require us to make substantial capital expenditures to replace damaged or destroyed facilities or equipment. Any of these events could result in substantial repair costs and higher operating costs.

Inflation could adversely impact our financial condition and results of operations.

Inflation in the Prospectus.

IssuancesUnited States began to rise significantly in the second half of Common Stock

the calendar year of 2021 and continued to increase in the first quarter of 2022. This is primarily believed to be the result of the economic impacts from the COVID-19 pandemic, including the global supply chain disruptions, strong economic recovery and associated widespread demand for goods, and government stimulus packages, among other factors. For instance, global supply chain disruptions have resulted in shortages in materials and services. Such shortages have resulted in inflationary cost increases for labor, materials, and services, and could continue to cause costs to increase as well as scarcity of certain products. Global supply chain disruptions continue to persist, and may become worse due to the war in Ukraine, the COVID-19 pandemic-related lock-downs in China or for other reasons. We are experiencing inflationary pressures in certain areas of our business, including with respect to prices of our raw materials and employee wages, although, to date, we have been able to offset such pressures, to some extent, through price increases and other measures. We cannot, however, predict any future trends in the rate of inflation or associated increases in our operating costs and how that may impact our business. In connection withaddition, the demand for our Reorganization,products may soften as we issued 109,673,709 sharescontinue to increase the prices of common stockour products to offset the inflationary pressure. To the extent we are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our principal stockholders,business, or to continue to grow our senior managementsales volumes, our net sales and board members,gross margins could decrease, and our currentfinancial condition and former employees on April 22, 2021. The sharesresults of common stock were issuedoperations could be adversely affected.

Economic and political change could adversely impact our financial condition and results of operations.

Our business has been and could continue to be adversely affected by events over which we have limited or no control, including pandemics, recessions, general or specific inflations, trade restrictions, changes to tax laws, changes to other laws, and armed conflicts, among others. These events may disrupt the supply and prices of raw materials or labor required to produce the products we sell, affect the ability of our customers to operate their businesses such that they lessen their purchases from us, and affect the ability of potential consumers of our products to purchase them. These effects may occur in reliance on the exemption contained in Section 4(a)(2)any of the Securities Act onmarkets in which we compete. The current military conflict between Russia and Ukraine could adversely affect our operations, and related sanctions and other actions that have been or may be enacted by the basis thatUnited States, the transaction did not involve a public offering. No underwriters were involved in the transaction.European Union, or other governing entities could adversely affect our business, our business partners, our suppliers, and our customers.

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Item 6. Exhibits

Exhibit

No.

Description

2.1*#

31.1*

Merger Agreement by and between Latham Group, Inc. and Latham Investment Holdings, L.P., dated as of April 22, 2021

3.1*Amended and Restated Certificate of Incorporation of Latham Group, Inc., dated as of April 22, 2021
3.2*Amended and Restated Bylaws of Latham Group, Inc., dated as of April 22, 2021

31.1*Certification of CEO, pursuant to SEC Rule 13a-14(a) and 15d-14(a) (filed herewith)

31.2*

Certification of CFO, pursuant to SEC Rule 13a-14(a) and 15d-14(a) (filed herewith)

32.1**

Certification by the CEO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2**

Certification by the CFO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*

Filed herewith.

**

Filed herewith.
#Portions

A signed original of this exhibit havethe written statement required by Section 906 has been omitted pursuantprovided to Item 601(a)(v) of Regulation S-K.the Company and will be

retained by the Company and forwarded to the SEC or its staff upon request.

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37

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date       June 3, 2021May 12, 2022

LATHAM GROUP, INC.

/s/ James Mark Borseth

��

James Mark Borseth

Chief Financial Officer

(Principal Financial Officer)

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