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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 30, 2024

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

(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) 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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 3, 2024, 115,572,774 shares of the registrant’s common stock, $0.0001 par value, were outstanding.

Latham Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

March 30,

December 31,

    

2024

    

2023

Assets

Current assets:

 

  

 

  

Cash

$

43,811

$

102,763

Trade receivables, net

 

73,944

 

30,407

Inventories, net

 

95,151

 

97,137

Income tax receivable

 

1,411

 

983

Prepaid expenses and other current assets

 

6,996

 

7,327

Total current assets

 

221,313

 

238,617

Property and equipment, net

 

112,795

 

113,014

Equity method investment

 

26,341

 

25,940

Deferred tax assets

 

7,310

 

7,485

Operating lease right-of-use assets

28,696

30,788

Goodwill

 

130,987

 

131,363

Intangible assets, net

 

275,876

 

282,793

Other assets

5,294

5,003

Total assets

$

808,612

$

835,003

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

25,022

$

17,124

Accounts payable – related party

 

 

8

Current maturities of long-term debt

 

3,250

 

21,250

Current operating lease liabilities

6,823

7,133

Accrued expenses and other current liabilities

 

35,781

 

40,691

Total current liabilities

 

70,876

 

86,206

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

 

279,531

 

279,951

Deferred income tax liabilities, net

 

40,088

 

40,088

Non-current operating lease liabilities

22,963

24,787

Other long-term liabilities

 

3,386

 

4,771

Total liabilities

$

416,844

$

435,803

Commitments and contingencies

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock, $0.0001 par value; 100,000,000 shares authorized as of both March 30, 2024 and December 31, 2023; no shares issued and outstanding as of both March 30, 2024 and December 31, 2023

Common stock, $0.0001 par value; 900,000,000 shares authorized as of March 30, 2024 and December 31, 2023; 115,389,689 and 114,871,782 shares issued and outstanding, as of March 30, 2024 and December 31, 2023, respectively

 

11

 

11

Additional paid-in capital

 

460,927

 

459,684

Accumulated deficit

 

(64,820)

 

(56,956)

Accumulated other comprehensive loss

 

(4,350)

 

(3,539)

Total stockholders’ equity

 

391,768

 

399,200

Total liabilities and stockholders’ equity

$

808,612

$

835,003

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

4

Latham Group, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

Fiscal Quarter Ended

    

March 30, 2024

    

April 1, 2023

   

Net sales

$

110,629

$

137,719

Cost of sales

 

80,040

 

104,349

Gross profit

 

30,589

 

33,370

Selling, general, and administrative expense

 

26,250

 

33,057

Amortization

 

6,412

 

6,632

Loss from operations

 

(2,073)

 

(6,319)

Other expense:

 

  

 

  

Interest expense, net

 

4,982

 

10,804

Other expense, net

 

1,586

 

210

Total other expense, net

 

6,568

 

11,014

Earnings from equity method investment

1,309

37

Loss before income taxes

 

(7,332)

 

(17,296)

Income tax expense (benefit)

 

532

 

(2,928)

Net loss

$

(7,864)

$

(14,368)

Net loss per share attributable to common stockholders:

 

  

 

  

Basic

$

(0.07)

$

(0.13)

Diluted

$

(0.07)

$

(0.13)

Weighted-average common shares outstanding – basic and diluted

 

  

 

  

Basic

 

115,038,929

 

112,102,198

Diluted

 

115,038,929

 

112,102,198

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

5

Latham Group, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

Fiscal Quarter Ended

    

March 30, 2024

    

April 1, 2023

   

Net loss

$

(7,864)

$

(14,368)

Other comprehensive loss, net of tax:

 

  

 

  

Foreign currency translation adjustments

 

(811)

 

(144)

Total other comprehensive loss, net of tax

 

(811)

 

(144)

Comprehensive loss

$

(8,675)

$

(14,512)

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

6

Latham Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)

    

    

    

    

    

Accumulated 

    

Additional

Other

Total

 Paid-in 

 Accumulated

 Comprehensive

 Stockholders'

Shares

Amount

Capital

 Deficit

Loss

 Equity

Balances at December 31, 2022

 

114,667,975

$

11

$

440,880

$

(54,568)

$

(3,533)

$

382,790

Net loss

 

 

 

 

(14,368)

 

 

(14,368)

Foreign currency translation adjustments

 

 

 

 

 

(144)

 

(144)

Issuance of common stock upon release of restricted stock units

22,078

Stock-based compensation expense

 

 

 

6,769

 

 

 

6,769

Balances at April 1, 2023

 

114,690,053

$

11

$

447,649

$

(68,936)

$

(3,677)

$

375,047

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

7

Latham Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)

    

    

    

    

    

Accumulated 

    

Additional

Other

Total

 Paid-in 

 Accumulated

 Comprehensive

 Stockholders'

Shares

Amount

Capital

 Deficit

Loss

 Equity

Balances at December 31, 2023

 

114,871,782

$

11

$

459,684

$

(56,956)

$

(3,539)

$

399,200

Net loss

 

 

 

 

(7,864)

 

 

(7,864)

Foreign currency translation adjustments

 

 

 

 

 

(811)

 

(811)

Issuance of common stock upon release of restricted stock units

517,907

Stock-based compensation expense

 

 

 

1,243

 

 

 

1,243

Balances at March 30, 2024

 

115,389,689

$

11

$

460,927

$

(64,820)

$

(4,350)

$

391,768

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

8

Latham Group, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Fiscal Quarter Ended

March 30,

April 1,

2024

    

2023

Cash flows from operating activities:

Net loss

$

(7,864)

$

(14,368)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Depreciation and amortization

 

10,374

 

9,258

Amortization of deferred financing costs and debt discount

 

430

 

430

Non-cash lease expense

 

1,780

 

1,877

Change in fair value of interest rate swaps

 

(1,804)

 

4,866

Stock-based compensation expense

 

1,243

 

6,769

Bad debt expense

1,299

1,700

Other non-cash, net

1,757

860

Earnings from equity method investment

(1,309)

(37)

Distributions received from equity method investment

908

Changes in operating assets and liabilities:

 

  

 

  

Trade receivables

 

(44,895)

 

(55,286)

Inventories

 

1,648

 

15,615

Prepaid expenses and other current assets

 

467

 

(593)

Income tax receivable

 

(428)

 

(2,816)

Other assets

(146)

(1,225)

Accounts payable

 

8,179

 

20,947

Accrued expenses and other current liabilities

 

(5,987)

 

(3,190)

Other long-term liabilities

 

(164)

 

717

Net cash used in operating activities

 

(34,512)

 

(14,476)

Cash flows from investing activities:

 

  

 

  

Purchases of property and equipment

 

(5,345)

 

(9,942)

Net cash used in investing activities

 

(5,345)

 

(9,942)

Cash flows from financing activities:

 

  

 

  

Payments on long-term debt borrowings

 

(18,813)

 

(813)

Proceeds from borrowings on revolving credit facility

48,000

Repayments of finance lease obligations

(189)

(101)

Net cash (used in) provided by financing activities

 

(19,002)

 

47,086

Effect of exchange rate changes on cash

 

(93)

 

(278)

Net (decrease) increase in cash

 

(58,952)

 

22,390

Cash at beginning of period

 

102,763

 

32,626

Cash at end of period

$

43,811

$

55,016

Supplemental cash flow information:

 

  

 

  

Cash paid for interest

$

9,513

$

5,123

Income taxes paid, net

39

637

Supplemental disclosure of non-cash investing and financing activities:

 

 

  

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

$

426

$

5,849

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

359

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

198

1,625

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

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 $399.3 million, after deducting underwriting discounts and commissions and other offering costs.

Prior to the closing of the Company’s IPO, the Company’s parent entity, Latham Investment Holdings, L.P., merged with and into Latham Group, Inc.

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 unaudited condensed consolidated balance sheet at December 31, 2023 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of March 30, 2024 and for the fiscal quarters ended March 30, 2024 and April 1, 2023, respectively, 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 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 fiscal year ended December 31, 2023 included in the Company’s 2023 Annual Report on Form 10-K, filed with the SEC on March 13, 2024 (the “Annual Report”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of these condensed consolidated financial statements, have been included. The Company’s results of operations for the fiscal quarter ended March 30, 2024 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending December 31, 2024 or other interim periods thereof.

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 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.

10

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the condensed consolidated financial statements and the accompanying notes.

Seasonality

Although the Company generally has demand for its products throughout the fiscal 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 (or net loss is lowest) during the second and third fiscal quarters, representing the peak months of swimming pool use, pool installation, and remodeling and repair activities. Severe weather may also affect net sales in all periods.

Significant Accounting Policies

Refer to the Annual Report for a discussion of the Company’s significant accounting policies, as updated below.

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 November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which improves financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful analysis. For all entities, ASU 2023-07 is effective for fiscal years beginning after December 15, 2023. The amendments should be applied retrospectively to all prior periods presented in the financial statements, with early adoption permitted. The Company is currently evaluating ASU 2023-07 and its potential impact on the notes to the condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), in an effort to enhance the transparency and decision usefulness of income tax disclosures. For all entities, ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The amendments should be applied prospectively with retrospective application permitted. Early adoption is also permitted. The Company is currently evaluating ASU 2023-09 and its potential impact on the notes to the condensed consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01, Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards (“ASU 2024-01”), which improves financial reporting by providing clarity on when an entity should apply the scope guidance in paragraph 718-10-15-3. For all public entities, ASU 2024-01 is effective for fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods presented in the financial statements, with early adoption permitted. The Company is currently evaluating ASU 2024-01 and its potential impact on the notes to the condensed consolidated financial statements.

3. 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.

11

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 March 30, 2024 and April 1, 2023.

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 and remeasured to fair value when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 2 and Level 3 inputs.

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 because of the short-term maturities of these instruments.

Term loan

The Company’s term loan (see Note 6) is carried at amortized cost; however, the Company estimates the fair value of the term loan for disclosure purposes. The fair value of the term loan is determined using inputs based on observable market data of a non-public exchange, which are classified as Level 2 inputs. The following table sets forth the carrying amount and fair value of its term loan (in thousands):

March 30, 2024

December 31, 2023

Carrying

Estimated

Carrying

Estimated

    

Value

    

Fair Value

    

Value

    

Fair Value

Term Loan

$

282,781

$

277,832

$

301,201

$

289,153

Interest rate swap

The Company estimates the fair value of interest rate swaps (see Note 6) on a fiscal quarterly basis using Level 2 inputs, including the forward SOFR 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 SOFR curve. As of March 30, 2024 and December 31, 2023, the fair value of the Company’s interest rate swap was an asset of $0.6 million and a liability of $1.2 million, respectively, which were recorded within other assets and other long-term liabilities on the condensed consolidated balance sheets, respectively.

4. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The carrying amount of goodwill as of March 30, 2024 and as of December 31, 2023 was $131.0 million and $131.4 million, respectively. The change in the carrying value during the fiscal quarter ended March 30, 2024 was solely because of fluctuations in foreign currency exchange rates.

12

Intangible Assets

Intangible assets, net as of March 30, 2024 consisted of the following (in thousands):

March 30, 2024

Gross 

Foreign 

Carrying 

Currency 

Accumulated 

Net 

    

Amount

    

Translation

    

Amortization

    

Amount

Trade names and trademarks

$

148,100

$

(251)

$

31,233

$

116,616

Patented technology

 

16,126

 

(4)

 

9,111

 

7,011

Technology

13,000

2,023

10,977

Pool designs

 

13,628

 

(124)

 

3,207

 

10,297

Franchise relationships

 

1,187

 

 

1,187

 

Dealer relationships

 

197,376

 

(1)

 

66,400

 

130,975

Order backlog

1,600

1,600

Non-competition agreements

 

2,476

 

 

2,476

 

$

393,493

$

(380)

$

117,237

$

275,876

The Company recognized $6.4 million of amortization expense related to intangible assets during the fiscal quarter ended March 30, 2024. The Company recognized $6.6 million of amortization expense related to intangible assets during the fiscal quarter ended April 1, 2023.

Intangible assets, net as of December 31, 2023 consisted of the following (in thousands):

December 31, 2023

Gross 

Foreign 

Carrying 

Currency 

Accumulated 

Net 

    

Amount

    

Translation

    

Amortization

    

Amount

Trade names and trademarks

$

148,100

$

72

$

29,583

$

118,589

Patented technology

 

16,126

 

1

 

8,713

 

7,414

Technology

13,000

1,806

11,194

Pool designs

 

13,628

 

35

 

2,973

 

10,690

Franchise relationships

 

1,187

 

 

1,187

 

Dealer relationships

 

197,376

 

 

62,470

 

134,906

Order backlog

1,600

1,600

Non-competition agreements

 

2,476

 

 

2,476

 

$

393,493

$

108

$

110,808

$

282,793

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 

Amortization 

Year Ended

    

Expense

Remainder of fiscal year 2024

$

19,282

2025

 

25,551

2026

 

25,551

2027

 

25,551

2028

 

24,593

Thereafter

 

155,348

$

275,876

13

5. INVENTORIES, NET

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

    

March 30, 2024

    

December 31, 2023

Raw materials

$

53,145

$

55,081

Finished goods

 

42,006

 

42,056

$

95,151

$

97,137

6. LONG-TERM DEBT

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

    

March 30, 2024

    

December 31, 2023

Term Loan

$

290,500

$

309,313

Revolving Credit Facility

Less: Unamortized discount and debt issuance costs

 

(7,719)

 

(8,112)

Total debt

 

282,781

 

301,201

Less: Current portion of long-term debt

 

(3,250)

 

(21,250)

Total long-term debt

$

279,531

$

279,951

On February 23, 2022, Latham Pool Products entered into an agreement (the “Credit Agreement”) with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit (the “Revolving Credit Facility”) in an initial principal amount of $75.0 million and a U.S. Dollar senior secured term loan facility (the “Term Loan”) in an initial principal amount of $325.0 million.

As of March 30, 2024, the Company was in compliance with all financial covenants under the Credit Agreement.

Revolving Credit Facility

The 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 Revolving Credit Facility matures on February 23, 2027. Loans outstanding under the 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 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 Credit Agreement), plus a margin of 2.50%. Loans outstanding under the Revolving Credit Facility denominated in Euros or Australian Dollars bear interest based on EURIBOR or the AUD Rate (each, as defined in the Credit Agreement), respectively, plus a margin of 3.50%. 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 initially was 0.375% per annum and thereafter accrues at a rate per annum ranging from 0.25% to 0.50%, depending on the First Lien Net Leverage Ratio (as defined in the Credit Agreement, the “First Lien Net Leverage Ratio”). Borrowings under the Revolving Credit Facility are due at maturity.

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

The Company is required to meet certain financial covenants in connection with the Revolving Credit Facility, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on the Company’s and its subsidiaries’ 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, make dividend payments, loans, or advances to the Company, declare dividends and make restricted payments and other distributions.

As of March 30, 2024, there were no outstanding borrowings on the Revolving Credit Facility and $75.0 million was available for future borrowing.

14

Term Loan

The Term Loan matures on February 23, 2029. The Term Loan bears interest, at the borrower’s option, at a rate per annum based on Term SOFR (as defined in the Credit Agreement), plus a margin ranging from 3.75% to 4.00%, depending on the 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 3.00%, depending on the First Lien Net Leverage Ratio. The Term Loan is subject to scheduled quarterly amortization payments of $812,500, equal to 0.25% of the initial principal amount of the Term Loan. The Credit Agreement contains customary mandatory prepayment provisions for the Term Loan, including requirements to make mandatory prepayments with 50% of any excess cash flow and with 100% of the net cash proceeds from the incurrence of indebtedness not otherwise permitted to be incurred by the covenants, asset sales, and casualty and condemnation events, in each case, subject to customary exceptions.

During the quarter ended March 30, 2024, the Company made a payment of $18.0 million.

Outstanding borrowings as of March 30, 2024 were $282.8 million, net of unamortized discount and debt issuance costs of $7.7 million. In connection with the Term Loan, the Company is subject to various negative, reporting, financial, and other covenants, including maintaining specific liquidity measurements.

As of March 30, 2024, the unamortized debt issuance costs and discount on the Term Loan were $4.3 million and $3.4 million, respectively. The effective interest rate was 9.89% at March 30, 2024, including the impact of the Company’s interest rate swaps.

Interest Rate Risk

Interest rate risk associated with the Credit Agreement is mitigated partially through interest rate swaps.

The Company executed an interest rate swap on April 30, 2020. The swap had an effective date of May 18, 2020 and a termination date of May 18, 2023. In February 2022, the Company amended its interest rate swap to change the index rate from LIBOR to SOFR in connection with the entry into the Credit Agreement. Under the terms of the amended swap, the Company fixed its SOFR borrowing rate at 0.496% on a notional amount of $200.0 million. The interest rate swap was not designated as a hedging instrument for accounting purposes (see Note 3).

Additionally, the Company entered into an interest rate swap that was executed on March 10, 2023. The swap has an effective date of May 18, 2023 and a termination date of May 18, 2026. Under the terms of the swap, the Company fixed its SOFR borrowing rate at 4.3725% on a notional amount of $161.0 million. The interest rate swap is not designated as a hedging instrument for accounting purposes (see Note 3).

Debt Maturities

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

Year Ended

Term Loan

Remainder of fiscal year 2024

    

$

2,438

2025

 

3,250

2026

 

3,250

2027

 

3,250

2028

3,250

Thereafter

 

275,062

$

290,500

Guarantees

The obligations under the Credit Agreement are guaranteed by certain wholly owned subsidiaries (the “Guarantors”) of the Company 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 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 the Company’s ability to pay dividends.

15

7. PRODUCT WARRANTIES

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

Fiscal Quarter Ended

    

March 30, 2024

    

April 1, 2023

Balance at the beginning of the fiscal year

$

3,161

$

3,990

Adjustments to reserve

 

537

 

354

Less: Settlements made (in cash or in kind)

 

(679)

 

(761)

Balance at the end of the fiscal quarter

$

3,019

$

3,583

8. LEASES

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 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 manufacturing facilities, office space, land, and certain vehicles and equipment under operating leases. The Company also leases certain vehicles and equipment under finance 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 components of lease expense for the fiscal quarters ended March 30, 2024 and April 1, 2023 were as follows (in thousands):

Fiscal Quarter Ended

    

March 30, 2024

    

April 1, 2023

Operating lease expense

$

2,163

$

2,351

Finance lease amortization of assets

212

109

Finance lease interest on lease liabilities

84

52

Short-term lease expense

 

56

 

54

Variable lease expense

 

158

 

327

Total lease expense

$

2,673

$

2,893

Operating and finance lease right-of-use assets and lease-related liabilities as of March 30, 2024 and December 31, 2023 were as follows (in thousands):

March 30, 2024

December 31, 2023

Classification

Lease right-of-use assets:

Operating leases

$

28,696

$

30,788

Operating lease right-of-use assets

Finance leases

3,887

3,912

Other assets

Total lease right-of-use assets

$

32,583

$

34,700

Lease-related liabilities

Current

Operating leases

$

6,823

$

7,133

Current operating lease liabilities

Finance leases

782

746

Accrued expenses and other current liabilities

Non-current

Operating leases

22,963

24,787

Non-current operating lease liabilities

Finance leases

3,247

3,285

Other long-term liabilities

Total lease liabilities

$

33,815

$

35,951

16

The table below presents supplemental information related to leases as of March 30, 2024 and December 31, 2023:

    

March 30, 2024

December 31, 2023

Weighted-average remaining lease term (years)

Finance leases

5.0

5.2

Operating leases

5.6

5.7

Weighted-average discount rate

Finance leases

8.2

%

8.2

%

Operating leases

5.0

%

5.1

%

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

    

March 30, 2024

    

April 1, 2023

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

Operating cash flows for operating leases

$

1,794

$

1,817

The following table summarizes maturities of operating lease liabilities as of March 30, 2024 (in thousands):

    

Operating Leases

Finance Leases

Total

Remainder of fiscal year 2024

$

6,260

$

813

$

7,073

2025

7,309

1,030

8,339

2026

5,805

934

6,739

2027

4,097

858

4,955

2028

3,111

845

3,956

Thereafter

7,637

436

8,073

Total lease payments

34,219

4,916

39,135

Less: Interest

(4,433)

(886)

(5,319)

Present value of lease liability

$

29,786

$

4,030

$

33,816

9. NET SALES

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

Fiscal Quarter Ended

    

March 30, 2024

    

April 1, 2023

In-ground Swimming Pools

$

59,832

$

78,612

Covers

 

26,868

 

32,745

Liners

 

23,929

 

26,362

$

110,629

$

137,719

10. INCOME TAXES

The effective income tax rate for the fiscal quarter ended March 30, 2024 was (7.2)% compared to 16.9% for the fiscal quarter ended April 1, 2023. The differences between the U.S. federal statutory income tax rate and our effective income tax rates for the fiscal quarter ended March 30, 2024 and the fiscal quarter ended April 1, 2023 were primarily attributable to the discrete impact of stock compensation expense for which there is no associated tax benefit.

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11. STOCKHOLDERS’ EQUITY

Repurchase Program

On May 10, 2022, the Board of Directors of the Company approved a stock repurchase program (the “Repurchase Program”), which authorizes the Company to repurchase up to $100 million of the Company’s shares of common stock by May 2025. 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 its common stock 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.

As of March 30, 2024, $77.0 million remained available for share repurchases pursuant to the Repurchase Program. The Company did not repurchase any shares of its common stock during the fiscal quarter ended March 30, 2024. The Company accounts for the excess of the repurchase price over the par value of shares acquired as a reduction to additional paid-in capital.

12. STOCK-BASED COMPENSATION

On April 12, 2021, the Company’s stockholders approved the 2021 Omnibus Equity Incentive Plan (the “2021 Omnibus Equity Plan”), which became effective on April 22, 2021, upon pricing of its initial public offering. The 2021 Omnibus Equity Plan provides for the issuance of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock units and other stock-based and cash-based awards. The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the 2021 Omnibus Equity Plan during any one fiscal year, together with any cash fees paid to such non-employee director during such fiscal year, is $750,000.

On May 2, 2023, at the 2023 annual meeting of stockholders of the Company, the stockholders approved the first amendment (the “First Amendment”) to the 2021 Omnibus Equity Plan, which was previously approved by the Board of Directors of the Company. The First Amendment became effective upon stockholder approval, and included an increase by 8,000,000 shares of the share pool, i.e. the maximum number of shares of the Company’s common stock that may be issued pursuant to awards granted under the 2021 Omnibus Equity Plan.

Except as amended by the First Amendment, the other terms of the 2021 Omnibus Equity Plan remain in full force and effect. Subsequent to the First Amendment, the maximum aggregate number of shares reserved for issuance under the 2021 Omnibus Equity Plan is 21,170,212 shares.

The following table summarizes the Company’s stock-based compensation expense (in thousands):

Fiscal Quarter Ended

March 30, 2024

    

April 1, 2023

Cost of sales

$

$

426

Selling, general, and administrative

 

1,243

 

6,343

$

1,243

$

6,769

As of March 30, 2024, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $13.3 million, which is expected to be recognized over a weighted-average period of 2.2 years.

Restricted Stock Awards

The following table represents the Company’s restricted stock awards activity during the fiscal quarter ended March 30, 2024:

Weighted-

Average Grant-

    

Shares

    

Date Fair Value

Outstanding at January 1, 2024

 

42,886

$

19.00

Granted