What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-10 compared with 2021-08-05 · 113 added, 108 removed, 274 unchanged (45% of the section changed)

51 unchanged sentences

Recent Developments

Highlights for the fiscal quarter ended July 3, 2021

● Increase in net sales of 60.3%, or $68.1 million, to $180.9 million for the fiscal quarter ended July 3, 2021, compared to $112.8 million for the fiscal quarter ended June 27, 2020.

● Increase in net loss of $70.0 million, to $53.6 million for the fiscal quarter ended July 3, 2021, compared to a net income of $16.4 million for the fiscal quarter ended June 27, 2020, representing a (29.6)% net loss margin for the fiscal quarter ended July 3, 2021.

● Increase in Adjusted EBITDA (as defined below) of $9.7 million, to $42.8 million for the fiscal quarter ended July 3, 2021, compared to $33.1 million for the fiscal quarter ended June 27, 2020.

Highlights for the two fiscal quarters ended July 3, 2021

● Increase in net sales of 101.1%, or $165.6 million, to $329.6 million for the two fiscal quarters ended July 3, 2021, compared to $164.0 million for the two fiscal quarters ended June 27, 2020.

● Increase in net loss of $46.1 million, to $45.1 million for the fiscal quarter ended July 3, 2021, compared to a net income of $1.0 million for the fiscal quarter ended June 27, 2020, representing a (13.7)% net loss margin for the two fiscal quarters ended July 3, 2021.

● Increase in Adjusted EBITDA (as defined below) of $45.2 million, to $76.4 million for the fiscal quarter ended July 3, 2021, compared to $31.2 million for the fiscal quarter ended June 27, 2020.

Highlights for the fiscal quarter ended October 2, 2021

● Increase in net sales of 27.0%, or $34.5 million, to $162.0 million for the fiscal quarter ended October 2, 2021, compared to $127.5 million for the fiscal quarter ended September 26, 2020.

● Increase in net loss of $29.0 million, to $11.3 million for the fiscal quarter ended October 2, 2021, compared to a net income of $17.7 million for the fiscal quarter ended September 26, 2020, representing a (7.0)% net loss margin for the fiscal quarter ended October 2, 2021.

● Increase in Adjusted EBITDA (as defined below) of $0.9 million, to $36.1 million for the fiscal quarter ended October 2, 2021, compared to $35.2 million for the fiscal quarter ended September 26, 2020.

Highlights for the three fiscal quarters ended October 2, 2021

● Increase in net sales of 68.7%, or $200.1 million, to $491.6 million for the three fiscal quarters ended October 2, 2021, compared to $291.5 million for the three fiscal quarters ended September 26, 2020.

● Increase in net loss of $75.1 million, to $56.4 million for the three fiscal quarters ended October 2, 2021, compared to a net income of $18.7 million for the three fiscal quarters ended September 26, 2020, representing an (11.5)% net loss margin for the three fiscal quarters ended September 26, 2020.

● Increase in Adjusted EBITDA (as defined below) of $46.1 million, to $112.5 million for the three fiscal quarters ended October 2, 2021, compared to $66.4 million for the three fiscal quarters ended September 26, 2020.

Initial Public Offering

45 unchanged sentences

Results of Operations

Fiscal Quarter Ended July 3, 2021 Compared to Fiscal Quarter Ended June 27, 2020

The following table summarizes our results of operations for the fiscal quarters ended July 3, 2021 and June 27, 2020:

Fiscal Quarter Ended October 2, 2021 Compared to Fiscal Quarter Ended September 26, 2020

The following table summarizes our results of operations for the fiscal quarters ended October 2, 2021 and September 26, 2020:

Fiscal Quarter Ended

June 27, 2020

October 2, 2021

September 26, 2020

(dollars in thousands)

5 unchanged sentences

Other (income) expense, net

Total other expense (income), net

Total other expense, net

Earnings from equity method investment

4 unchanged sentences

(a) Adjusted EBITDA is a non-GAAP measure.

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

Net sales was $180.9 million for the fiscal quarter ended July 3, 2021, compared to $112.8 million for the fiscal quarter ended June 27, 2020.

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

Net sales was $162.0 million for the fiscal quarter ended October 2, 2021, compared to $127.5 million for the fiscal quarter ended September 26, 2020.

The $34.5 million, or 27.0%, increase in net sales was due to a $19.0 million increase from volume and a $15.5 million increase from pricing.

The $54.1 million volume increase stemming from strong consumer demand for our products and continued growth in the number of new exclusive Latham Dealers and includes $18.2 million due to having three months of GLI’s net sales in our net sales in the fiscal quarter ended July 3, 2021.

The $19.0 million volume increase includes $26.1 million due to having three months of GLI International, LLC’s (“GLI”) net sales in our net sales in the fiscal quarter ended October 2, 2021, partially offset by decreased volume in our in-ground swimming pool category because of substantially constrained raw material supplies used in fiberglass pool construction.

The increase in total net sales of $34.5 million across our product lines was $6.0 million for in-ground swimming pools, $10.1 million for liners and $18.4 million for covers.

Cost of Sales and Gross Margin

Cost of sales was $122.5 million for the fiscal quarter ended July 3, 2021, compared to $68.5 million for the fiscal quarter ended June 27, 2020.

Gross margin decreased by 7.0% to 32.3% of net sales for the fiscal quarter ended July 3, 2021 compared to 39.3% of net sales for the fiscal quarter ended June 27, 2020.

The $54.0 million, or 79.0% increase in cost of sales was primarily due to an increase in net sales, partially offset by the addition of non-cash stock-based compensation expense of $4.9 million.

The 7.0% decrease in gross margin was due to, temporary cost-savings initiatives implemented in response to the COVID-19 pandemic and lower rebates and incentive plan accruals in the fiscal quarter ended June 27, 2020, which reflected modest sales volumes, as compared to the fiscal quarter ended July 3, 2021, which was impacted by the inclusion of non-cash stock-based compensation, expense, higher growth-related rebates from sales growth and challenges in the supply chain, including constrained raw material supply that has resulted in intermittent manufacturing inefficiencies, and cost inflation.

These factors were not fully offset by the timing of price increases and benefits of positive mix shift dynamics.

Cost of sales was $111.0 million for the fiscal quarter ended October 2, 2021, compared to $77.2 million for the fiscal quarter ended September 26, 2020.

Gross margin decreased by 8.0% to 31.5% of net sales for the fiscal quarter ended October 2, 2021 compared to 39.5% of net sales for the fiscal quarter ended September 26, 2020.

The $33.8 million, or 43.7% increase in cost of sales was primarily due to an increase in net sales, cost inflation associated with the fiberglass pools raw material shortages and the operational inefficiencies that accompanied them and non-cash stock-based compensation expense of $1.9 million.

The 8.0% decrease in gross margin was driven by an adverse sales mix away from our in-ground pool sales, particularly in fiberglass pools;

a strategic decision that opened a timing difference between our price increases and the cost inflation described above.

Selling, General and Administrative Expense

Selling, general and administrative expense was $95.3 million for the fiscal quarter ended July 3, 2021, compared to $15.4 million for the fiscal quarter ended June 27, 2020, and increased as a percentage of net sales by 39.1%.

The $79.9 million, or 520.4% increase in selling, general and administrative expense was primarily due to $70.4 million increase in stock-based compensation expense, $2.8 million increase in wages from an increase in headcount, particularly for customer-facing activities to support growth of the business, and as a result of the increase in the number of employees following the acquisition of GLI, $1.1 million increase due to legal, accounting and professional fees incurred in connection with our IPO that were not capitalizable and $0.6 million increase in incentive plan accruals reflecting strong sales performance.

Amortization was $5.5 million for the fiscal quarter ended July 3, 2021, compared to $4.1 million for the fiscal quarter ended June 27, 2020.

The $1.4 million, or 34.9% increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of GLI International, LLC (“GLI”) in October 2020.

Selling, general and administrative expense was $48.1 million for the fiscal quarter ended October 2, 2021, compared to $20.1 million for the fiscal quarter ended September 26, 2020, and increased as a percentage of net sales by 13.9%.

The $28.0 million, or 139.2% increase in selling, general and administrative expense was primarily due to a $24.7 million increase in stock-based

compensation expense, a $1.4 million increase in expense related to the acquisition of GLI, an increase in wages from an increase in headcount, particularly for customer-facing activities to support future busines growth, and ongoing public company costs.

Amortization was $5.5 million for the fiscal quarter ended October 2, 2021, compared to $4.0 million for the fiscal quarter ended September 26, 2020.

The $1.5 million, or 35.6% increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of GLI in October 2020.

Interest Expense

Interest expense was $7.5 million for the fiscal quarter ended July 3, 2021, compared to $4.3 million for the fiscal quarter ended June 27, 2020.

The $3.2 million, or 74.5% increase in interest expense was primarily due to an increase in the outstanding balance of long-term debt and amortization from increased deferred financing fees from entering into an amendment to the Term Loan, compared to the fiscal quarter ended June 27, 2020.

Interest expense was $4.3 million for the fiscal quarter ended October 2, 2021, compared to $4.0 million for the fiscal quarter ended September 26, 2020.

The $0.3 million, or 7.0% increase in interest expense was primarily due to an increase in the outstanding balance of long-term debt from entering into an amendment to the Term Loan (as defined below).

Other (Income) Expense, Net

Other (income) expense, net was $(0.8) million for the fiscal quarter ended July 3, 2021, compared to $(1.2) million for the fiscal quarter ended June 27, 2020.

The $0.4 million decrease in other (income) expense, net was due to a $0.4 million unfavorable change in net foreign currency transaction gains and losses associated with our international subsidiaries, compared to the fiscal quarter ended June 27, 2020.

Other (income) expense, net was ($2.5) million for the fiscal quarter ended October 2, 2021, compared to ($1.4) million for the fiscal quarter ended September 26, 2020.

The $1.1 million increase in other (income) expense, net was primarily due to a $3.9 million gain related to the partial sale of our equity method investment, partially offset by a $2.5 million unfavorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.

Earnings from Equity Method Investment

Earnings from equity method investment of Premier Pools & Spa was $0.8 million for the fiscal quarter ended July 3, 2021, compared to no equity in net earnings of Premier Pools & Spa for the fiscal quarter ended June 27, 2020 as the equity method investment was made in October 2020.

Earnings from equity method investment of Premier Pools & Spa was $0.8 million for the fiscal quarter ended October 2, 2021, compared to no equity in net earnings of Premier Pools & Spa for the fiscal quarter ended September 26, 2020 as the equity method investment was made in October 2020.

Income Tax Expense

Income tax expense was $5.2 million for the fiscal quarter ended July 3, 2021, compared to $5.5 million for the fiscal quarter ended June 27, 2020.

Our effective tax rate was (10.8)% for the fiscal quarter ended July 3, 2021, compared to 25.0% for the fiscal quarter ended June 27, 2020.

Income tax expense was $7.8 million for the fiscal quarter ended October 2, 2021, compared to $5.8 million for the fiscal quarter ended September 26, 2020.

Our effective tax rate was (223.8)% for the fiscal quarter ended October 2, 2021, compared to 24.7% for the fiscal quarter ended September 26, 2020.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended July 3, 2021 was primarily attributable to the impact of stock compensation expense pursuant to the Reorganization.

The results for the fiscal quarter ended July 3, 2021 include pre-tax stock compensation expense of $73.5 million related to the Reorganization for which there is no associated tax benefit.

federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended October 2, 2021 was primarily attributable to the impact of stock compensation expense related to the Reorganization.

The results for the fiscal quarter ended October 2, 2021 include pre-tax stock compensation expense of $25.4 million related to the Reorganization for which there is no associated tax benefit.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended June 27, 2020 was primarily impacted by our switching to an income position for the fiscal quarter ended June 27, 2020.

federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended September 26, 2020 was impacted by a variety of factors, primarily stemming from impact of state taxes.

Net (Loss) Income

Net (loss) income was $(53.6) million for the fiscal quarter ended July 3, 2021, compared to $16.4 million of net income for the fiscal quarter ended June 27, 2020.

Net (loss) income was ($11.3) million for the fiscal quarter ended October 2, 2021, compared to $17.7 million of net income for the fiscal quarter ended September 26, 2020.

The $29.0 million, or 163.7% increase in net loss was primarily due to the factors described above.

Net (Loss) Income Margin

Net loss margin was (29.6)% for the fiscal quarter ended July 3, 2021, compared to net income margin of 14.5% for the fiscal quarter ended June 27, 2021.

The (44.1)% increase in net (loss) income margin was due to a $70.0 million increase in net loss and an $68.1 million increase in net sales, compared to the fiscal quarter ended June 27, 2020 due to the factors described above.

Net loss margin was (7.0)% for the fiscal quarter ended October 2, 2021, compared to net income margin of 13.9% for the fiscal quarter ended September 26, 2020.

The (20.9)% increase in net (loss) income margin was due to a $29.0 million increase in net loss and an $34.5 million increase in net sales, due to the factors described above.

Adjusted EBITDA

Adjusted EBITDA was $42.8 million for the fiscal quarter ended July 3, 2021, compared to $33.1 million for the fiscal quarter ended June 27, 2020.

The $9.7 million, or 29.5%, increase in Adjusted EBITDA was primarily due to a $10.1 million increase in earnings before depreciation and amortization, interest expense, income tax (benefit) expense and stock based compensation expense, as well as a $1.1 million increase in legal, accounting and professional fees incurred in connection with our IPO that are not capitalizable.

Adjusted EBITDA was $36.1 million for the fiscal quarter ended October 2, 2021, compared to $35.2 million for the fiscal quarter ended September 26, 2020.

The $0.9 million, or 2.7%, increase in Adjusted EBITDA was primarily due to the increase in net

sales, partially offset by cost inflation and constrained raw material supply that has resulted in intermittent manufacturing inefficiencies.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 23.7% for the fiscal quarter ended July 3, 2021, compared to 29.3% for the fiscal quarter ended June 27, 2020.

The 5.6% decrease in Adjusted EBITDA margin was primarily due to a $9.7 million increase in Adjusted EBITDA and a $68.1 million increase in net sales, compared to the fiscal quarter ended June 27, 2020.

Two Fiscal Quarters Ended July 3, 2021 Compared to Two Fiscal Quarters Ended June 27, 2020

The following table summarizes our results of operations for the two fiscal quarters ended July 3, 2021 and June 27, 2020:

Two Fiscal Quarters Ended

June 27, 2020

Adjusted EBITDA margin was 22.3% for the fiscal quarter ended October 2, 2021, compared to 27.6% for the fiscal quarter ended September 26, 2020.

The (5.3)% decrease in Adjusted EBITDA margin was primarily due to a $0.9 million increase in Adjusted EBITDA and a $34.5 million increase in net sales.

Three Fiscal Quarters Ended October 2, 2021 Compared to Three Fiscal Quarters Ended September 26, 2020

The following table summarizes our results of operations for the three fiscal quarters ended October 2, 2021 and September 26, 2020:

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

(dollars in thousands)

5 unchanged sentences

Other (income) expense, net

Total other expense (income), net

Total other expense, net

Earnings from equity method investment

4 unchanged sentences

(a) Adjusted EBITDA is a non-GAAP measure.

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

Net sales was $329.6 million for the two fiscal quarters ended July 3, 2021, compared to $164.0 million for the two fiscal quarters ended June 27, 2020.

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

Net sales was $491.6 million for the three fiscal quarters ended October 2, 2021, compared to $291.5 million for the three fiscal quarters ended September 26, 2020.

The $200.1 million, or 68.7%, increase in net sales was due to a $162.7 million increase from volume and a $37.4 million increase from pricing.

The $143.7 million volume increase across our product lines primarily attributable to continued strong consumer demand and order volumes across the Company’s product portfolio, expanded strategic partnerships with Latham’s exclusive dealers, and includes $34.1 million due to having six months of GLI’s net sales in our net sales in the two fiscal quarters ended July 3, 2021.

The $162.7 million volume increase spanned our product lines and was primarily attributable to strong market demand, homeowner preferences for Latham’s products, expanded strategic partnerships within our network of dealers, and includes $60.2 million due to having nine months of GLI’s net sales in our net sales in the three fiscal quarters ended October 2, 2021.

The increase in total net sales of $200.1 million across our product lines was $116.0 million for in-ground swimming pools, $43.2 million for liners and $40.9 million for covers.

Cost of Sales and Gross Margin

Cost of sales was $218.8 million for the two fiscal quarters ended July 3, 2021, compared to $109.5 million for the two fiscal quarters ended June 27, 2020.

Gross margin increased by 0.4% to 33.6% of net sales for the two fiscal quarters ended July 3, 2021 compared to 33.2% of net sales for the two fiscal quarters ended June 27, 2020.

The $109.3 million, or 99.9% increase in cost of sales was primarily the result of the overall increase in sales volume, inflation in the cost of our raw materials and $4.9 million of non-cash stock-based compensation expense.

The 0.4% increase in gross margin was primarily due to price increases, higher utilization of fixed cost structure, and a mix shift towards in-ground pools, partially offset by supply chain headwinds and inflation, higher growth-related rebates driven by strong sales growth, and stock-based compensation expense.

Cost of sales was $329.8 million for the three fiscal quarters ended October 2, 2021, compared to $186.7 million for the three fiscal quarters ended September 26, 2020.

Gross margin decreased by 3.0% to 32.9% of net sales for the three fiscal quarters ended October 2, 2021 compared to 35.9% of net sales for the three fiscal quarters ended September 26, 2020.

The $143.1 million, or 76.7%, increase in cost of sales was primarily the result of the overall increase in sales volume, cost inflation and $6.8 million of non-cash

stock-based compensation expense.

The 3.0% decrease in gross margin was primarily driven by supply chain headwinds, strategic decisions around re-pricing our order backlog, and stock-based compensation expense.

Selling, General and Administrative Expense

Selling, general and administrative expense was $122.5 million for the two fiscal quarters ended July 3, 2021, compared to $30.8 million for the two fiscal quarters ended June 27, 2020, and increased as a percentage of net sales by 18.4%.

The $91.7 million, or 297.7% increase in selling, general and administrative expense was primarily due to $71.6 million increase in stock-based compensation expense, $5.7 million increase in wages from an increase in headcount particularly for customer-facing activities to support growth of the business and as a result of the increase in the number of employees following the acquisition of GLI, $4.0 million increase due to legal, accounting and professional fees incurred in connection with our IPO that were not capitalizable;

and $2.8 million increase in incentive plan accruals reflecting strong sales performance.

Amortization was $11.1 million for the two fiscal quarters ended July 3, 2021, compared to $8.1 million for the two fiscal quarters ended June 27, 2020.

Selling, general and administrative expense was $170.5 million for the three fiscal quarters ended October 2, 2021, compared to $50.9 million for the three fiscal quarters ended September 26, 2020, and increased as a percentage of net sales by 17.2%.

The $119.6 million, or 235.1% increase in selling, general and administrative expense was primarily due to a $96.4 million increase in stock-based compensation expense, $9.3 million in wages from an increase in headcount, particularly for customer-facing activities to support future busines growth, a $4.8 million increase in expense related to the acquisition of GLI, a $4.0 million increase due to legal, accounting and professional fees incurred in connection with our IPO that were not capitalizable, and ongoing public company costs.

Amortization was $16.6 million for the three fiscal quarters ended October 2, 2021, compared to $12.2 million for the three fiscal quarters ended September 26, 2020.

The $4.4 million, or 36.0%, increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of GLI in October 2020.

Interest Expense

Interest expense was $16.6 million for the two fiscal quarters ended July 3, 2021, compared to $9.6 million for the two fiscal quarters ended June 27, 2020.

The $7.0 million, or 71.9%, increase in interest expense was primarily due to an increase in the outstanding balance of long-term debt and amortization from increased deferred financing fees from entering into an amendment to the Term Loan (as defined below), compared to the two fiscal quarters ended June 27, 2020.

Interest expense was $20.8 million for the three fiscal quarters ended October 2, 2021, compared to $13.6 million for the three fiscal quarters ended September 26, 2020.

The $7.2 million, or 52.9%, increase in interest expense was primarily due to an increase in the outstanding balance of long-term debt and amortization from increased deferred financing fees and discount from entering into an amendment to the Term Loan and subsequently paying down a portion of the Amended Term Loan from IPO proceeds, compared to the three fiscal quarters ended September 26, 2020.

Other (Income) Expense, Net

Other (income) expense, net was $(1.3) million for the two fiscal quarters ended July 3, 2021, compared to $2.5 million for the two fiscal quarters ended June 27, 2020.

The $3.8 million increase in other (income) expense, net was due to a $3.8 million favorable change in net foreign currency transaction gains and losses associated with our international subsidiaries, compared to the two fiscal quarters ended June 27, 2020.

Other (income) expense, net was ($3.9) million for the three fiscal quarters ended October 2, 2021, compared to $1.1 million for the three fiscal quarters ended September 26, 2020.

The $5.0 million increase in other (income) expense, net was primarily due a $3.9 million gain related to the partial sale of our equity method investment and a $1.3 million favorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.

Earnings from Equity Method Investment

Earnings from equity method investment of Premier Pools & Spa was $1.0 million for the two fiscal quarters ended July 3, 2021, compared to no equity in net earnings of Premier Pools & Spa for the two fiscal quarters ended June 27, 2020 as the equity method investment was made in October 2020.

Earnings from equity method investment of Premier Pools & Spa was $1.8 million for the three fiscal quarters ended October 2, 2021, compared to no equity in net earnings of Premier Pools & Spa for the three fiscal quarters ended September 26, 2020 as the equity method investment was made in October 2020.

Income Tax Expense

Income tax expense was $8.1 million for the two fiscal quarters ended July 3, 2021, compared to $2.4 million for the two fiscal quarters ended June 27, 2020.

Our effective tax rate was (21.9)% for the two fiscal quarters ended July 3, 2021, compared to 71.7% for the two fiscal quarters ended June 27, 2020.

The difference between the U.S.

The results for the fiscal quarter ended July 3, 2021 include pre-tax stock compensation expense of $73.5 million related to the Reorganization for which there is no associated tax benefit.

Income tax expense was $15.9 million for the three fiscal quarters ended October 2, 2021, compared to $8.3 million for the three fiscal quarters ended September 26, 2020.

Our effective tax rate was (39.3)% for the three fiscal quarters ended October 2, 2021, compared to 30.6% for the three fiscal quarters ended September 26, 2020.

The difference 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 primarily by state income tax expense.

federal statutory income tax rate and our effective income tax rate for the three fiscal quarters ended October 2, 2021 was primarily attributable to the impact of stock compensation expense pursuant to the Reorganization.

The results for the three fiscal quarters ended October 2, 2021 include pre-tax stock compensation expense of $98.9 million related to the Reorganization for which there is no associated tax benefit.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for the fiscal quarter and two fiscal quarters ended June 27, 2020 was primarily impacted by our switching to an income position for the fiscal quarter ended June 27, 2020.

The pre-tax income for the two fiscal quarters included losses in tax jurisdictions for which we did not record a tax benefit, which increased the effective income tax rate for the fiscal quarter ended June 27, 2020.

federal statutory income tax rate and our effective income tax rate for the three fiscal quarters ended September 26, 2020 was impacted by a variety of factors, primarily stemming from impact of state taxes.

The pre-tax income for the three fiscal quarters ended September 26, 2020 included losses in tax jurisdictions for which the company did not record a tax benefit, which increased the effective income tax rate for the fiscal quarter ended September 26, 2020.

Net (Loss) Income

Net loss was $(45.1) million for the two fiscal quarters ended July 3, 2021, compared to $1.0 million of net income for the two fiscal quarters ended June 27, 2020.

Net loss was ($56.4) million for the three fiscal quarters ended October 2, 2021, compared to $18.7 million of net income for the three fiscal quarters ended September 26, 2020.

The $75.1 million, or 401.3% increase in net loss was primarily due to the factors described above.

Net (Loss) Income Margin

Net loss margin was (13.7)% for the two fiscal quarters ended July 3, 2021, compared to net income margin of 0.6% for the two fiscal quarters ended June 27, 2021.

The (14.3)% increase in net (loss) income margin was due to a $45.1 million increase in net loss and an $165.6 million increase in net sales, compared to the two fiscal quarters ended June 27, 2020 due to the factors described above.

Net loss margin was (11.5)% for the three fiscal quarters ended October 2, 2021, compared to net income margin of 6.4% for the three fiscal quarters ended October 2, 2021.

The (17.9)% increase in net (loss) income margin was due to a $75.1 million increase in net loss and an $200.1 million increase in net sales, compared to the three fiscal quarters ended September 26, 2020 due to the factors described above.

Adjusted EBITDA

Adjusted EBITDA was $76.4 million for the two fiscal quarters ended July 3, 2021, compared to $31.2 million for the two fiscal quarters ended June 27, 2020.

The $45.2 million, or 144.7%, increase in Adjusted EBITDA was primarily due to a $47.1 million increase in earnings before depreciation and amortization, interest expense, income tax (benefit) expense and stock based compensation expense, as well as a $4.0 million increase in legal, accounting and professional fees incurred in connection with our IPO that are not capitalizable, partially offset by a $3.4 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.

Adjusted EBITDA was $112.5 million for the three fiscal quarters ended October 2, 2021, compared to $66.4 million for the three fiscal quarters ended September 26, 2020.

The $46.1 million, or 69.5%, increase in Adjusted EBITDA was primarily due to the increase in net sales.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 23.2% for the two fiscal quarters ended July 3, 2021, compared to 19.0% for the two fiscal quarters ended June 27, 2020.

The 4.2% increase in Adjusted EBITDA margin was primarily due to a $45.2 million increase in Adjusted EBITDA and an $165.6 million increase in net sales, compared to the fiscal quarter ended June 27, 2020.

Adjusted EBITDA margin was 22.9% for the three fiscal quarters ended October 2, 2021, compared to 22.8% for the three fiscal quarters ended September 26, 2020.

The 0.1% increase in Adjusted EBITDA margin was primarily due to a $46.1 million increase in Adjusted EBITDA and an $200.1 million increase in net sales, compared to the three fiscal quarters ended September 26, 2020.

Non-GAAP Financial Measures

22 unchanged sentences

Fiscal Quarter Ended

Two Fiscal Quarters Ended

June 27, 2020

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

(dollars in thousands)

14 unchanged sentences

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

Of the expense recorded during the fiscal quarter ended July 3, 2021, $0.5 million was due to the accelerated vesting of restricted stock and $49.0 million was due to the modification as a result of the Reorganization.

(c) Represents 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.

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

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

(f) Other costs consist of other discrete items as determined by management, including (i) fees paid to external consultants for tax restructuring, (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 acquisition of GLI, which are amortized through cost of sales in the condensed consolidated statements of operations.

(d) Represents fees paid to external consultants for our strategic initiatives.

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

(f) Other costs consist of other discrete items as determined by management, primarily including (i) fees paid to external advisors for various matters, (ii) the cost incurred and insurance proceeds related to our production facility fire in Picton, Australia in 2020, (iii) costs incurred in response to the COVID-19 pandemic, offset by government grants received in the United States, Canada and New Zealand and (iv) gain on sale of equity method investment.

(g) Represents items management believes are not indicative of ongoing operating performance.

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Our primary cash needs are to fund working capital, capital expenditures, debt service requirements and any acquisitions we may undertake.

As of July 3, 2021, we had $76.5 million of cash, $237.3 million of outstanding borrowings and an additional $30.0 million of availability under our Revolving Credit Facility, which was undrawn.

As of October 2, 2021, we had $90.9 million of cash, $234.2 million of outstanding borrowings and an additional $30.0 million of availability under our 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.

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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.

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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 July 3, 2021 we had no outstanding borrowings under the Revolving Credit Facility.

As of October 2, 2021 we had no outstanding borrowings under the Revolving Credit Facility.

Term Loan Facility

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The Term Loan, together with the Third Amendment, are 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 defined 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 bears interest at (1) a base rate equal to the highest of (i) the Federal Funds Rate, as defined 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 (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.

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The Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict our ability to pay dividends.

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

As of July 3, 2021 we had $237.3 million of outstanding borrowings under the Amended Term Loan.

As of October 2, 2021, we were in compliance with all covenants under the Revolving Credit Facility and the Amended Term Loan.

As of October 2, 2021 we had $234.2 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.

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

Two Fiscal Quarters Ended

June 27, 2020

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

(in thousands)

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Effect of exchange rate changes on cash

Net increase in cash

Net increase (decrease) in cash

Operating Activities

During the two fiscal quarters ended July 3, 2021, operating activities provided $14.2 million of cash.

During the three fiscal quarters ended October 2, 2021, operating activities provided $29.4 million of cash.

Net income, after adjustments for non-cash items, provided cash of $75.3 million.

Cash provided by operating activities was further driven by changes in our operating assets and liabilities of ($45.9) million.

Net cash used in changes in our operating assets and liabilities for the two fiscal quarters ended July 3, 2021 consisted primarily of a $44.5 million increase in trade receivables, a $9.5 million increase in inventories, a $3.7 increase in prepaid expenses and other current assets, and a $0.1 increase in income tax receivable, partially offset by an $11.0 million increase in accounts payable, a $5.6 increase in accrued expenses and other current liabilities, a $0.8 million decrease in other assets and a $0.1 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 changes in accrued expenses and other current liabilities and accounts payable were primarily due to timing of payments.

During the two fiscal quarters ended June 27, 2020, operating activities provided $10.2 million of cash.

Net cash used in changes in our operating assets and liabilities for the three fiscal quarters ended October 2, 2021 consisted primarily of a $43.1 million increase in trade receivables, a $16.1 million increase in inventories, a $4.8 million increase in prepaid expenses and other current assets, a $1.8 million increase in income tax receivable, and a $0.5 million increase in other assets, partially offset by a $10.6 million increase in accounts payable, a $9.7 million increase in accrued expenses and other current liabilities, and a $0.1 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 cost inflation.

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 three fiscal quarters ended September 26, 2020, operating activities provided $55.1 million of cash.

Net income, after adjustments for non-cash items, provided cash of $40.3 million.

Cash used in operating activities was further driven by changes in our operating assets and liabilities of $(4.9) million.

Net cash used in changes in our operating assets and liabilities for the two fiscal quarters ended June 27, 2020 consisted primarily of a $25.7 million increase in trade receivables, a $0.8 million increase in inventories, partially offset by a $10.7 million increase in accounts payable, $9.5 increase in accrued expenses and other current liabilities, and a $0.9 decrease in prepaid expenses and other current assets.

The change in trade receivables was primarily due to the timing of net sales, and the increase in inventories was primarily due to increased production in response to customer demand.

The changes in accrued expenses and other current liabilities and accounts payable were primarily due to timing of payments.

Cash provided by operating activities was further driven by changes in our operating assets and liabilities of $14.8 million.

Net cash provided by changes in our operating assets and liabilities for the three fiscal quarters ended September 26, 2020 consisted primarily of a $18.7 million increase in trade receivables, a $2.2 million increase in inventories, a $1.3 million increase in income tax receivable, partially offset by a $16.2 million increase in accounts payable, $20.4 million increase in accrued expenses and other current liabilities, and a $0.3 million decrease in prepaid expenses and other current assets.

The change in trade receivables was primarily due to the timing of net sales.

The changes in accrued expenses and other current liabilities and accounts payable were primarily due to volume of purchases and timing of payments.

Investing Activities

During the two fiscal quarters ended July 3, 2021, investing activities used $12.8 million of cash, primarily consisting of purchases of property and equipment for $13.0 million.

The purchase of property and equipment was to expand capacity for inventory production in order to meet increasing customer demand.

During the fiscal quarter ended June 27, 2020, investing activities used $6.2 million of cash, consisting of purchases of property and equipment of $6.2 million.

During the three fiscal quarters ended October 2, 2021, investing activities used $12.0 million of cash, primarily consisting of purchases of property and equipment for $19.2 million, partially offset by proceeds from the sale of equity method investment of $6.8 million and return of equity method investment of $0.4 million.

The purchase of property and equipment was primarily to expand capacity for inventory production in order to meet increasing customer demand.

During the three fiscal quarters ended September 26, 2020, investing activities used $9.1 million of cash, consisting of purchases of property and equipment of $9.7 million partially offset by proceeds from the sale of property and equipment of $0.6 million.

Financing Activities

During the two fiscal quarters ended July 3, 2021, financing activities provided $17.9 million of cash, primarily consisting of proceeds from our IPO, net of underwriting discounts, commissions and offering costs of $399.3 million, proceeds from borrowings on the Amended Term Loan of $172.8 million and borrowings on the Revolving Credit Facility of $16.0 million, partially offset by the repurchase of treasury stock of $281.6 million, payments on long-term debt borrowings of $161.3 million, dividends to Class A unitholders of $110.0 million, and payments on Revolving Credit Facility borrowings of $16.0 million.

During the two fiscal quarters ended June 27, 2020, financing activities used $5.0 million of cash, consisting of payments on long-term debt borrowings of $4.4 million and repurchase and retirement of treasury stock of $0.6 million.

During the three fiscal quarters ended October 2, 2021, financing activities provided $14.3 million of cash, primarily consisting of proceeds from our IPO, net of underwriting discounts, commissions and offering costs of $399.3 million, proceeds from borrowings on the Amended Term Loan of $172.8 million and borrowings on the Revolving Credit Facility of $16.0 million, partially offset by the repurchase of treasury stock of $281.6 million, payments on long-term debt borrowings of $164.8 million, dividends to Class A unitholders of $110.0 million, and payments on Revolving Credit Facility borrowings of $16.0 million.

During the three fiscal quarters ended September 26, 2020, financing activities used $27.5 million of cash, primarily consisting of payments on long-term debt borrowings of $20.9 million, payments to settle the Narellan contingent consideration of $6.6 million and

repurchase and retirement of treasury stock of $0.6 million, partially offset by proceeds from the issuance of common stock of $0.6 million.

Contractual Obligations

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At the new assumed interest rate of 6.13% as of January 25, 2021, the interest payments are $3.7 million in the next year, $27.2 million in the next one to three years, and $18.1 million in the next four to five years.

There have been no other material changes, outside of the ordinary course of business, to these contractual obligations during the quarter ended July 3, 2021 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.

There have been no other material changes, outside of the ordinary course of business, to these contractual obligations during the quarter ended October 2, 2021 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.”

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis