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Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2021-11-10 · 139 added, 215 removed, 172 unchanged (67% of the section changed)

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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 offering 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, 2021 (the “Prospectus”).

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 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 10, 2022 (the “Annual Report”).

Cautionary Note Regarding Forward-Looking Statements

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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;

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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.

We are Latham, The Pool Company TM .

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.

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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-coast operations platform consisting of over 2,000 employees across 32 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.

We support our dealer network with business development tools, co-branded marketing programs and in-house training, as well as an operations platform consisting of over 2,300 employees across over 30 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.

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Recent Developments

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

On April 27, 2021, we completed our initial public offering (the “IPO”) in which we 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.

The aggregate net proceeds received by us from the IPO were $399.3 million, after deducting underwriting discounts and commissions and other offering costs.

We 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 $13.9 million.

Contemporaneously with the pricing of the IPO, on April 22, 2021, we have put in place our Omnibus Incentive Plan, pursuant to which we granted to certain of our employees restricted stock awards, restricted stock units and option awards (the “Omnibus Plan”).

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, 194,207,115 Class A units of our Parent (“Class A units”) were converted into 97,187,596 shares of our common stock and 26,158,894 Class B units of our Parent were converted into 4,145,987 shares of common stock and 8,340,126 shares of restricted stock.

The Reorganization was accounted for as a transaction between entities under common control and retrospectively applied starting December 2018, the earliest period in which common control existed.

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 part of the Reorganization, our certificate 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 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.

Highlights for the fiscal quarter ended April 2, 2022

● Increase in net sales of 28.8%, or $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.

● Increase in net loss of $11.3 million, to $2.8 million for the fiscal quarter ended April 2, 2022, compared to a net income of $8.5 million for the fiscal quarter ended April 3, 2021, representing an 1.5% net loss margin for the fiscal quarter ended April 2, 2022.

● Increase in Adjusted EBITDA (as defined below) of $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.

Share Repurchase Program

On May 10, 2022, we approved a stock repurchase program (the “Repurchase Program”), which authorized us to repurchase up to $100 million of our shares of common stock over 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 our shares of our common stock under the Repurchase Program and the timing and amount of any repurchases will depend on market conditions, our stock price, alternative uses of capital, the terms of our debt instruments and other factors.

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 and a U.S.

Dollar senior secured term loan facility (the “New Term Loan 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) 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 exercise 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 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 our stockholders, primarily investment funds

managed by Pamplona Capital Management LLC (“Pamplona”) and Wynnchurch Capital, L.P., and also a small percentage of shares of common stock owned by some of our directors and executive officers.

Key Performance Indicators

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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.

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.

Gross margin is gross profit as a percentage of our net sales.

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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) acquisition and integration related costs, (xi) other, (xii) IPO costs, and (xiii) COVID-19-related expenses (income).

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) 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 (xiii) IPO costs.

We believe excluding these items allows for better comparison of our financial results across reporting periods.

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Results of Operations

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 April 2, 2022 Compared to Fiscal Quarter Ended April 3, 2021

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

Fiscal Quarter Ended

October 2, 2021

September 26, 2020

(dollars in thousands)

Cost of sales

Selling, general and administrative expense

(Loss) income from operations

Other expense (income):

Interest expense

Other (income) expense, net

Total other expense, net

Earnings from equity method investment

(Loss) income before income taxes

Income tax expense

Net (loss) income

Adjusted EBITDA (a)

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

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 $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 $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 $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 $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 ($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 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 $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 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 September 26, 2020 was impacted by a variety of factors, primarily stemming from impact of state taxes.

Net (Loss) Income

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 (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 $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 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

April 2, 2022

April 3, 2021

(dollars in thousands)

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Selling, general and administrative expense

(Loss) income from operations

Underwriting fees related to offering of common stock

Income from operations

Other expense (income):

Interest expense

Loss on extinguishment of debt

Other (income) expense, net

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Earnings from equity method investment

(Loss) income before income taxes

Income before income taxes

Income tax expense

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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.

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.

The $42.9 million, or 28.8%, increase in net sales was due to a $7.3 million increase from volume and a $35.6 million increase from pricing.

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 $35.6 million price increase reflects the impact of pricing actions to address inflationary pressures.

The increase in total net sales of $42.9 million across our product lines was $18.2 million for in-ground swimming pools, $16.2 million for liners and $8.5 million for covers.

Cost of Sales and Gross Margin

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.

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.

Gross margin increased by 1.6%, to 36.9% of net sales for the fiscal quarter ended April 2, 2022 compared to 35.3% of net sales for the fiscal quarter ended April 3, 2021.

The $24.7 million, or 25.6%, increase in cost of sales was primarily the result of the overall increase in sales volume, cost inflation and $1.2 million of non-cash stock-based compensation expense.

The 1.6% increase in gross margin was primarily driven by benefits from pricing actions to address inflation, improved resin supply, benefits from the build of inventory, partially offset by negative fixed cost leverage due to investments to support future growth.

Selling, General and Administrative Expense

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.

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, and increased as a percentage of net sales by 5.3%.

The $18.0 million, or 66.4%, increase in selling, general and administrative expense was primarily due to a $14.3 million increase in stock-based compensation

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 fiscal quarter ended April 2, 2022, related to the offering that was completed in January 2022.

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.

The $1.6 million, or 28.5%, increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of Radiant in November 2021.

Interest Expense

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.

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.

The $7.3 million, or 80.5%, decrease in interest expense was primarily due to a decrease in the average outstanding balance of long-term debt, lower amortization of deferred financing costs and debt discount and a lower effective interest rate, compared to the fiscal quarter ended 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, Net

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.

Other (income) expense, net was ($0.4) million for the fiscal quarter ended April 2, 2022, compared to ($0.6) million for the fiscal quarter ended April 3, 2021.

The $0.2 million decrease in other income was primarily due an 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 $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.

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, primarily due to the financial performance of Premier Pools & Spa.

Income Tax Expense

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.

Income tax expense was $5.3 million for the fiscal quarter ended April 2, 2022, compared to $2.9 million for the fiscal quarter ended April 3, 2021.

Our effective tax rate was 215.1% for the fiscal quarter ended April 2, 2022, compared to 25.3% for the fiscal quarter ended April 3, 2021.

The difference between the U.S.

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.

federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended April 2, 2022 was primarily attributable to the discrete impact of stock compensation expense 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 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.

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 taxes.

Net (Loss) Income

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.

Net loss was $2.8 million for the fiscal quarter ended April 2, 2022, compared to $8.5 million of net income for the fiscal quarter ended April 3, 2021.

The $11.3 million, or 133.3%increase in net loss was primarily due to the factors described above.

Net (Loss) Income Margin

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.

Net loss margin was 1.5% for the fiscal quarter ended April 2, 2022, compared to net income margin of 5.7% for the fiscal quarter ended April 2, 2022.

The 7.2% increase in net loss margin was due to a $11.3 million increase in net loss and a $42.9 million increase in net sales, compared to the fiscal quarter ended April 3, 2021 due to the factors described above.

Adjusted EBITDA

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.

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.

The $14.5 million, or 43.1%, increase in Adjusted EBITDA was primarily due to the increase in net sales.

Adjusted EBITDA Margin

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.

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.

The 2.5% increase in Adjusted EBITDA margin was primarily due to a $14.5 million increase in Adjusted EBITDA and a $42.9 million increase in net sales, compared to the fiscal quarter ended April 3, 2021.

Non-GAAP Financial Measures

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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) other, and (xi) 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.

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Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

(dollars in thousands)

April 2, 2022

April 3, 2021

Net (loss) income

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Acquisition and integration related costs(e)

Loss on extinguishment of debt (f)

Underwriting fees related to offering of common stock (h)

Adjusted EBITDA

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

(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.

(c) Represents unrealized foreign currency transaction (gains) and losses associated with our international subsidiaries.

(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.

These expenses are primarily composed of legal, accounting and professional fees incurred in connection with the IPO that are not capitalizable, which are included within selling, general and administrative expense.

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

(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 advisors for various matters, (ii) non-cash adjustments to record the step-up in the fair value of inventory related to the acquisitions of GL

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

(h) Represents underwriting fees related to our offering of common stock that was completed in January 2022.

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

Liquidity and Capital Resources

Our primary sources of liquidity are net cash provided by operating activities and availability under our 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 Loan and Revolving Credit Facility (each as defined below under “—Our Indebtedness”) and through the issuance of shares of our common stock.

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 term loan and revolving 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 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.

We received net proceeds of $399.3 million.

As of April 2, 2022, we had $18.7 million of cash, $324.1 million of outstanding borrowings and an additional $65.0 million of availability under our New Revolving Credit Facility, which was undrawn.

Our primary working capital requirements are for the purchase of inventory, payroll, rent, facility costs and other selling, general and administrative costs.

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We expect to fund these capital expenditures from net cash provided by operating activities.

We believe that our existing cash, cash generated from operations and availability under our Revolving Credit Facility, will be adequate to fund our operating expenses and capital expenditure requirements over the next 12 months.

We believe that 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.

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 is 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 on 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

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.

We are required to meet certain financial covenants, including maintaining specific liquidity measurements.

As of October 2, 2021 we had no outstanding borrowings under the 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 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 in May 2019 and October 2020 to provide additional borrowings (the “Amended Term Loan”).

The Term Loan 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 repurchase and retire treasury stock in the amount of $64.9 million and to make a $110.0 million dividend to Class A unitholders.

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 (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 accordance with the terms of the Amended Term Loan, we elected to change the terms of the prepayment schedule from an inverse application to a pro rata application and as a result we are required to repay the outstanding principal balance of the Amended Term Loan in fixed quarterly payments of $3.6 million, commencing June 30, 2021.

In connection with the Amended Term Loan, we are subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measurements.

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 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 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 Term Loan, to fund our acquisition of Narellan Group Pty Limited and its subsidiaries (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 the proceeds were used on February 2, 2021 to purchase and retire equity interests and to pay a distribution.

On March 31, 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 $50.0 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 terminated in connection with the Refinancing.

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

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

Fiscal Quarter Ended

April 2, 2022

April 3, 2021

(in thousands)

Net cash provided by operating activities

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash

Net decrease in cash

Operating Activities

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

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 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 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.

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

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 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.

Cash used in operating activities was further driven by changes in our operating assets and liabilities, which used $63.1 million.

Net cash provided 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 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.

During the fiscal quarter ended April 2, 2022, investing activities used $6.7 million of cash, consisting of purchases of property and equipment.

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.

During the fiscal quarter ended April 3, 2021, investing activities used $4.6 million of cash, consisting of purchases of property and 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 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.

During the fiscal quarter ended April 2, 2022, financing activities provided $39.3 million of cash, primarily consisting of proceeds from long-term debt borrowings in connection with the Refinancing of $320.1 million, proceeds from the sale of common stock of $257.7 million and borrowings on revolving credit facilities of $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.

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 the repurchase of common stock of $64.9 million, dividends to Class A unitholders of $110.0 million, and payments on long-term debt borrowings of $5.8 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 repurchase and retire treasury stock in the amount of $64.9 million on February 2, 2021.

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.

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.

During the fiscal quarter ended July 3, 2021, in accordance with the terms of the Amended Term Loan, we elected to change the terms of the prepayment schedule from an inverse application to a pro rata application and as a result we are required to repay the outstanding principal balance of the Amended Term Loan in fixed quarterly payments of $3.6 million, commencing June 30, 2021.

Due to the revised principal payments under the Amended Term Loan, the required principal payments are $3.6 million in the next year, $28.5 million in the next one to three years, and $206.2 million in the next four to five years.

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 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.”

There have been no material changes, outside of the ordinary course of business, to our contractual obligations during the fiscal quarter ended April 2, 2022 from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our Annual Report.

Critical Accounting Policies and Estimates

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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.

These estimates are based on historical results, trends and other assumptions we believe to be reasonable.

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Actual results may differ from estimates.

For additional information about our critical accounting policies and estimates, see the disclosure included in our Prospectus 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.

For additional information about our critical accounting policies and estimates, see the disclosure included in our 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

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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