Latham Group, Inc. 10-K

Item 8 – Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ ​ Page ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 60 Consolidated Balance Sheets as of December 31, 2022 and 2021 61 Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020 62 Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2022, 2021 and 2020 63 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020 64 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 65 Notes to Consolidated Financial Statements 66 ​ ​ ​ 59 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Latham Group, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Latham Group, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ /s/ Deloitte & Touche LLP ​ Hartford, Connecticut March 7, 2023 ​ We have served as the Company’s auditor since 2020. ​ ​ ​ ​ ​ ​ ​ ​ 60 Table of Contents Latham Group, Inc. Consolidated Balance Sheets (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ Cash ​ $ 32,626 ​ $ 43,952 Trade receivables, net ​ 48,847 ​ 60,753 Inventories, net ​ 165,220 ​ 109,556 Income tax receivable ​ 2,316 ​ 4,039 Prepaid expenses and other current assets ​ 5,998 ​ 10,766 Total current assets ​ 255,007 ​ 229,066 Property and equipment, net ​ 98,184 ​ 63,506 Equity method investment ​ 25,095 ​ 23,362 Deferred tax assets ​ 7,762 ​ 10,603 Operating lease right-of-use assets ​ ​ 38,308 ​ ​ — Goodwill ​ 131,383 ​ 128,871 Intangible assets, net ​ 309,215 ​ 338,310 Other assets ​ ​ 4,729 ​ ​ 765 Total assets ​ $ 869,683 ​ $ 794,483 Liabilities and Stockholders’ Equity ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 25,449 ​ $ 37,998 Accounts payable – related party ​ 358 ​ 850 Current maturities of long-term debt ​ 3,250 ​ 17,220 Current operating lease liabilities ​ ​ 6,923 ​ ​ — Accrued expenses and other current liabilities ​ 50,885 ​ 59,097 Total current liabilities ​ 86,865 ​ 115,165 Long-term debt, net of discount and current portion ​ 309,631 ​ 263,188 Deferred income tax liabilities, net ​ 50,181 ​ 56,343 Liability for uncertain tax positions ​ 7,123 ​ 5,689 Non-current operating lease liabilities ​ ​ 32,391 ​ ​ — Other long-term liabilities ​ 702 ​ 453 Total liabilities ​ 486,893 ​ 440,838 Commitments and contingencies ​ ​ Stockholders’ equity: ​ ​ Preferred stock, $ 0.0001 par value; 100,000,000 shares authorized as of both December 31, 2022 and December 31, 2021; no shares issued and outstanding as of both December 31, 2022 and December 31, 2021 ​ ​ — ​ ​ — Common stock, $ 0.0001 par value; 900,000,000 shares authorized as of December 31, 2022 and December 31, 2021; 114,667,975 and 119,445,611 shares issued and outstanding , as of December 31, 2022 and December 31, 2021, respectively ​ 11 ​ 12 Additional paid-in capital ​ 440,880 ​ 401,846 Accumulated deficit ​ ( 54,568 ) ​ ( 48,583 ) Accumulated other comprehensive (loss) income ​ ( 3,533 ) ​ 370 Total stockholders’ equity ​ 382,790 ​ 353,645 Total liabilities and stockholders’ equity ​ $ 869,683 ​ $ 794,483 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 61 Table of Contents Latham Group, Inc. Consolidated Statements of Operations (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Net sales ​ $ 695,736 ​ $ 630,456 ​ $ 403,389 Cost of sales ​ 479,267 ​ 426,294 ​ 260,616 Gross profit ​ 216,469 ​ 204,162 ​ 142,773 Selling, general, and administrative expense ​ 146,842 ​ 217,775 ​ 85,527 Underwriting fees related to offering of common stock ​ ​ 11,437 ​ ​ — ​ ​ — Amortization ​ 28,180 ​ 22,566 ​ 17,347 Income (loss) from operations ​ 30,010 ​ ( 36,179 ) ​ 39,899 Other expense (income): ​ ​ ​ Interest expense ​ 15,753 ​ 24,433 ​ 18,251 Loss on extinguishment of debt ​ ​ 3,465 ​ ​ — ​ ​ — Other expense (income), net ​ 1,301 ​ ( 4,860 ) ​ ( 1,111 ) Total other expense, net ​ 20,519 ​ 19,573 ​ 17,140 Earnings from equity method investment ​ ​ 4,230 ​ ​ 2,222 ​ ​ — Income (loss) before income taxes ​ 13,721 ​ ( 53,530 ) ​ 22,759 Income tax expense ​ 19,415 ​ 8,818 ​ 6,776 Net (loss) income ​ $ ( 5,694 ) ​ $ ( 62,348 ) ​ $ 15,983 Net (loss) income per share attributable to common stockholders: ​ ​ ​ Basic ​ $ ( 0.05 ) ​ $ ( 0.56 ) ​ $ 0.16 Diluted ​ $ ( 0.05 ) ​ $ ( 0.56 ) ​ $ 0.16 Weighted-average common shares outstanding – basic and diluted ​ ​ ​ Basic ​ 113,245,421 ​ 110,644,366 ​ 101,606,966 Diluted ​ 113,245,421 ​ 110,644,366 ​ 102,602,738 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 62 Table of Contents Latham Group, Inc. Consolidated Statements of Comprehensive (Loss) Income (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Net (loss) income ​ $ ( 5,694 ) ​ $ ( 62,348 ) ​ $ 15,983 Other comprehensive (loss) income, net of tax: ​ ​ ​ Foreign currency translation adjustments ​ ( 3,903 ) ​ ( 1,984 ) ​ 2,825 Total other comprehensive (loss) income, net of tax ​ ( 3,903 ) ​ ( 1,984 ) ​ 2,825 Comprehensive (loss) income ​ $ ( 9,597 ) ​ $ ( 64,332 ) ​ $ 18,808 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 63 Table of Contents Latham Group, Inc. Consolidated Statements of Stockholders’ Equity (in thousands, except share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Accumulated ​ Other ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Deficit) ​ Comprehensive ​ Total ​ ​ Common Stock ​ Paid-in ​ Retained ​ (Loss) ​ Stockholders’ ​ Shares Amount Capital Earnings Income Equity Balances at December 31, 2019 96,498,943 ​ $ 10 ​ $ 196,474 ​ $ ( 2,218 ) ​ $ ( 471 ) ​ $ 193,795 Net income — ​ — ​ — ​ 15,983 ​ — ​ 15,983 Foreign currency translation adjustments — ​ — ​ — ​ — ​ 2,825 ​ 2,825 Proceeds from issuance of common stock 21,871,850 ​ 2 ​ 65,551 ​ — ​ — ​ 65,553 Repurchase and retirement of common stock ( 275,238 ) ​ — ​ ( 582 ) ​ — ​ — ​ ( 582 ) Contingent consideration settlement ​ 758,694 ​ ​ — ​ ​ 2,208 ​ ​ — ​ ​ — ​ ​ 2,208 Stock-based compensation expense — ​ — ​ 1,827 ​ — ​ — ​ 1,827 Balances at December 31, 2020 118,854,249 ​ 12 ​ 265,478 ​ 13,765 ​ 2,354 ​ 281,609 Net loss — ​ — ​ — ​ ( 62,348 ) ​ — ​ ( 62,348 ) Foreign currency translation adjustments — ​ — ​ — ​ — ​ ( 1,984 ) ​ ( 1,984 ) Dividend to Class A unitholders ($ 1.00 per share) ​ — ​ ​ — ​ ​ ( 110,033 ) ​ ​ — ​ ​ — ​ ​ ( 110,033 ) Issuance of restricted stock in connection with the Reorganization ​ 8,340,126 ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — ​ ​ — Issuance of common stock upon conversion of Class B units ​ 4,145,987 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net proceeds from initial public offering ​ 23,000,000 ​ ​ 2 ​ ​ 399,262 ​ ​ — ​ ​ — ​ ​ 399,264 Repurchase and retirement of common stock ( 33,931,091 ) ​ ( 3 ) ​ ( 281,635 ) ​ — ​ — ​ ( 281,638 ) Retirement of restricted stock ( 1,014,976 ) ​ — ​ — ​ — ​ — ​ — Issuance of common stock upon release of restricted stock units ​ 51,316 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock-based compensation expense — ​ — ​ 128,775 ​ — ​ — ​ 128,775 Balances at December 31, 2021 119,445,611 ​ ​ 12 ​ ​ 401,846 ​ ​ ( 48,583 ) ​ ​ 370 ​ ​ 353,645 Cumulative effect of adoption of new accounting standard- leases ​ — ​ ​ — ​ ​ — ​ ​ ( 291 ) ​ ​ — ​ ​ ( 291 ) Net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 5,694 ) ​ ​ — ​ ​ ( 5,694 ) Foreign currency translation adjustments ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,903 ) ​ ​ ( 3,903 ) Proceeds from sale of common stock ​ 13,800,000 ​ ​ 1 ​ ​ 269,099 ​ ​ — ​ ​ — ​ ​ 269,100 Repurchase and retirement of common stock ​ ( 13,800,244 ) ​ ​ ( 1 ) ​ ​ ( 257,662 ) ​ ​ — ​ ​ — ​ ​ ( 257,663 ) Repurchases and retirements of common stock under Repurchase Program ​ ( 4,483,620 ) ​ ​ ( 1 ) ​ ​ ( 23,037 ) ​ ​ — ​ ​ — ​ ​ ( 23,038 ) Retirement of restricted stock ​ ( 480,385 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Issuance of common stock upon release of restricted stock units ​ 186,613 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock-based compensation expense ​ — ​ ​ — ​ ​ 50,634 ​ ​ — ​ ​ — ​ ​ 50,634 Balances at December 31, 2022 114,667,975 ​ $ 11 ​ $ 440,880 ​ $ ( 54,568 ) ​ $ ( 3,533 ) ​ $ 382,790 ​ The accompanying notes are an integral part of these consolidated financial statements. 64 Table of Contents Latham Group, Inc. Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2022 2021 2020 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net (loss) income ​ $ ( 5,694 ) ​ $ ( 62,348 ) ​ $ 15,983 Adjustments to reconcile net (loss) income to net cash provided by operating activities: ​ ​ ​ Depreciation and amortization ​ 38,175 ​ 32,230 ​ 25,365 Amortization of deferred financing costs and debt discount ​ 1,570 ​ 6,419 ​ 2,317 Non-cash lease expense ​ ​ 7,400 ​ ​ — ​ ​ — Deferred income taxes ​ ( 3,802 ) ​ ( 12,028 ) ​ ( 4,670 ) Stock-based compensation expense ​ 50,634 ​ 128,775 ​ 1,827 Underwriting fees related to offering of common stock ​ ​ 11,437 ​ ​ — ​ ​ — Loss on extinguishment of debt ​ ​ 3,465 ​ ​ — ​ ​ — Other non-cash, net ​ ​ 3,015 ​ ​ 493 ​ ​ 1,024 Gain on sale of portion of equity method investment ​ ​ — ​ ​ ( 4,806 ) ​ ​ — Earnings from equity method investment ​ ​ ( 4,230 ) ​ ​ ( 2,222 ) ​ ​ — Distributions received from equity method investment ​ ​ 2,497 ​ ​ 1,808 ​ ​ — Provision on liability for uncertain tax positions ​ 1,434 ​ 149 ​ 465 Change in fair value of contingent consideration for Narellan Group Pty Limited ​ — ​ — ​ ( 204 ) Changes in operating assets and liabilities: ​ ​ ​ Trade receivables ​ 8,992 ​ ( 26,015 ) ​ 9,462 Inventories ​ ( 57,034 ) ​ ( 39,656 ) ​ ( 17,023 ) Prepaid expenses and other current assets ​ 4,722 ​ ( 4,455 ) ​ 1,680 Income tax receivable ​ 1,723 ​ 338 ​ ( 4,190 ) Other assets ​ ​ ( 466 ) ​ ​ 800 ​ ​ — Accounts payable ​ ( 12,358 ) ​ 10,678 ​ 9,775 Accrued expenses and other current liabilities ​ ( 19,420 ) ​ 4,686 ​ 20,556 Other long-term liabilities ​ 249 ​ ( 1,156 ) ​ 793 Net cash provided by operating activities ​ 32,309 ​ 33,690 ​ 63,160 Cash flows from investing activities : ​ ​ ​ Purchases of property and equipment ​ ( 39,684 ) ​ ( 24,975 ) ​ ( 16,264 ) Proceeds from the sale of property and equipment ​ 24 ​ 35 ​ 579 Acquisitions of businesses, net of cash acquired ​ ( 5,358 ) ​ ( 90,508 ) ​ ( 74,736 ) Return of equity method investment ​ ​ — ​ ​ 447 ​ ​ — Equity method investment in Premier Pools & Spas ​ ​ — ​ ​ — ​ ​ ( 25,384 ) Proceeds from the sale of portion of equity method investment ​ ​ — ​ ​ 6,796 ​ ​ — Net cash used in investing activities ​ ( 45,018 ) ​ ( 108,205 ) ​ ( 115,805 ) Cash flows from financing activities : ​ ​ ​ Proceeds from long-term debt borrowings ​ 320,125 ​ 222,813 ​ 20,000 Payments on long-term debt borrowings ​ ( 286,447 ) ​ ( 169,138 ) ​ ( 24,044 ) Proceeds from borrowings on revolving credit facilities ​ ​ 25,000 ​ ​ 16,000 ​ ​ — Payments on revolving credit facility ​ ​ ( 25,000 ) ​ ​ ( 16,000 ) ​ ​ — Deferred financing fees paid ​ ​ ( 6,865 ) ​ ​ ( 1,250 ) ​ ​ — Dividend to Class A unitholders ​ ​ — ​ ​ ( 110,033 ) ​ ​ — Proceeds from the issuance of common stock ​ 257,663 ​ — ​ 65,553 Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs ​ ​ — ​ ​ 399,264 ​ ​ — Repurchases and retirements of common stock ​ ​ ( 280,701 ) ​ ​ ( 281,638 ) ​ ​ ( 582 ) Payments of Narellan Group Pty Limited contingent consideration ​ — ​ — ​ ( 6,624 ) Net cash provided by financing activities ​ 3,775 ​ 60,018 ​ 54,303 Effect of exchange rate changes on cash ​ ( 2,392 ) ​ ( 861 ) ​ 997 Net (decrease) increase in cash ​ ( 11,326 ) ​ ( 15,358 ) ​ 2,655 Cash at beginning of period ​ 43,952 ​ 59,310 ​ 56,655 Cash at end of period ​ $ 32,626 ​ $ 43,952 ​ $ 59,310 Supplemental cash flow information : ​ ​ ​ Cash paid for interest ​ $ 12,621 ​ $ 17,371 ​ $ 15,625 Income taxes paid, net ​ ​ 20,313 ​ ​ 20,054 ​ ​ 14,815 Supplemental disclosure of non-cash investing and financing activities : ​ ​ ​ Purchases of property and equipment included in accounts payable and accrued expenses ​ $ 6,029 ​ $ 664 ​ $ 1,235 Capitalized internal-use software included in accounts payable – related party ​ ​ 350 ​ ​ 850 ​ ​ 500 Deferred offering costs included in accounts payable and accrued expenses ​ ​ — ​ ​ — ​ ​ 1,040 Right-of-use operating assets obtained in exchange for lease liabilities ​ ​ 46,244 ​ ​ — ​ ​ — Fair value of 758,694 shares of common stock issued during the year ended December 31, 2020 in connection with the acquisition of Narellan Pty Limited ​ ​ — ​ ​ — ​ ​ 2,208 Change in defined benefit pension plan liability ​ ​ — ​ ​ — ​ ​ ( 149 ) Net working capital adjustment receivable ​ ​ — ​ ​ — ​ ​ 750 ​ The accompanying notes are an integral part of these consolidated financial statements. 65 Table of Contents Notes to Consolidated Financial Statements  1. NATURE OF THE BUSINESS Latham Group, Inc. (“the Company”) wholly owns Latham Pool Products, Inc. (“Latham Pool Products”) (together, “Latham”) a designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand. Latham offers a portfolio of pools and related products, including in-ground swimming pools, pool liners, and pool covers. On December 18, 2018, Latham Investment Holdings, LP (“Parent”), an investment fund managed by affiliates of Pamplona Capital Management (the “Sponsor”), Wynnchurch Capital, L.P., and management acquired all of the outstanding equity interests of Latham Topco., Inc. a newly incorporated entity in the State of Delaware. Latham Topco, Inc. changed its name to Latham Group, Inc. on March 3, 2021. Stock Split, Initial Public Offering and Reorganization On April 13, 2021, the Company’s certificate of incorporation was amended and restated. On April 13, 2021, the Company effected a 109,673.709 -for-one stock split of its issued and outstanding shares of common stock. Accordingly, all share and per share data included in these consolidated financial statements and notes thereto have been adjusted retroactively to reflect the impact of the amended and restated certificate of incorporation and the stock split. Refer to Note 20 for additional detail. On April 27, 2021, the Company completed its initial public offering (the “IPO”), pursuant to which it issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $ 399.3 million, after deducting underwriting discounts and commissions and other offering costs. Prior to the closing of the Company’s IPO on April 27, 2021 (the “Closing of the IPO”), the Company’s parent entity, Parent, merged with and into Latham Group, Inc. (the “Reorganization”). Refer to Note 20 for additional detail. ​ 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience, known trends, and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are evaluated on an ongoing basis and revised as there are changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known. ​ 66 Table of Contents Seasonality Although the Company generally has demand for its products throughout the year, its business is seasonal and weather is one of the principal external factors affecting the business. In general, net sales and net income are highest during spring and summer, representing the peak months of swimming pool use, pool installation, and remodeling and repair activities. Sales periods having severe weather may also affect net sales. Leases On January 1, 2022, the Company adopted ASU 2016-02, “Leases (Topic 842),” and the related amendments (collectively “ASC 842”). The optional transition method of adoption was used, in which the cumulative effect of initially applying the new standard to existing leases was $ 0.3 million to record the operating lease right-of-use assets and the related liabilities as of January 1, 2022. Under this method of adoption, the comparative information has not been revised and continues to be reported under the previously applicable lease accounting guidance (“ASC 840”). For leases with initial terms greater than 12 months, the Company considers these right-of-use assets and records the related asset and obligation at the present value of lease payments over the term. For leases with initial terms equal to or less than 12 months, the Company does not consider them as right-of-use assets and instead considers them short-term lease costs that are recognized on a straight-line basis over the lease term. The Company’s leases may include escalation clauses, renewal options and/or termination options that are factored into the Company’s determination of lease term and lease payments when it is reasonably certain the option will be exercised. The Company has elected to take the practical expedient and not separate lease and non-lease components of contracts. The Company estimates an incremental borrowing rate to discount the lease payments based on information available at lease commencement because the implicit rate of the lease is generally not known. The Company leases vehicles, manufacturing facilities, office space, land, and equipment under operating leases. The Company determines if an arrangement is a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company does not have material finance leases. Revenue Recognition Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines which goods or services are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when, or as, that performance obligation is satisfied. The Company sells its products through business-to-business distribution channels. With the exception of its extended service warranties and custom product contracts, the Company recognizes its revenue at a point in time when control of the promised goods is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Control of the goods is considered to have been transferred upon shipping or upon arrival at the customer’s destination, depending on the terms of the purchase order. Revenue that is derived from its extended service warranties, which are separately priced and sold, is recognized over the term of the contract. Refer to Warranties within this same Note for further information. 67 Table of Contents 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. Each product shipped is considered to be one performance obligation. For each product shipped, the transaction price by product is specified in the purchase order. The Company recognizes revenue on the transaction price less any estimated rebates, cash discounts, or other sales incentives. Customer rebates, cash discounts, and other sales incentives are estimated by applying the portfolio approach using the most-likely-amount method and are recorded as a reduction to revenue. Estimates are updated each reporting period and any changes are allocated to the performance obligations on the same basis as at inception. The Company believes the most-likely-amount method best predicts the amount of consideration to which it will be entitled. The Company has elected to account for shipping and handling costs as activities to fulfill the promise to transfer the goods. As a result of this accounting policy election, the Company does not consider shipping and handling activities as promised services to its customers. Therefore, shipping and handling costs billed to customers are recorded in net sales, and the related costs in cost of sales. The Company does not engage in contracts greater than one year, and therefore does not have any contract costs capitalized as of December 31, 2022, and 2021. As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the period between the transfer of a promised good to a customer and when the customer pays for that product is one year or less. Warranties The Company offers limited assurance-type warranties on most of its products, which assure that the product will comply with agreed upon specifications. These assurance-type warranties are not separately priced and are not considered separate performance obligations. The Company also offers optional extended service contracts that are separately priced. The Company recognizes revenue related to extended service contracts over the term of the contract. The Company’s assurance-type warranties generally range from five years to lifetime warranties. At the time product revenue is recognized, the Company records a liability for estimated costs that may be incurred under its warranties. The costs are estimated based on historical experience and any specific warranty issues that have been identified. The accuracy of the estimate of additional costs is dependent on the number and cost of future claims submitted during the warranty periods. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. The Company believes that the reserves established for estimated and probable future product warranty claims are adequate. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the balance as necessary. Warranty costs are recorded within cost of sales on the consolidated statements of operations. The Company’s provision for product warranties was recorded within accrued expenses and other current liabilities and other long-term liabilities on the consolidated balance sheets as of December 31, 2022 and 2021. Cost of Sales Cost of sales includes the cost of materials and all costs to make products saleable, such as labor, materials, inbound freight, including inter-plant freight, purchasing, and receiving costs, operating lease costs related to distribution and manufacturing facilities, and warehousing and distributions costs. In addition, all depreciation expense associated with assets used to manufacture products and make them saleable is included in cost of sales. The Company records shipping and handling costs associated with outbound freight as cost of sales when the related revenue is recognized in the accompanying consolidated statements of operations. 68 Table of Contents Exit or Disposal Costs The Company accounts for exit or disposal of activities in accordance with ASC 420, Exit or Disposal Cost Obligations . The Company defines an exit or disposal activity as one that includes but is not limited to a program which is planned and controlled by management and materially changes either the scope of a business or the manner in which that business is conducted. Business exit costs may include (i) one-time termination benefits related to employee separations, (ii) contract termination costs and (iii) other related costs associated with exit or disposal activities. The Company records one-time employee termination benefits as an operating expense when the benefit arrangement is communicated to the employee and no significant future services are required. Trade Receivables, Net Trade receivables are recorded at the original invoiced amount and do not bear interest. The Company maintains an allowance for bad debt. The allowance for bad debt is based on the best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowances based on historical write-off experience. The Company’s allowance for bad debt as of December 31, 2022 and 2021 was $ 3.2 million and $ 2.4 million, respectively. Concentration of Credit Risk Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and trade receivables. The Company from time to time may have bank deposits in excess of insurance limits of the Federal Deposit Insurance Corporation. The Company also has bank deposits in international accounts. The Company has not historically sustained any credit losses in such accounts and believes it is not exposed to any significant credit risk related to its cash. The Company routinely reviews the financial strength of its customers before extending credit and believes that its trade receivables credit risk exposure is limited. Generally, the Company does not require collateral from its customers. The Company provides extended payment terms to certain customers. During the years ended December 31, 2022, 2021 and 2020, one customer represented approximately 20.3 %, 25.0 % and 22.3 % of the Company’s net sales, respectively. As of December 31, 2022 and 2021, outstanding trade receivables related to this customer were $ 1.6 million and $ 10.7 million, respectively. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value. Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. Level 3 — Unobservable inputs that reflect the Company’s own assumptions incorporated into valuation techniques. These valuations require significant judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When there is more than one input at different levels within the hierarchy, the fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assessment of the significance of a particular input to the fair value measurement in its entirety requires substantial judgment and consideration of factors specific to the asset or liability. Level 3 inputs are inherently difficult to estimate. Changes to these inputs can have significant impact on fair value measurements. Assets and liabilities measured at fair value using Level 3 inputs are based on one or more of the following valuation techniques: market approach, income approach, or cost approach. There were no transfers between fair value measurement levels during the years ended December 31, 2022, 2021 and 2020. 69 Table of Contents Business Combinations In determining whether an acquisition should be accounted for as a business combination or asset acquisition, the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the single identifiable asset or the group of similar assets is not deemed to be a business, and is instead deemed to be an asset. If this is not the case, the Company then further evaluates whether the single identifiable asset or group of similar identifiable assets and activities includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the single identifiable asset or group of similar identifiable assets and activities is a business. The Company accounts for business combinations that are deemed to be businesses using the acquisition method of accounting. Application of this method of accounting requires that (i) identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value as of the acquisition date and (ii) the excess of the purchase price over the net fair value of identifiable assets acquired and liabilities assumed be recognized as goodwill, which is not amortized for accounting purposes but is subject to testing for impairment at least annually. Any contingent assets acquired and contingent liabilities assumed are also recognized at fair value if the Company can reasonably estimate fair value during the measurement period (which cannot exceed one year from the acquisition date). The Company re-measures any contingent liabilities at fair value in each subsequent reporting period. Transaction costs related to business combinations are expensed as incurred. Determining the fair value of assets acquired and liabilities assumed in a business combination requires management to use significant judgment and estimates, especially with respect to intangible assets. During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the consolidated statements of operations as operating expenses or income. Acquisition-related contingent consideration was recorded in the consolidated balance sheets at its acquisition-date estimated fair value, in accordance with the acquisition method of accounting. The fair value of the acquisition-related contingent consideration was remeasured each reporting period, with changes in fair value recorded in other expense (income), net in the consolidated statements of operations. The fair value measurement is based on significant inputs not observable by market participants and thus represents a Level 3 input in the fair value hierarchy. Equity Method Investments Investments and ownership interests in common stock or in-substance common stock are accounted for under the equity method accounting if the Company has the ability to exercise significant influence over the entity, but does not have a controlling financial interest. The Company also uses the equity method of accounting for investments in a partnership or limited liability company with specific ownership accounts, if the Company has an ownership interest of 5% or more. Under the equity method, investments are initially recognized at cost and adjusted to reflect the Company’s interest in net earnings, dividends received and other-than-temporary impairments. The Company records its interest in the net earnings of its equity method investee, along with adjustments for amortization of basis differences, investee capital transactions and other comprehensive income (loss), within earnings (losses) from equity method investment in the consolidated statements of operations. Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to the underlying basis differences. Profits or losses related to intra-entity sales with its equity method investee are eliminated until realized by the investor or investee. The Company records its proportionate share of earnings or losses of Premier Holdco, LLC (“Premier Pools & Spas”) within earnings from equity method investment in the consolidated statements of operations on a three-month lag. For presentation in the consolidated statements of cash flows, the Company utilizes the cumulative earnings approach for purposes of determining whether distributions should be classified as either a return on investment, which are included in operating activities, or a return of investment, which would be included in investing activities. Under the cumulative 70 Table of Contents earnings approach, the Company compares the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings are be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities. Equity method goodwill is not amortized or tested for impairment; instead the Company evaluates equity method investments for impairment when events or changes in circumstances indicate that the decline in value below the carrying amount of its equity method investment is determined to be other than temporary. In such a case, the decline in value below the carrying amount of its equity method investment is recognized in the consolidated statements of operations in the period the impairment occurs. Inventories, Net Inventories, primarily raw materials and finished goods, are stated at the lower of cost or net realizable value. Cost is determined under the first-in, first-out method. Inventory costs include all costs directly attributable to the products, including all manufacturing overhead, and excludes costs to distribute. The Company periodically reviews its inventory for slow moving or obsolete items and writes down the related products to estimated net realizable value. As of December 31, 2022 and 2021, the Company’s reserve for estimated slow moving products or obsolescence was $ 4.6 million and $ 2.7 million, respectively. Property and Equipment, Net Property and equipment are recorded at cost and presented net of accumulated depreciation. Property and equipment acquired through business combinations are recorded at fair value at the acquisition date. Expenditures for betterments and major improvements that substantially enhance the value and increase the estimated useful life of the assets are capitalized and depreciated over the new estimated useful life. Normal repairs and maintenance costs are expensed as incurred. Depreciation and amortization expense are recognized using the straight-line method over the estimated useful lives of each respective asset category as follows: ​ ​ ​ ​ ​ ​ Estimated ​ Useful Life Building and improvements ​ 25 years Molds and dyes ​ 5   –   10 years Machinery and equipment (including computer equipment and software) ​ 3   –   10 years Furniture and fixtures ​ 5   –   7 years Vehicles ​ 5 years ​ Leasehold improvements are amortized over the shorter of the term of the related lease or the estimated useful lives of the improvements. When property and equipment is sold or retired, the asset cost and accumulated depreciation and amortization are removed from the respective accounts and a gain or loss is recognized, if any, on the consolidated statements of operations. The Company capitalizes external costs and directly attributable internal costs to acquire or create internal-use software that are incurred subsequent to the completion of the preliminary project state. These costs relate to activities such as software design, configuration, coding, testing, and installation, and they exclude training and maintenance. Once the software is substantially complete and ready for its intended use, capitalized development costs are amortized straight-line over the estimated useful life of the software, generally not to exceed five years . Long-Lived Assets Long-lived assets include property and equipment and definite-lived intangible assets. The Company evaluates the carrying value of its long-lived assets for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. Conditions that may indicate impairment include, but are not limited to, a significant decrease in the market price of an asset, a significant adverse change in the extent or manner in which an 71 Table of Contents asset is being used or a significant decrease in its physical condition, and operating or cash flow performance that demonstrates continuing losses associated with an asset or asset group. The Company also considers non-financial data such as changes in the operating environment, competitive information, market trends, and business relationships. A potential impairment has occurred if the projected future undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group are less than the carrying value of the asset or asset group. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of the asset in operation. If the carrying value exceeds the sum of the undiscounted cash flows, an impairment charge is recorded equal to the excess of the asset or asset group’s carrying value over its fair value. Fair value is measured using appropriate valuation methodologies that would typically include a projected discounted cash flow model using a discount rate the Company believes is commensurate with the risk inherent in its business. The Company did not recognize any impairment losses on long-lived assets during the years ended December 31, 2022 and 2021. The Company amortizes its definite-lived intangible assets using the straight-line method. The weighted-average estimated useful lives (in years) of the Company’s definite-lived intangible assets are as follows: ​ ​ ​ ​ ​ ​ Estimated Asset Useful Life Trade names and trademarks 9  –  25 years Technology ​ 15 years Pool designs 14  – 15 years Dealer relationships 5   –   13 years Patented technology 5   –   10 years Non-competition agreements 5 years Franchise relationships 4 years Order backlog 10 months ​ Goodwill The Company accounts for goodwill as the excess of the purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business combination measured at fair value. Goodwill is not subject to amortization; rather, the Company tests goodwill for impairment annually on the first day of the Company’s fourth fiscal quarter and whenever events occur or changes in circumstances indicate that impairment may have occurred. The Company has one reporting unit for goodwill impairment testing purposes. Impairment testing is performed for the Company’s reporting unit by first assessing qualitative factors to see if further testing of goodwill is required. If the Company concludes that it is more likely than not that its reporting unit’s fair value is less than its carrying amount based on the qualitative assessment, then a quantitative test is required. The Company may also choose to bypass the qualitative assessment and perform the quantitative test. If the estimated fair value of the reporting unit exceeds the carrying amount, the Company considers that goodwill is not impaired. If the carrying value exceeds estimated fair value, there is an impairment of goodwill and an impairment loss is recorded. The Company calculates the impairment loss by comparing the fair value of its reporting unit less the carrying amount, including goodwill. Goodwill impairment would be limited to the carrying value of the goodwill. Debt Issuance Costs The Company defers costs incurred in conjunction with acquiring third-party financing. The Company amortizes debt issuance costs over the term of the related long-term debt instruments using the effective interest method. Debt issuance costs related to long-term debt are recorded as a direct reduction to the carrying amount of long-term debt on the consolidated balance sheets. 72 Table of Contents Segment Reporting The Company identifies operating segments based on how the chief operating decision maker (“CODM”) manages the business, allocates resources, makes operating decisions, and evaluates operating performance. The Company conducts its business as one operating and reportable segment that designs, manufactures, and markets in-ground swimming pools, liners, and covers. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information presented on a consolidated basis for purposes of assessing financial performance and allocating resources. Income Taxes The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities, using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected, scheduling of anticipated reversals of taxable temporary differences, and considering prudent and feasible tax planning strategies. If in future periods the Company were to determine that it would be able to realize its deferred tax assets in excess of the net recorded amount, an adjustment to the deferred tax assets, particularly a release of the valuation allowance, would increase income in the period such determination was made. The Company records liabilities for uncertain income tax positions based on a two-step process. The first step is recognition, where an individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have less than a 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, the Company performs the second step of measuring the benefit to be recorded. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized on ultimate settlement. The actual benefits ultimately realized may differ from the estimates. In future periods, changes in facts, circumstances, and new information may require the Company to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in income tax expense (benefit) and liability in the period in which such changes occur. The Company’s policy is to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense (benefit) within the consolidated statements of operations. The Company had $ 0.6 million of accrued interest and no accrued penalties as of December 31, 2022. The Company had $ 0.3 million of accrued interest and no accrued penalties as of December 31, 2021. The Company reinvests earnings of foreign operations indefinitely and, accordingly, does not provide for income taxes that could result from the remittance of such earnings. Stock-Based Compensation Stock-based compensation is measured and recognized based on the grant date fair value of the awards. The fair value of the Company’s common stock is determined based on the quoted market price of the Company’s common stock for purposes of computing stock-based compensation expense. For stock options, the Company uses a Black-Scholes model for estimating the grant date fair value. The Black-Scholes pricing model requires critical assumptions including risk-free rate, volatility, expected term and expected dividend yield. The expected term is computed using the simplified method. The Company uses the simplified method to calculate expected term of the stock options as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the stock-based award. The Company considers the historical volatility of the Company’s stock price, as well as its implied volatility. The Company utilized a dividend yield of zero, since it has no history or plan of declaring 73 Table of Contents dividends on its common stock. The assumptions underlying these valuations represented the Company’s best estimate, which involved inherent uncertainties and the application of judgment. As a result, if the Company had used significantly different assumptions or estimates, the fair value of the Company’s stock-based compensation expense could have been materially different. For stock options, restricted stock awards and restricted stock units, stock-based compensation is recognized using a graded vesting method over the requisite service period in which employees earn the awards. The Company accounts for forfeitures of stock-based awards as they occur rather than applying an estimated forfeiture rate to stock-based compensation expense. Contemporaneously with the pricing of the Company’s IPO, on April 22, 2021, the Company effected its Omnibus Incentive Plan (as defined below) in which it granted to certain employees of the Company restricted stock awards, restricted stock units, and stock option awards inclusive of the as converted Class B units as a result of the Reorganization. Foreign Currency Translation and Foreign Currency Transactions The financial statements of the Company’s foreign operations are denominated in local currency and are then translated to U.S. dollars. Assets and liabilities are translated using the current rate of exchange at the balance sheet dates or historical rates of exchange, as applicable. Revenue and expenses are translated using the average monthly exchange rates prevailing throughout the reporting period. The related foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses associated with the Company’s international subsidiaries, which are denominated in currencies other than the Company’s foreign entities’ functional currencies, are recognized as a component of other expense (income), net within the consolidated statements of operations. Advertising Costs Advertising costs, consisting of costs related to dealer conferences and commercials, are expensed as incurred and are included in selling, general, and administrative expense on the consolidated statements of operations. Total advertising costs were $ 9.8 million, $ 7.6 million, and $ 5.9 million during the years ended December 31, 2022, 2021 and 2020, respectively. Comprehensive Income (Loss) Comprehensive income (loss) is a measure of net income and all other changes in equity that result from transactions other than with equity holders and would normally be recorded in the consolidated statements of stockholders’ equity and the consolidated statements of comprehensive income. Other comprehensive income (loss) consists of foreign currency translation adjustments and defined benefit plan adjustments. Income tax (benefit) expense on the components of other comprehensive income (loss) was not significant for the years ended December 31, 2022, 2021 and 2020. Earnings Per Share Basic net income per share is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is calculated by dividing net income (loss) available to common stockholders by the diluted weighted-average number of shares of common stock outstanding for the period. Potentially dilutive shares are included in the diluted per-share calculations when the effect of their inclusion is dilutive. 74 Table of Contents Treasury Stock The Company accounts for treasury stock acquisitions using the cost method. The Company accounts for the retirement of treasury stock by deducting its par value from common stock and reflecting any excess of cost over par value as a deduction from additional paid-in capital on the consolidated balance sheets. Recently Issued Accounting Pronouncements The Company qualifies as “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to “opt in” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. In February 2016, the FASB issued ASU 2016-02 , Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. In addition, a lessee is required to record (i) a right-of-use asset and a lease liability on its balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an operating or financing lease and (ii) lease expense in its consolidated statement of operations for operating leases and amortization and interest expense in its consolidated statement of operations for financing leases. Leases with a term of 12 months or less may be accounted for similar to how operating leases were accounted for under the prior guidance. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) , which added an optional transition method that allows companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented. In November 2019, the FASB issued guidance delaying the effective date for all entities, except for public business entities. For nonpublic entities, this guidance is effective for annual periods beginning after December 15, 2020. In June 2020, the FASB issued additional guidance delaying the effective date for all entities, except for public business entities. The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective approach and elected the package of practical expedients to use in transition, which permitted the Company to not reassess, under the new standard, its prior conclusions about lease identification and lease classification. The adoption resulted in the addition of $ 33.5 million of operating lease right-of-use assets, and $ 34.0 million of operating lease liabilities, a decrease of $ 0.2 million to deferred rent and a decrease of $ 0.3 million to retained earnings for the cumulative effect of initially applying the new standard. The adoption did not have a material impact on the Company’s consolidated statements of operations, consolidated statements of stockholders’ equity, or consolidated statements of cash flows. See Note 13, “Leases” for additional information related to the Company’s leases and accounting policy elections. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses , which narrowed the scope and changed the effective date for nonpublic entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are U.S. Securities and Exchange Commission filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim 75 Table of Contents periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements. In January 2020, the FASB issued ASU 2020-01, Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. For public entities, ASU 2020-01 is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. For nonpublic companies, ASU 2020-01 is effective for annual periods beginning after December 15, 2021, and interim periods within those reporting periods. The adoption of this standard during the year ended December 31, 2022 did not have a material impact on the Company’s consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope , that clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, this guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. This guidance is effective for all entities upon issuance on March 12, 2020 and may be applied through December 31, 2022. The expedients and exceptions in this guidance are optional. The Company elected the optional expedient in connection with amending its interest rate swap to replace the reference rate from LIBOR to SOFR to consider the amendment as a continuation of the existing contract without having to perform an assessment that would otherwise be required under GAAP. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which amends ASC 805 by requiring acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combination. For public entities, ASU 2021-08 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. For all other entities, ASU 2021-08 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The Company is currently evaluating ASU 2021-08 and its potential impact on its consolidated financial statements. 3. ACQUISITIONS Narellan Group Pty Limited On May 31, 2019 (the “Acquisition Date”), Latham Pool Products acquired Narellan Group Pty Limited and its subsidiaries (collectively “Narellan”) for a total purchase price of $ 35.2 million (the “Narellan Acquisition”). The results of Narellan’s operations have been included in the consolidated financial statements since that date. Narellan is a fiberglass pool manufacturer based in Australia with operations in Australia, New Zealand, and Canada. The acquisition expanded the Company’s operations to a broader geographical footprint. Additionally, the acquisition provided the Company with an increase in dealer and franchise relationships. In connection with the Narellan Acquisition, consideration paid included $ 20.2 million in cash, $ 7.6 million in equity consideration, and $ 7.4 million of contingent consideration as of the Acquisition Date. The cash consideration was funded, in part, through long-term debt proceeds of $ 22.3 million, net of discount of $ 0.7 million. The equity consideration consisted of common stock. The valuation of the common stock was prepared using a quantitative put options method. The Company incurred $ 1.1 million in transaction costs. 76 Table of Contents The Company agreed to pay the contingent consideration in the form of cash and equity consideration to the seller if certain EBITDA targets were achieved for any of the trailing twelve months periods ended December 31, 2019, June 30, 2020, or the year ended December 31, 2020 (the “Contingent Consideration”). The fair value of the Contingent Consideration at the Acquisition Date was $ 7.4 million. On September 25, 2020, the Company amended the terms of the Narellan share purchase agreement to accelerate the settlement of the Contingent Consideration with the selling shareholders of Narellan based upon estimated EBITDA for the year ended December 31, 2020. The Contingent Consideration was settled through a cash payment of $ 6.6 million and the issuance of an additional 758,697 shares of common stock as equity consideration, which had a contractual value of $ 2.2 million and was recorded as a capital contribution on the consolidated statements of stockholders’ equity. Since the fair value of the common stock issued of $ 2.8 million exceeded the contractual value of $ 2.2 million and the selling shareholders were also employees of the Company as of the settlement date, the Company recorded the excess remuneration paid to the selling shareholders of $ 0.6 million as stock-based compensation in the consolidated statements of operations and as contributed capital in the consolidated statements of stockholders’ equity as of and for the year-ended December 31, 2020. GL International, LLC On October 22, 2020, Latham Pool Products acquired GL International, LLC ( “GLI”) for a total purchase price of $ 79.7 million (the “GLI Acquisition”). The results of GLI’s operations have been included in the consolidated financial statements since that date. GLI specializes in manufacturing custom pool liners and safety covers. As a result, this acquisition expanded the Company’s liner and safety cover product offerings. In connection with the GLI Acquisition, consideration paid was $ 79.7 million in cash, or $ 74.7 million net of cash acquired of $ 5.0 million, and excluding a net working capital adjustment receivable of $ 0.8 million. The net working capital adjustment receivable was recorded in prepaid expenses and other current assets in the consolidated balance sheet as of December 31, 2020. The cash consideration was funded from existing cash on hand. The Company incurred $ 2.4 million in transaction costs. The Company accounted for the GLI Acquisition using the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations (“ASC 805”). This requires that the assets acquired and liabilities assumed be measured at fair value. The Company estimated, using Level 3 inputs, the fair value of certain fixed assets using a combination of the cost approach and the market approach. Inventories were valued using the comparative sales method, less the cost of disposal. Specific to intangible assets, dealer relationships were valued using the multi-period excess earnings method, whereas trade names were valued using the relief from royalty method. The Company recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. ​ 77 Table of Contents The following summarizes the purchase price allocation for the Company’s acquisition of GLI: ​ ​ ​ ​ ​ (in thousands) October 22, 2020 Total consideration ​ $ 79,743 Allocation of purchase price: ​ Cash ​ 5,007 Trade receivables ​ 10,639 Inventories ​ 11,854 Prepaid expenses and other current assets ​ 3,949 Property and equipment ​ 1,402 Intangible assets ​ 46,700 Total assets acquired ​ 79,551 Accounts payable ​ 3,536 Accrued expenses and other current liabilities ​ 8,853 Other long-term liabilities ​ 524 Total liabilities assumed ​ 12,913 Total fair value of net assets acquired, excluding goodwill ​ 66,638 Goodwill ​ $ 13,105 ​ The excess of the purchase price over the fair value of the identifiable assets acquired and the liabilities assumed in the acquisition was allocated to goodwill in the amount of $ 13.1 million. Goodwill resulting from the GLI Acquisition was attributable to the expanded market share and product offerings. Goodwill resulting from the GLI Acquisition is deductible for tax purposes. The Company allocated a portion of the purchase price to specific intangible asset categories as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value ​ Amortization Definite-lived intangible assets: (in thousands) Period (in years) Trade names ​ $ 9,500 9 Dealer relationships ​ 37,200 8 ​ ​ $ 46,700 ​ ​ ​ The following are the net sales and net loss from GLI included in the Company’s results from the GLI Acquisition Date through December 31, 2020: ​ ​ ​ ​ ​ ​ ​ Year Ended (in thousands) December 31, 2020 Net sales ​ $ 7,689 Net loss ​ $ ( 1,123 ) ​ Trojan Leisure Products, LLC d/b/a Radiant Pools On November 24, 2021, Latham Pool Products acquired Trojan Leisure Products, LLC d/b/a Radiant Pools (“Radiant”) for a total purchase price of $ 90.7 million (the “Radiant Acquisition”). The results of Radiant’s operations have been included in the consolidated financial statements since that date. Radiant specializes in manufacturing proprietary vinyl liner aluminum swimming pools that can be built completely in-ground, semi-in-ground, or above ground. As a result, this acquisition expanded the Company’s product offerings. In connection with the Radiant Acquisition, consideration paid was $ 90.7 million in cash, or $ 90.5 million net of cash acquired of $ 0.2 million. The cash consideration was funded, in part, through long-term debt proceeds of $ 50.0 million. The Company incurred $ 2.9 million in transaction costs. ​ 78 Table of Contents Subsequent to the acquisition date, there was an additional amount due to the seller of $ 0.4 million related to the finalization of the net working capital adjustment, which was accounted for as a measurement period adjustment. The measurement period adjustment resulted in an increase in the total consideration transferred of $ 0.4 million and an increase to goodwill of $ 0.4 million. The net working capital adjustment was paid during the fiscal quarter ended July 2, 2022. The Company accounted for the Radiant Acquisition using the acquisition method of accounting in accordance with ASC 805. This requires that the assets acquired and liabilities assumed be measured at fair value. The Company estimated, using Level 3 inputs, the fair value of certain fixed assets using a combination of the cost approach and the market approach. Inventories were valued using the comparative sales method, less the cost of disposal. Specific to intangible assets, customer relationships and order backlog were valued using the multi-period excess earnings method, whereas trade names, technology, and pool designs were valued using the relief from royalty method. The Company recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The following summarizes the purchase price allocation for the Company’s acquisition of Radiant: ​ ​ ​ ​ ​ (in thousands) November 24, 2021 Total consideration ​ $ 91,109 Allocation of purchase price: ​ Cash ​ 217 Trade receivables ​ 2,805 Inventories ​ 5,528 Prepaid expenses and other current assets ​ 396 Property and equipment ​ 1,263 Intangible assets ​ 72,500 Total assets acquired ​ 82,709 Accounts payable ​ 1,744 Accrued expenses and other current liabilities ​ 1,038 Deferred income tax liabilities ​ 2,920 Total liabilities assumed ​ 5,702 Total fair value of net assets acquired, excluding goodwill ​ 77,007 Goodwill ​ $ 14,102 ​ The excess of the purchase price over the fair value of the identifiable assets acquired and the liabilities assumed in the acquisition was allocated to goodwill in the amount of $ 14.1 million. Goodwill resulting from the Radiant Acquisition was attributable to the expanded market share and product offerings. Goodwill resulting from the Radiant Acquisition is deductible for tax purposes. The Company allocated a portion of the purchase price to specific intangible asset categories as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value ​ Amortization Definite-lived intangible assets: (in thousands) Period Dealer relationships ​ $ 37,000 ​ 13 years Trade names ​ ​ 13,000 25 years Technology ​ ​ 13,000 ​ 15 years Pool designs ​ 7,900 15 years Order backlog ​ ​ 1,600 ​ 10 months ​ ​ $ 72,500 ​ ​ ​ ​ 79 Table of Contents The following are the net sales and net income from Radiant included in the Company’s results from the Radiant Acquisition Date through December 31, 2021: ​ ​ ​ ​ ​ ​ ​ Year Ended (in thousands) December 31, 2021 Net sales ​ $ 2,211 Net income ​ $ 3 ​ Other Business Combinations During the fiscal quarter ended December 31, 2022, the Company completed the acquisition of certain fiberglass pool manufacturing assets in Seminole, Oklahoma that qualified as a business combination. This transaction resulted in an increase to goodwill, but was not material to our consolidated financial statements, and as a result, additional business combination disclosures for this acquisition have been omitted. There were no other business combinations during the year ended December 31, 2022. ​ Pro Forma Financial Information (Unaudited) The following pro forma financial information presents the statements of operations of the Company with GLI and Radiant as if the acquisitions occurred on January 1, 2020. The pro forma results do not include any anticipated synergies, cost savings, or other expected benefits of an acquisition. The pro forma financial information is not necessarily indicative of what the financial results would have been had the acquisitions been completed on January 1, 2020 and is not necessarily indicative of the Company’s future financial results. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (in thousands) 2022 2021 2020 Net sales ​ $ 695,736 ​ $ 662,282 ​ $ 486,276 Net (loss) income ​ $ ( 5,426 ) ​ $ ( 50,382 ) ​ $ 24,077 ​ The pro forma financial information presented above reflects the effects as a result of the acquisitions, including the amortization expense from acquired intangible assets, the depreciation and amortization expense from acquired property and equipment, the additional cost of sales from acquired inventory, interest expense from debt financing, and any related tax effects. Transaction costs for Radiant are reflected within pro forma net income for the year ended December 31, 2020. ​ ​ 4. EQUITY METHOD INVESTMENT On October 30, 2020, the Company entered into a securities purchase agreement to purchase 28 % of the common units of Premier Pools & Spas for $ 25.4 million. On August 6, 2021, the Company entered into a securities purchase agreement, together with Premier Holdco LLC, Premier Pools Management Corp. Holdco, Premier Franchise Management Holdco, PFC Holdco, and PPSF, LLC, pursuant to which Premier Group Holdings Inc., an affiliate of Wynnchurch Capital, L.P., acquired 29.8 % of the common units of Premier Pools & Spas in aggregate from all sellers, including the Company. Sellers who were not related parties of Wynnchurch Capital, L.P. or the Company determined the purchase price per common unit paid by Premier Group Holdings Inc., indicating the amount paid for the common units of Premier Pools & Spas reflects the price that would be paid in an arm’s-length transaction. As a result of the transaction, the Company received cash proceeds of $ 6.8 million and recorded a gain on the sale of equity method investment of $ 3.9 million, which was recorded within other (income) expense, net on the consolidated statements of operations for the fiscal year ended December 31, 2021. The Company’s post-sale ownership interest in Premier Pools & Spas was 20.1 % following such transaction. On December 17, 2021, Premier Pools & Spas issued additional non-voting common units to Premier Group Holdings Inc. As a result of the transaction, the Company recorded a gain on the sale of equity method investment of $ 1.0 million. The Company’s ownership interest in Premier Pools & Spas after the issuance of additional non-voting common units is 18.2 % while its’ voting interest remains 20.1 %. 80 Table of Contents The Company historically has concluded that it held common stock of Premier Pools & Spas and had the ability to exercise significant influence over Premier Pools & Spas but did not have a controlling financial interest. As required when there is a change in facts or circumstances, the Company reassessed its ability to exercise significant influence during the fiscal quarter ended December 31, 2022. The Company concluded that it no longer had the ability to exercise significant influence. However, the Company also considered that it has an ownership interest of greater than 5% in Premier Pools & Spas, which is a limited liability company with specific ownership accounts. Accordingly, because of the legal form of the investee, the Company continues to account for this investment using the equity method of accounting since it is not required to demonstrate the ability to exercise significant influence under the relevant guidance. The Company’s proportionate share of the earnings or losses of the investee are reported as a separate line in the consolidated statements of operations. Premier Pools & Spas is a holding company for its manufacturing and franchising companies including PFC LLC, Premier Franchise Management LLC, Premier Pools Management LLC, and Premier Fiberglass LLC (the “Premier Companies”). The Premier Companies are a leading swimming pool-building brand that uses its franchisee network to sell and install pools around the United States. In connection with Latham’s investment in Premier Pools & Spas, the Company entered into an exclusive supply agreement with Premier Pools & Spas, the Premier Companies, and Premier Pools & Spas’ franchisees (“Premier Franchisees”) (together, the “Customer”). Premier Pools & Spas does not consolidate the operations of the Premier Franchisees. Per the supply agreement, Latham is the exclusive supplier of the Premier Franchisees for specific pool and pool products. These products include fiberglass products and packaged pool products. The initial term of the supply agreement is ten years . For the first three years of the supply agreement, the Customer is entitled to a low-teens percentage rebate for all fiberglass pools sold and an additional growth rebate of a low single-digit to low-teens percentage based on year over year sales growth on fiberglass pools (the “Rebates”). The Rebates will be paid directly to Premier Pools Management Corp. Holdco, assuming the Premier Franchisees are in good standing with respect to amounts owed to the Company. As of December 31, 2022 and 2021, the Company’s carrying amount for the equity method investment in Premier Pools & Spas was $ 25.1 million and $ 23.4 million, respectively. During the fiscal year ended December 31, 2022, Premier Pools & Spas paid the Company dividends of $ 2.5 million that are presented on the consolidated statement of cash flows as distribution received from equity method investment. During the fiscal year ended December 31, 2021, Premier Pools & Spas paid the Company dividends of $ 2.2 million that are presented on the consolidated statement of cash flows as distribution received from equity method investment of $ 1.8 million and return of equity method investment of $ 0.4 million, respectively. The Company recorded its interest in net earnings of Premier Pools & Spas of $ 4.2 million and $ 2.2 million for the years ended December 31, 2022 and 2021, respectively, which included basis difference adjustments of $ 0.2 million and $ 0.3 million, respectively. ​ 5. FAIR VALUE MEASUREMENTS Assets and liabilities measured at fair value on a nonrecurring basis The Company’s non-financial assets such as goodwill, intangible assets and property and equipment are measured at fair value upon acquisition and remeasured to fair value when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 2 and Level 3 inputs. Fair value of financial instruments The Company considers the carrying amounts of cash, trade receivables, prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities, to approximate fair value because of the short-term maturities of these instruments. ​ 81 Table of Contents Term loans Term loans are carried at amortized cost; however, the Company estimates the fair value of term loans for disclosure purposes. The fair value of a term loan is determined using inputs based on observable market data of a non-public exchange, which are classified as Level 2 inputs. The following table sets forth the carrying amount and fair value of the term loans (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2022 ​ 2021 ​ ​ Carrying ​ Estimated ​ Carrying ​ Estimated ​ Value Fair Value Value Fair Value New Term Loan ​ $ 312,881 ​ $ 290,979 ​ $ — ​ $ — Amended Prior Term Loan ​ $ — ​ $ — ​ $ 280,408 ​ $ 281,926 ​ Interest rate swap The Company estimates the fair value of the interest rate swap on a quarterly basis using Level 2 inputs, including the forward SOFR curve. The fair value is estimated by comparing (i) the present value of all future monthly fixed rate payments versus (ii) the variable payments based on the forward SOFR curve. As of December 31, 2022 and 2021, the Company’s interest rate swap asset was $ 3.5 million and $ 0.5 million, respectively, which was recorded within other assets on the consolidated balance sheets. ​ 6. GOODWILL AND INTANGIBLE ASSETS, NET Goodwill The following table presents the changes in the carrying value of goodwill during the years ended December 31, 2022 and 2021 (in thousands): ​ ​ ​ ​ ​ ​ Amount Balance as of December 31, 2020 ​ $ 115,750 Acquisition ​ 13,718 Foreign currency translation adjustment ​ ( 597 ) Balance as of December 31, 2021 ​ ​ 128,871 Acquisition ​ ​ 2,753 Measurement period adjustment ​ ​ 384 Foreign currency translation adjustment ​ ​ ( 625 ) Balance as of December 31, 2022 ​ $ 131,383 ​ The Company performed an annual test for goodwill impairment in the fourth quarter of the fiscal years ended December 31, 2022 and 2021 in accordance with Step 0 of ASC 350 and determined that goodwill was not impaired. ​ 82 Table of Contents Intangible Assets Intangible assets, net as of December 31, 2022 consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Gross ​ Foreign ​ ​ ​ ​ ​ ​ ​ ​ Carrying ​ Currency ​ Accumulated ​ Net ​ Amount Translation Amortization Amount Trade names and trademarks ​ $ 148,100 ​ $ ( 84 ) ​ $ 22,982 ​ $ 125,034 Patented technology ​ 16,126 ​ 37 ​ 6,959 ​ 9,204 Technology ​ ​ 13,000 ​ ​ — ​ ​ 939 ​ ​ 12,061 Pool designs ​ 13,628 ​ ( 10 ) ​ 2,037 ​ 11,581 Franchise relationships ​ 1,187 ​ 45 ​ 1,064 ​ 168 Dealer relationships ​ 197,376 ​ 13 ​ 46,699 ​ 150,690 Order backlog ​ ​ 1,600 ​ ​ — ​ ​ 1,600 ​ ​ — Non-competition agreements ​ 2,476 ​ — ​ 1,999 ​ 477 ​ ​ $ 393,493 ​ $ 1 ​ $ 84,279 ​ $ 309,215 ​ Intangible assets, net as of December 31, 2021 consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ Gross ​ Foreign ​ ​ ​ ​ ​ ​ ​ ​ Carrying ​ Currency ​ Accumulated ​ Net ​ Amount Translation Amortization Amount Trade names and trademarks ​ $ 148,100 ​ $ 439 ​ $ 16,382 ​ $ 132,157 Patented technology ​ 16,126 ​ 65 ​ 5,205 ​ 10,986 Technology ​ ​ 13,000 ​ ​ — ​ ​ 72 ​ ​ 12,928 Pool designs ​ 13,628 ​ 265 ​ 1,101 ​ 12,792 Franchise relationships ​ 1,187 ​ 54 ​ 767 ​ 474 Dealer relationships ​ 197,376 ​ 22 ​ 30,838 ​ 166,560 Order backlog ​ ​ 1,600 ​ ​ — ​ ​ 160 ​ ​ 1,440 Non-competition agreements ​ 2,476 ​ — ​ 1,503 ​ 973 ​ ​ $ 393,493 ​ $ 845 ​ $ 56,028 ​ $ 338,310 ​ The Company recognized $ 28.2 million, $ 22.6 million, and $ 17.3 million of amortization expense related to intangible assets during the years ended December 31, 2022, 2021, and 2020, respectively. The Company estimates that amortization expense related to definite-lived intangible assets will be as follows in each of the next five years and thereafter (in thousands): ​ ​ ​ ​ ​ ​ ​ Estimated Future ​ ​ Amortization Year Ended Expense 2023 ​ $ 26,528 2024 ​ 25,708 2025 ​ 25,550 2026 ​ 25,550 2027 ​ 25,550 Thereafter ​ 180,329 ​ ​ $ 309,215 ​ ​ 83 Table of Contents 7. INVENTORIES, NET Inventories, net consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Raw materials ​ $ 95,388 ​ $ 77,510 Finished goods ​ 69,832 ​ 32,046 ​ ​ $ 165,220 ​ $ 109,556 ​ ​ 8. PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Land ​ $ 1,811 ​ $ 1,744 Building and improvements ​ 9,946 ​ 7,369 Machinery and equipment ​ 31,765 ​ 27,910 Furniture and fixtures ​ 1,585 ​ 1,470 Computer equipment and software ​ 6,888 ​ 7,011 Molds and dyes ​ 16,934 ​ 13,365 Leasehold improvements ​ 9,640 ​ 4,560 Vehicles ​ 4,883 ​ 4,363 Construction in progress ​ 46,581 ​ 18,677 ​ ​ 130,033 ​ 86,469 Less: Accumulated depreciation ​ ( 31,849 ) ​ ( 22,963 ) ​ ​ $ 98,184 ​ $ 63,506 ​ Depreciation and amortization expense related to property and equipment during the years ended December 31, 2022, 2021 and 2020 was $ 10.0 million, $ 9.7 million, and $ 8.0 million, respectively. Construction in progress recorded as of December 31, 2022 and 2021 primarily related to an increase in fiberglass molds and fiberglass production capacity. The Company recorded aggregate losses on sales and disposals of property and equipment of $ 0.2 million, $ 0.3 million, and $ 0.3 million during the years ended December 31, 2022, 2021 and 2020, respectively. ​ ​ ​ 84 Table of Contents 9. LONG-TERM DEBT The components of the Company’s outstanding debt obligations consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 New Term Loan ​ $ 322,562 ​ $ — Amended Prior Term Loan ​ ​ — ​ ​ 284,009 Less: Unamortized discount and debt issuance costs ​ ( 9,681 ) ​ ( 3,601 ) Total debt ​ 312,881 ​ 280,408 Less: Current portion of long-term debt ​ ( 3,250 ) ​ ( 17,220 ) Total long-term debt ​ $ 309,631 ​ $ 263,188 ​ On February 23, 2022, Latham Pool Products 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 (the “New Term Loan”) in an initial principal amount of $ 325.0 million (the “Refinancing”). On the closing date, proceeds under the New Credit Agreement were used to terminate the Credit Agreement (as defined below) by repayment of $ 294.0 million of outstanding debt thereunder and for general corporate purposes. As of December 31, 2022, the Company was in compliance with all financial covenants under the New Credit Agreement 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 (as defined in the New Credit Agreement, the “First Lien Net Leverage Ratio”). Borrowings under the New Revolving Credit Facility are due at maturity. The Company incurred debt issuance costs of $ 0.8 million related to the New Revolving Credit Facility. The debt issuance costs were recorded within other assets on the consolidated balance sheet and are being amortized over the life of the New Revolving Credit Facility. The Company is required to meet certain financial covenants, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on the Company’s ability to incur additional indebtedness, create liens, make investments, consolidate, or merge with other entities, enter into transactions with affiliates, make prepayments with respect to certain indebtedness, and make restricted payments and other distributions. As of December 31, 2022, there were no outstanding borrowings on the New Revolving Credit Facility. New Term Loan Pursuant to the New Credit Agreement, Latham Pool Products borrowed $ 325.0 million in term loans. 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 85 Table of Contents 3.75 % to 4.00 %, depending on 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 of $ 812,500 , equal to 0.25 % of the initial principal amount of the New Term Loan. The New Term Loan contains customary mandatory prepayment provisions, including requirements to make mandatory prepayments with 50 % of any excess cash flow and with 100 % of the net cash proceeds from the incurrence of indebtedness not otherwise permitted to be incurred by the covenants, asset sales, and casualty and condemnation events, in each case, subject to customary exceptions. The Company recorded $ 6.1 million of debt issuance costs and $ 4.9 million of debt discount related to the New Term Loan as a direct reduction to the carrying amount of long-term debt on the consolidated balance sheet. Outstanding borrowings as of December 31, 2022 were $ 312.9 million, net of discount and debt issuance costs of $ 9.7 million. In connection with the New Term Loan, the Company is subject to various negative, reporting, financial, and other covenants, including maintaining specific liquidity measurements. As of December 31, 2022, the unamortized debt issuance costs and discount on the New Term Loan were $ 5.4 million and $ 4.3 million, respectively. The effective interest rate was 9.14 % at December 31, 2022, including the impact of the Company’s interest rate swap. Prior 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 “Prior Revolving Credit Facility”) in the amount of up to $ 30 million, as well as the Prior Term Loan (as described and defined below). The Prior Revolving Credit Facility was utilized to finance ongoing general corporate and working capital needs. The Prior Revolving Credit Facility allowed for either Eurocurrency borrowings, bearing interest ranging from 4.50 % to 4.75 %, or base rate borrowings, bearing 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 accrued on any unused portion of the commitments under the Prior Revolving Credit Facility. The commitment fee was due and payable quarterly in arrears and was equal to the applicable margin times the actual daily amount by which the $ 30.0 million initial commitment exceeded the sum of the outstanding borrowings under the Revolver and outstanding Letters of Credit obligations. The applicable margin ranged from 0.375 % to 0.500 % as determined by the Company’s First Lien Net Leverage Ratio as defined in the Credit Agreement. The Company was required to meet certain financial covenants, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on the Company’s ability to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates, and make prepayments. As of December 31, 2021, the Company was in compliance with all financial-related covenants related to the Credit Agreement. There were no amounts outstanding as of December 31, 2021 on the Revolver or Letters of Credit. The Prior Revolving Credit Facility was terminated in connection with the Refinancing. Prior Term Loan Pursuant to the Credit Agreement, Latham Pool Products also borrowed $ 215.0 million in term loans (the “Prior Term Loan”). The Prior 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 Prior Term Loan, to fund the Company’s acquisition of Narellan Group Pty Limited and its subsidiaries (the “First Amendment”). On October 14, 2020, Latham Pool Products 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, Latham Pool Products amended its Term Loan to revise the applicable reporting 86 Table of Contents requirements (the “Fourth Amendment”). On April 27, 2021, upon completion of the IPO, the Company used $ 152.7 million of the net proceeds from the IPO to repay $ 152.7 million of the Prior Term Loan. On November 24, 2021, Latham Pool Products amended the Term Loan to provide additional borrowings of $ 50 million (the “Fifth Amendment”). The proceeds from this incremental term loan were used to finance the Radiant Acquisition in part. The Prior Term Loan, collectively with the First Amendment, Second Amendment, Third Amendment, the Fourth Amendment, and the Fifth Amendment, is referred to as the “Amended Prior Term Loan.” The Amended Prior Term Loan bore interest at (1) a base rate equal to the highest of (i) the Federal Funds Rate plus 1 ∕ 2 of 1% , (ii) the “prime rate” published in the Money Rates section of the Wall Street Journal and (iii) LIBOR (2) plus a Loan Margin of (i) 6.00 % for Eurocurrency Rate Loans and (ii) 5.00 % for Base Rate Loans, as defined in the Credit Agreement. Principal payments under the First Amendment were calculated as 0.629 % of the outstanding principal balance. In connection with the Amended Prior Term Loan, the Company was subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measurements. Under the Amended Prior Term Loan, the Company was required to make mandatory prepayments based on the Company’s excess cash flow for the year, as follows (as a percentage of the Company’s excess cash flow for the year): ​ ​ ​ ​ ​ ​ ​ Mandatory ​ ​ ​ Prepayment ​ Net Leverage Ratio Percentage > 3.50:1.00 90 % > 3.00:1.00 and ≤ 3.50:1.00 75 % > 2.50:1.00 and ≤ 3.00:1.00 50 % > 2.00:1.00 and ≤ 2.50:1.00 25 % ≤ 2.00:1.00 0 % ​ Net Leverage Ratio in the table above was defined, as of any date of determination, as the ratio of net indebtedness at such date to consolidated earnings before interest, taxes, depreciation, and amortization. There was no estimated mandatory prepayment to be paid as of December 31, 2021. There also was negative covenants, including, but not limited to, certain restrictions on the Company’s ability to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates, and make prepayments. As of December 31, 2021, the Company was in compliance with all financial-related covenants related to the Term Loan. As of December 31, 2021, the unamortized debt issuance costs and discount on the Amended Prior Term Loan were $ 2.5 million and $ 1.1 million, respectively. The effective interest rate was 7.04 % at December 31, 2021. The Amended Prior Term Loan was repaid and terminated in connection with the Refinancing. Interest Rate Risk Interest rate risk associated with the New Credit Agreement is managed through an interest rate swap that the Company executed on April 30, 2020. The swap has an effective date of May 18, 2020 and a termination date of May 18, 2023. In February of 2022, the Company amended its interest rate swap to change the index rate from LIBOR to SOFR in connection with the entry into the New Credit Agreement. Under the terms of the amended swap, the Company fixed its SOFR borrowing rate at 0.496 % on a notional amount of $ 200.0 million. The interest rate swap is not designated as a hedging instrument for accounting purposes. ​ 87 Table of Contents Debt Maturities ​ Principal payments due on the outstanding debt in the next five fiscal years, excluding any potential payments based on excess cash flow levels, are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ Term Loan Year Ended ​ Facility 2023 $ 3,250 2024 ​ 3,250 2025 ​ 3,250 2026 ​ 3,250 2027 ​ ​ 3,250 Thereafter ​ 306,312 ​ ​ $ 322,562 ​ The obligations under the New Credit Agreement are guaranteed by certain wholly owned subsidiaries (the “Guarantors”) of the Company as defined in the security agreement. The obligations under the New Credit Agreement are secured by substantially all of the Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts, and security accounts. The New Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict the Company’s ability to pay dividends. The ownership chain between Latham Pool Products and the Company consists of a series of holding companies with no material assets, liabilities, or standalone operations other than indirect equity interests in Latham Pool Products. ​ 10. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS Accrued Expenses and Other Current Liabilities ​ Accrued expenses and other current liabilities consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Accrued sales rebates ​ $ 16,705 ​ $ 20,300 Accrued product warranties ​ 3,763 ​ 4,717 Accrued incentives ​ 2,727 ​ 9,205 Accrued vacation ​ 2,422 ​ 2,773 Accrued payroll ​ 5,750 ​ 6,107 Accrued interest ​ ​ 2,868 ​ ​ — Accrued third-party services ​ 706 ​ 1,458 Income taxes payable ​ ​ 923 ​ ​ 587 Deferred revenue ​ ​ 4,480 ​ ​ 5,927 Other accrued expenses ​ 10,541 ​ 8,023 Total accrued expenses and other current liabilities ​ $ 50,885 ​ $ 59,097 ​ ​ ​ 88 Table of Contents Allowance for Bad Debt ​ The allowance for bad debt consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 Balance at the beginning of the year ​ $ 2,393 ​ $ 1,438 ​ $ 1,322 Bad debt expense ​ 2,011 ​ 979 ​ 358 Write-offs, net of recoveries ​ ( 1,243 ) ​ ( 24 ) ​ ( 242 ) Balance at the end of the year ​ $ 3,161 ​ $ 2,393 ​ $ 1,438 ​ ​ ​ ​ ​ 11. PRODUCT WARRANTIES The warranty reserve activity consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 ​ 2020 Balance at the beginning of the year ​ $ 4,909 ​ $ 2,882 ​ $ 2,846 Accruals for warranties issued ​ 4,567 ​ 8,824 ​ 3,966 Warranty liabilities assumed in GLI Acquisition ​ — ​ — ​ 118 Warranty liabilities assumed in Radiant Acquisition ​ ​ — ​ ​ 50 ​ ​ — Less: Settlements made (in cash or in kind) ​ ( 5,486 ) ​ ( 6,847 ) ​ ( 4,048 ) Balance at the end of the year ​ $ 3,990 ​ $ 4,909 ​ $ 2,882 ​ ​ ​ 12. EXIT OR DISPOSAL COSTS On November 8, 2022, the Company approved a cost reduction plan focused on efforts to improve efficiencies and decrease costs. The plan involved the closure of the Company’s manufacturing facility in Bossier City, Louisiana, and a reduction to the Company’s workforce. The Company expects to incur charges for employee severance and related costs, as well as fixed asset and facility related expenses, of approximately $ 1.6 million. ​ During the year ended December 31, 2022, the Company recognized costs related to the plan totaling $ 1.1 million, comprised primarily of $ 1.0 million for severance and related costs and $ 0.1 million of fixed asset and facility related expenses. These charges were included in cost of sales and selling, general, and administrative expenses in the consolidated statements of operations. The remaining costs under the plan of approximately $ 0.5 million are expected to be incurred and recognized in 2023. The Company did not have an exit or disposal cost related liability as of December 31, 2022 or 2021. ​ ​ ​ ​ ​ 89 Table of Contents 13. LEASES The Company leases vehicles, manufacturing facilities, office space, land, and equipment under operating leases. As of December 31, 2022, our operating leases substantially have remaining terms of one year to eleven years , some of which include options to extend and/or terminate the leases. The Company does not have material finance leases. The components of lease expense for the year ended December 31, 2022 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, 2022 Operating lease expense ​ $ 9,085 ​ Short-term lease expense ​ 156 ​ Variable lease expense ​ 573 ​ Total lease expense ​ 9,814 ​ ​ The table below presents supplemental information related to leases as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ December 31, 2022 Weighted-average remaining lease term (years) ​ ​ ​ ​ Operating leases ​ ​ 6.5 ​ Weighted-average discount rate ​ ​ ​ ​ Operating leases ​ ​ 4.9 % ​ The table below presents supplemental information related to the cash flows for operating leases recorded on the consolidated statements of cash flows (in thousands): ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ Operating cash flows for operating leases ​ $ 6,920 ​ ​ The following table summarizes maturities of operating lease liabilities as of December 31, 2022: ​ ​ ​ ​ ​ ​ Operating Leases 2023 ​ $ 8,663 2024 ​ ​ 8,045 2025 ​ ​ 7,386 2026 ​ ​ 5,903 2027 ​ ​ 4,243 Thereafter ​ ​ 12,036 Total lease payments ​ ​ 46,276 Less: Interest ​ ​ ( 6,962 ) Present value of lease liability ​ $ 39,314 ​ ​ 90 Table of Contents Under ASC 840, the minimum annual rental commitments under non-cancelable operating leases as of December 31, 2021 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended 2022 ​ $ 8,094 2023 ​ ​ 6,278 2024 ​ ​ 5,674 2025 ​ ​ 4,726 2026 ​ ​ 3,479 Thereafter ​ ​ 6,854 ​ ​ $ 35,105 ​ Under ASC 840, rental expense during the years ended December 31, 2021 and 2020 was $ 8.8 million and $ 6.8 million, respectively. ​ ​ ​ ​ 14. NET SALES The following table sets forth the Company’s disaggregation of net sales by product line (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 In-ground Swimming Pools ​ $ 385,467 ​ $ 368,465 ​ $ 237,410 Covers ​ 158,449 ​ 132,126 ​ 84,524 Liners ​ 151,820 ​ 129,865 ​ 81,455 ​ ​ $ 695,736 ​ $ 630,456 ​ $ 403,389 ​ ​ ​ ​ ​ ​ 91 Table of Contents 15. INCOME TAXES The Company is subject to United States federal, state, and local income taxes, as well as other foreign income taxes. The domestic and foreign components of its income (loss) before income taxes are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 Income (loss) before income taxes: ​ ​ ​ Domestic ​ $ 2,574 ​ $ ( 68,261 ) ​ $ 19,609 Foreign ​ 11,147 ​ 14,731 ​ 3,150 Total ​ $ 13,721 ​ $ ( 53,530 ) ​ $ 22,759 ​ Current and deferred income tax expense (benefit) is composed of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 Current income tax expense: ​ ​ ​ Domestic ​ $ 22,133 ​ $ 19,855 ​ $ 10,342 Foreign ​ 1,084 ​ 991 ​ 1,104 Total current tax expense ​ 23,217 ​ 20,846 ​ 11,446 Deferred income tax (benefit) expense: ​ ​ ​ Domestic ​ ( 6,020 ) ​ ( 1,912 ) ​ ( 4,532 ) Foreign ​ 2,218 ​ ( 10,116 ) ​ ( 138 ) Total deferred tax (benefit) expense ​ ( 3,802 ) ​ ( 12,028 ) ​ ( 4,670 ) Total income tax expense ​ $ 19,415 ​ $ 8,818 ​ $ 6,776 ​ The reconciliation of the statutory federal income tax rate with the Company’s effective income tax rate is as follows (% of Income (Loss) Before Income Taxes): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ Year Ended ​ Year Ended ​ December 31, 2022 ​ December 31, 2021 ​ December 31, 2020 Federal statutory tax rate 21.0 % ​ 21.0 % ​ 21.0 % Foreign rate differential 4.1 % ​ ( 1.4 ) % ​ 1.2 % State income tax, net of federal benefit 14.0 % ​ ( 3.3 ) % ​ 1.4 % Uncertain tax positions 2.1 % ​ ( 0.3 ) % ​ 0.8 % Change in valuation allowance — % ​ 23.8 % ​ ( 1.1 ) % GILTI (FDII) ( 4.0 ) % ​ 0.8 % ​ 1.5 % Meals and entertainment 0.7 % ​ ( 0.2 ) % ​ 0.5 % Foreign expenses not deductible for tax 3.2 % ​ ( 0.8 ) % ​ 1.7 % Transaction costs not deductible for tax 18.8 % ​ ( 0.2 ) % ​ 2.0 % Nondeductible stock compensation ​ 67.3 % ​ ( 48.0 ) % ​ — % Stock compensation shortfall (windfall) 1.2 % ​ — % ​ — % Canadian branch income 8.8 % ​ ( 9.1 ) % ​ 1.8 % Other permanent items 4.3 % ​ 1.2 % ​ ( 1.0 ) % ​ 141.5 % ​ ( 16.5 ) % ​ 29.8 % ​ 92 Table of Contents The following table summarizes changes in the valuation allowance (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 Balance at January 1 ​ $ — ​ $ ( 12,704 ) ​ $ ( 12,463 ) Additions ​ — ​ — ​ ( 241 ) Deductions ​ ​ — ​ ​ 12,704 ​ ​ — Balance at December 31 ​ $ — ​ $ — ​ $ ( 12,704 ) ​ The Inflation Reduction Act (“IRA”) was passed into law on August 16, 2022. The key provisions from the IRA include the implementation of a 15% alternative book income minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives. The Company evaluated the key provisions under the IRA and concluded that the provisions are not applicable to Latham for year ended December 31, 2022. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the U.S. Tax Cuts and Jobs Act of 2017 (the “Act”). The Act made broad and complex changes to the U.S. tax code, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35 % to 21 % effective January 1, 2018, (2) bonus depreciation that allows for full expensing of qualified property, (3) interest expense deduction limitation rules, and (4) new international tax provisions including, but not limited to, global intangible low-tax income (“GILTI”) and Foreign Derived Intangible Income (“FDII”). The Act also required companies to record/pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. The one-time transition tax was based on the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred for U.S. income tax purposes. The Company did not record a liability for the one-time transition tax for all of its foreign subsidiaries as the Company did not have aggregate E&P from those foreign subsidiaries. During the year ended December 31, 2019, the Company finalized the computations of the income tax effects of the Act. Although the Company has completed its accounting for the effects of the Act, the determination of the Act’s income tax effects may change following future legislation or further interpretation of the Act based on the publication of recently proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities. The Company has elected with respect to its treatment of GILTI to account for taxes on GILTI as incurred. For the year ended December 31, 2022, the Act's amendments to research and development (“R&D”) expenditures no longer permit an immediate deduction for R&D expenditures, including those related to internally developed software, in the tax year that such costs are incurred. Companies are now required to capitalize and amortize all R&D expenditures and requires taxpayers to determine the proper amount of their R&D costs. The Company considered these new requirements and recorded the deferred tax asset on the capitalization of the R&D expenditures. In addition, the Act Section 163(j) provides for a change to the interest deduction limitation for tax years starting January 1, 2022, and later. Taxable income no longer is adjusted for depreciation, amortization, and depletion in arriving at adjusted taxable income ("ATI"), resulting in lower ATI and potentially a greater interest disallowance. The Company adjusted the interest expense limitation calculation within the GILTI calculation to account for the Section 163(j) update. Deferred Income Taxes Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes, and the impact of available net operating loss (“NOL”) and tax credit carryforwards. These items are stated at the enacted tax rates that are expected to be in effect when taxes are actually paid or recovered. ​ ​ 93 Table of Contents Deferred income tax assets and liabilities recorded on the balance sheets as of December 31, 2022 and 2021 consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2022 2021 Deferred tax assets: ​ ​ Net operating loss carryforwards ​ $ 7,267 ​ $ 9,885 Inventories, net ​ 2,663 ​ 1,267 Warranty reserve ​ 783 ​ 1,041 Trade receivables ​ 719 ​ 483 Profits interest units ​ 1,885 ​ 1,778 Accrued expenses ​ 352 ​ 539 Transaction costs ​ 1,211 ​ 1,211 Future branch taxes ​ ​ ( 1,820 ) ​ ​ ( 2,462 ) Other ​ 1,335 ​ 719 Total deferred tax asset ​ 14,395 ​ 14,461 Less: Foreign deferred tax benefit ​ ( 7,762 ) ​ ( 10,603 ) Total domestic deferred tax asset ​ 6,633 ​ 3,858 Deferred tax liabilities: ​ ​ Intangible assets ​ ( 49,257 ) ​ ( 50,298 ) Property and equipment, net ​ ( 6,078 ) ​ ( 5,788 ) Prepaid expenses and other ​ ( 1,161 ) ​ ( 1,201 ) Investments in partnerships ​ ​ ( 318 ) ​ ​ ( 2,914 ) Total deferred tax liabilities ​ ( 56,814 ) ​ ( 60,201 ) Net deferred tax liabilities ​ $ ( 50,181 ) ​ $ ( 56,343 ) ​ ASC 740, Income Taxes , requires that the Company reduce its deferred income tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized. After consideration of all evidence, both positive and negative, management concluded that it is more likely than not that it would be able to realize all of its deferred tax assets and that a valuation allowance of $ 12.7 million was no longer necessary as of December 31, 2021. Accordingly, the valuation allowance was released during the year ended December 31, 2021. For the year ended December 31, 2022, management considered all evidence, both positive and negative, and concluded that it is more likely than not that it will be able to realize all of its deferred tax assets and no valuation allowance was needed. As of December 31, 2022, the Company had net operating loss (“NOL”) carryforwards of approximately $ 7.3 million (tax effected), which will be available to offset future taxable income and tax liabilities. The NOL carryforwards expire in calendar years 2026 through 2039. The Company reinvests earnings of foreign operations indefinitely and, accordingly, does not provide for income taxes that could result from the remittance of such earnings. The Company acknowledges that it would need to accrue and pay taxes should it decide to repatriate cash generated from earnings of its foreign subsidiaries that are considered indefinitely reinvested but expect that the potential tax liability would be insignificant. Tax Uncertainties The liability related to uncertain tax positions, exclusive of interest, is $ 6.4 million at December 31, 2022. Of this amount, $ 6.4 million, if recognized, would impact the effective tax rate. The Company does not expect this balance to significantly change within the next twelve months. The Company’s policy is to record interest and penalties related to unrecognized tax benefits in the income tax provision (benefit). As of December 31, 2022, the Company had $ 0.6 million of accrued interest and no accrued penalties. 94 Table of Contents The Company is subject to income taxes in the U.S., certain states, and numerous foreign jurisdictions. While the Company believes it has adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than its accrued position. Accordingly, additional provisions on federal and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved. The Company files a federal consolidated tax return that includes all U.S. entities as well several combined/consolidated state tax returns and separate state tax returns. In addition, the Company files Canadian and Australian tax returns for its Canadian, Australian, and New Zealand entities. The Company is subject to the regular examination of our income tax returns by tax authorities. The Company does not have any federal audits in process. Examinations in material jurisdictions or changes in laws, rules, regulations, or interpretations by local taxing authorities could result in impacts to tax years open under statute or to foreign operating structures currently in place. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations or changes in laws, rules, regulations, or interpretations to determine the adequacy of our provision for taxes. It is possible the outcomes from these examinations will have a material adverse effect on our financial condition and operating results. Tax years from the fiscal year ended December 31, 2019 through present are open for examination in the U.S. Tax years and tax periods ended December 31, 2018 through present are open for state examination. The Company’s 2019 Illinois return is currently under examination by the state of Illinois. Tax years and tax periods from June 30, 2019 through present are currently open for examination in Canada. Tax years and tax periods from June 30, 2018 through present are currently open for examination in Australia. Tax years and tax periods from March 31, 2018 through present are currently open for examination in New Zealand. ​ The following is a reconciliation of the beginning and ending amount of uncertain tax positions (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 Balance at the beginning of the year ​ $ 10,011 ​ $ 9,862 Additions for tax positions taken during prior years ​ 292 ​ 149 Additions for tax positions taken during the current year ​ — ​ — Balance at the end of the year ​ $ 10,303 ​ $ 10,011 ​ ​ 16. COMMITMENTS AND CONTINGENCIES Litigation In the normal course of its business, the Company is involved in various legal proceedings involving contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position, results of operations, or cash flows. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings. ​ ​ 17. EMPLOYEE BENEFIT PLANS The Company has various retirement savings plans covering substantially all employees of the Company. These plans allow eligible employees to make discretionary contributions. The Company makes discretionary matching and other contributions depending on the plan and recognized expense of $ 1.7 million, $ 2.0 million, and $ 0.8 million related to such plans during the years ended December 31, 2022, 2021 and 2020, respectively. 95 Table of Contents During the year-ended December 31, 2020, the Company terminated its defined benefit pension plan, liquidating the existing plan assets and settling all remaining plan obligations associated with the Company’s pension plans, which resulted in an immaterial impact to the consolidated financial statements. ​ ​ 18. PROFITS INTEREST UNITS Prior to the Reorganization, the Company’s Parent granted profit interest units (“PIUs”) in the form of Class B units of the Parent to certain key employees and directors for purposes of retaining them and enabling such individuals to participate in the long-term growth and financial success of the Company. As part of the Reorganization, the vested and unvested PIUs of the Parent were converted on a pro rata basis into equivalent restricted stock units and restricted stock awards of the Company’s common stock. The following table summarizes the activity for all PIUs during the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ Grant-Date ​ Number of PIUs Fair Value Balance at January 1, 2020 21,734,170 ​ Granted 7,843,107 ​ ​ 0.60 Forfeited ( 2,152,315 ) ​ ​ 0.35 Balance at December 31, 2020 27,424,962 ​ $ 0.43 Forfeited ( 1,266,068 ) ​ ​ 0.34 Converted at IPO in connection with the Reorganization ( 26,158,894 ) ​ ​ 0.43 Balance at December 31, 2021 — ​ $ — ​ On January 29, 2021, an employee holder of PIUs terminated his employment with the Company, at which time all 1,055,057 of his performance-vesting units were forfeited. At the time of his termination, the employee held 527,528 of time-vesting units, of which 211,011 time-vesting units were vested. Per the terms of his termination agreement, the Company accelerated the vesting of an additional 105,506 time-vesting units, such that the total time-vesting units vested were equal to 316,517 upon his termination and the remaining 211,011 of unvested time-vesting units were forfeited upon his termination. As the employee’s profits interest units had not vested from an accounting perspective, the retention and immediate vesting of the retained time-vesting units was accounted for as a modification. A cumulative catch-up charge of $ 1.1 million was recorded during the fiscal quarter ended April 3, 2021 to reflect the incremental fair value of the awards as of the date of the modification, as compared to the grant-date fair value. The Company used the following assumptions in conjunction with the Contingent Claims Analysis Model to estimate the fair value of the PIUs: ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, 2020 Expected volatility ​ 55.00 % Risk-free interest rate ​ 0.20 % Expected term (in years) 3.2 Expected dividend yield — % ​ During the year ended December 31, 2020, the Company recorded $ 0.6 million in stock-based compensation expense related to the settlement of the Contingent Consideration, which is recorded in selling, general, and administrative expense in the consolidated statements of operations. ​ 96 Table of Contents ​ ​ 19. STOCK-BASED COMPENSATION On April 12, 2021, the Company’s stockholders approved the 2021 Omnibus Incentive Plan (the “Omnibus Incentive Plan”), which became effective on April 22, 2021, upon pricing of the IPO. The Omnibus Incentive Plan provides for the issuance of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based and cash-based awards. The maximum aggregate number of shares reserved for issuance under the Omnibus Incentive Plan is 13,170,212 shares. The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the Omnibus Incentive Plan during any one fiscal year, together with any cash fees paid to such non-employee director during such fiscal year, will be $ 750,000 . Contemporaneously with the pricing of the Company’s IPO, on April 22, 2021 the Company granted 8,340,126 of restricted stock awards, 341,301 of restricted stock units and 886,862 of option awards under the Omnibus Incentive Plan to employees of the Company. Of the 8,340,126 restricted stock awards granted, (i) 6,799,414 vest every six months in equal installments beginning on December 27, 2021 and ending on December 27, 2023, and (ii) 1,540,712 vest every six months in equal installments, beginning on December 27, 2021 and ending on December 27, 2024. Of the 341,301 restricted stock unit awards granted, (i) 251,828 vest 1/3 on the nine-month anniversary of the Closing of the IPO, 1/3 on the first anniversary of the Closing of the IPO, and 1/3 on the two-year anniversary of the Closing of the IPO; (ii) 22,367 vest on the first anniversary of the Closing of the IPO; (iii) 51,316 vest on December 16, 2021; and (iv) 15,790 vest evenly on each of the first three anniversaries of the Closing of the IPO. All 886,862 of the option awards vest 25 % annually on each of the first four anniversaries of the Closing of the IPO. The option awards were granted with a strike price of $ 19.00 per share. Under the terms of the Omnibus Incentive Plan, all stock options will expire if not exercised within ten years of the grant date. The following table summarizes the Company’s stock-based compensation expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ ​ 2022 ​ 2021 2020 ​ Cost of sales ​ $ 3,762 ​ $ 8,697 ​ $ — ​ Selling, general, and administrative ​ 46,872 ​ 120,078 ​ 1,827 ​ ​ ​ $ 50,634 ​ $ 128,775 ​ $ 1,827 ​ ​ Of the $ 128.8 million of stock-based compensation expense recorded during the year ended December 31, 2021, $ 0.5 million was related to the accelerated vesting of restricted stock and $ 49.0 million was related to the modification as a result of the Reorganization. Refer to Note 18 above for detail regarding the Company’s equity-based awards issued in the form of PIUs prior to the Reorganization and IPO. The recognized income tax benefit related to stock-based compensation was $ 0.8 million for the year ended December 31, 2022. The recognized income tax benefit related to stock-based compensation was $ 0.1 million for the year ended December 31, 2021. There was no recognized income tax benefit related to stock-based compensation for the year ended December 31, 2020. As of December 31, 2022, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $ 22.9 million, which is expected to be recognized over a weighted-average period of 1.20 years. The following table sets forth the significant assumptions used in the Black-Scholes option-pricing model on a weighted-average basis to determine the fair value of option awards granted: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2022 ​ 2021 Risk-free interest rate 2.06 % ​ 0.64 % Expected volatility 39.68 % ​ 38.19 % Expected term (in years) 6.25 ​ ​ 6.25 ​ Expected dividend yield 0.00 % ​ 0.00 % ​ 97 Table of Contents Restricted Stock Awards The following table represents the Company’s restricted stock awards activity during the year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Average Grant- ​ Shares Date Fair Value Outstanding at January 1, 2022 5,803,124 ​ $ 19.00 Granted — ​ — Vested ( 2,746,520 ) ​ 19.00 Forfeited ( 480,385 ) ​ 19.00 Outstanding at December 31, 2022 2,576,219 ​ $ 19.00 ​ Restricted Stock Units The following table represents the Company’s restricted stock units activity during the year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Average Grant- ​ ​ Shares ​ Date Fair Value Outstanding at January 1, 2022 278,591 ​ $ 19.08 Granted 544,832 ​ 6.92 Vested ( 186,613 ) ​ 19.05 Forfeited ( 18,869 ) ​ 19.00 Outstanding at December 31, 2022 617,941 ​ $ 8.37 ​ Stock Options The following table represents the Company’s stock option activity during the year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- Weighted- ​ ​ ​ ​ ​ ​ ​ Average ​ Average ​ ​ ​ ​ ​ ​ ​ Exercise Price ​ Remaining ​ Aggregate ​ Shares per Share Contract Term Intrinsic Value ​ ​ ​ ​ ​ (in years) ​ (in thousands) Outstanding at January 1, 2022 822,886 ​ $ 19.08 ​ ​ ​ ​ Granted 1,514,372 ​ ​ 13.22 ​ Exercised — ​ ​ Forfeited ( 422,588 ) ​ 17.25 ​ Outstanding at December 31, 2022 1,914,670 ​ $ 14.85 8.89 ​ $ — Vested and expected to vest at December 31, 2022 1,914,670 ​ $ 14.85 8.89 ​ $ — Options exercisable at December 31, 2022 174,607 ​ $ 19.03 7.39 ​ $ — ​ The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock . The weighted average grant-date fair value of stock options granted during the years ended December 31, 2022 and 2021 was $ 5.53 per share and $ 7.25 per share, respectively. ​ 98 Table of Contents 20. SHAREHOLDER’S EQUITY Equity Structure Prior to Reorganization Prior to the IPO and the Reorganization, the Parent owned 100 % of the issued and outstanding common stock of the Company. The capital structure of the Parent consisted of two different classes of limited partnership interests, Class A and Class B units (profits interests). Prior to the Reorganization, none of the Class B units would have been vested for accounting purposes because of the Parent’s $ 0 Repurchase Right, which applied in the event of a voluntary termination or termination without cause, since it functions as a vesting condition. Reorganization Prior to the Closing of the IPO, the Company’s parent entity, Parent, merged with and into Latham Group, Inc., The purpose of the Reorganization was to allow existing indirect owners of the Company to become direct shareholders of the Company. In connection with the Reorganization, Class A units of the Parent (the “Class A units”) were converted into economically equivalent number of shares of the Company’s common stock on a pro rata basis to the individual holders’ ownership , and Class B units of the Parent (the “Class B units”) were converted into an economically equivalent number of restricted and unrestricted shares of the Company’s common stock, based on each individual’s respective equity value, as derived by individual Class B ownership. The Reorganization was accounted for as an equity reorganization between entities under common control. As the Class A units were akin to common shares as all holders held economic interest of the Parent and were entitled to distributions on a pro rata basis to their respective ownership, the conversion of Class A units to common shares as part of the Reorganization was considered to be the equivalent to a stock split, which requires retrospective treatment for accounting purposes. Accordingly, all share and per share amounts in these consolidated financial statements and related notes have been retroactively restated, where applicable, for all periods herein, to give effect to the conversion ratio applied in connection with the Reorganization. As a result of the retrospective application of the Reorganization, any transaction between the Company and Parent has been eliminated from these consolidated financial statements as these represent intercompany transactions. Class B units were historically accounted for as compensatory arrangements in accordance with ASC 718 “Compensation – Stock Compensation,” akin to stock appreciation rights, that when vested would share in the economic appreciation of the equity value of Parent over the agreed hurdles. As a result of the Reorganization, the Company determined that only vested Class B units are considered outstanding for accounting purposes. A portion of the Class B units vest based on continued employment by the holder, or time-vesting units, and the remaining Class B units vest upon defined performance and market conditions, or performance-vesting units. Therefore, the Company has considered any unvested restricted shares as contingently issuable shares until they vest. The conversion of time-vesting Class B units to restricted shares is retrospectively included in the weighted-average common shares outstanding used to calculate diluted net income (loss) per share using the treasury stock method for each period in which the individual unit holder’s threshold was met at the reporting date. and therefore the individual unit holder would have participated in a hypothetical distribution to the Parent unit holders, if dilutive. The conversion of performance-vesting Class B units to restricted shares is not included in the weighted-average shares outstanding used to calculate diluted net income (loss) per share for any period prior to the Reorganization and IPO as the performance vesting thresholds were not satisfied and the performance units were not considered probable to vest historically. Refer to Note 21 for additional details relating to net income (loss) per share. Equity Structure Subsequent to the Reorganization On April 13, 2021, the Company’s certificate of incorporation was amended and restated. Under the amended and restated certificate of incorporation, the Company has authority to issue 500,000,000 shares of common stock, par value $ 0.0001 per share. On April 12, 2021, the Company’s board of directors declared and on April 13, 2021, the Company effected a 109,673.709 -for-one stock split of its issued and outstanding shares of common stock. 99 Table of Contents As a part of the equity Reorganization, on April 22, 2021, 194,207,115 Class A units converted into 97,187,596 shares of common stock and 26,158,894 Class B units converted into 4,145,987 shares of common stock and 8,340,126 shares of unvested restricted stock. Amendment and Restatement of Certificate of Incorporation On April 22, 2021, the Company’s 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. Offering of Common Stock On January 11, 2022, the Company completed an offering of 13,800,000 shares of common stock, par value $ 0.0001 per share, 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. The Company received proceeds of $ 257.7 million from this offering, net of $ 11.4 million of underwriting fees. The proceeds of $ 257.7 million were used to purchase 13,800,000 shares of common stock from certain of the Company’s stockholders, primarily investment funds managed by the Sponsor and Wynnchurch Capital, L.P., and also a small percentage of shares of common stock owned by some of the Company’s directors and executive officers. Repurchase Program On May 10, 2022, the Company approved a stock repurchase program (the “Repurchase Program”), which authorized the Company to repurchase up to $ 100 million of the Company’s shares of common stock over the next three years . The Company may effect these repurchases in open market transactions, privately negotiated purchases, or other acquisitions. The Company is not obligated to repurchase any of its shares of its common stock under the Repurchase Program and the timing and amount of any repurchases will depend on market conditions, the Company’s stock price, alternative uses of capital, the terms of the Company’s debt instruments, and other factors. During the year ended December 31, 2022, the Company repurchased and concurrently retired 4,483,620 shares of the Company’s common stock for an aggregate amount of $ 23.0 million, pursuant to the Repurchase Program. All of the shares were repurchased under a Rule 10b5-1 trading plan. As of December 31, 2022, approximately $ 77.0 million remained available for share repurchases pursuant to the Repurchase Program. As of and December 31, 2022 and 2021, 112,091,756 and 113,642,487 shares of common stock are issued and outstanding for accounting purposes, respectively. ​ 100 Table of Contents ​ ​ 21. NET (LOSS) INCOME PER SHARE Basic and diluted net income per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Numerator: ​ ​ ​ ​ ​ ​ Net (loss) income attributable to common stockholders ​ $ ( 5,694 ) ​ $ ( 62,348 ) ​ $ 15,983 Denominator: ​ ​ ​ Weighted-average common shares outstanding ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 113,245,421 ​ ​ 110,644,366 ​ ​ 101,606,966 Diluted ​ ​ 113,245,421 ​ ​ 110,644,366 ​ ​ 102,602,738 Net (loss) income per share attributable to common stockholders: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.05 ) ​ $ ( 0.56 ) ​ $ 0.16 Diluted ​ $ ( 0.05 ) ​ $ ( 0.56 ) ​ $ 0.16 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The following table includes the number of shares that may be dilutive common shares in the future that were not included in the computation of diluted net income per share because the effect was anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 Restricted stock awards ​ 1,904,037 5,909,089 22,524 Restricted stock units ​ 202,622 ​ 106,917 ​ — Stock options ​ 1,757,336 39 — ​ ​ 22. RELATED PARTY TRANSACTIONS BrightAI Services Starting in 2020, BrightAI rendered services to the Company, for which the cost was capitalized as internal-use software. A co-founder of BrightAI Services has served on the Company’s board of directors since December 9, 2020. During the years ended December 31, 2022, 2021 and 2020, the Company incurred $ 0.2 million, $ 2.1 million, and $ 0.5 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the consolidated balance sheets as of December 31, 2022 and 2021. As of December 31, 2022 and 2021, the Company had accounts payable - related party to BrightAI of $ 0.4 million and $ 0.9 million, respectively. Expense Reimbursement and Management Fees The Company had an expense reimbursement agreement (the “management fee arrangement”) with the Sponsor and Wynnchurch Capital, L.P. for ongoing consulting and advisory services. The management fee arrangement provided for the aggregate payment of up to $ 1.0 million each year for reimbursement of expenses incurred with services provided and, depending on the extent of services provided, management fees. The management fee arrangement terminated upon consummation of the Company’s initial public offering. The Company entered into a Stockholders’ Agreement with the Sponsor and Wynnchurch Capital, L.P. on April 27, 2021. The Stockholders’ Agreement requires the Company to reimburse the Sponsor and Wynnchurch Capital, 101 Table of Contents L.P. the reasonable out-of-pocket costs and expenses in connection with monitoring and overseeing their investment in the Company. There were no management fees incurred by the Company during the years ended December 31, 2022, 2021 and 2020. The Company reimbursed $ 0.2 million, less than $ 0.1 million and less than $ 0.1 million of out-of-pocket costs and expenses to the Sponsor during the years ended December 31, 2022, 2021, and 2020. As of December 31, 2022 and 2021, there were less than $ 0.1 million and no outstanding amounts payable to the Sponsor, respectively. The Company reimbursed less than $ 0.1 million of out-of-pocket costs and expenses to Wynnchurch Capital, L.P. during each of the years ended December 31, 2022, 2021, and 2020. As of both December 31, 2022 and 2021, there were no outstanding amounts payable to Wynnchurch Capital, L.P. Operating Lease In May 2019, in connection with the Narellan Acquisition, the Company assumed an operating lease for the manufacture, sale, and storage of swimming pools and associated equipment with Acquigen Pty Ltd, which was owned by an individual employed by the Company. The lease expires in June 2028. The Company recognized $ 0.5 million and $ 0.4 million of rent expense related to this lease during the years ended December 31, 2021 and 2020, respectively, which is recognized within selling, general, and administrative expense on the consolidated statements of operations. As of December 31, 2021, the individual was no longer employed by the Company and, therefore, no longer considered a related party. Related party transactions disclosed herein that relate to the individual were recognized while the individual was an employee and considered a related party. ​ 23. GEOGRAPHIC INFORMATION Net sales by geography is based on the delivery address of the customer as specified in purchase order. Net sales by geographic area was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 2020 Net sales ​ ​ ​ ​ ​ ​ ​ ​ United States ​ $ 558,827 ​ $ 491,870 ​ $ 325,716 Canada ​ 91,579 ​ 98,662 ​ 50,499 Australia ​ 25,827 ​ 25,216 ​ 20,181 New Zealand ​ 9,346 ​ 8,055 ​ 3,984 Other ​ 10,157 ​ 6,653 ​ 3,009 Total ​ $ 695,736 ​ $ 630,456 ​ $ 403,389 ​ Our long-lived assets by geographic area, which consist of property and equipment, net assets were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Long-lived assets ​ ​ ​ ​ United States ​ $ 62,598 ​ $ 52,695 Canada ​ 29,638 ​ 4,607 Australia ​ 4,173 ​ 4,444 New Zealand ​ 1,775 ​ 1,760 Total ​ $ 98,184 ​ $ 63,506 ​ ​ 102 Table of Contents 24. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY) Latham Group, Inc. (Parent Company Only) Condensed Balance Sheets (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Assets ​ ​ ​ Investment in subsidiary ​ $ 382,790 ​ $ 353,645 Total assets ​ $ 382,790 ​ $ 353,645 Liabilities and Stockholders’ Equity ​ ​ Total liabilities ​ $ — ​ $ — Stockholders’ Equity ​ ​ Preferred stock, $ 0.0001 par value; 100,000,000 shares authorized as of both December 31, 2022 and December 31, 2021; no shares issued and outstanding as of both December 31, 2022 and December 31, 2021 ​ ​ — ​ ​ — Common stock, $ 0.0001 par value; 900,000,000 shares authorized as of December 31, 2022 and December 31, 2021; 114,667,975 and 119,445,611 shares issued and outstanding, as of December 31, 2022 and December 31, 2021, respectively ​ 11 ​ 12 Additional paid-in capital ​ 440,880 ​ 401,846 Accumulated deficit ​ ( 54,568 ) ​ ( 48,583 ) Accumulated other comprehensive (loss) income ​ ( 3,533 ) ​ 370 Total stockholders’ equity ​ 382,790 ​ 353,645 Total liabilities and stockholders’ equity ​ $ 382,790 ​ $ 353,645 ​ The accompanying notes are an integral part of these condensed financial statements. ​ 103 Table of Contents Latham Group, Inc. (Parent Company Only) Condensed Statements of Operations (in thousands, except share and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 Equity in net (loss) income of subsidiary ​ $ ( 5,694 ) ​ $ ( 62,348 ) ​ $ 15,983 Net (loss) income attributable to common stockholders ​ $ ( 5,694 ) ​ $ ( 62,348 ) ​ $ 15,983 Net (loss) income per share ​ ​ ​ Net (loss) income per share attributable to common stockholders – basic and diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.05 ) ​ $ ( 0.56 ) ​ $ 0.16 Diluted ​ $ ( 0.05 ) ​ $ ( 0.56 ) ​ $ 0.16 Weighted-average common shares outstanding – basic and diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 113,245,421 ​ ​ 110,644,366 ​ ​ 101,606,966 Diluted ​ 113,245,421 ​ 110,644,366 ​ 102,602,738 ​ The accompanying notes are an integral part of these condensed financial statements. ​ 104 Table of Contents Latham Group, Inc. (Parent Company Only) Condensed Statements of Comprehensive (Loss) Income (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 Net (loss) income ​ $ ( 5,694 ) ​ $ ( 62,348 ) ​ $ 15,983 Equity in other comprehensive (loss) income of subsidiary ​ ( 3,903 ) ​ ( 1,984 ) ​ 2,825 Comprehensive (loss) income ​ $ ( 9,597 ) ​ $ ( 64,332 ) ​ $ 18,808 ​ The accompanying notes are an integral part of these condensed financial statements. ​ 105 Table of Contents Latham Group, Inc. (Parent Company Only) Condensed Statement of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 Cash flows from operating activities: ​ ​ ​ Net (loss) income ​ $ ( 5,694 ) ​ $ ( 62,348 ) ​ $ 15,983 Adjustments to reconcile net (loss) income to net cash provided by operating activities: ​ ​ ​ Equity in net loss (income) of subsidiary ​ 5,694 ​ 62,348 ​ ( 15,983 ) Net cash provided by operating activities ​ — ​ — ​ — Cash flows from investing activities: ​ ​ ​ Distribution from subsidiary ​ ​ 23,038 ​ ​ — ​ ​ — Investment in subsidiary ​ — ​ ( 117,626 ) ​ ( 65,553 ) Net cash provided by (used in) investing activities ​ 23,038 ​ ( 117,626 ) ​ ( 65,553 ) Cash flows from financing activities: ​ ​ ​ Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs ​ ​ — ​ ​ 399,264 ​ ​ — Proceeds from issuance of common stock ​ ​ 257,663 ​ ​ — ​ ​ 65,553 Repurchase and retirement of common stock ​ ​ ( 280,701 ) ​ ​ ( 281,638 ) ​ ​ — Net cash (used in) provided by financing activities ​ ( 23,038 ) ​ 117,626 ​ 65,553 Net increase in cash ​ — ​ — ​ — Cash at beginning of period ​ — ​ — ​ — Cash at end of period ​ $ — ​ $ — ​ $ — ​ The accompanying notes are an integral part of these condensed financial statements. ​ 106 Table of Contents Notes to Condensed Financial Statements of Registrant (Parent Company Only) 1. Basis of Presentation These condensed parent company-only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X. Latham Group, Inc. has no material assets or standalone operations other than its ownership in its consolidated subsidiaries. Under the terms of the New Credit Agreement entered into by the Latham Pool Products, a wholly owned subsidiary of LIMC, which itself is a wholly owned subsidiary of Latham Group, Inc., Latham Pool Products is restricted from making dividend payments, loans or advances to Latham Group, Inc., unless certain conditions are met. As of December 31, 2022 and 2021, substantially all of the consolidated net assets of Latham Pool Products are considered restricted net assets as defined in Rule 4-08(e)(3) of Regulation S-X. Latham Group, Inc. is able to transfer assets from Latham Pool Products in order to pay certain tax liabilities. These condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the condensed financial statements, with the only exception being that the parent company accounts for its subsidiary using the equity method. 2. Common Stock During the year ended December 31, 2022, the Company repurchased and concurrently retired 4,483,620 shares of the Company’s common stock for an aggregate amount of $ 23.0 million, pursuant to the Repurchase Program. On January 11, 2022, the Company completed an offering of 13,800,000 shares of common stock, par value $ 0.0001 per share, 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. The Company received proceeds of $ 257.7 million from this offering, net of $ 11.4 million of underwriting fees. The proceeds of $ 257.7 million were used to purchase 13,800,000 shares of common stock from certain of the Company’s stockholders, primarily investment funds managed by the Sponsor and Wynnchurch Capital, L.P., and also a small percentage of shares of common stock owned by some of the Company’s directors and executive officers. On April 27, 2021, the Company completed its initial public offering (the “IPO”), pursuant to which it issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $ 399.3 million, after deducting underwriting discounts and commissions and other offering costs. ​ On October 14, 2020 and October 20, 2020, existing shareholders purchased an aggregate of 21,666,653 shares of Latham Group, Inc.’s common stock for an aggregate of $ 64.9 million. In addition, during the year ended December 31, 2020, the Company issued 205,197 shares of common stock for an aggregate of $ 0.6 million. ​ ​ ​ ​ ​ 107 Table of Contents Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None ​ ​