What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-10 · 197 added, 324 removed, 302 unchanged (63% of the section changed)

3 unchanged sentences

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Stockholders’ Equity

32 unchanged sentences

Preferred stock, $ 0.0001 par value;

100,000,000 shares authorized as of both October 1, 2022 and December 31, 2021;

no shares issued and outstanding as of both October 1, 2022 and December 31, 2021

100,000,000 shares authorized as of both April 1, 2023 and December 31, 2022;

no shares issued and outstanding as of both April 1, 2023 and December 31, 2022

Common stock, $ 0.0001 par value;

900,000,000 shares authorized as of October 1, 2022 and December 31, 2021;

117,121,134 and 119,445,611 shares issued and outstanding , as of October 1, 2022 and December 31, 2021, respectively

900,000,000 shares authorized as of April 1, 2023 and December 31, 2022;

114,690,053 and 114,667,975 shares issued and outstanding , as of April 1, 2023 and December 31, 2022, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Total stockholders’ equity

5 unchanged sentences

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

April 1, 2023

April 2, 2022

Cost of sales

1 unchanged sentence

Underwriting fees related to offering of common stock

Income (loss) from operations

(Loss) income from operations

Other expense (income):

4 unchanged sentences

Earnings from equity method investment

Income (loss) before income taxes

Income tax expense

Net income (loss)

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

(Loss) income before income taxes

Income tax (benefit) expense

Net loss per share attributable to common stockholders:

Weighted-average common shares outstanding – basic and diluted

1 unchanged sentence

Latham Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Net income (loss)

Other comprehensive loss, net of tax:

April 1, 2023

April 2, 2022

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustments

Total other comprehensive loss, net of tax

Comprehensive income (loss)

Total other comprehensive (loss) income, net of tax

Comprehensive loss

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

4 unchanged sentences

Stockholders'

Income (Loss)

Balances at December 31, 2021

Foreign currency translation adjustments

Dividend to Class A unitholders ($ 1.00 per share)

Repurchase and retirement of common stock

( 21,666,653 )

Stock-based compensation expense

Balances at April 3, 2021

Cumulative effect of adoption of new accounting standard - leases

Foreign currency translation adjustments

Net proceeds from initial public offering

Sale of common stock

Repurchase and retirement of common stock

( 13,800,244 )

Issuance of restricted stock in connection with the Reorganization

Issuance of common stock upon conversion of Class B units

Stock-based compensation expense

Balances at July 3, 2021

Foreign currency translation adjustments

Retirement of restricted stock

Issuance of common stock upon release of restricted stock units

Stock-based compensation expense

Balances at October 2, 2021

Balances at April 2, 2022

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

4 unchanged sentences

Stockholders'

Income (Loss)

Balances at December 31, 2022

Cumulative effect of adoption of new accounting standard- leases

Foreign currency translation adjustments

Sale of common stock

Repurchase and retirement of common stock

( 13,800,244 )

Retirement of restricted stock

Issuance of common stock upon release of restricted stock units

1 unchanged sentence

Balances at April 1, 2023

Foreign currency translation adjustments

Repurchases and retirements of common stock under repurchase program

( 2,026,231 )

Issuance of common stock upon release of restricted stock units

Stock-based compensation expense

Balances at July 2, 2022

Foreign currency translation adjustments

Retirement of restricted stock

Stock-based compensation expense

Balances at October 1, 2022

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

2 unchanged sentences

(in thousands)

Three Fiscal Quarters Ended

Fiscal Quarter Ended

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

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

Depreciation and amortization

1 unchanged sentence

Non-cash lease expense

Change in fair value of interest rate swaps

Stock-based compensation expense

2 unchanged sentences

Other non-cash, net

Gain on sale of equity method investment

Earnings from equity method investment

Distributions received from equity method investment

Changes in operating assets and liabilities:

5 unchanged sentences

Other long-term liabilities

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities :

Purchases of property and equipment

Proceeds from the sale of property and equipment

Acquisitions of businesses, net of cash acquired

Return of equity method investment

Proceeds from the sale of equity method investment

Net cash used in investing activities

3 unchanged sentences

Proceeds from borrowings on revolving credit facilities

Payments on revolving credit facilities

Payments on revolving credit facility

Deferred financing fees paid

Dividend to Class A unitholders

Proceeds from sale of common stock

Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs

Proceeds from the issuance of common stock

Repayments of finance lease obligations

Repurchases and retirements of common stock

1 unchanged sentence

Effect of exchange rate changes on cash

Net (decrease) increase in cash

Net increase (decrease) in cash

Cash at beginning of period

6 unchanged sentences

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

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

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

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

3 unchanged sentences

(the “Company”) wholly owns Latham Pool Products, Inc.

(“Latham Pool Products”) (together, “Latham”) and is a designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand.

(“Latham 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.

10 unchanged sentences

Unaudited Interim Financial Information

The consolidated balance sheet at December 31, 2021 was derived from audited financial statements but does not include all disclosures required by GAAP.

The accompanying unaudited condensed consolidated financial statements as of October 1, 2022 and for the fiscal quarter and three fiscal quarters ended October 1, 2022 and October 2, 2021 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.

The unaudited condensed consolidated balance sheet at December 31, 2022 was derived from audited financial statements but does not include all disclosures required by GAAP.

The accompanying unaudited condensed consolidated financial statements as of April 1, 2023 and for the fiscal quarters ended April 1, 2023 and April 2, 2022 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

These condensed consolidated financial statements should be read in conjunction with Latham Group, Inc.’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s 2021 Annual Report on Form 10-K, filed with the SEC on March 10, 2022 (the “Annual Report”).

These condensed consolidated financial statements should be read in conjunction with Latham Group, Inc.’s audited consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2022 included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on March 7, 2023 (the “Annual Report”).

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of these condensed consolidated financial statements, have been included.

The Company’s results of operations for the fiscal quarter and three fiscal quarters ended October 1, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

The Company’s results of operations for the fiscal quarter ended April 1, 2023 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending December 31, 2023.

Use of Estimates

4 unchanged sentences

Changes in estimates are recorded in the period in which they become known.

Segment Reporting

The Company identifies operating segments based on how the chief operating decision maker 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.

Although the Company generally has demand for its products throughout the year, its business is seasonal and weather is one of the principal external factors affecting the business.

Historically, net sales and net income are highest during spring and summer, representing the peak months of swimming pool use, pool installation and remodeling and repair activities.

Reclassifications

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

Although the Company generally has demand for its products throughout the fiscal year, its business is seasonal and weather is one of the principal external factors affecting the business.

Historically, net sales and net income are highest during the second and

third fiscal quarters, representing the peak months of swimming pool use, pool installation, and remodeling and repair activities.

Severe weather may also affect net sales in all periods.

Accounting Policies

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

Significant Accounting Policies

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

Recently Issued Accounting Pronouncements

1 unchanged sentence

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 Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flows.

See Note 9, “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):

7 unchanged sentences

ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

For public entities that are SEC filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning

after December 15, 2019, including interim periods within those fiscal years.

For public entities that are SEC filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.

For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

As an “emerging growth company”, the Company is not yet required to adopt the standard and is currently evaluating the impact that the adoption of ASU 2016-13 will have on its 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 , which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

Specifically, this guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.

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.

The adoption of this standard on January 1, 2023 did not have a material impact on the Company’s condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

3 unchanged sentences

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.

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 which can be built completely in-ground, semi-inground, 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.

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 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 Radiant Acquisition:

(in thousands)

November 24, 2021

Total consideration

Allocation of purchase price:

Trade receivables

Prepaid expenses and other current assets

Property and equipment

Intangible assets

Total assets acquired

Accounts payable

Accrued expenses and other current liabilities

Other long-term liabilities

Total liabilities assumed

Total fair value of net assets acquired, excluding goodwill:

The excess of the purchase price over the fair value of the identifiable assets acquired and the liabilities assumed in the Radiant 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:

Definite-lived intangible assets:

(in thousands)

Dealer relationships

The adoption of this standard on January 1, 2023 did not have a material impact on the Company’s condensed consolidated financial statements.

FAIR VALUE MEASUREMENTS

12 unchanged sentences

market approach, income approach or cost approach.

There were no transfers between fair value measurement levels during the three fiscal quarters ended October 1, 2022 or October 2, 2021.

There were no transfers between fair value measurement levels during the fiscal quarter ended April 1, 2023 or April 2, 2022.

Assets and liabilities measured at fair value on a nonrecurring basis

The Company’s non-financial assets such as goodwill, intangible assets and property and equipment are measured at fair value upon acquisition or remeasured to fair value when an impairment charge is recognized.

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 due to the short-term maturities of these instruments.

Term loans (see Note 7) are carried at amortized cost;

however, the Company estimates the fair value of term loans for disclosure purposes.

The fair value of term loans is determined using inputs based on observable market data of a non-public exchange, which are classified as Level 2 inputs.

The following table sets forth the carrying amount and fair value of its term loans (in thousands):

October 1, 2022

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.

The Company’s term loan (see Note 6) is carried at amortized cost;

however, the Company estimates the fair value of the term loan for disclosure purposes.

The fair value of the term loan is determined using inputs based on observable market data of a non-public exchange, which are classified as Level 2 inputs.

The following table sets forth the carrying amount and fair value of its term loan (in thousands):

April 1, 2023

December 31, 2022

New Term Loan

Amended Term Loan

Interest rate swap

The Company estimates the fair value of the interest rate swap (see Note 7) on a quarterly basis using Level 2 inputs, including the forward SOFR curve.

Interest rate swaps

The Company estimates the fair value of interest rate swaps (see Note 6) on a fiscal quarterly basis using Level 2 inputs, including the forward SOFR curve.

The fair value is estimated by comparing (i) the present value of all future monthly fixed rate payments versus (ii) the variable payments based on the forward SOFR curve.

As of October 1, 2022 and December 31, 2021, the fair value of the Company’s interest rate swap asset was $ 4.7 million and $ 0.5 million, respectively, which was recorded within other assets on the condensed consolidated balance sheets.

As of April 1, 2023 and December 31, 2022, the net fair value of the Company’s interest rate swaps was a $ 1.4 million liability and a $ 3.5 million asset, respectively, which were recorded within other long-term liabilities and other assets on the condensed consolidated balance sheets, respectively.

GOODWILL AND INTANGIBLE ASSETS, NET

The carrying amount of goodwill as of October 1, 2022 and as of December 31, 2021 was $ 128.1 million and $ 128.9 million, respectively.

The change in the carrying value during the three fiscal quarters ended October 1, 2022 was due to an increase of $ 0.4 million as a result of a measurement period adjustment (see Note 3) and fluctuations in foreign currency exchange rates.

The carrying amount of goodwill as of April 1, 2023 and as of December 31, 2022 was $ 131.2 million and $ 131.4 million, respectively.

The change in the carrying value during the fiscal quarter ended April 1, 2023 was solely because of fluctuations in foreign currency exchange rates.

Intangible Assets

Intangible assets, net as of October 1, 2022 consisted of the following (in thousands):

October 1, 2022

Intangible assets, net as of April 1, 2023 consisted of the following (in thousands):

April 1, 2023

Trade names and trademarks

2 unchanged sentences

Dealer relationships

Order backlog

Non-competition agreements

The Company recognized $ 7.2 million and $ 21.5 million of amortization expense related to intangible assets during the fiscal quarter and three fiscal quarters ended October 1, 2022, respectively.

The Company recognized $ 5.5 million and $ 16.6 million of amortization expense related to intangible assets during the fiscal quarter and three fiscal quarters ended October 2, 2021, respectively.

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

The Company recognized $ 7.2 million of amortization expense related to intangible assets during the fiscal quarter ended April 2, 2022.

Intangible assets, net as of December 31, 2022 consisted of the following (in thousands):

4 unchanged sentences

Dealer relationships

Order backlog

Non-competition agreements

1 unchanged sentence

Estimated Future

Amortization Expense

Remainder of fiscal 2023

1 unchanged sentence

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

October 1, 2022

April 1, 2023

December 31, 2022

2 unchanged sentences

LONG-TERM DEBT

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

October 1, 2022

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

April 1, 2023

December 31, 2022

New Term Loan

Amended Term Loan

Revolving Credit Facility

Unamortized discount and debt issuance costs

1 unchanged sentence

Total long-term debt

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 facility (the “New Term Loan Facility”) in an initial principal amount of $ 325.0 million (the “Refinancing”).

On the closing date, proceeds under the New Credit Agreement were used to repay $ 294.0 million and terminate the Credit Agreement (as defined below) and for general corporate purposes.

New Revolving Credit Facility

On February 23, 2022, Latham Pool Products entered into the New Credit Agreement with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit in an initial principal amount of $ 75.0 million.

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.

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

Dollar senior secured term loan facility (the “Term Loan”) in an initial principal amount of $ 325.0 million.

On such date, proceeds under the Credit Agreement were used to terminate the previous credit agreement by repayment of $ 294.0 million of outstanding debt thereunder and for general corporate purposes.

Revolving Credit Facility

The Revolving Credit Facility may be utilized to finance ongoing general corporate and working capital needs and permits Latham Pools Products to borrow loans in U.S.

Dollars, Canadian Dollars, Euros and Australian Dollars.

The 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 condensed consolidated balance and are being amortized over the life of the New Revolving Credit Facility.

The Revolving Credit Facility matures on February 23, 2027.

Loans outstanding under the Revolving Credit Facility denominated in U.S.

Dollars and Canadian Dollars bear interest, at the borrower’s option, at a rate per annum based on Term SOFR or CDO (each, as defined in the Credit Agreement), as applicable, plus a margin of 3.50 %, or at a rate per annum based on the Base Rate or the Canadian Prime Rate (each, as defined in the Credit Agreement), plus a margin of 2.50 %.

Loans outstanding under the Revolving Credit Facility denominated in Euros or Australian Dollars bear interest based on EURIBOR or the AUD Rate (each, as defined in the Credit Agreement), respectively, plus a margin of 3.50 %.

A commitment fee accrues on any unused portion of the commitments under the Revolving Credit Facility.

The commitment fee is due and payable quarterly in arrears and 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 Credit Agreement, the “First Lien Net Leverage Ratio”).

Borrowings under the Revolving Credit Facility are due at maturity.

The Company incurred debt issuance costs of $ 0.8 million related to the Revolving Credit Facility.

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

The Company is required to meet certain financial covenants, 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 October 1, 2022, there were no outstanding borrowings on the New Revolving Credit Facility.

New Term Loan Facility

Pursuant to the New Credit Agreement, Latham Pool Products also borrowed $ 325.0 million in term loans.

The New Term Loan Facility matures on February 23, 2029.

Loans outstanding under the New Term Loan Facility bear interest, at the borrower’s option, at a rate per annum based on Term SOFR (as defined in the New Credit Agreement), plus a margin ranging from 3.75 % to 4.00 %, depending on the First Lien Net Leverage Ratio, or based on the Base Rate (as defined in the Credit Agreement), plus a margin ranging from 2.75 % to 3.00 %, depending on the First Lien Net Leverage Ratio.

Loans under the Term Loan Facility are subject to scheduled quarterly amortization payments of $812,500, equal to 0.25 % of the initial principal amount of the Term Loan Facility.

The New Credit Agreement contains customary mandatory prepayment provisions, including requirements to make mandatory prepayments with 50 % of any excess cash flow and 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 Facility as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheet.

Outstanding borrowings as of October 1, 2022 were $ 313.3 million, net of discount and debt issuance costs of $ 10.1 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 October 1, 2022, the unamortized debt issuance costs and discount on the New Term Loan were $ 5.6 million and $ 4.5 million, respectively.

The effective interest rate was 7.45 % at October 1, 2022, including the impact of the Company’s interest rate swap.

As of October 1, 2022, the Company was in compliance with all financial covenants under the New Credit Agreement.

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 “Revolving Credit Facility”) in the amount of up to $ 30 million, as well as a Term Loan (as described and defined below).

The Revolving Credit Facility was utilized to finance ongoing general corporate and working capital needs.

The Revolving Credit Facility was terminated in connection with the Refinancing.

Prior Term Loan Facility

Pursuant to the Credit Agreement, Latham Pool Products also borrowed $ 215.0 million in term loans (the “Term Loan”).

The Term Loan was amended on May 29, 2019, to provide additional borrowings of $ 23.0 million, which was accounted for as a modification to the 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 requirements (the “Fourth Amendment”).

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 Term Loan, collectively with the First Amendment, Second Amendment, Third Amendment, the Fourth Amendment and the Fifth Amendment, is referred to as the “Amended Term Loan.” The Amended Term Loan was repaid and terminated in connection with the Refinancing.

There are also negative covenants, including certain restrictions on the Company’s and its subsidiaries’ ability to incur additional indebtedness, create liens, make investments, consolidate, or merge with other entities, enter into transactions with affiliates, make prepayments with respect to certain indebtedness, make dividend payments, loans, or advances to the Company, declare dividends and make restricted payments and other distributions.

As of April 1, 2023, there was $48.0 million outstanding on the Revolving Credit Facility.

The Term Loan matures on February 23, 2029.

Loans outstanding under the Term Loan bear interest, at the borrower’s option, at a rate per annum based on Term SOFR (as defined in the Credit Agreement), plus a margin ranging from 3.75 % to 4.00 %, depending on the First Lien Net Leverage Ratio, or based on the Base Rate (as defined in the Credit Agreement), plus a margin ranging from 2.75 % to 3.00 %, depending on the First Lien Net Leverage Ratio.

Loans under the Term Loan are subject to scheduled quarterly amortization payments of $ 812,500 , equal to 0.25 % of the initial principal amount of the Term Loan.

The Credit Agreement contains customary mandatory prepayment provisions, 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 Term Loan as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheet as of the applicable period.

Outstanding borrowings as of April 1, 2023 were $ 312.5 million, net of discount and debt issuance costs of $ 9.3 million.

In connection with the Term Loan, the Company is subject to various negative, reporting, financial, and other covenants, including maintaining specific liquidity measurements.

As of April 1, 2023, the unamortized debt issuance costs and discount on the Term Loan were $ 5.2 million and $ 4.1 million, respectively.

The effective interest rate was 9.96 % at April 1, 2023, including the impact of the Company’s interest rate swaps.

As of April 1, 2023, the Company was in compliance with all financial covenants under the Credit Agreement.

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.

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

The Company executed an interest rate swap on April 30, 2020.

The swap 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.

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 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 (see Note 2 and Note 4).

The interest rate swap is not designated as a hedging instrument for accounting purposes (see Note 3).

Additionally, the Company entered into an interest rate swap that was executed on March 10, 2023.

The swap has an effective date of May 18, 2023 and a termination date of May 18, 2026.

Under the terms of the swap, the Company fixed its SOFR borrowing rate at 4.3725 % on a notional amount of $ 161.0 million.

The interest rate swap is not designated as a hedging instrument for accounting purposes (see Note 3).

Debt Maturities

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

Term Loan Facility

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

Remainder of fiscal 2023

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 obligations under the Credit Agreement are guaranteed by certain wholly owned subsidiaries (the “Guarantors”) of the Company as defined in the security agreement.

The obligations under the Credit Agreement are secured by substantially all of the

Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts, and security accounts.

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

PRODUCT WARRANTIES

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

Three Fiscal Quarters Ended

October 1, 2022

October 2, 2021

Balance at the beginning of the year

Accruals for warranties issued

Fiscal Quarter Ended

April 1, 2023

April 2, 2022

Balance at the beginning of the fiscal year

Adjustments to reserve

Settlements made (in cash or in kind)

Balance at the end of the year

On January 1, 2022, the Company adopted ASU 2016-02, “Leases (Topic 842),” and the related amendments (collectively “ASC 842”).

Balance at the end of the fiscal quarter

On January 1, 2022, the Company adopted ASU 2016-02, “Leases (Topic 842),” and the related amendments.

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).

Under this method of adoption, the comparative information has not been revised and continues to be reported under the previously applicable lease accounting guidance.

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.

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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 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 leases manufacturing facilities, office space, land, and certain vehicles and equipment under operating leases.

The Company also leases certain vehicles and equipment under finance leases.

The Company determines if an arrangement is a lease at inception.

A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company does not have material finance leases.

The components of lease expense for the fiscal quarter and three fiscal quarters ended October 1, 2022 were as follows (in thousands):

The components of lease expense for the fiscal quarters ended April 1, 2023 and April 2, 2022 were as follows (in thousands):

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 1, 2022

April 1, 2023

April 2, 2022

Operating lease expense

Finance lease amortization of assets

Finance lease interest on lease liabilities

Short-term lease expense

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Total lease expense

The table below presents supplemental information related to leases as of October 1, 2022:

October 1, 2022

Operating and finance lease right-of-use assets and lease-related liabilities as of April 1, 2023 and December 31, 2022 were as follows (in thousands):

April 1, 2023

December 31, 2022

Classification

Lease right-of-use assets:

Operating leases

Operating lease right-of-use assets

Finance leases

Total lease right-of-use assets

Lease-related liabilities

Operating leases

Current operating lease liabilities

Finance leases

Accrued expenses and other current liabilities

Operating leases

Non-current operating lease liabilities

Finance leases

Other long-term liabilities

Total finance lease liabilities

The table below presents supplemental information related to leases as of April 1, 2023 and December 31, 2022:

April 1, 2023

December 31, 2022

Weighted-average remaining lease term (years)

Finance leases

Operating leases

Weighted-average discount rate

Finance leases

Operating leases

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

Three Fiscal Quarters Ended

October 1, 2022

Fiscal Quarter Ended

April 1, 2023

April 2, 2022

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

Operating cash flows from operating leases

The following table summarizes maturities of operating lease liabilities as of October 1, 2022 (in thousands):

Operating cash flows for operating leases

The following table summarizes maturities of operating lease liabilities as of April 1, 2023 (in thousands):

Operating Leases

Finance Leases

Remainder of fiscal 2023

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Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

April 1, 2023

April 2, 2022

In-ground Swimming Pools

The effective income tax rate for the fiscal quarter and three fiscal quarters ended October 1, 2022 was 43.4 % and 65.6 %, respectively, compared to ( 223.8 )% and ( 39.3 )% for the fiscal quarter and three fiscal quarters ended October 2, 2021.

The difference between the U.S.

federal statutory income tax rate and the Company’s effective income tax rate for both the fiscal quarter and three fiscal quarters ended October 1, 2022 was primarily attributable to the discrete impact of stock-based compensation expense for which there is no associated tax benefit.

The effective income tax rate for the fiscal quarter ended April 1, 2023 was 16.9 %, compared to 215.1 % for the fiscal quarter ended April 2, 2022.

The difference between the U.S.

federal statutory income tax rate and the Company’s effective income tax rate for both the fiscal quarter and three fiscal quarters ended October 2, 2021 was also primarily attributable to the discrete impact of stock-based compensation expense.

federal statutory income tax rate and the Company’s effective income tax rate for both the fiscal quarters ended April 1, 2023 and April 2, 2022 was primarily attributable to the discrete impact of stock-based compensation expense.

The Inflation Reduction Act ("IRA") was passed into law on August 16, 2022.

Key provisions from the IRA include the implementation of a 15% corporate alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives.

Enactment of the IRA has not impacted the Company’s financial condition, results of operations or cash flows for the period ended October 1, 2022 and the Company does not expect a material impact on its future results.

SHAREHOLDERS’ EQUITY

Stock Split, Initial Public Offering and Reorganization

On April 13, 2021, the Company’s certificate of incorporation was amended and restated.

On April 13, 2021, the Company effected a 109,673.709 -for-one stock split of its issued and outstanding shares of common stock.

Accordingly, all share and per share data included in these condensed consolidated financial statements and notes thereto have been adjusted retroactively to reflect the impact of the amended and restated certificate of incorporation and the stock split.

On April 27, 2021, the Company completed its initial public offering (the “IPO”), pursuant to which it issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares.

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

Prior to the closing of the Company’s IPO on April 27, 2021, the Company’s parent entity, Parent, merged with and into Latham Group, Inc.

(the “Reorganization”).

Enactment of the IRA has not impacted the Company’s financial condition, results of operations, or cash flows for the period ended April 1, 2023 and the Company does not expect a material impact on its future results.

STOCKHOLDERS’ EQUITY

Offering of Common Stock

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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 fiscal quarter ended July 2, 2022, the Company repurchased and concurrently retired 2,026,231 shares of the Company’s common stock for an aggregate amount of $ 15.0 million, pursuant to the Repurchase Program.

As of October 1, 2022, approximately $ 85.0 million remained available for share repurchases pursuant to the Repurchase Program.

As of April 1, 2023, approximately $ 77.0 million remained available for share repurchases pursuant to the Repurchase Program.

The Company did not repurchase any shares of its common stock during the fiscal quarter ended April 1, 2023.

The Company accounts for the excess of the repurchase price over the par value of shares acquired as a reduction to additional paid-in capital.

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.

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 its initial public offering.

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.

3 unchanged sentences

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

April 1, 2023

April 2, 2022

Cost of sales

Selling, general, and administrative

As of October 1, 2022, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $ 32.7 million, which is expected to be recognized over a weighted-average period of 1.21 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:

Three Fiscal Quarters Ended

October 1, 2022

As of April 1, 2023, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $ 21.1 million, which is expected to be recognized over a weighted-average period of 1.44 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 stock option awards granted:

April 2, 2022

Risk-free interest rate

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Expected dividend yield

No stock options were granted under this plan during the fiscal quarter ended April 1, 2023.

Restricted Stock Awards

The following table represents the Company’s restricted stock awards activity during the three fiscal quarters ended October 1, 2022:

The following table represents the Company’s restricted stock awards activity during the fiscal quarter ended April 1, 2023:

Average Grant-

1 unchanged sentence

Outstanding at January 1, 2023

( 1,373,260 )

Outstanding at October 1, 2022

Outstanding at April 1, 2023

Restricted Stock Units

The following table represents the Company’s restricted stock units activity during the three fiscal quarters ended October 1, 2022:

The following table represents the Company’s restricted stock units activity during the fiscal quarter ended April 1, 2023:

Average Grant-

1 unchanged sentence

Outstanding at January 1, 2023

Outstanding at October 1, 2022

Outstanding at April 1, 2023

Stock Options

The following table represents the Company’s stock option activity during the three fiscal quarters ended October 1, 2022:

The following table represents the Company’s stock option activity during the fiscal quarter ended April 1, 2023:

Exercise Price

2 unchanged sentences

(in thousands)

Outstanding on January 1, 2022

Outstanding at October 1, 2022

Vested and expected to vest at October 1, 2022

Options exercisable at October 1, 2022

Outstanding at January 1, 2023

Outstanding at April 1, 2023

Vested and expected to vest at April 1, 2023

Options exercisable at April 1, 2023

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 three fiscal quarters ended October 1, 2022 was $ 5.56 per share.

NET INCOME (LOSS) PER SHARE

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

NET LOSS PER SHARE

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

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Net income (loss) attributable to common stockholders

April 1, 2023

April 2, 2022

Net loss attributable to common stockholders

Weighted-average common shares outstanding

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

As of October 1, 2022 and December 31, 2021, 113,171,655 and 113,642,487 shares of common stock are issued and outstanding for accounting purposes, respectively.

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

Net loss per share attributable to common stockholders:

As of April 1, 2023 and December 31, 2022, 112,113,834 and 112,091,756 shares of common stock were issued and outstanding for accounting purposes, respectively.

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 loss per share because the effect was anti-dilutive:

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

April 1, 2023

April 2, 2022

Restricted stock awards

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A co-founder of BrightAI Services has served on the Company’s board of directors since December 9, 2020.

During the three fiscal quarters ended October 1, 2022 and the year ended December 31, 2021, the Company incurred $ 0.4 million and $ 2.1 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the condensed consolidated balance sheet as of October 1, 2022.

As of October 1, 2022 and December 31, 2021, the Company had accounts payable related to BrightAI of $ 0.8 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 IPO.

In December 2022, the Company executed an additional agreement with BrightAI for the provision of hardware that will run the technology developed by BrightAI and the Company.

During the fiscal quarter ended April 1, 2023 and the fiscal year ended December 31, 2022, the Company incurred less than $ 0.1 million and $ 0.2 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the condensed consolidated balance sheet as of April 1, 2023.

As of both April 1, 2023 and December 31, 2022, the Company had accounts payable related to BrightAI of $ 0.4 million.

Expense Reimbursement

The Company entered into a Stockholders’ Agreement with the Sponsor and Wynnchurch Capital, L.P.

2 unchanged sentences

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 fiscal and three fiscal quarters ended October 1, 2022 and October 2, 2021.

The Company recognized $ 0.2 million for the reimbursement of out-of-pocket costs and expenses to the Sponsor and $ 0.1 million for the reimbursement of out-of-pocket costs and expenses to the Wynnchurch Capital, L.P.

during the fiscal quarter and three fiscal quarters ended October 1, 2022.

The Company recognized less than $ 0.1 million for the reimbursement of out-of-pocket costs and expenses to the Sponsor and Wynnchurch Capital, L.P.

during three fiscal quarters ended October 2, 2021.

As of October 1, 2022, there was $ 0.2 million outstanding amounts payable to the Sponsor and no outstanding amounts payable to Wynnchurch Capital, L.P.

As of December 31, 2021, there were no outstanding amounts payable to the Sponsor and Wynnchurch Capital, L.P.

SUBSEQUENT EVENTS

On November 8, 2022, the Company approved a cost reduction plan focused on efforts to improve efficiencies and decrease costs.

The plan involves the closure of the Company’s manufacturing facility in Bossier City, Louisiana, and a reduction to the Company’s current workforce.

The Company expects to incur charges for employee severance and related costs, as well as fixed asset and facility related expenses, of approximately $2.0 million.

These costs will be recognized in the fourth quarter of 2022 and in the first quarter of 2023.

The Company recognized $ 0.2 million for the reimbursement of out-of-pocket costs and expenses to Wynnchurch Capital, L.P.

and no amounts for the reimbursement of out-of-pocket costs and expenses to the Sponsor during the fiscal quarter ended April 1, 2023.

The Company did not reimburse any out-of-pocket costs or expenses to the Sponsor and Wynnchurch Capital, L.P.

during the fiscal quarter ended April 2, 2022.

As of both April 1, 2023 and December 31, 2022, there was less than $ 0.1 million outstanding amounts payable to the Sponsor and no outstanding amounts payable to Wynnchurch Capital, L.P.

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

What changed 10-Q

Item 1. Financial Statements