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Item 1A. Risk Factors

2024-03-13 compared with 2023-03-07 · 202 added, 234 removed, 254 unchanged (63% of the section changed)

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These risks include, but are not limited to, the following:

● Net sales for our swimming pools and related products is adversely affected by unfavorable economic conditions and trends in consumer spending;

● inability to sustain further growth in our business;

● adverse weather conditions impacting our sales, as well as result in significant variability of sales in reporting periods;

● natural disasters, war, terrorism, public health issues such as the novel coronavirus (“COVID-19”) pandemic or other catastrophic events;

● our ability to attract, develop and retain highly qualified personnel;

● inability to attract dealers and distributors to purchase our products, or the loss of our largest customers, since our products are not sold directly to consumers;

● increases in costs of our raw materials and components and inability to source the quantity or quality of raw materials and components that we need to manufacture our products, including due to the loss of our largest suppliers;

● inflationary impacts;

● product quality issues, warranty claims or safety concerns and other claims in the ordinary course of business;

● Net sales for our swimming pools and related products are adversely affected by unfavorable economic conditions and related impact on consumer spending;

● adverse weather conditions impacting our sales, and can lead to significant variability of sales in reporting periods;

● natural disasters, including resulting from climate change, geopolitical events, war, terrorism, public health issues or other catastrophic events;

● competition that we face;

● failure to meet customer specifications or consumer expectations;

● our inability to collect accounts receivables from our customers;

● delays in, or systems disruptions issues caused by, the implementation of our enterprise resource planning system could adversely affect our operations;

● changes in environmental, health, safety, transportation, and other government regulations;

● the effects of climate change and the expanding legal and regulatory restrictions intended to address climate change could adversely impact our business;

● inability to obtain transportation services to deliver our product and to obtain raw materials timely or increases in the cost of transportation;

● our ability to attract, develop and retain highly qualified personnel;

● inflationary impacts, including on consumer demand for pool products;

● our ability to source the quantity or quality of raw materials and components that we need to manufacture our products, and increases in their costs;

● our ability to collect accounts receivables from our customers;

● our ability to keep pace with rapidly evolving technological developments and standards, such as generative artificial intelligence;

● the potential loss of our largest customers and pricing pressures resulting from industry consolidation;

● interruption of our production capability at one or more of our manufacturing facilities from accident, fire, calamity, regulatory action or other causes or events;

● product quality issues, warranty claims or safety concerns and other claims, including those due to the failure of builders to follow our product installation instructions and specifications;

● delays in, or systems disruptions issues caused by, the implementation of our enterprise resource planning system;

● cyber-security breaches and data leaks, and our dependence on information technology systems;

● compliance with government regulations;

● our ability to obtain transportation services to deliver our product and to obtain raw materials timely or increases in the cost of transportation;

● our ability to obtain, maintain and enforce intellectual property protection for our current and future products, and third-party claims against us for violation of their intellectual property;

● the risks of doing business internationally;

● cyber security breaches and data leaks, and our dependence on information technology systems;

● our ability to secure financing and our substantial indebtedness;

● the other factors set forth under “Risk Factors.”

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Risks Related to Our Operations and Industry

Net sales of our swimming pools and related products is adversely affected by unfavorable economic conditions and trends in consumer spending, which are impacted by factors outside of our control.

Net sales of our swimming pools and related products are adversely affected by unfavorable economic conditions and the related impact on consumer spending, which are driven by factors outside of our control.

Consumer discretionary spending affects our sales of swimming pools and related products and is impacted by factors outside of our control, including general economic conditions, the residential housing market, unemployment rates and wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and access to credit.

In particular, we believe that access to consumer credit is an important factor enabling the purchase of new pools because a significant percentage of consumers finance their pool installations.

The recent and continued combination of high interest rates and high inflation have reduced the affordability of mortgages and increased the cost of home improvement projects.

Tightening consumer credit or increases in interest rates could reduce the number of consumers that obtain financing for pools, which would negatively impact our sales.

In economic downturns such as many economists and industry leaders are forecasting for 2023, the demand for swimming pools and related products has declined and we expect that such demand would decline in the future, with the magnitude of such declines often corresponding to the declines in discretionary consumer spending and the growth rate of pool eligible households.

In economic downturns such as we experienced in 2023 and which many economists and industry leaders are forecasting will continue in 2024, the demand for swimming pools and related products has declined and we expect that such demand will decline in the future, with the magnitude of such declines often corresponding to the declines in discretionary consumer spending and the growth rate of pool eligible households.

In addition, consumer demand for swimming pools is impacted by consumer demand for, and spending on, outdoor living spaces.

While we believe consumers have increased relative spending on outdoor living in recent years, such purchases may decrease in the aggregate if there was a decline in consumer discretionary spending.

While it is our view that consumers have increased relative spending on outdoor living in recent years, such purchases may decrease in the aggregate if there is a decline in consumer discretionary spending as we saw in 2023 and expect to continue in 2024.

Any substantial deterioration in general economic conditions that diminishes consumer confidence or discretionary income may reduce our sales and materially adversely affect our business, financial condition, and results of operations.

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Even in generally favorable economic conditions, severe and/or prolonged downturns in the housing market could have a material adverse impact on our financial performance due to our industry’s alignment with the housing market.

We may be unable to sustain further growth in our business.

Our core strategy for our business is growth, including by contributing to the transformation of the North American residential pool industry by driving and benefiting from material conversion to fiberglass pools, our key product.

See “Business — Growth and Strategy.” Although we have generated 13 consecutive years of net sales growth, we may not be able to continue generating net sales growth in the future.

While we believe interest in pool ownership remains strong, recently, homeowners have been taking more time on their purchase decisions and establishing installation dates in light of the current macroeconomic environment.

Further, to achieve our growth plans, we have made and expect to continue to make significant investments in our employees, technology, marketing, research and development, manufacturing capacity and strategic investments and acquisitions.

While we believe that our fiberglass pools are the future of the industry and meet the majority of the market of pools sold, fiberglass pools do have some limitations.

Due to shipping considerations, they are subject to certain size limits.

Although we offer a broad portfolio of design choices, fiberglass pools can be less customizable than concrete and vinyl.

Our failure to implement our growth strategy in a cost-effective and timely manner could result in underutilized assets and higher operating costs, and otherwise could have an adverse effect on our business, financial condition, and results of operations.

Adverse weather conditions could negatively impact our sales, as well as result in significant variability of sales in reporting periods.

Given the nature of our business, weather is one of the principal external factors affecting our business, and the impact of bad weather is further exacerbated by the seasonality of our business.

Weather is one of the principal external factors affecting our business, and the impact of bad weather is further exacerbated by the seasonality of our sales cycle.

Adverse weather can interfere with ordinary transportation of our products and installation and cause a resulting delay, or if such delay is prolonged may lead to a cancelled order.

The second and third quarters of the year, which correspond to the spring and summer months in the United States, represent the peak months of swimming pool use and pool installation and maintenance.

Unseasonably late warming trends in the spring or early cooling trends in the fall can shorten the length of the pool

Unseasonably late warming trends in the spring or early cooling trends in the fall can shorten the length of the pool season.

In addition, unseasonably cool weather or extraordinary rainfall during the peak season can have an adverse impact on demand due to decreased swimming pool use and installation.

Due to such seasonality, our net sales are significantly stronger in the second and third quarters each year, and are moderated in the first and fourth quarters.

Further, adverse weather conditions can cause the timing of sales and cash flows can shift significantly between quarterly and annual reporting periods and therefore significantly impact the meaningfulness of period-to-period comparisons of financial and operating results.

Natural disasters, war, terrorism, public health issues such as the COVID-19 pandemic, or other catastrophic events could adversely affect our business.

Further, adverse weather conditions can cause the timing of sales and cash flows to shift significantly between quarterly and annual reporting periods and therefore significantly impact the meaningfulness of period-to-period comparisons of financial and operating results.

Natural disasters, including resulting from climate change, geopolitical events, war, terrorism, public health issues, or other catastrophic events could adversely affect our business.

financial condition and results of operations.

Our operations and financial results have been, and may be in the future, adversely impacted by local, regional, national or global catastrophic events or extraordinary circumstances, such as natural or environmental disasters, public health issues such as the COVID-19 pandemic, and other serious disruption to our facilities due to fire, flood, earthquake, acts of terrorism, civil insurrection or social unrest.

Any such event could disrupt our supply chain, our ability to manufacture and deliver our products, and our dealers’ and distributors’ ability to install our products, as well as adversely impact customer demand of our products.

Further, such event could have macro implications, such as adversely impacting consumer discretionary spending, causing geopolitical uncertainty, and resulting in a macroeconomic downturn and disruption in the financial markets.

events driven by climate change or other factors, public health issues such as the COVID-19 pandemic, and other serious disruption to our facilities due to fire, flood, hurricane, earthquake, war, acts of terrorism, civil insurrection or social unrest.

For example, the current conflict in the Middle East has disrupted and delayed shipping channels through the Red Sea, which delayed the availability of certain raw materials, components and other supplies and escalated the cost of such materials components and supplies, and such disruptions may continue.

Further, such events could have macro implications, such as adversely impacting consumer discretionary spending, causing geopolitical uncertainty, and resulting in a macroeconomic downturn and disruption in the financial markets.

Given the seasonality inherent in our business, the impact of such events or circumstances on our business would be particularly severe if the timing coincides with the peak months of swimming pool use and pool installation and maintenance.

Our response and response of other impacted persons to any such event may result in an increase in our operating costs and require significant management resources, and we could incur impairment expense for any impacted assets.

The direct and indirect impacts of such catastrophic event or extraordinary circumstances also could heighten many of the other risks described in this Annual Report, and any of these impacts could adversely affect our business, financial condition, and results of operations.

The ongoing war between Russia and Ukraine could adversely affect our operations, and related sanctions and other actions that have been or may be enacted by the United States, the European Union, or other governing entities could adversely affect our business, our business partners, our suppliers, and our customers.

Our response and the response of other impacted persons to any such event may result in an increase in our operating costs and require significant management resources, and we could incur impairment expense for any impacted assets.

The ongoing war between Russia and Ukraine, and related sanctions and other actions that have been or may be enacted by the United States, the European Union, or other governing entities could have a lasting impact on regional and global economies and adversely affect our business, our business partners, our suppliers, and our customers.

While our operations are primarily within North America and we have no operations in Russia or Ukraine, and we do not have direct exposure to customers and vendors in Russia and Ukraine, we continue to monitor any adverse impact that such events may have on the global economy in general, on our business and operations and on the businesses and operations of our business partners, suppliers and customers.

The conflict in the Middle East could disrupt our ability to deliver product to customers in Israel resulting in delayed or lost sales.

We face competition both from within our industry and from other outdoor living products and if we are not able to compete effectively, our prospects for future success will be jeopardized.

Within our industry, we directly compete against various international, regional and local pool manufacturing companies.

In the current economic environment, where consumer demand has softened due to higher interest rates, inflation and other concerns, competition has intensified resulting in pressure to reduce prices and to offer more innovative products and materials, which could adversely affect our business.

Outside of our industry, we compete indirectly with alternative suppliers of big ticket consumer discretionary outdoor living products, such as decks and patios, and with other companies who rely on discretionary homeowner expenditures, such as home remodelers.

Given the density and demand for pools, some geographic markets that we serve tend to have a higher concentration of competitors than others, particularly California, Texas, Florida, Arizona, and Australia.

In addition, new competitors may emerge.

We have seen increased interest from pool manufacturing companies from Canada and Australia in entering the U.S.

If one or more of our competitors were to merge, the change in the competitive landscape could adversely affect our competitive position.

Consolidation by industry participants could increase their resources and result in competitors with expanded market share, larger customer bases, greater diversified product offerings and greater technological and marketing expertise, which may allow them to compete more effectively against us.

In addition, our competitors may develop products that are superior to our products (on a price-to-value basis or otherwise) or may adapt more quickly to new technologies or evolving customer requirements.

If we do not compete effectively, our net sales, margins, and profitability and our future prospects for success may be harmed.

We may not be able to compete as effectively with our competitors, and ultimately satisfy the needs and preferences of our customers, unless we can continue to enhance existing products and technologies and develop new innovative products and marketing strategies for the markets in which we compete.

Product development requires significant financial, technological, and other resources.

Product improvements and new product introductions also require significant research, planning, design, development, engineering, and testing at the technological, product, and manufacturing process levels, and we may not be able to timely develop and introduce product improvements or new products.

Our competitors’ new products may beat our products to market, be higher quality or more reliable, be more effective with more features and/or less expensive than our products, obtain better market acceptance, or render our products obsolete.

Any new products that we develop may not receive market acceptance or otherwise generate any

meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs, and research and development.

We depend on our ability to attract, develop, and retain highly qualified personnel.

Our ability to meet our strategic objectives and otherwise grow our business will depend to a significant extent on the continued contributions of our leadership team, as well as our ability to identify, attract, and retain other highly qualified managerial, technical, sales and marketing, operations, and customer service personnel.

In particular, we rely on a technically skilled workforce to operate the specialized equipment required to manufacture fiberglass pools.

Competition for these individuals in our manufacturing markets is intense and supply is limited, in particular due to significant voluntary resignations across industries since the onset of the COVID-19 pandemic.

Our ability to meet our strategic objectives and otherwise grow our business will depend to a significant extent on the continued contributions of our leadership team, as well as our ability to attract, develop and retain other highly qualified managerial, technical, sales and marketing, operations, production and customer service personnel.

In particular, we rely on a technically skilled workforce to operate the specialized equipment required to manufacture fiberglass pools, panels, liners and pool covers in a challenging production environment that may not appeal to many potential workers.

Competition for these individuals in our manufacturing markets is intense and supply is limited, in particular due to ongoing constraints in the labor market.

Since we operate in a competitive labor market, there is a risk that market increases in compensation could have an adverse effect on our business and operating costs.

While compensation considerations remain important, current and potential employees are increasingly placing a premium on working for companies with strong brand reputation, flexible work arrangements, and other considerations, such as embracing sustainability and diversity, equity and inclusion initiatives.

We may not succeed in identifying, attracting, or retaining qualified personnel on a cost-effective basis.

The loss or interruption of services of any of our key personnel, inability to identify, attract, or retain qualified personnel in the future, delays in hiring qualified personnel, or any employee work slowdowns, strikes, or similar actions could make it difficult for us to conduct and manage our business and meet key objectives, which could harm our business, financial condition, and results of operations.

In November 2022, we approved a cost reduction plan to optimize our production and shift schedules, implement a workforce reduction, and streamline our cover and liner manufacturing footprint with the closure of our Bossier City, Louisiana facility in the first quarter of 2023.

The loss or interruption of services of any of our key personnel, ability to attract, develop or retain qualified personnel in the future, delays in hiring qualified personnel, or any employee work slowdowns, strikes, or similar actions could make it difficult for us to conduct and manage our business and meet key objectives, which could harm our business, financial condition, and results of operations.

In recent years, we approved cost reduction plans to optimize our production and shift schedules, implement workforce reductions, and streamline our manufacturing footprint by closing certain facilities, and may need to take similar actions in the future if softened demand continues.

Such actions may adversely impact our ability to attract and retain qualified personnel in the future.

Our products are sold to other businesses for resale to consumers, and inability to attract dealers and distributors to purchase our products or the loss of our largest customers could adversely affect our business, financial condition, and results of operations.

We sell all of our products to key channel partners, dealers and distributors, who resell the products to consumers and other dealers, respectively.

Some of our customers also sell our competitors’ products.

The customers’ success in reselling our products to consumers is a key driver of our net sales.

Our agreements for exclusivity with customers generally are terminable at will by either party.

During periods of strong growth, we have had to terminate relationships with certain customers to ensure we could satisfy the demand of our leading customers.

During periods of slower growth, such as we expect in 2023, we are looking to develop relationships with new customers to expand our growth opportunities.

If we are unable to attract or retain successful customers on a cost-effective basis, our business, financial condition, and results of operations may be materially adversely affected.

Our customers generally are not contractually obligated to purchase from us.

They make purchase decisions based on a combination of brand, product quality, consumer demand, customer service performance, price, and other factors.

In 2022, we experienced volume declines in our packaged pool products as our wholesale distribution partners destocked packaged pool inventory levels as they serviced dealer demand through existing supply, and we expect this to continue into 2023.

Changes in our customers’ strategies may adversely affect our sales.

Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us.

Finally, our customers may default on their obligations to us.

These risks are heightened with respect to our largest customer, which accounted for 20.3% of our net sales in 2022, and our top ten dealers and distributors, which accounted for 39.4% of our net sales in 2022.

A reduction in sales to our customers, particularly the loss of, or a reduction in sales to, our largest customers, could have a material adverse effect on our business, financial condition, and results of operations.

Inflation could adversely impact our financial condition and results of operations.

While inflation in the United States began to plateau or subside in the second half of the calendar year of 2023, higher prices continue to impact our costs of labor, materials, and services, and could continue to cause costs to increase as well as scarcity of certain products.

We are experiencing inflationary pressures in certain areas of our business, including with respect to prices of our raw materials and employee wages, although, to date, we have been able to offset such pressures, to some extent, through price increases and other measures.

We cannot, however, predict any future trends in the rate of inflation or associated increases in our operating costs and how that may impact our business.

There is a substantial risk that demand for our products may continue to soften as we continue to increase the prices of our products to offset the inflationary pressure.

There are indications in the market that some consumers are reluctant to purchase pool products due to escalating prices due to inflation.

To the extent we are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our business, our net sales and gross margins could decrease, and our financial condition and results of operations could be adversely affected.

We depend on a global network of third-party suppliers to provide components and raw materials essential to the manufacturing of our pools and price increases or deviations in the quantity or quality of the raw materials used to manufacture our products could adversely affect our net sales and operating results.

We rely on manufacturers and other suppliers to provide us with the components and raw materials to manufacture our products.

The primary raw materials used in our products are polyvinyl chloride (“PVC”) plastic, galvanized steel, fiberglass, aluminum, carbon fiber, Kevlar fiber, various resins, gelcoat, polypropylene fabric, and roving.

The primary raw materials used in our products are polyvinyl chloride (“PVC”) plastic, galvanized steel, fiberglass, aluminum, various resins, high impact polystyrene, gelcoat and polypropylene fabric.

Other than occasional strategic purchases of larger quantities of certain raw materials, we generally buy materials on an as-needed basis.

We are dependent upon the ability of our suppliers to consistently provide raw materials and components that meet our specifications, quality standards and other applicable criteria.

Our suppliers’ failure to provide raw materials and components that meet such criteria on a timely basis could adversely affect production schedules and our product quality, which in turn could materially adversely affect our business, financial condition, and

results of operations.

While we are of the view that our relationships with our current suppliers are sufficient to provide the materials necessary to meet present production demand, these relationships may not continue or the quantity or quality of materials available from these suppliers may not be sufficient to meet our future needs, irrespective of whether we successfully implement our growth strategy, and we may not be able to obtain supplies on favorable terms.

In the event of a shortage of our raw materials, we may not be able to arrange for alternative sources of such materials on a timely basis or on equally favorable terms, and we could experience a disruption to our operations as alternative suppliers are identified and qualified and new supply arrangements are entered into.

Increases in the cost of the raw materials used to manufacture our products could adversely affect our operating results.

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Accordingly, we are exposed to the risk of increases in the market prices of raw materials used in the manufacture of our products.

We continue to experience inflationary pressures in certain areas of our business, including with respect to prices of our raw materials and employee wages, although, to date, we have been able to offset such pressures, to some extent, through price increases and other measures.

If we are unable to increase our prices or experience a delay in our ability to increase our prices or to recover such increases in our costs, our gross profit will suffer.

In addition, increases in the price of our products to compensate for increased costs of raw materials may reduce demand for our products and adversely affect our competitive position.

Other than occasional strategic purchases of larger quantities of certain raw materials, we generally buy materials on an as-needed basis.

We are dependent upon the ability of our suppliers to consistently provide raw materials and components that meet our specifications, quality standards and other applicable criteria.

While we believe that our relationships with our current suppliers are sufficient to provide the

materials necessary to meet present production demand, these relationships may not continue or the quantity or quality of materials available from these suppliers may not be sufficient to meet our future needs, irrespective of whether we successfully implement our growth strategy, and we may not be able to obtain supplies on favorable terms.

In the event of a shortage of our raw materials, we may not be able to arrange for alternative sources of such materials on a timely basis or on equally favorable terms.

For example, in 2021 and the first half of 2022, we experienced raw material shortages, particularly of resin, which limited our fiberglass pool production and decreased our profitability and raw material shortages may impact us similarly in the future.

Although we have taken actions to increase and diversify our resin and other raw materials supply base, we may not succeed in procuring sufficient supply of resin and other raw materials that we need on a timely basis or at all, which could result in lost sales and a decline in our profitability.

See “Risks Related to Our Operations and Industry” for additional information on how inflation could adversely impact our financial condition and results of operations.

The foregoing risks are heightened with respect to our largest supplier, which accounted for 16% of our purchased supplies in 2023, and our top ten suppliers, which accounted for 65% of our purchased supplies in 2023.

Inflation could adversely impact our financial condition and results of operations.

Inflation in the United States began to rise significantly in the second half of the calendar year of 2021 and continued to increase in 2022.

For instance, global supply chain disruptions have resulted in shortages in materials and services, which has led to inflationary cost increases for labor, materials, and services, and could continue to cause costs to increase as well as scarcity of certain products.

Global supply chain disruptions continue to persist, and may become worse due to the war in Ukraine, the COVID-19 pandemic-related lock-downs in China or for other reasons.

We cannot, however, predict any future trends in the rate of inflation or associated increases in our operating costs and how that may impact our business.

In addition, the demand for our products may soften as we continue to increase the prices of our products to offset the inflationary pressure.

To the extent we are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our business, or to continue to grow our sales volumes, our net sales and gross margins could decrease, and our financial condition and results of operations could be adversely affected.

Product quality, warranty claims or safety concerns and other claims in the ordinary course of business could negatively impact our sales, lead to increased costs, and expose us to litigation.

Our ability to collect accounts receivables from our customers may adversely impact our cash flows and our ability to reduce our debt.

We extend credit to our customers (dealers in one-step distribution channel or distributor in two-step distribution channel), and we generally do not require collateral to secure these extensions of credit.

A significant portion of our accounts receivables are typically concentrated within a relatively small number of customers.

The financial health of many of our customers is affected by changes in the economy.

The effects of any protracted or severe economic declines may cause our customers to be unable to satisfy their payment obligations, including with us.

While we have procedures to monitor and limit exposure to credit risk on our accounts receivables, there can be no assurance such procedures will effectively limit our credit risk and avoid losses, and our financial condition and results of operations could be materially and adversely affected if our credit losses significantly exceed our estimates.

Our ability to keep pace with rapidly evolving technological developments and standards, such as generative artificial intelligence, could impact our future growth and increase our costs and liability risk.

To be successful in our industry, we must keep pace with technological developments and innovations (such as the use of artificial intelligence and machine learning) and evolving industry standards.

If we are unable to provide enhancements and new features and develop new products that achieve market acceptance or innovate quickly enough to keep pace with these rapid technological developments, our business could be harmed.

Further, the development, adoption, and uses for generative AI technologies are still in their early stages and ineffective or inadequate AI development or deployment practices by the Company or our third-party vendors could result in unintended consequences, which could impact our future growth and increase our costs and liability risk.

Developing, testing, and deploying resource-intensive AI systems may require additional investment and increase our costs.

Consolidation among our network of dealers and distributors could lead to downward pressure on the price of our products or the loss of our largest customers, which could adversely affect our business, financial condition, and results of operations.

We sell all of our products to key channel partners, dealers and distributors, who resell the products to consumers and other dealers, respectively.

Some of our customers also sell our competitors’ products.

The customers’ success in reselling our products to consumers is a key driver of our net sales.

Should consolidation among our dealers

and distributors through acquisitions, mergers and other transactions, we may face increased pressure from the remaining dealers and distributors to lower the price of our products, which could have an adverse effect on sales and profitability.

Such consolidation could also lead to the loss of our largest customers if the surviving dealers choose to discontinue purchases of our products, which could also reduce sales and profitability.

Our customers generally are not contractually obligated to purchase from us.

They make purchase decisions based on a combination of brand recognition and loyalty, quality, performance, product characteristics, marketing, product development, sales and distribution, price and other factors.

In 2022 and 2023, we experienced volume declines in our packaged pool products as our wholesale distribution partners destocked packaged pool inventory levels as they serviced dealer demand through existing supply.

Changes in our customers’ strategies may adversely affect our sales.

Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us.

Finally, our customers may default on their obligations to us.

These risks are heightened with respect to our largest customer, which accounted for 20.3% of our net sales in 2023, and our top ten dealers and distributors, which accounted for 40.4% of our net sales in 2023.

An interruption of our production capability at one or more of our manufacturing facilities from accident, calamity or other causes, or events affecting the global economy, could adversely affect our business and results of operations.

We manufacture our products at a limited number of manufacturing facilities, and shifting production rapidly to another facility in the event of a loss of one of or a portion of one of our manufacturing facilities could lead to increased costs.

A temporary or permanent loss of the use of one or more of our manufacturing facilities due to accidents, fire (such as the fire at our Texas facility in April 2022 that resulted in a total loss of the manufacturing facility), explosions, labor issues, tornadoes, other weather conditions, natural disasters, condemnation, cancellation or non-renewals of leases, terrorist attacks or other acts of violence or war or otherwise could have a material adverse effect on our operating costs.

An interruption in our production capabilities could also require us to make substantial capital expenditures to replace damaged or destroyed facilities or equipment (as we incurred following the Texas facility fire).

Any of these events could result in substantial repair costs and higher operating costs.

Product quality, warranty claims or safety concerns and other claims due to the failure of third party installers to follow our product installation instructions and procedures could negatively impact our sales, lead to increased costs, and expose us to litigation.

Other litigation and regulatory matters incidental to our business also may adversely impact our business and financial results.

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Actual, potential, or perceived product safety concerns, including health-related concerns, could expose us to litigation, as well as government enforcement actions, and result in costly product recalls and other liabilities.

Installation services for our pool products for homeowners is provided by dealers and other third party installers.

We provide installers with pool installation specifications, instructions and training.

To the extent that our specifications and instructions are not adhered to by the installer, our pools may be damaged or not function properly leading to homeowner dissatisfaction.

While the Company disclaims responsibility for faulty installation by dealers and other installers, dissatisfied homeowners may bring warranty or legal claims against us which can cause the Company to incur legal fees and adversely affect our insurance costs.

The defense of such claims can also be a distraction to management and to our warranty team, as well as cause reputational harm.

We are also involved or may be involved in various disputes, litigation, and regulatory matters incidental to and in the ordinary course of our business, including employment matters, personal injury claims, intellectual property disputes, commercial disputes, government compliance matters, environmental matters, and other matters arising out of the normal conduct of our business.

We intend to vigorously defend ourselves in such matters as they arise.

While the impact of this litigation has been or may be immaterial, there can be no assurance that the impact of the pending and any future claims will not be material to our business, financial condition, or results of operations in the future.

We face competition both from within our industry and from other outdoor living products and if we are not able to compete effectively, our prospects for future success will be jeopardized.

Within our industry, we directly compete against various regional and local pool manufacturing companies.

Outside of our industry, we compete indirectly with alternative suppliers of big ticket consumer discretionary outdoor

living products, such as decks and patios, and with other companies who rely on discretionary homeowner expenditures, such as home remodelers.

In addition, new competitors may emerge.

If one or more of our competitors were to merge, the change in the competitive landscape could adversely affect our competitive position.

If we do not compete effectively, our net sales, margins, and profitability and our future prospects for success may be harmed.

Our failure to meet customer specifications or consumer expectations could result in lost sales, increased expenses, negative publicity, claims for damages and harm to our brand and reputation.

A failure or inability by us to meet customer specifications or consumer expectations could damage our reputation and adversely affect our ability to attract new business and result in delayed or lost sales.

One of our growth strategies is the use of consumer-focused branding for our products to grow our sales.

We have significantly increased our spending on digital strategies and marketing since 2019, and we are increasingly responsible for our own lead generation.

Our ability to create, maintain, enhance, and protect our brand image and reputation and consumers’ connection to our brand depends in part on our design and marketing efforts, including our increasing reliance on social media and online dissemination of consumer advertising campaigns.

Negative publicity or product quality issues, whether real or perceived, could tarnish our reputation and our brand image.

Failure to maintain, enhance and protect our brand image could have a material adverse effect on our results of operations.

In addition, any failure to meet customer specifications could result in reduced net sales and income.

Our inability to collect accounts receivables from our customers may adversely impact our cash flows and our ability to reduce our debt.

We extend credit to our customers, and we generally do not require collateral to secure these extensions of credit.

A significant portion of our accounts receivables are typically concentrated within a relatively small number of customers.

The financial health of many of our customers is affected by changes in the economy.

The effects of any protracted or severe economic declines may cause our customers to be unable to satisfy their payment obligations, including with us.

We generally intend to vigorously defend ourselves in such matters as they arise, as appropriate.

While the impact of litigation has been and may continue to be immaterial, there can be no assurance that the impact of pending and any future claims will not be material to our business, financial condition, or results of operations in the future.

Delays in, or systems disruptions issues caused by, the implementation of our new enterprise resource planning system could adversely affect our operations and results of operations.

We have begun the multi-year implementation of a new enterprise resource planning system.

We are in the process of a multi-year implementation of a new enterprise resource planning system.

This project has required and will continue to require significant capital and human resources, the re-engineering of many processes of our business, and the attention of our management and other personnel who would otherwise be focused on other aspects of our business.

The implementation may be more expensive and take longer to fully implement than we originally plan, resulting in increased capital investment, higher fees, and expenses of third parties, delayed deployment scheduling, and more on-going maintenance expense once implemented, and, as such, it will be difficult for us to estimate the ultimate costs and schedules.

The implementation may be more expensive and take longer to fully implement than we originally planned, resulting in increased capital investment, higher fees, and expenses of third parties, delayed deployment scheduling, and more on-going maintenance expense once implemented, and, as such, it will be difficult for us to estimate the ultimate costs and schedules.

The implementation may also cause complications to ongoing operations, result in material weaknesses to our internal control framework, increase regulatory compliance risks, and impact our ability to process transactions efficiently, all of which may have a material adverse effect on our business and results of operations.

We rely on information technology systems to support our business operations.

A significant disturbance or breach of our technological infrastructure could adversely affect our financial condition and results of operations.

Additionally, failure to maintain the security of confidential information could damage our reputation and expose us to litigation.

Information technology supports several aspects of our business, including among others, product sourcing, pricing, customer service, transaction processing, financial reporting, collections, and cost management.

Our ability to operate effectively on a day-to-day basis and accurately report our financial and operating results depends on a solid technological infrastructure, which is inherently susceptible to internal and external threats.

We are vulnerable to interruption by fire, natural disasters, power loss, telecommunication failures, internet failures, security breaches and other catastrophic events.

Exposure to various types of cyber-attacks such as malware, computer viruses, worms or other malicious acts, as well as human error, also could potentially disrupt our operations or result in a significant interruption in the delivery of our goods and services.

As with most companies, we have experienced cyber-attacks, attempts to breach our systems and other similar incidents, none of which were material to our operations or financial results in 2023.

It is possible that cyber attackers might compromise our security measures and obtain the personal and/or confidential information of the customers, employees, and suppliers that we hold or our business information.

Cyber-attacks are rapidly evolving and those threats and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated and may not immediately produce signs of intrusion.

Moreover, such cyber-attacks may disrupt access to our and/or our suppliers’ networks and systems.

Such disruptions could result in delays or cancellations of customer orders or delays or interruptions in the shipment of orders.

In addition, cyber-attacks may cause us to incur significant remediation costs, result in delays and disruptions to key business operations, or divert attention of management and key information technology resources.

With some employees working remotely, there may be increased opportunities for unauthorized access and cyber-attacks.

Further, the United States government has warned of the potential risk of Russian cyber-attacks stemming from the ongoing Russian-Ukraine conflict as well as ongoing threats from other state actors such as China.

These cyber-incidents could also subject us to liability, expose us to significant expense, and cause significant harm to our reputation and our business.

Third-party service providers, such as distributors, subcontractors, vendors, and data processors have access to certain portions of our data.

In the event that these service providers do not appropriately protect our data, the result could be a security breach or loss of our data.

Any such loss of data by our third-party service providers could have a

material adverse impact on our business and results of operations.

Moreover, an employee, contractor or third party with whom we work or to whom we outsource business operations may fail to monitor their or our systems effectively, may fail to maintain appropriate safeguards, may misuse the personal and/or confidential information to which they have access, may attempt to circumvent our security measures, may purposefully or inadvertently allow unauthorized access to our or their systems or to personal and/or confidential information or may otherwise disrupt our business operations.

We and our customers could suffer harm if valuable business data or employee, customer and other proprietary information were corrupted, lost, or accessed or misappropriated by third parties due to a security failure in our systems or those of our suppliers or service providers.

It could require significant expenditures to remediate any such failure or breach, severely damage our reputation and our relationships with customers, result in unwanted media attention and lost sales and expose us to risks of litigation and liability.

Advances in computer and software capabilities, encryption technology and other discoveries such as generative artificial intelligence increase the complexity of our technological environment, including how each interact with our various software platforms.

Such advances could delay or hinder our ability to process transactions or could compromise the integrity of our data, resulting in a material adverse impact on our financial condition and results of operations.

We also may experience occasional system interruptions and delays that make our information systems unavailable or slow to respond, including the interaction of our information systems with those of third parties.

A lack of sophistication or reliability of our information systems could adversely impact our operations and customer service and could require major repairs or replacements, resulting in significant costs and foregone sales.

In addition, we may not have the necessary resources to enhance existing information systems or implement new systems where necessary to handle our growth strategy and changing needs, and we have experienced and may continue to experience unanticipated delays, complications and expenses in implementing and integrating our systems.

Any interruptions in operations would adversely affect our ability to properly allocate resources and deliver our products, which could result in customer dissatisfaction.

The failure to successfully implement and maintain information systems could have an adverse effect on our ability to obtain new business, retain existing business and maintain or increase our sales and profit margins.

The nature of our business subjects us to compliance with employment, environmental, health, transportation, safety, anti-corruption, trade, and other governmental regulations.

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Although we presently do not expect to incur any capital or other expenditures relating to regulatory matters in amounts that may be material to us, we may be required to make such expenditures in the future.

These laws and regulations have changed substantially and rapidly and we anticipate that there will be continuing changes, which may require us to incur costs to maintain our business.

and regulations have changed substantially and rapidly and we anticipate that there will be continuing changes, which may require us to incur costs to maintain our business.

The clear trend in environmental, health, transportation and safety regulations is to place more restrictions and limitations on activities that impact the environment, such as emission of air pollutants as well as soil and ground water contaminants.

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Our attempts to anticipate future regulatory requirements that might be imposed and our plans to remain in compliance with changing regulations and to minimize the costs of such compliance may not be as effective as we anticipate.

The effects of climate change and the expanding legal and regulatory restrictions intended to address climate change could adversely impact our business and results of operations.

There is increasing concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere could cause significant changes in weather patterns and an increase in the frequency, duration, and severity of natural disasters.

Such climate change may impair our production capabilities, disrupt our supply chain, or impact demand for our products.

Growing concern over climate change also may result in additional legal or regulatory requirements designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment.

Broad rules and regulations have been proposed by the SEC for adoption in 2023 requiring increased climate change-related disclosure in future filings, which may require us to incur significant compliance costs and could increase liability and reputational risks.

Additionally, drought conditions or water management initiatives may lead to municipal ordinances related to water use restrictions, and such restrictions could result in decreased pool installations and negatively impact our sales.

Our practices may be judged against sustainability standards that are continually evolving and not always clear.

Prevailing sustainability standards, expectations and regulations may also reflect contrasting or conflicting values or agendas.

In recent months, there have been substantial legislative and regulatory developments on climate-related issues, including proposed, issued or implemented legislation and rulemakings that would require companies to assess and/or disclose climate metrics, risks, opportunities, policies and practices.

For example broad rules and regulations have been approved recently in the State of California and proposed by the SEC for adoption in 2024 requiring increased climate change-related disclosure, which may require us to incur significant compliance costs and could increase liability and reputational risks.

Additionally, drought conditions or water management initiatives have led and may continue to lead to municipal ordinances related to water use restrictions, and such restrictions could result in decreased pool installations and negatively impact our sales.

Further, increased energy or compliance costs and expenses as a result thereof may cause disruptions in, or an increase in the costs associated with, the manufacturing and distribution of our products.

The impacts of climate change and legal or regulatory initiatives to address climate change could have a long-term adverse impact on our business and results of operations.

If we fail to achieve or improperly report on our progress

toward achieving our goals and commitments to reduce our carbon footprint or in environmental and sustainability programs and initiatives, the results could have an adverse impact on our business and results of operations.

We depend on third parties for transportation services to some extent, and the lack of availability of and/or increases in the cost of transportation could have a material adverse effect on our business and results of operations.

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In addition, a significant increase in transportation rates or fuel surcharges could adversely affect our profitability.

Any of these events could have a material adverse effect on our business and results of operations.

Any of these events, especially in our peak selling season, could have a material adverse effect on our business and results of operations.

Our business operations could suffer if we fail to protect adequately our intellectual property rights, and we may experience claims by third parties that we are violating their intellectual property rights.

We rely on trademark and service market protection to protect our brands and we have registered or applied to register many of these trademarks and services marks.

In the event that our trademarks or service marks are successfully challenged and we lose the rights to use those trademarks or service marks, or if we fail to prevent others from using them (or similar marks), we could be forced to rebrand our products, requiring us to devote resources to advertising and marketing new brands.

In addition, we cannot be sure that any pending trademark or service mark applications will be granted or will not be challenged or opposed by third parties.

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If third parties take actions that affect our rights or the value of our intellectual property or proprietary rights, or if we are unable to protect our intellectual property from infringement or misappropriation, other companies may be able to offer competitive products at lower prices, and we may not be able to effectively compete against these companies.

addition, if any third party copies or imitates our products in a manner that affects customer or consumer perception of the quality of our products, or of engineered products generally, our reputation and sales could suffer whether or not these violate our intellectual property rights.

In addition, if any third party copies or imitates our products in a manner that affects customer or consumer perception of the quality of our products, or of engineered products generally, our reputation and sales could suffer whether or not these violate our intellectual property rights.

In addition, we face the risk of claims that we are infringing third parties’ intellectual property rights.

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● different political, economic, and regulatory conditions;

● local laws and customs;

● local laws and customs and enforcement thereof;

● violations of anti-bribery and anti-corruption laws, such as the United States Foreign Corrupt Practices Act;

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There is also a greater risk that we may not be able to access products in a timely and efficient manner.

Fluctuations in other factors relating to international trade, such as tariffs, transportation costs and inflation are additional risks for our international operations.

Fluctuations in other factors relating to international trade, such as tariffs, transportation availability and costs and inflation are additional risks for our international operations.

Our failure to manage any of these risks could adversely affect our international operations and our financial results.

We rely on information technology systems to support our business operations.

A significant disturbance or breach of our technological infrastructure could adversely affect our financial condition and results of operations.

Additionally, failure to maintain the security of confidential information could damage our reputation and expose us to litigation.

We are vulnerable to interruption by fire, natural disasters, power loss, telecommunication failures, internet failures, security breaches and other catastrophic events.

As with most companies, we have experienced cyber-attacks, attempts to breach our systems and other similar incidents, none of which were material to our operations or financial results in 2022.

Moreover, such cyber-attacks may disrupt access to our and/or our suppliers’ networks and systems.

Such disruptions could result in delays or cancellations of customer orders or delays or interruptions in the shipment of orders.

In addition, cyber-attacks may cause us to incur significant remediation costs, result in delays, disruptions to key business operations, or divert attention of management and key information technology resources.

With more employees working remotely, there may be increased opportunities for unauthorized access and cyber-attacks.

Further, the United States government has warned of the potential risk of Russian cyber-attacks stemming from the ongoing Russian-Ukraine conflict.

These cyber-incidents could also subject us to liability, expose us to significant expense, and cause significant harm to our reputation and our business.

Third-party service providers, such as distributors, subcontractors, vendors, and data processors have access to certain portions of our data.

In the event that these service providers do not appropriately protect our data, the result could be a security breach or loss of our data.

Any such loss of data by our third-party service providers could have a material adverse impact on our business and results of operations.

Advances in computer and software capabilities, encryption technology and other discoveries increase the complexity of our technological environment, including how each interact with our various software platforms.

In addition, we may not have the necessary resources to enhance existing information systems or implement new systems where necessary to handle our growth and changing needs, and may experience unanticipated delays,

complications and expenses in implementing and integrating our systems.

Any interruptions in operations would adversely affect our ability to properly allocate resources and deliver our products, which could result in customer dissatisfaction.

We process, store, and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and violation of these privacy obligations could result in a claim for damages, regulatory action, loss of business, or unfavorable publicity.

We receive, store and process personal information and other customer information, or personal information and other data from and about our customers, prospective customers, our employees, applicants for employment and other individuals with whom we do business.

We receive, store and process personal information and other customer information, or personal information and other data from and about our customers, prospective customers, homeowners, our employees, applicants for employment and other individuals with whom we do business.

There are numerous laws, as well as regulations and industry guidelines, regarding privacy and the storing, use, processing, and disclosure and protection of personal information, the scope of which are changing, subject to differing interpretations, and may be inconsistent among countries or conflict with other rules.

For example, the California Consumer Privacy Act ("CCPA"), which became effective on January 1, 2020, established a new privacy framework for covered businesses.

In November 2021, California voters passed Proposition 24, also known as the California Privacy Rights Act ("CPRA"), which amends and expands the CCPA effective January 1, 2023.

For example, the California Consumer Privacy Act ("CCPA"), effective on January 1, 2020, established a new privacy framework for covered businesses.

The California Privacy Rights Act ("CPRA"), effective January 1, 2023, amended and expanded the CCPA.

The CCPA and CPRA provide new and enhanced data privacy rights to California residents, such as giving California consumers and employees the right to access and/or delete their personal information, affording consumers and employees the right to opt out of certain sales of personal information as well as sharing for cross context behavioral advertising, and prohibiting covered businesses from discriminating against consumers (e.g., charging more for services) for exercising any of their CCPA/CPRA rights.

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Any of the foregoing could materially adversely affect our brand, reputation, business, results of operations, and financial condition.

An interruption in our production capabilities could also require us to make substantial capital expenditures to replace damaged or destroyed facilities or equipment.

Any of these events could result in substantial repair costs and higher operating costs.

If we are unable to continue to enhance existing products and/or technology and develop and market, including via our digital marketing strategy, new or enhanced products that respond to customer needs and preferences, we may experience a decrease in demand for our products and our business could suffer.

We seek to generate net sales growth through enhancement of existing products and development of new products and through digital strategies and marketing.

Product development requires significant financial, technological, and other resources.

Any new products that we develop may not receive market acceptance or otherwise generate any meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs, and research and development.

Our growth in part has been due to strategic acquisitions and partnerships, and we continuously evaluate and may in the future enter into additional strategic transactions.

Any such transaction could happen at any time, be material to our business and take any number of forms, including, for example, an acquisition, merger, sale of certain of our assets, refinancing, or other recapitalization or material strategic transaction.

Evaluating potential transactions and integrating completed ones may divert the attention of our management from ordinary operating matters.

Our growth in part has been due to strategic acquisitions and partnerships, and such strategic transactions continue to be part of our growth plan in the future.

The success of potential acquisitions or mergers will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies through the successful integration of the businesses we acquire with our existing business, including the acquisitions of Radiant in November 2021 and GLI in October 2020 and the purchase of equity interests in Premier Pools & Spas in October 2020 (our ownership interest is 18.2% and our voting interest is 20.1%).

Even if we are successful in integrating acquired businesses, these integrations may not result in the realization of the full benefit of any anticipated growth opportunities or cost synergies or that these benefits will be realized within the expected time frames.

Our historical growth in part has been due to strategic transactions, and we continuously evaluate and may in the future enter into additional strategic transactions, which could be material to our business and financial performance.

Evaluating and consummating potential transactions and integrating completed transactions may divert the attention of our management from ordinary operating matters.

Our historical growth in part has been due to strategic acquisitions and partnerships.

Strategic transactions continue to be part of our growth strategy, and could take any number of forms, including an acquisition, merger, sale of certain of our assets, refinancing, recapitalization or other material strategic transaction, any of which could be material to our business and financial performance.

Even if we are successful in integrating acquired businesses, these integrations may not result in the realization of the full benefit of any anticipated growth opportunities or cost synergies or we may not realize these benefits within the expected time frames, which could result in an impairment of acquired assets.

We may have difficulty implementing systems of internal controls in acquired businesses or equity investees that may not have such systems in place or merging different accounting and financial reporting systems with ours.

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We may not be able to dispose of any such assets on terms that are attractive to us, or at all, which could materially adversely impact our financial condition or results of operation.

In addition, to the extent we consummate an agreement for the sale and disposition of an asset or asset group,

we may experience operational difficulties segregating them from our retained assets and operations, which could impact the execution or timing for such dispositions and could result in disruptions to our operations and/or claims for damages, among other things.

If we complete an acquisition, merger, sale of certain assets, refinancing, recapitalization, or material strategic transaction, we may require additional financing that could result in an increase in the aggregate amount and/or cost of our debt.

In addition, to the extent we consummate an agreement for the sale and disposition of an asset or asset group, we may experience operational difficulties segregating them from our retained assets and operations, which could impact the execution or timing for such dispositions and could result in disruptions to our operations and/or claims for damages, among other things.

If we complete an acquisition, merger, sale of certain assets, refinancing, recapitalization, or other material strategic transaction, we may require additional financing or recapitalizing existing financing that could result in an increase in the aggregate amount and/or cost of our debt, or may not be available at all.

The aggregate principal amount of our debt that we may issue may be significant;

Moreover, the terms of any debt financing may be expensive.

see “Risks Related to Our Indebtedness” for additional information on the risks of increased leverage.

Changes in trade policies, including the imposition of tariffs, could negatively impact our business, financial condition, and results of operations.

The current U.S.

administration has signaled support for, and in some instances has taken action with respect to, major changes to certain trade policies, such as the imposition of tariffs on imported products and the withdrawal from or renegotiation of certain trade agreements, including the North American Free Trade Agreement.

For example, the United States has increased tariffs on certain imports from China, as well as on steel and aluminum products imported from various countries.

More specifically, in March 2018, the United States imposed a 25% tariff on steel imports pursuant to Section 301 of the Trade Act of 1974 and has imposed additional tariffs on steel imports pursuant to Section 232 of the Trade Expansion Act of 1962.

administrations have signaled support for, and in some instances has taken action with respect to, major changes to certain trade policies, such as the imposition of tariffs on imported products.

For example, the United States has increased tariffs on certain imports from China, as well as on steel and aluminum products imported from various countries such as Russia.

More specifically, in March 2018, the United States imposed a 25% tariff on steel and aluminum imports pursuant to Section 301 of the Trade Act of 1974 and has imposed additional tariffs on steel imports pursuant to Section 232 of the Trade Expansion Act of 1962.

More recently, in October 2023, certain industry groups

within the United States petitioned the U.S.

government to impose additional tariffs on the importation of aluminum.

These tariffs could result in interruptions in the supply chain and impact costs and our gross margins.

We procure certain raw materials we use in the manufacturing of our products directly or indirectly from outside of the United States.

The imposition of tariffs and other potential changes in U.S.

The imposition of or increase in steel and aluminum tariffs and other potential changes in U.S.

trade policy could increase the cost or limit the availability of raw materials, which could hurt our competitive position and adversely impact our business, financial condition, and results of operations.

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If we were to incur a significant liability for which we were not fully insured or that our insurers disputed or for which we self-insure, our business, financial condition and results of operations could be materially adversely affected.

If our goodwill, other intangible assets or fixed assets become impaired, we may be required to record a significant charge to earnings.

We had approximately $131.4 million of goodwill and $282.8 million of acquired intangible assets on our consolidated balance sheet as of December 31, 2023, which represented 15.7% and 33.9% of our total assets, respectively, as of such date.

generally accepted accounting principles (“GAAP”), the carrying amount of our goodwill is tested at least annually for impairment, and we have elected to conduct this test on the first day of the fourth quarter.

On each quarter end date, we assess whether recent events or changes in circumstances constitute a triggering event requiring us to assess whether goodwill, other intangible assets or fixed assets may be impaired before the annual testing date.

Occurrences that may constitute a change in circumstances include, but are not limited to, a sustained decline in our share price and market capitalization, decreases in expected future cash flows and slower growth rates in our industry.

We review our fixed assets and other finite life intangibles for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

Under GAAP, if we determine that goodwill, other intangible assets or fixed assets are impaired, we will be required to write down these assets to fair value.

Any write-down would have a negative effect on our consolidated financial statements and may be material.

Based on the results of the quantitative assessment performed for our one reporting unit, we determined that goodwill was not impaired at October 1, 2023.

Based on the results of the qualitative assessment performed for our one reporting unit, we determined that goodwill was not impaired at October 3, 2022.

However, if factors exist that could indicate an impairment in the future, including a sustained decrease in our stock price, we may be required to record impairment charges in future periods.

Risks Related to Our Indebtedness

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Our obligations under the New Credit Agreement are secured by substantially all of our and our subsidiaries’ assets.

Subject to the limits contained in the New Credit Agreement, we may be able to incur substantial additional debt from time to time to finance capital expenditures, investments, acquisitions, or for other purposes.

If we do incur substantial

additional debt, the risks related to our high level of debt could intensify.

Specifically, our high level of indebtedness could have important consequences, including:

to the limits contained in the New Credit Agreement, we may incur additional debt from time to time to finance capital expenditures, investments, acquisitions, or for other purposes.

If we do incur substantial additional debt, the risks related to our level of debt could intensify.

Specifically, our level of indebtedness could have important consequences, including:

● limiting our ability to obtain additional financing to fund capital expenditures, investments, acquisitions or other general corporate requirements;

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● increasing our costs of borrowing.

In addition, the financial and other covenants we agreed to in the New Credit Agreement may limit our ability to incur additional indebtedness, make investments, and engage in other transactions, and the leverage may cause potential lenders to be less willing to loan funds to us in the future.

In addition, the financial and other covenants set forth in the New Credit Agreement may limit our ability to incur additional indebtedness, make investments, and engage in other transactions, and the leverage may cause potential lenders to be less willing to loan funds to us in the future.

Our business and operations may consume resources faster than we anticipate.

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Borrowings under the New Credit Agreement accrue interest at variable rates and expose us to interest rate risk.

Interest rates may fluctuate in the future.

As a result, although we hedged most of our interest rate exposure under the New Credit Agreement, interest rates on the New Credit Agreement or other variable rate debt obligations could be higher or lower than current levels.

Interest rates have fluctuated significantly and are expected to fluctuate significantly in the future.

As a result, although we hedged part of our interest rate exposure under the New Credit Agreement, interest rates on the New Credit Agreement or other variable rate debt obligations could be higher or lower than current levels.

If interest rates increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.

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Our stock price has been volatile, and you may not be able to resell our common stock at or above the price you paid.

Since our IPO in April 2021, our stock price has been highly volatile.

Our stock price has been highly volatile in recent years.

Such volatility may continue in response to various factors, some of which are beyond our control, including:

● a slowdown in the housing market or the general economy;

and international regulatory, political, and economic factors unrelated to our performance;

● market conditions in the broader stock market;

● actual or anticipated quarterly or annual variations in our results of operations from those of our competitors;

● actual or anticipated changes in our growth rate relative to our competitors;

● changes in net sales or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;

● fluctuations in the values of companies perceived by investors to be comparable to us;

● competition from existing technologies and products or new technologies and products that may emerge;

● developments with respect to intellectual property rights;

● sales, or the anticipation of sales, of our common stock by us, our insiders or our other stockholders, including the impacts if we are no longer a controlled company;

● our commencement of, or involvement in, litigation or governmental investigations;

● additions or departures of key management or technical personnel;

● changes in governmental regulations applicable to the market we serve;

● guidance, if any, that we may provide to the public, any changes in this guidance or our failure to meet this guidance;

● tax developments;

● announcements by us or our competitors of new products or services, significant contracts, commercial relationships, capital commitments or acquisitions;

● public response to press releases or other public announcements by us or third parties, including our filings with the SEC;

● default under agreements governing our indebtedness;

● exchange rate fluctuations;

● other events or factors, including those from natural disasters, war, acts of terrorism or responses to these events;

● the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the future.

These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our common stock to fluctuate substantially.

While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results may negatively affect the market price and liquidity of our stock.

While we are of the view that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results may negatively affect the market price and liquidity of our stock.

In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock.

If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit.

If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending and/or settling the lawsuit, a portion or all of which may not be covered by insurance.

Settlement and verdict damages from securities class action lawsuits are often material.

Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

In addition, the stock markets, and the market for growth stocks in particular, have from time to time experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating

performance of those companies.

Broad market and industry factors may significantly affect the market price of our common stock, regardless of our actual operating performance.

You may not realize any return on your investment in us and may lose some or all of your investment.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to such companies could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act enacted in April 2012, and may remain an “emerging growth company” until December 31, 2026.

For as long as we remain an “emerging growth company,” we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not “emerging growth companies.”

We have taken advantage of reduced reporting burdens in this Annual Report.

We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies.

We have elected to take advantage of this extended transition period and therefore will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.

If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile and it may be difficult for us to raise additional capital if and when we need it.

Our Principal Stockholders continue to have significant influence over us, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.

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Affiliates of our Principal Stockholders together own approximately 57.9% of the outstanding shares of our common stock as of March 8, 2024.

As long as affiliates of our Principal Stockholders own or control a majority of our outstanding voting power, our Principal Stockholders and their affiliates will have the ability to exercise substantial control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including:

As long as affiliates of our Principal Stockholders own or control a majority of our outstanding voting power, our Principal Stockholders and their affiliates have the ability to exercise substantial control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including:

● the election and removal of directors and the size of our Board of Directors;

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● the approval of mergers and other significant corporate transactions, including a sale of substantially all of our assets.

In addition, Pamplona has certain board nomination rights that will enable it to exercise substantial control over all corporate actions.

In addition, Pamplona has certain Board nomination rights that may enable it to exercise substantial control over all corporate actions.

Pamplona has the right to nominate to our Board of Directors a number of designees on a sliding scale depending on Pamplona’s affiliates’ ownership of our common stock, ranging from Pamplona being able to nominate at least a majority of the total number of directors so long as its affiliates beneficially own at least 50% of the shares of our common stock to Pamplona being able to nominate at least 10% of the total number of directors as long as its affiliates beneficially own at least 5%.

Moreover, ownership of our shares by affiliates of our Principal Stockholders may also adversely affect the trading price for our common stock to the extent investors perceive disadvantages in owning shares of a company with a

controlling shareholder.

For example, the concentration of ownership held by our Principal Stockholders could delay, defer, or prevent a change in control of our company or impede a merger, takeover, or other business combination which may otherwise be favorable for us.

In addition, our Principal Stockholders are in the business of making investments in companies and may, from time to time, acquire interests in businesses that directly or indirectly compete with our business, as well as businesses that are significant existing or potential customers.

Many of the companies in which our Principal Stockholders invest are franchisors and may compete with us for access to suitable locations, experienced management, and qualified and well-capitalized franchisees.

Our Principal Stockholders may acquire or seek to acquire assets complementary to our business that we seek to acquire and, as a result, those acquisition opportunities may not be available to us or may be more expensive for us to pursue, and as a result, the interests of our Principal Stockholders may not coincide with the interests of our other stockholders.

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For instance, a director of our company who also serves as a director, officer, or employee of one of our Principal Stockholders or any of their portfolio companies, funds, or other affiliates may pursue certain acquisitions or other opportunities that may be complementary to our business and, as a result, such acquisition or other opportunities may not be available to us.

Our board of directors consists of nine members, six of whom are our Principal Stockholders’ directors.

Our Board of Directors consists of nine members, four of whom are our Principal Stockholders’ directors.

These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations, or prospects if attractive corporate opportunities are allocated by one of our Principal Stockholders to itself or its affiliated funds, the portfolio companies owned by such funds or any affiliates of a Principal Stockholder instead of to us.

A description of our obligations related to corporate opportunities under our certificate of incorporation are more fully described in “Description of Capital Stock — Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Certain Provisions of Delaware Law — Conflicts of Interest.”

We do not anticipate paying any cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

We do not currently anticipate declaring any cash dividends to holders of our common stock.

We do not anticipate paying quarterly cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

We do not currently anticipate declaring quarterly cash dividends to holders of our common stock.

Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Investors seeking cash dividends should not invest in our common stock.

We are a holding company and rely on dividends, distributions and other payments, advances, and transfers of funds from our subsidiaries to meet our obligations.

We are a holding company that does not conduct any business operations of our own.

As a result, we are largely dependent upon cash dividends and distributions and other transfers, including for payments in respect of our indebtedness, from our subsidiaries to meet our obligations.

The agreements governing the indebtedness of our

subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” Each of our subsidiaries is a distinct legal entity, and under certain circumstances legal and contractual restrictions may limit our ability to obtain cash from them and we may be limited in our ability to cause any future joint ventures to distribute their earnings to us.

The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or of our certificate of incorporation or our bylaws or (iv) any action asserting a claim related to or involving the Company that is governed by the internal affairs doctrine.

directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or of our certificate of incorporation or our bylaws or (iv) any action asserting a claim related to or involving the Company that is governed by the internal affairs doctrine.

However, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any other claim for which the federal courts have exclusive jurisdiction.

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If a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and results of operations.

Unresolved Staff Comments

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-K

Item 1A. Risk Factors