What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-07 · 149 added, 246 removed, 347 unchanged (53% of the section changed)

3 unchanged sentences

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Stockholders’ Equity

4 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

19 unchanged sentences

Deferred income tax liabilities, net

Liability for uncertain tax positions

Non-current operating lease liabilities

4 unchanged sentences

Preferred stock, $ 0.0001 par value;

100,000,000 shares authorized as of both September 30, 2023 and December 31, 2022;

no shares issued and outstanding as of both September 30, 2023 and December 31, 2022

100,000,000 shares authorized as of both March 30, 2024 and December 31, 2023;

no shares issued and outstanding as of both March 30, 2024 and December 31, 2023

Common stock, $ 0.0001 par value;

900,000,000 shares authorized as of September 30, 2023 and December 31, 2022;

114,755,945 and 114,667,975 shares issued and outstanding , as of September 30, 2023 and December 31, 2022, respectively

900,000,000 shares authorized as of March 30, 2024 and December 31, 2023;

115,389,689 and 114,871,782 shares issued and outstanding , as of March 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

8 unchanged sentences

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

March 30, 2024

April 1, 2023

Cost of sales

Selling, general, and administrative expense

Underwriting fees related to offering of common stock

Income from operations

Loss from operations

Other expense:

Interest expense, net

Loss on extinguishment of debt

Other expense, net

1 unchanged sentence

Earnings from equity method investment

Income before income taxes

Income tax expense

Net income (loss)

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

Loss before income taxes

Income tax expense (benefit)

Net loss per share attributable to common stockholders:

Weighted-average common shares outstanding – basic and diluted

1 unchanged sentence

Latham Group, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

Net income (loss)

March 30, 2024

April 1, 2023

Other comprehensive loss, net of tax:

1 unchanged sentence

Total other comprehensive loss, net of tax

Comprehensive income (loss)

Comprehensive loss

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

4 unchanged sentences

Stockholders'

Income (Loss)

Balances at December 31, 2022

Cumulative effect of adoption of new accounting standard - leases

Foreign currency translation adjustments

Sale of common stock

Repurchase and retirement of common stock

( 13,800,244 )

Retirement of restricted stock

Issuance of common stock upon release of restricted stock units

1 unchanged sentence

Balances at April 1, 2023

Foreign currency translation adjustments

Repurchase and retirement of common stock under repurchase program

( 2,026,231 )

Issuance of common stock upon release of restricted stock units

Stock-based compensation expense

Balances at July 2, 2022

Foreign currency translation adjustments

Retirement of restricted stock

Stock-based compensation expense

Balances at October 1, 2022

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

8 unchanged sentences

Stock-based compensation expense

Balances at April 1, 2023

Foreign currency translation adjustments

Retirement of restricted stock

Issuance of common stock upon release of restricted stock units

Stock-based compensation expense

Balances at July 1, 2023

Foreign currency translation adjustments

Retirement of restricted stock

Issuance of common stock upon release of restricted stock units

Stock-based compensation expense

Balances at September 30, 2023

Balances at March 30, 2024

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

2 unchanged sentences

(in thousands)

Three Fiscal Quarters Ended

September 30,

Fiscal Quarter Ended

Cash flows from operating activities:

Net (loss) income

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

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

Depreciation and amortization

3 unchanged sentences

Stock-based compensation expense

Underwriting fees related to offering of common stock

Loss on extinguishment of debt

Bad debt expense

9 unchanged sentences

Other long-term liabilities

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities :

Purchases of property and equipment

Proceeds from the sale of property and equipment

Acquisitions of businesses, net of cash acquired

Net cash used in investing activities

Cash flows from financing activities :

Proceeds from long-term debt borrowings

Payments on long-term debt borrowings

Proceeds from borrowings on revolving credit facilities

Payments on revolving credit facilities

Deferred financing fees paid

Proceeds from the issuance of common stock

Proceeds from borrowings on revolving credit facility

Repayments of finance lease obligations

Repurchase and retirement of common stock

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash

Net (decrease) increase in cash

Cash at beginning of period

13 unchanged sentences

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

Latham offers a portfolio of pools and related products, including in-ground swimming pools, pool liners, and pool covers.

On December 18, 2018, Latham Investment Holdings, LP, an investment fund managed by affiliates of Pamplona Capital Management (the “Sponsor”), Wynnchurch Capital, L.P.

and management acquired all of the outstanding equity interests of Latham Topco., Inc., a newly incorporated entity in the State of Delaware.

Latham Topco, Inc.

changed its name to Latham Group, Inc.

on March 3, 2021.

Latham offers a portfolio of in-ground swimming pools and related products, including pool liners and pool covers.

Stock Split, Initial Public Offering and Reorganization

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

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

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

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

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

Prior to the closing of the Company’s IPO, the Company’s parent entity, Latham Investment Holdings, L.P., merged with and into Latham Group, Inc.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

5 unchanged sentences

The unaudited condensed consolidated balance sheet at December 31, 2023 was derived from audited financial statements but does not include all disclosures required by GAAP.

The accompanying unaudited condensed consolidated financial statements as of September 30, 2023 and for the fiscal and three fiscal quarters ended September 30, 2023 and October 1, 2022 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.

The accompanying unaudited condensed consolidated financial statements as of March 30, 2024 and for the fiscal quarters ended March 30, 2024 and April 1, 2023, respectively, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.

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

1 unchanged sentence

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

The Company’s results of operations for the fiscal quarter and three fiscal quarters ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending December 31, 2023.

The Company’s results of operations for the fiscal quarter ended March 30, 2024 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending December 31, 2024 or other interim periods thereof.

Use of Estimates

7 unchanged sentences

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

Historically, net sales and net income are highest during the second and third fiscal quarters, representing the peak months of swimming pool use, pool installation, and remodeling and repair activities.

Historically, net sales and net income are highest (or net loss is lowest) during the second and third fiscal quarters, representing the peak months of swimming pool use, pool installation, and remodeling and repair activities.

Severe weather may also affect net sales in all periods.

4 unchanged sentences

The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model.

It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities.

These changes will result in earlier recognition of credit losses.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses , which narrowed the scope and changed the effective date for nonpublic entities for ASU 2016-13.

The FASB subsequently issued supplemental guidance within ASU 2019-05, Financial Instruments — Credit Losses (Topic 326):

Targeted Transition Relief (“ASU 2019-05”).

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

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

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

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

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

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which amends ASC 805 by requiring acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combination.

For public entities, ASU 2021-08 was effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022.

For all other entities, ASU 2021-08 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.

The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted.

The Company adopted this standard early on January 1, 2023 and it did not have a material impact on the Company’s condensed consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which improves financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful analysis.

For all entities, ASU 2023-07 is effective for fiscal years beginning after December 15, 2023.

The amendments should be applied retrospectively to all prior periods presented in the financial statements, with early adoption permitted.

The Company is currently evaluating ASU 2023-07 and its potential impact on the notes to the condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), in an effort to enhance the transparency and decision usefulness of income tax disclosures.

For all entities, ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.

The a mendments should be applied prospectively with retrospective application permitted.

Early adoption is also permitted.

The Company is currently evaluating ASU 2023-09 and its potential impact on the notes to the condensed consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01, Compensation – Stock Compensation (Topic 718):

Scope Application of Profits Interest and Similar Awards (“ASU 2024-01”), which improves financial reporting by providing clarity on when an entity should apply the scope guidance in paragraph 718-10-15-3.

For all public entities, ASU 2024-01 is effective for fiscal years beginning after December 15, 2024.

The amendments should be applied retrospectively to all prior periods presented in the financial statements, with early adoption permitted.

The Company is currently evaluating ASU 2024-01 and its potential impact on the notes to the condensed consolidated financial statements.

FAIR VALUE MEASUREMENTS

12 unchanged sentences

market approach, income approach or cost approach.

There were no transfers between fair value measurement levels during the three fiscal quarters ended September 30, 2023 or October 1, 2022.

There were no transfers between fair value measurement levels during the fiscal quarters ended March 30, 2024 and April 1, 2023.

Assets and liabilities measured at fair value on a nonrecurring basis

7 unchanged sentences

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

September 30, 2023

March 30, 2024

December 31, 2023

Interest rate swaps

Interest rate swap

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

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

As of September 30, 2023 and December 31, 2022, the net fair value of the Company’s interest rate swaps was an asset balance of $ 1.7 million and $ 3.5 million, respectively, which were recorded within other assets on the condensed consolidated balance sheets.

As of March 30, 2024 and December 31, 2023, the fair value of the Company’s interest rate swap was an asset of $ 0.6 million and a liability of $ 1.2 million, respectively, which were recorded within other assets and other long-term liabilities on the condensed consolidated balance sheets, respectively.

GOODWILL AND INTANGIBLE ASSETS, NET

The carrying amount of goodwill as of September 30, 2023 and as of December 31, 2022 was $ 130.9 million and $ 131.4 million, respectively.

The change in the carrying value during the three fiscal quarters ended September 30, 2023 was solely because of fluctuations in foreign currency exchange rates.

Based on the results of the qualitative assessment performed for the Company’s one reporting unit, the Company determined that goodwill was not impaired at October 2, 2022.

As a result of a decline in the Company’s stock price, the Company plans to perform a quantitative assessment for the 2023 annual test as of October 1, 2023, which may result in a non-cash impairment charge during the fiscal quarter ended December 31, 2023.

The carrying amount of goodwill as of March 30, 2024 and as of December 31, 2023 was $ 131.0 million and $ 131.4 million, respectively.

The change in the carrying value during the fiscal quarter ended March 30, 2024 was solely because of fluctuations in foreign currency exchange rates.

Intangible Assets

Intangible assets, net as of September 30, 2023 consisted of the following (in thousands):

September 30, 2023

Intangible assets, net as of March 30, 2024 consisted of the following (in thousands):

March 30, 2024

Trade names and trademarks

4 unchanged sentences

Non-competition agreements

The Company recognized $ 6.6 million and $ 19.9 million of amortization expense related to intangible assets during the fiscal quarter and three fiscal quarters ended September 30, 2023.

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

The Company recognized $ 6.4 million of amortization expense related to intangible assets during the fiscal quarter ended March 30, 2024.

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

Intangible assets, net as of December 31, 2023 consisted of the following (in thousands):

8 unchanged sentences

Estimated Future

Remainder of fiscal 2023

Remainder of fiscal year 2024

INVENTORIES, NET

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

September 30, 2023

March 30, 2024

December 31, 2023

3 unchanged sentences

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

September 30, 2023

March 30, 2024

December 31, 2023

5 unchanged sentences

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

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

As of March 30, 2024, the Company was in compliance with all financial covenants under the Credit Agreement.

Revolving Credit Facility

10 unchanged sentences

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

The Company is required to meet certain financial covenants, including maintaining specific liquidity measurements.

The Company is required to meet certain financial covenants in connection with the Revolving Credit Facility, including maintaining specific liquidity measurements.

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

As of September 30, 2023, there were no outstanding borrowings on the Revolving Credit Facility and $ 75.0 million was available for future borrowing.

As of March 30, 2024, there were no outstanding borrowings on the Revolving Credit Facility and $ 75.0 million was available for future borrowing.

The Term Loan matures on February 23, 2029.

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

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

The Credit Agreement contains customary mandatory prepayment provisions, including requirements to make mandatory prepayments with 50 % of any excess cash flow and with 100 % of the net cash proceeds from the incurrence of indebtedness not otherwise permitted to be incurred by the covenants, asset sales, and casualty and condemnation events, in each case, subject to customary exceptions.

Outstanding borrowings as of September 30, 2023 were $ 301.6 million, net of unamortized discount and debt issuance costs of $ 8.5 million.

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

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

The Credit Agreement contains customary mandatory prepayment provisions for the Term Loan, including requirements to make mandatory prepayments with 50 % of any excess cash flow and with 100 % of the net cash proceeds from the incurrence of indebtedness not otherwise permitted to be incurred by the covenants, asset sales, and casualty and condemnation events, in each case, subject to customary exceptions.

During the quarter ended March 30, 2024, the Company made a payment of $ 18.0 million.

Outstanding borrowings as of March 30, 2024 were $ 282.8 million, net of unamortized discount and debt issuance costs of $ 7.7 million.

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

As of September 30, 2023, the unamortized debt issuance costs and discount on the Term Loan were $ 4.7 million and $ 3.8 million, respectively.

The effective interest rate was 10.26 % at September 30, 2023, including the impact of the Company’s interest rate swaps.

As of September 30, 2023, the Company was in compliance with all financial covenants under the Credit Agreement.

As of March 30, 2024, the unamortized debt issuance costs and discount on the Term Loan were $ 4.3 million and $ 3.4 million, respectively.

The effective interest rate was 9.89 % at March 30, 2024, including the impact of the Company’s interest rate swaps.

Interest Rate Risk

10 unchanged sentences

Debt Maturities

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

Remainder of fiscal 2023

Remainder of fiscal year 2024

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

The obligations under the Credit Agreement are secured by substantially all of the Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and

cash equivalents, deposit accounts, and security accounts.

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

1 unchanged sentence

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

Three Fiscal Quarters Ended

September 30, 2023

October 1, 2022

Fiscal Quarter Ended

March 30, 2024

April 1, 2023

Balance at the beginning of the fiscal year

2 unchanged sentences

Balance at the end of the fiscal quarter

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

The optional transition method of adoption was used, in which the cumulative effect of initially applying the new standard to existing leases was $ 0.3 million to record the operating lease right-of-use assets and the related liabilities as of January 1, 2022.

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

For leases with initial terms greater than 12 months, the Company considers these right-of-use assets and records the related asset and obligation at the present value of lease payments over the term.

7 unchanged sentences

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

The components of lease expense for the fiscal quarters ended September 30, 2023 and October 1, 2022 were as follows (in thousands):

The components of lease expense for the fiscal quarters ended March 30, 2024 and April 1, 2023 were as follows (in thousands):

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

March 30, 2024

April 1, 2023

Operating lease expense

4 unchanged sentences

Total lease expense

Operating and finance lease right-of-use assets and lease-related liabilities as of September 30, 2023 and December 31, 2022 were as follows (in thousands):

September 30, 2023

Operating and finance lease right-of-use assets and lease-related liabilities as of March 30, 2024 and December 31, 2023 were as follows (in thousands):

March 30, 2024

December 31, 2023

15 unchanged sentences

Total lease liabilities

The table below presents supplemental information related to leases as of September 30, 2023 and December 31, 2022:

September 30, 2023

The table below presents supplemental information related to leases as of March 30, 2024 and December 31, 2023:

March 30, 2024

December 31, 2023

6 unchanged sentences

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

Three Fiscal Quarters Ended

September 30, 2023

October 1, 2022

Fiscal Quarter Ended

March 30, 2024

April 1, 2023

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

Operating cash flows for operating leases

The following table summarizes maturities of operating lease liabilities as of September 30, 2023 (in thousands):

The following table summarizes maturities of operating lease liabilities as of March 30, 2024 (in thousands):

Operating Leases

Finance Leases

Remainder of fiscal 2023

Remainder of fiscal year 2024

Total lease payments

2 unchanged sentences

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

March 30, 2024

April 1, 2023

In-ground Swimming Pools

The effective income tax rate for the fiscal and three fiscal quarters ended September 30, 2023 was 52.1 % and 140.7 %, respectively, compared to 43.4 % and 65.6 % for the fiscal and three fiscal quarters ended October 1, 2022, respectively.

The effective income tax rate for the fiscal quarter ended March 30, 2024 was ( 7.2 )% compared to 16.9 % for the fiscal quarter ended April 1, 2023.

The differences between the U.S.

federal statutory income tax rate and the Company's effective income tax rates for the fiscal quarter ended September 30, 2023 and the fiscal quarter ended October 1, 2022 were primarily attributable to the discrete impacts of stock-based compensation expense for which there is no associated tax benefit.

On October 15, 2023, the statute of limitations expired with respect to the Company’s 2019 U.S.

Federal income tax return for which the Company has a liability related to uncertain tax positions recorded.

As a result of the expiration of the statute of limitations, the Company will release the uncertain tax position liability with a corresponding net tax benefit of $ 7.5 million (a gross tax benefit of $ 10.7 million from the liability release offset by tax expense of $ 3.2 million from establishing a valuation allowance on an associated deferred tax asset) during the fourth fiscal quarter of 2023.

The Inflation Reduction Act ("IRA") was effective beginning in 2023.

Key provisions from the IRA include the implementation of a 15% corporate alternative minimum tax for corporations with book income in excess of $1 billion, an excise tax on the fair market value of stock buybacks (offset by the fair market value of stock issued in the same tax year), and significant tax incentives for energy and climate initiatives.

Enactment of the new law has not impacted the Company’s financial condition, results of operations or cash flows for the period ended September 30, 2023 and the Company does not expect a material impact on our future results at this time.

The Company will continue to monitor any impacts of further guidance on the IRA as released and assess any impacts as applicable.

federal statutory income tax rate and our effective income tax rates for the fiscal quarter ended March 30, 2024 and the fiscal quarter ended April 1, 2023 were primarily attributable to the discrete impact of stock compensation expense for which there is no associated tax benefit.

STOCKHOLDERS’ EQUITY

Offering of Common Stock

On January 11, 2022, the Company completed an offering of 13,800,000 shares of common stock, par value $ 0.0001 per share, including the exercise in full by the underwriters of their option to purchase up to 1,800,000 additional shares of common stock, at a public offering price of $ 19.50 per share.

The Company received proceeds of $ 257.7 million from this offering, net of $ 11.4 million of underwriting fees.

The proceeds of $ 257.7 million were used to purchase 13,800,000 shares of common stock from certain of the Company’s stockholders, primarily investment funds managed by the Sponsor and Wynnchurch Capital, L.P., and also a small percentage of shares of common stock owned by some of the Company’s directors and executive officers.

Repurchase Program

On May 10, 2022, the Company approved a stock repurchase program (the “Repurchase Program”), which authorized the Company to repurchase up to $ 100 million of the Company’s shares of common stock over the next three years .

On May 10, 2022, the Board of Directors of the Company approved a stock repurchase program (the “Repurchase Program”), which authorizes the Company to repurchase up to $ 100 million of the Company’s shares of common stock by May 2025.

The Company may effect these repurchases in open market transactions, privately negotiated purchases, or other acquisitions.

The Company is not obligated to repurchase any of its shares of its common stock under the Repurchase Program and the timing and amount of any repurchases will depend on market conditions, the Company’s stock price, alternative uses of capital, the terms of the Company’s debt instruments, and other factors.

As of September 30, 2023, $ 77.0 million remained available for share repurchases pursuant to the Repurchase Program.

The Company did not repurchase any shares of its common stock during the fiscal quarter ended September 30, 2023.

As of March 30, 2024, $ 77.0 million remained available for share repurchases pursuant to the Repurchase Program.

The Company did no t repurchase any shares of its common stock during the fiscal quarter ended March 30, 2024.

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

1 unchanged sentence

On April 12, 2021, the Company’s stockholders approved the 2021 Omnibus Equity Incentive Plan (the “2021 Omnibus Equity Plan”), which became effective on April 22, 2021, upon pricing of its initial public offering.

The 2021 Omnibus Equity Plan provides for the issuance of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based and cash-based awards.

The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the 2021 Omnibus Equity Plan during any one fiscal year, together with any cash fees paid to such non-employee director during such fiscal year, is $ 750,000 .

On May 2, 2023, at the 2023 annual meeting of stockholders the Company, the stockholders approved the first amendment (the “First Amendment”) to the Latham Group, Inc.

2021 Omnibus Equity Plan, which was previously approved by the Board of Directors of the Company.

The First Amendment became effective upon stockholder approval, and provides for (i) an increase by 8,000,000 shares of the share pool, i.e.

the maximum number of shares of the Company’s common stock that may be issued pursuant to awards granted under the 2021 Omnibus Equity Plan, (ii) a prohibition on recycling of shares withheld or remitted to pay taxes for all awards, (iii) a minimum vesting period of one year for all awards, with an exception for shares representing 5% of the share pool, and (iv) a prohibition on the transfer of stock options and stock appreciation rights for value or to third-party financial institutions without stockholder approval.

On May 2, 2023, at the 2023 annual meeting of stockholders of the Company, the stockholders approved the first amendment (the “First Amendment”) to the 2021 Omnibus Equity Plan, which was previously approved by the Board of Directors of the Company.

The First Amendment became effective upon stockholder approval, and included an increase by 8,000,000 shares of the share pool, i.e.

the maximum number of shares of the Company’s common stock that may be issued pursuant to awards granted under the 2021 Omnibus Equity Plan.

Except as amended by the First Amendment, the other terms of the 2021 Omnibus Equity Plan remain in full force and effect.

2 unchanged sentences

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

March 30, 2024

April 1, 2023

Cost of sales

Selling, general, and administrative

As of September 30, 2023, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $ 11.2 million, which is expected to be recognized over a weighted-average period of 1.3 years.

The following table sets forth the significant assumptions used in the Black-Scholes option-pricing model on a weighted-average basis to determine the fair value of stock option awards granted:

Three Fiscal Quarters Ended

October 1, 2022

Risk-free interest rate

Expected volatility

Expected term (in years)

Expected dividend yield

No stock options were granted under this plan during the fiscal quarter ended September 30, 2023.

The following table sets forth the significant assumptions used in the Black-Scholes option-pricing model on a weighted-average basis to determine the fair value of stock appreciation rights awards granted:

Three Fiscal Quarters Ended

September 30, 2023

Risk-free interest rate

Expected volatility

Expected term (in years)

Expected dividend yield

As of March 30, 2024, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $ 13.3 million, which is expected to be recognized over a weighted-average period of 2.2 years.

Restricted Stock Awards

The following table represents the Company’s restricted stock awards activity during the three fiscal quarters ended September 30, 2023:

The following table represents the Company’s restricted stock awards activity during the fiscal quarter ended March 30, 2024:

Average Grant-

1 unchanged sentence

Outstanding at January 1, 2024

( 1,239,520 )

Outstanding at September 30, 2023

Outstanding at March 30, 2024

Restricted Stock Units

The following table represents the Company’s restricted stock units activity during the three fiscal quarters ended September 30, 2023:

The following table represents the Company’s restricted stock units activity during the fiscal quarter ended March 30, 2024:

Average Grant-

1 unchanged sentence

Outstanding at January 1, 2024

Outstanding at September 30, 2023

Outstanding at March 30, 2024

Stock Options

The following table represents the Company’s stock option activity during the three fiscal quarters ended September 30, 2023:

The following table represents the Company’s stock option activity during the fiscal quarter ended March 30, 2024:

Exercise Price

3 unchanged sentences

Outstanding at January 1, 2024

Outstanding at September 30, 2023

Vested and expected to vest at September 30, 2023

Options exercisable at September 30, 2023

Outstanding at March 30, 2024

Vested and expected to vest at March 30, 2024

Options exercisable at March 30, 2024

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock .

Stock Appreciation Rights

During the fiscal quarter ended April 1, 2023, as a portion of the annual equity award grants to the Company’s executive officers, the Compensation Committee of the Board of Directors approved stock appreciation rights for an aggregate of 790,181 shares of the Company’s common stock, with a strike price of $ 3.24 per share (the “Contingent Grants”).

At the time of such approval, the Company did not have enough shares of the Company’s common stock in the share pool under the 2021 Omnibus Equity Plan to support such grant.

As of April 1, 2023, the Contingent Grants remained subject to stockholder approval of the First Amendment.

As of April 1, 2023, the contingent grant of stock appreciation rights remained subject to stockholder approval of the First Amendment.

On May 2, 2023, following stockholder approval of the First Amendment, the foregoing stock appreciation right awards became effective without condition.

The following table represents the Company’s stock appreciation rights activity during the three fiscal quarters ended September 30, 2023:

The following table represents the Company’s stock appreciation rights activity during the fiscal quarter ended March 30, 2024:

Exercise Price

3 unchanged sentences

Outstanding at January 1, 2024

Outstanding at September 30, 2023

Vested and expected to vest at September 30, 2023

Stock appreciation rights exercisable at September 30, 2023

Outstanding at March 30, 2024

Vested and expected to vest at March 30, 2024

Stock appreciation rights exercisable at March 30, 2024

The aggregate intrinsic value of stock appreciation rights is calculated as the difference between the strike price of the stock appreciation rights and the fair value of the Company’s common stock for those stock appreciation rights that had strike prices lower than the fair value of the Company’s common stock.

No stock appreciation rights were granted under this plan during the fiscal quarter ended September 30, 2023.

NET INCOME (LOSS) PER SHARE

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

No stock appreciation rights were granted under this plan during the fiscal quarter ended March 30, 2024.

Performance Stock Units

During the fiscal quarter ended March 30, 2024 the Compensation Committee of the Board of Directors approved the grant of performance stock units (“PSUs”) as a portion of the annual equity award to the Company’s executive officers for an aggregate of 427,145 shares of the Company’s common stock.

The PSUs will be earned at 0 % to 200 % of the target PSUs (with 100 % of PSUs being earned at target performance, and linear interpolation between threshold and target and maximum performance) based on the Company’s achievement of Adjusted EBITDA, as defined in the award agreement, over a one-year performance period ending December 31, 2024.

Any earned PSUs cliff vest on the third anniversary of the grant date.

Adjusted EBITDA is considered a performance condition and the grant date fair value corresponds with management’s expectation of the probable outcome of the performance condition as of the grant date.

The grant date fair value is determined based on the fair market value of the Company’s stock at market close on the grant date multiplied by the target number of shares subject to the award.

The probability of achieving the performance criteria is assessed quarterly during the performance period.

Compensation expense related to unvested PSUs is recognized ratably over the service period.

The following table represents the Company’s PSU activity during the fiscal quarter ended March 30, 2024:

Outstanding at January 1, 2024

Adjustment for expected performance achievement (1)

Outstanding at March 30, 2024 (2)

(1) Represents the adjustment to previously granted PSUs based on performance expectations as of the end of each respective fiscal year.

(2) An additional 427,145 PSUs could potentially be included if the maximum performance level of 200 % is earned for all PSUs outstanding as of March 30, 2024 .

NET LOSS PER SHARE

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

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

Net income (loss) attributable to common stockholders

March 30, 2024

April 1, 2023

Net loss attributable to common stockholders

Weighted-average common shares outstanding

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

As of September 30, 2023 and December 31, 2022, 113,574,696 and 112,091,756 shares of common stock were issued and outstanding for accounting purposes, respectively.

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

Net loss per share attributable to common stockholders:

As of March 30, 2024 and December 31, 2023, 115,346,803 and 114,828,896 shares of common stock were issued and outstanding for accounting purposes, respectively.

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

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 30, 2023

October 1, 2022

September 30, 2023

October 1, 2022

March 30, 2024

April 1, 2023

Restricted stock awards

2 unchanged sentences

Stock appreciation rights

Performance stock units

RELATED PARTY TRANSACTIONS

BrightAI Services

Starting in 2020, BrightAI has rendered services to the Company, for which the cost has been capitalized as internal-use software.

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

Starting in 2020, BrightAI Corporation (“BrightAI”) has rendered services to the Company, for which the cost has been capitalized as internal-use software.

A co-founder of BrightAI Services served on the Company’s Board of Directors from December 9, 2020 until his resignation on February 21, 2024.

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

During the three fiscal quarters ended September 30, 2023 and the fiscal year ended December 31, 2022, the Company incurred $ 0.8 million and $ 0.2 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the condensed consolidated balance sheet as of September 30, 2023.

As of September 30, 2023 and December 31, 2022, the Company had accounts payable related to BrightAI of $ 0.0 million and $ 0.4 million, respectively.

Expense Reimbursement

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

on April 27, 2021.

The Stockholders’ Agreement requires the Company to reimburse the Sponsor and Wynnchurch Capital, L.P.

for their reasonable out-of-pocket costs and expenses in connection with monitoring and overseeing their investment in the Company.

The Company recognized no amount and $ 0.2 million for the reimbursement of out-of-pocket costs and expenses to Wynnchurch Capital, L.P.

and no amounts for the reimbursement of out-of-pocket costs and expenses to the Sponsor during the fiscal quarter and three fiscal quarters ended September 30, 2023, respectively.

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

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

As of both September 30, 2023 and December 31, 2022, there was less than $ 0.1 million outstanding amounts payable to the Sponsor and no outstanding amounts payable to Wynnchurch Capital, L.P.

The Company had no material transactions with BrightAI during the quarters ended March 30, 2024 and April 1, 2023.

As of December 31, 2023, the Company had no accounts payable related to BrightAI.

RESTRUCTURING COSTS

During the second and third fiscal quarters of 2023, the Company initiated an additional cost reduction plan focused on efforts to improve efficiencies and decrease costs.

During the second and third fiscal quarters of 2023, the Company initiated an additional plan focused on efforts to improve efficiencies and decrease costs.

The plan involved a reduction in the Company’s workforce as well as closures of various manufacturing facilities.

The Company expects to incur charges for employee severance and related costs, as well as fixed asset and facility related expenses, of approximately $ 2.8 million.

During the quarter ended September 30, 2023, the Company recognized costs related to the plan totaling $ 1.8 million, comprised primarily of $ 1.0 million for severance and related costs and $ 0.8 million relating to the facility closures.

These charges were included in cost of sales and selling, general, and administrative expenses in the condensed consolidated statements of operations.

The remaining costs under the plan of approximately $ 1.0 million are expected to be incurred and recognized in the fourth fiscal quarter of 2023.

The Company had an exit or disposal cost related liability of $ 0.3 million as of September 30, 2023 and no liability as of December 31, 2022.

The Company had an exit or disposal cost related liability of $ 0.1 million as of March 30, 2024 and $ 0.2 million as of December 31, 2023.

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

What changed 10-Q

Item 1. Financial Statements