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Item 1A. Risk Factors

2025-03-05 compared with 2024-03-13 · 233 added, 189 removed, 267 unchanged (61% of the section changed)

You should carefully consider the following risks and uncertainties, together with all of the other information contained in this Annual Report on Form 10-K, or this Annual Report, including our Consolidated Financial Statements and related notes included elsewhere in this Annual Report, before making an investment decision.

You should carefully consider the following risks and uncertainties, together with all of the other information contained in this Annual Report, including our Consolidated Financial Statements and related notes included elsewhere in this Annual Report, before making an investment decision.

In addition, past financial performance may not be a reliable indicator of future performance and historical trends may not predict results or trends in future periods.

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

● 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;

● unfavorable economic conditions and the related impact on consumer spending and demand for our products;

● inflationary impacts, including on our costs of labor, raw materials and services and on consumer demand for pool products;

● our reliance on global third-party suppliers and related impact on price, quality and quantity of raw materials;

● the impact of trade policies, including tariffs, on products, raw materials and components we import into the U.S.;

● declining home ownership rates adversely affect demand for our products;

● competition that we face;

● 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;

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

● our reliance on our information technology systems and potential disturbances or breaches to our technological infrastructure;

● adverse weather conditions impacting our sales and timing of sales;

● pricing pressures resulting from industry consolidation;

● interruption of our production capability at one or more of our manufacturing facilities from accident, fire, calamity or other causes or events affecting the global economy;

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

● 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 attract, develop and retain highly qualified personnel;

● our ability to collect accounts receivables from our customers;

● compliance with new and existing 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;

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● the risks of doing business internationally;

● our ability to realize the anticipated growth opportunities and cost synergies from acquisitions;

● possible impairments to our goodwill, other intangible assets or fixed assets;

● our ability to secure financing and our substantial indebtedness;

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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.

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, housing affordability, demographic trends, employment rates and wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and spending and to the availability of credit .

In particular, we believe that the availability of 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 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 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.

In economic downturns such as we experienced in 2023 and 2024, and which is expected to continue into 2025, the demand for swimming pools and related products has declined and we expect that such demand will be constrained in the future until we see a recovery in discretionary consumer spending among pool eligible households.

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

In addition, the cyclicality in consumer demand for our products that we do not control increases the risk of making critical business decisions based on our forecasts, and means that the results for any prior period may not be indicative of results for any future period.

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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.

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

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 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 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, weather

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.

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 for our products.

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 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.

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

While inflation in the United States began to plateau or subside in 2024, higher costs of labor and services, and could continue to cause costs to increase as well as scarcity of certain products and there are indications that recent deflation in raw material costs may reverse.

The imposition of tariffs on products and materials by the United States and other countries may negatively impact current inflation rates for an extended period of time, result in increases to our operating costs and negatively impact our business.

See “—Changes in trade policies, including the imposition of tariffs, could negatively impact our business, financial condition, and results of operations.” There is substantial risk that inflation will escalate should these tariffs, and the potential imposition of tariffs by the Trump administration on additional countries, continue for an extended period of time.

As a consequence of these inflationary risks, there is a 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 to offset 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 global 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, various resins, high impact polystyrene, gelcoat and polypropylene fabric.

The cost of many of the raw materials we use in the manufacture of our products, such as steel, is subject to price volatility.

Changes in prices of our raw materials have a direct impact on our cost of sales.

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.

Such pressures may continue and escalate as a result of U.S.

and global tariff policies.

See “—Inflation could adversely impact our financial condition and results of operations” and “—Changes in trade policies, including the imposition of tariffs, could negatively impact our business, financial condition and results of operations” for additional information.

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

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 we enter into new supply arrangements.

The foregoing risks are heightened with respect to our largest supplier, which accounted for 13% of our purchased supplies in 2024, and our top ten suppliers, which accounted for 64% of our purchased supplies in 2024.

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

We procure certain raw materials and components we use in the manufacturing of our products directly or indirectly from outside of the U.S.

We also import finished products into the U.S.

from our Canadian production facility in Kingston, Ontario.

The imposition of or increase in tariffs on raw materials such as steel and aluminum, the imposition of or increase in tariffs on finished products that we import, and other potential changes in U.S.

and global trade policy could substantially increase the cost of and limit the availability of raw materials or our finished products.

The variability and complexity of tariffs and duties exposes us to the risk of higher costs and inadvertent noncompliance associated with our imported products.

There have recently been a number of tariffs and retaliatory tariffs announced by the U.S.

and other countries that would impact certain of our raw materials and finished products, the implementation, size and timing of which remain uncertain and rapidly evolving.

The implementation of these tariffs and future tariffs, or any changes in trade policies that have a similar effect, or the threat of any of the foregoing, could result in further interruptions in the supply chain.

If we are unable to pass price increases on to our customer base or otherwise mitigate the costs or availability of products and raw materials associated with tariffs and other similar trade policies, our business, financial condition and operating results could be materially adversely affected.

Declining home ownership rates could lead to reduced demand for our products and adversely affect our business, financial condition and results of operations.

Recent trends towards higher interest rates, decreases in the availability of credit, shortages in the supply of homes and increasing home prices in many U.S.

markets have had, and may continue to have, the affect of reducing home purchases.

As a result of these trends, prospective home owners are increasingly choosing to rent their homes as the more affordable option.

Declining home ownership rates could also have the affect of reducing home improvement investments, such as acquiring and installing swimming pools, which could have a material adverse affect on our sales, profitability and overall financial results.

Even in generally favorable economic conditions, severe and/or prolonged downturns affecting the U.S.

housing market could have a similar material adverse impact on our financial performance.

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.

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In addition, new competitors may emerge.

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

We have seen increased interest from pool manufacturing companies from Canada, Brazil, Mexico 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.

Pool owners are increasingly demanding “smart home” technology, automation and environmentally friendly, sustainable and ethical product features to enhance their pools.

Staying at the forefront of product innovation and consumer demand is important to our future success.

We must continue to develop and bring to market innovative products, which requires hiring and retaining technical staff, maintaining and upgrading manufacturing facilities and equipment and expanding our intellectual property rights.

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 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, 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.

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.

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

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.

results of operations.

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

The cost of many of the raw materials we use in the manufacture of our products, such as steel, is subject to price volatility.

Changes in prices of our raw materials have a direct impact on our cost of sales.

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.

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.

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.

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.

Natural disasters, including resulting from climate change, geopolitical events, war, terrorism, public health emergencies, 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;

weather events driven by climate change or other factors;

public health emergencies, epidemics or pandemics;

other serious disruption to our facilities due to fire, flood, hurricane, earthquake, war, acts of terrorism, civil insurrection or social unrest;

political uncertainty;

and regional or global conflicts, including the conflicts in the Middle East and Ukraine.

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

Further, such events could also adversely impact consumer discretionary spending, causing geopolitical uncertainty, and resulting in a macroeconomic downturn and disruption in the financial markets.

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 or 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.

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

A significant disturbance or breach of our technological infrastructure could adversely affect our business, 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, cybersecurity threats security breaches and other catastrophic events.

Exposure to various types of cybersecurity threats 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 cybersecurity threats, attempts to breach our systems and other similar incidents, none of which were material to our operations or financial results in 2024.

It is possible that cyber attackers could 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.

Cybersecurity threats 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.

The development of AI technologies may exacerbate these risks.

Moreover, such cybersecurity threats may disrupt access to our and/or our suppliers’ networks and systems.

Such disruptions could result in delays or cancellations of customer orders, delays or interruptions in the shipment of orders, lower net sales, increased insurance costs, litigation, increased regulatory oversight and additional investments by the Company in threat prevention technology.

In addition, cybersecurity threats may cause us to incur significant remediation costs, result in delays and disruptions to key business operations, damage business relationships or our reputation or divert attention of management and key information technology resources.

With some employees working remotely, there may be increased opportunities for unauthorized access and cybersecurity threats.

Additionally, while we perform due diligence prior to acquisitions and take actions to safeguard the businesses that we acquire, these businesses may not have invested as significantly as we do in security and technology and may be more susceptible to cyber-attacks, which may make us more vulnerable to cyber-attacks as well.

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

The occurrence of any cybersecurity incident or security breach 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 AI 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.

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

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 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.

For example, as a result of the hurricanes that impacted the west coast of Florida and other areas of the southeastern U.S.

in the second half of 2024, we experienced a temporary decline in demand for our products and prospective customers were focused on recovering from the damage caused by the storms to their homes.

Industry consolidation, including 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.

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 21.0% of our net sales in 2024, and our top ten dealers and distributors, which accounted for 42.8% of our net sales in 2024.

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.

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

Consolidation 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.

If we do not compete effectively, it could have a material adverse effect on our business, financial condition and results of operations.

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).

A temporary or permanent loss of the use of one or more of our manufacturing facilities due to accidents, fire, 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.

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.

Product quality, warranty claims, installation 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.

Installation services for our pool products for homeowners is provided by us in the case of our autocover products and our dealers and other third party installers.

We provide dealer and third party 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.

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

Following the acquisition of CoverStar Central in April 2024, we are now directly involved in

the installation of autocovers for some homeowners, and we may be subject to direct customer claims based on dissatisfaction with the installation of our autocovers.

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.

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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.

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

For example, in 2024, we continued the roll-out of Measure, a proprietary advanced AI-powered device that significantly reduces dealer time and error in measuring swimming pool safety covers.

For example, we believe our introduction of Latham Measure, which employs AI technology, has the potential disrupt competition in the market for safety covers and liners.

If our competitors more successfully incorporate AI into their products and achieve higher market acceptance of their AI solutions than we can our ability to compete effectively could be impaired which may adversely effect our results of operations.

For example, the use of artificial intelligence has the potential to result in bias, miscalculations, data errors and other unintended consequences.

Developing, testing, and deploying resource-intensive AI systems may require additional investment and increase our costs, and we cannot be sure that our use of AI will increase efficiency or provide any other benefits.

Further, the use of AI tools may unintentionally compromise confidential or sensitive information, put our intellectual property at risk, or subject us to claims related to data privacy management or intellectual property infringement.

It is also possible that the AI tools we use may negatively affect our reputation, disrupt our operations, or have a material adverse impact on our business, financial condition, and results of operations.

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.

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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.

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.

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.

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

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