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Item 2. Management’s Discussion and Analysis

2025-05-07 compared with 2024-11-06 · 122 added, 212 removed, 161 unchanged (67% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission, (“SEC”) on March 13, 2024 (the “Annual Report”).

As used in this Quarterly Report on Form 10-Q, references to “ Latham, ” “ the Company, ” “ we, ” “ us ” and “ our, ” refer to the Company and its consolidated subsidiaries unless otherwise indicated or the context requires otherwise.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our 2024 Annual Report on Form 10-K filed with the Securities and Exchange Commission, (“SEC”) on March 5, 2025 (the “Annual Report”).

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements contained in this report other than statements of historical fact may constitute forward-looking statements, including statements regarding our future operating results and financial position, our business strategy and plans, business and market trends, our objectives for future operations, macroeconomic and geopolitical conditions, the implementation of our cost reduction plans and expected benefits, the implementation of our digital transformation and lean manufacturing activities, a potential non-cash impairment charge for goodwill, the recent acquisition and integration of Coverstar Central, LLC (“Coverstar Central”), and the sufficiency of our cash balances, working capital and cash generated from operating, investing, and financing activities for our future liquidity and capital resource needs.

trade priorities, policies, regulations and tariffs, the implementation of our cost reduction plans and expected benefits, and the sufficiency of our cash balances, working capital and cash generated from operating, investing, and financing activities for our future liquidity and capital resource needs.

These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “confident,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology.

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We are Latham, The Pool Company.

With an operating history that spans over 65 years, we offer the industry’s broadest portfolio of pools and related products, including in-ground swimming pools, pool liners, and pool covers.

With an operating history that spans over 65 years, we offer the industry’s broadest portfolio of pools and related products, including in-ground swimming pools, pool covers, and pool liners.

We have a heritage of innovation.

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Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years.

We support our dealer network with business development tools, co-branded marketing programs, and in-house training, as well as an operations platform consisting of approximately 1,850 employees across 30 locations.

We support our dealer network with business development tools and co-branded marketing programs.

The full resources of our company are dedicated to designing and manufacturing high-quality pool products, with the homeowner in mind, and positioning ourselves as a value-added partner to our dealers.

We conduct our business as one operating and reportable segment that designs, manufactures, and markets in-ground swimming pools, pool liners, and pool covers.

We conduct our business as one operating and reportable segment that designs, manufactures, and markets in-ground swimming pools, pool covers, and pool liners.

Our operations consist of approximately 1,800 employees across about 30 locations.

The broad geographic reach of our national manufacturing and distribution network allows us to service our customers on short lead times and to deliver our products in a cost-effective manner.

Our mission is to design and manufacture high-quality pool products, with the homeowner in mind, and to be a value-added partner to our dealers.

Recent Developments

Highlights for the fiscal quarter ended September 28, 2024

● Decrease in net sales of 6.4%, or $10.3 million, to $150.5 million for the fiscal quarter ended September 28, 2024, compared to $160.8 million for the fiscal quarter ended September 30, 2023.

● Decrease in net income of $0.3 million to $5.9 million and representing a 3.9% net income margin for the fiscal quarter ended September 28, 2024, compared to net income of $6.2 million and representing a 3.8% net income margin for the fiscal quarter ended September 30, 2023.

● Decrease in Adjusted EBITDA (as defined below) of $6.3 million to $29.8 million for the fiscal quarter ended September 28, 2024, compared to $36.1 million for the fiscal quarter ended September 30, 2023.

Adjusted EBITDA margin decreased from 22.4% to 19.8%.

Highlights for the three fiscal quarters ended September 28, 2024

● Decrease in net sales of 11.4%, or $54.4 million, to $421.2 million for the three fiscal quarters ended September 28, 2024, compared to $475.6 million for the three fiscal quarters ended September 30, 2023.

● Increase in net income of $13.8 million to a net income of $11.3 million and representing a 2.7% net income margin for the three fiscal quarters ended September 28, 2024, compared to net loss of $2.5 million for the three fiscal quarters ended September 30, 2023.

● Decrease in Adjusted EBITDA (as defined below) of $1.5 million to $76.6 million for the three fiscal quarters ended September 28, 2024, compared to $78.1 million for the three fiscal quarters ended September 30, 2023.

Adjusted EBITDA margin improved from 16.4% to 18.2%.

Highlights for the fiscal quarter ended March 29, 2025

● Increase in net sales of 0.7%, or $0.8 million, to $111.4 million for the fiscal quarter ended March 29, 2025, compared to $110.6 million for the fiscal quarter ended March 30, 2024.

● Decrease in net loss of $1.9 million to $6.0 million and representing a 5.4% net loss margin for the fiscal quarter ended March 29, 2025, compared to net loss of $7.9 million for the fiscal quarter ended March 30, 2024.

● Decrease in Adjusted EBITDA (as defined below) of $1.2 million to $11.1 million for the fiscal quarter ended March 29, 2025, compared to $12.3 million for the fiscal quarter ended March 30, 2024.

Business Update

Ongoing macroeconomic softness has impacted and is expected to continue to impact consumer spending and demand.

As anticipated, this resulted in a decline in new in-ground residential pool installations in the first nine months of 2024.

Within our in-ground pool product line, fiberglass pools continue to show strength relative to packaged pools.

Based on our current business trends reflecting the seasonal ramp-up orders in the later part of the first fiscal quarter, our results of operations for the fiscal quarter ended March 29, 2025 were aligned with our expectations.

These results were primarily driven by category share gains in fiberglass pools and autocovers, along with contributions from the Coverstar Central acquisition in August 2024 and the early 2025 acquisitions of two of our smaller autocover dealers.

The seasonal ramp-up in orders began in late March, supporting our expectation for progressively higher year-on-year comparisons during the typically stronger second and third fiscal quarters of the year.

At the same time, we remain cautious on 2025 new pool starts, which we currently project to be roughly in line with 2024 levels.

Additionally, we are closely monitoring the potential impact of current macroeconomic and geopolitical conditions, including the global trade environment and elevated tariffs on imported raw materials, as well as general reduced consumer confidence and increased economic uncertainty.

Imports represent approximately 15-20% of the raw materials used in our manufacturing process, so our exposure to additional recently implemented tariffs is relatively limited.

While global trade and economic uncertainty remains, we are confident in our ability to offset raw material cost increases through strategic pre-purchasing and operational adjustments.

Additionally, we recently implemented targeted price increases on certain products to help further mitigate the potential impact of tariffs.

We continue to make progress executing our strategy to drive adoption and awareness of fiberglass pools and automatic safety covers and gain additional operating efficiencies through value engineering and lean manufacturing initiatives.

We continue to take a disciplined approach to capital investments, with the focus on the completion of previously announced projects such as our recent multi-year capital plan to invest in our facilities, technology and systems.

Notably, this involves continued investment in our sales, marketing, engineering and research and development efforts that are designed to accelerate conversion to fiberglass pool products and ongoing digital transformation programs.

As previously disclosed, we have responded to economic uncertainty by implementing cost reduction programs and lean manufacturing initiatives that structurally reduce our cost basis, while maintaining capacity.

We believe that Latham’s financial model has changed structurally, which has increased our underlying earnings capabilities amid an industry recovery.

And we are increasing our investments in sales and marketing and product development initiatives to ensure that we capture an incremental share of in-ground pool sales once volumes rebound.

We continue to take a disciplined approach to capital investments, with the focus on product innovation, facility upgrades and technology and systems.

These initiatives complement continued investment in our sales, marketing, engineering and research and development efforts that are designed to accelerate conversion to fiberglass pool products and ongoing digital transformation programs.

Strategic Acquisition

Strategic transactions continue to be part of our growth strategy.

On August 2, 2024, we completed a stock acquisition (the “Coverstar Central Acquisition”) of Coverstar Central, our exclusive dealer of automatic safety covers in 29 states – mainly in the center of the U.S.

On August 2, 2024, we completed a stock acquisition of Coverstar Central, our exclusive dealer of automatic safety covers in 29 states – mainly in the center of the U.S.

Coverstar Central has been our trusted partner since 2006, and this acquisition represents a valuable strategic opportunity that we expect to benefit from in multiple ways.

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Finally, we see opportunities to leverage Coverstar Central’s long-standing relationships with pool builders in its markets to increase the awareness of, and conversion to, fiberglass pools.

We believe the Coverstar Central Acquisition will be immediately accretive to our net income, Adjusted EBITDA and Adjusted EBITDA margin for the fiscal year ending December 31, 2024 and enhance our gross margins in the long-term.

The cash purchase price was $64.0 million, net of cash acquired.

The transaction was fully funded with cash on hand.

During the fiscal quarter ended March 29, 2025, we further strengthened our position in this growing category by acquiring two of our smaller autocover dealers located in Tennessee and New York.

Key Performance Indicators

We derive our revenue from the design, manufacture, and sale of in-ground swimming pools, pool covers, and pool liners.

We sell fiberglass pools, which are one-piece manufactured fiberglass pools that are ready to be installed in a consumer’s backyard, and custom vinyl pools, which are manufactured pools that are made out of non-corrosive steel, aluminum, or composite polymer frame, on top of which a vinyl liner is installed.

We sell fiberglass pools, which are one-piece manufactured fiberglass pools that are ready to be installed in a consumer’s backyard, and custom vinyl pools, which are manufactured pools that are made out of non-corrosive steel, or composite polymer frame, on top of which a vinyl liner is installed.

We sell liners for the interior surface of vinyl pools (including pools that were not manufactured by us).

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Revenue that is derived from our extended service warranties, which are separately priced and sold, is recognized over the term of the contracts.

Revenue from custom products is recognized over time utilizing an input

method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation.

Revenue from custom products is recognized over time utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation.

Gross margin is gross profit as a percentage of our net sales.

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Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary.

Our gross profit is primarily variable in nature and generally follows changes in net sales.

Our gross profit is variable in nature and generally follows changes in net sales.

The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of other companies.

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Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management and our Board of Directors to assess our financial performance.

Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management and our Board to assess our financial performance.

Adjusted EBITDA and Adjusted EBITDA margin are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to utilize as a significant performance metric in our incentive compensation plans, and to compare our performance against that of other companies using similar measures.

We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures because we believe they allow for a more complete analysis of results of operations and assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax (benefit) expense, (iv) loss (gain) on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs, (x) the Odessa fire and other such unusual events and (xi) other.

We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to utilize as a significant performance metric in our annual management incentive bonus plan compensation, and to compare our performance against that of other companies using similar measures.

We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures because we believe they allow for a more complete analysis of results of operations and assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax (benefit) expense, (iv) (gain) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs and (x) other.

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and should not be considered as alternatives to net income (loss) as a measure of financial performance or any other performance measure derived in accordance with GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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In addition, other companies, including companies in our industry, may not calculate Adjusted EBITDA and Adjusted EBITDA margin at all or may calculate Adjusted EBITDA and Adjusted EBITDA margin differently and accordingly, are not necessarily comparable to similarly entitled measures of other companies, which reduces the usefulness of Adjusted EBITDA and Adjusted EBITDA margin as tools for comparison.

We believe Adjusted EBITDA and Adjusted EBITDA margin are useful measurements for investors as they help identify underlying trends that could otherwise be masked by certain expenses that we do not consider indicative of our ongoing operating performance.

We also use Adjusted EBITDA and Adjusted EBITDA margin for planning purposes, assessing our financial performance, and other strategic decisions.

For a discussion of Adjusted EBITDA and Adjusted EBITDA margin and the limitations on their use, and the reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, and our calculation of Adjusted EBITDA margin see “— Non-GAAP Financial Measures” below.

Results of Operations

Fiscal Quarter Ended September 28, 2024 Compared to Fiscal Quarter Ended September 30, 2023

The following table summarizes our results of operations for the fiscal quarter ended September 28, 2024 and September 30, 2023 (dollars in thousands):

Fiscal Quarter Ended March 29, 2025 Compared to Fiscal Quarter Ended March 30, 2024

The following table summarizes our results of operations for the fiscal quarter ended March 29, 2025 and March 30, 2024 (dollars in thousands):

Fiscal Quarter Ended

September 28, 2024

September 30, 2023

March 29, 2025

March 30, 2024

(dollars in thousands)

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Selling, general, and administrative expense

Income from operations

Loss from operations

Other expense (income):

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Earnings from equity method investment

Income before income taxes

Loss before income taxes

Income tax (benefit) expense

Adjusted EBITDA (a)

________________________________________

(a) Adjusted EBITDA is a non-GAAP measure.

See “Non-GAAP Financial Measures” for a reconciliation to net income (loss), the most directly comparable GAAP measure, and for information regarding our use of Adjusted EBITDA.

Net sales were $150.5 million for the fiscal quarter ended September 28, 2024, compared to $160.8 million for the fiscal quarter ended September 30, 2023.

The $10.3 million, or 6.4%, decrease in net sales was because of a $9.5 million decrease in sales volume and a $0.8 million decrease from lower pricing.

The sales volume decrease was primarily driven by continued soft industry conditions and a challenging macroeconomic environment.

The decrease in net sales of $10.3 million across our product lines consisted of a decrease $8.1 million for in-ground swimming pools and $2.5 million for liners, partially offset by a $0.3 million increase for covers aided by the Coverstar Central acquisition.

See “Non-GAAP Financial Measures” for a reconciliation to net loss, the most directly comparable GAAP measure, and for information regarding our use of Adjusted EBITDA.

Net sales were $111.4 million for the fiscal quarter ended March 29, 2025, compared to $110.6 million for the fiscal quarter ended March 30, 2024.

The $0.8 million, or 0.7%, increase in net sales was due to a $2.4 million increase in sales volume, partially offset by a $1.6 million decrease from lower pricing.

The increase in total net sales of $0.8 million across our product lines consisted of an increase of $4.7 million for pool covers, partially offset by decreases of $2.1 million for in-ground swimming pools and $1.8 million for pool liners.

Cost of Sales and Gross Margin

Cost of sales was $101.8 million for the fiscal quarter ended September 28, 2024, compared to $112.6 million for the fiscal quarter ended September 30, 2023.

Gross margin increased by 2.5%, to 32.4% of net sales for the fiscal quarter ended September 28, 2024, compared to 29.9% of net sales for the fiscal quarter ended September 30, 2023.

The $10.8 million, or 9.6%, decrease in cost of sales was primarily the result of the decrease in sales volume which in turn was partially offset by the impact of production efficiencies resulting from lean manufacturing and value engineering programs and lower material costs.

The 2.5% increase in gross margin was primarily driven by the impact of production efficiencies resulting from lean manufacturing and value engineering programs and procurement improvements that resulted in lower material costs and the acquisition of Coverstar Central.

Cost of sales was $78.5 million for the fiscal quarter ended March 29, 2025, compared to $80.0 million for the fiscal quarter ended March 30, 2024.

The $1.5 million, or 1.9%, decrease in cost of sales was primarily the result of the decrease in fixed cost leverage.

Gross margin increased by 1.8%, to 29.5% of net sales for the fiscal quarter ended March 29, 2025, compared to 27.7% of net sales for the fiscal quarter ended March 30, 2024.

The 1.8% increase in gross margin was primarily driven by our lean manufacturing and value engineering initiatives and a margin benefit from the three Coverstar acquisitions.

Selling, General, and Administrative Expense

Selling, general, and administrative expense was $28.3 million for the fiscal quarter ended September 28, 2024, compared to $23.4 million for the fiscal quarter ended September 30, 2023.

The $4.9 million, or 20.9%, increase in selling, general, and administrative expense was primarily driven by increased spending on sales and marketing to further strengthen our position ahead of a market turnaround, performance-based compensation and the acquisition of Coverstar Central, partially offset by a $0.4 million decrease in non-cash stock-based compensation expense.

Amortization was $7.0 million for the fiscal quarter ended September 28, 2024, compared to $6.6 million for the fiscal quarter ended September 30, 2023.

The $0.4 million, or 5.2%, increase in amortization was driven by the acquisition of Coverstar Central.

Selling, general, and administrative expense was $30.6 million for the fiscal quarter ended March 29, 2025, compared to $26.3 million for the fiscal quarter ended March 30, 2024, and increased as a percentage of net sales by 3.6%.

The $4.3 million, or 16.6%, increase in selling, general, and administrative expense was primarily driven by increased spending on sales and marketing to drive future growth, as well as the three Coverstar acquisitions.

Amortization was $7.2 million for the fiscal quarter ended March 29, 2025, compared to $6.4 million for the fiscal quarter ended March 30, 2024.

The $0.8 million, or 12.2%, increase in amortization was primarily driven by the three Coverstar acquisitions.

Interest Expense, net

Interest expense, net was $9.2 million for the fiscal quarter ended September 28, 2024, compared to $6.0 million for the fiscal quarter ended September 30, 2023.

The $3.2 million, or 53.1%, increase in interest expense, net was primarily the result of the change in the fair value of our interest rate swap, compared to the fiscal quarter ended September 30, 2023.

Interest expense, net was $6.4 million for the fiscal quarter ended March 29, 2025, compared to $5.0 million for the fiscal quarter ended March 30, 2024.

The $1.4 million, or 27.9%, increase in interest expense, net was primarily the result of the change in the fair value of our interest rate swap, compared to the fiscal quarter ended March 30, 2024, partially offset by a lower effective interest rate.

Other (Income) Expense, Net

Other income, net was $ (0.7) million for the fiscal quarter ended September 28, 2024, compared to other expense, net of $1.0 million for fiscal quarter ended September 30, 2023.

The $1.7 million increase in other income, net was primarily driven by a favorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.

Other income, net was $0.3 million for the fiscal quarter ended March 29, 2025, compared to other expense, net of $1.6 million for fiscal quarter ended March 30, 2024.

The $1.9 million increase in other (income) expense, net was primarily driven by a favorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.

Earnings from Equity Method Investment

Earnings from our equity method investment in Premier Pools & Spa were $0.9 million for the fiscal quarter ended September 28, 2024, compared to $1.8 million for the fiscal quarter ended September 30, 2023, due to the financial performance of Premier Pools & Spa.

Earnings from our equity method investment in Premier Pools & Spa were $1.0 million for the fiscal quarter ended March 29, 2025, compared to $1.3 million for the fiscal quarter ended March 30, 2024 representing the financial performance of Premier Pools & Spa.

Income Tax (Benefit) Expense

Income tax benefit was less than $(0.1) million for the fiscal quarter ended September 28, 2024, compared to income tax expense of $6.7 million for the fiscal quarter ended September 30, 2023.

Our effective tax rate was (0.7)% for the fiscal quarter ended September 28, 2024, compared to 52.1% for the fiscal quarter ended September 30, 2023.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for both the fiscal quarters ended September 28, 2024 and September 30, 2023 was primarily attributable to the impacts of stock-based compensation expense and foreign income.

Net income was $5.9 million for the fiscal quarter ended September 28, 2024, compared to $6.2 million for the fiscal quarter ended September 30, 2023.

The $0.3 million, or 4.2%, decrease in net income was primarily because of the factors described above.

Net Income Margin

Net income margin was 3.9% for the fiscal quarter ended September 28, 2024, compared to 3.8% for the fiscal quarter ended September 30, 2023.

The 0.1% increase in net income margin was driven by the factors described above.

Adjusted EBITDA

Adjusted EBITDA was $29.8 million for the fiscal quarter ended September 28, 2024, compared to $36.1 million for the fiscal quarter ended September 30, 2023.

The $6.3 million, or 17.3%, decrease in Adjusted EBITDA was primarily because of the decrease in cost of sales and an increase in selling, general and administrative expenses, partially offset by the decrease in net sales, as well as the other factors described above.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 19.8% for the fiscal quarter ended September 28, 2024, compared to 22.4% for the fiscal quarter ended September 30, 2023.

The 2.6% decrease in Adjusted EBITDA margin was primarily because of a $6.3 million decrease in Adjusted EBITDA, compared to the fiscal quarter ended September 30, 2023, which were impacted by the factors described above.

Three Fiscal Quarters Ended September 28, 2024 Compared to Three Fiscal Quarters Ended September 30, 2023

The following table summarizes our results of operations for the three fiscal quarters ended September 28, 2024 and September 30, 2023:

Three Fiscal Quarters Ended

September 28, 2024

September 30, 2023

(dollars in thousands)

Cost of sales

Selling, general, and administrative expense

Income from operations

Other expense (income):

Interest expense, net

Other expense, net

Total other expense, net

Earnings from equity method investment

Income before income taxes

Income tax expense

Net income (loss)

Adjusted EBITDA (a)

(a) Adjusted EBITDA is a non-GAAP measure.

See “Non-GAAP Financial Measures” for a reconciliation to net income (loss), the most directly comparable GAAP measure, and for information regarding our use of Adjusted EBITDA.

Net sales were $421.2 million for the three fiscal quarters ended September 28, 2024, compared to $475.6 million for the three fiscal quarters ended September 30, 2023.

The $54.4 million, or 11.4%, decrease in net sales was because of a $51.7 million decrease in sales volume and a $2.7 million decrease from lower pricing.

The net sales decrease was primarily driven by continued macroeconomic weakness and consisted of a decrease of $36.5 million for in-ground swimming pools, $9.1 million for liners and $8.8 million for covers.

Cost of Sales and Gross Margin

Cost of sales was $288.9 million for the three fiscal quarters ended September 28, 2024, compared to $343.9 million for the three fiscal quarters ended September 30, 2023.

Gross margin increased by 3.7%, to 31.4% of net sales for the three fiscal quarters ended September 28, 2024, compared to 27.7% of net sales for the three fiscal quarters ended September 30, 2023.

The $55.0 million, or 16.0%, decrease in cost of sales was primarily the result of the decrease in sales volume, the impact of production efficiencies resulting from lean manufacturing and value engineering programs and lower material costs, partially offset by the acquisition of Coverstar Central.

The 3.7% increase in gross margin was primarily driven by the impact of previously announced restructuring programs, the impact of production efficiencies from lean manufacturing and value engineering programs, cost control, material deflation in line with expectations and supplier optimization.

Deflation and supplier optimization partially offset the price decrease mentioned above.

Selling, General, and Administrative Expense

Selling, general, and administrative expense was $81.2 million for the three fiscal quarters ended September 28, 2024, compared to $86.7 million for the three fiscal quarters ended September 30, 2023.

The $5.5 million, or 6.4%, decrease in selling, general, and

administrative expense was primarily driven by a $9.8 million decrease in non-cash stock-based compensation expense, as well as our cost containment initiatives and restructuring programs, partially offset by an increase in performance-based compensation and increased spending on sales and marketing to further strengthen our position ahead of a market turnaround.

Amortization was $19.8 million for the three fiscal quarters ended September 28, 2024, compared to $19.9 million for the three fiscal quarters ended September 30, 2023.

The $0.1 million, or 0.4%, decrease in amortization was driven by certain definite-lived intangible assets becoming fully amortized during the fiscal year ended December 31, 2023 partially offset by the acquisition of Coverstar Central.

Interest Expense, net

Interest expense, net was $20.2 million for the three fiscal quarters ended September 28, 2024, compared to $21.3 million for the three fiscal quarters ended September 30, 2023.

The $1.1 million, or 5.3%, decrease in interest expense, net was primarily the result of the change in the fair value of our interest rate swap, compared to the three fiscal quarters ended September 30, 2023.

Other Expense, Net

Other expense, net was $1.7 million for the three fiscal quarters ended September 28, 2024, compared to $0.2 million for the three fiscal quarters ended September 30, 2023.

The $1.5 million increase in other expense, net was primarily driven by an unfavorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.

Earnings from Equity Method Investment

Earnings from our equity method investment in Premier Pools & Spa were $2.8 million for the three fiscal quarters ended September 28, 2024, compared to $2.5 million for the three fiscal quarters ended September 30, 2023, due to the financial performance of Premier Pools & Spa.

Income Tax Expense

Income tax expense was $0.9 million for the three fiscal quarters ended September 28, 2024, compared to income tax expense of $8.6 million for the three fiscal quarters ended September 30, 2023.

Our effective tax rate was 7.6% for the three fiscal quarters ended September 28, 2024, compared to 140.7% for the three fiscal quarters ended September 30, 2023.

Income tax benefit was $4.1 million for the fiscal quarter ended March 29, 2025, compared to income tax expense of $0.5 million for the fiscal quarter ended March 30, 2024.

Our effective tax rate was 40.6% for the fiscal quarter ended March 29, 2025, compared to (7.2)% for the fiscal quarter ended March 30, 2024.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for both the three fiscal quarters ended September 28, 2024 and September 30, 2023 was primarily attributable to the impacts of stock-based compensation expense and foreign income.

Net Income (Loss)

Net income was $11.3 million for the three fiscal quarters ended September 28, 2024, compared to $2.5 million of net loss for the three fiscal quarters ended September 30, 2023.

The $13.8 million, or 552.4%, increase in net income was primarily because of the factors described above.

Net Income (Loss) Margin

Net income margin was 2.7% for the three fiscal quarters ended September 28, 2024, compared to net loss margin of 0.5% for the three fiscal quarters ended September 30, 2023.

The 3.2% increase in net income margin was driven by a $13.8 million increase in net income, compared to the three fiscal quarters ended September 30, 2023 because of the factors described above.

federal statutory income tax rate and our effective income tax rate for both the fiscal quarters ended March 29, 2025 and March 30, 2024 was primarily attributable to the discrete impact of stock compensation expense for which there is no associated tax benefit and the effects of branch accounting for Latham Canada.

Net loss was $6.0 million for the fiscal quarter ended March 29, 2025, compared to $7.9 million for the fiscal quarter ended March 30, 2024.

The $1.9 million, or 24.2%, decrease in net loss was primarily because of the factors described above.

Net Loss Margin

Net loss margin was 5.4% for the fiscal quarter ended March 29, 2025, compared to 7.1% for the fiscal quarter ended March 30, 2024.

The 1.7% decrease in net loss margin was driven by a $1.9 million decrease in net loss, compared to the fiscal quarter ended March 30, 2024 because of the factors described above.

Adjusted EBITDA

Adjusted EBITDA was $76.6 million for the three fiscal quarters ended September 28, 2024, compared to $78.1 million for the three fiscal quarters ended September 30, 2023.

The $1.5 million, or 1.9%, decrease in Adjusted EBITDA was primarily because of the decrease in net sales, partially offset by the decrease in cost resulting from lean manufacturing and value engineering programs, as well as the other factors described above.

Adjusted EBITDA was $11.1 million for the fiscal quarter ended March 29, 2025, compared to $12.3 million for the fiscal quarter ended March 30, 2024.

The $1.2 million, or 9.4%, decrease in Adjusted EBITDA was primarily because of increased investment in sales and marketing programs, partially offset by the benefits from lean manufacturing and value engineering initiatives, as well as the other factors described above.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 18.2% for the three fiscal quarters ended September 28, 2024, compared to 16.4% for the three fiscal quarters ended September 30, 2023.

The 1.8% increase in Adjusted EBITDA margin was primarily because of a decrease in cost of sales and selling, general and administrative expenses, compared to the three fiscal quarters ended September 30, 2023, which was impacted by the other factors described above.

Adjusted EBITDA margin was 10.0% for the fiscal quarter ended March 29, 2025, compared to 11.1% for the fiscal quarter ended March 30, 2024.

The 1.1% decrease in Adjusted EBITDA margin was primarily because of a $1.2 million increase in Adjusted EBITDA and a $0.8 million increase in net sales, compared to the fiscal quarter ended March 30, 2024, which were impacted by the factors described above.

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management and our Board of Directors to assess our financial performance.

Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management and our Board to assess our financial performance.

We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures because we believe they allow for a more complete analysis of results of operations and assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax (benefit) expense, (iv) loss (gain) on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized losses (gains) on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs, (x) the Odessa fire and other such unusual events and (xi) other.

We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to utilize as a significant performance metric in our annual management incentive bonus plan compensation, and to compare our performance against that of other companies using similar measures.

We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures because we believe they allow for a more complete analysis of results of operations and assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax (benefit) expense, (iv) (gain) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs and (x) other.

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Management compensates for these limitations by primarily relying on our GAAP results, while using Adjusted EBITDA and Adjusted EBITDA margin as supplements to the corresponding GAAP financial measures.

The following table provides a reconciliation of our net income (loss) to Adjusted EBITDA for the periods presented and the calculation of Adjusted EBITDA margin:

The following table provides a reconciliation of our net loss to Adjusted EBITDA for the periods presented and the calculation of Adjusted EBITDA margin:

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 28, 2024

September 30, 2023

September 28, 2024

September 30, 2023

(dollars in thousands)

Net income (loss)

March 29, 2025

March 30, 2024

Depreciation and amortization

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Income tax (benefit) expense

Loss on sale and disposal of property and equipment

(Gain) loss on sale and disposal of property and equipment

Restructuring charges (a)

3 unchanged sentences

Acquisition and integration related costs (e)

Odessa fire (f)

Adjusted EBITDA

Net income (loss) margin

Net loss margin

Adjusted EBITDA margin

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(e) Represents acquisition and integration costs as well as other costs related to potential transactions.

(f) Represents costs incurred and insurance recoveries related to a production facility fire in Odessa, Texas.

(g) Other costs consist of other discrete items as determined by management, primarily including (i) fees paid to external advisors for various matters and (ii) other items.

(f) Other costs consist of other discrete items as determined by management, primarily including:

(i) fees paid to external advisors for various matters and (ii) other items.

Liquidity and Capital Resources

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Our primary cash needs are to fund working capital, capital expenditures, debt service requirements, any acquisitions or investments we may undertake, and any share repurchases we may make.

As of September 28, 2024, we had $59.9 million of cash, $282.8 million of outstanding indebtedness and an additional $75.0 million of borrowing availability under our Revolving Credit Facility.

On August 2, 2024, we completed the Coverstar Central Acquisition.

The cash purchase price was $64.0 million, net of cash acquired.

The Coverstar Central Acquisition was fully funded with cash on hand.

While our existing cash balances and net cash provided by operating activities have generally been sufficient to fund our general corporate and working capital needs, our use of significant existing cash on hand to fund the Coverstar Central Acquisition may require us in the future to utilize a portion of our borrowing availability under our Revolving Credit Facility.

As of March 29, 2025, we had $24.0 million of cash, $306.9 million of outstanding indebtedness and an additional $50.0 million of borrowing availability under our Revolving Credit Facility.

Our primary working capital requirements are for the purchase of inventory, payroll, rent, facility costs and other selling, general, and administrative costs.

Our working capital requirements fluctuate during the fiscal year, driven primarily by seasonality and the timing of raw material purchases.

Our capital expenditures are primarily related to investments in lean manufacturing and value engineering, including production capacity, storage, and delivery equipment.

Our capital expenditures are primarily related to investments in lean manufacturing and value engineering, including production capacity, diversifying our product offerings, storage, and delivery equipment.

We are in the midst of a multi-year capital plan to invest in our facilities, technology, and systems.

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On February 23, 2022, Latham Pool Products, Inc.

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

(“Latham Pool Products”), our wholly owned subsidiary, and certain subsidiary guarantors entered into a credit and guaranty agreement (the “Credit Agreement”) with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit in an initial principal amount of $75.0 million (the “Revolving Credit Facility”) and a U.S.

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

On such date, proceeds under the Credit Agreement were used to repay and replace $294.0 million under, and terminate, the previous credit agreement and for general corporate purposes.

As of September 28, 2024, we were in compliance with all covenants under the Revolving Credit Facility and the Term Loan.

The obligations under the Credit Agreement are guaranteed by certain of our wholly owned subsidiaries 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, but not limited to, their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts.

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

There are also negative covenants, including certain restrictions on our ability and the ability of our subsidiaries 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 March 29, 2025, we were in compliance with all covenants under the Credit Agreement.

Revolving Credit Facility

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

The commitment fee is due and payable quarterly in arrears, and initially was 0.375% per annum and thereafter accrues at a rate per annum ranging from 0.25% to 0.50%, depending on the First Lien Net Leverage Ratio (as defined in the Credit Agreement).

The Revolving Credit Facility is not subject to amortization.

We are also required to meet certain financial covenants, including maintaining specific liquidity measurements.

There are also negative covenants, including certain restrictions on our ability and the ability of our subsidiaries 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 28, 2024, we had no outstanding borrowings under the Revolving Credit Facility and $75.0 million was available for future borrowing.

Agreement, the “First Lien Net Leverage Ratio”).

Borrowings under the Revolving Credit Facility are not subject to amortization and are due at maturity.

As of March 29, 2025, we had $25.0 million in outstanding borrowings under the Revolving Credit Facility and $50.0 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 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 (each, 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 equal to 0.25% of the initial principal amount of the Term Loan.

The obligations under the Credit Agreement are guaranteed by certain of our wholly owned subsidiaries that are party to that certain security agreement, which was executed in connection with the Credit Agreement.

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

As of September 28, 2024, we had $282.8 million of outstanding borrowings under the Term Loan.

As of March 29, 2025, we had $281.9 million of outstanding borrowings under the Term Loan.

Share Repurchase Program

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

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

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

We are not obligated to repurchase any of our outstanding shares under the Repurchase Program and the timing and amount of any repurchases will depend on market conditions, our stock price, alternative uses of capital, the terms of our debt instruments and other factors.

We did not repurchase any shares of our common stock during the fiscal quarter ended September 28, 2024.

As of September 28, 2024, $77.0 million remained available for share repurchases pursuant to our Repurchase Program.

We did not repurchase any shares of our common stock during the fiscal quarter ended March 29, 2025.

As of March 29, 2025, $77.0 million remained available for share repurchases pursuant to our Repurchase Program.

The following table summarizes our sources and uses of cash for each of the periods presented:

Three Fiscal Quarters Ended

September 28, 2024

September 30, 2023

Fiscal Quarter Ended

March 29, 2025

March 30, 2024

(in thousands)

Net cash provided by operating activities

Net cash used in operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Net (decrease) increase in cash

Net decrease in cash

Operating Activities

During the three fiscal quarters ended September 28, 2024, operating activities provided $55.2 million of cash.

Net income, after adjustments for non-cash items, provided cash of $60.3 million.

Cash provided by operating activities was further driven by changes in our operating assets and liabilities, which used $5.2 million.

Net cash used by changes in our operating assets and liabilities for the

three fiscal quarters ended September 28, 2024 consisted primarily of a $35.6 million increase in trade receivables, a $6.6 million increase in income tax receivable, a $2.3 million increase in prepaid expenses and other current assets and a $0.6 million increase in other long-term liabilities, partially offset by a $25.5 million decrease in inventories, a $10.4 million increase in accounts payable, a $3.4 million increase in accrued expenses and other current liabilities, and a $0.6 million decrease in other assets.

The change in trade receivables was primarily driven by the timing of net sales, the change in inventories was driven by efforts to meet a reduced demand outlook while maintaining lead times and service levels and the changes in accounts payable were primarily driven by volume of purchases and timing of payments.

During the three fiscal quarters ended September 30, 2023, operating activities provided $88.1 million of cash.

During the fiscal quarter ended March 29, 2025, operating activities used $46.9 million of cash.

Net loss, after adjustments for non-cash items, provided cash of $10.3 million.

Cash provided by operating activities was further driven by changes in our operating assets and liabilities, which provided $32.1 million.

Net cash provided by changes in our operating assets and liabilities for the three fiscal quarters ended September 30, 2023 consisted primarily of a $61.7 million decrease in inventories, a $3.0 million increase in other long-term liabilities and a $2.1 million increase in accounts payable partially offset by a $28.7 million increase in trade receivables, a $4.3 million increase in other assets, a $1.5 million increase in income tax receivable, a $0.3 million increase in prepaid expenses and other current assets and a $0.2 million decrease in accrued expenses and other current liabilities.

The change in trade receivables was primarily driven by the timing of net sales, and the decrease in inventories was primarily driven by efforts to meet demand outlook while maintaining lead times and service levels.

Cash used in operating activities was driven by changes in our operating assets and liabilities of $57.2 million.

Net cash used by changes in our operating assets and liabilities for the fiscal quarter ended March 29, 2025 consisted primarily of a $52.6 million increase in trade receivables, a $9.6 million increase in inventories, a $4.9 million decrease in accrued expenses and other current liabilities, a $4.6 million increase in income tax receivable, a $0.1 million decrease in other long-term liabilities and a less than $0.1 million increase in other assets, partially offset by a $14.3 million increase in accounts payable and a $0.2 million decrease in prepaid expenses and other current assets.

The change in trade receivables was primarily driven by the timing of net sales.

The change in inventory was driven by pre-purchasing due to the global trade environment.

The changes in accrued expenses and other current liabilities and accounts payable were primarily driven by volume of purchases and timing of payments.

During the fiscal quarter ended March 30, 2024, operating activities used $34.5 million of cash.

Net loss, after adjustments for non-cash items, provided cash of $6.8 million.

Cash used in operating activities was driven by changes in our operating assets and liabilities of $41.3 million.

Net cash used by changes in our operating assets and liabilities for the fiscal quarter ended March 30, 2024 consisted primarily of a $44.9 million increase in trade receivables, a $6.0 million decrease in accrued expenses and other current liabilities, a $0.4 million increase in income tax receivable, a $0.2 million decrease in other long-term liabilities and a $0.1 million

increase in other assets, partially offset by a $8.2 million increase in accounts payable, a $1.6 million decrease in inventories and a $0.5 million decrease in prepaid expenses and other current assets.

The change in trade receivables was primarily driven by the timing of net sales.

The changes in accrued expenses and other current liabilities and accounts payable were primarily driven by volume of purchases and timing of payments.

Investing Activities

During the three fiscal quarters ended September 28, 2024, investing activities used $77.9 million of cash, consisting of our acquisition of Coverstar Central for cash consideration of $64.0 million, net of cash acquired, and purchases of property and equipment for $13.9 million.

The purchase of property and equipment was primarily to expand capacity for production and diversify offerings, especially for fiberglass pools, the majority of which relates to finishing up carryover projects from the prior fiscal year.

During the three fiscal quarters ended September 30, 2023, investing activities used $28.3 million of cash, consisting of purchases of property and equipment for $28.3 million.

The purchase of property and equipment was primarily to expand capacity for production, especially for fiberglass pools.

During the fiscal quarter ended March 29, 2025, investing activities used $8.4 million of cash, consisting of the acquisition of two of our autocover dealers of $4.9 million and purchases of property and equipment for $3.5 million.

During the fiscal quarter ended March 30, 2024, investing activities used $5.3 million of cash, consisting of purchases of property and equipment for $5.3 million.

Financing Activities

During the three fiscal quarters ended September 28, 2024, financing activities used $20.2 million of cash, primarily consisting of repayments on long-term debt borrowings of $19.6 million and repayments of finance lease obligations of $0.6 million.

During the three fiscal quarters ended September 30, 2023, financing activities used $12.9 million of cash, primarily consisting of repayments on revolving credit facilities of $48.0 million, repayments on long-term debt borrowings of $12.4 million, and repayments of finance lease obligations of $0.4 million, partially offset by borrowings on revolving credit facilities of $48.0 million.

During the fiscal quarter ended March 29, 2025, financing activities provided $22.5 million of cash, primarily consisting of long-term debt borrowings of $25.0 million partially offset by common stock withheld for taxes on restricted stock units of $2.3 million and repayments of finance lease obligations of $0.2 million.

During the fiscal quarter ended March 30, 2024, financing activities used $19.0 million of cash, primarily consisting of repayments on long-term debt borrowings of $18.8 million and repayments of finance lease obligations of $0.2 million

Contractual Obligations

There have been no material changes, outside of the ordinary course of business, to our contractual obligations during the three fiscal quarters ended September 28, 2024 from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our Annual Report.

There have been no material changes, outside of the ordinary course of business, to our contractual obligations during the fiscal quarter ended March 29, 2025 from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our Annual Report.

Critical Accounting Policies and Estimates

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Throughout the preparation of these financial statements, we have made estimates and assumptions that impact the reported amounts of assets, liabilities, and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period.

Our critical accounting policies and estimates are described below and under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report and Note 2 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Our critical accounting policies and estimates are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report and Note 2 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

These estimates are based on historical results, trends, and other assumptions we believe to be reasonable.

1 unchanged sentence

Actual results may differ from estimates.

Impairment of Goodwill

We evaluate goodwill for impairment at least annually, or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable.

We have selected the first day of the fourth fiscal quarter to perform our annual goodwill impairment testing.

We may assess our goodwill for impairment initially using a qualitative approach, or step zero, to determine whether conditions exist to indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value.

The qualitative assessment requires significant judgments by management about economic conditions including the entity’s operating environment, its industry and other market considerations, entity-specific events related to financial performance or loss of key personnel, and other events that could impact the reporting unit.

If management concludes, based on assessment of relevant events, facts, and circumstances, that it is more likely than not that the reporting unit’s fair value is greater than its carrying value, no further impairment testing is required.

If our assessment of qualitative factors indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying value, then a quantitative assessment is performed.

We may also elect to initially perform a quantitative analysis instead of starting with step zero.

The quantitative analysis requires comparing the carrying value of the reporting unit, including goodwill, to its fair value.

If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and no further testing is required.

If the carrying amount of the reporting unit exceeds its fair value, there is an impairment of goodwill and an impairment loss is recorded.

We calculate the impairment loss by comparing the fair value of the reporting unit less the carrying value, including goodwill.

The maximum goodwill impairment is the carrying value of the goodwill.

The qualitative factors we assessed as part of our annual impairment testing included economic conditions, industry and market considerations, cost factors, overall financial performance, and other entity specific events.

In addition, we considered our market capitalization based on quoted market prices of our securities on the Nasdaq Global Select Market, adjusted for the effect of a control premium as contemplated by ASC 350.

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

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

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows, and notes to such financial statements, is disclosed in Note 2 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

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 2. Management’s Discussion and Analysis