Latham Group, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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, changes in U.S. 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. These statements involve known and unknown risks, uncertainties, assumptions and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those set forth under “Risk Factors,” “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in the Annual Report and as described in other subsequent reports we file or furnish with the SEC, including elsewhere in this Quarterly Report on Form 10-Q. For similar reasons, our past results may not be a reliable indicator of future performance and trends. We encourage you to read this report and our other filings with the SEC carefully. You also should be aware that these risk factors and other information do not describe every risk that we face. New emerging risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations and cash flows. We operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. Although we believe that the expectations reflected in the forward-looking statements are reasonable and our expectations based on third-party information and projections are from sources that management believes to be reputable, we cannot guarantee future results, levels of activities, performance, or achievements. These forward-looking statements reflect our views with respect to future events as of the date of this Quarterly Report on Form 10-Q or the date specified herein, and we have based these forward-looking statements on our current expectations and projections about future events and trends. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. Our forward-looking statements further do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures, or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements. 24 Table of Contents Overview We are the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand. We hold the leading position in North America in every product category in which we compete. It is our view that we are the most sought-after brand in the pool industry and the only pool company that has established a direct relationship with the homeowner. 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 covers, and pool liners. We have a heritage of innovation. In an industry that has traditionally marketed on a business-to-business basis (pool manufacturer to dealer), we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey. Through this marketing strategy, we are able to create demand for our pools and to provide high quality, purchase-ready consumer leads to our dealer partners. 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 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 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 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. ​ ​ 25 Table of Contents Business Update ​ 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 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 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. First, the vertical integration of our automatic safety cover product line in the acquired geographies is expected to increase margins. Second, as one company with a fully integrated sales and marketing strategy, we expect to accelerate the sales growth of this product line. 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. 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 Net Sales 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, 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). We also sell all-season covers, which are winterizing mesh or solid pool covers that protect pools against debris and cold or inclement weather, and automatic safety covers for pools that can be operated with a switch. Our sales are made through one-step and two-step business-to-business distribution channels. In our one-step distribution channel, we sell our products directly to dealers who, in turn, sell our products to consumers. In our two-step distribution channel, we sell our products to distributors who warehouse our products and sell them on to dealers, who ultimately sell our products to consumers. Each product shipped is considered to be one performance obligation. With the exception of our extended service warranties and our custom product contracts, we recognize our revenue when control of our promised goods is transferred to our customers (dealer in one-step distribution channel or distributor in two-step distribution channel), either upon shipment or arrival at our customer’s destination depending upon the terms of the purchase order. Sales are recognized net of any estimated rebates, returns, allowances, cash discounts, or other sales incentives. 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. 26 Table of Contents Gross Margin Gross margin is gross profit as a percentage of our net sales. Gross margin depends upon several factors, such as the prices we charge buyers, changes in prices of raw materials, the volume and relative sales mix among product lines, and plant performance, among other factors. Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary. 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. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies. Adjusted EBITDA and Adjusted EBITDA Margin 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 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. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. There can be no assurance that we will not modify the presentation of Adjusted EBITDA and Adjusted EBITDA margin in the future, and any such modification may be material. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by any such adjustments. 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. ​ 27 Table of Contents Results of Operations 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 ​ ​ ​ ​ % of Net ​ ​ ​ % of Net ​ Change ​ Change in % ​ March 29, 2025 Sales March 30, 2024 Sales Amount of Net Sales ​ ​ (dollars in thousands) Net sales ​ $ 111,420 ​ 100.0 % $ 110,629 ​ 100.0 % $ 791 ​ 0.0 % Cost of sales ​ 78,539 70.5 % 80,040 72.3 % (1,501) (1.8) % Gross profit ​ 32,881 29.5 % 30,589 27.7 % 2,292 1.8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general, and administrative expense ​ 30,620 27.4 % 26,250 23.8 % 4,370 3.6 % Amortization ​ 7,192 6.5 % 6,412 5.8 % 780 0.7 % Loss from operations ​ (4,931) (4.4) % (2,073) (1.9) % (2,858) (2.5) % Other expense (income): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense, net ​ 6,371 5.7 % 4,982 4.5 % 1,389 1.2 % Other (income) expense, net ​ (308) (0.3) % 1,586 1.4 % (1,894) (1.7) % Total other expense, net ​ 6,063 5.4 % 6,568 5.9 % (505) (0.5) % Earnings from equity method investment ​ 953 0.8 % 1,309 1.2 % (356) (0.4) % Loss before income taxes ​ (10,041) (9.0) % (7,332) (6.6) % (2,709) (2.4) % Income tax (benefit) expense ​ (4,079) (3.6) % 532 0.5 % (4,611) (4.1) % Net loss ​ $ (5,962) (5.4) % $ (7,864) (7.1) % $ 1,902 1.7 % Adjusted EBITDA (a) ​ $ 11,139 10.0 % $ 12,292 11.1 % $ (1,153) (1.1) % (a) Adjusted EBITDA is a non-GAAP measure. 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 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 $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 $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. ​ ​ 28 Table of Contents Amortization 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 $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 $0.3 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 $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 $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 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 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 $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 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. 29 Table of Contents 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 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 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. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. There can be no assurance that we will not modify the presentation of Adjusted EBITDA and Adjusted EBITDA margin in the future, and any such modification may be material. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by any such adjustments. 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. Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA and Adjusted EBITDA margin: ● do not reflect every expenditure, future requirements for capital expenditures or contractual commitments; ● do not reflect changes in our working capital needs; ● do not reflect the interest expense, or the amounts necessary to service interest or principal payments, on our outstanding debt; ● do not reflect income tax (benefit) expense, and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate; ● do not reflect non-cash stock-based compensation, which will remain a key element of our overall compensation package; and ● do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations. Although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA and Adjusted EBITDA margin, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA margin do not reflect any costs of such replacements. 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. 30 Table of Contents 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 ​ ​ March 29, 2025 March 30, 2024 ​ ​ ​ ​ ​ ​ ​ ​ Net loss $ (5,962) ​ $ (7,864) ​ Depreciation and amortization ​ 12,400 ​ ​ 10,375 ​ Interest expense, net ​ 6,371 ​ ​ 4,982 ​ Income tax (benefit) expense ​ (4,079) ​ ​ 532 ​ (Gain) loss on sale and disposal of property and equipment ​ (69) ​ ​ 12 ​ Restructuring charges (a) ​ 15 ​ ​ 318 ​ Stock-based compensation expense (b) ​ 1,971 ​ ​ 1,243 ​ Unrealized (gains) losses on foreign currency transactions (c) ​ (417) ​ ​ 1,584 ​ Strategic initiative costs (d) ​ 644 ​ ​ 1,123 ​ Acquisition and integration related costs (e) ​ 267 ​ ​ — ​ Other (f) ​ (2) ​ ​ (12) ​ Adjusted EBITDA $ 11,139 ​ $ 12,293 ​ Net sales $ 111,420 ​ $ 110,629 ​ Net loss margin (5.4) % (7.1) % Adjusted EBITDA margin 10.0 % 11.1 % (a) Represents costs related to a cost reduction plan that includes severance and other costs for our executive management changes and additional costs related to our cost reduction plans, which include further actions to reduce our manufacturing overhead by reducing headcount in addition to facility shutdowns. (b) Represents non-cash stock-based compensation expense. (c) Represents unrealized foreign currency transaction losses associated with our international subsidiaries. (d) Represents fees paid to external consultants and other expenses for our strategic initiatives. (e) Represents acquisition and integration costs as well as other costs related to potential transactions. (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. ​ 31 Table of Contents Liquidity and Capital Resources Overview Our primary sources of liquidity are net cash provided by operating activities and availability under our Revolving Credit Facility (as defined below). Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, and debt service requirements with internally generated cash on hand, borrowings under our credit facilities, and the issuance of shares of our common stock. 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 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, 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. We believe that our existing cash, cash generated from operations and availability under our Revolving Credit Facility will be adequate to fund our operating expenses and capital expenditure requirements over the next 12 months, as well as our longer-term liquidity needs. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We may issue debt or equity securities, which may provide an additional source of liquidity. However, there can be no assurance equity or debt financing will be available to us when we need it or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders. Our Indebtedness On February 23, 2022, Latham Pool Products, Inc. (“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. 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 The Revolving Credit Facility may be utilized to finance ongoing general corporate and working capital needs and permits Latham Pool Products to borrow loans in U.S. Dollars, Canadian Dollars, Euros and Australian Dollars. The Revolving Credit Facility matures on February 23, 2027. Loans outstanding under the Revolving Credit Facility denominated in U.S. Dollars and Canadian Dollars bear interest, at the borrower’s option, at a rate per annum based on Term SOFR or CDO (each, as defined in the Credit Agreement), as applicable, plus a margin of 3.50%, or at a rate per annum based on the Base Rate or the Canadian Prime Rate (each, as defined in the Credit Agreement), plus a margin of 2.50%. Loans outstanding under the Revolving Credit Facility denominated in Euros or Australian Dollars bear interest based on EURIBOR or the AUD Rate (each, as defined in the Credit Agreement), respectively, plus a margin of 3.50%. A commitment fee accrues on any unused portion of the commitments under the Revolving Credit Facility. The commitment fee is due and payable quarterly in arrears, and 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 32 Table of Contents 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. Term Loan 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 (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. 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 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 March 29, 2025. As of March 29, 2025, $77.0 million remained available for share repurchases pursuant to our Repurchase Program. Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal Quarter Ended ​ ​ March 29, 2025 March 30, 2024 ​ ​ (in thousands) ​ Net cash used in operating activities $ (46,882) ​ $ (34,512) ​ Net cash used in investing activities (8,386) ​ (5,345) ​ Net cash provided by (used in) financing activities 22,493 ​ (19,002) ​ Effect of exchange rate changes on cash 343 ​ (93) ​ Net decrease in cash $ (32,432) ​ $ (58,952) ​ ​ Operating Activities 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 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 33 Table of Contents 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 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. 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 year. 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. 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 year. Financing Activities 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 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 Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. 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 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. We evaluate these estimates on an ongoing basis. Actual results may differ from estimates. 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, 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.