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Item 2. Management’s Discussion and Analysis

2026-05-06 compared with 2025-11-05 · 142 added, 200 removed, 148 unchanged (70% of the section changed)

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

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.

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, acquisitions and related 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.

These statements involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside our control, which 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 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 or trends.

We encourage you to read this report and our other filings with the SEC carefully.

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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.

We operate in a very competitive and rapidly changing environment, and new risks emerge from time to time that may impair our business, financial condition, results of operations and cash flows.

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.

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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.

Our forward-looking statements further do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may undertake.

We qualify all of our forward-looking statements by these cautionary statements.

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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.

It is our view that we are the most sought-after brand in the pool industry.

We are Latham, The Pool Company TM .

With an operating history that spans over 70 years, we offer the industry’s broadest portfolio of pools and related products, including in-ground swimming pools, pool covers, and pool liners.

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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 provide high quality, purchase-ready consumer leads to our dealer partners.

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 15 years.

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

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

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 1,850 employees across about 30 locations.

Our operations consist of approximately 1,900 employees on average across approximately 35 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.

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

Recent Developments

Highlights for the fiscal quarter ended September 27, 2025

● Increase in net sales of 7.6%, or $11.4 million, to $161.9 million for the fiscal quarter ended September 27, 2025, compared to $150.5 million for the fiscal quarter ended September 28, 2024.

● Increase in net income of $2.2 million to a net income of $8.1 million and representing a 5.0% net income margin for the fiscal quarter ended September 27, 2025, compared to net income of $5.9 million and representing a 3.9% net income margin for the fiscal quarter ended September 28, 2024.

● Increase in Adjusted EBITDA (as defined below) of $8.5 million to $38.3 million for the fiscal quarter ended September 27, 2025, compared to $29.8 million for the fiscal quarter ended September 28, 2024.

Highlights for the fiscal quarter ended March 28, 2026

• Increase in net sales of 5.3%, or $5.9 million, to $117.3 million for the fiscal quarter ended March 28, 2026, compared to $111.4 million for the fiscal quarter ended March 29, 2025.

• Increase in net loss of $2.6 million to $8.5 million and representing a 7.3% net loss margin for the fiscal quarter ended March 28, 2026, compared to $6.0 million and representing a 5.4% net loss margin for the fiscal quarter ended March 29, 2025.

• Increase in Adjusted EBITDA (as defined below) of $1.0 million to $12.2 million for the fiscal quarter ended March 28, 2026, compared to $11.1 million for the fiscal quarter ended March 29, 2025.

Adjusted EBITDA margin increased from 10.0% to 10.4%.

Highlights for the three fiscal quarters ended September 27, 2025

● Increase in net sales of 5.9%, or $24.8 million, to $446.0 million for the three fiscal quarters ended September 27, 2025, compared to $421.2 million for the three fiscal quarters ended September 28, 2024.

● Increase in net income of $6.8 million to a net income of $18.1 million and representing a 4.1% net income margin for the three fiscal quarters ended September 27, 2025, compared to net income of $11.3 million and representing a 2.7% net income margin for the three fiscal quarters ended September 28, 2024.

● Increase in Adjusted EBITDA of $12.8 million to $89.4 million for the three fiscal quarters ended September 27, 2025, compared to $76.6 million for the three fiscal quarters ended September 28, 2024.

Adjusted EBITDA margin improved from 18.2% to 20.0%.

Business Update

Our current business results reflect a strong third quarter sales growth despite challenging market conditions and our results of operations for the three fiscal quarters ended September 27, 2025 were aligned with our expectations.

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

Liners also saw growth, reflecting success in our Measure by Latham tool.

Based on sales for three fiscal quarters and current business trends and market conditions, we currently project 2025 new pool starts to be flat to slightly down from 2024 levels.

We are closely monitoring the potential impact of current macroeconomic and geopolitical conditions, as well as general reduced consumer confidence and increased economic uncertainty.

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.

Due to greater-than-expected efficiency of certain projects, we have reduced our capital expenditure estimate for 2025.

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.

We continue to execute effectively on our strategic priorities and achieved sales growth in each of our product lines in the first quarter.

Sales growth was led by gains in autocovers and liners and the benefits of the Freedom Pools acquisition while adverse weather conditions in North America kept organic in-ground pool sales steady year-over-year.

Adjusted EBITDA growth outpaced sales growth by a considerable margin, demonstrating our substantial operating leverage and cost discipline, which more than offset the impact of higher investments in growth initiatives.

We continued to gain traction in Florida, our initial Sand State target market, where our fiberglass pool sales increased at a double-digit rate in the first quarter.

This growth reflected the new dealer sign-ups we executed in 2025 and increased brand and product awareness driven by our advertising and marketing campaign.

To accelerate our growth in Florida and the other Sand State markets, we are moving forward with several new initiatives to capture consumer demand and provide additional value to our dealers.

These initiatives include the build out of our commercial organization, a new market development framework around segmentation by neighborhood, and the addition of sales resources in the field to keep Latham engaged with the consumer throughout the pool purchasing process while linking customers to our dealer network.

These initiatives will be supported by a targeted marketing campaign aimed at educating consumers on the benefits of fiberglass and pool ownership.

Leadership Transition

Effective January 5, 2026, Sean Gadd was appointed as our President and Chief Executive Officer and as a member of the Board.

Scott Rajeski retired from such positions effective as of January 4, 2026 and will serve as a Special Adviser for a six-month period.

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 represented a valuable strategic opportunity that we benefited from in multiple ways.

First, the vertical integration of our automatic safety cover product line in the acquired geographies increased margins.

Second, as one company with a fully integrated sales and marketing strategy, we were able to accelerate the sales growth of this product line.

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

During the three fiscal quarters ended September 27, 2025, we further strengthened our position in this growing category by acquiring two of our smaller autocover dealers located in Tennessee and New York.

On February 26, 2026, we completed the acquisition of Freedom Pools, a fiberglass pool manufacturer and installer operating in Australia and New Zealand.

The acquisition is

expected to be immediately accretive to our earnings, adding approximately $20.0 million in net sales and approximately $4.0 million in adjusted EBITDA, on an annualized basis, before acquisition synergies.

The GAAP purchase price was $15.4 million, and included a holdback of $1.6 million that has been accrued on our condensed consolidated balance sheet.

The transaction was fully funded with cash on hand.

Purchase of Property

We purchased four fiberglass production facilities that had previously been leased during the quarter ended March 28, 2026.

The transaction was completed on February 6, 2026 for a total purchase price of $17.6 million.

The purchase price included a $12 million deposit made in the fourth quarter of 2025, and $5.6 million paid at closing.

This purchase was the primary reason for the increase of property and equipment, net on the condensed consolidated balance sheet.

Key Performance Indicators

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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.

We also sell all-season pool 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.

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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.

Sales are recognized net of any estimated rebates, returns, allowances, 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.

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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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 expense (benefit), (iv) (gain) loss 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 and (x) other.

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 expense (benefit), (iv) (gain) loss 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 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.

We encourage evaluation of these adjustments and the reasons we consider them appropriate for supplemental analysis.

In evaluating Adjusted EBITDA and Adjusted EBITDA margin, be mindful 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.

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Results of Operations

Fiscal Quarter Ended September 27, 2025 Compared to Fiscal Quarter Ended September 28, 2024

The following table summarizes our results of operations for the fiscal quarter ended September 27, 2025 and September 28, 2024 (dollars in thousands):

Fiscal Quarter Ended March 28, 2026 Compared to Fiscal Quarter Ended March 29, 2025

The following table summarizes our results of operations for the fiscal quarter ended March 28, 2026 and March 29, 2025 (dollars in thousands):

Fiscal Quarter Ended

September 27, 2025

September 28, 2024

(dollars in thousands)

% of % of Change

March 28, Net March 29, Net Change % of

2026 Sales 2025 Sales Amount Net Sales

Net sales $ 117,315 100.0 % $ 111,420 100.0 % $ 5,895 — %

Cost of sales 80,158 68.3 % 78,539 70.5 % 1,619 (2.2) %

Gross profit 37,157 31.7 % 32,881 29.5 % 4,276 2.2 %

Selling, general, and administrative expense 36,589 31.2 % 30,620 27.4 % 5,969 3.8 %

Income from operations

Amortization 7,169 6.1 % 7,192 6.5 % (23) (0.4) %

Loss from operations (6,601) (5.6) % (4,931) (4.4) % (1,670) (1.2) %

Other expense (income):

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Earnings from equity method investment 835 0.7 % 953 0.8 % (118) (0.1) %

Income before income taxes

Income tax expense (benefit)

Loss before income taxes (11,340) (9.7) % (10,041) (9.0) % (1,299) (0.7) %

Income tax benefit (2,806) (2.4) % (4,079) (3.6) % 1,273 1.2 %

Net loss $ (8,534) (7.3) % $ (5,962) (5.4) % $ (2,572) (1.9) %

Adjusted EBITDA (a)

$ 12,160 10.4 % $ 11,139 10.0 % $ 1,021 0.4 %

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

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

Net sales were $161.9 million for the fiscal quarter ended September 27, 2025, compared to $150.5 million for the fiscal quarter ended September 28, 2024.

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 was $117.3 million for the fiscal quarter ended March 28, 2026, compared to $111.4 million for the fiscal quarter ended March 29, 2025.

The $5.9 million, or 5.3%, increase in net sales was due to a $3.0 million increase in sales volume and a $2.9 million increase from higher pricing.

The sales volume increase was primarily driven by organic- and acquisition-related growth.

The increase in net sales of $11.4 million across our product lines consisted of an increase of $7.1 million for covers, $3.7 million for liners and a $0.6 million increase for in-ground swimming pools.

The increase in net sales was primarily driven by organic growth in liners and covers, the acquisition of Freedom Pools, sales growth in Florida and the full year benefit of the 2025 price increase partially offset by adverse weather conditions across North America.

The increase in net sales of $5.9 million across our product lines consisted of an increase of $2.0 million for in-ground swimming pools, $2.0 million for liners and $1.9 million for covers.

Cost of Sales and Gross Margin

Cost of sales was $104.6 million for the fiscal quarter ended September 27, 2025, compared to $101.8 million for the fiscal quarter ended September 28, 2024.

Gross margin increased by 3.0%, to 35.4% of net sales for the fiscal quarter ended September 27, 2025, compared to 32.4% of net sales for the fiscal quarter ended September 28, 2024.

Cost of sales was $80.2 million for the fiscal quarter ended March 28, 2026, compared to $78.5 million for the fiscal quarter ended March 29, 2025.

Gross margin increased by 2.2%, to 31.7% of net sales for the fiscal quarter ended March 28, 2026, compared to 29.5% of net sales for the fiscal quarter ended March 29, 2025.

The $1.6 million, or 2.1%, increase in cost of sales was primarily the result of the increase in sales volume, partially offset by the impact of production efficiencies resulting from lean manufacturing and value engineering programs.

The 3.0% increase in gross margin was primarily driven by the accretive benefit of the three Coverstar acquisitions, lean manufacturing and value engineering initiatives and production efficiencies.

The 2.2% increase in gross margin was primarily driven by volume leverage and the benefits of lean manufacturing and value engineering initiatives.

Selling, General, and Administrative Expense

Selling, general, and administrative expense was $28.6 million for the fiscal quarter ended September 27, 2025, compared to $28.3 million for the fiscal quarter ended September 28, 2024.

The $0.3 million, or 0.9%, increase in selling, general, and administrative expense was primarily driven by increased marketing and personnel investment tied to our Sand States strategy and

investments in new enterprise resource planning (“ERP”) infrastructure, partially offset by the timing of performance based compensation.

Amortization was $7.2 million for the fiscal quarter ended September 27, 2025, compared to $7.0 million for the fiscal quarter ended September 28, 2024.

The $0.2 million, or 3.3%, increase in amortization was driven by the three Coverstar acquisitions.

Selling, general, and administrative expense was $36.6 million for the fiscal quarter ended March 28, 2026, compared to $30.6 million for the fiscal quarter ended March 29, 2025.

The $6.0 million, or 19.5%, increase in selling, general, and administrative expense was primarily due to acquisition and integration related costs, increased sales and marketing investment to accelerate the fiberglass conversion strategy in the Sand State markets, and our digital transformation efforts.

Amortization was $7.2 million for both of the fiscal quarters ended March 28, 2026 and March 29, 2025.

Interest Expense, net

Interest expense, net was $6.1 million for the fiscal quarter ended September 27, 2025, compared to $9.2 million for the fiscal quarter ended September 28, 2024.

The $3.1 million, or 33.7%, decrease 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 28, 2024.

Interest expense, net was $4.8 million for the fiscal quarter ended March 28, 2026, compared to $6.4 million for the fiscal quarter ended March 29, 2025.

The $1.6 million, or 25.3%, decrease in interest expense, net was primarily the result of the change in the fair value of our interest rate swap, compared to the fiscal quarter ended March 29, 2025.

Other Expense (Income), Net

Other expense, net was $1.2 million for the fiscal quarter ended September 27, 2025, compared to other income, net of $ (0.7) million for fiscal quarter ended September 28, 2024.

Other expense, net was $0.8 million for the fiscal quarter ended March 28, 2026, compared to other income, net of $0.3 million for fiscal quarter ended March 29, 2025.

The $1.1 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 $1.3 million for the fiscal quarter ended September 27, 2025, compared to $0.9 million for the fiscal quarter ended September 28, 2024, due to the financial performance of Premier Pools & Spa.

Income Tax Expense (Benefit)

Income tax expense was $7.5 million for the fiscal quarter ended September 27, 2025, compared to income tax benefit of less than $0.1 million for the fiscal quarter ended September 28, 2024.

Our effective tax rate was 47.9% for the fiscal quarter ended September 27, 2025, compared to (0.7)% for the fiscal quarter ended September 28, 2024.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for both the fiscal quarters ended September 27, 2025 and September 28, 2024 was primarily attributable to the discrete impact of stock-based compensation expense for which there is no associated tax benefit and the effects of branch accounting for Latham Canada.

Net income was $8.1 million for the fiscal quarter ended September 27, 2025, compared to $5.9 million for the fiscal quarter ended September 28, 2024.

The $2.2 million, or 37.7%, increase in net income was primarily because of the factors described above.

Net Income Margin

Net income margin was 5.0% for the fiscal quarter ended September 27, 2025, compared to 3.9% for the fiscal quarter ended September 28, 2024.

The 1.1% increase in net income margin was driven by the factors described above.

Adjusted EBITDA

Adjusted EBITDA was $38.3 million for the fiscal quarter ended September 27, 2025, compared to $29.8 million for the fiscal quarter ended September 28, 2024.

The $8.5 million, or 28.5%, increase in Adjusted EBITDA was primarily because of the gross profit growth from increase in net sales, as well as the other factors described above.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 23.7% for the fiscal quarter ended September 27, 2025, compared to 19.8% for the fiscal quarter ended September 28, 2024.

The 3.9% increase in Adjusted EBITDA margin was primarily because of a $8.5 million increase in Adjusted EBITDA, compared to the fiscal quarter ended September 28, 2024, which was impacted by the factors described above.

Three Fiscal Quarters Ended September 27, 2025 Compared to Three Fiscal Quarters Ended September 28, 2024

The following table summarizes our results of operations for the three fiscal quarters ended September 27, 2025 and September 28, 2024:

Three Fiscal Quarters Ended

September 27, 2025

September 28, 2024

(dollars in thousands)

Cost of sales

Selling, general, and administrative expense

Income from operations

Other expense (income):

Interest expense, net

Other (income) expense, net

Total other expense, net

Earnings from equity method investment

Income before income taxes

Income tax expense

Adjusted EBITDA (a)

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

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

Net sales were $446.0 million for the three fiscal quarters ended September 27, 2025, compared to $421.2 million for the three fiscal quarters ended September 28, 2024.

The $24.8 million, or 5.9%, increase in net sales was due to a $22.8 million increase in sales volume and a $2.0 million increase from higher pricing.

The sales volume increase was primarily driven by both organic- and acquisition-related growth.

The increase in net sales across our product lines consisted of an increase of $23.6 million for covers and $5.0 million for liners, partially offset by a decrease of $3.9 million for in-ground swimming pools.

Cost of Sales and Gross Margin

Cost of sales was $291.8 million for the three fiscal quarters ended September 27, 2025, compared to $288.9 million for the three fiscal quarters ended September 28, 2024.

Gross margin increased by 3.2%, to 34.6% of net sales for the three fiscal quarters ended September 27, 2025, compared to 31.4% of net sales for the three fiscal quarters ended September 28, 2024.

The $2.9 million increase in cost of sales was primarily the result of the increase in sales volume, partially offset by the impact of production efficiencies resulting from lean manufacturing and value engineering programs.

The 3.2% increase in gross margin was primarily driven by higher volumes, 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 $91.1 million for the three fiscal quarters ended September 27, 2025, compared to $81.2 million for the three fiscal quarters ended September 28, 2024.

The $9.9 million, or 12.3%, increase in selling, general, and administrative expense was primarily driven by increased marketing and personnel investment tied to our Sand State strategy, investments in new ERP infrastructure and the inclusion of Coverstar Central.

Amortization was $21.7 million for the three fiscal quarters ended September 27, 2025, compared to $19.8 million for the three fiscal quarters ended September 28, 2024.

The $1.9 million, or 9.5%, increase in amortization was driven by the three Coverstar acquisitions.

Interest Expense, net

Interest expense, net was $19.6 million for the three fiscal quarters ended September 27, 2025, compared to $20.2 million for the three fiscal quarters ended September 28, 2024.

The $0.6 million, or 2.8%, decrease in interest expense, net was the result of the change in the fair value of our interest rate swap and a decrease in the outstanding balance of long-term debt, compared to the three fiscal quarters ended September 28, 2024.

Other (Income) Expense, Net

Other income, net was $2.2 million for the three fiscal quarters ended September 27, 2025, compared to other expense, net of $1.7 million for the three fiscal quarters ended September 28, 2024.

The $3.9 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.

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 27, 2025, largely unchanged from the three fiscal quarters ended September 28, 2024, due to the financial performance of Premier Pools & Spa.

Income Tax Expense

Income tax expense was $8.5 million for the three fiscal quarters ended September 27, 2025, compared to income tax expense of $0.9 million for the three fiscal quarters ended September 28, 2024.

Our effective tax rate was 32.0% for the three fiscal quarters ended September 27, 2025, compared to 7.6% for the three fiscal quarters ended September 28, 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 27, 2025 and September 28, 2024 was primarily attributable to the discrete impact of stock-based compensation expense for which there is no associated tax benefit and the effects of branch accounting for Latham Canada.

Net income was $18.1 million for the three fiscal quarters ended September 27, 2025, compared to $11.3 million for the three fiscal quarters ended September 28, 2024.

The $6.8 million, or 60.3%, increase in net income was primarily because of the factors described above.

Net Income Margin

Net income margin was 4.1% for the three fiscal quarters ended September 27, 2025, compared to 2.7% for the three fiscal quarters ended September 28, 2024.

The 1.4% increase in net income margin was driven by a $6.8 million increase in net income, compared to the three fiscal quarters ended September 28, 2024 because of the factors described above.

Earnings from our equity method investment in Premier Pools & Spas was $0.8 million for the fiscal quarter ended March 28, 2026, compared to $1.0 million for the fiscal quarter ended March 29, 2025, due to the financial performance of Premier Pools & Spas.

Income Tax Benefit

Income tax benefit was $2.8 million for the fiscal quarter ended March 28, 2026, compared to $4.1 million for the fiscal quarter ended March 29, 2025.

Our effective tax rate was 24.8% for the fiscal quarter ended March 28, 2026, compared to 40.6% for the fiscal quarter ended March 29, 2025.

The differences between the U.S.

federal statutory income tax rate and our effective income tax rates for the fiscal quarter ended March 28, 2026 and the fiscal quarter ended March 29, 2025 were primarily attributable to the discrete impact of stock-based compensation expense for which there is no associated tax benefit and the effects of branch accounting for Latham Canada.

Net loss was $8.5 million for the fiscal quarter ended March 28, 2026, compared to $6.0 million for the fiscal quarter ended March 29, 2025.

The $2.6 million, or 43.1%, increase in net loss was primarily because of the factors described above.

Net Loss Margin

Net loss margin was 7.3% for the fiscal quarter ended March 28, 2026, compared to 5.4% for the fiscal quarter ended March 29, 2025.

The 1.9% increase in net loss margin was driven by the factors described above.

Adjusted EBITDA

Adjusted EBITDA was $89.4 million for the three fiscal quarters ended September 27, 2025, compared to $76.6 million for the three fiscal quarters ended September 28, 2024.

The $12.8 million, or 16.7%, increase in Adjusted EBITDA was primarily because of the increase in net sales that more than offset higher selling, general and administrative expense, as well as the other factors described above.

Adjusted EBITDA was $12.2 million for the fiscal quarter ended March 28, 2026, compared to $11.1 million for the fiscal quarter ended March 29, 2025.

The $1.0 million, or 9.2%, increase in Adjusted EBITDA was primarily because of the gross profit growth from the increase in net sales, as well as the other factors described above.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 20.0% for the three fiscal quarters ended September 27, 2025, compared to 18.2% for the three fiscal quarters ended September 28, 2024.

The 1.8% increase in Adjusted EBITDA margin was primarily because of the $12.8 million increase in Adjusted EBITDA, compared to the three fiscal quarters ended September 28, 2024, which was impacted by the other factors described above.

Adjusted EBITDA margin was 10.4% for the fiscal quarter ended March 28, 2026, compared to 10.0% for the fiscal quarter ended March 29, 2025.

The 0.4% increase in Adjusted EBITDA margin was primarily because of a $1.0 million increase in Adjusted EBITDA, compared to the fiscal quarter ended March 29, 2025, which was impacted by the factors described above.

Non-GAAP Financial Measures

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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.

We encourage evaluation of these adjustments and the reasons we consider them appropriate for supplemental analysis.

In evaluating Adjusted EBITDA and Adjusted EBITDA margin, be mindful 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.

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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.

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.

Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools, and should not be considered 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:

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• 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 the interest expense, net, or the amounts necessary to service interest or principal payments, on our outstanding debt;

• do not reflect income tax expense (benefit), and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate;

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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 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 (dollars in thousands):

Fiscal Quarter Ended

Three Fiscal Quarters Ended

September 27, 2025

September 28, 2024

September 27, 2025

September 28, 2024

(dollars in thousands)

March 28, March 29,

Net loss $ (8,534) $ (5,962)

Depreciation and amortization 13,067 12,400

Interest expense, net 4,756 6,371

Income tax expense (benefit)

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

Income tax benefit (2,806) (4,079)

Gain on sale and disposal of property and equipment — (69)

Restructuring charges (a)

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Adjusted EBITDA $ 12,160 $ 11,139

Net income margin

Net sales $ 117,315 $ 111,420

Net loss margin (7.3) % (5.4) %

Adjusted EBITDA margin 10.4 % 10.0 %

______________________________________________________________

(a) Represents costs that include severance and other expenses for our executive management changes.

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Liquidity and Capital Resources

Our primary sources of liquidity are existing cash on hand, 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 September 27, 2025, we had $70.5 million of cash, $281.1 million of outstanding indebtedness and an additional $75.0 million of borrowing availability under our Revolving Credit Facility.

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, through borrowings under our credit facilities, and through 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.

As of March 28, 2026, we had $27.5 million of cash, $280.2 million of outstanding borrowings and an additional $44.0 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.

Our capital expenditures are primarily related to our

growth strategy, including production capacity, diversifying our product offerings, storage, and delivery equipment.

We are in the middle of our digital transformation effort to upgrade all of our technology and enterprise resource planning ("ERP") systems.

We expect to fund these capital expenditures from net cash provided by operating activities or the utilization of a portion of our borrowing availability under our Revolving Credit Facility.

Our disciplined capital activity allocation strategy remains focused on deploying capital opportunistically to position Latham for profitable organic and acquisition-related growth and to de-lever and further reduce our net debt leverage ratio.

It is our belief 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.

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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.

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

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

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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.

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

We are 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 us, declare dividends and make restricted payments and other distributions.

As of September 27, 2025, we were in compliance with all covenants under the Credit Agreement.

As of March 28, 2026, we were in compliance with all covenants under the Credit Agreement.

Revolving Credit Facility

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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 Agreement).

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.

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

During the three fiscal quarters ended September 27, 2025, we repaid the $25.0 million of outstanding borrowings on the Revolving Credit Facility.

As of September 27, 2025, we had no outstanding borrowings under the Revolving Credit Facility and $75.0 million was available for future borrowing.

As of March 28, 2026, we had $31.0 million in outstanding borrowings under the Revolving Credit Facility and $44.0 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 (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 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 September 27, 2025, we had $281.1 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 authorized us to repurchase up to $100 million of our shares of common stock by May 2025.

We did not repurchase any shares of our common stock during the three fiscal quarters ended September 27, 2025, and our Repurchase Program expired on May 10, 2025.

We do not have an effective stock repurchase program.

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

Three Fiscal Quarters Ended

September 27, 2025

September 28, 2024

(in thousands)

Net cash provided by operating activities

As of March 28, 2026, we had $280.2 million of outstanding borrowings under the Term Loan.

The following table summarizes our sources and uses of cash for each of the periods presented (dollars in thousands):

Fiscal Quarter Ended

March 28, March 29,

Net cash used in operating activities $ (47,720) $ (46,882)

Net cash used in investing activities (24,899) (8,386)

Net cash used in financing activities

Net cash provided by financing activities 28,402 22,493

Effect of exchange rate changes on cash 655 343

Net increase (decrease) in cash

Net decrease in cash $ (43,562) $ (32,432)

Operating Activities

During the three fiscal quarters ended September 27, 2025, operating activities provided $40.1 million of cash.

Net income, after adjustments for non-cash items, provided cash of $67.3 million.

Cash provided by operating activities was partially reduced by changes in our operating assets and liabilities, which used $27.1 million.

Net cash used by changes in our operating assets and liabilities for the three fiscal quarters ended September 27, 2025 consisted primarily of a $50.4 million increase in trade receivables, a $5.6 million increase in income tax receivable, a $0.8 million increase in prepaid expenses and other current assets, a $0.5 million decrease in other long-term liabilities and a $0.2 million increase in other assets, partially offset by a $16.3 million increase in accounts payable, a $7.3 million decrease in inventories and a $6.7 million increase in accrued expenses and other current liabilities.

The change in trade receivables was primarily driven by the increase and timing of net sales and the change in accounts payable were primarily driven by volume of purchases and timing of payments.

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 impacted 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 fiscal quarter ended March 28, 2026, operating activities used $47.7 million of cash.

Net loss, after adjustments for non-cash items, provided cash of $8.0 million.

Cash used in operating activities was primarily driven by changes in our operating assets and liabilities, which used $55.7 million.

Net cash used due to changes in our operating assets and liabilities for the fiscal quarter ended March 28, 2026 consisted primarily of a $49.5 million increase in trade receivables, a $9.6 million increase in inventories, a $3.0 million increase in income tax receivable, a $2.3 million decrease in accrued expenses and other current liabilities, a $0.8 million increase in prepaid expenses and other current assets and a $0.1 million increase in other assets, partially offset by a $9.7 million increase in accounts payable.

The change in trade receivables was primarily driven by the increase and timing of net sales, the change in accounts payable was primarily driven by volume of purchases and timing of payments and the change in inventories was primarily driven by the acquisition of Freedom Pools.

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 due to 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.

Investing Activities

During the three fiscal quarters ended September 27, 2025, investing activities used $21.1 million of cash, consisting of purchases of property and equipment for $16.2 million and the acquisition of two of our autocover dealers of $4.9 million.

The purchase of property and equipment was primarily to expand capacity for production and diversify offerings, especially for fiberglass pools, as well as on-going strategic initiatives such as digital transformation.

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 related to finishing up carryover projects from the prior fiscal year.

During the fiscal quarter ended March 28, 2026, investing activities used $24.9 million of cash, consisting of a cash payment for the acquisition of business, net of cash acquired of $14.4 million and purchases of property and equipment for $10.5 million.

Acquisition of business, net of cash acquired included a $13.9 million cash paid for the acquisition of Freedom Pools and $0.5 million for a holdback paid related to the acquisition of two of our smaller autocover dealers in New York and Tennessee.

Purchases of property and equipment included the second payment of $5.6 million that was paid as a follow up to the deposit made in the prior year of $12.0 million for the purchase of four fiberglass plants that had previously been leased.

The remainder was primarily to expand capacity for production and diversify offerings, especially for fiberglass pools, and on-going strategic initiatives such as digital transformation.

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 purchases 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 three fiscal quarters ended September 27, 2025, financing activities used $4.9 million of cash, primarily consisting of common stock withheld for taxes on restricted stock units of $2.7 million, Term Loan payments of $1.6 million and repayments of finance lease obligations of $0.6 million.

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 fiscal quarter ended March 28, 2026, financing activities provided $28.4 million of cash, primarily consisting of proceeds from borrowing on our Revolving Credit Facility of $31.0 million, partially offset by common stock withheld for taxes on restricted stock units of $2.4 million and repayments of finance lease obligations of $0.2 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.

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 27, 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.

There have been no material changes, outside of the ordinary course of business, to our contractual obligations during the fiscal quarter ended March 28, 2026 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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What changed 10-Q

Item 2. Management’s Discussion and Analysis