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What changed in Latham Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Latham Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+564 added−646 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-07)

Top changes in Latham Group, Inc.'s 2023 10-K

564 paragraphs added · 646 removed · 468 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

97 edited+14 added−24 removed40 unchanged
Biggest changeOur continued investment in innovation, product quality, and consumer engagement has been a key driver of our sales growth. We are increasingly responsible for our own lead generation, including via our online platform, mobile app, and consumer hotline. This allows us to provide higher quality, purchase-ready leads to our dealer partners.
Biggest changeWe are generating our own leads, including via our online platform, mobile app, and consumer hotline. This allows us to provide high quality, purchase-ready leads to our dealer partners. Our new digital platform engages the consumer early in the pool buying process and facilitates the buying journey from inspiration and design to a Latham pool purchase.
They protect the pool and its immediate surroundings from debris and weather, and they also provide safety for homeowners and their guests. We believe that Latham holds the top position in the category for automatic safety covers in North America.
They protect the pool and its immediate surroundings from debris and weather, and they also provide safety for homeowners and their guests. Automatic Safety Covers We believe that Latham holds the top position in the category for automatic safety covers in North America.
We believe we are the leader in the category for all-season pool covers by volume in North America. Our winterizing mesh and solid covers are used during the off-season, reducing maintenance requirements for our homeowners.
All-Season Pool Covers We believe we are the leader in the category for all-season pool covers by volume in North America. Our winterizing mesh and solid covers are used during the off-season, reducing maintenance requirements for our homeowners.
In addition, our Latham Augmented Reality Pool Visualizer app provides the technology for homeowners to visualize a Latham pool in their own backyard. The interactive nature allows homeowners to compare a variety of pool types and shapes and, when ready, directly contact a dealer without leaving the app.
In addition, our Latham Augmented Reality Pool Visualizer app provides the technology for homeowners to visualize a Latham pool in their own backyard. The interactive nature allows homeowners to compare a variety of pool types and shapes and, when ready, directly contact a dealer without leaving the Latham app.
We offer an extensive portfolio of fiberglass pools with customizable features that include unique colors, elaborate finishes, floor mosaics, lighting options, water features, in-floor cleaning, tanning ledges, and spillover spas. Our pools come in a variety of different sizes and are known by homeowners for their premium quality and aesthetics.
We offer an extensive portfolio of fiberglass pools with customizable features that include unique colors, elaborate finishes, floor mosaics, lighting options, water features, in-floor cleaning, tanning ledges, and spillover spas. Our pools come in a variety of different shapes and sizes and are known by homeowners for their premium quality and aesthetics.
We also offer the most complete automatic safety cover portfolio when compared to our competitors, since our products range in mix from affordable luxury options to premium covers. Additionally, our automatic safety covers are compatible with fiberglass, vinyl, and concrete pools of almost any shape and size, driving homeowner preference for the CoverStar TM brand.
We also offer the most complete automatic safety cover portfolio when compared to our competitors, since our products range from affordable luxury options to premium covers. Additionally, our automatic safety covers are compatible with fiberglass, vinyl, and concrete pools of almost any shape, size and brand, driving homeowner preference for our CoverStar TM brand.
Our reputation for exceptional quality relies on having exceptional people, so we ensure that our team is rewarded, engaged, and developed to build fulfilling careers. We provide competitive employee wages that are appropriate to employee positions, skill levels, experience, knowledge, and geographic location, and we provide additional rewards including incentive plans, bonus plans, and achievement awards.
Our reputation for exceptional products, services and quality relies on having exceptional people, so we ensure that our team is rewarded, engaged, and developed to build fulfilling careers. We provide competitive employee wages that are appropriate to employee positions, skill levels, experience, knowledge, and geographic location, and we provide additional rewards including incentive plans, bonus plans, and achievement awards.
See “Risk Factors—Risks Related to Our Operations and Industry—We face competition both from within our industry and from other outdoor living products and if we are not able to compete effectively, our prospects for future success will be jeopardized.” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance—Volume of Products Sold.” 10 Table of Contents Seasonality Although we generally have demand for our products throughout the year, our business is seasonal, and weather is one of the principal external factors affecting the business.
See “Risk Factors—Risks Related to Our Operations and Industry—We face competition both from within our industry and from other outdoor living products and if we are not able to compete effectively, our prospects for future success will be jeopardized.” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance—Volume of Products Sold.” Seasonality Although we generally have demand for our products throughout the year, our business is seasonal, and weather is one of the principal external factors affecting the business.
Pool manufacturers have traditionally marketed to dealers rather than to homeowners. As a result, both manufacturers and homeowners have depended on dealers to educate homeowners and move them through their pool buying journey. The dealership market is highly-fragmented, consisting primarily of small, family-owned businesses.
Pool manufacturers have traditionally marketed to dealers rather than to homeowners. As a result, both manufacturers and homeowners have depended on dealers to educate homeowners and guide them through their pool buying journey. The dealership market is highly-fragmented, consisting primarily of small, family-owned businesses.
Our forward-looking statements 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. ​ ​ ​ ​ 14 Table of Contents
Our forward-looking statements 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. 13 Table of Contents ​ ​
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,” 13 Table of Contents “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology.
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.
Grow Industry Capacity by Onboarding and Training New Dealer Partners We believe that there is a tremendous opportunity to expand the capacity of skilled dealer partners to support overall industry growth and our continued market penetration.
Grow Industry Capacity by Onboarding and Training New Dealer Partners We believe that there is a tremendous opportunity to expand the capacity of skilled dealer partners to support future industry growth and our continued market penetration.
Our supply agreements with key suppliers are typically negotiated on an annual basis. The cost of the raw materials used in our manufacturing processes has historically varied and has been affected by changes in supply and demand. We have minimal fixed-price contracts with our major vendors.
Our supply agreements with key suppliers are typically 8 Table of Contents negotiated on an annual basis. The cost of the raw materials used in our manufacturing processes has historically varied and has been affected by changes in supply and demand. We have minimal fixed-price contracts with our major vendors.
We benchmark our benefits plan annually to ensure our employee value proposition remains competitive and attractive to new talent. The health and safety of our people is a primary concern for us, so we have implemented a comprehensive health and safety program to manage workplace safety hazards and to protect employees.
We benchmark our compensation and benefits plan regularly to ensure our employee value proposition remains competitive and attractive to new talent. The health and safety of our people is a primary concern for us, so we have implemented a comprehensive health and safety program to manage workplace safety hazards and to protect employees.
In order to strengthen our relationship with our loyal dealer partners, we have implemented our “Latham Grand” dealer program, whereby we have secured exclusivity with over 250 of our largest dealers in North America. Included in this dealer population is the largest franchised dealer network in the United States, Premier Pools & Spas.
In order to strengthen our relationship with our most loyal dealer partners, we have implemented our “Latham Grand” dealer program, whereby we have secured exclusivity with over 300 of our largest dealers in North America. Included in this dealer population is the largest franchised dealer network in the United States, Premier Pools & Spas.
We employ an environmental, health, and safety team that is responsible for managing, auditing, and executing unified, companywide safety and compliance programs, as well as working directly with site leadership and associates on safety awareness, reports, and preventative measures. ​ Web Sites and Additional Information ​ The U. S.
We employ an environmental, health, and safety team that is responsible for managing, auditing, and executing unified, companywide safety and compliance programs, as well as working directly with site leadership and associates on safety awareness, reports, and preventative measures. Websites and Additional Information ​ The U.S.
The contents of our web site or any other web site referenced are not a part of this report. ​ Cautionary Note Regarding Forward-Looking Statements Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
The contents of our website or any other website referenced are not a part of this report. ​ Cautionary Note Regarding Forward-Looking Statements Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
We also have a strong distribution network with over 450 distributor branch locations that represent our products. Through our significant investment in partnerships with dealers and distributors and our consumer-oriented marketing efforts, we have created both a “push and pull” dynamic for our products in the marketplace.
We also have a strong distribution network with over 475 distributor branch locations that represent our products. Through our significant investment in partnerships with dealers and distributors and our consumer-oriented marketing efforts, we have created a “push and pull” dynamic for our products in the marketplace.
We make available through our web site our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after we electronically file with or furnish such material to the SEC.
We make available through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after we electronically file with or furnish such material to the SEC.
Securities and Exchange Commission (“SEC”) maintains an Internet web site at www.sec.gov that contains reports, proxy statements, and other information regarding our Company. In addition, we maintain an Investor Relations web site at https://ir.lathampool.com/.
Securities and Exchange Commission (“SEC”) maintains an Internet website at www.sec.gov that contains reports, proxy statements, and other information regarding our Company. In addition, we maintain an Investor Relations website at https://ir.lathampool.com/.
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, 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, 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.
Our fiberglass pools offer significant cost, installation, and maintenance advantages over traditional concrete pools. Our innovative product portfolio is made up of a carbon fiber, Kevlar, and fiberglass build and is backed by a lifetime warranty to the original purchaser, providing our homeowners with peace of mind and security.
Our fiberglass pools offer significant cost, installation, and maintenance advantages over traditional concrete pools while requiring fewer chemicals. Our innovative product portfolio is made up of a fiberglass, carbon fiber and Kevlar build and is backed by a lifetime warranty to the original purchaser, providing our homeowners with peace of mind and security.
We have production capacity to support custom liners at or better than the industry standard delivery window, from design to shipment. Covers Our automatic safety cover manufacturing facilities cut, sew, and assemble highly engineered motorized safety covers in a build-to-order model at or better than the industry standard delivery window, from design to shipment.
We have production capacity to support custom liners with a three-day delivery promise from design to shipment, better than the industry standard delivery window. Covers Our automatic safety cover manufacturing facilities cut, sew, and assemble highly engineered motorized safety covers in a build-to-order model at or better than the industry standard delivery window, from design to shipment.
Our 8 Table of Contents automatic safety cover business leverages our capabilities around machining, cut/sew, sonic welding, and assembly operations to provide a recessed/concealed covering application for in-ground swimming pool cover products. Our traveling heat welding machine provides an industry-leading seam for durability and finish.
Our automatic safety cover business leverages our capabilities around machining, cut/sew, sonic welding, and assembly operations to provide a recessed/concealed covering application for in-ground swimming pool cover products. Our traveling heat welding machine provides an industry-leading seam for durability and finish.
Vinyl liners are a required component for the interior surface of a vinyl pool and our liners are highly customizable in shape, size, color, and pattern. Vinyl liners typically need to be replaced every eight to ten years. We believe replacement vinyl liners provide us with a significant avenue to stable recurring revenue.
Vinyl liners are a required component for the interior surface of a vinyl pool and our liners are highly customizable in shape, size, color, and pattern. Vinyl liners typically need to be replaced every eight to ten years. Replacement vinyl liners provide us with a significant source of stable recurring revenue.
We 11 Table of Contents monitor our total recordable incident rate monthly and review workplace injury and claims trends with our carriers monthly to identify areas of focus and opportunities for implementing new programs to protect our employees.
We monitor our total recordable incident rate monthly and review workplace injury and claims trends with our carriers monthly to identify areas of focus and opportunities for implementing new programs to protect our employees.
We further 4 Table of Contents intend to onboard, train, and support them with the same emphasis we have placed on our existing dealer partnerships, including our co-branding programs, “Latham University,” and our “Business Excellence” coaching, designed to help them manage their growth.
We further intend to onboard, train, and support dealers with the same emphasis we have placed on our existing dealer partnerships, 4 Table of Contents including our co-branding programs, “Latham University” and our “Business Excellence” coaching, designed to help them manage their growth.
Based on our knowledge of our dealers, we believe fiberglass pools can be installed in as little as two to three days, compared to three months for comparable concrete pools. While we believe that our fiberglass pools are the future of the industry and meet the majority of the market of pools sold, fiberglass pools do have some limitations.
Our fiberglass pools can be installed in as little as two to three days, compared to three months for comparable concrete pools. While we believe that our fiberglass pools are the future of the industry and meet the majority of the market of pools sold, fiberglass pools do have some limitations.
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.
In an industry that has traditionally marketed from 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.
We believe 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 TM .
We believe that we are the most desirable 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 TM .
In-ground Swimming Pools Fiberglass Pools We believe we are the #1 fiberglass pool manufacturer by volume in North America. Demand for our fiberglass pools is driven by both accelerating material conversion from legacy pool construction materials, especially concrete, and the long-term value, through both lower up-front and lifecycle costs, that our pools deliver to our homeowners.
In-ground Swimming Pools Fiberglass Pools We are the largest fiberglass pool manufacturer in North America, Australia and New Zealand. Demand for our fiberglass pools is driven by both accelerating material conversion from legacy pool construction materials, especially concrete, and the long-term value that our pools deliver to our homeowners through both lower up-front and lifecycle costs.
Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. We support our dealer network with business development tools, co-branded marketing programs, and in-house training. Our operations consist of over 2,000 employees across over 30 locations.
Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. We support our dealer network with business development tools, co-branded marketing programs, and in-house training. Our operations consist of approximately 1,800 employees across all of our locations.
Our largest distributor, which provides valuable local market support with a network of over 290 locations, accounted for 20.3% of our net sales in 2022, 25.0% of our net sales in 2021, and 22.3% of our net sales in 2020.
Our largest distributor, which provides valuable local market support with a network of over 300 locations, accounted for 20.3% of our net sales in 2023, 20.3% of our net sales in 2022, and 25.0% of our net sales in 2021.
Industry We are the leader in the large and growing residential in-ground swimming pool industry. Over the last decade, macroeconomic trends have driven an increase in reinvestment in the home, and we expect that consumers will continue to focus a portion of their rest-and-relaxation spending on exterior living spaces as they look for more ways to spend time outdoors.
Industry Over the last decade, macroeconomic trends have driven an increase in reinvestment in the home, and we expect that consumers will continue to focus a portion of their rest-and-relaxation spending on exterior living spaces as they look for more ways to spend time outdoors.
We do not charge any fees to view, print, or access these reports on our web site.
We do not charge any fees to view, print, or access these reports on our website.
Also, third parties may make claims against owners or operators of properties for personal injuries, for property damage and/or for clean-up associated with releases of hazardous or toxic substances pursuant to applicable environmental laws and common law tort theories, including strict liability.
Also, third parties may make claims against owners or operators of properties for personal injuries, for property damage and/or for clean-up associated with releases of hazardous or toxic substances pursuant to applicable environmental laws and common law tort theories, including strict liability. Failure to comply with environmental laws or regulations could result in severe fines and penalties.
Our centralized sourcing model complements our growth to achieve competitive costs and to ensure supply availability. The manufacturing facilities coordinate all material deliveries with respect to volume and timing to ensure proper alignment between consumption and working capital programs.
Our centralized sourcing model focuses on achieving competitive costs and ensuring supply availability. The manufacturing facilities coordinate all material deliveries with respect to volume and timing to ensure proper alignment between consumption and working capital programs.
Covers There are two types of covers in the pool market, automatic safety covers and all-season pool covers. Automatic safety covers operate with a switch and are used in the pool season to cover the pool after a refreshing swim. All-season pool covers generally go on after the swimming season.
Covers There are two types of covers in the pool market, automatic safety covers and all-season pool covers. Automatic safety covers are used in the pool season to cover and secure the pool after a refreshing swim. All-season pool covers are generally used after the swimming season.
Investments in innovation and product development have led to historical growth of our fiberglass pool sales, with increased potential for further growth and margin expansion. Packaged Pools We believe that we are also the leader by volume in the custom vinyl pool product category of the North American residential in-ground swimming pool market.
Investments in innovation and product development have led to historical growth of our fiberglass pool sales, with increased potential for further growth and margin expansion. 5 Table of Contents Packaged Pools We believe that we are the largest manufacturer of custom vinyl pools in the North American residential in-ground swimming pool market.
The manufacture of our custom vinyl pools requires different techniques based on the product type. For our polymer wall vinyl pools, we have a facility that produces all of our polymer panels on structural foam equipment, which requires unique and specialized molds for each panel, as well as a system to inject the resin into the molds.
For our polymer wall vinyl pools, we have a facility that produces all of our polymer panels on structural foam equipment, which require unique and specialized molds for each panel, as well as a system to inject the resin into the molds.
Because of shipping considerations, they are subject to certain size 5 Table of Contents limits. Although we offer a broad portfolio of design choices, fiberglass pools can be less customizable than concrete and vinyl. The vinyl packaged pools that Latham sells are similar to concrete pools in terms of flexibility.
Because of shipping considerations, they are subject to certain size limits. Although we offer a broad portfolio of design choices, fiberglass pools can be less customizable than concrete and vinyl pools. The vinyl packaged pools that Latham sells offer unlimited customization in terms of size and shape, providing the same flexibility as concrete pools.
Our content-rich digital platform provides homeowners with education and engagement tools that help them to navigate their pool buying journey, including an unrivaled pool visualization experience, informational videos and resources, budget calculators, and a pool expert community consisting of a blog and direct homeowner outreach. The implementation of our new digital strategy has resulted in superior search engine optimization performance.
Our content-rich digital platform provides homeowners with education and engagement tools that help them to navigate their pool buying journey, including an unrivaled pool visualization experience, informational videos and resources, budget calculators, and a pool expert community consisting of a blog and direct homeowner outreach.
Our top ten dealer and distributor relationships accounted for 39.4% of our net sales in 2022, 46.0% of our net sales in 2021 and 41.1% of our net sales in 2020. Manufacturing We are a global manufacturer based in the United States, delivering quality products with a competitive cost position.
Our top ten dealer and distributor relationships accounted for 40.4% of our net sales in 2023, 39.4% of our net sales in 2022 and 46.0% of our net sales in 2021. Manufacturing We are a global manufacturer based in the United States, delivering quality products with a competitive cost position. Our manufacturing processes require significant capital investment and expertise.
Latham’s unique “direct-to-homeowner” marketing strategy is driving a greater understanding of the benefits of owning a pool, specifically a fiberglass pool, and generating significant consumer demand. We have made meaningful, ongoing investments to position Latham as the brand of choice for the homeowner.
Latham’s unique “direct-to-homeowner” marketing strategy is driving a greater understanding of the benefits of owning a pool, specifically a fiberglass pool, and generating significant consumer demand. We have made meaningful, ongoing investments to position Latham as the brand of choice for the homeowner. Our continued investment in consumer engagement has been a key driver of our historical sales growth.
We have boosted leads for our dealers, further strengthening Latham with our dealer base. Accelerate Fiberglass Material Conversion through Unique Market Positioning As the leader in the fiberglass pool product category, we are driving the acceleration of material conversion, especially from concrete pools to fiberglass, by educating both homeowners and dealer partners about the superior benefits of fiberglass.
Growth Strategy Accelerate Fiberglass Material Conversion through Unique Market Positioning As the leader in the fiberglass pool product category, we are driving the material conversion, especially from concrete pools to fiberglass, by educating both homeowners and dealer partners about the superior benefits of fiberglass.
Our improved digital marketing engine has the ability to strategically target market spend and to generate leads in territories where dealers have capacity, in under-penetrated markets, and in the largest in-ground swimming pool markets.
We have directed a significant portion of our advertising spend to digital channels, including social media and search advertising. Our improved digital marketing engine has the ability to strategically target market spend and to generate leads in territories where dealers have capacity, in under-penetrated markets, and in the largest in-ground swimming pool markets.
We believe our fiberglass pool offering is the most attractive swimming pool offering on the market. Our special finishing process allows for traction where you need it (such as steps) and a smooth and lustrous finish everywhere else. ● Less chemicals . The smooth non-porous finish of fiberglass dramatically reduces the need for harsh chemicals to treat the pool.
Our special finishing process allows a smooth and lustrous finish for traction where you need it (such as steps). 3 Table of Contents ● Less chemicals . The smooth non-porous finish of fiberglass dramatically reduces the need for harsh chemicals to treat the pool.
Liners We manufacture a complete line of both sonically and heat welded vinyl pool liners for both above and in-ground swimming pool applications, with what we believe is the most technologically advanced processing of vinyl sonic welding in the industry.
Liners We manufacture a complete line of both sonically and heat welded vinyl pool liners for both above and in-ground swimming pool applications, with what we believe is the most technologically advanced processing of vinyl sonic welding in the industry. Our Ultra-Seam TM technology provides an industry-leading capability to reduce seam tear or separation.
In our one-step distribution channel, which we exclusively use to sell our fiberglass pools, we sell our products directly to dealers who, in turn, sell our products to homeowners. In our two-step distribution channel, we sell our products to distributors who warehouse our products and sell them to dealers, who ultimately sell our products to homeowners.
In our two-step distribution channel, we sell our products to distributors who warehouse our products and sell them to dealers, who ultimately sell our products to homeowners.
In 2022, we purchased supplies from over 275 suppliers, with 63% of supplies being purchased from our top ten suppliers and 17% of supplies being purchased from our largest supplier. The primary raw materials used in our products are PVC, galvanized steel, fiberglass, aluminum, Kevlar fiber, carbon fiber, various resins, gelcoat, polypropylene fabric, ceramics, and roving.
In 2023, we purchased supplies from 267 suppliers, with 65% of supplies being purchased from our top ten suppliers and 16% of supplies being purchased from our largest supplier. The primary raw materials used in our products are PVC, galvanized steel, fiberglass, aluminum, various resins, high impact polystyrene, gelcoat and polypropylene fabric.
See “Risk Factors — Risks Related to Our Operations and Industry — We depend on a global network of third-party suppliers to provide components and raw materials essential to the manufacturing of our pools and price increases or deviations in the quantity or quality of the raw materials used to manufacture our products could adversely affect our net sales and operating results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance— Cost and Availability of Materials.” Competition We are the leader in the North American in-ground residential swimming pool market, holding the #1 position by volume in each of our product categories.
See “Risk Factors — Risks Related to Our Operations and Industry — We depend on a global network of third-party suppliers to provide components and raw materials essential to the manufacturing of our pools and price increases or deviations in the quantity or quality of the raw materials used to manufacture our products could adversely affect our net sales and operating results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance— Cost and Availability of Materials.” Sales and Marketing We focus on a “direct-to-homeowner” digital and social marketing strategy that puts the consumer at the center of our marketing efforts.
Latham Grand dealers agree to use us as their exclusive provider of fiberglass pools. Latham Grand dealers also agree, among other things, to receive fiberglass training and to meet annual targets for fiberglass pool installations.
Latham Grand dealers agree to use us as their exclusive provider of fiberglass pools. Latham Grand dealers also agree, among other things, to receive fiberglass training and provide the highest level of customer satisfaction for installation.
We have made significant manufacturing capacity investments not only to support this future growth, but also to continue to deliver the compelling margin profile of our fiberglass pool offering. We believe we can increase our margins significantly as we grow into our capacity investments and our product mix continues to shift towards fiberglass pools.
Expand Margins through Mix Shift Towards Fiberglass and Productivity Initiatives We have made significant manufacturing capacity investments not only to support long-term growth of fiberglass pools, but also to continue to deliver the compelling margin profile of our fiberglass pool offering.
Calendar years having severe weather also play a role in affecting sales growth, as particularly rainy or cold years tend to slow the volume of sales, including as a result of complicating conditions for pool installations.
Calendar years having severe weather also play a role in affecting sales growth, as particularly rainy or cold years tend to slow the volume of sales, including as a result of complicating conditions for pool installations. These scenarios are partially mitigated by our geographic diversity, both across the United States and through international markets.
We compete with regional and local manufacturers on the basis of a number of considerations, including brand recognition and loyalty, quality, performance, product characteristics, marketing, product development, sales and distribution, and price.
We also operate in New Zealand and Australia, where we hold the leading position by volume in the fiberglass pools category. We compete with regional and local manufacturers on the basis of a number of considerations, including brand recognition and loyalty, quality, performance, product characteristics, marketing, product development, sales and distribution, and price.
Our exclusive supply agreement with Premier Pools & Spas governs the sales of certain of our products to Premier Pools & Spas franchisees. We agree to provide training support, marketing materials and, upon prior written request, on-site field support with respect to the first installation of a product by any franchisee of Premier Pools & Spas.
We agree to provide training support, marketing materials and, upon prior written request, on-site field support with respect to the first installation of a product by any franchisee of Premier Pools & Spas. We also agree to provide rebates as a percentage of sales to Premier Pools & Spas. We have long-term relationships with both our dealers and distributors.
In addition, concrete pool installers face a number of challenges, particularly as a result, we believe, of many skilled tradesmen leaving the industry. Each of these factors, paired with the long-term positive demand trends in the industry, contribute to the supply constraint in the pool market.
In addition, concrete pool installers face a number of challenges, particularly the trend towards skilled tradesmen leaving the industry. Each of these factors contribute to the supply constraint in the pool market.
Our new digital platform engages the consumer early in the pool buying process and facilitates the buying journey from inspiration and design to a Latham pool purchase. Our Latham Augmented Reality Pool Visualizer app, along with our website, allow homeowners to re-imagine their outdoor living spaces and directly connects them to a dealer of our choice.
Our Latham Augmented Reality Pool Visualizer app, along with our website, allow homeowners to re-imagine their outdoor living spaces and directly connects them to a dealer of our choice.
Products Our residential pool product portfolio is highly complementary and allows us to provide a wide-range of solutions to our homeowners. Our products are recognized by homeowners, dealers, and distributors for their quality, durability, performance, compelling value proposition, ease of installation and diverse style and design options.
Our products are recognized by homeowners, dealers, and distributors for their quality, durability, performance, compelling value proposition, ease of installation and diverse style and design options.
Failure to comply with environmental laws or regulations could result in severe fines and penalties. 12 Table of Contents We are not aware of any environmental liabilities that would be expected to have a material adverse effect on our business, financial condition, or results of operations.
We are not aware of any environmental liabilities that would be expected to have a material adverse effect on our business, financial condition, or results of operations. We believe we comply in all material respects with environmental laws and regulations and possess the permits required to operate our manufacturing and other facilities.
Fiberglass pools are underpenetrated in the United States residential in-ground swimming pool market relative to other geographic markets. As a result of material conversion away from legacy pool construction materials, growth in sales of fiberglass pools in the United States is meaningfully outpacing that of the broader in-ground swimming pool market.
As a result of material conversion away from legacy pool construction materials such as concrete, market share growth of fiberglass pool starts in the United States is meaningfully outpacing that of the broader in-ground swimming pool market. Despite this growth, fiberglass pools still have significant runway for growth in the United States relative to comparable international markets.
These laws, regulations, and ordinances, among other matters, govern activities and operations that may have adverse environmental effects, such as discharges to air, soil, and water, and establish standards for the handling of hazardous and toxic substances and the handling and disposal of solid and hazardous wastes.
These laws, regulations, and ordinances, among other matters, govern activities and operations that may have adverse environmental effects, such as discharges to air, soil, and water, and establish standards for the handling of hazardous and toxic substances and the handling and disposal of solid and hazardous wastes. 11 Table of Contents Certain of our operations require environmental, health and safety permits, or other approvals from governmental authorities, and certain of these permits and approvals are subject to expiration, denial, revocation, or modification under various circumstances.
We believe we comply in all material respects with environmental laws and regulations and possess the permits required to operate our manufacturing and other facilities. Our environmental compliance costs in the future will depend, in part, on the nature and extent of our manufacturing activities, regulatory developments and future requirements that cannot presently be predicted.
Our environmental compliance costs in the future will depend, in part, on the nature and extent of our manufacturing activities, regulatory developments and future requirements that cannot presently be predicted.
The broad geographic reach of our manufacturing and distribution network allows us to deliver a fiberglass pool in a cost-effective manner. The full resources of our company are dedicated to designing and manufacturing high-quality pool products, with the homeowner in mind, and to position ourselves as a value-added partner to our dealers.
The broad geographic reach of our manufacturing and distribution network allows us to service our customers at short lead times and to deliver a fiberglass pool 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.
Our literature for dealers, marketing materials, our website, social media, advertising and promotion and our co-branding of dealer premises each reflect the Latham branding. Our sub-brands, which sit under the Latham master brand, include Narellan TM , CoverStar TM , and GLI, among others. Distribution Our products are sold through both one-step and two-step business-to-business distribution channels.
Our sub-brands, which sit under the Latham master brand, include Narellan TM , CoverStar, Radiant, and GLI, among others. 6 Table of Contents Distribution Our products are sold through both one-step and two-step business-to-business distribution channels.
In addition, Latham has our own fleet of delivery vehicles and drivers, who complement our third party distributor partners and provide us with greater surety of timely delivering during the peak building season. Once our fiberglass pools are delivered to their destination, our dealers provide quality installation and support to homeowners.
We have our own fleet of delivery vehicles and drivers, who complement our third party distributor partners and ensure timely delivery during the peak building season. Once our fiberglass pools are delivered to their destination, our dealers provide quality installation and support to homeowners. The manufacture of our custom vinyl pools requires different techniques based on the product type.
In particular, we believe the Latham brand is significant to the success of our business. We also rely on a combination of unpatented proprietary know-how and trade secrets, and to a lesser extent, patents to preserve our position in the market. As we develop technologies and processes that we believe are innovative, we assess the patentability of new intellectual property.
We have patented a number of our innovative designs, technologies and processes. We also rely on a combination of unpatented proprietary know-how and trade secrets. As we develop technologies and processes that we believe are innovative, we assess the patentability of new intellectual property.
Such permits are typically issued by state agencies, but permits and approvals may also be required from federal or local governmental agencies.
Those requirements obligate us to obtain and maintain permits from one or more governmental agencies in order to conduct our operations. Such permits are typically issued by state agencies, but permits and approvals may also be required from federal or local governmental agencies.
Additionally, the connectivity that we have built with our homeowners has provided us with the insights needed to stay ahead of homeowner demand trends that shape our market.
The benefits include lower up-front and total cost of ownership, quicker installation, easier maintenance, and a more convenient buying experience. Additionally, the connectivity we have built with our homeowners has provided us with the insights needed to stay ahead of homeowner demand trends that shape our market.
We are committed to fostering, cultivating, celebrating, and preserving a culture of diversity, equity, inclusion, and belonging among our employees, customers, and suppliers.
We provide regular training and competency development to verify and ensure compliance with health and safety procedures and regulations. Diversity, Equity, and Inclusion Diversity, equity, inclusion, and belonging are fundamental principles in our culture. We are committed to fostering, cultivating, celebrating, and preserving a culture of diversity, equity, inclusion, and belonging among our employees, customers, and suppliers.
In addition, we employ various other methods, including confidentiality and nondisclosure agreements with third parties and employees who have access to trade secrets, to protect our trade secrets and know-how. Our intellectual property rights may be challenged by third parties and may not be effective in excluding competitors from using the same or similar technologies, brands, or works.
In addition, we employ various other methods, including confidentiality and nondisclosure agreements with third parties and employees who have access to trade secrets, to protect our trade secrets and know-how.
We do not participate in the concrete pool market other than to provide automatic safety covers and all-season covers for concrete pools. We believe that the shift in material from concrete to fiberglass that the North American in-ground swimming pool industry is undergoing will favor our products.
We believe that the shift in material from concrete to fiberglass that the North American in-ground swimming pool industry is undergoing will favor our business.
We strive to maintain strong and collaborative relationships with our suppliers and believe that the sources for these inputs are well-established, generally available on world markets, and in sufficient quantity. We do not undertake defined purchase agreements requiring fixed commitments or “take or pay” requirements with our suppliers.
Changes in prices of our raw materials have a direct impact on our cost of sales. We strive to maintain strong and collaborative relationships with our suppliers and believe that the sources for these inputs are well-established, generally available on world markets, and in sufficient quantity.
In-ground Swimming Pools The manufacture of fiberglass pools requires highly specialized equipment and a technically skilled workforce. We manufacture fiberglass pools by applying the various layers of materials onto a mold, ending with the fiberglass finish that gives these pools their name. We have a broad and diverse mold portfolio designed to meet customer needs.
We manufacture fiberglass pools by applying various layers of materials onto a mold, ending with the fiberglass finish that gives these pools their name. We have the largest mold portfolio in the industry, designed to meet customer needs. We use an eight-layer building process to provide an industry-leading thickness and durability formula for our fiberglass pools.
We recently announced the launch of Measure by Latham ("Measure"), a proprietary advanced AI-powered device that dramatically reduces dealer time and error in measuring swimming pool vinyl liners and safety covers. Measure is an end-to-end solution that will provide dealers with a simple, cost-effective user experience, high-performance measuring accuracy, and a modernized ordering process.
Measure is an end-to-end solution that 9 Table of Contents provides dealers with a simple, cost-effective user experience, high-performance measuring accuracy, and a modernized ordering process. In the future, we will add the capability to measure vinyl liners.
We have historically used strategic acquisitions to expand our geographic reach within the United States and internationally, enhance our product portfolio, and drive operational efficiencies. We will continue to focus on acquiring high-quality, market-leading businesses with teams, capabilities, and technologies that are complementary to our existing offerings and that enable us to better serve homeowners and dealer partners.
We will continue to focus on acquiring high-quality, market-leading businesses with teams, capabilities, and technologies that are complementary to our existing offerings and that enable us to better serve homeowners and dealer partners. Products Our residential pool product portfolio is highly complementary and allows us to provide a wide-range of solutions to our homeowners.
We published our inaugural ESG report in the second quarter of 2022, which included information regarding our first materiality assessment undertaken by an independent third party. We intend to publish an annual ESG report to update our stakeholders on our ongoing journey.
Our Nominating and Corporate Governance Committee reviews the Company’s progress towards the achievement of its ESG strategy and goals on a periodic basis. We published our inaugural ESG report in the second quarter of 2022, which included information regarding our first materiality assessment undertaken by an independent third party.
Over our history, we have leveraged our differentiated portfolio of products, manufacturing capabilities, customer service, and homeowner connectivity to develop a reputation as an innovative and dependable partner to our dealers and distributors.
With our differentiated portfolio of products, manufacturing capabilities, customer service, and homeowner connectivity, we have developed a reputation as an innovative and dependable partner to our dealers and distributors. At our “Latham University” training program, our dealer partners discover firsthand the benefits of fiberglass pools, including the ease and speed of installation.
Fiberglass pools cost less and have lower repair expenses compared to concrete pools. ● Faster and easier installation . Based on our knowledge of our dealers, we believe fiberglass pools can be installed in as little as two to three days, compared to up to three months for concrete pools. 3 Table of Contents ● Premium quality and aesthetics .
Fiberglass pools can be installed in as little as two to three days, compared to up to three or more months for concrete pools of comparable size. ● Premium quality and aesthetics . We believe our fiberglass pool offering is the most attractive on the market.
Our management team develops ESG strategy and related goals and policies through an ESG working group, and our ESG program is overseen by our Board of Directors’ Nominating and Corporate Governance Committee. Management has established an ESG working group that is a cross-functional team managing the day-to-day implementation of company initiatives and driving accountability for ESG performance.
Our Nominating and Corporate Governance Committee and ESG working group are involved in policy planning and the coordination of corporate-wide ESG efforts. The working group is a cross-functional team managing the day-to-day implementation of company initiatives and accountability for performance.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks include, but are not limited to, the following: ● Net sales for our swimming pools and related products is adversely affected by unfavorable economic conditions and trends in consumer spending; ● inability to sustain further growth in our business; ● adverse weather conditions impacting our sales, as well as result in significant variability of sales in reporting periods; ● natural disasters, war, terrorism, public health issues such as the novel coronavirus (“COVID-19”) pandemic or other catastrophic events; ● our ability to attract, develop and retain highly qualified personnel; ● inability to attract dealers and distributors to purchase our products, or the loss of our largest customers, since our products are not sold directly to consumers; ● increases in costs of our raw materials and components and inability to source the quantity or quality of raw materials and components that we need to manufacture our products, including due to the loss of our largest suppliers; ● inflationary impacts; ● product quality issues, warranty claims or safety concerns and other claims in the ordinary course of business; ● competition that we face; ● failure to meet customer specifications or consumer expectations; ● our inability to collect accounts receivables from our customers; ● delays in, or systems disruptions issues caused by, the implementation of our enterprise resource planning system could adversely affect our operations; ● changes in environmental, health, safety, transportation, and other government regulations; ● the effects of climate change and the expanding legal and regulatory restrictions intended to address climate change could adversely impact our business; ● inability to obtain transportation services to deliver our product and to obtain raw materials timely or increases in the cost of transportation; ● our ability to obtain, maintain and enforce intellectual property protection for our current and future products, and third-party claims against us for violation of their intellectual property; ● the risks of doing business internationally; ● cyber security breaches and data leaks, and our dependence on information technology systems; and ● the other factors set forth under “Risk Factors.” Additional 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. 15 Table of Contents Risks Related to Our Operations and Industry Net sales of our swimming pools and related products is adversely affected by unfavorable economic conditions and trends in consumer spending, which are impacted by factors outside of our control.
Biggest changeThese risks include, but are not limited to, the following: ● Net sales for our swimming pools and related products are adversely affected by unfavorable economic conditions and related impact on consumer spending; ● adverse weather conditions impacting our sales, and can lead to significant variability of sales in reporting periods; ● natural disasters, including resulting from climate change, geopolitical events, war, terrorism, public health issues or other catastrophic events; ● competition that we face; ● our ability to attract, develop and retain highly qualified personnel; ● inflationary impacts, including on consumer demand for pool products; ● our ability to source the quantity or quality of raw materials and components that we need to manufacture our products, and increases in their costs; ● our ability to collect accounts receivables from our customers; ● our ability to keep pace with rapidly evolving technological developments and standards, such as generative artificial intelligence; ● the potential loss of our largest customers and pricing pressures resulting from industry consolidation; ● interruption of our production capability at one or more of our manufacturing facilities from accident, fire, calamity, regulatory action or other causes or events; ● product quality issues, warranty claims or safety concerns and other claims, including those due to the failure of builders to follow our product installation instructions and specifications; ● delays in, or systems disruptions issues caused by, the implementation of our enterprise resource planning system; ● cyber-security breaches and data leaks, and our dependence on information technology systems; ● compliance with government regulations; ● our ability to obtain transportation services to deliver our product and to obtain raw materials timely or increases in the cost of transportation; ● our ability to obtain, maintain and enforce intellectual property protection for our current and future products, and third-party claims against us for violation of their intellectual property; ● the risks of doing business internationally; ● our ability to secure financing and our substantial indebtedness; and ● the other factors set forth under “Risk Factors.” Additional 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. 14 Table of Contents Risks Related to Our Operations and Industry Net sales of our swimming pools and related products are adversely affected by unfavorable economic conditions and the related impact on consumer spending, which are driven by factors outside of our control.
Further, adverse weather conditions can cause the timing of sales and cash flows can shift significantly between quarterly and annual reporting periods and therefore significantly impact the meaningfulness of period-to-period comparisons of financial and operating results.
Further, adverse weather conditions can cause the timing of sales and cash flows to shift significantly between quarterly and annual reporting periods and therefore significantly impact the meaningfulness of period-to-period comparisons of financial and operating results.
Such disruptions could result in delays or cancellations of customer orders or delays or interruptions in the shipment of orders. In addition, cyber-attacks may cause us to incur significant remediation costs, result in delays, disruptions to key business operations, or divert attention of management and key information technology resources.
Such disruptions could result in delays or cancellations of customer orders or delays or interruptions in the shipment of orders. In addition, cyber-attacks may cause us to incur significant remediation costs, result in delays and disruptions to key business operations, or divert attention of management and key information technology resources.
Specifically, our high level of indebtedness could have important consequences, including: ● limiting our ability to obtain additional financing to fund capital expenditures, investments, acquisitions or other general corporate requirements; ● requiring a substantial portion of our cash flow to be dedicated to payments to service our indebtedness instead of other purposes, thereby reducing the amount of cash flow available for capital expenditures, investments, acquisitions and other general corporate purposes; ● increasing our vulnerability to and the potential impact of adverse changes in general economic, industry and competitive conditions; ● limiting our flexibility in planning for and reacting to changes in the industry in which we compete; ● placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt at more favorable interest rates; and ● increasing our costs of borrowing.
Specifically, our level of indebtedness could have important consequences, including: ● limiting our ability to obtain additional financing to fund capital expenditures, investments, acquisitions or other general corporate requirements; ● requiring a substantial portion of our cash flow to be dedicated to payments to service our indebtedness instead of other purposes, thereby reducing the amount of cash flow available for capital expenditures, investments, acquisitions and other general corporate purposes; ● increasing our vulnerability to and the potential impact of adverse changes in general economic, industry and competitive conditions; ● limiting our flexibility in planning for and reacting to changes in the industry in which we compete; ● placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt at more favorable interest rates; and ● increasing our costs of borrowing.
As long as affiliates of our Principal Stockholders own or control a majority of our outstanding voting power, our Principal Stockholders and their affiliates will have the ability to exercise substantial control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including: ● the election and removal of directors and the size of our board of directors; ● any amendment of our articles of incorporation or bylaws; or ● the approval of mergers and other significant corporate transactions, including a sale of substantially all of our assets.
As long as affiliates of our Principal Stockholders own or control a majority of our outstanding voting power, our Principal Stockholders and their affiliates have the ability to exercise substantial control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including: ● the election and removal of directors and the size of our Board of Directors; ● any amendment of our articles of incorporation or bylaws; or ● the approval of mergers and other significant corporate transactions, including a sale of substantially all of our assets.
However, our certificate of incorporation includes a provision that restricts us from engaging in any business combination with an interested stockholder for three years following the date that person becomes an interested stockholder, but such restrictions shall not apply to any business combination between our Principal Stockholders and any affiliate thereof or their direct and indirect transferees, on the one hand, and us, on the other. 32 Table of Contents Any issuance by us of preferred stock could delay or prevent a change in control of us.
However, our certificate of incorporation includes a provision that restricts us from engaging in any business combination with an interested stockholder for three years following the date that person becomes an interested stockholder, but such restrictions shall not apply to any business combination between our Principal Stockholders and any affiliate thereof or their direct and indirect transferees, on the one hand, and us, on the other. 30 Table of Contents Any issuance by us of preferred stock could delay or prevent a change in control of us.
More specifically, in March 2018, the United States imposed a 25% tariff on steel imports pursuant to Section 301 of the Trade Act of 1974 and has imposed additional tariffs on steel imports pursuant to Section 232 of the Trade Expansion Act of 1962.
More specifically, in March 2018, the United States imposed a 25% tariff on steel and aluminum imports pursuant to Section 301 of the Trade Act of 1974 and has imposed additional tariffs on steel imports pursuant to Section 232 of the Trade Expansion Act of 1962.
Our response and response of other impacted persons to any such event may result in an increase in our operating costs and require significant management resources, and we could incur impairment expense for any impacted assets.
Our response and the response of other impacted persons to any such event may result in an increase in our operating costs and require significant management resources, and we could incur impairment expense for any impacted assets.
We receive, store and process personal information and other customer information, or personal information and other data from and about our customers, prospective customers, our employees, applicants for employment and other individuals with whom we do business.
We receive, store and process personal information and other customer information, or personal information and other data from and about our customers, prospective customers, homeowners, our employees, applicants for employment and other individuals with whom we do business.
These covenants limit the ability of certain of our subsidiaries to, among other things: ● sell assets; ● engage in mergers, acquisitions, and other business combinations; 28 Table of Contents ● declare dividends or redeem or repurchase capital stock; ● incur, assume, or permit to exist additional indebtedness or guarantees; ● make loans and investments; ● incur liens; and ● enter into transactions with affiliates.
These covenants limit the ability of certain of our subsidiaries to, among other things: ● sell assets; 27 Table of Contents ● engage in mergers, acquisitions, and other business combinations; ● declare dividends or redeem or repurchase capital stock; ● incur, assume, or permit to exist additional indebtedness or guarantees; ● make loans and investments; ● incur liens; and ● enter into transactions with affiliates.
The implementation may be more expensive and take longer to fully implement than we originally plan, resulting in increased capital investment, higher fees, and expenses of third parties, delayed deployment scheduling, and more on-going maintenance expense once implemented, and, as such, it will be difficult for us to estimate the ultimate costs and schedules.
The implementation may be more expensive and take longer to fully implement than we originally planned, resulting in increased capital investment, higher fees, and expenses of third parties, delayed deployment scheduling, and more on-going maintenance expense once implemented, and, as such, it will be difficult for us to estimate the ultimate costs and schedules.
If a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and results of operations. ​ Item 1B.
If a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and results of operations. ​
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or of our certificate of incorporation or our bylaws or (iv) any action asserting a claim related to or involving the Company that is governed by the internal affairs doctrine.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our 31 Table of Contents directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or of our certificate of incorporation or our bylaws or (iv) any action asserting a claim related to or involving the Company that is governed by the internal affairs doctrine.
The imposition of tariffs and other potential changes in U.S. trade policy could increase the cost or limit the availability of raw materials, which could hurt our competitive position and adversely impact our business, financial condition, and results of operations.
The imposition of or increase in steel and aluminum tariffs and other potential changes in U.S. trade policy could increase the cost or limit the availability of raw materials, which could hurt our competitive position and adversely impact our business, financial condition, and results of operations.
While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results may negatively affect the market price and liquidity of our stock.
While we are of the view that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results may negatively affect the market price and liquidity of our stock.
In addition, we cannot be sure that any pending trademark or service mark applications will be granted or will not be challenged or opposed by third parties. We generally rely on a combination of unpatented proprietary know-how and trade secrets and, to a lesser extent, patents to preserve our position in the market.
In addition, we cannot be sure that any pending trademark or service mark applications will be granted or will not be challenged or opposed by third parties. 22 Table of Contents We generally rely on a combination of unpatented proprietary know-how and trade secrets and, to a lesser extent, patents to preserve our position in the market.
Department of The Treasury’s Office of Foreign Assets Control; ● tariffs and other import/export trade restrictions; ● currency fluctuations; ● limitations on our ability to enforce legal rights and remedies with third parties or partners outside the United States; ● foreign investment and cash repatriation regulations; ● adverse tax consequences; and ● dependence on other economies.
Department of The Treasury’s Office of Foreign Assets Control; ● tariffs and other import/export trade restrictions; 23 Table of Contents ● currency fluctuations; ● limitations on our ability to enforce legal rights and remedies with third parties or partners outside the United States; ● foreign investment and cash repatriation regulations; ● adverse tax consequences; and ● dependence on other economies.
As with most companies, we have experienced cyber-attacks, attempts to breach our systems and other similar incidents, none of which were material to our operations or financial results in 2022.
As with most companies, we have experienced cyber-attacks, attempts to breach our systems and other similar incidents, none of which were material to our operations or financial results in 2023.
In addition, to the extent we consummate an agreement for the sale and disposition of an asset or asset group, 26 Table of Contents we may experience operational difficulties segregating them from our retained assets and operations, which could impact the execution or timing for such dispositions and could result in disruptions to our operations and/or claims for damages, among other things.
In addition, to the extent we consummate an agreement for the sale and disposition of an asset or asset group, we may experience operational difficulties segregating them from our retained assets and operations, which could impact the execution or timing for such dispositions and could result in disruptions to our operations and/or claims for damages, among other things.
In addition, the financial and other covenants we agreed to in the New Credit Agreement may limit our ability to incur additional indebtedness, make investments, and engage in other transactions, and the leverage may cause potential lenders to be less willing to loan funds to us in the future. Our business and operations may consume resources faster than we anticipate.
In addition, the financial and other covenants set forth in the New Credit Agreement may limit our ability to incur additional indebtedness, make investments, and engage in other transactions, and the leverage may cause potential lenders to be less willing to loan funds to us in the future. Our business and operations may consume resources faster than we anticipate.
Further, such event could have macro implications, such as adversely impacting consumer discretionary spending, causing geopolitical uncertainty, and resulting in a macroeconomic downturn and disruption in the financial markets.
Further, such events could have macro implications, such as adversely impacting consumer discretionary spending, causing geopolitical uncertainty, and resulting in a macroeconomic downturn and disruption in the financial markets.
Our ability to meet our strategic objectives and otherwise grow our business will depend to a significant extent on the continued contributions of our leadership team, as well as our ability to identify, attract, and retain other highly qualified managerial, technical, sales and marketing, operations, and customer service personnel.
Our ability to meet our strategic objectives and otherwise grow our business will depend to a significant extent on the continued contributions of our leadership team, as well as our ability to attract, develop and retain other highly qualified managerial, technical, sales and marketing, operations, production and customer service personnel.
To the extent we are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our business, or to continue to grow our sales volumes, our net sales and gross margins could decrease, and our financial condition and results of operations could be adversely affected.
To the extent we are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our business, our net sales and gross margins could decrease, and our financial condition and results of operations could be adversely affected.
The second and third quarters of the year, which correspond to the spring and summer months in the United States, represent the peak months of swimming pool use and pool installation and maintenance. Unseasonably late warming trends in the spring or early cooling trends in the fall can shorten the length of the pool 16 Table of Contents season.
The second and third quarters of the year, which correspond to the spring and summer months in the United States, represent the peak months of swimming pool use and pool installation and maintenance. Unseasonably late warming trends in the spring or early cooling trends in the fall can shorten the length of the pool season.
In 22 Table of Contents addition, if any third party copies or imitates our products in a manner that affects customer or consumer perception of the quality of our products, or of engineered products generally, our reputation and sales could suffer whether or not these violate our intellectual property rights.
In addition, if any third party copies or imitates our products in a manner that affects customer or consumer perception of the quality of our products, or of engineered products generally, our reputation and sales could suffer whether or not these violate our intellectual property rights.
Any such event could disrupt our supply chain, our ability to manufacture and deliver our products, and our dealers’ and distributors’ ability to install our products, as well as adversely impact customer demand of our products.
Any such event could disrupt our supply chain, our ability to manufacture and deliver our products, and our dealers’ and distributors’ ability to install our products, as well as adversely impact customer demand for our products.
Our suppliers’ failure to provide raw materials and components that meet such criteria on a timely basis could adversely affect production schedules and our product quality, which in turn could materially adversely affect our business, financial condition, and results of operations.
Our suppliers’ failure to provide raw materials and components that meet such criteria on a timely basis could adversely affect production schedules and our product quality, which in turn could materially adversely affect our business, financial condition, and 17 Table of Contents results of operations.
Any new products that we develop may not receive market acceptance or otherwise generate any meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs, and research and development.
Any new products that we develop may not receive market acceptance or otherwise generate any 16 Table of Contents meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs, and research and development.
The loss or interruption of services of any of our key personnel, inability to identify, attract, or retain qualified personnel in the future, delays in hiring qualified personnel, or any employee work slowdowns, strikes, or similar actions could make it difficult for us to conduct and manage our business and meet key objectives, which could harm our business, financial condition, and results of operations.
The loss or interruption of services of any of our key personnel, ability to attract, develop or retain qualified personnel in the future, delays in hiring qualified personnel, or any employee work slowdowns, strikes, or similar actions could make it difficult for us to conduct and manage our business and meet key objectives, which could harm our business, financial condition, and results of operations.
We intend to vigorously defend ourselves in such matters as they arise. While the impact of this litigation has been or may be immaterial, there can be no assurance that the impact of the pending and any future claims will not be material to our business, financial condition, or results of operations in the future.
We generally intend to vigorously defend ourselves in such matters as they arise, as appropriate. While the impact of litigation has been and may continue to be immaterial, there can be no assurance that the impact of pending and any future claims will not be material to our business, financial condition, or results of operations in the future.
Outside of our industry, we compete indirectly with alternative suppliers of big ticket consumer discretionary outdoor 19 Table of Contents living products, such as decks and patios, and with other companies who rely on discretionary homeowner expenditures, such as home remodelers.
Outside of our industry, we compete indirectly with alternative suppliers of big ticket consumer discretionary outdoor living products, such as decks and patios, and with other companies who rely on discretionary homeowner expenditures, such as home remodelers.
In addition, Pamplona has certain board nomination rights that will enable it to exercise substantial control over all corporate actions.
In addition, Pamplona has certain Board nomination rights that may enable it to exercise substantial control over all corporate actions.
While we believe that our relationships with our current suppliers are sufficient to provide the 18 Table of Contents materials necessary to meet present production demand, these relationships may not continue or the quantity or quality of materials available from these suppliers may not be sufficient to meet our future needs, irrespective of whether we successfully implement our growth strategy, and we may not be able to obtain supplies on favorable terms.
While we are of the view that our relationships with our current suppliers are sufficient to provide the materials necessary to meet present production demand, these relationships may not continue or the quantity or quality of materials available from these suppliers may not be sufficient to meet our future needs, irrespective of whether we successfully implement our growth strategy, and we may not be able to obtain supplies on favorable terms.
Additionally, drought conditions or water management initiatives may lead to municipal ordinances related to water use restrictions, and such restrictions could result in decreased pool installations and negatively impact our sales.
Additionally, drought conditions or water management initiatives have led and may continue to lead to municipal ordinances related to water use restrictions, and such restrictions could result in decreased pool installations and negatively impact our sales.
We are experiencing inflationary pressures in certain areas of our business, including with respect to prices of our raw materials and employee wages, although, to date, we have been able to offset such pressures, to some extent, through price increases and other measures.
We continue to experience inflationary pressures in certain areas of our business, including with respect to prices of our raw materials and employee wages, although, to date, we have been able to offset such pressures, to some extent, through price increases and other measures.
Any of these events could have a material adverse effect on our business and results of operations. Our business operations could suffer if we fail to protect adequately our intellectual property rights, and we may experience claims by third parties that we are violating their intellectual property rights.
Any of these events, especially in our peak selling season, could have a material adverse effect on our business and results of operations. Our business operations could suffer if we fail to protect adequately our intellectual property rights, and we may experience claims by third parties that we are violating their intellectual property rights.
In economic downturns such as many economists and industry leaders are forecasting for 2023, the demand for swimming pools and related products has declined and we expect that such demand would decline in the future, with the magnitude of such declines often corresponding to the declines in discretionary consumer spending and the growth rate of pool eligible households.
In economic downturns such as we experienced in 2023 and which many economists and industry leaders are forecasting will continue in 2024, the demand for swimming pools and related products has declined and we expect that such demand will decline in the future, with the magnitude of such declines often corresponding to the declines in discretionary consumer spending and the growth rate of pool eligible households.
Our international operations, which accounted for 19.7% of our net sales in 2022 and a significant portion of our purchased supplies, expose us to certain additional risks, including: ● difficulty in staffing international subsidiary operations and increased costs of managing international operations; ● different political, economic, and regulatory conditions; ● local laws and customs; ● violations of anti-bribery and anti-corruption laws, such as the United States Foreign Corrupt Practices Act; ● violations of economic sanctions laws, such as the regulations enforced by the U.S.
Our international operations, which accounted for 16.1% of our net sales in 2023 and a significant portion of our purchased supplies, expose us to certain additional risks, including: ● difficulty in staffing international subsidiary operations and increased costs of managing international operations; ● different political, economic, and regulatory conditions; ● local laws and customs and enforcement thereof; ● violations of anti-bribery and anti-corruption laws, such as the United States Foreign Corrupt Practices Act; ● violations of economic sanctions laws, such as the regulations enforced by the U.S.
Delays in, or systems disruptions issues caused by, the implementation of our new enterprise resource planning system could adversely affect our operations and results of operations. We have begun the multi-year implementation of a new enterprise resource planning system.
Delays in, or systems disruptions issues caused by, the implementation of our new enterprise resource planning system could adversely affect our operations and results of operations. We are in the process of a multi-year implementation of a new enterprise resource planning system.
These laws and regulations have changed substantially and rapidly and we anticipate that there will be continuing changes, which may require us to incur costs to maintain our business.
These laws 21 Table of Contents and regulations have changed substantially and rapidly and we anticipate that there will be continuing changes, which may require us to incur costs to maintain our business.
These risks are heightened with respect to our largest customer, which accounted for 20.3% of our net sales in 2022, and our top ten dealers and distributors, which accounted for 39.4% of our net sales in 2022.
These risks are heightened with respect to our largest customer, which accounted for 20.3% of our net sales in 2023, and our top ten dealers and distributors, which accounted for 40.4% of our net sales in 2023.
Our obligations under the New Credit Agreement are secured by substantially all of our and our subsidiaries’ assets. Subject to the limits contained in the New Credit Agreement, we may be able to incur substantial additional debt from time to time to finance capital expenditures, investments, acquisitions, or for other purposes.
Our obligations under the New Credit Agreement are secured by substantially all of our and our subsidiaries’ assets. Subject 26 Table of Contents to the limits contained in the New Credit Agreement, we may incur additional debt from time to time to finance capital expenditures, investments, acquisitions, or for other purposes.
We cannot, however, predict any future trends in the rate of inflation or associated increases in our operating costs and how that may impact our business. In addition, the demand for our products may soften as we continue to increase the prices of our products to offset the inflationary pressure.
We cannot, however, predict any future trends in the rate of inflation or associated increases in our operating costs and how that may impact our business. There is a substantial risk that demand for our products may continue to soften as we continue to increase the prices of our products to offset the inflationary pressure.
We do not currently anticipate declaring any cash dividends to holders of our common stock. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not invest in our common stock.
Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not invest in our common stock.
Our board of directors consists of nine members, six of whom are our Principal Stockholders’ directors.
Our Board of Directors consists of nine members, four of whom are our Principal Stockholders’ directors.
Our operations and financial results have been, and may be in the future, adversely impacted by local, regional, national or global catastrophic events or extraordinary circumstances, such as natural or environmental disasters, public health issues such as the COVID-19 pandemic, and other serious disruption to our facilities due to fire, flood, earthquake, acts of terrorism, civil insurrection or social unrest.
Our operations and financial results have been, and may be in the future, adversely impacted by local, regional, national or global catastrophic events or extraordinary circumstances, such as natural or environmental disasters, weather 15 Table of Contents events driven by climate change or other factors, public health issues such as the COVID-19 pandemic, and other serious disruption to our facilities due to fire, flood, hurricane, earthquake, war, acts of terrorism, civil insurrection or social unrest.
We rely on manufacturers and other suppliers to provide us with the components and raw materials to manufacture our products. The primary raw materials used in our products are polyvinyl chloride (“PVC”) plastic, galvanized steel, fiberglass, aluminum, carbon fiber, Kevlar fiber, various resins, gelcoat, polypropylene fabric, and roving.
We rely on manufacturers and other suppliers to provide us with the components and raw materials to manufacture our products. The primary raw materials used in our products are polyvinyl chloride (“PVC”) plastic, galvanized steel, fiberglass, aluminum, various resins, high impact polystyrene, gelcoat and polypropylene fabric.
As of December 31, 2022, we have $322.6 million face value of indebtedness in the form of the New Term Loan outstanding under the New Credit Agreement and $75.0 million of availability under the New Revolving Credit Facility under the New Credit Agreement (each as defined below).
As of December 31, 2023, we have $309.3 million face value of indebtedness in the form of the New Term Loan outstanding under the New Credit Agreement and $75.0 million of availability under the New Revolving Credit Facility under the New Credit Agreement (each as defined below).
In the event that our trademarks or service marks are successfully challenged and we lose the rights to use those trademarks or service marks, or if we fail to prevent others from using them (or similar marks), we could be forced to rebrand our products, requiring us to devote resources to advertising and marketing new brands.
In the event that our trademarks or service marks are successfully challenged and we lose the rights to use those trademarks or service marks, or if we fail to prevent others from using them (or similar marks), we could be forced to rebrand our products, requiring us to devote resources to advertising and marketing new brands, and our competitive position and the value of our brands could be adversely affected and our intangible assets could be impaired.
In addition, we may not have the necessary resources to enhance existing information systems or implement new systems where necessary to handle our growth and changing needs, and may experience unanticipated delays, 24 Table of Contents complications and expenses in implementing and integrating our systems.
In addition, we may not have the necessary resources to enhance existing information systems or implement new systems where necessary to handle our growth strategy and changing needs, and we have experienced and may continue to experience unanticipated delays, complications and expenses in implementing and integrating our systems.
Risks Related to Ownership of Our Common Stock Our stock price has been volatile, and you may not be able to resell our common stock at or above the price you paid. Since our IPO in April 2021, our stock price has been highly volatile.
Risks Related to Ownership of Our Common Stock Our stock price has been volatile, and you may not be able to resell our common stock at or above the price you paid. Our stock price has been highly volatile in recent years.
The ongoing war between Russia and Ukraine could adversely affect our operations, and related sanctions and other actions that have been or may be enacted by the United States, the European Union, or other governing entities could adversely affect our business, our business partners, our suppliers, and our customers.
The ongoing war between Russia and Ukraine, and related sanctions and other actions that have been or may be enacted by the United States, the European Union, or other governing entities could have a lasting impact on regional and global economies and adversely affect our business, our business partners, our suppliers, and our customers.
If we do incur substantial 27 Table of Contents additional debt, the risks related to our high level of debt could intensify.
If we do incur substantial additional debt, the risks related to our level of debt could intensify.
An interruption in our production capabilities could also require us to make substantial capital expenditures to replace damaged or destroyed facilities or equipment. Any of these events could result in substantial repair costs and higher operating costs.
An interruption in our production capabilities could also require us to make substantial capital expenditures to replace damaged or destroyed facilities or equipment (as we incurred following the Texas facility fire). Any of these events could result in substantial repair costs and higher operating costs.
Broad rules and regulations have been proposed by the SEC for adoption in 2023 requiring increased climate change-related disclosure in future filings, which may require us to incur significant compliance costs and could increase liability and reputational risks.
For example broad rules and regulations have been approved recently in the State of California and proposed by the SEC for adoption in 2024 requiring increased climate change-related disclosure, which may require us to incur significant compliance costs and could increase liability and reputational risks.
Interest rates may fluctuate in the future. As a result, although we hedged most of our interest rate exposure under the New Credit Agreement, interest rates on the New Credit Agreement or other variable rate debt obligations could be higher or lower than current levels.
Interest rates have fluctuated significantly and are expected to fluctuate significantly in the future. As a result, although we hedged part of our interest rate exposure under the New Credit Agreement, interest rates on the New Credit Agreement or other variable rate debt obligations could be higher or lower than current levels.
(together with its respective subsidiaries and affiliates, “Wynnchurch”) are currently our majority stockholders (the “Principal Stockholders”). Affiliates of our Principal Stockholders together own approximately 47.0% of the outstanding shares of our common stock as of March 2, 2023.
(together with its respective subsidiaries and affiliates, “Wynnchurch”) are currently our majority stockholders (the “Principal Stockholders”). Affiliates of our Principal Stockholders together own approximately 57.9% of the outstanding shares of our common stock as of March 8, 2024.
Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us. Finally, our customers may default on their obligations to us.
Changes in our customers’ strategies may adversely affect our sales. Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us. Finally, our customers may default on their obligations to us.
Even if we are successful in integrating acquired businesses, these integrations may not result in the realization of the full benefit of any anticipated growth opportunities or cost synergies or that these benefits will be realized within the expected time frames.
Even if we are successful in integrating acquired businesses, these integrations may not result in the realization of the full benefit of any anticipated growth opportunities or cost synergies or we may not realize these benefits within the expected time frames, which could result in an impairment of acquired assets.
Any of the foregoing could materially adversely affect our brand, reputation, business, results of operations, and financial condition. 25 Table of Contents An interruption of our production capability at one or more of our manufacturing facilities from accident, calamity or other causes, or events affecting the global economy, could adversely affect our business and results of operations.
An interruption of our production capability at one or more of our manufacturing facilities from accident, calamity or other causes, or events affecting the global economy, could adversely affect our business and results of operations.
Product quality, warranty claims or safety concerns and other claims in the ordinary course of business could negatively impact our sales, lead to increased costs, and expose us to litigation. Other litigation and regulatory matters incidental to our business also may adversely impact our business and financial results.
Product quality, warranty claims or safety concerns and other claims due to the failure of third party installers to follow our product installation instructions and procedures could negatively impact our sales, lead to increased costs, and expose us to litigation. Other litigation and regulatory matters incidental to our business also may adversely impact our business and financial results.
We are subject to regulation under federal, state, local and international employment, environmental, health, transportation, and safety requirements, which govern such things as the manufacture of fiberglass pools, which is our key product.
The nature of our business subjects us to compliance with employment, environmental, health, transportation, safety, anti-corruption, trade, and other governmental regulations. We are subject to regulation under federal, state, local and international employment, environmental, health, transportation, and safety requirements, which govern such things as the manufacture of fiberglass pools, which is our key product.
Fluctuations in other factors relating to international trade, such as tariffs, transportation costs and inflation are additional risks for our international operations. Our failure to manage any of these risks could adversely affect our international operations and our financial results. 23 Table of Contents We rely on information technology systems to support our business operations.
Fluctuations in other factors relating to international trade, such as tariffs, transportation availability and costs and inflation are additional risks for our international operations. Our failure to manage any of these risks could adversely affect our international operations and our financial results.
The effects of any protracted or severe economic declines may cause our customers to be unable to satisfy their payment obligations, including with us.
The financial health of many of our customers is affected by changes in the economy. The effects of any protracted or severe economic declines may cause our customers to be unable to satisfy their payment obligations, including with us.
We are also involved or may be involved in various disputes, litigation, and regulatory matters incidental to and in the ordinary course of our business, including employment matters, personal injury claims, intellectual property disputes, commercial disputes, government compliance matters, environmental matters, and other matters arising out of the normal conduct of our business.
The defense of such claims can also be a distraction to management and to our warranty team, as well as cause reputational harm. 19 Table of Contents We are also involved or may be involved in various disputes, litigation, and regulatory matters incidental to and in the ordinary course of our business, including employment matters, personal injury claims, intellectual property disputes, commercial disputes, government compliance matters, environmental matters, and other matters arising out of the normal conduct of our business.
If we complete an acquisition, merger, sale of certain assets, refinancing, recapitalization, or material strategic transaction, we may require additional financing that could result in an increase in the aggregate amount and/or cost of our debt. The aggregate principal amount of our debt that we may issue may be significant. Moreover, the terms of any debt financing may be expensive.
If we complete an acquisition, merger, sale of certain assets, refinancing, recapitalization, or other material strategic transaction, we may require additional financing or recapitalizing existing financing that could result in an increase in the aggregate amount and/or cost of our debt, or may not be available at all.
In addition, the stock markets, and the market for growth stocks in particular, have from time to time experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating 30 Table of Contents performance of those companies.
In addition, the stock markets, and the market for growth stocks in particular, have from time to time experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may significantly affect the market price of our common stock, regardless of our actual operating performance.
Our Principal Stockholders continue to have significant influence over us, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.
You may not realize any return on your investment in us and may lose some or all of your investment. Our Principal Stockholders continue to have significant influence over us, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.
In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit.
In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock.
Natural disasters, war, terrorism, public health issues such as the COVID-19 pandemic, or other catastrophic events could adversely affect our business. financial condition and results of operations.
Natural disasters, including resulting from climate change, geopolitical events, war, terrorism, public health issues, or other catastrophic events could adversely affect our business. financial condition and results of operations.
In the event of a shortage of our raw materials, we may not be able to arrange for alternative sources of such materials on a timely basis or on equally favorable terms.
In the event of a shortage of our raw materials, we may not be able to arrange for alternative sources of such materials on a timely basis or on equally favorable terms, and we could experience a disruption to our operations as alternative suppliers are identified and qualified and new supply arrangements are entered into.
Any significant change to applicable laws, regulations or industry practices regarding the use or disclosure of personal information could result in increased compliance costs.
Any significant change to applicable laws, regulations or industry practices regarding the use or disclosure of personal information could result in increased compliance costs. Any of the foregoing could materially adversely affect our brand, reputation, business, results of operations, and financial condition.
Adverse weather can interfere with ordinary transportation of our products and installation and cause a resulting delay, or if such delay is prolonged may lead to a cancelled order.
Weather is one of the principal external factors affecting our business, and the impact of bad weather is further exacerbated by the seasonality of our sales cycle. Adverse weather can interfere with ordinary transportation of our products and installation and cause a resulting delay, or if such delay is prolonged may lead to a cancelled order.
We are dependent upon the ability of our suppliers to consistently provide raw materials and components that meet our specifications, quality standards and other applicable criteria.
Other than occasional strategic purchases of larger quantities of certain raw materials, we generally buy materials on an as-needed basis. We are dependent upon the ability of our suppliers to consistently provide raw materials and components that meet our specifications, quality standards and other applicable criteria.
Pamplona has the right to nominate to our board of directors a number of designees on a sliding scale depending on Pamplona’s affiliates’ ownership of our common stock, ranging from Pamplona being able to nominate at least a majority of the total number of directors so long as its affiliates beneficially own at least 50% of the shares of our common stock to Pamplona being able to nominate at least 10% of the total number of directors as long as its affiliates beneficially own at least 5%.
Pamplona has the right to nominate to our Board of Directors a number of designees on a sliding scale depending on Pamplona’s affiliates’ ownership of our common stock, ranging from Pamplona being able to nominate at least a majority of the total number of directors so long as its affiliates beneficially own at least 50% of the shares of our common stock to Pamplona being able to nominate at least 10% of the total number of directors as long as its affiliates beneficially own at least 5%. 29 Table of Contents Moreover, ownership of our shares by affiliates of our Principal Stockholders may also adversely affect the trading price for our common stock to the extent investors perceive disadvantages in owning shares of a company with a controlling shareholder.
We extend credit to our customers, and we generally do not require collateral to secure these extensions of credit. A significant portion of our accounts receivables are typically concentrated within a relatively small number of customers. The financial health of many of our customers is affected by changes in the economy.
We extend credit to our customers (dealers in one-step distribution channel or distributor in two-step distribution channel), and we generally do not require collateral to secure these extensions of credit. A significant portion of our accounts receivables are typically concentrated within a relatively small number of customers.
If we were to incur a significant liability for which we were not fully insured or that our insurers disputed or for which we self-insure, our business, financial condition and results of operations could be materially adversely affected. Risks Related to Our Indebtedness Our substantial indebtedness could adversely affect our financial condition. We have a significant amount of indebtedness.
If we were to incur a significant liability for which we were not fully insured or that our insurers disputed or for which we self-insure, our business, financial condition and results of operations could be materially adversely affected. If our goodwill, other intangible assets or fixed assets become impaired, we may be required to record a significant charge to earnings.
These tariffs could result in interruptions in the supply chain and impact costs and our gross margins. We procure certain raw materials we use in the manufacturing of our products directly or indirectly from outside of the United States.
We procure certain raw materials we use in the manufacturing of our products directly or indirectly from outside of the United States.
Advances in computer and software capabilities, encryption technology and other discoveries increase the complexity of our technological environment, including how each interact with our various software platforms. Such advances could delay or hinder our ability to process transactions or could compromise the integrity of our data, resulting in a material adverse impact on our financial condition and results of operations.
Such advances could delay or hinder our ability to process transactions or could compromise the integrity of our data, resulting in a material adverse impact on our financial condition and results of operations.
The implementation may also cause complications to ongoing operations, result in material weaknesses to our internal control framework, increase regulatory compliance risks, and impact our ability to process transactions efficiently, all of which may have a material adverse effect on our business and results of operations. 20 Table of Contents The nature of our business subjects us to compliance with employment, environmental, health, transportation, safety, anti-corruption, trade, and other governmental regulations.
The implementation may also cause complications to ongoing operations, result in material weaknesses to our internal control framework, increase regulatory compliance risks, and impact our ability to process transactions efficiently, all of which may have a material adverse effect on our business and results of operations. We rely on information technology systems to support our business operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe our facilities are adequate and suitable for our current needs. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ownership Location Purpose Size (Sq. ft.) (owned or leased) Melbourne, Australia Storage facility and office 6,243 Leased Picton, Australia Fiberglass facility 49,514 Leased Picton, Australia ​ Storage ​ 115,174 (1) ​ Leased Sydney, Australia Office 6,889 Leased Yalta, Australia Fiberglass facility 32,292 Leased Ajax, Canada Fiberglass steps 25,641 Leased Brantford, Canada Liners, steel panels and covers facility 113,360 Leased Kingston, Canada Fiberglass facility 2,700 Leased Terrebonne, Canada Warehouse/distribution 35,000 Leased Hamilton, New Zealand Fiberglass facility 21,528 Leased Hamilton, New Zealand Mold building facility 10,764 Leased Williams, California Fiberglass facility 67,734 Leased Zephyrhills, Florida Fiberglass facility 42,000 Leased Suwanee, Georgia Liners and covers facility 84,466 Leased Fort Wayne, Indiana Liners, kits and covers facility 161,000 Leased Plainfield, Indiana Automatic safety covers facility 99,288 Leased De Witt, Iowa Fiberglass facility 40,000 Leased Bossier City, Louisiana Liners and covers facility 47,334 (2) Leased Breaux Bridge, Louisiana Fiberglass facility 22,463 Leased Albany, New York ​ Aluminum kit facility ​ 86,000 ​ Leased Albany, New York ​ Warehouse ​ 7,650 ​ Leased Latham, New York Headquarters, polymer panels and thermoformed steps facility 97,000 Owned Queensbury, New York Fiberglass depot 82,550 Leased Scotia, New York Liners and covers facility 122,543 Leased Powells Point, North Carolina Fiberglass depot 1,200 Leased Rockingham, North Carolina Fiberglass facility 45,330 Owned Youngstown, Ohio Warehouse — finished products 105,000 Leased Youngstown, Ohio Warehouse — raw materials 86,812 Leased Youngstown, Ohio Liners and covers facility 16,992 Leased Seminole, Oklahoma ​ Fiberglass facility ​ 17,956 ​ Owned Fayetteville, Tennessee Fiberglass facility 58,631 Owned Odessa, Texas Fiberglass facility 33,500 (3) Leased Lindon, Utah Automatic safety covers facility 55,789 Leased Lindon, Utah ​ Warehouse and office ​ 6,750 ​ Leased Jane Lew, West Virginia Fiberglass facility 67,100 Leased Jane Lew, West Virginia Storage facility and office 18,000 Leased (1) Land Only (2) On November 8, 2022, we approved a cost reduction plan which involved the closure of the facility in Bossier City, Louisiana in the first quarter of 2023.
Biggest changeWe believe our facilities are adequate and suitable for our current needs. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ownership Location Purpose Size (Sq. ft.) (owned or leased) Melbourne, Australia Storage facility and office 6,243 Leased Picton, Australia Fiberglass facility 49,514 Leased Picton, Australia ​ Storage ​ 115,174 (1) ​ Leased Sydney, Australia Office 6,889 Leased Yalta, Australia Fiberglass facility 30,591 Leased Brisbane, Australia ​ Fiberglass facility ​ 32,292 ​ Leased Ajax, Canada ​ Fiberglass steps ​ 88,051 ​ Leased Brantford, Canada ​ Liners, steel panels and covers facility ​ 116,000 ​ Leased Loyalist, Canada Fiberglass facility 164,000 Owned Hamilton, New Zealand Fiberglass facility 21,528 Leased Hamilton, New Zealand Mold building facility 10,764 Leased Williams, California Fiberglass facility 44,000 Leased Zephyrhills, Florida Fiberglass facility 42,000 Leased Suwanee, Georgia Liners and covers facility 151,200 Leased Fort Wayne, Indiana Liners, kits and covers facility 161,500 Leased Plainfield, Indiana Automatic safety covers facility 99,288 Leased De Witt, Iowa Fiberglass facility 40,000 Leased Breaux Bridge, Louisiana Fiberglass facility 22,463 Leased Albany, New York ​ Aluminum kit facility ​ 60,000 ​ Leased Albany, New York ​ Warehouse ​ 8,000 ​ Leased Latham, New York Headquarters, polymer panels and thermoformed steps facility 92,000 Owned Queensbury, New York Fiberglass depot 2,400 Leased Scotia, New York Liners and covers facility 120,000 Leased Menands, New York ​ Warehouse - manufacturing ​ 86,000 ​ Leased Powells Point, North Carolina Fiberglass depot 1,200 Leased Rockingham, North Carolina Fiberglass facility 42,781 Owned Youngstown, Ohio Warehouse — finished products 105,000 Leased Youngstown, Ohio Warehouse — raw materials 85,868 Leased Youngstown, Ohio Liners and covers facility 16,982 Leased Seminole, Oklahoma ​ Fiberglass facility ​ 17,956 ​ Owned Fayetteville, Tennessee Fiberglass facility 59,441 Owned Odessa, Texas Fiberglass facility 25,000 Leased Lindon, Utah Automatic safety covers facility 55,000 Leased Lindon, Utah ​ Warehouse and office ​ 6,750 ​ Leased Jane Lew, West Virginia Fiberglass facility 31,050 Leased Jane Lew, West Virginia Storage facility and office 55,000 Leased (1) Land Only ​ ​ ​ ​ 35 Table of Contents
Item 2. Properties Our headquarters are in Latham, New York. We have manufacturing and storage facilities in the United States, Canada, New Zealand, and Australia.
Item 2. Properties Our headquarters are located in Latham, New York. We have manufacturing, warehouse, storage and office facilities in the United States, Canada, New Zealand, and Australia.
Removed
(3) This property was impacted by a fire in April of 2022 which primarily impacted the facility’s production area, we are currently evaluating the future plans for this property. ​ In addition to our existing facilities, we have commenced building a 170,000 square foot fiberglass manufacturing facility on a 148 acres site in Kingston, Loyalist Township in Ontario, Canada, with production expected to begin in 2023. 35 Table of Contents ​

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeCurrently, there are no claims or proceedings against us that we believe will have a material adverse effect on our business, financial condition, results of operations or cash flows. Further, no material legal proceedings were terminated, settled, or otherwise resolved during the fourth quarter of the fiscal year ended December 31, 2022.
Biggest changeCurrently, there are no claims or proceedings against us that we believe will have a material adverse effect on our business, financial condition, results of operations or cash flows. Further, no material legal proceedings were terminated, settled, or otherwise resolved during the fourth quarter of the year ended December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeWe did not pay any dividends during the period reflected in the graph. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4/23/2021 ​ 12/31/2021 ​ 12/31/2022 Latham Group, Inc. $ 100.00 ​ $ 91.85 ​ $ 11.82 Russell 2000 $ 100.00 ​ $ 99.56 ​ $ 79.21 S&P SmallCap 600 Consumer Discretionary Index $ 100.00 ​ $ 98.11 ​ $ 70.82 ​ ​ ​ ​ ​ Item 6.
Biggest changeWe did not pay any dividends during the period reflected in the graph. 37 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4/23/2021 ​ 12/31/2021 ​ 12/31/2022 ​ 12/31/2023 Latham Group, Inc. $ 100.00 ​ $ 91.85 ​ $ 11.82 ​ $ 9.65 Russell 2000 $ 100.00 ​ $ 99.56 ​ $ 79.21 ​ $ 92.62 S&P SmallCap 600 Consumer Discretionary Index $ 100.00 ​ $ 98.11 ​ $ 70.82 ​ $ 73.83 ​ ​ ​ ​ ​ Item 6.
See “Risk Factors—Risks Relating Ownership of our Common Stock—We do not anticipate paying any cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment” and 37 Table of Contents “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Performance Graph The following graph compares the cumulative total return on our common stock since it began trading on the NASDAQ Global Select Market on April 23, 2021 with the cumulative total return of the Russell 2000 Index and the S&P SmallCap 600 Consumer Discretionary Index.
See “Risk Factors—Risks Relating Ownership of our Common Stock—We do not anticipate paying any cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Performance Graph The following graph compares the cumulative total return on our common stock since it began trading on the NASDAQ Global Select Market on April 23, 2021 with the cumulative total return of the Russell 2000 Index and the S&P SmallCap 600 Consumer Discretionary Index.
The graph assumes, in each case, an initial investment of $100 on April 23, 2021, based on the market price at the end of each month through and including December 31, 2022, and that all dividends paid by companies included in these indices have been reinvested.
The graph assumes, in each case, an initial investment of $100 on April 23, 2021, based on the market price at the end of each month through and including December 31, 2023, and that all dividends paid by companies included in these indices have been reinvested.
Issuer Purchases of Equity Securities On May 10, 2022, we approved a stock repurchase program, which authorized us to repurchase up to $100.0 million of our shares of common stock over the next three years. We may effect these repurchases in open market transactions, privately negotiated purchases, or other acquisitions.
Issuer Purchases of Equity Securities On May 10, 2022, our Board of Directors approved a stock repurchase program, which authorizes us to repurchase up to $100.0 million of our shares of common stock over the next three years. We may effect these repurchases in open market transactions, privately negotiated purchases, or other acquisitions.
On December 31, 2022, there were 30 registered holders of record of our common stock. A greater number of holders are “street name” or beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions.
On December 31, 2023, there were 27 registered holders of record of our common stock. A greater number of holders are “street name” or beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions.
Removed
The following table shows the total number of shares repurchased on a trade date basis during the fiscal quarter ended December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period Total number of shares purchased ​ Average price paid per share ​ Total number of shares purchased as part of publicly announced plan 1 ​ Approximate dollar value of shares that may yet be purchased under the plan ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) October 2, 2022 - October 29, 2022 ​ ​ — ​ $ — ​ ​ — ​ $ 85,000 October 30, 2022 - November 26, 2022 ​ 992,034 ​ ​ 3.13 ​ 992,034 ​ 81,891 November 27, 2022 - December 31, 2022 ​ 1,465,355 ​ ​ 3.36 ​ 1,465,355 ​ 76,962 Total ​ 2,457,389 ​ $ 3.27 ​ 2,457,389 ​ $ 76,962 (1) All shares were repurchased under a Rule 10b5-1 trading plan. ​ Dividends We currently do not intend to pay cash dividends on our common stock.
Added
No shares were repurchased during the fourth quarter of the year ended December 31, 2023. As of December 31, 2023, $77.0 million remained available under our stock repurchase program. Dividends We currently do not intend to pay cash dividends on our common stock. However, we may in the future decide to pay dividends on our common stock.
Removed
However, we may in the future decide to pay dividends on our common stock.
Removed
Reserved ​ ​ ​ ​ 38 Table of Contents

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. Reserved ​ 38 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 39 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk ​ 57 ​ ​ ​
Biggest changeItem 6. Reserved ​ 38 ​ ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 39 ​ ​ ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk ​ 58 ​ ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table provides a reconciliation of our net income (loss) to Adjusted EBITDA for the periods presented and the calculation of Adjusted EBITDA margin: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Net (loss) income ​ $ (5,694) ​ $ (62,348) ​ $ 15,983 ​ Depreciation and amortization ​ 38,175 ​ 32,230 ​ 25,365 ​ Interest expense ​ 15,753 ​ 24,433 ​ 18,251 ​ Income tax expense ​ 19,415 ​ 8,818 ​ 6,776 ​ Loss on sale and disposal of property and equipment ​ 193 ​ 275 ​ 332 ​ Restructuring charges (a) ​ 1,607 ​ 906 ​ 1,265 ​ Stock-based compensation expense ​ 50,634 ​ 128,775 ​ 1,827 ​ Unrealized losses (gains) on foreign currency transactions (b) ​ 2,534 ​ 1,151 ​ (1,111) ​ Strategic initiative costs (c) ​ 3,948 ​ 2,531 ​ 6,264 ​ Acquisition and integration related costs (d) ​ 326 ​ 3,576 ​ 5,497 ​ Loss on extinguishment of debt (e) ​ ​ 3,465 ​ ​ — ​ ​ — ​ Underwriting fees related to offering of common stock (f) ​ ​ 11,437 ​ ​ — ​ ​ — ​ Odessa fire (g) ​ ​ 869 ​ ​ — ​ ​ — ​ IPO costs (h) ​ — ​ 3,956 ​ 1,731 ​ Other (i) ​ ​ 590 ​ (4,484) ​ 1,656 ​ Adjusted EBITDA ​ $ 143,252 ​ $ 139,819 ​ $ 83,836 ​ Net sales ​ $ 695,736 ​ $ 630,456 ​ $ 403,389 ​ Net (loss) income margin ​ (0.8) % (9.9) % 4.0 % Adjusted EBITDA margin ​ 20.6 % 22.2 % 20.8 % (a) Represents costs related to a cost reduction plan announced in 2022 to optimize production and shift schedules, implement a workforce reduction, and to shut down our Bossier City, Louisiana facility.
Biggest changeManagement 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. 49 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) Net loss ​ $ (2,388) ​ $ (5,694) ​ $ (62,348) ​ Depreciation and amortization ​ 40,751 ​ 38,175 ​ 32,230 ​ Interest expense, net ​ 30,916 ​ 15,753 ​ 24,433 ​ Income tax (benefit) expense ​ (7,672) ​ 19,415 ​ 8,818 ​ Loss on sale and disposal of property and equipment ​ 138 ​ 193 ​ 275 ​ Restructuring charges (a) ​ 3,727 ​ 1,607 ​ 906 ​ Stock-based compensation expense (b) ​ 18,804 ​ 50,634 ​ 128,775 ​ Unrealized (gains) losses on foreign currency transactions (c) ​ (110) ​ 2,534 ​ 1,151 ​ Strategic initiative costs (d) ​ 4,092 ​ 3,948 ​ 2,531 ​ Acquisition and integration related costs (e) ​ 911 ​ 326 ​ 3,576 ​ Loss on extinguishment of debt (f) ​ ​ — ​ ​ 3,465 ​ ​ — ​ Underwriting fees related to offering of common stock (g) ​ ​ — ​ ​ 11,437 ​ ​ — ​ Odessa fire (h) ​ ​ (2,600) ​ ​ 869 ​ ​ — ​ IPO costs (i) ​ — ​ — ​ 3,956 ​ Other (j) ​ ​ 1,456 ​ 590 ​ (4,484) ​ Adjusted EBITDA ​ $ 88,025 ​ $ 143,252 ​ $ 139,819 ​ Net sales ​ $ 566,492 ​ $ 695,736 ​ $ 630,456 ​ Net loss margin ​ (0.4) % (0.8) % (9.9) % Adjusted EBITDA margin ​ 15.5 % 20.6 % 22.2 % (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.
Investing Activities During the year ended December 31, 2022, investing activities used $45.0 million of cash, primarily consisting of the purchase of property and equipment for $39.7 million and acquisitions of businesses of $5.4 million. The purchase of property and equipment was primarily to expand capacity for production, especially for fiberglass pools.
During the year ended December 31, 2022, investing activities used $45.0 million of cash, primarily consisting of the purchase of property and equipment for $39.7 million and acquisitions of businesses of $5.4 million. The purchase of property and equipment was primarily to expand capacity for production, especially for fiberglass pools.
Financing Activities During the year ended December 31, 2022, financing activities provided $3.8 million of cash, primarily consisting of proceeds from long-term debt borrowings in connection with the debt refinancing of $320.1 million, proceeds from the sale of common stock of $257.7 million and borrowings on revolving credit facilities of $25.0 million, partially offset by repayments on long-term debt borrowings of $286.5 million, the repurchase and retirement of common stock of $280.7 million, repayments on revolving credit facility borrowings of $25.0 million, and deferred financing fees paid of $6.9 million.
During the year ended December 31, 2022, financing activities provided $3.8 million of cash, primarily consisting of proceeds from long-term debt borrowings in connection with the debt refinancing of $320.1 million, proceeds from the sale of common stock of $257.7 million and borrowings on revolving credit facilities of $25.0 million, partially offset by repayments on long-term debt borrowings of $286.5 million, the repurchase and retirement of common stock of $280.7 million, repayments on revolving credit facility borrowings of $25.0 million, and deferred financing fees paid of $6.9 million.
(i) Other costs consist of other discrete items as determined by management, primarily including: (i) fees paid to external advisors for various matters, (ii) the cost incurred and insurance proceeds related to our production facility fire in Picton, Australia in 2020, (iii) non-cash adjustments to record the step-up in the fair value of inventory related to the acquisitions of GLI and Radiant, which were amortized through cost of sales in the consolidated statements of operations, (iv) gain on sale of portion of equity method investment, and (v) other items. ​ ​ 50 Table of Contents Liquidity and Capital Resources Overview Our primary sources of liquidity are net cash provided by operating activities and availability under our New Revolving Credit Facility.
(j) Other costs consist of other discrete items as determined by management, primarily including: (i) fees paid to external advisors for various matters, (ii) the cost incurred and insurance proceeds related to our production facility fire in Picton, Australia in 2020, (iii) non-cash adjustments to record the step-up in the fair value of inventory related to the acquisitions of GLI and Radiant, which were amortized through cost of sales in the consolidated statements of operations, (iv) gain on sale of portion of equity method investment, and (v) other items. 50 Table of Contents Liquidity and Capital Resources Overview Our primary sources of liquidity are net cash provided by operating activities and availability under our New Revolving Credit Facility.
We believe that this will be a long-term trend toward material conversion from traditional concrete pools. We believe that our fiberglass pools offer a compelling value proposition because of their lower up-front and lifecycle cost of ownership, less maintenance, higher quality, lower usage of harsh chemicals, quicker installation, and more convenient experience, compared to products manufactured from traditional materials.
From our perspective this will be a long-term trend toward material conversion from traditional concrete pools. We believe that our fiberglass pools offer a compelling value proposition because of their lower up-front and lifecycle cost of ownership, less maintenance, higher quality, lower usage of harsh chemicals, quicker installation, and more convenient experience, compared to products manufactured from traditional materials.
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and should not be considered as alternatives to net income 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.
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.
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 year, driven primarily by seasonality and the timing of raw material purchases. Our capital expenditures are primarily related to growth, including production capacity, storage, and delivery equipment.
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 year, driven primarily by seasonality and the timing of raw material purchases. Our capital expenditures are primarily related to our growth strategy, including production capacity, storage, and delivery equipment.
Our investment in Premier Pools & Spas is reflected as an equity method investment on our consolidated balance sheet as of December 31, 2022, and our proportionate share of earnings or losses of Premier Pools & Spas is recognized in earnings (losses) from equity method investment in our consolidated statement of operations on a three-month lag.
Our investment in Premier Pools & Spas is reflected as an equity method investment on our consolidated balance sheet as of December 31, 2023 and 2022, and our proportionate share of earnings or losses of Premier Pools & Spas is recognized in earnings (losses) from equity method investment in our consolidated statement of operations on a three-month lag.
We believe that new products will enhance our ability to compete with traditional materials at a variety of price points, and we expect to continue to devote significant resources to developing innovative new products.
We expect that new products will enhance our ability to compete with traditional materials at a variety of price points, and that we will continue to devote significant resources to developing innovative new products.
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; 48 Table of Contents ● 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.
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.
Business,” and our audited consolidated financial statements and related notes for the three years ended December 31, 2022, 2021 and 2020, included elsewhere in this Annual Report. Overview We are the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand.
Business,” and our audited consolidated financial statements and related notes for the three years ended December 31, 2023, 2022 and 2021, included elsewhere in this Annual Report. Overview We are the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand.
In order to strengthen our relationship with our loyal dealer partners, we have implemented “Latham Grand,” a key dealer strategy whereby we have secured exclusivity from over 250 of our largest dealers in North America, which also includes the United States’ largest franchised dealer network, Premier Pools & Spas.
In order to strengthen our relationship with our loyal dealer partners, we have implemented “Latham Grand,” a key dealer strategy whereby we have secured exclusivity from over 300 of our largest dealers in North America, which also includes the United States’ largest franchised dealer network, Premier Pools & Spas.
(e) Represents the loss on extinguishment of debt in connection with our debt refinancing on February 23, 2022. (f) Represents underwriting fees related to our offering of common stock that was completed in January 2022. (g) Represents costs incurred and insurance recoveries related to a production facility fire in Odessa, Texas.
(f) Represents the loss on extinguishment of debt in connection with our debt refinancing on February 23, 2022. (g) Represents underwriting fees related to our offering of common stock that was completed in January 2022. (h) Represents costs incurred and insurance recoveries related to a production facility fire in Odessa, Texas.
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. These estimates are based on historical results, trends, and other assumptions we believe to be reasonable.
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. These estimates are based on historical results, trends, and other assumptions we estimate to be reasonable.
The continuous evolution and expansion of our product portfolio is critical to our sales growth, expanding market share, and overall success. Our broad product offering allows dealers and distributors to offer consumers a wide variety of innovative pool shapes, depths, and lengths.
The continuous evolution and expansion of our product portfolio is critical to our future sales growth, expansion of market share, and overall success. Our broad product offering allows dealers and distributors to offer consumers a wide variety of innovative pool shapes, depths, and lengths.
Contractual Obligations Our largest contractual obligations as of December 31, 2022 consisted of principal payments related to our long-term indebtedness that are included in our consolidated balance sheet and the related periodic interest payments, and non-cancelable operating leases.
Contractual Obligations Our largest contractual obligations as of December 31, 2023 consisted of principal payments related to our long-term indebtedness that are included in our consolidated balance sheet and the related periodic interest payments, and non-cancelable operating leases.
(h) These expenses are primarily composed of legal, accounting, and professional fees incurred in connection with our initial public offering that are not capitalizable, and that are included within selling, general, and administrative expense.
(i) These expenses are primarily composed of legal, accounting, and professional fees incurred in connection with our initial public offering that are not capitalizable, and that are included within selling, general, and administrative expense.
Our volume of product sales in a given period will be impacted by changes in our distribution platform and by our ability to generate leads for our dealers. ● Material conversion: We have continued to increase sales of our products through our focused efforts to drive material conversion and market penetration of our products, specifically our fiberglass pools, which continue to take market share from traditional concrete pools and enable dramatically improved economics for consumers, dealers, and pool installers.
Our volume of product sales in a given period will be impacted by changes in our distribution platform and by our ability to generate leads for our dealers. ● Material conversion: We have continued to consummate sales of our products through our focused efforts to drive material conversion and market penetration of our products, specifically our fiberglass pools, which continue to take market share from traditional concrete pools and enable meaningfully improved economics for consumers, dealers, and pool installers.
The cost of the raw materials used in our manufacturing processes is subject to volatility and has been affected by changes in supply and demand. We have minimal fixed-price contracts with our major vendors. We have not entered into hedges of our raw material costs at this time, but we may choose to enter into such hedges in the future.
The cost of the raw materials used in our manufacturing processes is subject to volatility and has been affected by changes in supply and demand. We have minimal fixed-price contracts with our major vendors. We have not entered into hedges of our raw material costs historically, but we may choose to enter into such hedges in the future.
Although we believe these measures are useful to investors and analysts for the same reasons it is useful to management, as discussed below, these measures are neither a substitute for, nor superior to, U.S. GAAP financial measures or disclosures. Other companies may calculate similarly-titled non-GAAP measures differently, limiting their usefulness as comparative measures.
Although it is our view these measures are useful to investors and analysts for the same reasons it is useful to management, as discussed below, these measures are neither a substitute for, nor superior to, U.S. GAAP financial measures or disclosures. Other companies may calculate similarly-titled non-GAAP measures differently, limiting their usefulness as comparative measures.
These scenarios are partially mitigated by our geographic diversity, both across the United States and through international markets. Pricing In general, our products are priced to be competitive in the in-ground swimming pool market, including the prices for concrete pools, and to keep in line with changes in our input costs.
These scenarios are partially mitigated by our geographic diversity, both across the United States and through international markets. 41 Table of Contents Pricing In general, our products are priced to be competitive in the in-ground swimming pool market, including the prices for concrete pools, and to keep in line with changes in our input costs.
If the carrying amount of the reporting unit exceeds its fair value, there is an impairment of goodwill and an impairment loss is recorded. We calculate the 55 Table of Contents impairment loss by comparing the fair value of the reporting unit less the carrying value, including goodwill. The goodwill impairment is limited to the carrying value of the goodwill.
If the carrying amount of the reporting unit exceeds its fair value, there is an impairment of goodwill and an impairment loss is recorded. We calculate the impairment loss by comparing the fair value of the reporting unit less the carrying value, including goodwill. The goodwill impairment is limited to the carrying value of the goodwill.
As a result, if we had used significantly different assumptions or estimates, the fair value of our stock-based compensation expense could have been materially different. For stock options, restricted stock awards, and restricted stock units, stock-based compensation is recognized using a graded vesting method over the requisite service period in which employees earn the awards.
As a result, if we had used significantly different assumptions or estimates, the fair value of our stock-based compensation expense could have been materially different. 55 Table of Contents For stock options, restricted stock awards, restricted stock units and stock appreciation rights, stock-based compensation is recognized using a graded vesting method over the requisite service period in which employees earn the awards.
Our liabilities for uncertain tax positions were $7.1 million and $5.7 million for the years ended December 31, 2022 and 2021, respectively. Changes in recognition and measurement estimates are recorded in income tax (benefit) expense and liability in the period in which such changes occur.
Our liabilities for uncertain tax positions were $0.0 million and $7.1 million for the years ended December 31, 2023 and 2022, respectively. Changes in recognition and measurement estimates are recorded in income tax (benefit) expense and liability in the period in which such changes occur.
We also have a strong distribution network as a result of over 450 distributor branch locations that represent our products. Through our significant investments in partnerships with dealers and distributors and our consumer-oriented marketing efforts, we have created both a “push and pull” demand dynamic for our products in the marketplace.
We also have a strong distribution network as a result of over 475 distributor branch locations that represent our products. 40 Table of Contents Through our significant investments in partnerships with dealers and distributors and our consumer-oriented marketing efforts, we have created both a “push and pull” demand dynamic for our products in the marketplace.
These assumptions require a significant amount of judgment, including estimates of future taxable income. As of both December 31, 2022 and 2021, our valuation allowance was $0.0 million. We continue to assess whether any significant changes in circumstances or assumptions have occurred that could materially affect our ability to realize deferred tax assets.
These assumptions require a significant amount of judgment, including estimates of future taxable income. As of December 31, 2023 and 2022, our valuation allowance was $3.1 million and $0.0 million, respectively. We continue to assess whether any significant changes in circumstances or assumptions have occurred that could materially affect our ability to realize deferred tax assets.
Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. We support our dealer network with business development tools, co-branded marketing programs, and in-house training, as well as an operations platform consisting of over 2,000 employees across over 30 locations.
Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. We support our dealer network with business development tools, co-branded marketing programs, and in-house training, as well as an operations platform consisting of approximately 1,800 employees across approximately 24 locations.
We believe our existing cash, cash generated from operations and availability under our New 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.
It is our belief that our existing cash, cash generated from operations and availability under our New 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.
The following discussion includes the presentation of Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures that exclude the impact of certain costs, losses and gains that are required to be included in our profit and loss measures under GAAP.
Non-GAAP Financial Measures We track our non-GAAP financial measures to monitor and manage our underlying financial performance. The following discussion includes the presentation of Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP financial measures that exclude the impact of certain costs, losses and gains that are required to be included in our profit and loss measures under GAAP.
During the year ended December 31, 2022, we repurchased and concurrently retired 4,483,620 shares of our common stock for an aggregate amount of $23.0 million, pursuant to the Repurchase Program. As of December 31, 2022, approximately $77.0 million remained available for share repurchases pursuant to our Repurchase Program.
During the year ended December 31, 2022, we repurchased and concurrently retired 4,483,620 shares of our common stock for an aggregate amount of $23.0 million, pursuant to the Repurchase Program. No shares were repurchased during the year ended December 31, 2023. As of December 31, 2023, $77.0 million remained available under our Repurchase Program.
Cost of Sales and Gross Margin Cost of sales was $479.3 million for the year ended December 31, 2022, compared to $426.3 million for the year ended December 31, 2021, and increased as a percentage of net sales by 1.3%.
Cost of Sales and Gross Margin Cost of sales was $413.5 million for the year ended December 31, 2023, compared to $479.3 million for the year ended December 31, 2022, and increased as a percentage of net sales by 4.1%.
(c) Represents expenses for our strategic initiatives, including our rebranding initiative and fees paid to external consultants. 49 Table of Contents (d) Represents acquisition and integration costs primarily related to the acquisitions of GLI and Radiant, the equity investment in Premier Pools & Spas, as well as other costs related to potential transactions.
(d) Represents fees paid to external consultants and other expenses for our strategic initiatives (e) Represents acquisition and integration costs primarily related to the acquisitions of GLI and Radiant, the equity investment in Premier Pools & Spas, as well as other costs related to potential transactions.
We record liabilities for uncertain income tax positions based on a two-step process. The first step is recognition, where an individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes.
The first step is recognition, where an individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes.
We may assess our goodwill for impairment initially using a qualitative approach, or step zero, to determine whether conditions exist to indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value.
We have selected the first day of the fourth quarter to perform our annual goodwill impairment testing. We may assess our goodwill for impairment initially using a qualitative approach, or step zero, to determine whether conditions exist to indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value.
Net cash used in changes in our operating assets and liabilities for the year ended December 31, 2021 consisted primarily of a $26.0 million increase in trade receivables, a $39.7 million increase in inventories, a $4.5 million increase in prepaid expenses and other current assets, and a $1.2 million decrease in other long-term liabilities, partially offset by a $10.7 million increase in accounts payable, a $4.7 million increase in accrued expenses and other current liabilities, a $0.8 million decrease in other assets, and a $0.3 million decrease in income tax receivable.
Net cash provided in changes in our operating assets and liabilities for the year ended December 31, 2023 consisted primarily of a $68.2 million decrease in inventories, a $13.0 million decrease in trade receivables, a $2.8 million increase in other long-term liabilities and a $1.3 million decrease in income tax receivable, partially offset by a $11.9 million decrease in accrued expenses and other current liabilities, a $8.5 million decrease in accounts payable, a $4.3 million increase in other assets and a $1.3 million increase in prepaid expenses and other current assets.
Our primary cash needs are to fund working capital, capital expenditures, debt service requirements, and any acquisitions or investments we may undertake. As of December 31, 2022, we had $32.6 million of cash, $312.9 million of outstanding borrowings, and an additional $75.0 million of availability under our New Revolving Credit Facility.
Our primary cash needs are to fund working capital, capital expenditures, debt service requirements, and any acquisitions or investments we may undertake. As of December 31, 2023, we had $102.8 million of cash, $301.2 million of outstanding borrowings, and an additional $75.0 million of availability under our New Revolving Credit Facility.
We hold the #1 position in North America in every product category in which we compete. We believe 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 TM .
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.
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.
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.
We continue to take a disciplined approach to capital investments, with the focus on the completion of previously announced projects. This includes the completion of our Kingston, Ontario facility as well as our acquired fiberglass manufacturing assets in Seminole, Oklahoma.
We continue to take a disciplined approach to capital investments, with the focus on the completion of previously announced projects such as our recent multi-year capital plan to invest in our facilities. This includes the completion of our Kingston, Ontario facility in April 2023, as well as integrating our acquired fiberglass manufacturing assets in Seminole, Oklahoma.
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. ​ 44 Table of Contents Results of Operations Year ended December 31, 2022 Compared to Year ended December 31, 2021 The following table summarizes our results of operations for the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change ​ ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ Change ​ % of ​ ​ 2022 Net Sales 2021 Net Sales Amount Net Sales ​ ​ (dollars in thousands) Net sales ​ $ 695,736 ​ 100.0 % $ 630,456 ​ 100.0 % $ 65,280 ​ — % Cost of sales ​ 479,267 68.9 % 426,294 67.6 % 52,973 1.3 % Gross profit ​ 216,469 31.1 % 204,162 32.4 % 12,307 (1.3) % Selling, general, and administrative expense ​ 146,842 21.1 % 217,775 34.5 % (70,933) (13.4) % Underwriting fees related to offering of common stock ​ ​ 11,437 ​ 1.6 % ​ — ​ — % ​ 11,437 1.6 % Amortization ​ 28,180 4.1 % 22,566 3.6 % 5,614 0.5 % Income (loss) from operations ​ 30,010 4.3 % (36,179) (5.7) % 66,189 10.0 % Other expense (income): ​ ​ ​ ​ ​ ​ ​ Interest expense ​ 15,753 2.3 % 24,433 3.9 % (8,680) (1.6) % Loss on extinguishment of debt ​ ​ 3,465 ​ 0.5 % ​ — ​ — % 3,465 0.5 % Other expense (income), net ​ 1,301 0.1 % (4,860) (0.8) % 6,161 0.9 % Total other expense (income), net ​ 20,519 2.9 % 19,573 3.1 % 946 (0.2) % Earnings from equity method investment ​ ​ 4,230 ​ 0.6 % ​ 2,222 ​ 0.3 % ​ 2,008 ​ 0.3 % Income (loss) before income taxes ​ 13,721 2.0 % (53,530) (8.5) % 67,251 10.5 % Income tax expense ​ 19,415 2.8 % 8,818 1.4 % 10,597 1.4 % Net loss ​ $ (5,694) (0.8) % $ (62,348) (9.9) % $ 56,654 9.1 % Adjusted EBITDA ​ $ 143,252 20.6 % $ 139,819 22.2 % $ 3,433 (1.6) % ​ Net Sales Net sales was $695.7 million for the year ended December 31, 2022, compared to $630.5 million for the year ended December 31, 2021.
The 5.1% decrease in Adjusted EBITDA margin was primarily because of a $55.3 million decrease in Adjusted EBITDA and a $129.2 million decrease in net sales, compared to the year ended December 31, 2022, driven by the factors detailed above. 47 Table of Contents Year ended December 31, 2022 Compared to Year ended December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change ​ ​ ​ ​ ​ ​ % of ​ ​ ​ ​ % of ​ Change ​ % of ​ ​ 2022 Net Sales 2021 Net Sales Amount Net Sales ​ ​ (dollars in thousands) Net sales ​ $ 695,736 ​ 100.0 % $ 630,456 ​ 100.0 % $ 65,280 ​ — % Cost of sales ​ 479,267 68.9 % 426,294 67.6 % 52,973 1.3 % Gross profit ​ 216,469 31.1 % 204,162 32.4 % 12,307 (1.3) % Selling, general, and administrative expense ​ 146,842 21.1 % 217,775 34.5 % (70,933) (13.4) % Underwriting fees related to offering of common stock ​ ​ 11,437 ​ 1.6 % ​ — ​ — % ​ 11,437 1.6 % Amortization ​ 28,180 4.1 % 22,566 3.6 % 5,614 0.5 % Income (loss) from operations ​ 30,010 4.3 % (36,179) (5.7) % 66,189 10.0 % Other expense (income): ​ ​ ​ ​ ​ ​ ​ ​ Interest expense ​ 15,753 2.3 % 24,433 3.9 % (8,680) (1.6) % Loss on extinguishment of debt ​ ​ 3,465 ​ 0.5 % — ​ — % 3,465 0.5 % Other expense (income), net ​ 1,301 0.1 % (4,860) (0.8) % 6,161 0.9 % Total other expense, net ​ 20,519 2.9 % 19,573 3.1 % 946 (0.2) % Earnings from equity method investment ​ ​ 4,230 ​ 0.6 % ​ 2,222 ​ 0.3 % ​ 2,008 0.3 % Income (loss) before income taxes ​ 13,721 2.0 % (53,530) (8.5) % 67,251 10.5 % Income tax expense ​ 19,415 2.8 % 8,818 1.4 % 10,597 1.4 % Net loss ​ $ (5,694) (0.8) % $ (62,348) (9.9) % $ 56,654 9.1 % Adjusted EBITDA ​ $ 143,252 20.6 % $ 139,819 22.2 % $ 3,433 (1.6) % ​ For discussion on comparison of the years ended December 31, 2022 and 2021, see the Results of Operations section disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 7, 2023.
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 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.
Customer rebates, returns, allowances, cash discounts, and other sales incentives are estimated by applying the portfolio approach using the most-likely-amount method and are recorded as a reduction to revenue. ​ 54 Table of Contents Customer Rebates and Cash Discounts We offer rebates to our customers based on factors such as the total amount of the customer’s purchase and expected sales for a particular customer during the year.
Customer Rebates and Cash Discounts We offer rebates to our customers based on factors such as the total amount of the customer’s purchase and expected sales for a particular customer during the year. Rebates are estimated by applying the portfolio approach using the most-likely-amount method and are deducted from revenue at the time of sale.
Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 2020 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 32,309 ​ $ 33,690 ​ $ 63,160 Net cash used in investing activities ​ (45,018) ​ (108,205) ​ (115,805) Net cash provided by financing activities ​ 3,775 ​ 60,018 ​ 54,303 Effect of exchange rate changes on cash ​ (2,392) ​ (861) ​ 997 Net (decrease) increase in cash ​ $ (11,326) ​ $ (15,358) ​ $ 2,655 ​ 52 Table of Contents Operating Activities During the year ended December 31, 2022, operating activities provided $32.3 million of cash.
Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 2022 2021 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 116,369 ​ $ 32,309 ​ $ 33,690 Net cash used in investing activities ​ (31,726) ​ (45,018) ​ (108,205) Net cash (used in) provided by financing activities ​ (13,875) ​ 3,775 ​ 60,018 Effect of exchange rate changes on cash ​ (631) ​ (2,392) ​ (861) Net increase (decrease) in cash ​ $ 70,137 ​ $ (11,326) ​ $ (15,358) ​ Operating Activities During the year ended December 31, 2023, operating activities provided $116.4 million of cash.
Cost and Availability of Materials Raw material costs, including costs of PVC, galvanized steel, fiberglass, aluminum, carbon fiber, Kevlar fiber, various resins, gelcoat, polypropylene fabric, ceramics, and roving, represent a majority of our cost of sales. Our supply agreements with key suppliers are typically negotiated on an annual basis.
Cost and Availability of Materials Raw material costs, including costs of polyvinyl chloride (“PVC”) plastic, galvanized steel, fiberglass, aluminum, various resins, high impact polystyrene, gelcoat and polypropylene fabric, represent a majority of our cost of sales. Our supply agreements with key suppliers are typically negotiated on an annual basis.
As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies. 43 Table of Contents Adjusted EBITDA and Adjusted EBITDA Margin 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 peer companies using similar 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.
Income Tax Expense Income tax expense was $19.4 million for the year ended December 31, 2022, compared to $8.8 million for the year ended December 31, 2021. Our effective tax rate was 141.5% for the year ended December 31, 2022, compared to (16.5)% for the year ended December 31, 2021.
Income Tax (Benefit) Expense Income tax benefit was ($7.7) million for the year ended December 31, 2023, compared to $19.4 million income tax expense for the year ended December 31, 2022. Our effective tax rate was 76.3% for the year ended December 31, 2023, compared to 141.5% for the year ended December 31, 2022.
Adjusted EBITDA Margin Adjusted EBITDA margin was 20.6% for the year ended December 31, 2022, compared to 22.2% for the year ended December 31, 2021.
Adjusted EBITDA Margin Adjusted EBITDA margin was 15.5% for the year ended December 31, 2023, compared to 20.6% for the year ended December 31, 2022.
Net income (loss), after adjustments for non-cash items, provided cash of $105.9 million. Cash provided by operating activities was further driven by changes in our operating assets and liabilities, which used $73.6 million.
Net loss, after adjustments for non-cash items, provided cash of $57.1 million. Cash provided by operating activities was further driven by changes in our operating assets and liabilities, which provided $59.3 million.
Any contingent assets acquired and contingent liabilities assumed are also recognized at fair value if we can reasonably estimate fair value during the measurement period. We remeasure any contingent liabilities at fair value in each subsequent reporting period. The excess of the purchase price over the fair value of net assets acquired is recorded as goodwill.
We remeasure any contingent liabilities at fair value in each subsequent reporting period. The excess of the purchase price over the fair value of net assets acquired is recorded as goodwill.
We released the valuation allowance in 2021 since we believe we have sufficient positive evidence, including, but not limited to, three years’ of cumulative pre-tax book 56 Table of Contents income, including permanent adjustments and recent profits within taxing jurisdictions, to overcome any negative evidence related to loss utilization expiration periods.
We released the valuation allowance in 2021 since we believed we had sufficient positive evidence, including, but not limited to, three years’ of cumulative pre-tax book income, including permanent adjustments and recent profits within taxing jurisdictions, to overcome any negative evidence related to loss utilization expiration periods. We record liabilities for uncertain income tax positions based on a two-step process.
We evaluate these estimates on an ongoing basis. Actual results may differ from estimates. Our significant accounting policies are presented in Note 2 of our consolidated financial statements. We believe that the following critical accounting policies affect the most significant estimates and management judgments used in preparation of the consolidated financial statements.
We evaluate these estimates on an ongoing basis. Actual results may differ from estimates. Our significant accounting policies are presented in Note 2 of our consolidated financial statements.
A frequent source of borrowing is home equity financing, and accordingly, the level of equity in homes will affect consumers’ ability to obtain a home equity line of credit and to engage in backyard renovations that 41 Table of Contents would result in purchases of our products.
Customers typically pay for their new pools from assets on hand or from borrowing. A frequent source of borrowing is home equity financing, and accordingly, the level of equity in homes will affect consumers’ ability to obtain a home equity line of credit and to engage in backyard renovations that would result in purchases of our products.
Revenue Recognition With the exception of our extended service warranties and our custom product contracts, we recognize our revenue at a point in time when control of the promised goods is transferred to our customers, and in an amount that reflects the consideration we expect to be entitled to in exchange for those goods.
We believe that the following critical accounting policies affect the most significant estimates and management judgments used in preparation of the consolidated financial statements. 53 Table of Contents Revenue Recognition With the exception of our extended service warranties and our custom product contracts, we recognize our revenue at a point in time when control of the promised goods is transferred to our customers, and in an amount that reflects the consideration we expect to be entitled to in exchange for those goods.
The 9.1% decrease in net loss margin was driven by a $56.6 million decrease in net loss and a $65.2 million increase in net sales, compared to the year ended December 31, 2021 because of the factors described above.
The 0.4% decrease in net loss margin was driven by a $3.3 million decrease in net loss and a $129.2 million decrease in net sales, compared to the year ended December 31, 2022 because of the factors described above.
Earnings from Equity Method Investments Earnings from equity method investment of Premier Pools & Spa was $4.2 million for the year ended December 31, 2022, compared to $2.2 million for the year ended December 31, 2021, primarily because of the financial performance of Premier Pools & Spa, partially offset by our reduced ownership interest during the year ended December 31, 2022 as compared to the year ended December 31, 2021.
Earnings from Equity Method Investments Earnings from equity method investment of Premier Pools & Spa was $3.7 million for the year ended December 31, 2023, compared to $4.2 million for the year ended December 31, 2022, primarily because of the financial performance of Premier Pools & Spa.
The $56.6 million, or 90.9% decrease in net loss was primarily driven by the factors described above. 46 Table of Contents Net Loss Margin Net loss margin was 0.8% for the year ended December 31, 2022, compared to net loss margin of 9.9% for the year ended December 31, 2021.
The $3.3 million, or 58.1%, decrease in net loss was primarily driven by the factors described above. Net Loss Margin Net loss margin was 0.4% for the year ended December 31, 2023, compared to net loss margin of 0.8% for the year ended December 31, 2022.
Recently Issued and Adopted Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations, or cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this Annual Report. ​
We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. 56 Table of Contents Recently Issued and Adopted Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations, or cash flows is disclosed in Note 2 to our consolidated financial statements included elsewhere in this Annual Report. ​ ​ ​ 57 Table of Contents
Adjusted EBITDA Adjusted EBITDA was $143.3 million for the year ended December 31, 2022, compared to $139.8 million for the year ended December 31, 2021. The $3.5 million, or 2.5% increase in Adjusted EBITDA was primarily because of the increase in net sales.
Adjusted EBITDA Adjusted EBITDA was $88.0 million for the year ended December 31, 2023, compared to $143.3 million for the year ended December 31, 2022. The $55.3 million, or 38.6%, decrease in Adjusted EBITDA was primarily because of the decrease in net sales.
Key Factors Affecting our Performance Our results of operations and financial condition are affected by the following factors, which reflect our operating philosophy and focus on designing, manufacturing, and marketing high quality and innovative pools and pool covers for the in-ground swimming pool market. 40 Table of Contents Volume of Products Sold Our net sales depend primarily on the volume of products we sell during any given period, and volume is affected by the following items, among others: ● Sales, distribution, and marketing: While we have traditionally relied on our dealers and distributors to raise awareness of our products, we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey.
Volume of Products Sold Our net sales depend primarily on the volume of products we sell during any given period, and volume is affected by the following items, among others: ● Sales, distribution, and marketing: While we have traditionally relied on our dealers and distributors to raise awareness of our products, we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey.
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.
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.
Based on the results of the qualitative assessments performed for our one reporting unit, we determined that goodwill was not impaired at October 2, 2022 or October 3, 2021. However, if factors exist that could indicate an impairment in the future, including a sustained decrease in our stock price, we may be required to record impairment charges in future periods.
However, if factors exist that could indicate an impairment in the future, including a sustained decrease in our stock price, we may be required to record impairment charges in future periods. For our quantitative impairment test performed for our reporting unit at October 1, 2023, we estimated the fair value of our reporting unit based on a market approach.
Business Combinations We account for business combinations that are deemed to be businesses under the acquisition method of accounting. Application of this method of accounting requires that the identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value as of the acquisition date.
Application of this method of accounting requires that the identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value as of the acquisition date. Any contingent assets acquired and contingent liabilities assumed are also recognized at fair value if we can reasonably estimate fair value during the measurement period.
We define Adjusted EBITDA as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, (iii) income tax (benefit) expense, (iv) loss (gain) on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs, (x) loss on extinguishment of debt, (xi) underwriting fees related to offering of common stock, (xii) the Odessa fire and other such unusual events, (xiii) IPO costs and (xiv) other.
We have presented Adjusted EBITDA and 48 Table of Contents 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, (iii) income tax (benefit) expense, (iv) loss (gain) on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs, (x) loss on extinguishment of debt, (xi) underwriting fees related to offering of common stock, (xii) the Odessa fire and other such unusual events, (xiii) IPO costs and (xiv) other.
Recent Developments Highlights for the year ended December 31, 2022 ● Increase in net sales of 10.4%, or $65.2 million, to $695.7 million for the year ended December 31, 2022, compared to $630.5 million for the year ended December 31, 2021. ● Decrease in net loss of $56.6 million, to $5.7 million for the year ended December 31, 2022, compared to a net loss of $62.3 million for the year ended December 31, 2021, representing a 0.8% net loss margin for the year ended December 31, 2022. ● Increase in Adjusted EBITDA (as defined below) of $3.5 million, to $143.3 million for the year ended December 31, 2022, compared to $139.8 million for the year ended December 31, 2021. ​ 39 Table of Contents Business Update Market conditions continue to evolve.
Recent Developments Highlights for the year ended December 31, 2023 ● Decrease in net sales of 18.6%, or $129.2 million, to $566.5 million for the year ended December 31, 2023, compared to $695.7 million for the year ended December 31, 2022. ● Decrease in net loss of $3.3 million, to $2.4 million for the year ended December 31, 2023, compared to a net loss of $5.7 million for the year ended December 31, 2022, representing a 0.4% net loss margin for the year ended December 31, 2023. ● Decrease in Adjusted EBITDA (as defined below) of $55.3 million, to $88.0 million for the year ended December 31, 2023, compared to $143.3 million for the year ended December 31, 2022. ​ 39 Table of Contents Business Update Ongoing macroeconomic challenges have impacted and are expected to continue to impact consumer spending and demand.
The estimated royalty rate is determined based on the assessment of a reasonable royalty rate that a third party would negotiate in an arm’s-length license agreement for the use of the trade name, trademark, or proprietary pool design.
The estimated royalty rate is determined based on the assessment of a reasonable royalty rate that a third party would negotiate in an arm’s-length license agreement for the use of the trade name, trademark, or proprietary pool design. 54 Table of Contents Impairment of Goodwill We evaluate goodwill for impairment at least annually, or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable.
We are in the midst of a multi-year capital plan to invest in our facilities, technology, and systems, including investments to expand our fiberglass manufacturing capacity. We expect to fund these capital expenditures from net cash provided by operating activities.
We have completed our recent multi-year capital plan to invest in our facilities. We are in the middle of our digital transformation effort to upgrade all of our technology and enterprise resource planning systems. We expect to fund these capital expenditures from net cash provided by operating activities.
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 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. 42 Table of Contents Our sales are made through one-step and two-step business-to-business distribution channels.
The consolidated financial statements include the results of operations of these acquisitions since their respective acquisition dates. The total purchase consideration was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition, as determined by management.
The total purchase consideration was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition, as determined by management. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill.
Gross margin decreased by 1.3% to 31.1% for the year ended December 31, 2022, compared to 32.4% for the year ended December 31, 2021. The $53.0 million, or 12.4%, increase in cost of sales was primarily the result of cost inflation, partially offset by a $4.9 million decrease in non-cash stock-based compensation expense.
Gross margin decreased by 4.1% to 27.0% for the year ended December 31, 2023, compared to 31.1% for the year ended December 31, 2022. The $65.8 million, or 13.7%, decrease in cost of sales was primarily the result of a decrease in sales volume.
The $6.2 million increase in other expense (income), net was primarily driven by a non-recurring $4.8 million gain related to the partial sale of our equity method investment during the year ended December 31, 2021 and a $1.3 million unfavorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.
The ($2.3) 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.
The $5.6 million, or 24.9% increase in amortization was driven by the increase in definite-lived intangible assets resulting from our acquisition of Radiant in November 2021. Interest Expense Interest expense was $15.8 million for the year ended December 31, 2022, compared to $24.4 million for the year ended December 31, 2021.
The $1.7 million, or 5.9%, decrease in amortization was driven by certain definite-lived intangible assets becoming fully amortized during the year ended December 31, 2022. Interest Expense, Net Interest expense, net was $30.9 million for the year ended December 31, 2023, compared to $15.8 million for the year ended December 31, 2022.
A search for a permanent Chief Financial Officer is underway. ​ Share Repurchase Program On May 10, 2022, we approved a stock repurchase program (the “Repurchase Program”), which authorized us to repurchase up to $100 million of our shares of common stock over the next three years.
Share Repurchase Program On May 10, 2022, our Board of Directors approved a stock repurchase program (the “Repurchase Program”), which authorizes us to repurchase up to $100 million of our shares of common stock over the next three years. We may effect these repurchases in open market transactions, privately negotiated purchases, or other acquisitions.
Acquisitions and Partnerships On October 22, 2020, we acquired GLI, which specializes in manufacturing custom vinyl pool liners and safety covers. The acquisition expanded our liner and safety cover product offerings. On November 24, 2021, we acquired Radiant Pools, a manufacturer of vinyl-lined and aluminum-walled swimming pools. The acquisition expands our product portfolio into vinyl-lined and aluminum-walled swimming pools.
Acquisitions and Partnerships On November 24, 2021, we acquired Radiant Pools, a manufacturer of vinyl-lined and aluminum-walled swimming pools. The acquisition expanded our product portfolio into vinyl-lined and aluminum-walled swimming pools. On November 8, 2022, we acquired certain fiberglass pool manufacturing assets in Seminole, Oklahoma, that qualified as a business combination.
Negative fixed cost leverage was driven by volume declines, primarily in packaged pools, driven by continued destocking of inventory in the wholesale distribution channel. 45 Table of Contents Selling, General, and Administrative Expense Selling, general, and administrative expense was $146.8 million for the year ended December 31, 2022, compared to $217.8 million for the year ended December 31, 2021, and decreased as a percentage of net sales by 13.4%.
The 4.1% decrease in gross margin was primarily driven by lower utilization, partially offset by lower total fixed costs and modest material cost deflation. 45 Table of Contents Selling, General, and Administrative Expense Selling, general, and administrative expense was $110.3 million for the year ended December 31, 2023, compared to $146.8 million for the year ended December 31, 2022, and decreased as a percentage of net sales by 1.6%.
The income tax expense of $19.4 million for the year ended December 31, 2022 was primarily because of a $9.2 million expense related to non-deductible stock compensation.
The income tax benefit of ($7.7) million for the year ended December 31, 2023 was primarily because of a $10.3 million benefit related to the release of uncertain tax positions and a $2.1 million benefit related to foreign tax restructuring, partially offset by a $3.1 million expense related to a change in valuation allowance and a $2.4 million expense related to non-deductible stock compensation.
The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill. On October 30, 2020, we entered into a long-term strategic partnership with and acquired a 28% equity interest in Premier Pools & Spas, a pool builder focusing on in-ground swimming pools.
On October 30, 2020, we entered into a long-term strategic partnership with and acquired a minority interest in Premier Pools & Spas, a pool builder focusing on in-ground swimming pools. The purpose of this investment in Premier Pools & Spas is to help expand our sales and distribution channels.
Other Expense (Income), Net Other expense (income), net was $1.3 million for the year ended December 31, 2022, compared to ($4.9) million for the year ended December 31, 2021.
Loss on Extinguishment of Debt Loss on extinguishment of debt was $3.5 million for the year ended December 31, 2022, related to our debt refinancing completed in February 2022. Other (Income) Expense, Net Other (income) expense, net was ($1.0) million for the year ended December 31, 2023, compared to $1.3 million for the year ended December 31, 2022.
We conduct our business as one operating and reportable segment that designs, manufactures, and markets in-ground swimming pools, liners, and covers.
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, liners, and covers.
During the year ended December 31, 2021, financing activities provided $60.0 million of cash, primarily consisting of proceeds from our IPO, net of underwriting discounts, commissions, and offering costs of $399.3 million, proceeds from borrowings on the Amended Prior Term Loan of $222.8 million and borrowings on the Prior Revolving Credit Facility of $16.0 million, partially offset by the repurchase of common stock of $281.6 million, payments on long-term debt borrowings of $169.1 million, dividends to Class A unitholders of $110.0 million, and payments on Revolving Credit Facility borrowings of $16.0 million. 53 Table of Contents For discussion on operating, investing, and financing activities of the fiscal year ended December 31, 2020, see the Liquidity and Capital Resources section disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on March 10, 2022.
For discussion on operating, investing, and financing activities of the year ended December 31, 2021, see the Liquidity and Capital Resources section disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 7, 2023.
In addition, interest expense for the year ended December 31, 2022 was partially offset by an unrealized gain of $3.0 million related to the change in fair value of our interest rate swap.
The $15.1 million, or 96.3%, increase in interest expense was primarily the result of the change in the fair value of our interest rate swaps and a higher effective interest rate, compared to the year ended December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe components of lease expense for the year ended December 31, 2022 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, 2022 Operating lease expense ​ $ 9,085 ​ Short-term lease expense ​ 156 ​ Variable lease expense ​ 573 ​ Total lease expense ​ 9,814 ​ ​ The table below presents supplemental information related to leases as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ December 31, 2022 Weighted-average remaining lease term (years) ​ ​ ​ ​ Operating leases ​ ​ 6.5 ​ Weighted-average discount rate ​ ​ ​ ​ Operating leases ​ ​ 4.9 % ​ The table below presents supplemental information related to the cash flows for operating leases recorded on the consolidated statements of cash flows (in thousands): ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ Operating cash flows for operating leases ​ $ 6,920 ​ ​ The following table summarizes maturities of operating lease liabilities as of December 31, 2022: ​ ​ ​ ​ ​ ​ Operating Leases 2023 ​ $ 8,663 2024 ​ ​ 8,045 2025 ​ ​ 7,386 2026 ​ ​ 5,903 2027 ​ ​ 4,243 Thereafter ​ ​ 12,036 Total lease payments ​ ​ 46,276 Less: Interest ​ ​ (6,962) Present value of lease liability ​ $ 39,314 ​ ​ 90 Table of Contents Under ASC 840, the minimum annual rental commitments under non-cancelable operating leases as of December 31, 2021 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended 2022 ​ $ 8,094 2023 ​ ​ 6,278 2024 ​ ​ 5,674 2025 ​ ​ 4,726 2026 ​ ​ 3,479 Thereafter ​ ​ 6,854 ​ ​ $ 35,105 ​ Under ASC 840, rental expense during the years ended December 31, 2021 and 2020 was $8.8 million and $6.8 million, respectively. ​ ​ ​ ​ 14.
Biggest changeThe components of lease expense for the years ended December 31, 2023 and 2022 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, 2023 December 31, 2022 Operating lease expense ​ $ 9,350 ​ $ 9,085 Finance lease amortization of assets ​ ​ 679 ​ ​ 48 Finance lease interest on lease liabilities ​ ​ 296 ​ ​ 11 Short-term lease expense ​ 319 ​ 156 Variable lease expense ​ 1,180 ​ 573 Total lease expense ​ $ 11,824 ​ $ 9,873 ​ Operating and finance lease right of use assets and lease-related liabilities as of December 31, 2023 and 2022 were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 ​ Classification ​ ​ ​ ​ ​ ​ ​ ​ ​ Lease right-of-use assets: ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ $ 30,788 ​ $ 38,308 ​ Operating lease right-of-use assets Finance leases ​ ​ 3,912 ​ ​ 316 ​ Other assets Total lease right-of-use assets ​ $ 34,700 ​ $ 38,624 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Lease-related liabilities ​ ​ ​ ​ ​ ​ ​ ​ Current ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ $ 7,133 ​ $ 6,923 ​ Current operating lease liabilities Finance leases ​ ​ 746 ​ ​ 105 ​ Accrued expenses and other current liabilities Non-current ​ ​ ​ ​ ​ ​ ​ ​ Operating leases ​ ​ 24,787 ​ ​ 32,391 ​ Non-current operating lease liabilities Finance leases ​ ​ 3,285 ​ ​ 193 ​ Other long-term liabilities Total lease liabilities ​ $ 35,951 ​ $ 39,612 ​ ​ ​ ​ 88 Table of Contents The table below presents supplemental information related to leases as of December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 Weighted-average remaining lease term (years) ​ ​ ​ ​ ​ ​ ​ ​ Finance leases ​ ​ 5.2 ​ ​ ​ 2.8 ​ Operating leases ​ ​ 5.7 ​ ​ ​ 6.5 ​ Weighted-average discount rate ​ ​ ​ ​ ​ ​ ​ ​ Finance leases ​ ​ 8.2 % ​ ​ 5.4 % Operating leases ​ ​ 5.1 % ​ ​ 4.9 % ​ The table below presents supplemental information related to the cash flows for operating leases recorded on the consolidated statements of cash flows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, 2023 December 31, 2022 Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ ​ ​ ​ Operating cash flows for operating leases ​ ​ $ 7,551 ​ $ 6,920 ​ ​ The following table summarizes maturities of operating lease liabilities as of the years ended December 31, 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Leases ​ Finance Leases ​ Total 2024 ​ $ 8,542 ​ $ 1,049 ​ $ 9,591 2025 ​ ​ 7,410 ​ ​ 995 ​ ​ 8,405 2026 ​ ​ 5,880 ​ ​ 899 ​ ​ 6,779 2027 ​ ​ 4,141 ​ ​ 823 ​ ​ 4,964 2028 ​ ​ 3,137 ​ ​ 811 ​ ​ 3,948 Thereafter ​ ​ 7,660 ​ ​ 377 ​ ​ 8,037 Total lease payments ​ ​ 36,770 ​ ​ 4,954 ​ ​ 41,724 Less: Interest ​ ​ (4,850) ​ ​ (923) ​ ​ (5,773) Present value of lease liability ​ $ 31,920 ​ $ 4,031 ​ $ 35,951 ​ Under ASC 840, rental expense during the year ended December 31, 2021 was $8.8 million. ​ 14.
Revenue and expenses are translated using the average monthly exchange rates prevailing throughout the reporting period. The related foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity.
Revenue and expenses are translated using the average monthly exchange rates prevailing throughout the reporting period. The related foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity.
Comprehensive Income (Loss) Comprehensive income (loss) is a measure of net income and all other changes in equity that result from transactions other than with equity holders and would normally be recorded in the consolidated statements of stockholders’ equity and the consolidated statements of comprehensive income.
Comprehensive Income (Loss) Comprehensive income (loss) is a measure of net income (loss) and all other changes in equity that result from transactions other than with equity holders and would normally be recorded in the consolidated statements of stockholders’ equity and the consolidated statements of comprehensive income.
Earnings Per Share Basic net income per share is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.
Earnings Per Share Basic net income (loss) per share is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.
FAIR VALUE MEASUREMENTS Assets and liabilities measured at fair value on a nonrecurring basis The Company’s non-financial assets such as goodwill, intangible assets and property and equipment are measured at fair value upon acquisition and remeasured to fair value when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 2 and Level 3 inputs.
Assets and liabilities measured at fair value on a nonrecurring basis The Company’s non-financial assets such as goodwill, intangible assets and property and equipment are measured at fair value upon acquisition and remeasured to fair value when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 2 and Level 3 inputs.
Loans outstanding under the New Revolving Credit Facility denominated in Euros or Australian Dollars bear interest based on EURIBOR or the AUD Rate (each, as defined in the New Credit Agreement), respectively, plus a margin of 3.50%. A commitment fee accrues on any unused portion of the commitments under the New Revolving Credit Facility.
Loans outstanding under the New Revolving Credit Facility denominated in Euros or Australian Dollars bear interest based on EURIBOR or the AUD Rate (each, as defined in the New 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.
Borrowings under the New Revolving Credit Facility are due at maturity. The Company incurred debt issuance costs of $0.8 million related to the New Revolving Credit Facility. The debt issuance costs were recorded within other assets on the consolidated balance sheet and are being amortized over the life of the New Revolving Credit Facility.
Borrowings under the Revolving Credit Facility are due at maturity. The Company incurred debt issuance costs of $0.8 million related to the New Revolving Credit Facility. The debt issuance costs were recorded within other assets on the consolidated balance sheet and are being amortized over the life of the Revolving Credit Facility.
The Company received proceeds of $257.7 million from this offering, net of $11.4 million of underwriting fees.
The Company received proceeds of $257.7 million from this offering, net of $11.4 million of underwriting fees.
On April 27, 2021, the Company completed its initial public offering (the “IPO”), pursuant to which it issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares.
On April 27, 2021, the Company completed its initial public offering (the “IPO”), pursuant to which it issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares.
The obligations under the New Credit Agreement are secured by substantially all of the Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts, and security accounts. The New Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict the Company’s ability to pay dividends.
The obligations under the Credit Agreement are secured by substantially all of the Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts, and security accounts. The Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict the Company’s ability to pay dividends.
The New Term Loan contains customary mandatory prepayment provisions, including requirements to make mandatory prepayments with 50% of any excess cash flow and with 100% of the net cash proceeds from the incurrence of indebtedness not otherwise permitted to be incurred by the covenants, asset sales, and casualty and condemnation events, in each case, subject to customary exceptions.
The Term Loan contains customary mandatory prepayment provisions, including requirements to make mandatory prepayments with 50% of any excess cash flow and with 100% of the net cash proceeds from the incurrence of indebtedness not otherwise permitted to be incurred by the covenants, asset sales, and casualty and condemnation events, in each case, subject to customary exceptions.
The measurement period adjustment resulted in an increase in the total consideration transferred of $0.4 million and an increase to goodwill of $0.4 million. The net working capital adjustment was paid during the fiscal quarter ended July 2, 2022. The Company accounted for the Radiant Acquisition using the acquisition method of accounting in accordance with ASC 805.
The measurement period adjustment resulted in an increase in the total consideration transferred of $0.4 million and an increase to goodwill of $0.4 million. The net working capital adjustment was paid during the quarter ended July 2, 2022. ​ The Company accounted for the Radiant Acquisition using the acquisition method of accounting in accordance with ASC 805.
In addition, the Act Section 163(j) provides for a change to the interest deduction limitation for tax years starting January 1, 2022, and later. Taxable income no longer is adjusted for depreciation, amortization, and depletion in arriving at adjusted taxable income ("ATI"), resulting in lower ATI and potentially a greater interest disallowance.
In addition, the Act provides for a change to the interest deduction limitation (Section 163(j)) for tax years starting January 1, 2022, and later. Taxable income no is longer adjusted for depreciation, amortization, and depletion in arriving at adjusted taxable income ("ATI"), resulting in lower ATI and potentially a greater interest expense disallowance.
Goodwill is not subject to amortization; rather, the Company tests goodwill for impairment annually on the first day of the Company’s fourth fiscal quarter and whenever events occur or changes in circumstances indicate that impairment may have occurred. The Company has one reporting unit for goodwill impairment testing purposes.
Goodwill is not subject to amortization; rather, the Company tests goodwill for impairment annually on the first day of the Company’s fourth quarter and whenever events occur or changes in circumstances indicate that impairment may have occurred. The Company has one reporting unit for goodwill impairment testing purposes.
As a result of the transaction, the Company received cash proceeds of $6.8 million and recorded a gain on the sale of equity method investment of $3.9 million, which was recorded within other (income) expense, net on the consolidated statements of operations for the fiscal year ended December 31, 2021.
As a result of the transaction, the Company received cash proceeds of $6.8 million and recorded a gain on the sale of equity method investment of $3.9 million, which was recorded within other (income) expense, net on the consolidated statements of operations for the year ended December 31, 2021.
In February of 2022, the Company amended its interest rate swap to change the index rate from LIBOR to SOFR in connection with the entry into the New Credit Agreement. Under the terms of the amended swap, the Company fixed its SOFR borrowing rate at 0.496% on a notional amount of $200.0 million.
In February 2022, the Company amended its interest rate swap to change the index rate from LIBOR to SOFR in connection with the entry into the Credit Agreement. Under the terms of the amended swap, the Company fixed its SOFR borrowing rate at 0.496% on a notional amount of $200.0 million.
On April 27, 2021, upon completion of the IPO, the Company used $152.7 million of the net proceeds from the IPO to repay $152.7 million of the Prior Term Loan. On November 24, 2021, Latham Pool Products amended the Term Loan to provide additional borrowings of $50 million (the “Fifth Amendment”).
On April 27, 2021, upon completion of the IPO, the Company used $152.7 million of the net proceeds from the IPO to repay $152.7 million of the Prior Term Loan. On November 24, 2021, Latham Pool Products amended the Term Loan to provide additional borrowings of $50.0 million (the “Fifth Amendment”).
As required when there is a change in facts or circumstances, the Company reassessed its ability to exercise significant influence during the fiscal quarter ended December 31, 2022. The Company concluded that it no longer had the ability to exercise significant influence.
As required when there is a change in facts or circumstances, the Company reassessed its ability to exercise significant influence during the quarter ended December 31, 2022. The Company concluded that it no longer had the ability to exercise significant influence.
Under the Amended Prior Term Loan, the Company was required to make mandatory prepayments based on the Company’s excess cash flow for the year, as follows (as a percentage of the Company’s excess cash flow for the year): ​ ​ ​ ​ ​ ​ ​ Mandatory ​ ​ ​ Prepayment ​ Net Leverage Ratio Percentage > 3.50:1.00 90 % > 3.00:1.00 and ≤ 3.50:1.00 75 % > 2.50:1.00 and ≤ 3.00:1.00 50 % > 2.00:1.00 and ≤ 2.50:1.00 25 % ≤ 2.00:1.00 0 % ​ Net Leverage Ratio in the table above was defined, as of any date of determination, as the ratio of net indebtedness at such date to consolidated earnings before interest, taxes, depreciation, and amortization.
Under the Amended Prior Term Loan, the Company was required to make mandatory prepayments based on the Company’s excess cash flow for the year, as follows (as a percentage of the Company’s excess cash flow for the year): ​ ​ ​ ​ ​ ​ ​ Mandatory ​ ​ ​ Prepayment ​ Net Leverage Ratio Percentage > 3.50:1.00 90 % > 3.00:1.00 and ≤ 3.50:1.00 75 % > 2.50:1.00 and ≤ 3.00:1.00 50 % > 2.00:1.00 and ≤ 2.50:1.00 25 % ≤ 2.00:1.00 0 % ​ 85 Table of Contents Net Leverage Ratio in the table above was defined, as of any date of determination, as the ratio of net indebtedness at such date to consolidated earnings before interest, taxes, depreciation, and amortization.
A cumulative catch-up charge of $1.1 million was recorded during the fiscal quarter ended April 3, 2021 to reflect the incremental fair value of the awards as of the date of the modification, as compared to the grant-date fair value.
A cumulative catch-up charge of $1.1 million was recorded during the quarter ended April 3, 2021 to reflect the incremental fair value of the awards as of the date of the modification, as compared to the grant-date fair value.
Fair value is measured using appropriate valuation methodologies that would typically include a projected discounted cash flow model using a discount rate the Company believes is commensurate with the risk inherent in its business. The Company did not recognize any impairment losses on long-lived assets during the years ended December 31, 2022 and 2021.
Fair value is measured using appropriate valuation methodologies that would typically include a projected discounted cash flow model using a discount rate the Company believes is commensurate with the risk inherent in its business. The Company did not recognize any impairment losses on long-lived assets during the years ended December 31, 2023 and 2022.
Conditions that may indicate impairment include, but are not limited to, a significant decrease in the market price of an asset, a significant adverse change in the extent or manner in which an 71 Table of Contents asset is being used or a significant decrease in its physical condition, and operating or cash flow performance that demonstrates continuing losses associated with an asset or asset group.
Conditions that may indicate impairment include, but are not limited to, a significant decrease in the market price of an asset, a significant adverse change in the extent or manner in which an 72 Table of Contents asset is being used or a significant decrease in its physical condition, and operating or cash flow performance that demonstrates continuing losses associated with an asset or asset group.
As of December 31, 2022, the Company was in compliance with all financial covenants under the New Credit Agreement New Revolving Credit Facility The New Revolving Credit Facility may be utilized to finance ongoing general corporate and working capital needs and permits Latham Pools Products to borrow loans in U.S. Dollars, Canadian Dollars, Euros, and Australian Dollars.
As of December 31, 2023, the Company was in compliance with all financial covenants under the New Credit Agreement. Revolving Credit Facility The Revolving Credit Facility may be utilized to finance ongoing general corporate and working capital needs and permits Latham Pools Products to borrow loans in U.S. Dollars, Canadian Dollars, Euros, and Australian Dollars.
Treasury zero-coupon issues similar in duration to the expected term of the stock-based award. The Company considers the historical volatility of the Company’s stock price, as well as its implied volatility. The Company utilized a dividend yield of zero, since it has no history or plan of declaring 73 Table of Contents dividends on its common stock.
Treasury zero-coupon issues similar in duration to the expected term of the stock-based award. The Company considers the historical volatility of the Company’s stock price, as well as its implied volatility. The Company utilized a dividend yield of zero, since it has no history or plan of declaring 74 Table of Contents dividends on its common stock.
Loans under the New Term Loan are subject to scheduled quarterly amortization payments of $812,500, equal to 0.25% of the initial principal amount of the New Term Loan.
Loans under the Term Loan are subject to scheduled quarterly amortization payments of $812,500, equal to 0.25% of the initial principal amount of the Term Loan.
For stock options, restricted stock awards and restricted stock units, stock-based compensation is recognized using a graded vesting method over the requisite service period in which employees earn the awards. The Company accounts for forfeitures of stock-based awards as they occur rather than applying an estimated forfeiture rate to stock-based compensation expense.
For stock options, restricted stock awards, restricted stock units and stock appreciation rights, stock-based compensation is recognized using a graded vesting method over the requisite service period in which employees earn the awards. The Company accounts for forfeitures of stock-based awards as they occur rather than applying an estimated forfeiture rate to stock-based compensation expense.
The key provisions from the IRA include the implementation of a 15% alternative book income minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives. The Company evaluated the key provisions under the IRA and concluded that the provisions are not applicable to Latham for year ended December 31, 2022.
The key provisions from the IRA include the implementation of a 15% alternative book income minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives. The Company evaluated the key provisions under the IRA and concluded that the provisions are not applicable to Latham for year ended December 31, 2023.
During the year ended December 31, 2022, the Company repurchased and concurrently retired 4,483,620 shares of the Company’s common stock for an aggregate amount of $23.0 million, pursuant to the Repurchase Program. All of the shares were repurchased under a Rule 10b5-1 trading plan.
During the year ended December 31, 2022, the Company repurchased and concurrently retired 4,483,620 shares of the Company’s common stock for an aggregate amount of $23.0 million, pursuant to the Repurchase Program. All of the shares were repurchased under a Rule 10b5-1 trading plan. No shares were repurchased during the year ended December 31, 2023.
As of December 31, 2022 and 2021, substantially all of the consolidated net assets of Latham Pool Products are considered restricted net assets as defined in Rule 4-08(e)(3) of Regulation S-X. Latham Group, Inc. is able to transfer assets from Latham Pool Products in order to pay certain tax liabilities.
As of December 31, 2023 and 2022, substantially all of the consolidated net assets of Latham Pool Products are considered restricted net assets as defined in Rule 4-08(e)(3) of Regulation S-X. Latham Group, Inc. is able to transfer assets from Latham Pool Products in order to pay certain tax liabilities.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Refer to Note 20 for additional detail. ​ 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s consolidated financial statements include the accounts of the Company and its subsidiaries.
Refer to Note 19 for additional detail. ​ 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s consolidated financial statements include the accounts of the Company and its subsidiaries.
Under the cumulative 70 Table of Contents earnings approach, the Company compares the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings are be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.
Under the cumulative 71 Table of Contents earnings approach, the Company compares the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings are be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.
Accordingly, all share and per share data included in these consolidated financial statements and notes thereto have been adjusted retroactively to reflect the impact of the amended and restated certificate of incorporation and the stock split. Refer to Note 20 for additional detail.
Accordingly, all share and per share data included in these consolidated financial statements and notes thereto have been adjusted retroactively to reflect the impact of the amended and restated certificate of incorporation and the stock split. Refer to Note 19 for additional detail.
Warranty costs are recorded within cost of sales on the consolidated statements of operations. The Company’s provision for product warranties was recorded within accrued expenses and other current liabilities and other long-term liabilities on the consolidated balance sheets as of December 31, 2022 and 2021.
Warranty costs are recorded within cost of sales on the consolidated statements of operations. The Company’s provision for product warranties was recorded within accrued expenses and other current liabilities and other long-term liabilities on the consolidated balance sheets as of December 31, 2023 and 2022.
The New Revolving Credit Facility matures on February 23, 2027. Loans outstanding under the New Revolving Credit Facility denominated in U.S.
The Revolving Credit Facility matures on February 23, 2027. Loans outstanding under the Revolving Credit Facility denominated in U.S.
During the fiscal year ended December 31, 2022, Premier Pools & Spas paid the Company dividends of $2.5 million that are presented on the consolidated statement of cash flows as distribution received from equity method investment.
During the year ended December 31, 2022, Premier Pools & Spas paid the Company dividends of $2.5 million that are presented on the consolidated statement of cash flows as distribution received from equity method.
Other comprehensive income (loss) consists of foreign currency translation adjustments and defined benefit plan adjustments. Income tax (benefit) expense on the components of other comprehensive income (loss) was not significant for the years ended December 31, 2022, 2021 and 2020.
Other comprehensive income (loss) consists of foreign currency translation adjustments and defined benefit plan adjustments. Income tax (benefit) expense on the components of other comprehensive income (loss) was not significant for the years ended December 31, 2023, 2022 and 2021.
Debt issuance costs related to long-term debt are recorded as a direct reduction to the carrying amount of long-term debt on the consolidated balance sheets. 72 Table of Contents Segment Reporting The Company identifies operating segments based on how the chief operating decision maker (“CODM”) manages the business, allocates resources, makes operating decisions, and evaluates operating performance.
Debt issuance costs related to long-term debt are recorded as a direct reduction to the carrying amount of long-term debt on the consolidated balance sheets. 73 Table of Contents Segment Reporting The Company identifies operating segments based on how the chief operating decision maker manages the business, allocates resources, makes operating decisions, and evaluates operating performance.
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Latham Group, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Latham Group Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").
Transaction gains and losses associated with purchases made by Canadian subsidiaries that are denominated in currencies other than Canadian dollar are recognized as a component of other expense, net within the consolidated statements of operations. Currently, our largest foreign currency exposure is that with respect to the Australian dollar and the Canadian dollar.
Transaction gains and losses associated with purchases made by Canadian subsidiaries that are denominated in currencies other than Canadian dollar are recognized as a component of other expense, net within the consolidated statements of operations. 58 Table of Contents Currently, our largest foreign currency exposure is that with respect to the Australian dollar and the Canadian dollar.
Sellers who were not related parties of Wynnchurch Capital, L.P. or the Company determined the purchase price per common unit paid by Premier Group Holdings Inc., indicating the amount paid for the common units of Premier Pools & Spas reflects the price that would be paid in an arm’s-length transaction.
Sellers who were not related parties of Wynnchurch Capital, L.P. or the Company determined 78 Table of Contents the purchase price per common unit paid by Premier Group Holdings Inc., indicating the amount paid for the common units of Premier Pools & Spas reflects the price that would be paid in an arm’s-length transaction.
Transaction costs for Radiant are reflected within pro forma net income for the year ended December 31, 2020. ​ ​ 4. EQUITY METHOD INVESTMENT On October 30, 2020, the Company entered into a securities purchase agreement to purchase 28% of the common units of Premier Pools & Spas for $25.4 million.
Transaction costs for Radiant are reflected within pro forma net loss for the year ended December 31, 2021. ​ ​ 4. EQUITY METHOD INVESTMENT On October 30, 2020, the Company entered into a securities purchase agreement to purchase 28% of the common units of Premier Pools & Spas for $25.4 million.
The Act made broad and complex changes to the U.S. tax code, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, (2) bonus depreciation that allows for full expensing of qualified property, (3) interest expense deduction limitation rules, and (4) new international tax provisions including, but not limited to, global intangible low-tax income (“GILTI”) and Foreign Derived Intangible Income (“FDII”).
The Act made broad and complex changes to the U.S. tax code, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, (2) bonus depreciation that allows for full expensing of qualified property, (3) interest expense deduction limitation rules, and (4) new international tax provisions including, but not limited to, GILTI and Foreign Derived Intangible Income (“FDII”).
Prior Revolving Credit Facility On December 18, 2018, Latham Pool Products entered into an agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC that included a revolving line of credit (the “Revolver”) and letters of credit (“Letters of Credit” or collectively with the Revolver, the “Prior Revolving Credit Facility”) in the amount of up to $30 million, as well as the Prior Term Loan (as described and defined below).
Prior Revolving Credit Facility On December 18, 2018, Latham Pool Products entered into an agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC that included a revolving line of credit (the “Revolver”) and letters of credit (“Letters of Credit” or collectively with the Revolver, the “Prior Revolving Credit Facility”) in the amount of up to $30.0 84 Table of Contents million, as well as the Prior Term Loan (as described and defined below).
There were no transfers between fair value measurement levels during the years ended December 31, 2022, 2021 and 2020. 69 Table of Contents Business Combinations In determining whether an acquisition should be accounted for as a business combination or asset acquisition, the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.
There were no transfers between fair value measurement levels during the years ended December 31, 2023, 2022 and 2021. 70 Table of Contents Business Combinations In determining whether an acquisition should be accounted for as a business combination or asset acquisition, the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.
During the years ended December 31, 2022, 2021 and 2020, the Company incurred $0.2 million, $2.1 million, and $0.5 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the consolidated balance sheets as of December 31, 2022 and 2021.
During the years ended December 31, 2023, 2022 and 2021, the Company incurred $2.0 million, $0.2 million, and $2.1 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the consolidated balance sheets as of December 31, 2023 and 2022.
NATURE OF THE BUSINESS Latham Group, Inc. (“the Company”) wholly owns Latham Pool Products, Inc. (“Latham Pool Products”) (together, “Latham”) a designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand. Latham offers a portfolio of pools and related products, including in-ground swimming pools, pool liners, and pool covers.
NATURE OF THE BUSINESS Latham Group, Inc. (the “Company”) wholly owns Latham Pool Products, Inc. (“Latham Pool Products”) (together, “Latham”), a designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand. Latham offers a portfolio of pools and related products, including in-ground swimming pools, pool liners, and pool covers.
The Company records shipping and handling costs associated with outbound freight as cost of sales when the related revenue is recognized in the accompanying consolidated statements of operations. 68 Table of Contents Exit or Disposal Costs The Company accounts for exit or disposal of activities in accordance with ASC 420, Exit or Disposal Cost Obligations .
The Company records shipping and handling costs associated with outbound freight as cost of sales when the related revenue is recognized in the consolidated statements of operations. 69 Table of Contents Exit or Disposal Costs The Company accounts for exit or disposal of activities in accordance with ASC 420, Exit or Disposal Cost Obligations .
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 New 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 New Credit Agreement), plus a margin of 2.50%.
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 New Credit Agreement), as applicable, plus a margin of 3.50%, or at a rate 83 Table of Contents per annum based on the Base Rate or the Canadian Prime Rate (each, as defined in the New Credit Agreement), plus a margin of 2.50%.
The Company does not engage in contracts greater than one year, and therefore does not have any contract costs capitalized as of December 31, 2022, and 2021.
The Company does not engage in contracts greater than one year, and therefore does not have any contract costs capitalized as of December 31, 2023, and 2022.
Changes in estimates are recorded in the period in which they become known. ​ 66 Table of Contents Seasonality Although the Company generally has demand for its products throughout the year, its business is seasonal and weather is one of the principal external factors affecting the business.
Changes in estimates are recorded in the period in which they become known. Seasonality ​ Although the Company generally has demand for its products throughout the year, its business is seasonal and weather is one of the principal external factors affecting the business.
The Company had $0.3 million of accrued interest and no accrued penalties as of December 31, 2021. The Company reinvests earnings of foreign operations indefinitely and, accordingly, does not provide for income taxes that could result from the remittance of such earnings. Stock-Based Compensation Stock-based compensation is measured and recognized based on the grant date fair value of the awards.
The Company had $0.6 million of accrued interest and no accrued penalties as of December 31, 2022. The Company reinvests earnings of foreign operations indefinitely and, accordingly, does not provide for income taxes that could result from the remittance of such earnings. Stock-Based Compensation Stock-based compensation is measured and recognized based on the grant date fair value of the awards.
The Company’s policy is to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense (benefit) within the consolidated statements of operations. The Company had $0.6 million of accrued interest and no accrued penalties as of December 31, 2022.
The Company’s policy is to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense (benefit) within the consolidated statements of operations. The Company had $0.0 million of accrued interest and no accrued penalties as of December 31, 2023.
Customer rebates, cash discounts, and other sales incentives are estimated by applying the portfolio approach using the most-likely-amount method and are recorded as a reduction to revenue. Estimates are updated each reporting period and any changes are allocated to the performance obligations on the same basis as at inception.
Customer rebates, cash discounts, and other sales incentives 68 Table of Contents are estimated by applying the portfolio approach using the most-likely-amount method and are recorded as a reduction to revenue. Estimates are updated each reporting period and any changes are allocated to the performance obligations on the same basis as at inception.
Advertising Costs Advertising costs, consisting of costs related to dealer conferences and commercials, are expensed as incurred and are included in selling, general, and administrative expense on the consolidated statements of operations. Total advertising costs were $9.8 million, $7.6 million, and $5.9 million during the years ended December 31, 2022, 2021 and 2020, respectively.
Advertising Costs Advertising costs, consisting of costs related to dealer conferences and commercials, are expensed as incurred and are included in selling, general, and administrative expense on the consolidated statements of operations. Total advertising costs were $9.2 million, $9.8 million, and $7.6 million during the years ended December 31, 2023, 2022 and 2021, respectively.
The ownership chain between Latham Pool Products and the Company consists of a series of holding companies with no material assets, liabilities, or standalone operations other than indirect equity interests in Latham Pool Products. ​ 10.
The ownership chain between Latham Pool Products and the Company consists of a series of holding companies with no material assets, liabilities, or standalone operations other than indirect equity interests in Latham Pool Products. ​ ​ ​ 86 Table of Contents 10.
Repurchase Program On May 10, 2022, the Company approved a stock repurchase program (the “Repurchase Program”), which authorized the Company to repurchase up to $100 million of the Company’s shares of common stock over the next three years. The Company may effect these repurchases in open market transactions, privately negotiated purchases, or other acquisitions.
Repurchase Program On May 10, 2022, the Board of Directors of the Company approved a stock repurchase program (the “Repurchase Program”), which authorizes the Company to repurchase up to $100 million of the Company’s shares of common stock over the next three years. The Company may effect these repurchases in open market transactions, privately negotiated purchases, or other acquisitions.
The proceeds of $257.7 million were used to purchase 13,800,000 shares of common stock from certain of the Company’s stockholders, primarily investment funds managed by the Sponsor and Wynnchurch Capital, L.P., and also a small percentage of shares of common stock owned by some of the Company’s directors and executive officers.
The proceeds of $257.7 million were used to purchase 13,800,000 shares of common stock from certain of the Company’s stockholders, primarily investment funds managed by Pamplona Capital Management (the “Sponsor”) and Wynnchurch Capital, L.P., and also a small percentage of shares of common stock owned by some of the Company’s directors and executive officers.
Deferred Income Taxes Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes, and the impact of available net operating loss (“NOL”) and tax credit carryforwards.
Deferred Income Taxes Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes, and the 91 Table of Contents impact of available net operating loss (“NOL”) and tax credit carryforwards.
The following summarizes the purchase price allocation for the Company’s acquisition of Radiant: ​ ​ ​ ​ ​ (in thousands) November 24, 2021 Total consideration ​ $ 91,109 Allocation of purchase price: ​ Cash ​ 217 Trade receivables ​ 2,805 Inventories ​ 5,528 Prepaid expenses and other current assets ​ 396 Property and equipment ​ 1,263 Intangible assets ​ 72,500 Total assets acquired ​ 82,709 Accounts payable ​ 1,744 Accrued expenses and other current liabilities ​ 1,038 Deferred income tax liabilities ​ 2,920 Total liabilities assumed ​ 5,702 Total fair value of net assets acquired, excluding goodwill ​ 77,007 Goodwill ​ $ 14,102 ​ The excess of the purchase price over the fair value of the identifiable assets acquired and the liabilities assumed in the acquisition was allocated to goodwill in the amount of $14.1 million.
The Company recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. ​ The following summarizes the purchase price allocation for the Company’s acquisition of Radiant: ​ ​ ​ ​ ​ (in thousands) November 24, 2021 Total consideration ​ $ 91,109 Allocation of purchase price: ​ Cash ​ 217 Trade receivables ​ 2,805 Inventories ​ 5,528 Prepaid expenses and other current assets ​ 396 Property and equipment ​ 1,263 Intangible assets ​ 72,500 Total assets acquired ​ 82,709 Accounts payable ​ 1,744 Accrued expenses and other current liabilities ​ 1,038 Deferred income tax liabilities ​ 2,920 Total liabilities assumed ​ 5,702 Total fair value of net assets acquired, excluding goodwill ​ 77,007 Goodwill ​ $ 14,102 ​ The excess of the purchase price over the fair value of the identifiable assets acquired and the liabilities assumed in the acquisition was allocated to goodwill in the amount of $14.1 million.
On January 25, 2021, Latham Pool Products borrowed the incremental term loan, and the proceeds were used on February 2, 2021 to purchase and retire equity interests and to pay a distribution. On March 31, 2021, Latham Pool Products amended its Term Loan to revise the applicable reporting 86 Table of Contents requirements (the “Fourth Amendment”).
On January 25, 2021, Latham Pool Products borrowed the incremental term loan, and the proceeds were used on February 2, 2021 to purchase and retire equity interests and to pay a distribution. On March 31, 2021, Latham Pool Products amended its Term Loan to revise the applicable reporting requirements (the “Fourth Amendment”).
Tax years and tax periods from June 30, 2019 through present are currently open for examination in Canada. Tax years and tax periods from June 30, 2018 through present are currently open for examination in Australia.
Tax years and tax periods from June 30, 2020 through present are currently open for examination in Canada. Tax years and tax periods from June 30, 2019 through present are currently open for examination in Australia.
The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position, results of operations, or cash flows.
The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s 93 Table of Contents financial position, results of operations, or cash flows.
The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the Omnibus Incentive Plan during any one fiscal year, together with any cash fees paid to such non-employee director during such fiscal year, will be $750,000.
The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the 2021 Omnibus Equity Plan during any one fiscal year, together with any cash fees paid to such non-employee director during such fiscal year, is $750,000.
The Company allocated a portion of the purchase price to specific intangible asset categories as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value ​ Amortization Definite-lived intangible assets: (in thousands) Period Dealer relationships ​ $ 37,000 ​ 13 years Trade names ​ ​ 13,000 25 years Technology ​ ​ 13,000 ​ 15 years Pool designs ​ 7,900 15 years Order backlog ​ ​ 1,600 ​ 10 months ​ ​ $ 72,500 ​ ​ ​ ​ 79 Table of Contents The following are the net sales and net income from Radiant included in the Company’s results from the Radiant Acquisition Date through December 31, 2021: ​ ​ ​ ​ ​ ​ ​ Year Ended (in thousands) December 31, 2021 Net sales ​ $ 2,211 Net income ​ $ 3 ​ Other Business Combinations During the fiscal quarter ended December 31, 2022, the Company completed the acquisition of certain fiberglass pool manufacturing assets in Seminole, Oklahoma that qualified as a business combination.
Goodwill resulting from the Radiant Acquisition is deductible for tax purposes. 77 Table of Contents The Company allocated a portion of the purchase price to specific intangible asset categories as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value ​ Amortization Definite-lived intangible assets: (in thousands) Period Dealer relationships ​ $ 37,000 ​ 13 years Trade names ​ ​ 13,000 25 years Technology ​ ​ 13,000 ​ 15 years Pool designs ​ 7,900 15 years Order backlog ​ ​ 1,600 ​ 10 months ​ ​ $ 72,500 ​ ​ ​ The following are the net sales and net income from Radiant included in the Company’s results from the Radiant Acquisition Date through December 31, 2021: ​ ​ ​ ​ ​ ​ ​ Year Ended (in thousands) December 31, 2021 Net sales ​ $ 2,211 Net income ​ $ 3 ​ Other Business Combinations During the quarter ended December 31, 2022, the Company completed the acquisition of certain fiberglass pool manufacturing assets in Seminole, Oklahoma that qualified as a business combination.
At this time, we do not hedge our foreign currency risk. ​ ​ ​ 58 Table of Contents Item 8 – Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ ​ Page ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 60 Consolidated Balance Sheets as of December 31, 2022 and 2021 61 Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020 62 Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2022, 2021 and 2020 63 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020 64 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 65 Notes to Consolidated Financial Statements 66 ​ ​ ​ 59 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Latham Group, Inc.
At this time, we do not hedge our foreign currency risk. ​ ​ ​ 59 Table of Contents Item 8 – Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ ​ Page ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 61 Consolidated Balance Sheets as of December 31, 2023 and 2022 62 Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022 and 202 1 63 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2023, 2022 and 202 1 64 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, 2022 and 202 1 65 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 202 1 66 Notes to Consolidated Financial Statements 67 ​ ​ ​ 60 Table of Contents Report of Independent Registered Public Accounting Firm REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Latham Group, Inc.
Dollar senior secured term loan (the “New Term Loan”) in an initial principal amount of $325.0 million (the “Refinancing”). On the closing date, proceeds under the New Credit Agreement were used to terminate the Credit Agreement (as defined below) by repayment of $294.0 million of outstanding debt thereunder and for general corporate purposes.
Dollar senior secured term loan (the “Term Loan”) in an initial principal amount of $325.0 million. On the closing date, proceeds under the Credit Agreement were used to terminate the Prior Credit Agreement (as defined below) by repayment of $294.0 million of outstanding debt thereunder and for general corporate purposes.
Loans outstanding under the New Term Loan bear interest, at the borrower’s option, at a rate per annum based on Term SOFR (as defined in the New Credit Agreement), plus a margin ranging from 85 Table of Contents 3.75% to 4.00%, depending on the First Lien Net Leverage Ratio, or based on the Base Rate (as defined in the New 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 (as defined in the Credit Agreement), plus a margin ranging from 2.75% to 3.00%, depending on the First Lien Net Leverage Ratio.
(Parent Company Only) Condensed Statement of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 2020 Cash flows from operating activities: ​ ​ ​ Net (loss) income ​ $ (5,694) ​ $ (62,348) ​ $ 15,983 Adjustments to reconcile net (loss) income to net cash provided by operating activities: ​ ​ ​ Equity in net loss (income) of subsidiary ​ 5,694 ​ 62,348 ​ (15,983) Net cash provided by operating activities ​ — ​ — ​ — Cash flows from investing activities: ​ ​ ​ Distribution from subsidiary ​ ​ 23,038 ​ ​ — ​ ​ — Investment in subsidiary ​ — ​ (117,626) ​ (65,553) Net cash provided by (used in) investing activities ​ 23,038 ​ (117,626) ​ (65,553) Cash flows from financing activities: ​ ​ ​ Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs ​ ​ — ​ ​ 399,264 ​ ​ — Proceeds from issuance of common stock ​ ​ 257,663 ​ ​ — ​ ​ 65,553 Repurchase and retirement of common stock ​ ​ (280,701) ​ ​ (281,638) ​ ​ — Net cash (used in) provided by financing activities ​ (23,038) ​ 117,626 ​ 65,553 Net increase in cash ​ — ​ — ​ — Cash at beginning of period ​ — ​ — ​ — Cash at end of period ​ $ — ​ $ — ​ $ — ​ The accompanying notes are an integral part of these condensed financial statements. ​ 106 Table of Contents Notes to Condensed Financial Statements of Registrant (Parent Company Only) 1.
(Parent Company Only) Condensed Statement of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2023 2022 2021 Cash flows from operating activities: ​ ​ ​ Net loss ​ $ (2,388) ​ $ (5,694) ​ $ (62,348) Adjustments to reconcile net loss to net cash provided by operating activities: ​ ​ ​ Equity in net loss of subsidiary ​ 2,388 ​ 5,694 ​ 62,348 Net cash provided by operating activities ​ — ​ — ​ — Cash flows from investing activities: ​ ​ ​ Distribution from subsidiary ​ ​ — ​ ​ 23,038 ​ ​ — Investment in subsidiary ​ — ​ — ​ (117,626) Net cash provided by (used in) investing activities ​ — ​ 23,038 ​ (117,626) Cash flows from financing activities: ​ ​ ​ Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs ​ ​ — ​ ​ — ​ ​ 399,264 Proceeds from issuance of common stock ​ ​ — ​ ​ 257,663 ​ ​ — Repurchase and retirement of common stock ​ ​ — ​ ​ (280,701) ​ ​ (281,638) Net cash (used in) provided by financing activities ​ — ​ (23,038) ​ 117,626 Net increase in cash ​ — ​ — ​ — Cash at beginning of period ​ — ​ — ​ — Cash at end of period ​ $ — ​ $ — ​ $ — ​ The accompanying notes are an integral part of these condensed financial statements. ​ 104 Table of Contents Notes to Condensed Financial Statements of Registrant (Parent Company Only) 1.
Holdco, assuming the Premier Franchisees are in good standing with respect to amounts owed to the Company. As of December 31, 2022 and 2021, the Company’s carrying amount for the equity method investment in Premier Pools & Spas was $25.1 million and $23.4 million, respectively.
Holdco, assuming the Premier Franchisees are in good standing with respect to amounts owed to the Company. As of December 31, 2023 and 2022, the Company’s carrying amount for the equity method investment in Premier Pools & Spas was $25.9 million and $25.1 million, respectively.
The Company acknowledges that it would need to accrue and pay taxes should it decide to repatriate cash generated from earnings of its foreign subsidiaries that are considered indefinitely reinvested but expect that the potential tax liability would be insignificant. Tax Uncertainties The liability related to uncertain tax positions, exclusive of interest, is $6.4 million at December 31, 2022.
The Company acknowledges that it would need to accrue and pay taxes should it decide to repatriate cash generated from earnings of its foreign subsidiaries that are considered indefinitely reinvested but expects that the potential tax liability would be insignificant. 92 Table of Contents Tax Uncertainties The liability related to uncertain tax positions, exclusive of interest, was $6.4 million at December 31, 2022.
As of December 31, 2022 and 2021, the Company’s reserve for estimated slow moving products or obsolescence was $4.6 million and $2.7 million, respectively. Property and Equipment, Net Property and equipment are recorded at cost and presented net of accumulated depreciation. Property and equipment acquired through business combinations are recorded at fair value at the acquisition date.
As of December 31, 2023 and 2022, the Company’s reserve for estimated slow moving products or obsolescence was $9.1 million and $4.6 million, respectively. Property and Equipment, Net Property and equipment are recorded at cost and presented net of accumulated depreciation. Property and equipment acquired through business combinations are recorded at fair value at the acquisition date.
The Company’s allowance for bad debt as of December 31, 2022 and 2021 was $3.2 million and $2.4 million, respectively. Concentration of Credit Risk Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and trade receivables.
The Company’s allowance for bad debt as of December 31, 2023 and 2022 was $7.5 million and $3.2 million, respectively. Concentration of Credit Risk Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and trade receivables.
The aggregate net proceeds received by the Company from the IPO were $399.3 million, after deducting underwriting discounts and commissions and other offering costs. Prior to the closing of the Company’s IPO on April 27, 2021 (the “Closing of the IPO”), the Company’s parent entity, Parent, merged with and into Latham Group, Inc. (the “Reorganization”).
The aggregate net proceeds received by the Company from the IPO were $399.3 million, after deducting underwriting discounts and commissions and other offering costs. Prior to the closing of the Company’s IPO on April 27, 2021, the Company’s parent entity, Latham Investment Holdings, L.P. (“Parent”), merged with and into Latham Group, Inc. (the “Reorganization”).
During the years ended December 31, 2022, 2021 and 2020, one customer represented approximately 20.3%, 25.0% and 22.3% of our net sales, respectively. As of December 31, 2022 and 2021, outstanding trade receivables related to this customer were $1.6 million and $10.7 million, respectively.
During the years ended December 31, 2023, 2022 and 2021, one customer represented approximately 20.3%, 20.3% and 25.0% of our net sales, respectively. As of December 31, 2023 and 2022, outstanding trade receivables related to this customer were $2.6 million and $1.6 million, respectively.
During the years ended December 31, 2022, 2021 and 2020, one customer represented approximately 20.3%, 25.0% and 22.3% of the Company’s net sales, respectively. As of December 31, 2022 and 2021, outstanding trade receivables related to this customer were $1.6 million and $10.7 million, respectively.
During the years ended December 31, 2023, 2022 and 2021, one customer represented approximately 20.3%, 20.3% and 25.0% of the Company’s net sales, respectively. As of December 31, 2023 and 2022, outstanding trade receivables related to this customer were $2.6 million and $1.6 million, respectively.
We believe that our audits provide a reasonable basis for our opinion. ​ /s/ Deloitte & Touche LLP ​ Hartford, Connecticut March 7, 2023 ​ We have served as the Company’s auditor since 2020. ​ ​ ​ ​ ​ ​ ​ ​ 60 Table of Contents Latham Group, Inc.
We believe that our audits provide a reasonable basis for our opinion. ​ / s/ Deloitte & Touche LLP Hartford Connecticut March 13, 2024 We have served as the Company's auditor since 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ 61 Table of Contents Latham Group, Inc.
To meet our working capital needs, we borrowed periodically on our New Revolving Credit Facility under the New Credit Agreement. As of December 31, 2022, we had outstanding borrowings of $322.6 million face value under our New Term Loan and no borrowings on the New Revolving Credit Facility.
To meet our working capital needs, we borrowed periodically on our New Revolving Credit Facility under the New Credit Agreement. As of December 31, 2023, we had outstanding borrowings of $309.3 million face value under our New Term Loan and no borrowings on the New Revolving Credit Facility.
The Company recorded its interest in net earnings of Premier Pools & Spas of $4.2 million and $2.2 million for the years ended December 31, 2022 and 2021, respectively, which included basis difference adjustments of $0.2 million and $0.3 million, respectively. ​ 5.
The Company recorded its interest in net earnings of Premier Pools & Spas of $3.7 million and $4.2 million for the years ended December 31, 2023 and 2022, respectively, which included basis difference adjustments of $0.2 million and $0.2 million, respectively. ​ 79 Table of Contents 5.
Control of the goods is considered to have been transferred upon shipping or upon arrival at the customer’s destination, depending on the terms of the purchase order. Revenue that is derived from its extended service warranties, which are separately priced and sold, is recognized over the term of the contract.
Control of the goods is considered to have been transferred upon shipping or upon arrival at the customer’s destination, depending on the terms of the purchase order. Revenue that is derived from its extended service warranties, which are separately priced and sold, is recognized over the term of the contract. Refer to Warranties within this same Note for further information.

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