# Latham Group, Inc.: Form 10-Q for the period ended Oct 1, 2022

- Company: [Latham Group, Inc.](/companies/swim.md) (CIK 1833197)
- Form: 10-Q
- Filed: 2022-11-10
- Accepted by EDGAR: Nov 10, 2022, 16:31 ET
- Period: 2022-10-01
- Accession: 0001558370-22-017443
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1833197/000155837022017443/swim-20221001x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1833197/000155837022017443/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-10-01.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-03 to 2022-10-01 | $189.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-10-01 | $587.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-03 to 2022-10-01 | $130.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-01-01 to 2022-10-01 | $390.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-07-03 to 2022-10-01 | $58.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-10-01 | $197.1m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-07-03 to 2022-10-01 | $26.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-10-01 | $113.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-03 to 2022-10-01 | $25.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-10-01 | $50.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-03 to 2022-10-01 | $4.3m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-10-01 | $9.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-03 to 2022-10-01 | $9.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-10-01 | $25.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-03 to 2022-10-01 | $11.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-10-01 | $13.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-03 to 2022-10-01 | $0.10 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-10-01 | $0.12 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-03 to 2022-10-01 | $0.10 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-10-01 | $0.12 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-03 to 2022-10-01 | 113,202,846 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-10-01 | 114,867,164 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-10-01 | $5.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-10-01 | $29.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2022-01-01 to 2022-10-01 | $272.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-10-01 | $30.6m | us-gaap:Cash |
| Current assets | at 2022-10-01 | $314.2m | us-gaap:AssetsCurrent |
| Total assets | at 2022-10-01 | $920.5m | us-gaap:Assets |
| Current liabilities | at 2022-10-01 | $115.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-10-01 | $522.5m | us-gaap:Liabilities |
| Long-term debt | at 2022-10-01 | $310.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-10-01 | $3.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-10-01 | $398.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 57,372 characters.

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

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 10, 2022 (the “Annual Report”).*

### Cautionary Note Regarding Forward-Looking Statements

Certain statements in this report are forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions and forecasts. In addition, our management may from time to time make oral forward-looking statements. All statements, other than statements of historical facts, are forward-looking statements. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “confident,” “continue,” “could,” “depend,” “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. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of various factors, including those set forth under the section of this Quarterly Report on Form 10-Q titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different, negatively or positively, from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from expectations include, but are not limited to secular shifts in consumer demand for swimming pools and spending on outdoor living spaces; slow pace of material conversion from concrete pools to fiberglass pools in the pool industry; general economic conditions and uncertainties affecting markets in which we operate and economic volatility that could adversely impact our business, including the COVID-19 pandemic and inflation; the impact of the war between the Russian Federation and Ukraine, including impact of sanctions imposed by Western governments; changes in access to consumer credit or increases in interest rates impacting consumers’ ability to finance their purchases of pools; the impact of weather on our business; our ability to attract new customers and retain existing customers, including the ability to generate additional potential sales leads for our dealers and the ability to convert leads generated into ultimate sales of products to consumers; our ability to sustain further growth and to manage it effectively; the ability of our suppliers to continue to deliver the quantity or quality of materials sufficient to meet our needs to manufacture our products; the availability and cost of third-party transportation services for our products and raw materials; product quality issues; our ability to successfully defend litigation brought against us; our ability to adequately obtain, maintain, protect and enforce our intellectual property and proprietary rights and claims of intellectual property and proprietary right infringement, misappropriation or other violation by competitors and third parties; failure to hire and retain qualified employees and personnel; exposure to risks associated with international sales and operations, including foreign currency exchange rates, corruption and instability; security breaches, cyber-attacks and other interruptions to our and our third-party service providers’ technological and physical infrastructures; catastrophic events, including war, terrorism and other international conflicts, public health issues or natural catastrophes and accidents; risk of increased regulation of our operations, particularly related to environmental laws; fluctuations in our operating results; inability to compete successfully against current and future competitors; inability to achieve projected savings from our cost reduction initiatives; and other risks, uncertainties and factors set forth in this Quarterly Report on Form 10-Q, including those set forth under section titled “Risk Factors.” These forward-looking statements reflect our views with respect to future events as of the date of this Quarterly Report on Form 10-Q and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. 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.

### Overview

We are the largest designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand. We hold the #1 market 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 CompanyTM.

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

We have a heritage of innovation. In an industry that has traditionally marketed on a business-to-business basis (pool manufacturer to dealer), we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey. Through this marketing strategy, we are able to create demand for our pools and generate and provide high quality, purchase-ready consumer leads to our dealer partners.

Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. We support our dealer network with business development tools, co-branded marketing programs and in-house training, as well as an operations platform consisting of over 2,300 employees across over 30 facilities.

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.

### Recent Developments

### Highlights for the fiscal quarter ended October 1, 2022

- Increase in net sales of 16.9%, or $27.4 million, to $189.4 million for the fiscal quarter ended October 1, 2022, compared to $162.0 million for the fiscal quarter ended October 2, 2021.
- Increase in net income of $23.2 million, to $11.9 million for the fiscal quarter ended October 1, 2022, compared to a net loss of $11.3 million for the fiscal quarter ended October 2, 2021, representing an 6.3% net income margin for the fiscal quarter ended October 1, 2022.
- Increase in Adjusted EBITDA (as defined below) of $6.2 million, to $42.3 million for the fiscal quarter ended October 1, 2022, compared to $36.1 million for the fiscal quarter ended October 2, 2021.

### Highlights for the three fiscal quarters ended October 1, 2022

- Increase in net sales of 19.6%, or $96.2 million, to $587.8 million for the three fiscal quarters ended October 1, 2022, compared to $491.6 million for the three fiscal quarters ended October 2, 2021.
- Increase in net income of $69.7 million, to $13.3 million for the three fiscal quarters ended October 1, 2022, compared to a net loss of $56.4 million for the three fiscal quarters ended October 2, 2021, representing an 2.3% net income margin for the three fiscal quarters ended October 1, 2022.
- Increase in Adjusted EBITDA of $26.4 million, to $138.9 million for the three fiscal quarters ended October 1, 2022, compared to $112.5 million for the three fiscal quarters ended October 2, 2021.

### Business Update

Market conditions continue to evolve. Our wholesale distribution partners continue to destock packaged pool inventory levels as they service dealer demand through existing supply. This is resulting in continued volume declines in our packaged pool products in the fourth quarter. Additionally, while interest in pool ownership remains strong, some homeowners are taking more time on their purchase decisions and establishing installation dates in light of the current macroeconomic environment. We have responded to these dynamics with immediate actions to reduce our costs.

On November 8, 2022, we approved a cost reduction plan to optimize our production and shift schedules, implement a workforce reduction, and streamline our cover and liner manufacturing footprint with the planned closure of our Bossier City, Louisiana facility in the first quarter of 2023. We expect to incur charges for employee severance and related costs, as well as fixed asset and facility related expenses, of approximately $2.0 million. These costs will be recognized in the fourth quarter of 2022 and the first quarter of 2023. We expect to generate annual operating expense savings of approximately $12.0 million in fiscal 2023 as a result of our cost reduction plan.

### Inflation Reduction Act

The Inflation Reduction Act ("IRA") was passed into law on August 16, 2022. Key provisions from the IRA include the implementation of a 15% corporate alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives. Enactment of the IRA has not impacted our financial condition, results of operations or cash flows for the period ended October 1, 2022 and we do not expect a material impact on our future results.

### Key Performance Indicators

### Net Sales

We derive our revenue from the design, manufacture and sale of in-ground swimming pools, pool covers and liners. We sell fiberglass pools, which are one-piece manufactured fiberglass pools that are ready to be installed in a consumer’s backyard and custom vinyl pools, which are manufactured pools that are made out of non-corrosive steel or composite polymer frame, on top of which a vinyl liner is installed. We sell liners for the interior surface of vinyl pools (including pools that were not manufactured by us). We also sell all-season covers, which are winterizing mesh and solid pool covers that protect pools against debris and cold or inclement weather and automatic safety covers for pools that can be operated with a switch.

Our sales are made through one-step and two-step business-to-business distribution channels. In our one-step distribution channel, we sell our products directly to dealers who, in turn, sell our products to consumers. In our two-step distribution channel, we sell our products to distributors who warehouse our products and sell them on to dealers, who ultimately sell our products to consumers.

Each product shipped is considered to be one performance obligation. With the exception of our extended service warranties and our custom product contracts, we recognize our revenue when control of our promised goods is transferred to our customers, either upon shipment or arrival at our customer’s destination depending upon the terms of the purchase order. Sales are recognized net of any estimated rebates, cash discounts or other sales incentives. Revenue that is derived from our extended service warranties, which are separately priced and sold, is recognized over the term of the contracts. Revenue from custom products is recognized over time utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation.

### Gross Margin

Gross margin is gross profit as a percentage of our net sales. Gross margin is dependent upon several factors, such as changes in prices of raw materials, the volume and relative sales mix among product lines, the average price of our products sold and plant performance, among other factors. Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary.

Our gross profit is variable in nature and generally follows changes in net sales. The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of other companies. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies.

### Adjusted EBITDA and Adjusted EBITDA Margin

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 establish our annual management incentive bonus plan compensation and to compare our performance against that of other peer companies using similar measures. We define Adjusted EBITDA as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, (iii) income tax (benefit) expense, (iv) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs, (x) loss on extinguishment of debt, (xi) other, (xii) underwriting fees related to offering of common stock, (xiii) Odessa fire and (xiv) IPO costs. We believe excluding these items allows for better comparison of our financial results across reporting periods.

We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. Our definitions of Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies.

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

### Results of Operations

### Fiscal Quarter Ended October 1, 2022 Compared to Fiscal Quarter Ended October 2, 2021

The following table summarizes our results of operations for the fiscal quarter ended October 1, 2022 and October 2, 2021:

*(dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Fiscal Quarter Ended ​ October 1, 2022 | ​ ​ | ​ ​ % of Net ​ Sales | ​ ​ ​ October 2, 2021 | ​ ​ | ​ ​ % of Net ​ Sales | ​ ​ Change Amount | ​ ​ | ​ ​ Change % of Net Sales |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Net sales | ​ | $189,398 | ​ | 100.0% | $161,957 | ​ | 100.0% | $27,441 | ​ | 0.0% |
| Cost of sales | ​ | 130,521 |  | 68.9% | 110,965 |  | 68.5% | 19,556 |  | 0.4% |
| Gross profit | ​ | 58,877 |  | 31.1% | 50,992 |  | 31.5% | 7,885 |  | (0.4)% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ |
| Selling, general and administrative expense | ​ | 26,749 |  | 14.1% | 48,072 |  | 29.7% | (21,323) |  | (15.6)% |
| Amortization | ​ | 7,156 |  | 3.8% | 5,486 |  | 3.4% | 1,670 |  | 0.4% |
| Income (loss) from operations | ​ | 24,972 |  | 13.2% | (2,566) |  | (1.6)% | 27,538 |  | 14.8% |
| Other expense (income): | ​ | ​ |  | ​ ​ | ​ |  | ​ ​ | ​ |  | ​ ​ |
| Interest expense | ​ | 4,264 |  | 2.3% | 4,271 |  | 2.6% | (7) |  | (0.3)% |
| Other expense (income), net | ​ | 1,052 |  | 0.5% | (2,538) |  | (1.5)% | 3,590 |  | 2.0% |
| Total other expense, net | ​ | 5,316 |  | 2.8% | 1,733 |  | 1.1% | 3,583 |  | 1.7% |
| Earnings from equity method investment | ​ | 1,329 |  | 0.7% | 810 |  | 0.5% | 519 |  | 0.2% |
| Income (loss) before income taxes | ​ | 20,985 |  | 11.1% | (3,489) |  | (2.2)% | 24,474 |  | 13.3% |
| Income tax expense | ​ | 9,109 |  | 4.8% | 7,807 |  | 4.8% | 1,302 |  | 0.0% |
| Net income (loss) | ​ | $11,876 |  | 6.3% | $(11,296) |  | (7.0)% | $23,172 |  | 13.3% |
| Adjusted EBITDA(a) | ​ | $42,252 |  | 22.3% | $36,107 |  | 22.3% | $6,145 |  | 0.0% |

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

### Net Sales

Net sales were $189.4 million for the fiscal quarter ended October 1, 2022, compared to $162.0 million for the fiscal quarter ended October 2, 2021. The $27.4 million, or 16.9%, increase in net sales was due to a $27.6 million increase from pricing, partially offset by a $0.2 million decrease from volume. The $27.6 million price increase reflects the impact of pricing actions to address inflation. The $0.2 million volume decrease was largely in packaged pools, which were impacted by continued destocking in the wholesale distribution channel. The increase in total net sales of $27.4 million across our product lines consisted of $18.3 million for in-ground swimming pools, $1.3 million for liners and $7.8 million for covers.

### Cost of Sales and Gross Margin

Cost of sales was $130.5 million for the fiscal quarter ended October 1, 2022, compared to $111.0 million for the fiscal quarter ended October 2, 2021. Gross margin decreased by 0.4%, to 31.1% of net sales for the fiscal quarter ended October 1, 2022 compared to 31.5% of net sales for the fiscal quarter ended October 2, 2021. The $19.5 million, or 17.6%, increase in cost of sales was primarily the result of cost inflation, partially offset by a $1.2 million decrease in non-cash stock-based compensation expense. The 0.4% decrease in gross margin was primarily driven by pricing actions that offset inflation, although not at a magnitude to hold gross margins year-over-year, and negative fixed cost leverage, partially offset by benefits from the build of inventory to return to normal lead times.

### Selling, General and Administrative Expense

Selling, general and administrative expense was $26.7 million for the fiscal quarter ended October 1, 2022, compared to $48.1 million for the fiscal quarter ended October 2, 2021, and decreased as a percentage of net sales by 15.6%. The $21.4 million, or 44.4%, decrease in selling, general and administrative expense was primarily due to a $19.4 million decrease in non-cash stock-based compensation expense and lower employee incentive accruals.

### Amortization

Amortization was $7.2 million for the fiscal quarter ended October 1, 2022, compared to $5.5 million for the fiscal quarter ended October 2, 2021. The $1.7 million, or 30.4%, increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of Trojan Leisure Products, LLC d/b/a Radiant Pools (“Radiant”) in November 2021.

### Interest Expense

Interest expense was $4.3 million for the fiscal quarter ended October 1, 2022, compared to $4.3 million for the fiscal quarter ended October 2, 2021. Interest expense remained flat primarily due to an unrealized gain related to the change in fair value of our interest rate swap, offset by an increase in the outstanding balance of long-term debt and higher amortization of deferred financing costs and debt discount for the fiscal quarter ended October 1, 2022.

### Other Expense (Income), Net

Other expense (income), net was $1.1 million for the fiscal quarter ended October 1, 2022, compared to ($2.5) million for the fiscal quarter ended October 2, 2021. The $3.6 million increase in other expense was primarily due to a non-recurring $3.9 million gain related to the partial sale of our equity method investment for the fiscal quarter ended October 2, 2021 and a favorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.

### Earnings from Equity Method Investment

Earnings from our equity method investment in Premier Pools & Spa were $1.3 million for the fiscal quarter ended October 1, 2022, compared to $0.8 million for the fiscal quarter ended October 2, 2021, primarily due to the financial performance of Premier Pools & Spa, partially offset by our reduced ownership interest during the fiscal quarter ended October 1, 2022 as compared to the fiscal quarter ended October 2, 2021.

### Income Tax Expense

Income tax expense was $9.1 million for the fiscal quarter ended October 1, 2022, compared to $7.8 million for the fiscal quarter ended October 2, 2021. Our effective tax rate was 43.4% for the fiscal quarter ended October 1, 2022, compared to (223.8)% for the fiscal quarter ended October 2, 2021. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for both the fiscal quarters ended October 1, 2022 and October 2, 2021 was primarily attributable to the discrete impact of stock-based compensation expense for which there is no associated tax benefit.

### Net Income (Loss)

Net income was $11.9 million for the fiscal quarter ended October 1, 2022, compared to $11.3 million of net loss for the fiscal quarter ended October 2, 2021. The $23.2 million, or 205.1%, increase in net income was primarily due to the factors described above.

### Net Income (Loss) Margin

Net income margin was 6.3% for the fiscal quarter ended October 1, 2022, compared to net loss margin of 7.0% for the fiscal quarter ended October 2, 2021. The 13.3% increase in net income margin was due to a $23.2 million increase in net income and a $27.4 million increase in net sales, compared to the fiscal quarter ended October 2, 2021 due to the factors described above.

### Adjusted EBITDA

Adjusted EBITDA was $42.3 million for the fiscal quarter ended October 1, 2022, compared to $36.1 million for the fiscal quarter ended October 2, 2021. The $6.2 million, or 17.0%, increase in Adjusted EBITDA was primarily due to the increase in net sales, as well as the other factors described above.

### Adjusted EBITDA Margin

Adjusted EBITDA margin was 22.3% for the fiscal quarter ended October 1, 2022, compared to 22.3% for the fiscal quarter ended October 2, 2021. Adjusted EBITDA margin remained flat primarily due to the factors described above.

### Three Fiscal Quarters Ended October 1, 2022 Compared to Three Fiscal Quarters Ended October 2, 2021

The following table summarizes our results of operations for the three fiscal quarters ended October 1, 2022 and October 2, 2021:

*(dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Fiscal Quarters Ended ​ ​ October 1, 2022 | ​ ​ | ​ ​ % of Net ​ Sales | ​ ​ ​ ​ October 2, 2021 | ​ ​ | ​ ​ % of Net ​ Sales | ​ ​ Change Amount | ​ ​ | ​ ​ Change % of Net Sales ​ |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Net sales | ​ | $587,812 |  | 100.0% | $491,592 |  | 100.0% | $96,220 |  | 0.0% |
| Cost of sales | ​ | 390,674 |  | 66.5% | 329,805 |  | 67.1% | 60,869 |  | (0.6)% |
| Gross profit | ​ | 197,138 |  | 33.5% | 161,787 |  | 32.9% | 35,351 |  | 0.6% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ |
| Selling, general and administrative expense | ​ | 113,778 |  | 19.4% | 170,532 |  | 34.7% | (56,754) |  | (15.3)% |
| Underwriting fees related to offering of common stock | ​ | ​ 11,437 | ​ | 1.8% | ​ — | ​ | —% | ​ 11,437 | ​ | 1.8% |
| Amortization | ​ | 21,504 |  | 3.7% | 16,560 |  | 3.3% | 4,944 |  | 0.4% |
| Income (loss) from operations | ​ | 50,419 |  | 8.6% | (25,305) |  | (5.1)% | 75,724 |  | 13.7% |
| Other expense (income): | ​ | ​ |  | ​ ​ | ​ |  | ​ | ​ |  | ​ |
| Interest expense | ​ | 9,193 |  | 1.6% | 20,843 |  | 4.2% | (11,650) |  | (2.6)% |
| Loss on extinguishment of debt | ​ | ​ 3,465 | ​ | 0.6% | ​ — | ​ | —% | ​ 3,465 | ​ | 0.6% |
| Other expense (income), net | ​ | 1,614 |  | 0.2% | (3,887) |  | (0.7)% | 5,501 |  | 0.9% |
| Total other expense, net | ​ | 14,272 |  | 2.4% | 16,956 |  | 3.5% | (2,684) |  | (1.1)% |
| Earnings from equity method investment | ​ | 2,591 |  | 0.4% | 1,808 |  | 0.4% | 783 |  | 0.0% |
| Income (loss) before income taxes | ​ | 38,738 |  | 6.6% | (40,453) |  | (8.2)% | 79,191 |  | 14.8% |
| Income tax expense | ​ | 25,399 |  | 4.3% | 15,908 |  | 3.3% | 9,491 |  | 1.0% |
| Net income (loss) | ​ | $13,339 |  | 2.3% | $(56,361) |  | (11.5)% | $69,700 |  | 13.8% |
| Adjusted EBITDA(a) | ​ | $138,867 |  | 23.6% | $112,475 |  | 22.9% | $26,392 |  | 0.7% |

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

### Net Sales

Net sales were $587.8 million for the three fiscal quarters ended October 1, 2022, compared to $491.6 million for three fiscal quarters ended October 2, 2021. The $96.2 million, or 19.6%, increase in net sales was due to a $97.4 million increase from pricing, partially offset by a $1.2 million decrease from volume. The $97.4 million price increase reflects the impact of pricing actions to address inflation. The increase in total net sales of $96.2 million across our product lines consisted of $40.6 million for in-ground swimming pools, $27.1 million for liners and $28.5 million for covers.

### Cost of Sales and Gross Margin

Cost of sales was $390.7 million for the three fiscal quarters ended October 1, 2022, compared to $329.8 million for the three fiscal quarters ended October 2, 2021. Gross margin increased by 0.6%, to 33.5% of net sales for the three fiscal quarters ended October 1, 2022 compared to 32.9% of net sales for the three fiscal quarters ended October 2, 2021. The $60.9 million, or 18.5%, increase in cost of sales was primarily the result of cost inflation, partially offset by a $3.8 million decrease in non-cash stock-based compensation expense. The 0.6% increase in gross margin was primarily driven by lower non-cash stock-based compensation expense and benefits from the build of inventory, partially offset by pricing actions that offset inflation, although not at a magnitude to hold gross margins year-over-year.

### Selling, General and Administrative Expense

Selling, general and administrative expense was $113.8 million for the three fiscal quarters ended October 1, 2022, compared to $170.5 million for the three fiscal quarters ended October 2, 2021, and decreased as a percentage of net sales by 15.3%. The $56.7 million, or 33.3%, decrease in selling, general and administrative expense was primarily due to a $60.4 million decrease in non-cash stock-based compensation expense, partially offset by a $1.2 million increase in ongoing public company costs, and an increase in insurance and travel related expenses.

### Underwriting Fees Related to Offering of Common Stock

Underwriting fees related to our offering of common stock were $11.4 million for the three fiscal quarters ended October 1, 2022, related to the offering that was completed in January 2022.

### Amortization

Amortization was $21.5 million for the three fiscal quarters ended October 1, 2022, compared to $16.6 million for the three fiscal quarters ended October 2, 2021. The $4.9 million, or 29.9%, increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of Radiant in November 2021.

### Interest Expense

Interest expense was $9.2 million for the three fiscal quarters ended October 1, 2022, compared to $20.8 million for the three fiscal quarters ended October 2, 2021. The $11.6 million, or 55.9%, decrease in interest expense was primarily due to lower amortization of deferred financing costs and debt discount and a lower effective interest rate due to the refinancing, compared to the three fiscal quarters ended October 2, 2021. In addition, interest expense for the three fiscal quarters ended October 1, 2022 was partially offset by an unrealized gain of $4.2 million related to the change in fair value of our interest rate swap.

### Loss on Extinguishment of Debt

Loss on extinguishment of debt was $3.5 million for the three fiscal quarters ended October 1, 2022, compared to none for the three fiscal quarters ended October 2, 2021, as our debt refinancing was completed in February 2022.

### Other Expense (Income), Net

Other expense (income), net was $1.6 million for the three fiscal quarters ended October 1, 2022, compared to ($3.9) million for the three fiscal quarters ended October 2, 2021. The $5.5 million increase in other expense was primarily due to a non-recurring $3.9 million gain related to the partial sale of our equity method investment for the three fiscal quarters ended October 2, 2021 and an unfavorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.

### Earnings from Equity Method Investment

Earnings from our equity method investment in Premier Pools & Spa were $2.6 million for the three fiscal quarters ended October 1, 2022, compared to $1.8 million for the three fiscal quarters ended October 2, 2021, primarily due to the financial performance of Premier Pools & Spa, partially offset by our reduced ownership interest during the three fiscal quarters ended October 1, 2022 as compared to the three fiscal quarters ended October 2, 2021.

### Income Tax Expense

Income tax expense was $25.4 million for the three fiscal quarters ended October 1, 2022, compared to $15.9 million for the three fiscal quarters ended October 2, 2021. Our effective tax rate was 65.6% for the three fiscal quarters ended October 1, 2022, compared to (39.3)% for the three fiscal quarters ended October 2, 2021. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for both the three fiscal quarters ended October 1, 2022 and October 2, 2021 was primarily attributable to the discrete impact of stock-based compensation expense for which there is no associated tax benefit.

### Net Income (Loss)

Net income was $13.3 million for the three fiscal quarters ended October 1, 2022, compared to $56.4 million of net loss for the three fiscal quarters ended October 2, 2021. The $69.7 million, or 123.7%, increase in net income was primarily due to the factors described above.

### Net Income (Loss) Margin

Net income margin was 2.3% for the three fiscal quarters ended October 1, 2022, compared to net loss margin of 11.5% for the three fiscal quarters ended October 2, 2021. The 13.8% increase in net income margin was due to a $69.7 million increase in net income and a $96.2 million increase in net sales, compared to the three fiscal quarters ended October 2, 2021 due to the factors described above.

### Adjusted EBITDA

Adjusted EBITDA was $138.9 million for the three fiscal quarters ended October 1, 2022, compared to $112.5 million for the three fiscal quarters ended October 2, 2021. The $26.4 million, or 23.5%, increase in Adjusted EBITDA was primarily due to the increase in net sales, as well as the other factors described above.

### Adjusted EBITDA Margin

Adjusted EBITDA margin was 23.6% for the three fiscal quarters ended October 1, 2022, compared to 22.9% for the three fiscal quarters ended October 2, 2021. The 0.7% increase in Adjusted EBITDA margin was primarily due to a $26.4 million increase in Adjusted EBITDA and a $96.2 million increase in net sales, compared to the three fiscal quarters ended October 2, 2021, as well as the other factors described above.

### Non-GAAP Financial Measures

### Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management and our board of directors to assess our financial performance. Adjusted EBITDA and Adjusted EBITDA margin are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to compare our performance against that of other companies using similar measures, and as a performance measure in certain employee incentive programs. We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures because we believe they allow for a more complete analysis of results of operations and assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that are non-cash items or which 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 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) other, (xii) underwriting fees related to offering of common stock, (xiii) Odessa fire and (xiv) IPO costs.

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. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. There can be no assurance that we will not modify the presentation of Adjusted EBITDA and Adjusted EBITDA margin in the future, and any such modification may be material. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by any such adjustments. In addition, other companies, including companies in our industry, may not calculate Adjusted EBITDA and Adjusted EBITDA margin at all or may calculate Adjusted EBITDA and Adjusted EBITDA margin differently and accordingly, are not necessarily comparable to similarly entitled measures of other companies, which reduces the usefulness of Adjusted EBITDA and Adjusted EBITDA margin as tools for comparison.

Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA and Adjusted EBITDA margin:

- do not reflect every expenditure, future requirements for capital expenditures or contractual commitments;
- do not reflect changes in our working capital needs;
- do not reflect the interest expense, or the amounts necessary to service interest or principal payments, on our outstanding debt;
- do not reflect income tax (benefit) expense, and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate;
- do not reflect non-cash equity compensation, which will remain a key element of our overall equity-based compensation package; and
- do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations.

Although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA and Adjusted EBITDA margin, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA margin do not reflect any costs of such replacements.

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

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

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Fiscal Quarter Ended October 1, 2022 | ​ ​ ​ October 2, 2021 | ​ ​ ​ Three Fiscal Quarters Ended October 1, 2022 | ​ ​ ​ ​ October 2, 2021 ​ ​ |
| --- | --- | ---: | ---: | --- | --- |
| Net income (loss) | ​ | $11,876 ​ | $(11,296) ​ | $13,339 ​ | $(56,361) ​ |
| Depreciation and amortization | ​ | 9,560 ​ | 8,019 ​ | ​ 28,834 ​ | ​ 23,689 ​ |
| Interest expense | ​ | 4,264 ​ | 4,271 ​ | ​ 9,193 ​ | ​ 20,843 ​ |
| Income tax expense | ​ | 9,109 ​ | 7,807 ​ | ​ 25,399 ​ | ​ 15,908 ​ |
| Loss on sale and disposal of property and equipment | ​ | 22 ​ | 38 ​ | ​ 146 ​ | ​ 225 ​ |
| Restructuring charges (a) | ​ | 287 ​ | 376 ​ | ​ 406 ​ | ​ 783 ​ |
| Stock-based compensation (b) | ​ | 7,061 ​ | 27,603 ​ | ​ 40,415 ​ | ​ 104,578 ​ |
| Unrealized losses on foreign currency transactions (c) | ​ | 1,103 ​ | 1,740 ​ | ​ 2,817 ​ | ​ 948 ​ |
| Strategic initiative costs (d) | ​ | 532 ​ | 778 ​ | ​ 3,019 ​ | ​ 1,154 ​ |
| Acquisition and integration related costs (e) | ​ | — ​ | 306 ​ | ​ 257 ​ | ​ 378 ​ |
| Loss on extinguishment of debt (f) | ​ | ​ — ​ | ​ — ​ | ​ 3,465 ​ | ​ — ​ |
| Other, net (g) | ​ | (39) ​ | (3,535) ​ | ​ 140 ​ | ​ (3,626) ​ |
| Underwriting fees related to offering of common stock (h) | ​ | ​ — ​ | ​ — ​ | ​ 11,437 ​ | ​ — ​ |
| Odessa fire (i) | ​ | ​ (1,523) ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| IPO Costs (j) | ​ | — ​ | — ​ | ​ — ​ | ​ 3,956 ​ |
| Adjusted EBITDA | ​ | $42,252 ​ | $36,107 ​ | $138,867 ​ | $112,475 ​ |
| Net sales | ​ | $189,398 ​ | $161,957 ​ | $587,812 ​ | $491,592 ​ |
| Net income (loss) margin | ​ | 6.3% | (7.0)% | ​ 2.3% | ​ (11.5)% |
| Adjusted EBITDA margin | ​ | 22.3% | 22.3% | ​ 23.6% | ​ 22.9% |

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

(b) Represents non-cash stock-based compensation expense.

(c) Represents unrealized foreign currency transaction losses associated with our international subsidiaries.

(d) Represents fees paid to external consultants for our strategic initiatives.

(e) Represents acquisition and integration costs primarily related to the acquisition of Radiant, the equity investment in Premier Pools & Spas, as well as other costs related to potential transactions.

(f) Represents the loss on extinguishment of debt in connection with our Refinancing (as defined below).

(g) Other costs consist of other discrete items as determined by management, primarily including (i) fees paid to external advisors for various matters, (ii) non-cash adjustments to record the step-up in the fair value of inventory related to the acquisitions of GL International, LLC and Radiant, which are amortized through cost of sales in the condensed consolidated statements of operations, (iii) gain on sale of equity method investment, and (iv) other items.

(h) Represents underwriting fees related to our offering of common stock that was completed in January 2022.

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

(j) These expenses are primarily composed of legal, accounting and professional fees incurred in connection with our IPO (as defined below) that are not capitalizable, which are included within selling, general and administrative expense.

### 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 (as defined below). Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, and debt service requirements with internally generated cash on hand and through our term loan and revolving credit facilities (as defined below under “—Our Indebtedness”) and through the issuance of shares of our common stock. Our primary cash needs are to fund working capital, capital expenditures, debt service requirements, any acquisitions we may undertake and any share repurchases we may make. As of October 1, 2022, we had $30.6 million of cash, $313.3 million of outstanding borrowings on the New Term Loan (as defined below) and an additional $75.0 million of availability under our New Revolving Credit Facility, which was undrawn.

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. 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 believe 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. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

### Our Indebtedness

On February 23, 2022, Latham Pool Products, Inc. (“Latham Pool Products”), our wholly owned subsidiary, entered into an agreement (the “New Credit Agreement”) with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit in an initial principal amount of $75.0 million (the “New Revolving Credit Facility”) and a U.S. Dollar senior secured term loan facility (the “New Term Loan Facility”) in an initial principal amount of $325.0 million (the “Refinancing”). On the closing date, proceeds under the agreement were used to repay and replace $294.0 million under, and terminate, the Credit Agreement (as defined below) and for general corporate purposes.

#### 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. The New Revolving Credit Facility matures on February 23, 2027. Loans outstanding under the New Revolving Credit Facility denominated in U.S. Dollars and Canadian Dollars bear interest, at the borrower’s option, at a rate per annum based on Term SOFR or CDO (each, as defined in the 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%. 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. The commitment fee is due and payable quarterly in arrears and is, initially, 0.375% per annum and will, thereafter, accrue at a rate per annum ranging from 0.25% to 0.50%, depending on the First Lien Net Leverage Ratio (as defined in the New Credit Agreement, the “First Lien Net Leverage Ratio”. The New Revolving Credit Facility is not subject to amortization.

We are also required to meet certain financial covenants, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on our ability to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates, make prepayments with respect to certain indebtedness and make restricted payments and other distributions.

As of October 1, 2022 we had no outstanding borrowings under the New Revolving Credit Facility.

#### New Term Loan Facility

The New Term Loan matures on February 23, 2029. 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 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 under the New Term Loan are subject to scheduled quarterly amortization payments equal to 0.25% of the initial principal amount of the New Term Loan.

The obligations under the New Credit Agreement are guaranteed by certain of our wholly owned subsidiaries as defined in the security agreement. The obligations under the New Credit Agreement are secured by substantially all of the guarantors’ tangible and intangible assets, including, but not limited to, their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts. The New Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict our ability to pay dividends.

As of October 1, 2022 we had $313.3 million of outstanding borrowings under the New Term Loan.

As of October 1, 2022, we were in compliance with all covenants under the New Revolving Credit Facility and the New Term Loan.

#### 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 “Revolving Credit Facility”), as well as a Term Loan (as described and defined below). The Revolving Credit Facility was utilized to finance ongoing general corporate and working capital needs with the Revolver of up to $30.0 million. The Revolving Credit Facility was terminated in connection with the Refinancing.

#### Prior Term Loan Facility

Pursuant to the Credit Agreement, Latham Pool Products also borrowed $215.0 million in term loans (the “Term Loan”). The Term Loan was amended on May 29, 2019, to provide additional borrowings of $23.0 million, which was accounted for as a modification to the Term Loan, to fund our acquisition of Narellan Group Pty Limited and its subsidiaries (the “First Amendment”). On October 14, 2020, we amended the First Amendment to provide additional borrowings of $20.0 million, which was accounted for as new debt (the “Second Amendment”). The Second Amendment was further amended on January 25, 2021, to provide an additional incremental term loan of $175.0 million (the “Third 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, we amended our Term Loan to revise the applicable reporting requirements (the “Fourth Amendment”). On November 24, 2021, we amended the Term Loan to provide additional borrowings of $50.0 million (the “Fifth Amendment”). The proceeds from this incremental term loan were used to finance the Radiant Acquisition in part. The Term Loan, collectively with the First Amendment, Second Amendment, Third Amendment, the Fourth Amendment and the Fifth Amendment, is referred to as the “Amended Term Loan.” The Amended Term Loan was terminated in connection with the Refinancing.

### 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. We may effect these repurchases in open market transactions, privately negotiated purchases or other acquisitions. We are not obligated to repurchase any of our shares of our common stock 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. During the three fiscal quarters ended October 1, 2022, we repurchased and concurrently retired 2,026,231 shares of our common stock for an aggregate amount of $15.0 million, pursuant to the Repurchase Program. As of October 1, 2022, approximately $85.0 million remained available for share repurchases pursuant to our Repurchase Program.

### Cash Flows

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

*(in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Fiscal Quarters Ended October 1, 2022 | ​ | ​ ​ October 2, 2021 |
| --- | --- | ---: | --- | ---: |
| Net cash provided by operating activities | ​ | $5,236 | ​ | $29,426 |
| Net cash used in investing activities | ​ | (29,362) | ​ | (11,966) |
| Net cash provided by financing activities | ​ | 12,626 | ​ | 14,323 |
| Effect of exchange rate changes on cash | ​ | (1,832) | ​ | (224) |
| Net (decrease) increase in cash | ​ | $(13,332) | ​ | $31,559 |

#### Operating Activities

During the three fiscal quarters ended October 1, 2022, operating activities provided $5.2 million of cash. Net income, after adjustments for non-cash items, provided cash of $105.4 million. Cash provided by operating activities was further driven by changes in our operating assets and liabilities, which used $100.1 million. Net cash used in changes in our operating assets and liabilities for the three fiscal quarters ended October 1, 2022 consisted primarily of a $44.9 million increase in trade receivables, a $59.1 million increase in inventories, a $2.1 million increase in income tax receivable, a $0.4 million increase in other assets, a $0.1 million decrease in accrued expenses and other current liabilities, partially offset by a $2.5 million decrease in prepaid expenses and other current assets, a $3.7 million increase in accounts payable, and a $0.3 million increase in other long-term liabilities. The change in trade receivables was primarily due to the timing of, and increase in, net sales, and the increase in inventories was primarily due to a strategic decision to carry more inventory, as well as higher costs. The changes in accrued expenses and other current liabilities and accounts payable were primarily due to volume of purchases and timing of payments.

During the three fiscal quarters ended October 2, 2021, operating activities provided $29.4 million of cash. Net income, after adjustments for non-cash items, provided cash of $75.3 million. Cash provided by operating activities was further driven by changes in our operating assets and liabilities, which used $45.9 million. Net cash used in changes in our operating assets and liabilities for the three fiscal quarters ended October 2, 2021 consisted primarily of a $43.1 million increase in trade receivables, a $16.1 million increase in inventories, a $4.8 million increase in prepaid expenses and other current assets, a $1.8 million increase in income tax receivable, and a $0.5 million increase in other assets, partially offset by a $10.6 million increase in accounts payable, a $9.7 million increase in accrued expenses and other current liabilities, and a $0.1 million increase in other long-term liabilities. The change in trade receivables was primarily due to the timing of and increase in net sales, and the increase in inventories was primarily due to increased production and cost inflation. The changes in accrued expenses and other current liabilities and accounts payable were primarily due to volume of purchases and timing of payments.

#### Investing Activities

During the three fiscal quarters ended October 1, 2022, investing activities used $29.4 million of cash, primarily consisting of purchases of property and equipment for $29.0 million and the settlement of the net working capital adjustment related to the acquisition of Radiant for $0.4 million. The purchase of property and equipment was primarily to expand capacity for inventory production in order to meet increasing customer demand.

During the three fiscal quarters ended October 2, 2021, investing activities used $12.0 million of cash, primarily consisting of purchases of property and equipment for $19.2 million, partially offset by proceeds from the sale of equity method investment of $6.8 million and return of equity method investment of $0.4 million. The purchase of property and equipment was primarily to expand capacity for inventory production in order to meet increasing customer demand.

#### Financing Activities

During the three fiscal quarters ended October 1, 2022, financing activities provided $12.6 million of cash, primarily consisting of proceeds from long-term debt borrowings in connection with the 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 $285.6 million, the repurchase and retirement of common stock of $272.7 million, repayments on revolving credit facility borrowings of $25.0 million, and deferred financing fees paid of $6.9 million.

During the three fiscal quarters ended October 2, 2021, financing activities provided $14.3 million of cash, primarily consisting of proceeds from our initial public offering, completed on April 27, 2021 (the “IPO”), net of underwriting discounts, commissions and offering costs of $399.3 million, proceeds from long-term debt borrowings of $172.8 million and borrowings on the revolving credit facilities of $16.0 million, partially offset by the repurchase and retirement of common stock of $281.6 million, payments on long-term debt borrowings of $164.8 million, dividends to Class A unitholders of $110.0 million, and payments on revolving credit facility borrowings of $16.0 million.

### Contractual Obligations

There have been no material changes, outside of the ordinary course of business, to our contractual obligations during the three fiscal quarters ended October 1, 2022 from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our Annual Report.

### Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. Throughout the preparation of these financial statements, we have made estimates and assumptions that impact the reported amounts of assets, liabilities and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report. These estimates are based on historical results, trends and other assumptions we believe to be reasonable. We evaluate these estimates on an ongoing basis. Actual results may differ from estimates. For additional information about our critical accounting policies and estimates, see the disclosure included in our Annual Report as well as Note 2 - Summary of Significant Accounting Policies in the notes to the condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

### Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

### Recently Issued and Adopted Accounting Pronouncements

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

## Market risk

As filed, 1,057 characters.

### Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss that may result from market changes associated with our business or with an existing or forecasted financial transaction. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through variable rate debt instruments and denominate some of our transactions in foreign currencies. Changes in these rates may have an impact on future cash flow and earnings. We manage these risks through normal operating and financing activities. During the three fiscal quarters ended October 1, 2022, there have been no material changes to the information included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report.

## Controls and procedures

As filed, 1,980 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of October 1, 2022, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 11,461 characters.

We have disclosed under the heading “Risk Factors” in our Annual Report, the risk factors that materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed other than the risk factors set forth below. You should carefully consider the risk factors set forth in the Annual Report and the other information set forth elsewhere in this Form 10-Q. You should be aware that these risk factors and other information may not described every risk that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

***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 quality of the raw materials used to manufacture our products could adversely affect our net sales and operating results.***

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. Other than occasional strategic purchases of larger quantities of certain raw materials, we generally buy materials on an as-needed basis. We are dependent upon the ability of our suppliers to consistently provide raw materials and components that meet our specifications, quality standards and other applicable criteria. Our suppliers’ failure to provide raw materials and components that meet such criteria on a timely basis could adversely affect production schedules and our product quality, which in turn could materially adversely affect our business, financial condition and results of operations. While we believe that our relationships with our current suppliers are sufficient to provide the materials necessary to meet present production demand, these relationships may not continue or the quantity or quality of materials available from these suppliers may not be sufficient to meet our future needs, irrespective of whether we successfully implement our growth strategy, and we may not be able to obtain supplies on favorable terms. In the event of a shortage of our raw materials, we may not be able to arrange for alternative sources of such materials on a timely basis or on equally favorable terms. For example, in 2021 and continuing in 2022, we experienced and continue to experience raw material shortages, particularly of resin, which limited our fiberglass pool production and decreased our profitability in 2021 and may impact us similarly in the future. Although we have taken actions to increase and diversify our resin and other raw materials supply base, we may not succeed in procuring sufficient supply of resin and other raw materials that we need, which could result in lost sales and a decline in our profitability.

In addition, increases in the cost of the raw materials used to manufacture our products could adversely affect our operating results. The cost of many of the raw materials we use in the manufacture of our products, such as steel, is subject to price volatility. Changes in prices of our raw materials have a direct impact on our cost of sales. Accordingly, we are exposed to the risk of increases in the market prices of raw materials used in the manufacture of our products. We 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. If we are unable to increase our prices or experience a delay in our ability to increase our prices or to recover such increases in our costs, our gross profit will suffer. In addition, increases in the price of our products to compensate for increased costs of raw materials may reduce demand for our products and adversely affect our competitive position.

***An interruption of our production capability at one or more of our manufacturing facilities from accident, calamity or other causes, or events affecting the global economy, could adversely affect our business and results of operations.***

We manufacture our products at a limited number of manufacturing facilities, and shifting production rapidly to another facility in the event of a loss of one of or a portion of one of our manufacturing facilities could lead to increased costs. A temporary or permanent loss of the use of one or more of our manufacturing facilities due to accidents, fire (such as the fire at our Texas facility in April 2022 that resulted in a total loss of the manufacturing facility), explosions, labor issues, tornadoes, other weather conditions, natural disasters, condemnation, cancellation or non-renewals of leases, terrorist attacks or other acts of violence or war or otherwise could have a material adverse effect on our operating costs. An interruption in our production capabilities could also require us to make substantial capital expenditures to replace damaged or destroyed facilities or equipment. Any of these events could result in substantial repair costs and higher operating costs.

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

Inflation in the United States began to rise significantly in the second half of the calendar year of 2021 and continued to increase in the first nine months of 2022. This is primarily believed to be the result of the economic impacts from the COVID-19 pandemic, including the global supply chain disruptions, strong economic recovery and associated widespread demand for goods, government stimulus packages, and the war between Russia and Ukraine, among other factors. For instance, global supply chain disruptions have resulted in shortages in materials and services. Such shortages have resulted in inflationary cost increases for labor, materials, and services, and could continue to cause costs to increase as well as scarcity of certain products. Global supply chain disruptions continue to persist, and may become worse due to the war in Ukraine, the COVID-19 pandemic-related lock-downs in China or for other reasons. We are experiencing inflationary pressures in certain areas of our business, including with respect to prices of our raw materials and employee wages, although, to date, we have been able to offset such pressures, to some extent, through price increases and other measures. We cannot, however, predict any future trends in the rate of inflation or associated increases in our operating costs and how that may impact our business. In addition, the demand for our products may soften as we continue to increase the prices of our products to offset the inflationary pressure. 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.

***Economic and political change could adversely impact our financial condition and results of operations.***

Our business has been and could continue to be adversely affected by events over which we have limited or no control, including pandemics, recessions, general or specific inflations, trade restrictions, changes to tax laws, changes to other laws, and armed conflicts, among others. These events may disrupt the supply and prices of raw materials or labor required to produce the products we sell, affect the ability of our customers to operate their businesses such that they lessen their purchases from us, and affect the ability of potential consumers of our products to purchase them. These effects may occur in any of the markets in which we compete. The current military conflict 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. While our operations are primarily within North America and we have no operations in Russia or Ukraine, and we do not have direct exposure to customers and vendors in Russia and Ukraine, we continue to monitor any adverse impact that such events may have on the global economy in general, on our business and operations and on the businesses and operations of our business partners, suppliers and customers.

***The demand for our swimming pools and related products may be adversely affected by unfavorable economic conditions and trends in consumer spending.***

A swimming pool is a consumer discretionary purchase. Consumer discretionary spending affects our sales and is impacted by factors outside of our control, including general economic conditions, the residential housing market, unemployment rates and wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and access to credit. In economic downturns such as many are forecasting for the fourth quarter 2022 and continuing throughout 2023, the demand for swimming pools and related products may decline, often corresponding with declines in discretionary consumer spending, the growth rate of pool eligible households and swimming pool construction. This cyclicality in consumer demand for our products means that the results for any prior period may not be indicative of results for any future period.

In addition, consumer demand for swimming pools is impacted by consumer demand for, and spending on, outdoor living spaces. While we believe consumers have increased spending on outdoor living in recent years, the level of spending could decrease in the future if interest rates continue to rise, access to credit tightens or the economy contracts.

Any substantial deterioration in general economic conditions that diminishes consumer confidence or discretionary income may reduce our sales and materially adversely affect our business, financial condition and results of operations. Even in generally favorable economic conditions, severe and/or prolonged downturns in the housing market could have a material adverse impact on our financial performance. Such downturns expose us to certain additional risks, including, but not limited to the risk of dealer closures or bankruptcies, which could shrink our potential customer base and inhibit our ability to collect on those dealers’ receivables. Further, a recessionary economic environment could weaken the financial condition of our suppliers potentially leading to shortages of critical raw materials, manufacturing equipment, components and services.

We believe that consumers’ access to consumer credit is a factor enabling the purchase of new pools because a significant percentage of consumers finance their pool installations. Tightening consumer credit or increases in interest rates could prevent consumers from obtaining financing for pools, which could negatively impact our sales.

Filed Nov 10, 2022.
Source: SEC EDGAR, the filing index for accession 0001558370-22-017443. Last ingested by Listed: Nov 4, 2026, 07:40 ET. No prices; not investment advice.