Q3 2022 Earnings Call November 10, 2022 latham Group SWIM | Nasdaq Listed Disclaimer Forward-looking Statements Certain statements contained in this presentation are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are generally identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potent ...

Latham Group, Inc. (NASDAQ:SWIM) Q2 2022 Earnings Conference Call August 11, 2022 9:00 AM ET Company Participants Nicole Briguet Edelman - Investor Relations Representative Scott Rajeski - President and Chief Executive Officer Rob Masson - Chief Financial Officer Conference Call Participants Rafe Jadrosich - Bank of America Matthew Bouley - Barclays Gustavo Gonzalez - Morgan Stanley Tim Rodis - Baird Ryan Merkel - William Blair Susan Maklari - Goldman Sachs Keith Hughes - Truist Securities Kenneth Zener - K ...

Latham Group, Inc. (NASDAQ:SWIM) Q1 2022 Earnings Conference Call May 12, 2022 9:00 AM ET Company Participants Nicole Berge - Investor Relations Scott Rajeski - President & Chief Executive Officer Mark Borseth - Chief Financial Officer Conference Call Participants Ashley Kim - Barclays Susan Maklari - Goldman Sachs Josh Pokrzywinski - Morgan Stanley Ryan Merkel - William Blair Thomas Wood - Baird Keith Hughes - Truist Securities Ken Zener - KeyBanc Capital Operator Good day, and welcome to the Latham Group ...

Q1 2022 Financial Performance - Net sales increased by 29% to $192 million compared to $149 million in Q1 2021[11] - Adjusted EBITDA increased by 43% to $48 million compared to $34 million in Q1 2021[13] - Adjusted EBITDA margin increased by approximately 250 basis points to 250% of net sales[24] - Gross margins expanded by 160 basis points to 369%[24] Q2 2022 Challenges and Responses - Experienced a temporary shortage of a material used in fiberglass flake production, expected to return to full availability in early Q3'22[17, 18] - Unseasonable weather in April impacted dealers' ability to install pools in the Northeast, Midwest, and Canada[17] - Experienced a fire at the second smallest US fiberglass facility in Odessa, Texas in April, but shifted production to other facilities and expect minimal impact on full year results[17, 18] Fiscal Year 2022 Outlook and Long-Term Targets - Affirmed fiscal 2022 guidance, implying year-over-year net sales growth of 35% to 40% and year-over-year Adjusted EBITDA growth of 32% to 46%[20] - The company projects net sales of $850 million to $880 million and Adjusted EBITDA of $185 million to $205 million for fiscal year 2022[30] - The company is targeting net sales growth of 10% to 12% and Adjusted EBITDA growth of 12% to 15% over the next three to five years[31] Capital Allocation - As of April 2, 2022, the company had $187 million in cash and cash equivalents, $650 million undrawn on its revolving credit facility, and total debt of $3241 million[26] - The company's net debt leverage ratio was 21x at the end of Q1 2022[26] - The company approved a stock repurchase program to repurchase up to $100 million of its shares of Common Stock over the next three years[26]

PART I [Business Overview](index=4&type=section&id=Item%201.%20Business) Latham Group, Inc. leads the North American residential pool market, leveraging digital marketing to drive fiberglass pool conversion and strategic growth initiatives - Latham Group, Inc. is the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand, holding the **1 market position in North America** in every product category[11](index=11&type=chunk)[22](index=22&type=chunk) - The company pioneered a **'direct-to-homeowner' digital and social marketing strategy** to create demand and generate high-quality, purchase-ready consumer leads for its dealer partners[13](index=13&type=chunk)[23](index=23&type=chunk) - Fiberglass pools are underpenetrated in the U.S. market and are experiencing growth significantly outpacing the broader in-ground swimming pool market due to benefits like lower up-front and lifecycle costs, faster installation (**2-3 days vs. 3 months for concrete**), premium quality, less chemical usage, and lifetime warranties[17](index=17&type=chunk)[18](index=18&type=chunk)[23](index=23&type=chunk) - Key growth strategies include: utilizing leading brand and digital assets to generate greater homeowner lead volumes, accelerating fiberglass material conversion, securing additional strategic partnerships with priority dealers (**over 350 exclusive Latham dealer partners worldwide**), growing industry capacity by onboarding and training new dealer partners, expanding margins through mix shift towards fiberglass and productivity initiatives, and pursuing strategic acquisitions[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - The company's product portfolio includes in-ground swimming pools (fiberglass and custom vinyl), pool liners (replacement liners as a stable recurring revenue source), and pool covers (automatic safety covers and all-season covers, also providing recurring revenue)[37](index=37&type=chunk)[38](index=38&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - Latham unified its corporate branding under the **'Latham' master brand in 2019**, relaunching its website in February 2020 to create the only consumer-focused brand in the category[45](index=45&type=chunk) - Products are sold through one-step (direct to dealers for fiberglass pools) and two-step (to distributors who then sell to dealers for other products) business-to-business distribution channels[46](index=46&type=chunk) - Manufacturing processes for fiberglass pools require specialized equipment, skilled labor, and significant regulatory approvals, with the company investing to **double its fiberglass manufacturing capacity**[53](index=53&type=chunk)[55](index=55&type=chunk)[26](index=26&type=chunk) - As of December 31, 2021, the company had **2,388 full-time employees**, with **205 based outside North America**[75](index=75&type=chunk) - Since 2018, Latham has made three acquisitions: Narellan (**2019**, fiberglass pools in Australia/NZ), GLI (**2020**, vinyl liners and safety covers), and Radiant Pools (**2021**, vinyl-lined and aluminum-walled pools). It also made a strategic investment in Premier Pools & Spas (**2020**, **18.2% ownership** as of Dec 31, 2021)[80](index=80&type=chunk) [Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant operational, industry, financial, and stock ownership risks, including demand volatility, supply chain disruptions, and substantial indebtedness - Demand for swimming pools is a discretionary purchase, susceptible to unfavorable economic conditions, consumer spending trends, housing market downturns, interest rate fluctuations, and access to credit[92](index=92&type=chunk)[95](index=95&type=chunk) - The business is seasonal, with peak sales in Q2 and Q3, making it highly susceptible to adverse weather conditions (e.g., late warming, early cooling, heavy rainfall, drought)[98](index=98&type=chunk) - Reliance on third-party dealers and distributors for product resale means inability to attract or retain them, or loss of a major customer (one customer accounted for **25.0% of net sales in 2021**), could materially affect operations[99](index=99&type=chunk)[101](index=101&type=chunk) - Supply chain disruptions, particularly raw material shortages (e.g., **resin in 2021 limiting fiberglass production to 58% capacity**) and increases in material costs, can adversely affect net sales and operating results[105](index=105&type=chunk)[106](index=106&type=chunk) - The COVID-19 pandemic has caused and may continue to cause disruptions to business and operations, including general decline in consumer confidence, supply chain delays, increased operating costs, and potential workforce impacts from vaccination mandates[107](index=107&type=chunk)[108](index=108&type=chunk)[111](index=111&type=chunk)[115](index=115&type=chunk) - Substantial indebtedness (**$325.0 million term loan** and **$10.0 million revolving credit facility** as of Feb 23, 2022) could limit additional financing, dedicate significant cash flow to debt service, and increase vulnerability to adverse economic changes[153](index=153&type=chunk)[154](index=154&type=chunk) - The company's stock price may be highly volatile due to various factors, including economic conditions, changes in growth rates, analyst coverage, and sales by insiders or other stockholders[162](index=162&type=chunk)[165](index=165&type=chunk) - As a public company and an 'emerging growth company,' Latham incurs increased costs for compliance and governance, and its principal stockholders (Pamplona Fund and Wynnchurch Funds) retain significant influence over corporate actions[167](index=167&type=chunk)[173](index=173&type=chunk)[175](index=175&type=chunk)[180](index=180&type=chunk) [Unresolved Staff Comments](index=64&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report - No unresolved staff comments[206](index=206&type=chunk) [Properties](index=66&type=section&id=Item%202.%20Properties) Latham Group, Inc. operates headquarters and manufacturing facilities across North America, Australia, and New Zealand, with ongoing capacity expansion - Headquarters are located in **Latham, New York**[207](index=207&type=chunk) - Operates manufacturing and storage facilities in the United States, Canada, New Zealand, and Australia[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) - A new **170,000 square foot fiberglass manufacturing facility** is under construction in Kingston, Ontario, Canada, with production anticipated to start in **2023**[209](index=209&type=chunk) [Legal Proceedings](index=68&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings, none of which are expected to materially impact its financial position or operations - Involved in various legal proceedings (contractual, employment, product liability, trademark, warranty claims) in the ordinary course of business[211](index=211&type=chunk) - No current claims or proceedings are believed to have a material adverse effect on the company's financial position, results of operations, or cash flows[211](index=211&type=chunk) [Mine Safety Disclosures](index=68&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to the company's operations - Not applicable[212](index=212&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=68&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Latham Group, Inc.'s common stock began trading on NASDAQ in April 2021, with no current intent to pay cash dividends - Common stock (**SWIM**) began trading on NASDAQ Global Select Market on **April 23, 2021**[214](index=214&type=chunk) - As of December 31, 2021, there were **32 registered holders of record** of common stock[214](index=214&type=chunk) - The company does not currently intend to pay cash dividends; future declarations depend on earnings, cash flows, capital requirements, indebtedness, and legal/debt restrictions[215](index=215&type=chunk)[216](index=216&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=70&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews Latham Group, Inc.'s financial condition and operations, including 2021 sales growth, net loss, debt refinancing, and key performance drivers - Latham Group, Inc. is the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand, with a **65+ year operating history**[223](index=223&type=chunk)[224](index=224&type=chunk) - The company achieved its **12th consecutive year of net sales growth, Adjusted EBITDA growth, and Adjusted EBITDA margin expansion in 2021**, though net income did not follow this trend[227](index=227&type=chunk) Financial Highlights (Year Ended December 31, 2021 vs. 2020) | Metric | 2021 (in millions) | 2020 (in millions) | Change (in millions) | Change (%) | | :----------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Net Sales | $630.5 | $403.4 | $227.1 | 56.3% | | Net (Loss) Income | $(62.3) | $16.0 | $(78.3) | -490.1% | | Adjusted EBITDA | $139.8 | $83.8 | $56.0 | 66.8% | | Net Loss Margin | (9.9)% | 4.0% | (13.9)% | - | | Adjusted EBITDA Margin | 22.2% | 20.8% | 1.4% | - | - Net sales increase of **$227.1 million (56.3%)** was driven by a **$171.7 million increase from volume** (strong market demand, homeowner preferences, expanded dealer partnerships, and full-year GLI sales) and a **$55.4 million increase from pricing**[268](index=268&type=chunk) - Gross margin decreased by **3.0% to 32.4% in 2021**, primarily due to supply chain headwinds, strategic decisions on re-pricing order backlog, and stock-based compensation expense[269](index=269&type=chunk) - Selling, general and administrative expense increased by **$132.3 million (154.6%)**, mainly due to a **$118.3 million increase in stock-based compensation expense**, higher headcount, GLI acquisition expenses, and public company costs[271](index=271&type=chunk) - Raw material costs, particularly resin for fiberglass pools, experienced significant inflation and supply chain disruptions in 2021, limiting North American fiberglass production to **58% of capacity**[246](index=246&type=chunk) - The company's liquidity is primarily from operating activities and its New Revolving Credit Facility. As of December 31, 2021, cash was **$44.0 million**, with **$280.4 million in outstanding debt** and **$30.0 million available** under the Revolving Credit Facility[298](index=298&type=chunk) Cash Flow Summary (Year Ended December 31, in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $33,690 | $63,160 | $35,655 | | Net cash used in investing activities | $(108,205) | $(115,805) | $(27,083) | | Net cash provided by financing activities | $60,018 | $54,303 | $16,551 | | Net (decrease) increase in cash | $(15,358) | $2,655 | $24,167 | - Operating activities provided **$33.7 million in cash in 2021**, driven by net income adjustments for non-cash items, but partially offset by increased trade receivables and inventories[308](index=308&type=chunk) - Investing activities used **$108.2 million in cash in 2021**, primarily for the Radiant acquisition (**$90.5 million**) and property/equipment purchases (**$25.0 million**)[310](index=310&type=chunk) - Financing activities provided **$60.0 million in cash in 2021**, largely from IPO proceeds (**$399.3 million**) and debt borrowings (**$222.8 million**), offset by treasury stock repurchases (**$281.6 million**) and dividend payments (**$110.0 million**)[312](index=312&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=70&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section contains forward-looking statements subject to known and unknown risks and uncertainties, with no obligation to update them - The discussion contains forward-looking statements identified by terms like 'anticipate,' 'believe,' 'expect,' and 'will,' which involve known and unknown risks and uncertainties[221](index=221&type=chunk) - Actual results may differ materially due to factors such as shifts in consumer demand, material conversion pace, economic volatility (including COVID-19), interest rates, weather, supplier reliability, and competition[221](index=221&type=chunk) - The company undertakes no obligation to update forward-looking statements after the filing date, except as required by law[221](index=221&type=chunk) [Overview](index=72&type=section&id=Overview) Latham is the leading designer, manufacturer, and marketer of in-ground residential swimming pools in North America, with a long history of sales and EBITDA growth - Latham is the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand, holding the **1 market position in North America**[223](index=223&type=chunk) - The company offers a broad portfolio of pools, liners, and covers, with a **65+ year operating history**[224](index=224&type=chunk) - Pioneered a **'direct-to-homeowner' digital marketing strategy** to generate high-quality consumer leads for its dealer partners[225](index=225&type=chunk) - **2021 marked the 12th consecutive year of net sales growth, Adjusted EBITDA growth, and Adjusted EBITDA margin expansion**, reflecting a focus on high-quality products and dealer partnerships[227](index=227&type=chunk) [Recent Developments](index=72&type=section&id=Recent%20Developments) This section outlines Latham Group, Inc.'s key financial highlights for 2021, including significant increases in net sales and Adjusted EBITDA, alongside details of its IPO, secondary offering, and debt refinancing activities 2021 Financial Highlights | Metric | 2021 (in millions) | Change from 2020 | | :------------------- | :----------------- | :--------------- | | Net Sales | $630.5 | +56.3% ($227.1M) | | Net Loss | $(62.3) | $(78.3)M (from $16.0M net income) | | Adjusted EBITDA | $139.8 | +66.8% ($56.0M) | - On February 23, 2022, the company entered into a New Credit Agreement, refinancing **$294.0 million of existing debt** with a **$75.0 million New Revolving Credit Facility** and a **$325.0 million New Term Loan Facility**[230](index=230&type=chunk) - Completed an Initial Public Offering (IPO) on **April 27, 2021**, selling **23,000,000 shares** and receiving **$399.3 million in net proceeds**, used for debt repayment, share repurchases, and general corporate purposes[231](index=231&type=chunk) - A secondary offering on **January 11, 2022**, involved the sale of **13,800,000 shares** by existing stockholders, generating **$12.9 million in expenses** for the company[233](index=233&type=chunk) - Underwent a Reorganization prior to the IPO, converting parent entity interests into common stock, and effected a **109,673.709-for-one stock split** on **April 13, 2021**[234](index=234&type=chunk)[235](index=235&type=chunk) [Key Factors Affecting our Performance](index=73&type=section&id=Key%20Factors%20Affecting%20our%20Performance) Latham Group, Inc.'s performance is influenced by product volume driven by digital marketing and fiberglass conversion, continuous innovation, economic conditions, seasonality, raw material costs, and strategic acquisitions - Net sales are primarily driven by product volume, influenced by direct-to-homeowner digital marketing, strategic dealer partnerships (Latham Grand program), and material conversion efforts towards fiberglass pools[240](index=240&type=chunk) - Fiberglass pools offer compelling value due to lower costs, quicker installation, less maintenance, and higher quality, driving a long-term trend of material conversion from concrete pools[240](index=240&type=chunk) - Continuous product innovation and expansion of the portfolio are critical for sales growth and market share, with significant resources devoted to developing new products[240](index=240&type=chunk) - Economic conditions (home equity financing, interest rates, consumer confidence) and seasonality/weather (peak sales in spring/summer) significantly impact demand for products[247](index=247&type=chunk) - Raw material costs (PVC, steel, fiberglass, resins) are volatile and represent a majority of cost of sales. Supply chain disruptions, particularly **resin shortages in 2021**, limited fiberglass production to **58% of capacity** and compressed gross margins[244](index=244&type=chunk)[246](index=246&type=chunk)[248](index=248&type=chunk) - Acquisitions of Narellan (**2019**), GLI (**2020**), and Radiant Pools (**2021**) expanded market share, geographical footprint, and product offerings. A strategic equity investment in Premier Pools & Spas (**2020**) aimed to expand sales and distribution channels[249](index=249&type=chunk)[250](index=250&type=chunk)[252](index=252&type=chunk) - The COVID-19 pandemic led to measures protecting employees, adapting to customer needs, and adjusting operational plans, with most plants remaining operational and no significant liquidity impacts[255](index=255&type=chunk)[256](index=256&type=chunk) [Results of Operations](index=83&type=section&id=Results%20of%20Operations) Latham Group, Inc. reported a significant increase in net sales and Adjusted EBITDA for 2021, but a net loss primarily due to higher stock-based compensation and supply chain challenges Consolidated Statements of Operations Summary (in thousands) | Metric | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | Change Amount | Change % | | :------------------------------------ | :---------------------- | :---------------------- | :------------ | :------- | | Net sales | $630,456 | $403,389 | $227,067 | 56.3% | | Cost of sales | $426,294 | $260,616 | $165,678 | 63.6% | | Gross profit | $204,162 | $142,773 | $61,389 | 43.0% | | Selling, general and administrative expense | $217,775 | $85,527 | $132,248 | 154.6% | | Amortization | $22,566 | $17,347 | $5,219 | 30.1% | | (Loss) income from operations | $(36,179) | $39,899 | $(76,078) | -190.7% | | Interest expense | $24,433 | $18,251 | $6,182 | 33.9% | | Net (loss) income | $(62,348) | $15,983 | $(78,331) | -490.1% | | Adjusted EBITDA | $139,819 | $83,836 | $55,983 | 66.8% | - Net sales increased by **$227.1 million (56.3%) in 2021**, primarily due to a **$171.7 million volume increase** across product lines and a **$55.4 million pricing increase**[268](index=268&type=chunk) - Gross margin decreased by **3.0% to 32.4% in 2021**, mainly due to supply chain headwinds, strategic re-pricing of order backlog, and stock-based compensation expense[269](index=269&type=chunk) - Net loss for 2021 was **$62.3 million**, a significant increase from **$16.0 million net income in 2020**, primarily driven by a **$118.3 million increase in stock-based compensation expense**[271](index=271&type=chunk)[277](index=277&type=chunk) - Adjusted EBITDA increased by **$56.0 million (66.8%) to $139.8 million in 2021**, primarily due to the increase in net sales[280](index=280&type=chunk) [Non-GAAP Financial Measures](index=89&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures, specifically Adjusted EBITDA and Adjusted EBITDA margin, used by management and investors to assess financial performance - Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures used by management and investors to evaluate financial performance, business strategies, and for budgeting and compensation decisions[287](index=287&type=chunk) - Adjusted EBITDA is defined as net income (loss) plus depreciation and amortization, interest expense, income tax (benefit) expense, loss on sale/disposal of property and equipment, restructuring charges, management fees, stock-based compensation expense, unrealized (gains) losses on foreign currency transactions, strategic initiative costs, acquisition and integration related costs, other, and IPO costs[287](index=287&type=chunk) - Adjusted EBITDA margin is Adjusted EBITDA divided by net sales[265](index=265&type=chunk) Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------------ | :----- | :----- | :----- | | Net (loss) income | $(62,348) | $15,983 | $7,457 | | Depreciation and amortization | $32,230 | $25,365 | $21,659 | | Interest expense | $24,433 | $18,251 | $22,639 | | Income tax expense (benefit) | $8,818 | $6,776 | $(4,671) | | Stock-based compensation expense | $128,775 | $1,827 | $808 | | Adjusted EBITDA | $139,819 | $83,836 | $61,050 | [Liquidity and Capital Resources](index=93&type=section&id=Liquidity%20and%20Capital%20Resources) Latham Group, Inc.'s liquidity is primarily derived from operating activities and its revolving credit facility, with recent debt refinancing and IPO proceeds significantly impacting its capital structure - Primary liquidity sources are net cash from operating activities and availability under the New Revolving Credit Facility[298](index=298&type=chunk) - Cash on hand as of December 31, 2021, was **$44.0 million**, with **$280.4 million in outstanding debt** and **$30.0 million available** under the Revolving Credit Facility[298](index=298&type=chunk) - On February 23, 2022, the company refinanced its debt, entering into a New Credit Agreement with a **$75.0 million New Revolving Credit Facility** (maturing Feb 23, 2027) and a **$325.0 million New Term Loan Facility** (maturing Feb 23, 2029)[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk) - The New Term Loan Facility requires scheduled quarterly amortization payments equal to **0.25% of the initial principal amount**[303](index=303&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $33,690 | $63,160 | $35,655 | | Net cash used in investing activities | $(108,205) | $(115,805) | $(27,083) | | Net cash provided by financing activities | $60,018 | $54,303 | $16,551 | - Operating cash flow in 2021 was **$33.7 million**, a decrease from **$63.2 million in 2020**, primarily due to increases in trade receivables and inventories[308](index=308&type=chunk)[309](index=309&type=chunk) - Investing cash flow used **$108.2 million in 2021**, mainly for the Radiant acquisition and property/equipment purchases[310](index=310&type=chunk) - Financing cash flow provided **$60.0 million in 2021**, driven by IPO proceeds and debt borrowings, offset by treasury stock repurchases and dividends[312](index=312&type=chunk) [Contractual Obligations](index=98&type=section&id=Contractual%20Obligations) Latham Group, Inc.'s contractual obligations primarily consist of principal and interest payments on long-term debt and non-cancelable capital and operating leases - Major contractual obligations as of December 31, 2021, included principal and interest payments on long-term debt and non-cancelable capital and operating leases[315](index=315&type=chunk) Required Principal Payments on Long-Term Debt (Post-Refinancing, in millions) | Year | Principal Payments | | :--- | :----------------- | | 2022 | $2.4 | | 2023 | $3.3 | | 2024 | $3.3 | | 2025 | $3.3 | | 2026 | $3.3 | | Thereafter | $309.6 | Required Interest Payments on Long-Term Debt (Post-Refinancing, in millions, at 4.37% interest) | Year | Interest Payments | | :--- | :---------------- | | 2022 | $11.8 | | 2023 | $14.0 | | 2024 | $13.9 | | 2025 | $13.8 | | 2026 | $13.6 | | Thereafter | $29.0 | [Critical Accounting Policies and Estimates](index=98&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section details Latham Group, Inc.'s critical accounting policies and estimates, including revenue recognition, business combinations, goodwill impairment, stock-based compensation, and income taxes, which involve significant management judgment - Key accounting policies involve significant estimates and assumptions, including revenue recognition, business combinations, impairment of goodwill, stock-based compensation, and income taxes[317](index=317&type=chunk)[318](index=318&type=chunk) - Revenue is recognized when control of goods is transferred to customers, net of estimated rebates and sales incentives. Revenue from extended service warranties is recognized over the contract term, and custom products over time using an input method[321](index=321&type=chunk)[322](index=322&type=chunk) - Business combinations are accounted for using the acquisition method, measuring acquired assets and assumed liabilities at fair value, with any excess purchase price recorded as goodwill[324](index=324&type=chunk)[325](index=325&type=chunk) - Goodwill is evaluated for impairment at least annually, or more frequently if circumstances indicate, using qualitative or quantitative assessments. No impairment was found in **2021 or 2020**[326](index=326&type=chunk)[329](index=329&type=chunk) - Stock-based compensation is measured at grant date fair value using a Black-Scholes model for options and recognized over the service period. Total expense was **$128.8 million in 2021**[332](index=332&type=chunk)[333](index=333&type=chunk)[533](index=533&type=chunk) - Deferred tax assets and liabilities are recognized for temporary differences, with a valuation allowance established if realization is not more likely than not. The valuation allowance of **$12.7 million was released in 2021**[335](index=335&type=chunk)[516](index=516&type=chunk) [Off-Balance Sheet Arrangements](index=106&type=section&id=Off-Balance%20Sheet%20Arrangements) The company did not have any off-balance sheet arrangements during the periods presented, nor does it currently - The company did not have any off-balance sheet arrangements during the periods presented, nor does it currently[339](index=339&type=chunk) [Recently Issued and Adopted Accounting Pronouncements](index=106&type=section&id=Recently%20Issued%20and%20Adopted%20Accounting%20Pronouncements) As an 'emerging growth company,' Latham Group, Inc. has elected to use the extended transition period for new accounting standards and is evaluating the impact of several recently issued pronouncements - The company, as an 'emerging growth company,' has elected to use the extended transition period for complying with new or revised accounting standards[349](index=349&type=chunk)[441](index=441&type=chunk) - Evaluating the impact of ASU 2016-02 (Leases), ASU 2016-13 (Credit Losses), ASU 2017-12 (Derivatives and Hedging), ASU 2020-01 (Equity Securities), ASU 2020-04 (Reference Rate Reform), and ASU 2021-01 (Reference Rate Reform) on its financial statements[442](index=442&type=chunk)[443](index=443&type=chunk)[444](index=444&type=chunk)[446](index=446&type=chunk)[447](index=447&type=chunk)[448](index=448&type=chunk) - Adopted ASU 2019-12 (Income Taxes) during 2021, which did not have a material impact on financial position or results of operations[445](index=445&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=106&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Latham Group, Inc. faces market risks from interest rates, foreign currency, and inflation, managing debt interest rate exposure with a swap - The company is exposed to interest rate risk from variable-rate long-term debt (Credit Agreement and New Credit Agreement)[342](index=342&type=chunk) - An interest rate swap fixes the LIBOR borrowing rate on a notional amount of **$200.0 million**, reducing variable rate exposure. As of February 23, 2022, **40.3% of debt ($135.0 million)** is subject to variable rates[342](index=342&type=chunk)[501](index=501&type=chunk) - A **1.0% increase/decrease** in the effective interest rate would cause an approximate **$1.4 million increase/decrease** to interest expense (as of Feb 23, 2022)[342](index=342&type=chunk) - Credit risk is concentrated in cash and trade receivables. One customer accounted for **25.0% of net sales in 2021**[343](index=343&type=chunk)[344](index=344&type=chunk) - Foreign currency risk primarily involves the Australian and Canadian dollars due to international operations and U.S. dollar-denominated purchases by Canadian subsidiaries. The company does not currently hedge this risk[345](index=345&type=chunk)[346](index=346&type=chunk)[347](index=347&type=chunk) - Experiences inflation and deflation related to product purchases, which could materially impact financial condition if price increases cannot be passed to customers[348](index=348&type=chunk) [Interest Rate Risk](index=106&type=section&id=Interest%20Rate%20Risk) Latham Group, Inc. manages its interest rate risk on variable-rate debt through an interest rate swap, fixing a portion of its LIBOR-indexed borrowings - The company is exposed to interest rate risk due to variable-rate borrowings under its long-term debt facilities (Credit Agreement and New Credit Agreement)[342](index=342&type=chunk) - An interest rate swap, effective May 18, 2020, and terminating May 18, 2023, fixes the LIBOR borrowing rate at **0.442%** on a notional amount of **$200.0 million**[342](index=342&type=chunk)[501](index=501&type=chunk) - As of February 23, 2022, after the debt refinancing and swap amendment, **$135.0 million (40.3%) of the company's debt** is subject to variable rates[342](index=342&type=chunk) - A **1.0% change in the effective interest rate** would impact interest expense by approximately **$1.4 million**[342](index=342&type=chunk) [Credit Risk](index=108&type=section&id=Credit%20Risk) Latham Group, Inc.'s credit risk is concentrated in cash and trade receivables, with a significant portion of net sales attributable to a single customer - Financial instruments with credit risk concentration include cash and trade receivables[343](index=343&type=chunk) - One customer accounted for **25.0% of net sales in 2021**, **22.3% in 2020**, and **25.7% in 2019**[344](index=344&type=chunk) - Outstanding trade receivables from this customer were **$10.7 million in 2021** and **$5.4 million in 2020**[344](index=344&type=chunk) [Foreign Currency Risk](index=108&type=section&id=Foreign%20Currency%20Risk) Latham Group, Inc. faces foreign currency risk from international operations and U.S. dollar-denominated purchases by Canadian subsidiaries, primarily involving the Australian and Canadian dollars, without current hedging strategies - Foreign operations are denominated in local currencies and translated to U.S. dollars, with translation adjustments recorded in accumulated other comprehensive income (loss)[345](index=345&type=chunk) - Canadian subsidiaries' U.S. dollar-denominated inventory purchases create foreign currency exchange rate risk[346](index=346&type=chunk) - Largest foreign currency exposures are the Australian dollar and Canadian dollar. A **10% change in exchange rates** is not expected to materially impact operating results or financial position[347](index=347&type=chunk) - The company does not currently hedge its foreign currency risk[347](index=347&type=chunk) [Inflation](index=108&type=section&id=Inflation) Latham Group, Inc. is exposed to inflation and deflation related to product purchases, which could materially impact financial results if selling prices cannot fully offset cost volatility - The company experiences inflation and deflation related to product purchases, which could materially impact financial condition and results of operations[348](index=348&type=chunk) - Selling prices are adjusted to mitigate price volatility, but recovery of higher costs may be limited by the competitive environment[348](index=348&type=chunk) [Emerging Growth Company Status](index=108&type=section&id=Emerging%20Growth%20Company%20Status) As an 'emerging growth company,' Latham Group, Inc. has elected to utilize the extended transition period for complying with new or revised accounting standards - As an 'emerging growth company' under the JOBS Act, Latham has elected to use the extended transition period for new or revised accounting standards, adopting them at the same time as private companies[349](index=349&type=chunk) [Financial Statements and Supplementary Data](index=110&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Latham Group, Inc.'s audited consolidated financial statements and detailed notes for 2019-2021, including auditor reports and key accounting policies - Includes audited consolidated financial statements for the years ended **December 31, 2021, 2020, and 2019**[351](index=351&type=chunk) - Financial statements comprise Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income (Loss), Statements of Stockholders' Equity, and Statements of Cash Flows[351](index=351&type=chunk) - Independent auditor reports from RSM US LLP (for 2019) and Deloitte & Touche LLP (for 2020 and 2021) are included, with Deloitte & Touche LLP also auditing the retrospective adjustments for the Reorganization[354](index=354&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk) Consolidated Balance Sheets (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :------------------------------------ | :----------- | :----------- | | Total Assets | $794,483 | $646,676 | | Total Liabilities | $440,838 | $365,067 | | Total Stockholders' Equity | $353,645 | $281,609 | Consolidated Statements of Operations (in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :----- | :----- | :----- | | Net sales | $630,456 | $403,389 | $317,975 | | Gross profit | $204,162 | $142,773 | $98,156 | | (Loss) income from operations | $(36,179) | $39,899 | $25,125 | | Net (loss) income | $(62,348) | $15,983 | $7,457 | | Basic Net (loss) income per share | $(0.56) | $0.16 | $0.08 | | Diluted Net (loss) income per share | $(0.56) | $0.16 | $0.08 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by operating activities | $33,690 | $63,160 | $35,655 | | Net cash used in investing activities | $(108,205) | $(115,805) | $(27,083) | | Net cash provided by financing activities | $60,018 | $54,303 | $16,551 | | Net (decrease) increase in cash | $(15,358) | $2,655 | $24,167 | [1. NATURE OF THE BUSINESS](index=122&type=section&id=1.%20NATURE%20OF%20THE%20BUSINESS) Latham Group, Inc. is a leading designer, manufacturer, and marketer of in-ground residential swimming pools, liners, and covers, which completed its IPO in April 2021 following a significant reorganization - Latham Group, Inc. (formerly Latham Topco, Inc.) wholly owns Latham Pool Products, Inc., a designer, manufacturer, and marketer of in-ground residential swimming pools, liners, and covers in North America, Australia, and New Zealand[381](index=381&type=chunk)[382](index=382&type=chunk) - The company completed its IPO on **April 27, 2021**, selling **23,000,000 shares** and receiving **$399.3 million in net proceeds**[384](index=384&type=chunk) - Prior to the IPO, a Reorganization occurred where the parent entity merged into Latham Group, Inc., and a **109,673.709-for-one stock split** was effected on **April 13, 2021**[383](index=383&type=chunk)[385](index=385&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=122&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines Latham Group, Inc.'s significant accounting policies, including revenue recognition, business combinations, inventory valuation, property and equipment depreciation, goodwill impairment, income taxes, and stock-based compensation, all prepared in accordance with GAAP - Financial statements are prepared in accordance with GAAP, requiring management estimates and assumptions[386](index=386&type=chunk)[387](index=387&type=chunk) - Business is seasonal, with highest net sales and income during spring and summer[388](index=388&type=chunk) - Revenue is recognized when control of promised goods transfers to customers, net of estimated rebates and sales incentives. Extended service warranties are recognized over contract term, and custom products over time[391](index=391&type=chunk)[393](index=393&type=chunk) - Cost of sales includes materials, labor, inbound freight, manufacturing overhead, and distribution costs[399](index=399&type=chunk) - Trade receivables are recorded at invoiced amount, with an allowance for bad debt based on historical experience[400](index=400&type=chunk) - Business combinations are accounted for using the acquisition method, measuring acquired assets and liabilities at fair value, with goodwill recognized for any excess purchase price[407](index=407&type=chunk) - Investments where significant influence exists but not control are accounted for using the equity method[411](index=411&type=chunk) - Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out method[415](index=415&type=chunk) - Property and equipment are recorded at cost and depreciated using the straight-line method over estimated useful lives[416](index=416&type=chunk) - Goodwill is tested for impairment annually or more frequently if circumstances indicate, using qualitative or quantitative assessments[421](index=421&type=chunk)[422](index=422&type=chunk) - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences[427](index=427&type=chunk) - Stock-based compensation is measured at grant date fair value and recognized over the service period[430](index=430&type=chunk)[431](index=431&type=chunk) [3. ACQUISITIONS](index=142&type=section&id=3.%20ACQUISITIONS) Latham Group, Inc. has strategically expanded its market share, geographical footprint, and product offerings through the acquisitions of Narellan (2019), GLI (2020), and Radiant Pools (2021) - Acquired Narellan Group Pty Limited on **May 31, 2019, for $35.2 million**, expanding market share and geographical footprint in Australia, New Zealand, and Canada[449](index=449&type=chunk) - Acquired GL International, LLC on **October 22, 2020, for $79.7 million**, expanding liner and safety cover product offerings[456](index=456&type=chunk) - Acquired Trojan Leisure Products, LLC d/b/a Radiant Pools on **November 24, 2021, for $90.7 million**, expanding product portfolio into vinyl-lined and aluminum-walled swimming pools[460](index=460&type=chunk) Goodwill from Acquisitions (in thousands) | Acquisition | Goodwill Recognized | | :---------- | :------------------ | | Narellan | $9,788 | | GLI | $13,105 | | Radiant | $13,718 | Pro Forma Financial Information (Unaudited, in thousands) | Metric | 2021 | 2020 | 2019 | | :---------------- | :------- | :------- | :------- | | Net sales | $662,282 | $486,276 | $396,655 | | Net (loss) income | $(50,441) | $30,163 | $1,712 | [4. EQUITY METHOD INVESTMENT](index=151&type=section&id=4.%20EQUITY%20METHOD%20INVESTMENT) Latham Group, Inc. holds an equity interest in Premier Pools & Spas, accounted for using the equity method, and has an exclusive supply agreement with its franchisees - On **October 30, 2020**, the company acquired a **28% equity interest in Premier Pools & Spas for $25.4 million**, accounted for using the equity method[468](index=468&type=chunk)[469](index=469&type=chunk) - In August 2021, a partial sale reduced ownership to **20.1%**, resulting in a **$3.9 million gain**. Further issuance of non-voting units in December 2021 reduced ownership to **18.2%**, with a **$1.0 million gain**[468](index=468&type=chunk) - Entered an exclusive supply agreement with Premier Pools & Spas franchisees for specific pool and pool products for a **ten-year term**[471](index=471&type=chunk) - As of December 31, 2021, the carrying amount of the equity method investment was **$23.4 million**. The company received **$2.2 million in dividends** from Premier Pools & Spas in 2021[473](index=473&type=chunk) [5. FAIR VALUE MEASUREMENTS](index=152&type=section&id=5.%20FAIR%20VALUE%20MEASUREMENTS) This section details Latham Group, Inc.'s fair value measurements, categorizing assets and liabilities into Level 1, 2, or 3 based on input observability, and provides fair value estimates for its term loan and interest rate swap - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction, categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[403](index=403&type=chunk)[404](index=404&type=chunk) - Carrying amounts of cash, trade receivables, accounts payable, and accrued expenses approximate fair value due to short-term maturities[475](index=475&type=chunk) Term Loan Fair Value (in thousands) | Metric | Dec 31, 2021 (Carrying Value) | Dec 31, 2021 (Estimated Fair Value) | Dec 31, 2020 (Carrying Value) | Dec 31, 2020 (Estimated Fair Value) | | :--------- | :---------------------------- | :---------------------------------- | :---------------------------- | :---------------------------------- | | Term loan | $280,408 | $281,926 | $221,496 | $221,081 | - The interest rate swap's fair value is estimated quarterly using Level 2 inputs (forward LIBOR curve). As of December 31, 2021, the swap was an asset of **$0.5 million**[477](index=477&type=chunk) [6. GOODWILL AND INTANGIBLE ASSETS, NET](index=152&type=section&id=6.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS%2C%20NET) This section details the changes in Latham Group, Inc.'s goodwill carrying value, which was not impaired in recent annual tests, and provides a breakdown of its net intangible assets and estimated future amortization expense Changes in Goodwill Carrying Value (in thousands) | Period | Amount | | :-------------------------- | :------- | | Balance as of Dec 31, 2019 | $101,672 | | Acquisition of GLI | $13,105 | | Foreign currency translation adjustment | $973 | | Balance as of Dec 31, 2020 | $115,750 | | Acquisition of Radiant | $13,718 | | Foreign currency translation adjustment | $(597) | | Balance as of Dec 31, 2021 | $128,871 | - Goodwill was not impaired in the annual tests for **2021, 2020, and 2019**[479](index=479&type=chunk) Intangible Assets, Net (December 31, 2021, in thousands) | Asset Category | Gross Carrying Amount | Accumulated Amortization | Net Amount | | :------------------------ | :-------------------- | :----------------------- | :--------- | | Trade names and trademarks | $148,100 | $16,382 | $132,157 | | Patented technology | $16,126 | $5,205 | $10,986 | | Technology | $13,000 | $72 | $12,928 | | Pool designs | $13,628 | $1,101 | $12,792 | | Franchise relationships | $1,187 | $767 | $474 | | Dealer relationships | $197,376 | $30,838 | $166,560 | | Backlog | $1,600 | $160 | $1,440 | | Non-competition agreements | $2,476 | $1,503 | $973 | | **Total** | **$393,493** | **$56,028** | **$338,310** | - Amortization expense for intangible assets was **$22.6 million in 2021**, **$17.3 million in 2020**, and **$15.6 million in 2019**[480](index=480&type=chunk) Estimated Future Amortization Expense (in thousands) | Year Ended | Estimated Future Amortization Expense | | :--------- | :------------------------------------ | | 2022 | $28,158 | | 2023 | $26,527 | | 2024 | $25,707 | | 2025 | $25,550 | | 2026 | $25,550 | | Thereafter | $206,818 | | **Total** | **$338,310** | [7. INVENTORIES, NET](index=156&type=section&id=7.%20INVENTORIES%2C%20NET) This section provides a breakdown of Latham Group, Inc.'s inventories, net, which are valued at the lower of cost or net realizable value using the FIFO method, and includes reserves for slow-moving or obsolete items Inventories, Net (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :----------- | :----------- | :----------- | | Raw materials | $77,510 | $37,010 | | Finished goods | $32,046 | $27,808 | | **Total** | **$109,556** | **$64,818** | - Inventories are stated at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method[415](index=415&type=chunk) - Reserves for slow-moving or obsolete items were **$2.7 million in 2021** and **$1.8 million in 2020**[415](index=415&type=chunk) [8. PROPERTY AND EQUIPMENT, NET](index=156&type=section&id=8.%20PROPERTY%20AND%20EQUIPMENT%2C%20NET) This section details Latham Group, Inc.'s property and equipment, net, including land, buildings, machinery, and construction in progress, which primarily relates to increased fiberglass production capacity Property and Equipment, Net (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Land | $1,744 | $1,613 | | Building and improvements | $7,369 | $5,898 | | Machinery and equipment | $27,910 | $21,478 | | Computer equipment and software | $7,011 | $6,633 | | Molds and dyes | $13,365 | $9,051 | | Construction in progress | $18,677 | $8,525 | | Less: Accumulated depreciation | $(22,963) | $(13,881) | | **Total** | **$63,506** | **$47,357** | - Depreciation and amortization expense for property and equipment was **$9.7 million in 2021**, **$8.0 million in 2020**, and **$6.0 million in 2019**[483](index=483&type=chunk) - Construction in progress primarily relates to increased fiberglass molds and production capacity[483](index=483&type=chunk) [9. LONG-TERM DEBT](index=156&type=section&id=9.%20LONG-TERM%20DEBT) This section details Latham Group, Inc.'s long-term debt obligations, including the refinancing of existing debt with a new credit agreement in February 2022, and the impact of an interest rate swap Outstanding Debt Obligations (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :------------------------------------ | :----------- | :----------- | | Term loan | $284,009 | $228,147 | | Less: Unamortized discount and debt issuance costs | $(3,601) | $(6,651) | | Total debt | $280,408 | $221,496 | | Less: Current portion of long-term debt | $(17,220) | $(13,042) | | **Total long-term debt** | **$263,188** | **$208,454** | - The Revolving Credit Facility (up to **$30.0 million**) matured on December 18, 2023, and was terminated on **February 23, 2022**, with no amounts outstanding as of December 31, 2021 and 2020[485](index=485&type=chunk)[488](index=488&type=chunk) - The Amended Term Loan had a principal balance of **$284.0 million** as of December 31, 2021, with a maturity date of June 18, 2025, and was terminated on **February 23, 2022**[305](index=305&type=chunk)[496](index=496&type=chunk)[499](index=499&type=chunk) - On **February 23, 2022**, a New Credit Agreement was entered into, providing a **$75.0 million New Revolving Credit Facility** (matures Feb 23, 2027) and a **$325.0 million New Term Loan Facility** (matures Feb 23, 2029)[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk) - The effective interest rate on the Amended Term Loan was **7.04%** at December 31, 2021[500](index=500&type=chunk) - An interest rate swap fixed the LIBOR borrowing rate at **0.442%** on a notional amount of **$200.0 million**, expiring May 18, 2023[501](index=501&type=chunk) [10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES](index=161&type=section&id=10.%20ACCRUED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) This section provides a detailed breakdown of Latham Group, Inc.'s accrued expenses and other current liabilities, including sales rebates, product warranties, incentives, payroll, and deferred revenue Accrued Expenses and Other Current Liabilities (in thousands) | Category | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Accrued sales rebates | $20,300 | $15,511 | | Accrued product warranties | $4,717 | $2,705 | | Accrued incentives | $9,205 | $11,244 | | Accrued vacation | $2,773 | $3,805 | | Accrued payroll | $6,107 | $6,098 | | Deferred offering costs | $0 | $1,040 | | Accrued third-party services | $1,458 | $2,172 | | Income taxes payable | $587 | $0 | | Deferred revenue | $5,927 | $4,530 | | Other | $8,023 | $6,373 | | **Total** | **$59,097** | **$53,478** | [11. PRODUCT WARRANTIES](index=161&type=section&id=11.%20PRODUCT%20WARRANTIES) Latham Group, Inc. offers limited assurance-type warranties on most products, with a liability recorded for estimated costs at the time of revenue recognition, and this section details the warranty reserve activity - The company offers limited assurance-type warranties (**5 years to lifetime**) on most products, with a liability recorded for estimated costs at the time of revenue recognition[397](index=397&type=chunk)[398](index=398&type=chunk) Warranty Reserve Activity (in thousands) | Metric | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Balance at beginning of year | $2,882 | $2,846 | $1,977 | | Accruals for warranties issued | $8,824 | $3,966 | $3,729 | | Warranty liabilities assumed (GLI/Radiant) | $50 | $118 | $0 | | Less: Settlements made | $(6,847) | $(4,048) | $(2,860) | | **Balance at end of year** | **$4,909** | **$2,882** | **$2,846** | [12. NET SALES](index=162&type=section&id=12.%20NET%20SALES) This section provides a breakdown of Latham Group, Inc.'s net sales by product line and details the activity in its allowance for bad debt Net Sales by Product Line (in thousands) | Product Line | 2021 | 2020 | 2019 | | :-------------------- | :----- | :----- | :----- | | In-ground Swimming Pools | $368,465 | $237,410 | $175,033 | | Covers | $132,126 | $84,524 | $70,984 | | Liners | $129,865 | $81,455 | $71,958 | | **Total** | **$630,456** | **$403,389** | **$317,975** | Allowance for Bad Debt Activity (in thousands) | Metric | 2021 | 2020 | 2019 | | :-------------------------- | :----- | :----- | :----- | | Balance at beginning of year | $1,438 | $1,322 | $1,535 | | Bad debt expense | $979 | $358 | $253 | | Write-offs | $(24) | $(242) | $(466) | | **Balance at end of year** | **$2,393** | **$1,438** | **$1,322** | [13. INCOME TAXES](index=162&type=section&id=13.%20INCOME%20TAXES) This section details Latham Group, Inc.'s income tax expense and effective tax rate reconciliation, highlighting the impact of domestic and foreign operations, and the release of a valuation allowance on deferred tax assets (Loss) Income Before Income Taxes by Geography (in thousands) | Geography | 2021 | 2020 | 2019 | | :---------- | :------- | :------- | :------- | | Domestic | $(68,261) | $19,609 | $9,939 | | Foreign | $14,731 | $3,150 | $(7,153) | | **Total** | **$(53,530)** | **$22,759** | **$2,786** | Income Tax Expense (Benefit) (in thousands) | Category | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Total current tax (benefit) expense | $20,846 | $11,446 | $5,555 | | Total deferred tax (benefit) expense | $(12,028) | $(4,670) | $(10,226) | | **Total income tax (benefit) expense** | **$8,818** | **$6,776** | **$(4,671)** | Effective Income Tax Rate Reconciliation (% of Income (Loss) Before Income Taxes) | Factor | 2021 | 2020 | 2019 | | :------------------------------------ | :----- | :----- | :----- | | Federal statutory tax rate | 21.0% | 21.0% | 21.0% | | Foreign rate differential | (1.4)% | 1.2% | 1.1% | | State income tax, net of federal benefit | (3.3)% | 1.4% | (67.2)% | | Uncertain tax positions | (0.3)% | 0.8% | 348.2% | | Change in valuation allowance | 23.8% | (1.1)% | (5.9)% | | Nondeductible stock compensation | (48.0)% | 0.0% | 0.0% | | **Effective tax rate** | **(16.5)%** | **29.8%** | **(168.0)%** | - The valuation allowance of **$12.7 million was released in 2021**, as management concluded that deferred tax assets are more likely than not to be realized[508](index=508&type=chunk)[516](index=516&type=chunk) - As of December 31, 2021, the company had **$9.9 million (tax effected) in net operating loss (NOL) carryforwards**, expiring between 2026 and 2039[517](index=517&type=chunk) - The liability for uncertain tax positions was **$5.4 million** at December 31, 2021, with **$0.3 million in accrued interest**[519](index=519&type=chunk) [14. COMMITMENTS AND CONTINGENCIES](index=168&type=section&id=14.%20COMMITMENTS%20AND%20CONTINGENCIES) This section outlines Latham Group, Inc.'s minimum annual rental commitments under non-cancelable operating leases and confirms that no pending legal proceedings are expected to have a material financial impact Minimum Annual Rental Commitments Under Non-Cancelable Operating Leases (in thousands) | Year Ended | Amount | | :--------- | :----- | | 2022 | $8,094 | | 2023 | $6,278 | | 2024 | $5,674 | | 2025 | $4,726 | | 2026 | $3,479 | | Thereafter | $6,854 | | **Total** | **$35,105** | - Rental expense for operating leases was **$8.8 million in 2021**, **$6.8 million in 2020**, and **$6.1 million in 2019**[525](index=525&type=chunk) - No pending legal proceedings are expected to have a material impact on the company's financial position, results of operations, or cash flows[526](index=526&type=chunk) [15. EMPLOYEE BENEFIT PLANS](index=168&type=section&id=15.%20EMPLOYEE%20BENEFIT%20PLANS) Latham Group, Inc. offers various retirement savings plans with discretionary contributions, and this section details the related expenses and the termination of a defined benefit pension plan - The company offers various retirement savings plans with discretionary matching and other contributions[527](index=527&type=chunk) - Expense related to these plans was **$2.0 million in 2021**, **$0.8 million in 2020**, and **$0.9 million in 2019**[527](index=527&type=chunk) - The defined benefit pension plan was terminated in **2020**, with an immaterial impact on financial statements[528](index=528&type=chunk) [16. PROFITS INTEREST UNITS](index=169&type=section&id=16.%20PROFITS%20INTEREST%20UNITS) Prior to its reorganization, Latham Group, Inc.'s parent entity granted Profit Interest Units (PIUs) to key personnel, which converted into restricted stock units and awards upon the company's IPO - Prior to the Reorganization, Parent granted Profit Interest Units (PIUs) to key employees and directors, which converted into restricted stock units and restricted stock awards of the Company's common stock at IPO[529](index=529&type=chunk) PIU Activity (Number of PIUs) | Period | Number of PIUs | | :-------------------------- | :------------- | | Balance at January 1, 2019 | 20,890,124 | | Granted (2019) | 3,692,699 | | Forfeited (2019) | (2,848,653) | | Balance at December 31, 2019 | 21,734,170 | | Granted (2020) | 7,843,107 | | Forfeited (2020) | (2,152,315) | | Balance at December 31, 2020 | 27,424,962 | | Forfeited (2021) | (1,266,068) | | Converted at IPO | (26,158,894) | | **Balance at December 31, 2021** | **0** | - Stock-based compensation expense related to PIUs was **$0.6 million in 2020**[530](index=530&type=chunk) [17. STOCK-BASED COMPENSATION](index=170&type=section&id=17.%20STOCK-BASED%20COMPENSATION) This section details Latham Group, Inc.'s stock-based compensation, including the 2021 Omnibus Incentive Plan, the types of awards granted, and the total unrecognized expense - The 2021 Omnibus Incentive Plan, approved **April 12, 2021**, allows for issuance of various equity awards, with a maximum of **13,170,212 shares reserved**[531](index=531&type=chunk) - On **April 22, 2021**, **8,340,126 restricted stock awards, 341,301 restricted stock units, and 886,862 option awards** were granted under the plan[532](index=532&type=chunk) - Stock-based compensation expense was **$128.8 million in 2021** (including **$49.0 million from Reorganization modification**) and **$1.8 million in 2020**[533](index=533&type=chunk) - As of December 31, 2021, total unrecognized stock-based compensation expense was **$73.6 million**, to be recognized over a weighted-average period of **1.45 years**[533](index=533&type=chunk) Stock Option Activity (Year Ended December 31, 2021) | Metric | Shares | Weighted-Average Exercise Price per Share | | :------------------------------------ | :------- | :---------------------------------------- | | Outstanding on January 1, 2021 | 0 | $0 | | Granted | 903,978 | $19.08 | | Forfeited | (81,092) | - | | **Outstanding at December 31, 2021** | **822,886** | **$19.08** | [18. SHAREHOLDER'S EQUITY](index=172&type=section&id=18.%20SHAREHOLDER%27S%20EQUITY) This section outlines the changes in Latham Group, Inc.'s shareholder's equity, including the conversion of parent entity units into common stock during the IPO reorganization and the authorized share structure - Prior to the IPO, the Parent's capital structure consisted of Class A and Class B (profits interests) units[539](index=539&type=chunk) - The Reorganization converted Class A units into common stock and Class B units into restricted/unrestricted common stock, treated retrospectively as a stock split[541](index=541&type=chunk)[542](index=542&type=chunk) - On **April 22, 2021**, **194,207,115 Class A units converted into 97,187,596 common shares**, and **26,158,894 Class B units converted into 4,145,987 common shares and 8,340,126 unvested restricted shares**[546](index=546&type=chunk) - The certificate of incorporation was amended to increase authorized shares to **1,000,000,000** (**900,000,000 common, 100,000,000 preferred**)[547](index=547&type=chunk) Stockholders' Equity (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Common stock | $12 | $12 | | Additional paid-in capital | $401,846 | $265,478 | | (Accumulated deficit) retained earnings | $(48,583) | $13,765 | | Accumulated other comprehensive income | $370 | $2,354 | | **Total stockholders' equity** | **$353,645** | **$281,609** | [19. NET INCOME PER SHARE](index=174&type=section&id=19.%20NET%20INCOME%20PER%20SHARE) This section presents Latham Group, Inc.'s basic and diluted net (loss) income per share, calculated by dividing net income by the weighted-average common shares outstanding, noting anti-dilutive effects in 2021 Net (Loss) Income Per Share Attributable to Common Stockholders (in thousands, except per share data) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Net income attributable to common stockholders | $(62,348) | $15,983 | $7,457 | | Weighted-average common shares outstanding – Basic | 110,644,366 | 101,606,966 | 95,032,265 | | Weighted-average common shares outstanding – Diluted | 110,644,366 | 102,602,738 | 95,400,528 | | Basic Net (loss) income per share | $(0.56) | $0.16 | $0.08 | | Diluted Net (loss) income per share | $(0.56) | $0.16 | $0.08 | - Basic and diluted net income per share are calculated by dividing net income available to common stockholders by the weighted-average common shares outstanding[438](index=438&type=chunk) - Potentially dilutive shares (restricted stock awards, restricted stock units, stock options) were not included in **2021 diluted EPS calculation** as their effect was anti-dilutive due to the net loss[549](index=549&type=chunk) [20. RELATED PARTY TRANSACTIONS](index=174&type=section&id=20.%20RELATED%20PARTY%20TRANSACTIONS) This section details Latham Group, Inc.'s related party transactions, including services from BrightAI Services, the termination of management fee arrangements with sponsors, and an operating lease with Acquigen Pty Ltd - BrightAI Services provided services for internal-use software, with costs capitalized as construction in progress. Incurred **$2.1 million in 2021** and **$0.5 million in 2020**[550](index=550&type=chunk) - The management fee arrangement with the Sponsor and Wynnchurch Capital, L.P. terminated upon IPO, with **no management fees incurred in 2021 or 2020**[551](index=551&type=chunk)[553](index=553&type=chunk) - Reimbursed less than **$0.1 million in out-of-pocket costs** to the Sponsor and Wynnchurch Capital, L.P. in 2021 and 2020[553](index=553&type=chunk) - Assumed an operating lease with Acquigen Pty Ltd (owned by a former employee) in 2019, with rent expense of **$0.5 million in 2021**[554](index=554&type=chunk) [21. GEOGRAPHIC INFORMATION](index=176&type=section&id=21.%20GEOGRAPHIC%20INFORMATION) This section provides a breakdown of Latham Group, Inc.'s net sales and long-lived assets by geographic area, highlighting its operations in the United States, Canada, Australia, and New Zealand Net Sales by Geographic Area (in thousands) | Geography | 2021 | 2020 | 2019 | | :---------- | :----- | :----- | :----- | | United States | $491,870 | $325,716 | $257,786 | | Canada | $98,662 | $50,499 | $43,157 | | Australia | $25,216 | $20,181 | $12,126 | | New Zealand | $8,055 | $3,984 | $2,432 | | Other | $6,653 | $3,009 | $2,474 | | **Total** | **$630,456** | **$403,389** | **$317,975** | Long-Lived Assets by Geographic Area (in thousands) | Geography | Dec 31, 2021 | Dec 31, 2020 | | :---------- | :----------- | :----------- | | United States | $52,695 | $37,680 | | Canada | $4,607 | $3,050 | | Australia | $4,444 | $4,979 | | New Zealand | $1,760 | $1,648 | | **Total** | **$63,506** | **$47,357** | [22. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)](index=178&type=section&id=22.%20CONDENSED%20FINANCIAL%20INFORMATION%20OF%20REGISTRANT%20%28PARENT%20COMPANY%20ONLY%29) This section presents condensed financial information for Latham Group, Inc. (Parent Company Only), which primarily holds investments in consolidated subsidiaries with restricted net assets - Latham Group, Inc. (Parent Company Only) has no material assets or standalone operations other than its ownership in consolidated subsidiaries[569](index=569&type=chunk) - Substantially all consolidated net assets of Latham Pool Products are restricted net assets, limiting dividend payments, loans, or advances to Latham Group, Inc. under the Credit Agreement[569](index=569&type=chunk) Parent Company Only Condensed Balance Sheets (in thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Investment in subsidiary | $353,645 | $281,609 | | Total Assets | $353,645 | $281,609 | | Total Liabilities | $0 | $0 | | Total Stockholders' Equity | $353,645 | $281,609 | Parent Company Only Condensed Statements of Operations (in thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------ | :------- | :------- | :------- | | Equity in net (loss) income of subsidiary | $(62,348) | $15,983 | $7,457 | | Net (loss) income attributable to common stockholders | $(62,348) | $15,983 | $7,457 | Parent Company Only Condensed Statements of Cash Flows (in thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :-------------------------------- | :------- | :------- | :------- | | Net cash provided by operating activities | $0 | $0 | $0 | | Net cash used in investing activities | $(117,626) | $(65,553) | $0 | | Net cash provided by financing activities | $117,626 | $65,553 | $0 | | Net increase in cash | $0 | $0 | $0 | [23. SUBSEQUENT EVENTS](index=182&type=section&id=23.%20SUBSEQUENT%20EVENTS) This section details Latham Group, Inc.'s subsequent events, including a secondary offering by existing stockholders and the refinancing of its debt with a new credit agreement in February 2022 - On **January 11, 2022**, the company completed a secondary offering of **13,800,000 common shares** by existing stockholders, incurring approximately **$12.9 million in expenses**[573](index=573&type=chunk) - On **February 23, 2022**, Latham Pool Products refinanced its debt, entering into a New Credit Agreement with a **$75.0 million New Revolving Credit Facility** (matures Feb 23, 2027) and a **$325.0 million New Term Loan Facility** (matures Feb 23, 2029)[574](index=574&type=chunk)[575](index=575&type=chunk)[576](index=576&type=chunk) - The New Term Loan Facility is subject to quarterly amortization payments of **0.25% of the initial principal amount**[576](index=576&type=chunk) [Changes in and Disag

ith am The Pool Company SWIM | Nasdaq Listed Q4 AND FULL YEAR FISCAL 2021 EARNINGS CALL MARCH 10, 2022 DISCLAIMER 2 Forward-looking Statements Some of the statements contained in this presentation are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are generally identified by the use of words such as "anticipate," "believe," "could," "estimate," "expect ...

Financial Data and Key Metrics Changes - In Q4 2021, the company reported net sales growth of 24.1% year-over-year, reaching $138.9 million, with adjusted EBITDA growth of 56.5% to $27.3 million [7][22][18] - For the full year 2021, net sales increased by 56.3% to $630.5 million, with adjusted EBITDA rising by 66.8% to $139.8 million [22][25] - Gross profit for Q4 2021 was $42.4 million, an increase of 11.5%, while gross margin decreased to 30.5% from 34.0% year-over-year [19][24] Business Line Data and Key Metrics Changes - In-ground swimming pools sales increased by $15.0 million to $82.8 million in Q4 2021, covers increased by $6.8 million to $37.8 million, and liners increased by $5.1 million to $18.3 million [18] - For the full year, sales growth across product lines included $131.1 million for in-ground swimming pools, $47.6 million for covers, and $48.4 million for liners [23] Market Data and Key Metrics Changes - The company noted strong consumer interest and demand for pools, with a significant increase in fiberglass production levels, which rose 35% sequentially from Q3 2021 [7][10] - The company is focused on expanding its market share in the U.S. pool installations, particularly in states like Florida, Texas, Nevada, and Arizona [13] Company Strategy and Development Direction - The company continues to execute its growth strategy by converting concrete pools to fiberglass and enhancing its digital tools for consumer engagement [8][11] - The acquisition of Radiant Pools is expected to expand the company's product portfolio and addressable market [8][12] - The company plans to invest in capacity expansion, including a new fiberglass facility in Kingston, Canada, to support long-term growth [10][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving robust growth in 2022, with expected net sales between $850 million and $880 million, representing a year-over-year growth of 35% to 40% [14][32] - The company anticipates continued strong demand for its products driven by trends in outdoor living and suburban migration [14][30] - Management acknowledged potential challenges in the first half of 2022 due to tough comparisons and labor availability but expects a ramp-up in growth in the second half [31] Other Important Information - The company refinanced its term loan and revolving credit facilities, enhancing financial flexibility and reducing interest expenses [27] - Non-cash stock-based compensation is expected to be approximately $56 million in 2022, impacting SG&A expenses [33] Q&A Session Summary Question: Impact of oil price movements on pricing strategy - Management indicated they will continue to monitor inflation and have pricing strategies in place to support their 2022 outlook [40] Question: Growth of grand dealers and strategy in sand states - Management confirmed ongoing efforts to grow dealer installation capacity and noted positive progress in sand states [41][42] Question: Backlogs and lead times - Management expects to narrow the price gap and work through backlogs by late Q2 or early Q3 2022 [51][52] Question: Resin supply and backlog fulfillment - Management confirmed improved resin supply and production rates, indicating they have enough resin to meet backlog demands [56] Question: Contribution of Radiant acquisition to revenue guidance - Management noted that Radiant's revenue contribution is relatively small but is expected to grow in 2023 [63] Question: Utilization rates and capacity expectations - Management anticipates a return to 70% to 80% utilization rates as capacity ramps up, with Kingston facility contributing additional capacity [75] Question: Sustainability of pool demand post-pandemic - Management expressed confidence in sustained strong demand for pools, driven by consumer education and market conversion trends [81] Question: Confidence in achieving fiberglass penetration targets - Management remains optimistic about reaching a 25% penetration rate for fiberglass pools by 2023, with plans to double the fiberglass business in the next few years [82]

Financial Data and Key Metrics Changes - Latham reported record sales in Q3 2021, achieving net sales growth of 27% to $162 million compared to the prior year [6][35] - Adjusted EBITDA grew 2.7% to $36.1 million, with a decrease in adjusted EBITDA margin to 22.3% [7][40] - Gross profit increased by 1.4% to $51 million, but gross margin decreased to 31.5% from 39.5% year-over-year, reflecting 800 basis points of compression [36][37] Business Line Data and Key Metrics Changes - Net sales for in-ground pools, including fiberglass products, increased 7.6% to $84.1 million [35] - Sales for covers increased 71.7% to $44.1 million, and liners increased 42.4% to $33.8 million [35] - Fiberglass products accounted for about two-thirds of the gross margin compression due to lower sales and a less profitable sales mix [37] Market Data and Key Metrics Changes - Demand for fiberglass pools has outpaced supply since early 2020, with significant order backlogs extending into 2022 [17][18] - The company expects to sell every pool it can produce well into 2022, driven by strong consumer interest and a growing order book [49] Company Strategy and Development Direction - Latham aims to position itself as a household lifestyle brand, evolving the pool buying experience and driving material conversion from concrete to fiberglass [8] - The company is expanding its fiberglass manufacturing capacity, with plans to break ground on a new plant in Kingston, Canada, which will be the largest in its history [31][21] - Strategic initiatives include enhancing digital marketing efforts and improving lead qualification processes to drive sales [28][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in regaining margin trajectory through pricing actions and improved resin supply, anticipating strong revenue and adjusted EBITDA growth in 2022 [49][50] - The company is actively working to mitigate raw material shortages and improve production efficiency [10][14] Other Important Information - The company reported a net loss of $11.3 million for Q3 2021, primarily due to noncash stock-based compensation expenses [41] - Capital expenditures increased to $6.2 million in Q3 2021, reflecting investments in fiberglass capacity expansion [44] Q&A Session Summary Question: How safe is the backlog in terms of preventing customer dropouts? - Management indicated that the likelihood of cancellations is very low, as customers have been waiting for their pools for extended periods and have confirmed contracts with dealers [55][56] Question: Can you elaborate on pricing changes for long-dated orders? - Management discussed implementing more dynamic pricing strategies, including flexibility in contracts and surcharges to adapt to inflation [58][59] Question: What is the current resin availability situation? - Management noted that resin availability has improved compared to previous months, with new sources coming online and upstream vendor situations improving [66][67] Question: How do you expect margins to progress in Q4 and 2022? - Management anticipates alleviation of gross margin compression in Q4 due to improved resin supply and production efficiency, with expectations for better margins in 2022 [72][76] Question: Are there plans to slow down new order growth? - Management confirmed that they have not slowed down on any front and continue to add capacity to meet strong demand [82] Question: How are dealers responding to the new pricing environment? - Management emphasized that dealers are experienced and have adapted to the new pricing dynamics, maintaining open communication to navigate challenges [102][106]

Latham Group, Inc. (NASDAQ:SWIM) Q2 2021 Earnings Conference Call August 5, 2021 9:00 AM ET Company Participants Nicole Briguet - Investor Relations Scott Rajeski - President and Chief Executive Officer Mark Borseth - Chief Financial Officer Conference Call Participants Ashley Kim - Barclays Josh Pokrzywinski - Morgan Stanley Susan Maklari - Goldman Sachs David Bellinger - Wolfe Research Ryan Merkel - William Blair Tim Wojs - Baird Judy Merrick - Truist Ken Zener - KeyBanc Operator Good day and welcome to t ...

Latham Group, Inc. (NASDAQ:SWIM) Q1 2021 Earnings Conference Call June 3, 2021 9:00 AM ET Company Participants Nicole Briguet - Investor Relations Scott Rajeski - President & Chief Executive Officer Mark Borseth - Chief Financial Officer Conference Call Participants Matthew Bouley - Barclays Josh Pokrzywinski - Morgan Stanley Susan Maklari - Goldman Sachs David Bellinger - Wolfe Research Tim Wojs - Baird Ken Zener - KeyBanc Capital Markets Keith Hughes - Truist Operator Good morning, everyone, and welcome t ...