UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | ☒ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 5, 2023,
TABLE OF CONTENTS
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Condensed Consolidated Financial Statements (Unaudited)
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Latham Group, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
April 1, | December 31, | ||||||
| 2023 |
| 2022 | ||||
Assets | |||||||
Current assets: |
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Cash | $ | | $ | | |||
Trade receivables, net |
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Inventories, net |
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Income tax receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Equity method investment |
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Deferred tax assets |
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Operating lease right-of-use assets | | | |||||
Goodwill |
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Intangible assets, net |
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Other assets | | | |||||
Total assets | $ | | $ | | |||
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable | $ | | $ | | |||
Accounts payable – related party |
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Current maturities of long-term debt |
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Current operating lease liabilities | | | |||||
Accrued expenses and other current liabilities |
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Total current liabilities |
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Long-term debt, net of discount, debt issuance costs, and current portion |
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Deferred income tax liabilities, net |
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Liability for uncertain tax positions |
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Non-current operating lease liabilities | | | |||||
Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $ | — | — | |||||
Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
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Accumulated other comprehensive loss |
| ( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Latham Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Fiscal Quarter Ended | ||||||
| April 1, 2023 |
| April 2, 2022 | |||
Net sales | $ | | $ | | ||
Cost of sales |
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Gross profit |
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Selling, general, and administrative expense |
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Underwriting fees related to offering of common stock | — | | ||||
Amortization |
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(Loss) income from operations |
| ( |
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Other expense (income): |
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Interest expense |
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Loss on extinguishment of debt | — | | ||||
Other expense (income), net |
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Total other expense, net |
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Earnings from equity method investment | | | ||||
(Loss) income before income taxes |
| ( |
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Income tax (benefit) expense |
| ( |
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Net loss | $ | ( | $ | ( | ||
Net loss per share attributable to common stockholders: |
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Basic | $ | ( | $ | ( | ||
Diluted | $ | ( | $ | ( | ||
Weighted-average common shares outstanding – basic and diluted |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Latham Group, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
Fiscal Quarter Ended | ||||||
| April 1, 2023 |
| April 2, 2022 | |||
Net loss | $ | ( | $ | ( | ||
Other comprehensive (loss) income, net of tax: |
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Foreign currency translation adjustments |
| ( |
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Total other comprehensive (loss) income, net of tax |
| ( |
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Comprehensive loss | $ | ( | $ | ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Latham Group, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)
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| Accumulated |
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Additional | Other | Total | |||||||||||||||
Paid-in | Accumulated | Comprehensive | Stockholders' | ||||||||||||||
Shares | Amount | Capital | Deficit | Income | Equity | ||||||||||||
Balances at December 31, 2021 |
| | $ | | $ | | $ | ( | $ | | $ | | |||||
Cumulative effect of adoption of new accounting standard - leases | — | — | — | ( | — | ( | |||||||||||
Net loss |
| — |
| — |
| — |
| ( |
| — |
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Foreign currency translation adjustments |
| — |
| — |
| — |
| — |
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Sale of common stock | | | | — | — | | |||||||||||
Repurchase and retirement of common stock | ( | ( | ( | — | — | ( | |||||||||||
Retirement of restricted stock | ( | — | — | — | — | — | |||||||||||
Issuance of common stock upon release of restricted stock units | | — | — | — | — | — | |||||||||||
Stock-based compensation expense |
| — |
| — |
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| — |
| — |
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Balances at April 2, 2022 |
| | $ | | $ | | $ | ( | $ | | $ | | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
Latham Group, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
(unaudited)
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| Accumulated |
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Additional | Other | Total | |||||||||||||||
Paid-in | Accumulated | Comprehensive | Stockholders' | ||||||||||||||
Shares | Amount | Capital | Deficit | Loss | Equity | ||||||||||||
Balances at December 31, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
Net loss |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||
Foreign currency translation adjustments |
| — |
| — |
| — |
| — |
| ( |
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Issuance of common stock upon release of restricted stock units | | — | — | — | — | — | |||||||||||
Stock-based compensation expense |
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| — |
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| — |
| — |
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Balances at April 1, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
Latham Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Fiscal Quarter Ended | |||||||
April 1, | April 2, | ||||||
2023 |
| 2022 | |||||
Cash flows from operating activities: | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of deferred financing costs and debt discount |
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Non-cash lease expense |
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Change in fair value of interest rate swaps |
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| ( | |||
Stock-based compensation expense |
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Underwriting fees related to offering of common stock | — | | |||||
Loss on extinguishment of debt | — | | |||||
Other non-cash, net | | | |||||
Earnings from equity method investment | ( | ( | |||||
Changes in operating assets and liabilities: |
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Trade receivables |
| ( |
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Inventories |
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Prepaid expenses and other current assets |
| ( |
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Income tax receivable |
| ( |
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Other assets | ( | ( | |||||
Accounts payable |
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Accrued expenses and other current liabilities |
| ( |
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Other long-term liabilities |
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Net cash used in operating activities |
| ( |
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Cash flows from investing activities: |
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Purchases of property and equipment |
| ( |
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Net cash used in investing activities |
| ( |
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Cash flows from financing activities: |
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Proceeds from long-term debt borrowings |
| — |
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Payments on long-term debt borrowings |
| ( |
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Proceeds from borrowings on revolving credit facilities | | | |||||
Payments on revolving credit facility | — | ( | |||||
Deferred financing fees paid | — | ( | |||||
Proceeds from the issuance of common stock | — | | |||||
Repayments of finance lease obligations | ( | — | |||||
Repurchases and retirements of common stock | — | ( | |||||
Net cash provided by financing activities |
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Effect of exchange rate changes on cash |
| ( |
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Net increase (decrease) in cash |
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Cash at beginning of period |
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Cash at end of period | $ | | $ | | |||
Supplemental cash flow information: |
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Cash paid for interest | $ | | $ | | |||
Income taxes paid, net | | | |||||
Supplemental disclosure of non-cash investing and financing activities: |
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Purchases of property and equipment included in accounts payable and accrued expenses | $ | | $ | | |||
Capitalized internal-use software included in accounts payable – related party | | | |||||
Right-of-use operating and finance lease assets obtained in exchange for lease liabilities | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Notes to Condensed Consolidated Financial Statements
1. NATURE OF THE BUSINESS
Latham Group, Inc. (the “Company”) wholly owns Latham Pool Products, Inc. (“Latham Pool Products”) (together, “Latham”), a designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand. Latham offers a portfolio of pools and related products, including in-ground swimming pools, pool liners, and pool covers.
On December 18, 2018, Latham Investment Holdings, LP (“Parent”), an investment fund managed by affiliates of Pamplona Capital Management (the “Sponsor”), Wynnchurch Capital, L.P. and management acquired all of the outstanding equity interests of Latham Topco., Inc., a newly incorporated entity in the State of Delaware. Latham Topco, Inc. changed its name to Latham Group, Inc. on March 3, 2021.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The unaudited condensed consolidated balance sheet at December 31, 2022 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of April 1, 2023 and for the fiscal quarters ended April 1, 2023 and April 2, 2022 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with Latham Group, Inc.’s audited consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2022 included in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on March 7, 2023 (the “Annual Report”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of these condensed consolidated financial statements, have been included. The Company’s results of operations for the fiscal quarter ended April 1, 2023 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending December 31, 2023.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience, known trends, and other market-specific relevant factors that it believes to be reasonable under the circumstances. Estimates are evaluated on an ongoing basis and revised as there are changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known.
Reclassifications
Certain prior period balances have been reclassified to conform to the current period presentation in the condensed consolidated financial statements and the accompanying notes.
Seasonality
Although the Company generally has demand for its products throughout the fiscal year, its business is seasonal and weather is one of the principal external factors affecting the business. Historically, net sales and net income are highest during the second and
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third fiscal quarters, representing the peak months of swimming pool use, pool installation, and remodeling and repair activities. Severe weather may also affect net sales in all periods.
Significant Accounting Policies
Refer to the Annual Report for a discussion of the Company’s significant accounting policies, as updated below.
Recently Issued Accounting Pronouncements
The Company qualifies as “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to “opt in” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, which narrowed the scope and changed the effective date for nonpublic entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are SEC filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this standard on January 1, 2023 did not have a material impact on the Company’s condensed consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which amends ASC 805 by requiring acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combination. For public entities, ASU 2021-08 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. For all other entities, ASU 2021-08 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted. The adoption of this standard on January 1, 2023 did not have a material impact on the Company’s condensed consolidated financial statements.
3. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value.
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3 — Unobservable inputs that reflect the Company’s own assumptions incorporated into valuation techniques. These valuations require significant judgment.
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In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When there is more than one input at different levels within the hierarchy, the fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assessment of the significance of a particular input to the fair value measurement in its entirety requires substantial judgment and consideration of factors specific to the asset or liability. Level 3 inputs are inherently difficult to estimate. Changes to these inputs can have significant impact on fair value measurements. Assets and liabilities measured at fair value using Level 3 inputs are based on one or more of the following valuation techniques: market approach, income approach or cost approach. There were no transfers between fair value measurement levels during the fiscal quarter ended April 1, 2023 or April 2, 2022.
Assets and liabilities measured at fair value on a nonrecurring basis
The Company’s non-financial assets such as goodwill, intangible assets, and property and equipment are measured at fair value upon acquisition and remeasured to fair value when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 2 and Level 3 inputs.
Fair value of financial instruments
The Company considers the carrying amounts of cash, trade receivables, prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities to approximate fair value because of the short-term maturities of these instruments.
Term loan
The Company’s term loan (see Note 6) is carried at amortized cost; however, the Company estimates the fair value of the term loan for disclosure purposes. The fair value of the term loan is determined using inputs based on observable market data of a non-public exchange, which are classified as Level 2 inputs. The following table sets forth the carrying amount and fair value of its term loan (in thousands):
April 1, 2023 | December 31, 2022 | ||||||||||||
Carrying | Estimated | Carrying | Estimated | ||||||||||
| Value |
| Fair Value |
| Value |
| Fair Value | ||||||
Term Loan | $ | | $ | | $ | | $ | |
Interest rate swaps
The Company estimates the fair value of interest rate swaps (see Note 6) on a fiscal quarterly basis using Level 2 inputs, including the forward SOFR curve. The fair value is estimated by comparing (i) the present value of all future monthly fixed rate payments versus (ii) the variable payments based on the forward SOFR curve. As of April 1, 2023 and December 31, 2022, the net fair value of the Company’s interest rate swaps was a $
4. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The carrying amount of goodwill as of April 1, 2023 and as of December 31, 2022 was $
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Intangible Assets
Intangible assets, net as of April 1, 2023 consisted of the following (in thousands):
April 1, 2023 | ||||||||||||
Gross | Foreign | |||||||||||
Carrying | Currency | Accumulated | Net | |||||||||
| Amount |
| Translation |
| Amortization |
| Amount | |||||
Trade names and trademarks | $ | | $ | ( | $ | | $ | | ||||
Patented technology |
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Technology | | — | | | ||||||||
Pool designs |
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Franchise relationships |
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Dealer relationships |
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Order backlog | | — | | — | ||||||||
Non-competition agreements |
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| — |
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$ | | $ | ( | $ | | $ | |
The Company recognized $
Intangible assets, net as of December 31, 2022 consisted of the following (in thousands):
December 31, 2022 | ||||||||||||
Gross | Foreign | |||||||||||
Carrying | Currency | Accumulated | Net | |||||||||
| Amount |
| Translation |
| Amortization |
| Amount | |||||
Trade names and trademarks | $ | | $ | ( | $ | | $ | | ||||
Patented technology |
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Technology | | — | | | ||||||||
Pool designs |
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| ( |
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Franchise relationships |
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Dealer relationships |
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Order backlog | | — | | — | ||||||||
Non-competition agreements |
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| — |
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$ | | $ | | $ | | $ | |
The Company estimates that amortization expense related to definite-lived intangible assets will be as follows in each of the next five years and thereafter (in thousands):
Estimated Future | |||
Amortization | |||
Year Ended |
| Expense | |
Remainder of fiscal 2023 | $ | | |
2024 |
| | |
2025 |
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2026 |
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2027 |
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Thereafter |
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$ | |
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5. INVENTORIES, NET
Inventories, net consisted of the following (in thousands):
| April 1, 2023 |
| December 31, 2022 | ||||
Raw materials | $ | | $ | | |||
Finished goods |
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$ | | $ | |
6. LONG-TERM DEBT
The components of the Company’s outstanding long-term debt obligations consisted of the following (in thousands):
| April 1, 2023 |
| December 31, 2022 | ||||
Term Loan | $ | | $ | | |||
Revolving Credit Facility | | — | |||||
Less: Unamortized discount and debt issuance costs |
| ( |
| ( | |||
Total debt |
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Less: Current portion of long-term debt |
| ( |
| ( | |||
Total long-term debt | $ | | $ | |
On February 23, 2022, Latham Pool Products entered into an agreement (the “Credit Agreement”) with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit (the “Revolving Credit Facility”) in an initial principal amount of $
Revolving Credit Facility
The Revolving Credit Facility may be utilized to finance ongoing general corporate and working capital needs and permits Latham Pools Products to borrow loans in U.S. Dollars, Canadian Dollars, Euros and Australian Dollars. The Revolving Credit Facility matures on February 23, 2027. Loans outstanding under the Revolving Credit Facility denominated in U.S. Dollars and Canadian Dollars bear interest, at the borrower’s option, at a rate per annum based on Term SOFR or CDO (each, as defined in the Credit Agreement), as applicable, plus a margin of
The Company incurred debt issuance costs of $
The Company is required to meet certain financial covenants, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on the Company’s and its subsidiaries’ 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, make dividend payments, loans, or advances to the Company, declare dividends and make restricted payments and other distributions.
As of April 1, 2023, there was
outstanding on the Revolving Credit Facility.14
Term Loan
The Term Loan matures on February 23, 2029. Loans outstanding under the Term Loan bear interest, at the borrower’s option, at a rate per annum based on Term SOFR (as defined in the Credit Agreement), plus a margin ranging from
The Company recorded $
Outstanding borrowings as of April 1, 2023 were $
As of April 1, 2023, the unamortized debt issuance costs and discount on the Term Loan were $
As of April 1, 2023, the Company was in compliance with all financial covenants under the Credit Agreement.
Interest Rate Risk
Interest rate risk associated with the Credit Agreement is mitigated partially through interest rate swaps.
The Company executed an interest rate swap on April 30, 2020. The swap has an effective date of May 18, 2020 and a termination date of May 18, 2023. In February of 2022, the Company amended its interest rate swap to change the index rate from LIBOR to SOFR in connection with the entry into the Credit Agreement. Under the terms of the amended swap, the Company fixed its SOFR borrowing rate at
Additionally, the Company entered into an interest rate swap that was executed on March 10, 2023. The swap has an effective date of May 18, 2023 and a termination date of May 18, 2026. Under the terms of the swap, the Company fixed its SOFR borrowing rate at
Debt Maturities
Principal payments due on the outstanding debt, excluding the Revolving Credit Facility, in the next five fiscal years, excluding any potential payments based on excess cash flow levels, are as follows (in thousands):
Year Ended | Term Loan | ||
Remainder of fiscal 2023 |
| $ | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
2027 | | ||
Thereafter |
| | |
$ | |
The obligations under the Credit Agreement are guaranteed by certain wholly owned subsidiaries (the “Guarantors”) of the Company as defined in the security agreement. The obligations under the Credit Agreement are secured by substantially all of the
15
Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts, and security accounts. The Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict the Company’s ability to pay dividends.
7. PRODUCT WARRANTIES
The warranty reserve activity consisted of the following (in thousands):
Fiscal Quarter Ended | |||||||
| April 1, 2023 |
| April 2, 2022 | ||||
Balance at the beginning of the fiscal year | $ | | $ | | |||
Adjustments to reserve |
| |
| | |||
Less: Settlements made (in cash or in kind) |
| ( |
| ( | |||
Balance at the end of the fiscal quarter | $ | | $ | |
8. LEASES
On January 1, 2022, the Company adopted ASU 2016-02, “Leases (Topic 842),” and the related amendments. The optional transition method of adoption was used, in which the cumulative effect of initially applying the new standard to existing leases was $
For leases with initial terms greater than 12 months, the Company considers these right-of-use assets and records the related asset and obligation at the present value of lease payments over the term. For leases with initial terms equal to or less than 12 months, the Company does not consider them as right-of-use assets and instead considers them short-term lease costs that are recognized on a straight-line basis over the lease term. The Company’s leases may include escalation clauses, renewal options, and/or termination options that are factored into the Company’s determination of lease term and lease payments when it is reasonably certain the option will be exercised. The Company elected to take the practical expedient and not separate lease and non-lease components of contracts. The Company estimates an incremental borrowing rate to discount the lease payments based on information available at lease commencement because the implicit rate of the lease is generally not known.
The Company leases manufacturing facilities, office space, land, and certain vehicles and equipment under operating leases. The Company also leases certain vehicles and equipment under finance leases. The Company determines if an arrangement is a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The components of lease expense for the fiscal quarters ended April 1, 2023 and April 2, 2022 were as follows (in thousands):
Fiscal Quarter Ended | |||||||
| April 1, 2023 |
| April 2, 2022 | ||||
Operating lease expense | $ | | $ | | |||
Finance lease amortization of assets | | | |||||
Finance lease interest on lease liabilities | | | |||||
Short-term lease expense |
| |
| | |||
Variable lease expense |
| |
| | |||
Total lease expense | $ | | $ | |
16
Operating and finance lease right-of-use assets and lease-related liabilities as of April 1, 2023 and December 31, 2022 were as follows (in thousands):
April 1, 2023 | December 31, 2022 | Classification | ||||||
Lease right-of-use assets: | ||||||||
Operating leases | $ | | $ | | Operating lease right-of-use assets | |||
Finance leases | | | ||||||
Total lease right-of-use assets | $ | | $ | | ||||
Lease-related liabilities | ||||||||
Current | ||||||||
Operating leases | $ | | $ | | Current operating lease liabilities | |||
Finance leases | | | ||||||
Non-current | ||||||||
Operating leases | | | Non-current operating lease liabilities | |||||
Finance leases | | | ||||||
Total finance lease liabilities | $ | | $ | |
The table below presents supplemental information related to leases as of April 1, 2023 and December 31, 2022:
| April 1, 2023 | December 31, 2022 | ||||||
Weighted-average remaining lease term (years) | ||||||||
Finance leases | ||||||||
Operating leases | ||||||||
Weighted-average discount rate | ||||||||
Finance leases | | % | | % | ||||
Operating leases | | % | | % |
The table below presents supplemental information related to the cash flows for operating leases recorded on the condensed consolidated statements of cash flows (in thousands):
Fiscal Quarter Ended | |||||||
| April 1, 2023 |
| April 2, 2022 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||
Operating cash flows for operating leases | $ | | $ | |
The following table summarizes maturities of operating lease liabilities as of April 1, 2023 (in thousands):
| Operating Leases | Finance Leases | Total | ||||||
Remainder of fiscal 2023 | $ | | $ | | $ | | |||
2024 | | | | ||||||
2025 | | | | ||||||
2026 | | | | ||||||
2027 | | | | ||||||
Thereafter | | | | ||||||
Total lease payments | | | | ||||||
Less: Interest | ( | ( | ( | ||||||
Present value of lease liability | $ | | $ | | $ | |
17
9. NET SALES
The following table sets forth the Company’s disaggregation of net sales by product line (in thousands):
Fiscal Quarter Ended | ||||||||
| April 1, 2023 |
| April 2, 2022 | |||||
In-ground Swimming Pools | $ | | $ | | ||||
Covers |
| |
| | ||||
Liners |
| |
| | ||||
$ | | $ | |
10. INCOME TAXES
The effective income tax rate for the fiscal quarter ended April 1, 2023 was
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 the Company’s financial condition, results of operations, or cash flows for the period ended April 1, 2023 and the Company does not expect a material impact on its future results.
11. STOCKHOLDERS’ EQUITY
Offering of Common Stock
On January 11, 2022, the Company completed an offering of
Repurchase Program
On May 10, 2022, the Company approved a stock repurchase program (the “Repurchase Program”), which authorized the Company to repurchase up to $
As of April 1, 2023, approximately $
18
12. STOCK-BASED COMPENSATION
On April 12, 2021, the Company’s stockholders approved the 2021 Omnibus Incentive Plan (the “Omnibus Incentive Plan”), which became effective on April 22, 2021, upon pricing of its initial public offering. The Omnibus Incentive Plan provides for the issuance of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based and cash-based awards. The maximum aggregate number of shares reserved for issuance under the Omnibus Incentive Plan is
The following table summarizes the Company’s stock-based compensation expense:
Fiscal Quarter Ended | ||||||||
April 1, 2023 |
| April 2, 2022 | ||||||
Cost of sales | $ | | $ | | ||||
Selling, general, and administrative |
| |
| | ||||
$ | | $ | |
As of April 1, 2023, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $
The following table sets forth the significant assumptions used in the Black-Scholes option-pricing model on a weighted-average basis to determine the fair value of stock option awards granted: