S-1/A 1 tm2038279-13_s1a.htm S-1/A tm2038279-13_s1a - block - 30.2658442s
As filed with the Securities and Exchange Commission on April 14, 2021.
Registration No. 333-254930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT No. 1 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Latham Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
3089
(Primary Standard Industrial
Classification Code Number)
83-2797583
(I.R.S. Employer
Identification Number)
787 Watervliet Shaker Road
Latham, New York 12110
800-833-3800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Scott M. Rajeski
Chief Executive Officer
787 Watervliet Shaker Road
Latham, New York 12110
800-833-3800
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
Copies to:
John C. Kennedy, Esq.
Paul, Weiss, Rifkind, Wharton &
Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
Ian D. Schuman, Esq.
Erika Weinberg, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, New York 10022-4834
(212) 906-1200
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
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 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of each Class of
Securities to be Registered
Amount to be
Registered(1)
Proposed Maximum
Offering Price
Per Share(1)(2)
Proposed Maximum
Aggregate Offering
Price(1)(2)
Amount of
Registration Fee(3)
Common Stock, par value $0.0001 per share
23,000,000 $ 21.00 $ 483,000,000 $ 52,695
(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. Includes 3,000,000 shares that the underwriters have the option to purchase. See “Underwriting.”
(2)
Calculated pursuant to Rule 457(a) of the Securities Act of 1933, as amended, based on an estimate of the proposed maximum aggregate offering price.
(3)
The registrant previously paid $10,910.00 of the registration fee in connection with a prior filing of this Registration Statement.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated April 14, 2021
PROSPECTUS
20,000,000 Shares
[MISSING IMAGE: lg_latham-4c.jpg]
Latham Group, Inc.
Common Stock
This is the initial public offering of shares of common stock of Latham Group, Inc., a Delaware corporation. We are offering 20,000,000 shares of common stock.
We expect the public offering price to be between $19.00 and $21.00 per share. Prior to this offering, there has been no public market for our common stock. We intend to apply to list our common stock on The Nasdaq Global Select Market (‘‘NASDAQ’’) under the symbol SWIM.
We are also an emerging growth company as defined under the U.S. federal securities laws, and as such may elect to comply with reduced public company reporting requirements. See "Prospectus Summary—Implications of Being an Emerging Growth Company."
Following the completion of this offering, an investment fund (the Pamplona Fund) managed by affiliates of Pamplona Capital Management, LLC (together with its respective subsidiaries and affiliates, Pamplona) and certain investment funds (the Wynnchurch Funds) managed by affiliates of Wynnchurch Capital, L.P. (together with its respective subsidiaries and affiliates, Wynnchurch) will continue to beneficially own, in the aggregate, a majority of the voting power of our outstanding common stock. As a result, we expect to be a controlled company under the corporate governance rules for NASDAQ-listed companies and will be exempt from certain corporate governance requirements of such rules. See Risk Factors—Risks Relating to this Offering and Ownership of our Common Stock, Management—Controlled Company and Principal Stockholders.
Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page 22 of this prospectus.
Per Share
Total
Public offering price
$ $
Underwriting discounts and commissions(1)
$ $
Proceeds to us, before expenses
$ $
(1)
See Underwriting for additional information regarding the underwriters’ compensation and reimbursement of expenses.
We have granted the underwriters an option to purchase up to an additional 3,000,000 shares from us at the public offering price, less underwriting discounts and commissions, for 30 days after the date of this prospectus.
At our request, the underwriters have reserved up to 5% of the common stock for sale at the public offering price through a directed share program to certain individuals associated with us. See Underwriting—Directed Share Program.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock against payment on or about           , 2021.
Barclays
BofA Securities
Morgan Stanley
Goldman Sachs & Co. LLC
Nomura
William Blair
Baird
KeyBanc Capital Markets
Truist Securities
Prospectus dated            , 2021

 
For investors outside the United States: neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.
TABLE OF CONTENTS
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F-1
We have not, and the underwriters have not, authorized any other person to provide you with any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. You should assume that the information appearing in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
Through and including           , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in the common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
 
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TRADEMARKS, TRADE NAMES AND SERVICE MARKS
This prospectus contains references to our trademarks, trade names and service marks. “Latham,” “CoverStar,” “Narellan” and “GLI” are registered or unregistered trademarks of Latham in the United States and/or other countries. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, trade names and service marks. Other trademarks, trade names and service marks appearing in this prospectus are the property of their respective holders. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
INDUSTRY AND MARKET DATA
We include statements and information in this prospectus concerning our industry ranking and the markets in which we operate, including our general expectations and market opportunity. We are responsible for these statements included in this prospectus. We have reviewed information from independent industry organizations and other third-party sources (including third-party market studies that we commissioned in the ordinary course of our business, industry publications, surveys and forecasts). Our statements in this prospectus concerning our industry ranking and the markets in which we operate represent the results of management’s analysis and are based on the information from such studies.
The market studies appearing in this prospectus include the U.S. Residential Swimming Pool Market Report (YE 2019) by P.K. Data, Inc. (“P.K. Data”), as well as research studies conducted in the ordinary course of our business on our behalf by a third-party research and consulting firm in January 2015 (the “2015 Study”), April 2019 (“April 2019 Study”), May 2019 (the “May 2019 Fiberglass Study” and the “May 2019 Study”) and September 2020 (“2020 Study”).
Projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
BASIS OF PRESENTATION
In this prospectus, unless otherwise indicated or the context otherwise requires, references to the “Issuer” refer to Latham Group, Inc. and references to the “Company,” “Latham,” “we,” “us” and “our” refer to Latham Group, Inc. and its consolidated subsidiaries. References to our “Principal Stockholders” and “Sponsors” refer to the Pamplona Fund, managed by Pamplona and the Wynnchurch Funds, managed by Wynnchurch, each as described under “Prospectus Summary—Our Sponsors.” References to our “Parent” refer to Latham Investment Holdings, L.P.
On April 13, 2021, we effected a 109,673.709-for-one stock split of our common stock. All share and per share data included in this prospectus have been adjusted retroactively to reflect the stock split.
Prior to the closing of this offering, the Parent will be merged with and into the Issuer, with the Issuer being the surviving corporation, and, as part of the merger, shares of our common stock will be issued to our Principal Stockholders, our senior management and board members, and our current and former employees, which we refer to as the “Reorganization.” Except as otherwise indicated, all information in this prospectus gives effect to the proposed Reorganization.
On December 18, 2018, an investment fund managed by affiliates of Pamplona, the Wynnchurch Funds and management acquired all of our outstanding equity interests through the newly formed entities, the Parent, LPP Holdings Inc. and Latham Purchaser, Inc. A portion of the consideration was funded with proceeds from the issuance of long-term debt. We refer to such acquisition and the related financing transactions as the “Acquisition.” We have been controlled by the fund managed by Pamplona since the Acquisition. As a result of the Acquisition and related change in control, we applied purchase accounting as of December 18, 2018. As such, certain financial information provided in this prospectus relating to the
 
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period preceding the Acquisition on December 18, 2018 is presented as “Predecessor” and relating to the period succeeding the Acquisition on December 18, 2018 is presented as “Successor.” Due to the change in the basis of accounting resulting from the Acquisition, the consolidated financial information for the Predecessor periods and the consolidated financial information for the Successor periods, included elsewhere in this prospectus, are not necessarily comparable.
All consolidated financial statements presented in this prospectus have been prepared in U.S. dollars and in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
The Company reports financial and operating information in one segment.
 
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A LETTER FROM OUR CHIEF EXECUTIVE OFFICER, SCOTT M. RAJESKI
Over 60 years ago, Merrill and Alfred Laven founded a business with the dream of making high-quality in-ground swimming pools an attainable luxury for homeowners. My team and I are incredibly proud to be the current stewards of that business, now known as Latham, The Pool Company. Building upon their legacy as the pioneers of custom vinyl pools in the 1960’s, we have continued Latham’s culture of innovation, and now offer the most advanced fiberglass pool on the market, as well as digital buying tools for both homeowners and dealers.
Our company’s mission is simple: we are dedicated to providing families with affordable access to a backyard experience that enriches time spent with family, friends and loved ones. In this uncertain world, we believe in the simple joy that a pool can provide. This belief is manifested in our passionate pursuit of designing both the world’s best swimming pool and the related buying experience.
A number of years ago, we set out to reimagine the pool buying journey and to begin a transformation that leverages digital technology to place the consumer at the center of everything we do. We recognized that by investing in a direct relationship with the consumer, we could tailor the best pool buying experience, customized to fit their personal needs. Today it is easier than ever to transform your backyard with a Latham pool.
We have built a new education ecosystem supported by content-rich, homeowner-focused digital properties and the industry’s first augmented reality mobile app. We knew that empowering consumers with knowledge would accelerate their preference for fiberglass, and we have seen the results in our financials.
This strategy, enhanced by the hard work and commitment of the entire Latham family, has driven over a decade of consecutive annual increases in net sales and margin expansion. All the transformation that we continue to bring to the industry gives us a high level of conviction that the next decade will be even more promising than the last.
To continue our success, we have built a world class leadership team that draws ideas from a wide range of industries. We are also in the midst of a multi-year capital plan, investing in our facilities, technology and systems. Our people and capital investments will enable Latham’s design, manufacturing, customer service, and technology teams to support our accretive growth strategy and to continue disrupting the industry in our favor.
In addition to being the United States’ only coast-to-coast operator, Latham has also established meaningful growth avenues abroad. Today we generate more than 20% of our sales internationally and are constantly evaluating further opportunities to execute our proven strategy in new geographies.
Since taking the helm three short years ago, I am honored to have led a culture focused on building the leading brand in outdoor living. Homeowners around the world increasingly turn to Latham to make their family dreams a reality. We will not waiver in our lifetime commitment to them.
As proud as we are of what we’ve accomplished so far, we feel we are only scratching the surface of making high-quality pools an attainable luxury around the world.
From our family to your backyard,
[MISSING IMAGE: sg_rajeski-bw.jpg]
Scott M. Rajeski
 
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Prospectus Summary
The following summary contains selected information about us and about this offering. It does not contain all of the information that is important to you and your investment decision. Before you make an investment decision, you should review this prospectus in its entirety, including matters set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. Some of the statements in the following summary constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”
Our Company
We are the largest designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand. We hold the #1 market position in North America in every product category in which we compete. We believe that we are the most sought-after brand in the pool industry and the only pool company that has established a direct relationship with the homeowner. We are Latham, The Pool CompanyTM.
With an operating history that spans over 60 years, we offer the industry’s broadest portfolio of pools and related products, including in-ground swimming pools, pool liners and pool covers. In 2020, we sold over 8,700 fiberglass pools in the United States, which we believe represents approximately one out of every ten in-ground swimming pools sold in the United States.
We have a heritage of innovation. In an industry that has traditionally marketed on a business-to-business basis (pool manufacturer to dealer), we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey. Through this marketing strategy, we are able to create demand for our pools and generate and provide high quality, purchase-ready consumer leads to our dealer partners. In 2020, the first year in which all elements of our digital and social marketing strategy were available to homeowners, we have delivered over 45,000 consumer leads to our dealer network, representing growth of 210% over the prior year.
Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. In 2020, we sold to over 6,000 dealers; we also entered into a new and exclusive long-term strategic partnership with the nation’s largest franchised dealer network. We support our dealer network with business development tools, co-branded marketing programs and in-house training, as well as a coast-to-coast operations platform consisting of over 2,000 employees across 32 facilities. The broad geographic reach of our manufacturing and distribution network allows us to deliver a fiberglass pool in a cost-effective manner to approximately 95% of the U.S. population in two days. No other competitor in the residential in-ground swimming pool industry has more than three manufacturing facilities.
The full resources of our company are dedicated to designing and manufacturing high-quality pool products with the homeowner in mind, and positioning ourselves as a value-added partner to our dealers. As a result of this approach, 2020 marked our 11th consecutive year of net sales growth and Adjusted EBITDA margin expansion. Net income does not adhere to this trend.
 
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Value Proposition
As summarized below, we believe that our product offering, in combination with our service capabilities, presents a compelling value proposition to both homeowners and our dealer partners.
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Financial Highlights
In 2020, we generated 59% of our net sales from residential in-ground swimming pools, the majority of which are derived from our fast-growing fiberglass pool offering. The balance of our net sales is split between our pool covers and liners product offerings. The demand for our pool covers and liners is predominantly driven by the installed base of over five million in-ground swimming pools in the United States. Our broad manufacturing and distribution capabilities allow us to serve a nationwide homeowner base with a growing presence internationally. Importantly, our exposure to the repair and remodel (“R&R”) category of consumer spending, 95% of our net sales in 2020, positions us well to benefit from favorable long-term demand trends driven by continued homeowner investment in outdoor living spaces, including backyard pools. The chart below illustrates our net sales in 2020 by product, geography and end market.
[MISSING IMAGE: tm2038279d7-pc_sales4c.jpg]
(1)
Repair & Remodel includes purchases of pools or other products occurring more than a year after new home construction, and New Construction includes such purchases in connection with, or less than a year after, new home construction.
In 2020, we generated $403.4 million in net sales, $16.0 million in net income and $83.8 million of Adjusted EBITDA. For a discussion of our use of Adjusted EBITDA and reconciliation to net income, please refer to “—Summary Consolidated Financial and Other Data.” Net sales, net income and Adjusted EBITDA grew 26.9%, 114.3% and 37.3%, respectively in 2020 as compared to 2019. From 2016 to 2020, net sales, net income and Adjusted EBITDA have grown at a compound annual growth rate (“CAGR”) of 13%, 53% and 21%, respectively. The charts below show our net sales, net income and net income margin, Adjusted EBITDA and Adjusted EBITDA margin from 2016 to 2020.
[MISSING IMAGE: tm2038279d9-bc_netsaleinc4c.jpg]
Industry Overview
We are the leader in the large, growing and highly-fragmented residential in-ground swimming pool industry. According to P.K. Data, total U.S. sales for residential in-ground swimming pools were $3.3 billion in 2019 (on 78,000 pool installations), and have grown at a CAGR of 8% since 2014. Despite this consistent growth, the industry still lags the twenty-year historical average of approximately 106,000 new pool installations per year.
Over the last decade, macroeconomic trends have driven an increase in reinvestment in the home, and we expect that consumers will continue to focus R&R spending on exterior living spaces as they look for
 
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more ways to spend time outdoors. A recent consumer survey organized by a third-party research and consulting firm indicates that pool ownership is the highest ranked consumer satisfaction purchase among discretionary purchases for the home. As such, we believe demand for pools will continue to increase. Furthermore, that same consumer survey found that 3.2% of U.S. homeowners expect to purchase a pool in the next year and have already taken steps in the purchase journey. This would translate into single-year demand of nearly three million new pools. While we believe the industry lacks the capacity to address this demand in a given year, we believe it positions fiberglass pools for above market growth. In discussions with our dealers, they have indicated that they are at full capacity and have already booked the majority of their calendars in 2021. This dynamic provides us and our dealer partners with strong visibility into 2021.
Fiberglass pools are underpenetrated in the United States residential in-ground swimming pool market, relative to other geographic markets. Based on the information from the 2020 Study and May 2019 Fiberglass Study, fiberglass pools accounted for 18% of the United States residential in-ground swimming pool market in 2020, and are expected to grow to approximately 25% by 2023. As a result of material conversion away from legacy pool construction materials, growth in sales of fiberglass pools is meaningfully outpacing that of the broader in-ground swimming pool market. Despite this expected growth in the United States, fiberglass pools still have significant runway for growth relative to comparable international markets. The charts below illustrate the development of the fiberglass pool product category in the United States and fiberglass penetration of comparable foreign pool markets.
[MISSING IMAGE: tm2038279d5-bc_inter4c.jpg]
By volume. Source: the charts above represent management’s analysis and are based on the information from the May 2019 Study, 2020 Study and 2015 Study by a third-party research consulting firm, as well as P.K. Data, and their knowledge as market participants.
Based on the information from the 2020 Study, fiberglass pools will continue to trend toward penetration rates in more mature markets, such as Australia, where the product category represents approximately 70% of the overall pool industry. In 2019, we acquired Narellan Group Pty Limited (“Narellan”), the largest fiberglass manufacturer in Australia and one of the key drivers of fiberglass adoption in the Australian market over the last two decades. Leveraging insights gained from Narellan, we are investing to build the tools required to drive higher fiberglass penetration in the North American market.
This conversion to fiberglass pools from legacy pool construction materials is being driven by greater homeowner awareness of the benefits of fiberglass products, including:

Lower up-front and lifecycle costs. Fiberglass pools cost less and have lower repair expenses compared to concrete pools.

Faster and easier installation. Based on our knowledge of our dealers, we believe fiberglass pools can be installed in as little as two-to-three days, compared to three months for concrete pools.

Premium quality and aesthetics. We believe our fiberglass pool offering is the most attractive swimming pool offering on the market. Our special finishing process allows for traction where you need it (such as steps) and a smooth and lustrous finish everywhere else.

Less chemicals. The smooth non-porous finish of fiberglass dramatically reduces the need for harsh chemicals to treat the pool. It also allows homeowners to opt for an eye- and skin-friendly saltwater pool, without concern for corrosion.
 
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Lifetime warranty. Our fiberglass pools are guaranteed to the original purchaser for a lifetime and do not need to be resurfaced or repainted every eight to ten years like legacy materials.
Pool manufacturers have traditionally marketed to dealers rather than to homeowners. As a result, both manufacturers and homeowners have depended on dealers to educate homeowners and move them through their pool buying journey. The dealership market is highly-fragmented, consisting primarily of small, family-owned businesses. In addition, concrete pool installers face a number of challenges, particularly as a result, we believe, of many skilled tradesmen leaving the industry following the Great Recession’s impact on construction. Each of these factors, paired with the long-term positive demand trends in the industry, contribute to the supply constraint in the pool market.
Latham’s Transformational “Direct-to-Homeowner” Business Model
Latham’s unique “direct-to-homeowner” marketing strategy is driving a greater understanding of the benefits of owning a pool, specifically a fiberglass pool, and generating significant consumer demand. This allows us to provide higher quality, purchase-ready leads to our dealer partners. In the traditional model, the homeowner’s initial point of contact would typically be with a dealer. If the final purchase were a manufactured pool, the dealer would order that pool from the manufacturer and other pool equipment, such as pumps, controls and chemicals from other manufacturers. We are disrupting the industry with our “direct-to-homeowner” marketing approach, which positions us as the primary point of contact with the homeowner. We are helping consumers understand the variety of pool types available and illustrating the benefits of fiberglass, which is the best option for most homeowners. The key components of our homeowner-focused business model include:

Unique Latham Branding: In 2019, we unified our corporate branding and consolidated legacy brands under one banner, Latham. We relaunched our website under the Latham brand in February 2020 and streamlined our go-to-market approach by making the consumer the center of our strategy. This enabled us to increase our brand awareness with homeowners and create the only consumer focused brand in a fragmented category.

Digital Platform: We believe our portfolio of digital assets and capabilities allows us to generate a greater volume of cost-effective and highly qualified leads for our dealer partners while also providing a consumer-facing touchpoint for the brand. The key elements of our digital strategy were made possible by, among other things, our unparalleled national manufacturing and distribution footprint and include:

Proprietary Branded Website: We updated our global flagship website in February 2020 to place an emphasis on inspiration and homeowner education. The site contains proprietary content and imagery that guides homeowners along their pool buying journey. We have invested in search engine optimization which has driven significant traffic to the site. In 2020, our website recorded 3.5 million sessions, compared to just 105,000 sessions in 2018. As a result, we have generated significant consumer leads for our dealer partners.

Latham Augmented Reality Visualizer App: In 2019, we developed the pool industry’s first augmented reality visualization mobile app. This app allows homeowners to visualize a Latham pool in their own backyard. The interactive nature allows homeowners to compare a variety of pool types and shapes and, when ready, directly contact a dealer without leaving the app. This has generated strong interest in Latham pool installations driven by approximately 50,000 downloads in 2020.

Sophisticated Social Marketing: As our business model has evolved, we have directed a significant portion of our advertising spend to digital channels, including social media and search advertising. Our targeted digital marketing and enhanced lead generation engine drive sales for dealers. Additionally, by meeting homeowners where they are digitally, we have been able to drastically reduce our cost per lead to approximately $44 in 2020. Given that our scalable manufacturing platform has capacity to enhance profitability for each incremental fiberglass pool sold, the return profile for our lead generation program is highly compelling.

Exclusive Dealer Partnerships Powered by Homeowner Leads: In order to strengthen our relationship with our loyal dealer partners, we have implemented “Latham Grand,” a key dealer strategy whereby
 
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we have secured exclusivity from over 250 of our largest dealers. “Latham Grand” dealers benefit from priority for high-quality consumer leads, co-branding for their retail stores and partnership on local marketing initiatives. We benefit through closer partnership around volume planning and specific commitments on growth. We also support our dealer partners with “Latham University” and “Business Excellence” coaches:

“Latham University”: Our “Latham University” program addresses the supply constraint in the pool industry by providing hands-on installation training for our dealer partners. Additionally, we provide on-site installation assistance to our new dealer partners on their initial fiberglass pool installation.

“Business Excellence” Coaches: Our “Business Excellence” coaches provide our dealers with tailored consulting on how to improve operations and grow their businesses.
Our Strengths
Leading Consumer Brand in the Residential Pool Market
We are the leader in the North American in-ground residential swimming pool market, holding the #1 position by volume in each of our product categories, based on the information from the May 2019 Study and 2020 Study, a position that we have established throughout our 60 plus year operating history. Latham is the only consumer brand in the residential pool industry with a differentiated value proposition that includes an unmatched product portfolio, a coast-to-coast footprint of 19 manufacturing facilities and 13 distribution facilities, an experienced sales force and a network of over 250 exclusive dealer partners. Our sophisticated digital marketing targeted directly at homeowners has been instrumental in educating and empowering them, helping to drive material conversion in the pool market from traditional materials to fiberglass. In the fast-growing fiberglass pool product category of the residential in-ground swimming pool market in North America, we command over a 50% share, which is more than four times that of the second largest fiberglass competitor, based on the information from the May 2019 Study.
“Direct-to-Homeowner” Relationship That Drives Business for Our Dealer Partners
Latham is organized around our commitment to provide an exceptional homeowner experience. Our focus in recent years has been on simplifying the historically complex homeowner experience of purchasing a swimming pool. We make finding and buying the right product an amazing start to a homeowner journey that is now easy and enjoyable. We are recognized by homeowners and dealer partners for our differentiated capabilities, quality, on-trend style, design and breadth of our product portfolio and the unique homeowner-focused journey that we have created. Given the level of near continuous connectivity offered to consumers through mobile devices, businesses are adapting their marketing strategies and increasingly focusing on mobile and social media platforms. We have been at the forefront of this dynamic within our industry. Our scale enables us to reinvest more in technology and marketing than our much smaller competitors, driving a virtuous cycle whereby we are able to deliver more purchase-ready leads to our dealer partners. Over the last two years, our new digital platform has increased traffic to our website by a factor of 11 times and website visit duration has risen over 64%. To increase lead conversion, we systematically track and interact with each homeowner throughout their purchase journey.
Serving a Large, Growing Market that is Benefiting from Material Conversion
According to P.K. Data, over the last 20 years, the industry averaged approximately 108,000 new pool installations per year, compared to only 78,000 in 2019, and, based on our estimates, 90,000 in 2020. Given recent consumer trends, we expect demand for pools to grow to over 100,000 pools per year in each of the next three years. Fiberglass pools currently make up approximately 18% of North American residential in-ground swimming pool market and the pace of material conversion from concrete and vinyl pools to fiberglass products is accelerating. This is due in large part to increased awareness among our consumers of the higher quality and durability of our fiberglass pools, as well as beautiful design with a lower overall cost of ownership versus concrete pools. We believe that fiberglass pools will continue to gain share in the in-ground swimming pool market, and as the leading fiberglass pool manufacturer, we are well positioned to both benefit from this growth and accelerate the pace of material conversion through our efforts. We have
 
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benefited from the sharing of best practices with our Narellan platform, which has been a key driver of fiberglass adoption in Australia, as we have driven higher penetration in the North American market.
Broadest Portfolio of Branded Products Known for Quality, Durability and Aesthetics
Our extensive portfolio of pool models is recognized by consumers and dealers for its high-quality, superior durability and aesthetic designs. From our carbon fiber, Kevlar and ceramic fiberglass build to our Ultra-SeamTM liner fabrication, our product development team consistently sets the standard for innovation in our industry. Our broad product portfolio allows dealers and distributors to offer consumers a wide variety of innovative pool shapes, features, depths and lengths, which significantly exceed our competitors’ offering. Additionally, we build our fiberglass pools in a controlled environment compared to the on-site nature of our concrete pool competitors, allowing for better product quality control. Homeowners can further customize their fiberglass pools by selecting from 12 fiberglass color patterns, ranging from deep blues and whites to corals and naturals. In addition to color customization, we offer the industry’s most elaborate finishes in our innovative G2 and G3 finish options, which provide deep visuals that let homeowners choose the perfect water color to complement their backyard surroundings. Our models offer a variety of swim up seating, multiple points of entry and exit, wading areas, tanning ledges and built-in steps, which are features consumers seek in more expensive custom pool designs. Our array of feature rich options across our portfolio of products are core to our strategy to provide superior design at a value to homeowners.
Broad Reach, Regulatory Expertise and Technological Capabilities Create Significant Competitive Advantages
Our leading position is driven by our consumer brand, geographic reach, national manufacturing platform, regulatory expertise and compelling value proposition. Our brand has become synonymous with the re-imagination of the homeowner journey in purchasing a swimming pool, created significant pull-through demand from homeowners and made our offering a critical component to profitable growth for our dealer partners. This dynamic forms a virtuous cycle that is accelerating homeowner awareness for our products and increasing dealers’ desire to partner with us in order to profitably expand their businesses. Supported by our fleet of over 150 cars, trucks and trailers and team of 60 dedicated drivers, our North American network of nine fiberglass manufacturing facilities provides cost efficient delivery and service to our network of entrenched dealer and distributor partners, including over 250 exclusive Latham Grand dealers. Notably, we are the only nationwide, multi-facility manufacturer of fiberglass swimming pools, providing us with an advantage over regional players that lack similar geographic reach and scale. The fiberglass pool manufacturing process requires significant regulatory approvals and continuous compliance. We have successfully navigated this process across our entire manufacturing footprint throughout our history. Additionally, we have filed or obtained the required permits to expand our fiberglass manufacturing capacity and are in the process of doubling it, providing us a runway for further growth. Finally, our compelling value proposition is underpinned by our ability to leverage a unique technology infrastructure to generate a significant number of purchase-ready leads for our dealer partners and drive increasing levels of consumer awareness for our products. In tandem with the training and marketing tools we provide to our dealers, our technological capabilities have been critical in solidifying our position as the leader in every major pool product sub-category in which we compete in North America.
History of Consistent Net Sales Growth and Margin Expansion
Our business has consistently driven growth and margin expansion over the long-term and 2020 will represent the 11th consecutive year of net sales growth and Adjusted EBITDA margin expansion. Net income does not adhere to this trend. From 2016 to 2020, we realized a net sales, net income and Adjusted EBITDA growth CAGR of 13%, 53% and 21%, respectively. Additionally, over the same period our net income margins have expanded by 280 basis points and our Adjusted EBITDA margins have expanded by 500 basis points. Our net income margin expansion and Adjusted EBITDA margin expansion has largely been driven by a mix shift towards our fastest growing fiberglass pools business, which has a materially higher margin profile than our other product categories. As our recent strategic and capital investments mature, we believe there is a significant opportunity for us to continue to drive increased fiberglass penetration rates, accelerate net sales growth and expand our margins.
 
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Visionary Management Team with Proven Track Record of Execution
We have assembled a team of highly experienced and accomplished executives with public company experience and a proven track record of leading global consumer and industrial organizations. Our management team has experience with developing consumer-branded lifestyle platforms, disrupting traditional business-to-business market structures and delivering an expansive portfolio of high-quality, durable, cost-efficient products to consumers.
In a few short years, our team has pioneered a disruptive “direct-to-homeowner” marketing approach, consolidated our brands under the Latham master brand, created innovative new products and enhanced our digital platform to better focus on the overall consumer journey. Our Chief Executive Officer, Scott M. Rajeski, was appointed in 2017 after serving as the Company’s Chief Financial Officer since 2012. Scott previously served in leadership positions at GLOBALFOUNDRIES, Momentive Performance Materials and General Electric. Scott was critical in recruiting our Chairman, James E. Cline, who joined our board in early 2019 and previously served as president and chief executive officer of Trex. We believe Mr. Cline, as the former chief executive officer of Trex, has been an invaluable non-executive member of the board of directors due to his experience building the industry leader in the similarly material conversion driven composite decking industry, while also creating one of the best known brands in the building products industry. Our Chief Financial Officer, J. Mark Borseth, joined the team in 2020 after serving as president and chief executive officer of Ranpak under Rhone Capital’s ownership, as well as holding numerous leadership roles at 3M. Our Chief Marketing Officer, Joel R. Culp, was appointed in 2019 after previously serving in the same role for Wilsonart, as well as holding various leadership positions at MasterBrand, a Fortune Brands company, Uponor and Kohler. Collectively, our team has extensive experience at leading public and private companies, including Trex, Kohler, General Electric, 3M, Ingersoll Rand, Wilsonart and Ranpak.
Our Growth Strategies
Utilize Leading Brand and Digital Assets to Generate Greater Homeowner Lead Volumes
During 2019 and 2020, we have increased spending on digital strategies and marketing. Our content-rich digital platform provides homeowners with education and engagement tools that help them navigate their pool buying journey, including an unrivaled pool visualization experience, informational videos and resources, budget calculators, and a pool expert community consisting of a blog and direct homeowner outreach. Our investment has resulted in increased web traffic and lead generation of 105,000 sessions in 2018 to 3,544,334 sessions in 2020 and 14,589 in 2018 to 45,224 in 2020, respectively. The implementation of our new digital strategy has resulted in superior search engine optimization performance, outpacing our next closest peer in organic traffic by five times. We have boosted leads by 210% between 2018 and 2020 for our dealers, further entrenching Latham with our dealer base and increasing switching costs.
Accelerate Fiberglass Material Conversion through Unique Market Positioning
As the leader in the fiberglass pool product category, we are driving the acceleration of material conversion by educating both homeowners and dealer partners about the benefits of fiberglass. Our marketing campaigns and digital platform, including our easy to use interactive website and mobile app, inform homeowners on the benefits of fiberglass, including lower up-front and total cost of ownership, quicker installation, easier maintenance and a more convenient buying experience. The Latham Augmented Reality Pool Visualizer app allows homeowners to browse fiberglass models and select from a variety of options from their mobile device. At “Latham University,” our dealer partners discover firsthand the benefits of fiberglass pools, including the ease and speed of installation versus concrete pools, which drive better economics. We also host company conferences and participate in trade shows, where we continue to drive education on the benefits of fiberglass pools. The charts below show an illustrative profit potential to installers and cost to homeowners of installing a pool of comparable size by the type of the pool material, assuming that all other conditions are the same.
 
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[MISSING IMAGE: tm2038279d1-tbl_econo4clr.jpg]
Source: 2020 Study and management estimates. Assumes: certain number of working days per year with one pool building crew; certain number of days per installation of each type of pool, resulting in certain number of pool installations per year for each type of pool.
Secure Additional Strategic Partnerships with Priority Dealers to Gain Share
Our approach as a true business partner with our dealers positions us to take market share in our highly-fragmented industry. We have secured exclusivity from over 250 of our top dealer partners, as well as the nation’s largest franchised dealer network, Premier Pools & Spas. As the only participant with scale in the fiberglass pool product category, we intend to continue to pursue additional strategic partnerships with priority dealers in underpenetrated geographical markets that can help us accelerate our growth. We believe these exclusive relationships will continue to enable us to increase market share at the expense of the fragmented and regional universe of competitors.
Grow Industry Capacity by Onboarding and Training New Dealer Partners
We believe that there is a tremendous opportunity to expand the capacity of skilled dealer partners to support overall industry growth and our continued market penetration. As such, we intend to continue to use our leadership position in the industry to educate small business owners currently installing concrete pools, as well as those in related trades, about the economic opportunities available in the fiberglass product category of the pool market. We further intend to onboard, train and support them with the same emphasis we have placed on our existing dealer partnerships, including our co-branding programs, “Latham University,” and our “Business Excellence” coaching designed to help them manage their growth. Leveraging our investments and management expertise, we should be able to play a key role in growing the industry’s capacity back towards levels of more than 150,000 annual in-ground swimming pool installations that preceded the Great Recession.
Expand Margins through Mix Shift Towards Fiberglass and Productivity Initiatives
Fiberglass pools are both our highest margin and fastest growing product category. We believe that our consumer-centric marketing and compelling value proposition to our dealer partners will continue to drive consistent, long-term growth for our fiberglass pools. We have made significant manufacturing capacity investments to not only support this future growth, but also to continue to deliver the compelling margin profile of our fiberglass pool offering. We expect to increase our margins significantly as we grow into our capacity investments and our product mix continues to shift towards fiberglass pools. Additionally, we expect that our investments in people, processes and equipment aimed at enhancing our manufacturing productivity will further expand our margins. From 2018 to 2020, we have improved our net income margins by 510 basis points and our Adjusted EBITDA margins by 193 basis points through operational excellence initiatives and we expect this trend to accelerate as we realize meaningful benefits from historical and ongoing capital and other investments in the business.
 
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Strategic Acquisitions that Enhance the Latham Platform
The pool industry remains highly-fragmented, which offers attractive opportunities to utilize strategic acquisitions to drive consolidation and expand our product offering. We have historically used strategic acquisitions to expand our geographic reach within the United States and internationally, enhance our product portfolio and drive operational efficiencies. We believe that we have the opportunity to be the consolidator of choice in the industry, and we will continue to focus on acquiring high-quality, market-leading businesses with teams, capabilities, and technologies that are complementary to our existing offerings and enable us to better serve homeowners and dealer partners.
Recent Developments
Financing Transactions
In October 2020, Parent purchased 32,902,113 shares of our common stock for $64.9 million. On December 28, 2020, we repurchased those 32,902,113 shares of common stock in exchange for a note payable in the amount of $64.9 million, equal to the Parent’s original purchase price for the common stock (the “Parent Note”). The Parent Note bore interest at 0.15% per annum and was due on October 20, 2023 (collectively, the “2020 Financing Transactions”).
On January 25, 2021, Latham Pool Products, Inc. (“Latham Pool Products”), our indirect wholly-owned subsidiary and the borrower under our Credit Agreement (as defined below), entered into an amendment to the Credit Agreement and borrowed an additional $175.0 million under the Amended Term Loan (as defined below). In February 2021, we used $175.0 million that we borrowed under our Credit Agreement to repay a loan to our Parent in the amount of $64.9 million and to pay a $110.0 million dividend to our Parent (collectively, the “2021 Financing Transactions”). Amounts paid to our current executive officers and directors as part of the 2021 Financing Transactions were approximately $2.2 million. Amounts paid to our Sponsors as part of the 2021 Financing Transactions were approximately $163.8 million. In 2019 and 2020, we paid distributions of $0.2 million and $0.6 million, respectively, to our Parent for the repurchase of our Parent’s Class A shares.
Such 2020 Financing Transactions and 2021 Financing Transactions are collectively referred to as the “Financing Transactions.” See “Use of Proceeds” and “Certain Relationships and Related Party Transactions—Purchases from Equityholders” for further details.
We intend to use the net proceeds from this offering, assuming an initial public offering price of $20.00 per share (the midpoint of the range set forth on the cover of this prospectus) as follows:

$152.7 million of our net proceeds from this offering to repay $152.7 million of the Amended Term Loan under our Credit Agreement;

$16.0 million of our net proceeds from this offering to repay the $16.0 million outstanding on the Revolving Credit Facility (as defined and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Indebtedness);

$172.0 million of our net proceeds from this offering to repurchase 8,829,191 shares of our common stock from the Principal Stockholders and 418,121 shares of common stock from a current employee who is not an executive officer or a director of the Company prior to this offering at a price per share equal to the price per share paid by the underwriters to us for shares of our common stock in this offering. If the underwriters were to fully exercise their option to purchase additional shares of our common stock, we would use approximately $227.8 million of our net proceeds from this offering to repurchase 11,693,545 shares of common stock from the Principal Stockholders and 553,767 shares of common stock from a current employee who is not an executive officer or a director of the Company at a price per share equal to the price per share paid by the underwriters to us for shares of our common stock in this offering; and

$25.0 million of our net proceeds, for general corporate purposes.
 
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We have a significant amount of indebtedness. Following this offering and the use of proceeds from this offering, we will have $242.6 million of indebtedness in the form of the Amended Term Loan outstanding under the Credit Agreement and $30.0 million of availability under the Revolving Credit Facility under the Credit Agreement (as defined and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Indebtedness”).
Preliminary Estimated Net Sales for the Fiscal Quarter Ended April 3, 2021
Our financial results for the fiscal quarter ended April 3, 2021 are not yet complete and will not be available until after the completion of this offering. Accordingly, set forth below is our preliminary estimated range for net sales for the fiscal quarter ended April 3, 2021 and our actual net sales for the fiscal quarter ended March 28, 2020. Our estimated net sales for the fiscal quarter ended April 3, 2021 is subject to revision based upon the completion of our quarter-end financial closing processes and other developments that may arise prior to the time our financial results for the fiscal quarter ended April 3, 2021 are finalized. Our preliminary estimated range for net sales is therefore a forward-looking statement based solely on information available to us as of the date of this prospectus and the reported net sales may differ from this estimate. The preliminary estimated range of net sales set forth below has been prepared by, and is the responsibility of, management and is based on a number of assumptions. Neither the Company’s independent auditors, nor any other independent accountants, have audited, reviewed, compiled, examined, or performed any procedures with respect to the preliminary financial information, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the preliminary financial information. Our actual results may differ from this estimate due to the completion of our final closing procedures, final adjustments and other developments that may arise between now and the time our financial results for the fiscal quarter ended April 3, 2021 are finalized. You should not place undue reliance on this preliminary estimate. In addition, this preliminary estimate of net sales set forth below is not necessarily indicative of the results we may achieve in any future periods. For additional information, see “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.”
The following are our preliminary estimated range for net sales for the fiscal quarter ended April 3, 2021 and our actual net sales for the fiscal quarter ended March 28, 2020:
Fiscal Quarter Ended
(in millions)
April 3, 2021
(estimated low)
April 3, 2021
(estimated high)
March 28, 2020
(actual)
Net sales
$ 143.0 $ 150.0 $ 51.1
Reorganization
Prior to the closing of this offering, our Parent will merge with and into Latham Group, Inc., with Latham Group, Inc. surviving the merger (the “Reorganization”). In the merger, the limited partnership interests and profit interests in our Parent will be exchanged for an economically equivalent number of vested and unvested shares of our common stock. Following the Reorganization and prior to this offering, our common stock will be owned by our Principal Stockholders, our senior management and board members, and our current and former employees. The total number of shares of common stock to be issued to each equityholder of Parent in the merger will be based on the initial public offering price in this offering and the liquidation value of such interests in Parent. Although the number of shares to be issued to each equityholder will vary depending on the initial public offering price, the aggregate number of outstanding shares of common stock prior to this offering will be fixed at 109,673,709. The purpose of the Reorganization is to reorganize our structure so that our existing investors will own only our common stock rather than limited partnership interests in our Parent.
Summary Risk Factors
Participating in this offering involves substantial risk. Our ability to execute our strategy also is subject to certain risks. The risks described under the heading “Risk Factors” immediately following this summary
 
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may cause us not to realize the full benefits of our competitive strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges and risks we face include the following:

lack of demand for our swimming pools and related products;

changes in economic and business conditions;

adverse weather conditions impacting our sales;

inability to attract dealers and distributors to purchase our products since our products are not sold directly to consumers;

inability to sustain further growth in our business;

failure to meet customer specifications or consumer expectations;

increases in costs of our raw materials and components and inability to source the quantity or quality of raw materials and components that we need to manufacture our products;

changing patterns in consumer spending, and ability of consumers to obtain financing to purchase our products;

natural disasters, war, terrorism, public health issues such as the novel coronavirus (“COVID-19”) pandemic or other catastrophic events that could disrupt the supply, delivery or demand of our products;

inability to obtain transportation services to deliver our product and to obtain raw materials timely or increases in the cost of transportation;

product quality issues, warranty claims or safety concerns and other claims in the ordinary course of business;

our ability to obtain, maintain and enforce intellectual property protection for our current and future products;

the risks of doing business internationally;

cyber security breaches and data leaks, and our dependence on information technology systems;

changes in environmental, health and safety regulations;

competition that we face; and

the other factors set forth under “Risk Factors.”
These and other risks are more fully described in the section entitled “Risk Factors” in this prospectus. If any of these risks actually occurs, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. As a result, you could lose all or part of your investment in our common stock.
Implications of Being an Emerging Growth Company
We are an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to: (1) presenting only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus; (2) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); (3) having reduced disclosure obligations regarding executive compensation in our periodic reports and proxy or information statements; (4) being exempt from the requirements to hold a non-binding advisory vote on executive compensation or seek stockholder approval of any golden parachute payments not previously
 
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approved and (5) not being required to adopt certain accounting standards applicable to public companies until those standards would otherwise apply to private companies.
Although we are still evaluating our options under the JOBS Act, we may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company” and thus the level of information we provide may be different than that of other public companies. If we do take advantage of any of these exemptions, some investors may find our securities less attractive, which could result in a less active trading market for our common stock, and the price of our common stock may be more volatile. As an “emerging growth company” under the JOBS Act, we are permitted to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We are electing to take advantage of such extended transition period, and as a result, we will not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies until the earlier of the date we (i) are no longer an “emerging growth company” or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Early adoption is permitted.
We could remain an “emerging growth company” until the earliest to occur of:

the last day of the year following the fifth anniversary of this offering;

the last day of the first year in which our annual gross revenues exceed an amount specified by regulation (currently $1.07 billion);

the day we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second quarter of such year; and

the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period.
Our Sponsors
Pamplona
Pamplona Capital Management is a specialist investment manager founded in 2005 that provides an alternative investment platform across private equity investments. Pamplona manages over $7 billion in assets for its limited partners. Pamplona has offices in New York, London, Malta, Madrid and Monaco. The firm invests long-term capital primarily in North America and Europe.
Wynnchurch
Wynnchurch, headquartered in the Chicago suburb of Rosemont, Illinois, with an office in California and an affiliate in Canada, was founded in 1999, and is a leading middle-market private equity investment firm. Wynnchurch’s strategy is to partner with middle market companies in the United States and Canada that possess the potential for substantial growth and profit improvement. Wynnchurch manages a number of private equity funds with $4.2 billion of committed capital under management and specializes in recapitalizations, growth capital, management buyouts, corporate carve-outs and restructurings.
Stockholders’ Agreement
Prior to the consummation of this offering, we intend to enter into a stockholders’ agreement (the “Stockholders’ Agreement”) with our Principal Stockholders. The Stockholders’ Agreement will grant Pamplona the right to nominate to our board of directors a number of designees on a sliding scale depending on Pamplona’s affiliates’ ownership of our common stock, ranging from Pamplona being able to nominate at least a majority of the total number of directors so long as its affiliates beneficially own at least 50% of the shares of our common stock to Pamplona being able to nominate at least 10% of the total number of
 
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directors as long as its affiliates beneficially own at least 5%. For so long as Wynnchurch owns at least 5% of our common stock, Wynnchurch will have the right to appoint one director.
Controlled Company
Upon the closing of this offering, we will be a “controlled company” within the meaning of the NASDAQ corporate governance standards because more than 50% of the voting power of our outstanding common stock will be beneficially owned by the Pamplona Fund and Wynnchurch Funds, in the aggregate. We intend to rely upon the “controlled company” exception relating to the board of directors and committee independence requirements under the listing rules of NASDAQ. Pursuant to this exception, we will be exempt from the rules that would otherwise require that our board of directors consist of a majority of independent directors and that our compensation committee and nominating and corporate governance committee be composed entirely of independent directors. For further information on the implications of being a “controlled company,” see “Risk Factors—Risks Relating to this Offering and Ownership of our Common Stock” and “Management—Controlled Company.”
Company Information
Latham Group, Inc. was organized under the laws of Delaware as a corporation on December 6, 2018 and is the issuer of the common stock offered by this prospectus. Our principal executive offices are located at 787 Watervliet Shaker Road, Latham, New York 12110. Our telephone number is 800-833-3800. Our website is https://www.lathampool.com. Our website and the information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and are not considered part of, this prospectus. You should not rely on our website or any such information in making your decision whether to purchase shares of our common stock.
 
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The Offering
Issuer
Latham Group, Inc.
Common stock offered by us
20,000,000 shares (or 23,000,000 shares if the underwriters exercise their option to purchase additional shares in full as described below).
Option to purchase additional
shares
We have granted the underwriters an option to purchase up to an additional 3,000,000 shares from us. The underwriters may exercise this option at any time within 30 days from the date of this prospectus. See “Underwriting.”
Common stock outstanding after giving effect to this offering
120,426,397 shares (or 120,426,397 shares if the underwriters exercise their option to purchase additional shares in full).
Use of proceeds
We estimate that our net proceeds from this offering will be approximately $365.7 million (or approximately $421.5 million if the underwriters exercise their option to purchase additional shares in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, based on an assumed initial public offering price of $20.00 per share (the midpoint of the range set forth on the cover page of this prospectus).
We intend to use the net proceeds from this offering, assuming an initial public offering price of $20.00 per share (the midpoint of the range set forth on the cover of this prospectus) as follows:

$152.7 million of our net proceeds from this offering to repay $152.7 million of the Amended Term Loan under our Credit Agreement;

$16.0 million of our net proceeds from this offering to repay the $16.0 million outstanding on the Revolving Credit Facility;

$172.0 million of our net proceeds from this offering to repurchase 9,247,312 shares of our common stock (or $227.8 million to repurchase 12,247,312 shares if the underwriters exercise their option to purchase additional shares in full) from the Principal Stockholders and a current employee who is not an executive officer or a director of the Company at a price per share equal to the price per share paid by the underwriters to us for shares of our common stock in this offering; and

$25.0 million of our net proceeds, for general corporate purposes.
See “Use of Proceeds” for additional information.
Dividend policy
We do not intend to pay cash dividends on our common stock. However, we may, in the future, decide to pay dividends on our common stock. Any declaration and payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, cash flows, capital requirements, levels of indebtedness, restrictions imposed by applicable law, our
 
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overall financial condition, restrictions in our debt agreements, and any other factors deemed relevant by our board of directors. See “Dividend Policy.”
Listing
We intend to apply to list our common stock on NASDAQ under the symbol “SWIM.”
Risk Factors
You should read the section titled “Risk Factors” beginning on page 22 and the other information included in this prospectus for a discussion of some of the risks and uncertainties you should carefully consider before deciding to invest in our common stock.
Directed Share Program
At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the common stock for sale to our directors, officers, employees and other individuals associated with us and members of their families. The sales will be made, at our direction, by Morgan Stanley & Co. LLC, an underwriter of this offering, through a directed share program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Participants in the directed share program who purchase more than $1,000,000 of shares shall be subject to a 25-day lock-up with respect to any shares sold to them pursuant to that program. This lock-up will have similar restrictions and an identical extension provision to the lock-up agreements described herein. Any shares sold in the directed share program to our directors, executive officers or Principal Stockholders shall be subject to the lock-up agreements described herein. Any reserved shares of common stock that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock offered by this prospectus. See “Underwriting—Directed Share Program” for more information.
The number of shares of our common stock to be outstanding after this offering is based on 109,673,709 shares of our common stock outstanding as of April 13, 2021 and excludes 4,830,086 shares of common stock reserved for future issuance under our Omnibus Incentive Plan (as defined under “Executive Compensation—Post-IPO Equity Compensation Plans—2021 Omnibus Incentive Plan”), of which 325,753 shares of common stock will be issuable pursuant to restricted stock units in connection with the IPO and 842,524 shares of common stock will be issuable pursuant to stock options to acquire shares of common stock at an exercise price equal to the public offering price in connection with the IPO. See “Executive Compensation.” The 109,673,709 shares includes 8,328,344 shares of restricted stock to former holders of profits interests which will be issued under the Omnibus Incentive Plan.
Except as otherwise indicated, all of the information in this prospectus:

gives effect to the Reorganization, as a result of which there will be an aggregate of 109,673,709 shares of common stock outstanding prior to this offering, as further described in the section titled “—Reorganization”;

reflects a 109,673.709-for-one split of our common stock effected on April 13, 2021;

assumes an initial public offering price of $20.00 per share of common stock (the midpoint of the price range set forth on the cover page of this prospectus); and

assumes no exercise of the underwriters’ option to purchase up to 3,000,000 additional shares of common stock in this offering.
 
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Summary Consolidated Financial and Other Data
The following tables present our summary consolidated financial and other data for the periods indicated. We have derived our historical consolidated statement of operations data for the years ended December 31, 2016 and 2017, for the period from January 1, 2018 through December 18, 2018 (Predecessor) and for the period from December 19, 2018 through December 31, 2018 (Successor) from our unaudited consolidated financial statements not appearing in this prospectus. We have derived the summary historical consolidated statement of operations data and the summary historical consolidated statement of cash flows data for the years ended December 31, 2019 and 2020 (Successor) and our summary historical consolidated balance sheet data as of December 31, 2020 (Successor) from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated financial and other data should be read in conjunction with the sections titled “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Capitalization and our audited consolidated financial statements and the related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that should be expected in the future.
Consolidated Statements of Operations Data:
(in thousands, except share and per share data)
Predecessor
Successor(1)
Year ended
December 31,
Period of
January 1, 2018
through
December 18,
Period of
December 19, 2018
through
December 31,
Year ended
December 31,
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2018
(unaudited)
2019(2)
2020(2)
Net sales
$ 247,496 $ 265,247 $ 285,838 $ 1,374 $ 317,975 $ 403,389
Cost of sales
168,021 178,761 190,834 2,881 219,819 260,616
Gross profit
79,475 86,486 95,004 (1,507) 98,156 142,773
Selling, general and administrative expense
47,268 43,931 67,466 2,689 57,388 85,527
Amortization
8,990 8,288 7,992 1,068 15,643 17,347
Income (loss) from operations
23,217 34,267 19,546 (5,264) 25,125 39,899
Other expense (income):
Interest expense
14,550 14,143 11,116 664 22,639 18,251
Other expense (income), net
47 (1,596) 2,312 85 (300) (1,111)
Total other expense (income), net
14,597 12,547 13,428 749 22,339 17,140
Income (loss) before income taxes 
8,620 21,720 6,118 (6,013) 2,786 22,759
Income tax (benefit) expense
5,720 (13,516) 4,229 (981) (4,671) 6,776
Net income (loss)
$ 2,900 $ 35,236 $ 1,889 $ (5,032) $ 7,457 $ 15,983
Net income (loss) per share attributable to common stockholders:(3)
Basic and diluted
$ (0.05) $ 0.07 $ 0.14
Weighted-average common shares outstanding:(3)
Basic and diluted
109,673,709 109,673,709 116,469,884
 
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Predecessor
Successor(1)
Year ended
December 31,
Period of
January 1, 2018
through
December 18,
Period of
December 19, 2018
through
December 31,
Year ended
December 31,
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2018
(unaudited)
2019(2)
2020(2)
Pro forma net loss per share attributable to common stockholders:(4)
Basic and diluted
$ (0.31)
Pro forma weighted-
average common
shares outstanding:(4)
Basic and diluted
121,279,040
Consolidated Statements of Cash Flows Data:
(in thousands)
December 31,
2019
2020
Net cash provided by operating activities
$ 35,655 $ 63,161
Net cash used in investing activities
(27,083) (115,805)
Net cash provided by financing activities
16,551 54,302
Other Data (unaudited):
(in thousands)
Predecessor
Successor(1)
Year ended
December 31,
Period of
January 1,
2018
through
December 18,
Period of
December 19,
2018
through
December 31,
Year ended December 31,
2016
2017
2018
2018
2019(2)
2020(2)
Net income margin(5)
1.2%
13.3%
0.7%
(366.2)%
2.3%
4.0%
Adjusted EBITDA(6)
$39,063
$47,252
$57,324
$(3,185)
$61,050
$83,836
Adjusted EBITDA margin(7)
15.8%
17.8%
20.1%
(231.8)%
19.2%
20.8%
Consolidated Balance Sheets Data:
(in thousands)
As of December 31, 2020
Actual
As Further
Adjusted(8)
Cash
$ 59,310 $ 99,181
Working capital(9)
73,389 104,295
Total assets
646,676 685,506
Total debt(10)
286,434 242,637
Total liabilities
430,005 385,168
Total stockholders’ equity
216,671 300,338
 
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(1)
Our operating results and financial position for the years ended December 31, 2019 and 2020, and for the period from December 19, 2018 through December 31, 2018, the Successor periods, are impacted by the Acquisition. Due to the Acquisition and the application of purchase accounting, the Successor and Predecessor periods are not necessarily comparable.
(2)
Our operating results and financial position for the years ended December 31, 2019 and 2020 were impacted by the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers, (“ASC 606”). We used the modified retrospective method of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historical accounting guidance under Accounting Standards Codification 605, Revenue Recognition, (“ASC 605”). See Note 2, Summary of Significant Accounting Policies, to our audited consolidated financial statements included elsewhere in this prospectus for more information.
(3)
See Note 18, Net Income Per Share, to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the calculation of basic and diluted income per share attributable to common stockholders.
(4)
Pro forma net loss per share, basic and diluted, is computed by dividing pro forma net loss of $37.9 million by 121,279,040 pro forma weighted-average shares outstanding. For the year ended December 31, 2020, pro forma net loss gives effect to (i) the immediate recognition of $52.0 million of stock-based compensation expense upon the Reorganization due to the accelerated vesting and incremental fair value resulting from modifications made to the profits interest units’ awards and (ii) the incremental interest expense of $1.9 million resulting from the additional $175.0 million borrowed under the Amended Term Loan as part of the 2021 Financing Transactions, reduced by the application of $152.7 million of the net proceeds to repay $152.7 million of the Amended Term Loan under our Credit Agreement, as if the offering had occurred on January 1, 2020, as set forth under “Use of Proceeds.” For the year ended December 31, 2020, pro forma weighted-average shares outstanding gives effect to the issuance of 13,137,500 shares of common stock, which is the number of shares that would be attributable to the proceeds used to (i) repay $152.7 million of the Amended Term Loan under our Credit Agreement, (ii) repay the $16.0 million outstanding on our Revolving Credit Facility as described in “Use of Proceeds” and (iii) pay the portion of the dividend to Parent in excess of net income for the year ended December 31, 2020 of $94.1 million, at an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus). Pro forma weighted-average shares outstanding also gives effect to a reduction of 8,328,344 shares, which reflects the restricted stock issued to our shareholders as part of the Reorganization. We issued 9,247,312 shares of common stock, of which the proceeds received were used to repurchase the same number of shares and therefore, the use of those proceeds to repurchase shares did not impact pro forma weighted-average shares outstanding. This pro forma per share information is presented for informational purposes only and does not purport to represent what our net income (loss) or net income (loss) per share actually would have been had the Reorganization, the offering and use of proceeds to repay $152.7 million of the Amended Term Loan under our Credit Agreement, repay the $16.0 million outstanding on our Revolving Credit Facility, repurchase shares of common stock as described in “Use of Proceeds” or pay the dividend to Parent occurred on January 1, 2020, or to project our net income (loss) or net income (loss) per share for any future period. The pro forma per share information does not give effect to the new rate of interest that would be applicable to the extent the third amendment to the Credit Agreement was in effect on January 1, 2020.
(5)
Net income margin is calculated by dividing net income by net sales.
(6)
Adjusted EBITDA is a non-GAAP financial measure. We define “Adjusted EBITDA” as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, (iii) income tax (benefit) expense, (iv) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) management fees, (vii) stock-based compensation expense, (viii) other expense (income), net, (ix) other non-cash items, (x) strategic initiative costs, (xi) acquisition and integration related costs, (xii) other, (xiii) IPO costs, and (xiv) COVID-19- related expenses (income). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non GAAP Financial Measures” for important information about this measure. The following is the reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, net income, and the calculation of Adjusted EBITDA margin (in thousands):
Predecessor
Successor(2)
Year ended December 31,
Period of
January 1, 2018
through
December 18,
Period of
December 19, 2018
through
December 31,
Year ended December 31,
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2018
(unaudited)
2019(1)
2020(1)
Net income
$ 2,900 $ 35,236 $ 1,889 $ (5,032) $ 7,457 $ 15,983
Depreciation and amortization
14,162 14,587 14,767 1,228 21,659 25,365
Interest expense
14,550 14,143 11,116 664 22,639 18,251
Income tax (benefit) expense
5,720 (13,516) 4,229 (981) (4,671) 6,776
 
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Predecessor
Successor(2)
Year ended
December 31,
Period of
January 1, 2018
through
December 18,
Period of
December 19, 2018
through
December 31,
Year ended
December 31,
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2018
(unaudited)
2019(1)
2020(1)
Loss (gain) on sale and disposal of property and equipment
233 (204) 914 34 680 332
Restructuring charges(a)
609 176 1,271 47 980 1,265
Management fees(b)
500 500 482 18 500
Stock-based compensation expense
9 9 (18) 808 1,827
Other expense (income),
net(c)
47 (1,596) 2,312 85 (300) (1,111)
Other non-cash items(d)
1.050 39 6,331 1,338
Strategic initiative costs(e)
964 6,264
Acquisition and integration related costs(f)
592 239 19,135 707 3,612 5,497
Other(g) (259) (2,322) 177 6 391 1,007
IPO costs(h)
1,731
COVID-19-related expenses (income)(i)
(689)
Adjusted EBITDA (unaudited)
$ 39,063 $ 47,252 $ 57,324 $ (3,185) $ 61,050 $ 83,836
Net Sales
$ 247,496 $ 265,247 $ 285,838 $ 1,374 $ 317,975 $ 403,389
Net income margin
1.2% 13.3% 0.7% (366.2)% 2.3% 4.0%
Adjusted EBITDA margin (unaudited)
15.8% 17.8% 20.1% (231.8)% 19.2% 20.8%
(a)
Represents the cost of shutting down production and warehouse facilities in New Market, New Hampshire, Decatur, Georgia, Oregon City, Oregon, and Mississauga, Ontario, Canada, including the cost to transfer and dispose of property and equipment and involuntary workforce reductions. Also includes severance and other costs for our executive management changes.
(b)
Represents management fees paid to our Principal Stockholders in accordance with our expense reimbursement arrangement, which will terminate as of the effective date of our initial public offering.
(c)
Represents foreign currency transaction (gains) and losses associated with our international subsidiaries and changes in the fair value of the contingent consideration recorded in connection with the acquisition of Narellan, which was settled in September 2020.
(d)
Represents non-cash adjustments to record the step-up in the fair value of inventory related to the Acquisition, the acquisition of Narellan and the acquisition of GL International, LLC (“GLI”), which are amortized through cost of sales in the consolidated statements of operations. Also includes non-cash adjustments related to our frozen defined benefit pension plans, which were terminated in 2020.
(e)
Represents fees paid to external consultants for our strategic initiatives, including our rebranding initiative.
(f)
Represents acquisition and integration costs primarily related to the acquisition of Narellan, the acquisition of GLI, the equity investment in Premier Pools & Spas, as well as other costs related to a transaction that was abandoned.
(g)
Other costs consist of other discrete items as determined by management, including fees paid to external consultants for tax restructuring, the cost for legal defense of a specified matter, the cost incurred and insurance proceeds received related to our production facility fire in Dix, Illinois, in 2016, and our production facility fire in Picton, Australia, in 2020, and other items.
(h)
Represents items management believes are not indicative of ongoing operating performance. These expenses are primarily composed of legal, accounting and professional fees incurred in connection with this offering that are not capitalizable, which are included within selling, general and administrative expense.
(i)
Represents temporary cleaning, equipment and salary costs incurred in response to the COVID-19 pandemic, offset by government grants received in the United States, Canada and New Zealand.
 
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(7)
Adjusted EBITDA margin is a non-GAAP financial measure. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net sales. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for important information about this measure.
(8)
The as further adjusted balance sheet data gives effect to (i) the Reorganization, (ii) the 2021 Financing Transactions, (iii) the issuance and sale of shares of our common stock in this offering at an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions payable by us and (iv) the application of the net proceeds of this offering as described under “Use of Proceeds.”
A $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the as further adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $18.6 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the as further adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $18.6 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(9)
Working capital is defined as total current assets less total current liabilities.
(10)
Total debt includes current and non-current portion of long-term debt, net of discount and debt issuance costs and the Parent Note.
 
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Risk Factors
You should carefully consider the risks and uncertainties described below, as well as the other information contained in this prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our common stock. In addition, past financial performance may not be a reliable indicator of future performance and historical trends may not predict results or trends in future periods. Any of the following risks could materially adversely affect our business, financial condition and results of operations, in which case the trading price of our common stock could decline and you could lose all or part of your investment.
Risks Related to Our Operations
The demand for our swimming pools and related products may be adversely affected by unfavorable economic conditions and trends in consumer spending.
A swimming pool is a consumer discretionary purchase. Consumer discretionary spending affects our sales and is impacted by factors outside of our control, including general economic conditions, the residential housing market, unemployment rates and wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and access to credit. In economic downturns, the demand for swimming pools and related products may decline, often corresponding with declines in discretionary consumer spending, the growth rate of pool eligible households and swimming pool construction. This cyclicality in consumer demand for our products means that the results for any prior period may not be indicative of results for any future period.
In addition, consumer demand for swimming pools is impacted by consumer demand for, and spending on, outdoor living spaces. While we believe consumers have increased spending on outdoor living in recent years, the level of spending could decrease in the future.
Any substantial deterioration in general economic conditions that diminishes consumer confidence or discretionary income may reduce our sales and materially adversely affect our business, financial condition and results of operations. Even in generally favorable economic conditions, severe and/or prolonged downturns in the housing market could have a material adverse impact on our financial performance. Such downturns expose us to certain additional risks, including, but not limited to the risk of dealer closures or bankruptcies, which could shrink our potential customer base and inhibit our ability to collect on those dealers’ receivables.
We believe that consumers’ access to consumer credit is a factor enabling the purchase of new pools because a significant percentage of consumers finance their pool installations. Tightening consumer credit or increases in interest rates could prevent consumers from obtaining financing for pools, which could negatively impact our sales.
We are susceptible to adverse weather conditions.
Given the nature of our business, weather is one of the principal external factors affecting our business, and the impact of bad weather is further exacerbated by the seasonality of our business. The second and third quarters of the year, which correspond to the spring and summer months in the United States, represent the peak months of swimming pool use and pool installation and maintenance. Unseasonably late warming trends in the spring or early cooling trends in the fall can shorten the length of the pool season. In addition, unseasonably cool weather or extraordinary rainfall during the peak season can have an adverse impact on demand due to decreased swimming pool use and installation. Drought conditions or water management initiatives may lead to municipal ordinances related to water use restrictions. Such restrictions could result in decreased pool installations, which could negatively impact our sales.
Our products are sold to other businesses for resale to consumers, and inability to attract dealers and distributors to purchase our products or the loss of our largest customer could adversely affect our results of operations.
We sell all of our products to key channel partners, dealers and distributors, who resell the products to consumers. Some of our customers also sell our competitors’ products. The customers’ success in reselling
 
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our products to consumers is a key driver of our net sales. If we are unable to attract or retain successful customers on a cost-effective basis, our business, financial condition and results of operations may be materially adversely affected.
Our customers are generally not contractually obligated to purchase from us. They make purchase decisions based on a combination of brand, product quality, consumer demand, customer service performance, price and other factors. Changes in our customers’ strategies may adversely affect our sales. Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us. Finally, our customers may default on their obligations to us.
These risks are heightened with respect to our largest customer that accounted for 22.3% of our net sales in 2020. A reduction in sales to our customers, particularly the loss of, or a reduction in sales to, our largest customer, could have a material adverse effect on our business, financial condition, and results of operations.
We may be unable to sustain further growth in our business.
Our core strategy for our business is growth, including by contributing to the transformation of the North American residential pool industry by driving and benefiting from material conversion to fiberglass pools, our key product. See “Summary—Our Growth Strategies.” Although we have generated 11 consecutive years of net sales growth, we may not be able to continue generating net sales growth in the future. Our failure to implement our growth strategy in a cost-effective and timely manner could have an adverse effect on our business, financial condition and results of operations.
A failure to meet customer specifications or consumer expectations could result in lost sales, increased expenses, negative publicity, claims for damages and harm to our brand and reputation.
A failure or inability by us to meet customer specifications or consumer expectations could damage our reputation and adversely affect our ability to attract new business and result in delayed or lost sales. One of our growth strategies is the use of consumer-focused branding for our products to grow our sales. Our ability to create, maintain, enhance and protect our brand image and reputation and consumers’ connection to our brand depends in part on our design and marketing efforts, including our increasing reliance on social media and online dissemination of consumer advertising campaigns. Negative publicity or product quality issues, whether real or perceived, could tarnish our reputation and our brand image. Failure to maintain, enhance and protect our brand image could have a material adverse effect on our results of operations. In addition, any failure to meet customer specifications could result in reduced net sales and income.
We depend on a global network of third-party suppliers to provide components and raw materials essential to the manufacturing of our pools and price increases or deviations in the quality of the raw materials used to manufacture our products could adversely affect our net sales and operating results.
We rely on manufacturers and other suppliers to provide us with the components and raw materials to manufacture our products. The primary raw materials used in our products are polyvinyl chloride (“PVC”) plastic, galvanized steel, fiberglass, aluminum, carbon fiber, Kevlar fiber, various resins, gelcoat, polypropylene fabric and roving. Other than occasional strategic purchases of larger quantities of certain raw materials, we generally buy materials on an as-needed basis. We are dependent upon the ability of our suppliers to consistently provide raw materials and components that meet our specifications, quality standards and other applicable criteria. Our suppliers’ failure to provide raw materials and components that meet such criteria on a timely basis could adversely affect production schedules and our product quality, which in turn could materially adversely affect our business, financial condition and results of operations. While we believe that our relationships with our current suppliers are sufficient to provide the materials necessary to meet present production demand, these relationships may not continue or the quantity or quality of materials available from these suppliers may not be sufficient to meet our future needs, irrespective of whether we successfully implement our growth strategy, and we may not be able to obtain supplies on favorable terms. In the event of a shortage of our raw materials, we may not be able to arrange for alternative sources of such materials on a timely basis or on equally favorable terms.
 
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In addition, increases in the cost of the raw materials used to manufacture our products could adversely affect our operating results. The cost of some of the raw materials we use in the manufacture of our products, such as steel, is subject to price volatility. Changes in prices of our raw materials have a direct impact on our cost of sales. Accordingly, we are exposed to the risk of increases in the market prices of raw materials used in the manufacture of our products. If we are unable to increase our prices or experience a delay in our ability to increase our prices or to recover such increases in our costs, our gross profit will suffer. In addition, increases in the price of our products to compensate for increased costs of raw materials may reduce demand for our products and adversely affect our competitive position.
The current outbreak of COVID-19, or the future outbreak of any other highly infectious or contagious diseases, has caused, and will continue to cause, disruption to our business and operations.
Any outbreaks of contagious diseases, public health epidemics or pandemics and other adverse public health developments could have a material adverse effect on our business, financial condition and results of operations. Since December 2019, COVID-19 has spread across the globe, including every state in the United States.
In response to the COVID-19 pandemic, governmental authorities, including in all of the jurisdictions in which we operate, took measures to limit the spread of the outbreak, including mandatory business closures, travel restrictions, quarantines, declarations of states of emergency, “stay-at-home” or “shelter-in-place” orders and social distancing protocols, seeking voluntary facility closures and/or other restrictions. These restrictions and the potential reintroduction of similar restrictions could materially adversely affect our ability, and our customers’ and suppliers’ ability, to adequately staff, manage and maintain their respective businesses. Given the seasonality inherent in our business, the impact of such restrictions on our business would be particularly severe if the timing coincides with the peak months of swimming pool use and pool installation and maintenance. The COVID-19 pandemic or another pandemic could have material and adverse effects on our ability to successfully operate due to, among other factors:

a general decline in consumer confidence, increase in unemployment rates and financial distress of consumers negatively impacting demand for our products;

our customers experiencing diminished financial condition or financial distress, which reduces their demand for our products, and potentially renders them unable to meet their payment obligations to us in a timely manner or at all;

delays or disruptions and temporary suspensions of our operations and those of our suppliers and building contractors that consumers use to install our pools;

disruptions or delays in our supply chain, which may result in the need to seek alternative suppliers, who may be more expensive or may not be available at all;

increase in our operating costs and reduction of efficiency due to measures that we have taken and will likely continue to take to address the COVID-19 pandemic, including, among other things, providing additional safety equipment, enhancing facility cleaning, switching our office employees to remote working, enacting and enforcing employee physical distancing protocols in our factories and reducing the need for face-to-face interactions, providing enhanced employee benefits and possibility of increased overhead or other expenses resulting from compliance with any future government orders or other measures enacted in response to the COVID-19 pandemic;

continued or repeated closures of borders, impositions of prolonged quarantines and further restrictions on travel and business activity, which could materially impair our ability to support our operations, to source supplies through our supply chain, to identify, pursue and capture new business opportunities, and restrict the ability of our employees to access their workplaces;

impairment or restructuring charges;

inability to comply with financial covenants in our debt agreements;
 
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difficulty accessing the capital markets on attractive terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis; and

the potential negative impact on the health of our highly qualified personnel.
Our management of the impact of the COVID-19 pandemic has required, and will continue to require, significant investment of time by our management and employees. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the COVID-19 pandemic and the resulting governmental and other measures. The foregoing and other impacts of the COVID-19 pandemic could have the effect of heightening many of the other risks described in this prospectus, and any of these impacts could materially adversely affect our business, financial condition and results of operations.
We depend on third parties for transportation services to some extent, and the lack of availability of and/or increases in the cost of transportation could have a material adverse effect on our business and results of operations.
Our business depends on the transportation of both finished goods to our customers and the transportation of raw materials to us primarily through the use of flatbed trucks and rail transportation. We rely partially on third parties for transportation of these items. The availability of these transportation services is subject to various risks, including those associated with supply shortages, change in fuel prices, work stoppages, operating hazards and interstate transportation regulations. In particular, a significant portion of our finished goods is transported by flatbed trucks, which are occasionally in high demand (especially at the end of calendar quarters) and/or subject to price fluctuations based on market conditions and the price of fuel.
If the required supply of transportation services is unavailable when needed, we may be unable to sell our products when they are requested by our customers. In that event, we may be required to reduce the price of the affected products, seek alternative and, potentially more costly, transportation services or be unable to sell the affected products. Similarly, if any of these transportation providers were unavailable to deliver raw materials to us in a timely manner, we may be unable to manufacture our products in response to customer demand. In addition, a significant increase in transportation rates or fuel surcharges could adversely affect our profitability. Any of these events could have a material adverse effect on our business and results of operations.
Product quality, warranty claims or safety concerns and other claims in the ordinary course of business could negatively impact our sales, lead to increased costs and expose us to litigation.
Product quality issues could negatively impact consumer confidence in our brands and our business. If our product offerings do not meet applicable legal standards or consumers’ expectations regarding safety or quality, we could experience lost sales and increased costs and be exposed to legal, financial and reputational risks, as well as governmental enforcement actions. Since we provide various warranties on our products, generally ranging from five years to lifetime warranties, we become liable for warranty obligations should problems arise. Warranty obligations in excess of our reserves could have a material adverse effect on our financial condition and results of operations. Actual, potential or perceived product safety concerns, including health-related concerns, could expose us to litigation, as well as government enforcement actions, and result in costly product recalls and other liabilities.
We are also involved or may be involved in various disputes, litigation and regulatory matters incidental to and in the ordinary course of our business, including employment matters, personal injury claims, intellectual property disputes, commercial disputes, government compliance matters, environmental matters, and other matters arising out of the normal conduct of our business. We intend to vigorously defend ourselves in such matters as they arise. While the impact of this litigation has or may be immaterial, there can be no assurance that the impact of the pending and any future claims will not be material to our business, financial condition or results of operations in the future.
 
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Our business operations could suffer if we fail to protect adequately our intellectual property rights, and we may experience claims by third parties that we are violating their intellectual property rights.
We rely on trademark and service market protection to protect our brands and we have registered or applied to register many of these trademarks and services marks. In the event that our trademarks or service marks are successfully challenged and we lose the rights to use those trademarks or service marks, or if we fail to prevent others from using them (or similar marks), we could be forced to rebrand our products, requiring us to devote resources to advertising and marketing new brands. In addition, we cannot be sure that any pending trademark or service mark applications will be granted or will not be challenged or opposed by third parties.
We generally rely on a combination of unpatented proprietary know-how and trade secrets and, to a lesser extent, patents to preserve our position in the market. Because of the importance of our proprietary know-how and trade secrets, we employ various methods to protect our intellectual property, such as entering into confidentiality agreements with third parties, and controlling access to, and distribution of, our proprietary information. We may not be able to deter current and former employees, contractors and other parties from breaching confidentiality obligations and misappropriating proprietary information. It is difficult for us to monitor unauthorized uses of our products and technology. Accordingly, these protections may not be adequate to prevent competitors from copying, imitating or reverse engineering our products or from developing and marketing products that are substantially equivalent to or superior to our own.
In addition, we have applied for patent protection relating to certain products, processes and services or aspects thereof. We cannot be sure that any of our pending patent applications will be granted or that any patents issued as a result of our patent applications will be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage.
Moreover, since our patents, trademarks and service marks are primarily registered in the United States and Canada, we may not be successful in asserting patent or trademark protection in other countries.
If third parties take actions that affect our rights or the value of our intellectual property or proprietary rights, or if we are unable to protect our intellectual property from infringement or misappropriation, other companies may be able to offer competitive products at lower prices, and we may not be able to effectively compete against these companies. In addition, if any third party copies or imitates our products in a manner that affects customer or consumer perception of the quality of our products, or of engineered products generally, our reputation and sales could suffer whether or not these violate our intellectual property rights.
In addition, we face the risk of claims that we are infringing third parties’ intellectual property rights. Any such claim, even if it is without merit, could be expensive and time-consuming to defend and could divert the time and attention of our management. An intellectual property claim against us that is successful could cause us to cease making or selling products that incorporate the disputed intellectual property, require us to redesign our products, which may not be feasible or cost effective, and require us to enter into costly royalty or licensing arrangements, any of which could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to continue to enhance existing products and/or technology and develop and market, including via our digital marketing strategy, new or enhanced products that respond to customer needs and preferences, we may experience a decrease in demand for our products and our business could suffer.
We seek to generate net sales growth through enhancement of existing products and development of new products and through digital strategies and marketing. We may not be able to compete as effectively with our competitors, and ultimately satisfy the needs and preferences of our customers, unless we can continue to enhance existing products and technologies and develop new innovative products and marketing strategies for the markets in which we compete. Product development requires significant financial, technological, and other resources. Product improvements and new product introductions also require significant research, planning, design, development, engineering, and testing at the technological, product, and manufacturing process levels, and we may not be able to timely develop and introduce product improvements or new products. Our competitors’ new products may beat our products to market, be higher quality or more reliable, be more effective with more features and/or less expensive than our products,
 
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obtain better market acceptance, or render our products obsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful net sales or profits for us relative to our expectations based on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising, marketing, promotional programs, and research and development.
We depend on our ability to attract, develop and retain highly qualified personnel.
Our ability to meet our strategic objectives and otherwise grow our business will depend to a significant extent on the continued contributions of our leadership team. Our future success will also depend in large part on our ability to identify, attract, and retain other highly qualified managerial, technical, sales and marketing, operations, and customer service personnel. Competition for these individuals in our manufacturing markets is intense and supply is limited. Since we operate in a competitive labor market, there is a risk that market increases in compensation could have an adverse effect on our business. We may not succeed in identifying, attracting, or retaining qualified personnel on a cost-effective basis. The loss or interruption of services of any of our key personnel, inability to identify, attract, or retain qualified personnel in the future, delays in hiring qualified personnel, or any employee work slowdowns, strikes, or similar actions could make it difficult for us to conduct and manage our business and meet key objectives, which could harm our business, financial condition and results of operations.
We conduct business internationally, which exposes us to additional risks.
Our ability to successfully conduct operations in, and source products and materials from, international markets is affected by many of the same risks we face in our U.S. operations, as well as unique costs and difficulties of managing international operations. Our international operations, which accounted for 19.3% of our net sales in 2020, expose us to certain additional risks, including:

difficulty in staffing international subsidiary operations;

different political, economic and regulatory conditions;

local laws and customs;

violations of anti-bribery and anti-corruption laws, such as the United States Foreign Corrupt Practices Act;

violations of economic sanctions laws, such as the regulations enforced by the U.S. Department of The Treasury’s Office of Foreign Assets Control;

currency fluctuations;

limitations on our ability to enforce legal rights and remedies with third parties or partners outside the United States;

adverse tax consequences; and

dependence on other economies.
For foreign-sourced products, we may be subject to certain trade restrictions that would prevent us from obtaining products. There is also a greater risk that we may not be able to access products in a timely and efficient manner. Fluctuations in other factors relating to international trade, such as tariffs, transportation costs and inflation are additional risks for our international operations.
We rely on information technology systems to support our business operations. A significant disturbance or breach of our technological infrastructure could adversely affect our financial condition and results of operations. Additionally, failure to maintain the security of confidential information could damage our reputation and expose us to litigation.
Information technology supports several aspects of our business, including among others, product sourcing, pricing, customer service, transaction processing, financial reporting, collections and cost management. Our ability to operate effectively on a day-to-day basis and accurately report our results depends on a solid technological infrastructure, which is inherently susceptible to internal and external threats. We are vulnerable to interruption by fire, natural disasters, power loss, telecommunication failures, internet
 
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failures, security breaches and other catastrophic events. Exposure to various types of cyber-attacks such as malware, computer viruses, worms or other malicious acts, as well as human error, could also potentially disrupt our operations or result in a significant interruption in the delivery of our goods and services.
Advances in computer and software capabilities, encryption technology and other discoveries increase the complexity of our technological environment, including how each interact with our various software platforms. Such advances could delay or hinder our ability to process transactions or could compromise the integrity of our data, resulting in a material adverse impact on our financial condition and results of operations. We also may experience occasional system interruptions and delays that make our information systems unavailable or slow to respond, including the interaction of our information systems with those of third parties. A lack of sophistication or reliability of our information systems could adversely impact our operations and customer service and could require major repairs or replacements, resulting in significant costs and foregone sales.
In addition, we may not have the necessary resources to enhance existing information systems or implement new systems where necessary to handle our growth and changing needs, and may experience unanticipated delays, complications and expenses in implementing and integrating our systems. Any interruptions in operations would adversely affect our ability to properly allocate resources and deliver our products, which could result in customer dissatisfaction. The failure to successfully implement and maintain information systems could have an adverse effect on our ability to obtain new business, retain existing business and maintain or increase our sales and profit margins.
We process, store and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and violation of these privacy obligations could result in a claim for damages, regulatory action, loss of business, or unfavorable publicity.
We receive, store and process personal information and other customer information, or personal information and other data from and about our customers and our employees. There are numerous laws, as well as regulations and industry guidelines, regarding privacy and the storing, use, processing, and disclosure and protection of personal information, the scope of which are changing, subject to differing interpretations, and may be inconsistent among countries or conflict with other rules. Additionally, laws, regulations, and standards covering marketing and advertising activities conducted by telephone, email, mobile devices, and the internet, may be applicable to our business, such as the Telephone Consumer Protection Act and the Controlling the Assault of Non-Solicited Pornography And Marketing Act, and similar state consumer protection laws. We generally seek to comply with industry standards and are subject to the terms of our own privacy policies and privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection to the extent possible. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or regulations, making enforcement, and thus compliance requirements, ambiguous, uncertain, and potentially inconsistent. Any failure or perceived failure by us to comply with our privacy policies, privacy-related obligations to customers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized access to or unintended release of personally identifiable information or other customer data, may result in governmental enforcement actions, litigation, or public statements against us by consumer advocacy groups or others. Any of these events could cause us to incur significant costs in investigating and defending such claims and, if found liable, pay significant damages. Further, these proceedings and any subsequent adverse outcomes may cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.
We also expect that there will continue to be new laws, regulations and industry standards concerning privacy, data protection and information security proposed and enacted in various jurisdictions. The United States, Canada, Australia, New Zealand, the European Union, the United Kingdom and other countries in which we operate are increasingly adopting or revising privacy, information security and data protection laws and regulations that could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of customer, consumer and/or employee information, as well as any other third-party information we receive,
 
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and some of our current or planned business activities. Any significant change to applicable laws, regulations or industry practices regarding the use or disclosure of personal information could result in increased compliance costs.
Any of the foregoing could materially adversely affect our brand, reputation, business, results of operations, and financial condition.
Our insurance coverage may be inadequate to protect against the potential hazards inherent to our business.
We maintain property, business interruption, product liability and casualty insurance coverage, but such insurance may not provide adequate coverage against potential claims, including losses resulting from interruptions in our production capability or product liability claims relating to the products we manufacture. Premiums and deductibles for some of our insurance policies have been increasing and may, in the future, increase substantially. In some instances, some types of insurance may become available only for reduced amounts of coverage, if at all. Our insurers could also deny coverage for claims. In addition, we self-insure health benefits, and although we have stop-loss policy in place to limit exposure, we may be adversely impacted by unfavorable claims experience. If the number or severity of health claims increases, or we are required to accrue or pay additional amounts because the claims prove to be more severe than our original assessment, our operating results would be adversely affected. Our future health claims expense might exceed historical levels, which could reduce our earnings. If we were to incur a significant liability for which we were not fully insured or that our insurers disputed or for which we self-insure, our business, financial condition and results of operations could be materially adversely affected.
We continuously evaluate and may in the future enter into additional strategic transactions. Any such transaction could happen at any time, be material to our business and take any number of forms, including, for example, an acquisition, merger, sale of certain of our assets, refinancing, or other recapitalization or material strategic transaction. Evaluating potential transactions and integrating completed ones may divert the attention of our management from ordinary operating matters.
The success of potential acquisitions or mergers will depend, in part, on our ability to realize the anticipated growth opportunities and cost synergies through the successful integration of the businesses we acquire with our existing business, including the recent acquisition of GLI in October 2020 and the recent purchase of a 28% equity interest in Premier Pools & Spas. Even if we are successful in integrating acquired businesses, these integrations may not result in the realization of the full benefit of any anticipated growth opportunities or cost synergies or that these benefits will be realized within the expected time frames. We may have difficulty implementing systems of internal controls in acquired businesses or equity investees that may not have such systems in place, or merging different accounting and financial reporting systems with ours. In addition, acquired businesses may have unanticipated liabilities or contingencies.
We may, from time to time, consider disposing of assets. We may not be able to dispose of any such assets on terms that are attractive to us, or at all, which could materially adversely impact our financial condition or results of operation. In addition, to the extent we consummate an agreement for the sale and disposition of an asset or asset group, we may experience operational difficulties segregating them from our retained assets and operations, which could impact the execution or timing for such dispositions and could result in disruptions to our operations and/or claims for damages, among other things.
If we complete an acquisition, merger, sale of certain assets, refinancing, recapitalization or material strategic transaction, we may require additional financing that could result in an increase in the aggregate amount and/or cost of our debt. The aggregate principal amount of our debt that we may issue may be significant. Moreover, the terms of any debt financing may be expensive.
An interruption of our production capability at one or more of our manufacturing facilities from accident, calamity or other causes, or events affecting the global economy, could adversely affect our business and results of operations.
We manufacture our products at a limited number of manufacturing facilities, and shifting production rapidly to another facility in the event of a loss of one of or a portion of one of our manufacturing facilities could lead to increased costs. A temporary or permanent loss of the use of one or more of our
 
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manufacturing facilities due to accidents, fire, explosions, labor issues, tornadoes, other weather conditions, natural disasters, condemnation, cancellation or non-renewals of leases, terrorist attacks or other acts of violence or war or otherwise could have a material adverse effect on our operating costs. An interruption in our production capabilities could also require us to make substantial capital expenditures to replace damaged or destroyed facilities or equipment. Any of these events could result in substantial repair costs and higher operating costs.
The nature of our business subjects us to compliance with employment, environmental, health, transportation, safety and other governmental regulations.
We are subject to regulation under federal, state, local and international employment, environmental, health, transportation and safety requirements, which govern such things as the manufacture of fiberglass pools, which is our key product. These laws regulate, among other things, air emissions, the discharge or release of materials into the environment, the handling and disposal of wastes, remediation of contaminated sites, worker health and safety and the impact of products on human health and safety and the environment. These laws also require us to obtain and maintain certificates, registrations, licenses, permits, and other regulatory approvals in order to conduct regulated activities, including the construction and operation of our facilities. Our products must also comply with local, state and international building codes and safety rules and regulations.
Failure to comply with these laws and regulations by us, our employees, our dealers and distributors and other business partners, including failure to obtain and maintain all required certificates, registrations, licenses, permits, and other regulatory approvals, may result in investigations, the assessment of administrative, civil and criminal fines, damages, delays, seizures, disgorgements, penalties or the imposition of injunctive relief. In particular, spills or other releases of regulated substances could expose us to material losses, expenditures and liabilities under applicable environmental laws and regulations. Under certain of such laws and regulations, we could be subject to strict, joint and several liability for the removal or remediation of previously released materials or property contamination, regardless of whether we were responsible for the release or contamination and even if our operations met previous standards in the industry at the time they were conducted. Moreover, compliance with such laws and regulations in the future could prove to be costly. Although we presently do not expect to incur any capital or other expenditures relating to regulatory matters in amounts that may be material to us, we may be required to make such expenditures in the future. These laws and regulations have changed substantially and rapidly and we anticipate that there will be continuing changes.
The clear trend in environmental, health, transportation and safety regulations is to place more restrictions and limitations on activities that impact the environment, such as emission of air pollutants. Increasingly, strict restrictions and limitations have resulted in higher operating costs for us and it is possible that the costs of compliance with such laws and regulations will continue to increase. Our attempts to anticipate future regulatory requirements that might be imposed and our plans to remain in compliance with changing regulations and to minimize the costs of such compliance may not be as effective as we anticipate.
Risks Related to Our Industry
We face competition both from within our industry and from other outdoor living products and if we are not able to compete effectively, our prospects for future success will be jeopardized.
Within our industry, we directly compete against various regional and local pool manufacturing companies. Outside of our industry, we compete indirectly with alternative suppliers of big ticket consumer discretionary outdoor living products, such as decks and patios, and with other companies who rely on discretionary homeowner expenditures, such as home remodelers. Given the density and demand for pools, some geographic markets that we serve tend to have a higher concentration of competitors than others, particularly California, Texas, Florida and Arizona and Australia. In addition, new competitors may emerge.
If one or more of our competitors were to merge, the change in the competitive landscape could adversely affect our competitive position. Consolidation by industry participants could increase their
 
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resources and result in competitors with expanded market share, larger customer bases, greater diversified product offerings and greater technological and marketing expertise, which may allow them to compete more effectively against us. In addition, our competitors may develop products that are superior to our products (on a price-to-value basis or otherwise) or may adapt more quickly to new technologies or evolving customer requirements. If we do not compete effectively, our net sales, margins, and profitability and our future prospects for success may be harmed.
Changes in trade policies, including the imposition of tariffs, could negatively impact our business, financial condition and results of operations.
The current U.S. administration has signaled support for, and in some instances has taken action with respect to, major changes to certain trade policies, such as the imposition of tariffs on imported products and the withdrawal from or renegotiation of certain trade agreements, including the North American Free Trade Agreement. For example, the United States has increased tariffs on certain imports from China, as well as on steel and aluminum products imported from various countries. More specifically, in March 2018, the United States imposed a 25% tariff on steel imports pursuant to Section 301 of the Trade Act of 1974 and has imposed additional tariffs on steel imports pursuant to Section 232 of the Trade Expansion Act of 1962. These tariffs could result in interruptions in the supply chain and impact costs and our gross margins. We procure certain raw materials we use in the manufacturing of our products directly or indirectly from outside of the United States. The imposition of tariffs and other potential changes in U.S. trade policy could increase the cost or limit the availability of raw materials, which could hurt our competitive position and adversely impact our business, financial condition and results of operations. If we are unable to pass price increases on to our customer base or otherwise mitigate the costs, our operating results could be materially adversely affected.
Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our financial condition.
We have a significant amount of indebtedness. Following this offering and the use of proceeds described herein, we will have $242.6 million of indebtedness in the form of the Amended Term Loan outstanding under the Credit Agreement and $30.0 million of availability under the Revolving Credit Facility under the Credit Agreement. Our obligations under the Credit Agreement are secured by substantially all of our and our subsidiaries’ assets. Subject to the limits contained in the Credit Agreement, we may be able to incur substantial additional debt from time to time to finance capital expenditures, investments, acquisitions, or for other purposes. If we do incur substantial additional debt, the risks related to our high level of debt could intensify. Specifically, our high level of indebtedness could have important consequences, including:

limiting our ability to obtain additional financing to fund capital expenditures, investments, acquisitions or other general corporate requirements;

requiring a substantial portion of our cash flow to be dedicated to payments to service our indebtedness instead of other purposes, thereby reducing the amount of cash flow available for capital expenditures, investments, acquisitions and other general corporate purposes;

increasing our vulnerability to and the potential impact of adverse changes in general economic, industry and competitive conditions;

limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt at more favorable interest rates; and

increasing our costs of borrowing.
In addition, the financial and other covenants we agreed to in the Credit Agreement may limit our ability to incur additional indebtedness, make investments, and engage in other transactions, and the leverage may cause potential lenders to be less willing to loan funds to us in the future.
 
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We may be unable to generate sufficient cash flow to satisfy our significant debt service obligations, which would adversely affect our financial condition and results of operations.
Our ability to make principal and interest payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. If our business does not generate sufficient cash flow from operations, in the amounts projected or at all, or if future borrowings are not available to us in amounts sufficient to fund our other liquidity needs, our financial condition and results of operations may be adversely affected. If we cannot generate sufficient cash flow from operations to make scheduled principal amortization and interest payments on our debt obligations in the future, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets, delay capital expenditures, or seek additional equity investments. If we are unable to refinance any of our indebtedness on commercially reasonable terms or at all or to effect any other action relating to our indebtedness on satisfactory terms or at all, our business may be harmed.
Our Credit Agreement has restrictive terms and our failure to comply with any of these terms could put us in default, which would have an adverse effect on our business and prospects.
Unless and until we repay all outstanding borrowings under our Credit Agreement we will remain subject to the restrictive terms of these borrowings. The Credit Agreement contains a number of covenants, with the most significant financial covenant being the First Lien Net Leverage Ratio, as defined in the Credit Agreement. These covenants limit the ability of certain of our subsidiaries to, among other things:

sell assets;

engage in mergers, acquisitions, and other business combinations;

declare dividends or redeem or repurchase capital stock;

incur, assume, or permit to exist additional indebtedness or guarantees;

make loans and investments;

incur liens; and

enter into transactions with affiliates.
The Credit Agreement also requires us to maintain the First Lien Net Leverage Ratio, as defined in the Credit Agreement. Our ability to meet these financial ratios can be affected by events beyond our control, and we may not satisfy such a test. A breach of these covenants could result in a default under the Credit Agreement. By reason of cross-acceleration or cross-default provisions, other indebtedness may then become immediately due and payable. Our assets or cash flows may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. If amounts owed under the Credit Agreement are accelerated because of a default and we are unable to pay such amounts, the investors may have the right to assume control of substantially all of the assets securing the Credit Agreement.
No assurance can be given that any refinancing or additional financing will be possible when needed or that we will be able to negotiate acceptable terms. In addition, our access to capital is affected by prevailing conditions in the financial and capital markets and other factors beyond our control. There can be no assurance that market conditions will be favorable at the times that we require new or additional financing. In addition, the Credit Agreement contains restrictive covenants that limit our subsidiaries from making dividend payments, loans or advances to the Company, unless certain conditions are met. Our failure to comply with such covenants may result in default, which could result in the acceleration of all our debt.
Our indebtedness is variable rate, subjecting us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.
Borrowings under the Credit Agreement accrue interest at variable rates and expose us to interest rate risk. Interest rates may fluctuate in the future. As a result, although we hedged most of our interest rate exposure under the Credit Agreement, interest rates on the Credit Agreement or other variable rate debt obligations could be higher or lower than current levels. If interest rates increase, our debt service obligations
 
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on our variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.
Developments with respect to the London Interbank Offered Rate (“LIBOR”) may affect our borrowings under our debt facilities.
On July 27, 2017, the United Kingdom’s Financial Conduct Authority (“FCA”) announced that it expects, by no later than the end of 2021, to cease taking steps aimed at ensuring the continuing availability of LIBOR in its current form. The FCA’s announcement was stated to be aimed at encouraging market participants to use other benchmarks or reference rates in place of LIBOR. On November 24, 2017, the FCA announced that the panel banks that submit information to ICE Benchmark Administration Limited (“IBA”), as administrator of LIBOR, have undertaken to continue to do so until the end of 2021. If IBA continues to calculate and publish LIBOR up to the end of 2021, and if it does so after that time, there can be no certainty as to the basis on which it will do so.
Our Credit Agreement provides that interest may be based on LIBOR and for the use of an alternate rate to LIBOR in the event LIBOR is phased-out; however, uncertainty remains as to any such replacement rate and any such replacement rate may be higher or lower than LIBOR may have been. The establishment of alternative reference rates or implementation of any other potential changes may lead to an increase in our borrowing costs.
Risks Related to this Offering and Ownership of Our Common Stock
Our stock price may be volatile, and you may not be able to resell our common stock at or above the price you paid.
Our stock price may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including:

a slowdown in the housing market or the general economy;

U.S. and international regulatory, political and economic factors unrelated to our performance;

market conditions in the broader stock market, including in relation to the COVID-19 pandemic;

actual or anticipated quarterly or annual variations in our results of operations from those of our competitors;

actual or anticipated changes in our growth rate relative to our competitors;

changes in net sales or earnings estimates, or changes in recommendations or withdrawal of research coverage, by equity research analysts;

fluctuations in the values of companies perceived by investors to be comparable to us;

competition from existing technologies and products or new technologies and products that may emerge;

developments with respect to intellectual property rights;

sales, or the anticipation of sales, of our common stock by us, our insiders or our other stockholders, including upon the expiration of contractual lock-up agreements;

our commencement of, or involvement in, litigation or governmental investigations;

additions or departures of key management or technical personnel;

changes in governmental regulations applicable to the market we serve;

guidance, if any, that we may provide to the public, any changes in this guidance or our failure to meet this guidance;

tax developments;
 
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announcements by us or our competitors of new products or services, significant contracts, commercial relationships, capital commitments or acquisitions;

public response to press releases or other public announcements by us or third parties, including our filings with the Securities and Exchange Commission (the “SEC”);

default under agreements governing our indebtedness;

exchange rate fluctuations;

other events or factors, including those from natural disasters, war, actors of terrorism or responses to these events; and

the realization of any risks described under this “Risk Factors” section, or other risks that may materialize in the future.
These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our common stock to fluctuate substantially. While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results may negatively affect the market price and liquidity of our stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.
In addition, the stock markets, and the market for growth stocks in particular, have from time to time experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may significantly affect the market price of our common stock, regardless of our actual operating performance. You may not realize any return on your investment in us and may lose some or all of your investment.
We will incur increased costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, we will incur significant legal, accounting, administrative and other costs and expenses that we have not previously incurred or have experience with as a private company. We will be subject to the reporting requirements of the Exchange Act, which will require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and NASDAQ impose numerous requirements on public companies, including establishment and maintenance of effective disclosure controls and procedures and internal control over financial reporting and corporate governance practices. Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted additional rules and regulations in these areas, such as mandatory “say on pay” voting requirements that will apply to us when we cease to be an emerging growth company. Shareholder activism, the political environment and government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and may impact the manner in which we operate our business in ways we cannot currently anticipate. Our management and other personnel will need to devote a substantial amount of time to compliance with these laws and regulations. These requirements have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.
For as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced
 
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disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Under the JOBS Act, “emerging growth companies” can delay adopting new or revised accounting standards until such time as those standards apply to private companies.
After we are no longer an “emerging growth company,” we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements and appropriately training our employees and management. However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to such companies could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act enacted in April 2012, and may remain an “emerging growth company” until the last day of the year following the fifth anniversary of the completion of this offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues equals or exceeds an amount specified by regulation (currently $1.07 billion) or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. For as long as we remain an “emerging growth company,” we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not “emerging growth companies.” These exemptions include:

being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

reduced disclosure obligations regarding executive compensation; and

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to take advantage of this extended transition period and therefore will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile and it may be difficult for us to raise additional capital if and when we need it.
 
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We are a “controlled company” within the meaning of the NASDAQ rules and, as a result, qualify for and intend to rely on exemptions from certain corporate governance requirements.
Following this offering, the Pamplona Fund and the Wynnchurch Funds will continue to control a majority of the voting power of our outstanding voting stock, and as a result we will be a controlled company within the meaning of the NASDAQ corporate governance standards. Under the NASDAQ rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirements that:

a majority of the board of directors consist of independent directors;

the nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

there be an annual performance evaluation of the nominating and corporate governance and compensation committees.
We intend to utilize these exemptions as long as we remain a controlled company. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NASDAQ. After we cease to be a “controlled company,” we will be required to comply with the above referenced requirements within one year.
Our Principal Stockholders will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.
Upon the completion of this offering, assuming a public offering price of $20.00 per share (the midpoint of the range set forth on the cover page of this prospectus), affiliates of our Principal Stockholders will together own approximately 68.2% of the outstanding shares of our common stock (or 65.8% if the underwriters exercise their option to purchase additional shares in full). As long as affiliates of our Principal Stockholders own or control a majority of our outstanding voting power, our Principal Stockholders and their affiliates will have the ability to exercise substantial control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including:

the election and removal of directors and the size of our board of directors;

any amendment of our articles of incorporation or bylaws; or

the approval of mergers and other significant corporate transactions, including a sale of substantially all of our assets. See “Certain Relationships and Related Party Transactions—Stockholders’ Agreement” for further information.
In addition, our Principal Stockholders will have certain board nomination rights that will enable them to exercise substantial control over all corporate actions. Pamplona will have the right to nominate to our board of directors a number of designees on a sliding scale depending on Pamplona’s affiliates’ ownership of our common stock, ranging from Pamplona being able to nominate at least a majority of the total number of directors so long as its affiliates beneficially own at least 50% of the shares of our common stock to Pamplona being able to nominate at least 10% of the total number of directors as long as its affiliates beneficially own at least 5%. For so long as Wynnchurch owns at least 5% of our common stock, Wynnchurch will have the right to appoint one director.
Moreover, ownership of our shares by affiliates of our Principal Stockholders may also adversely affect the trading price for our common stock to the extent investors perceive disadvantages in owning shares of a company with a controlling shareholder. For example, the concentration of ownership held by our Principal Stockholders could delay, defer, or prevent a change in control of our company or impede a merger, takeover, or other business combination which may otherwise be favorable for us. In addition, our Principal Stockholders are in the business of making investments in companies and may, from time to time, acquire interests in businesses that directly or indirectly compete with our business, as well as businesses that are
 
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significant existing or potential customers. Many of the companies in which our Principal Stockholders invest are franchisors and may compete with us for access to suitable locations, experienced management and qualified and well-capitalized franchisees. Our Principal Stockholders may acquire or seek to acquire assets complementary to our business that we seek to acquire and, as a result, those acquisition opportunities may not be available to us or may be more expensive for us to pursue, and as a result, the interests of our Principal Stockholders may not coincide with the interests of our other stockholders. So long as our Principal Stockholders continue to directly or indirectly own a significant amount of our equity, even if such amount is less than 50%, our Principal Stockholders will continue to be able to substantially influence or effectively control our ability to enter into corporate transactions.
Our organizational documents and Delaware law may impede or discourage a takeover, which could deprive our investors of the opportunity to receive a premium on their shares.
Provisions of our certificate of incorporation and bylaws may make it more difficult for, or prevent a third party from, acquiring control of us without the approval of our board of directors. These provisions include:

providing that our board of directors will be divided into three classes, with each class of directors serving staggered three-year terms;

providing for the removal of directors only for cause and only upon the affirmative vote of the holders of at least 6623% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class, if less than a majority of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders;

empowering only the board to fill any vacancy on our board of directors (other than in respect of our Principal Stockholders’ directors (as defined below)), whether such vacancy occurs as a result of an increase in the number of directors or otherwise, if less than a majority of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders;

authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;

prohibiting stockholders from acting by written consent if less than a majority of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders;

to the extent permitted by law, prohibiting stockholders from calling a special meeting of stockholders if less than a majority of the voting power of our outstanding common stock is beneficially owned by our Principal Stockholders; and

establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
Additionally, our certificate of incorporation provides that we are not governed by Section 203 of the Delaware General Corporation Law (the “DGCL”), which, in the absence of such provisions, would have imposed additional requirements regarding mergers and other business combinations. However, our certificate of incorporation will include a provision that restricts us from engaging in any business combination with an interested stockholder for three years following the date that person becomes an interested stockholder, but such restrictions shall not apply to any business combination between our Principal Stockholders and any affiliate thereof or their direct and indirect transferees, on the one hand, and us, on the other.
Any issuance by us of preferred stock could delay or prevent a change in control of us. Our board of directors will have the authority to cause us to issue, without any further vote or action by the stockholders, shares of preferred stock, par value $0.0001 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges, and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices, and liquidation preferences of such series. The issuance of shares of our preferred stock may have the effect of delaying, deferring, or preventing a change in control without further action by the stockholders, even where stockholders are offered a premium for their shares.
In addition, as long as our Principal Stockholders beneficially own at least a majority of the voting power of our outstanding common stock, our Principal Stockholders will be able to control all matters
 
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requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and certain corporate transactions. Together, these certificate of incorporation, bylaw and statutory provisions could make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock. Furthermore, the existence of the foregoing provisions, as well as the significant common stock beneficially owned by our Principal Stockholders and their right to nominate a specified number of directors in certain circumstances, could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of us, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition. For a further discussion of these and other such anti-takeover provisions, see “Description of Capital Stock—Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Certain Provisions of Delaware Law.”
Our certificate of incorporation will contain a provision renouncing our interest and expectancy in certain corporate opportunities.
Under our certificate of incorporation, none of our Principal Stockholders, any affiliates of our Principal Stockholders, or any of their respective officers, directors, agents, stockholders, members or partners, will have any duty to refrain from engaging, directly or indirectly, in the same business activities, similar business activities, or lines of business in which we operate. In addition, our certificate of incorporation provides that, to the fullest extent permitted by law, no officer or director of ours who is also an officer, director, employee, managing director or other affiliate of our Principal Stockholders will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that any such individual directs a corporate opportunity to any Principal Stockholder, instead of us, or does not communicate information regarding a corporate opportunity to us that the officer, director, employee, managing director, or other affiliate has directed to a Principal Stockholder. For instance, a director of our company who also serves as a director, officer, or employee of one of our Principal Stockholders or any of their portfolio companies, funds, or other affiliates may pursue certain acquisitions or other opportunities that may be complementary to our business and, as a result, such acquisition or other opportunities may not be available to us. Upon consummation of this offering, our board of directors will consist of nine members, six of whom will be our Principal Stockholders’ directors. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations, or prospects if attractive corporate opportunities are allocated by one of our Principal Stockholders to itself or its affiliated funds, the portfolio companies owned by such funds or any affiliates of a Principal Stockholder instead of to us. A description of our obligations related to corporate opportunities under our certificate of incorporation are more fully described in “Description of Capital Stock—Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Certain Provisions of Delaware Law—Conflicts of Interest.”
No public market for our stock currently exists, and an active public trading market may not develop or be sustained following this offering.
Prior to this offering, there has been no public market or active private market for our stock. Although our stock has been approved for listing on NASDAQ, an active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the market price of your shares. An inactive market may also impair our ability to raise capital by selling stock and may impair our ability to acquire other companies or technologies by using our stock as consideration.
The initial public offering price for our stock will be determined through negotiations among us and the underwriters, and may not bear any relationship to the market price at which our stock will trade after this offering or to any other established criteria of the value of our business. The price of our stock that will prevail in the market after this offering may be higher or lower than the price you pay, depending on many factors, many of which are beyond our control and may not be related to our operating performance.
Our ability to raise capital in the future may be limited.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both.
 
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Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue debt securities, the debt holders would have rights senior to holders of our common stock to make claims on our assets and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities or securities convertible into equity securities, existing stockholders will experience dilution and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, you bear the risk of our future securities offerings reducing the market price of our common stock and diluting your interest.
We may invest or spend the proceeds of this offering in ways with which you may not agree or which may not yield a return.
Our management will have broad discretion to use the net proceeds we receive from this offering, and you will be relying on its judgment regarding the application of these proceeds. We expect to use the net proceeds from this offering as described under the heading “Use of Proceeds.” We may also use a portion of the net proceeds to acquire or invest in complementary businesses, technologies or other assets. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds to us from this offering may be invested with a view towards long-term benefits for our stockholders, and this may not increase our operating results or the market value of our stock. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.
If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of NASDAQ. We expect that the requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures over financial reporting. We are continuing to develop and refine our disclosure controls, internal control over financial reporting and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.
Our current controls and any new controls we develop may become inadequate because of growth in our business. Further, weaknesses in our internal controls may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior financial reporting periods. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will be required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes-Oxley Act once we cease to be an emerging growth company. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our stock.
We have expended and anticipate we will continue to expend significant resources, and we expect to provide significant management oversight, to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting. Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely
 
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basis, could increase our operating costs and could materially impair our ability to operate our business and negatively impact our share price. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on NASDAQ.
We are not currently required to comply with the SEC rules that implement Sections 302 and 404 of the Sarbanes-Oxley Act, and we are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with certain of these rules, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. To comply with the requirements of being a public company, we will need to undertake various actions, such as implementing new internal controls and procedures. Although we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we are not required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC, or for the year ending December 31, 2022. Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.
The trading market for our common stock will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our common stock may have had relatively little experience with our company, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports covering us, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
We do not anticipate paying any cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.
We do not currently anticipate declaring any cash dividends to holders of our common stock. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not invest in our common stock.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash dividends and distributions and other transfers, including for payments in respect of our indebtedness, from our subsidiaries to meet our obligations. The agreements governing the indebtedness of our subsidiaries impose restrictions on our subsidiaries’ ability to pay dividends or other distributions to us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Each of our subsidiaries is a distinct legal entity, and under certain circumstances legal and contractual restrictions may limit our ability to obtain cash from them and we may be limited in our ability to cause any future joint ventures to distribute their earnings to us. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could also limit or impair their ability to pay dividends or other distributions to us.
 
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Our certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or of our certificate of incorporation or our bylaws or (iv) any action asserting a claim related to or involving the Company that is governed by the internal affairs doctrine. However, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Securities Act of 1933, as amended (the “Securities Act”), the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction. The forum selection provisions in our certificate of incorporation also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. We recognize that the forum selection clause in our certificate of incorporation may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware. Additionally, the forum selection clause in our certificate of incorporation may limit our stockholders’ ability to bring a claim in a forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. The Court of Chancery of the State of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and, to the fullest extent permitted by law, to have consented to the provisions of our certificate of incorporation described above. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. However, the enforceability of similar forum provisions (including exclusive federal forum provisions for actions, suits or proceedings asserting a cause of action arising under the Securities Act) in other companies’ organizational documents has been challenged in legal proceedings and there is uncertainty as to whether courts would enforce the exclusive forum provisions in our certificate of incorporation. If a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and results of operations.
If you invest in our common stock, you will experience dilution to the extent of the difference between the initial public offering price per share of our common stock and the as further adjusted net tangible book value per share of our common stock.
Purchasers of our common stock in this offering will experience immediate and substantial dilution in our as further adjusted net tangible book value per share to the extent of the difference between the initial public offering price per share of our common stock and the as further adjusted net tangible book value per share of our common stock. After giving effect to the Reorganization, the 2021 Financing Transactions, our draw on our Revolving Credit Facility, this offering and the application of the net proceeds from this offering, our as further adjusted net tangible book value would have been approximately $(104.9) million, or $(0.87) per share, representing an immediate increase in net tangible book value of $1.86 per share to existing stockholders and an immediate dilution in our as further adjusted net tangible book value of $20.87 per share to new investors in this offering. For a further description of the dilution that you will experience immediately after the closing of this offering, see “Dilution.”
 
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Future sales, or the perception of future sales, of our common stock may depress the price of our common stock. In addition, a significant portion of our common stock is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
If we sell, or any of our stockholders sells, a large number of shares of our common stock, or if we issue a large number of shares in connection with future acquisitions, financings or other circumstances, the market price of our common stock could decline significantly. Moreover, the perception in the public market that we or our stockholders might sell shares of our common stock could depress the market price of those shares.
We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances or sales of our shares will have on the market price of such shares. Sales of substantial amounts of our common stock, including sales by significant stockholders, and shares issued in connection with any additional acquisition, may adversely affect prevailing market prices for our common stock. Possible sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem necessary or appropriate. See “Shares Eligible for Future Sale.”
After this offering, we will have 120,426,397 shares of common stock outstanding. We, all of our directors, executive officers, and certain of our stockholders have agreed to a 180-day lock-up period (subject to certain exceptions) provided under agreements executed in connection with this offering. In addition, Barclays Capital Inc., in its sole discretion, may release all or some portion of the common stock subject to lock-up agreements at any time and for any reason. We also intend to file a Form S-8 under the Securities Act, to register all common stock that we may issue under our equity compensation plans. Moreover, certain stockholders have certain demand registration rights that could require us to file registration statements in connection with sales of our common stock by such stockholder. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.” Such sales by such stockholder could be significant. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the “Underwriting” section of this prospectus. As restrictions on resale end, the market price of our common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them or are released from the restrictions of the lock-up agreements prior to their expiration, which may make it more difficult for you to sell your common stock at a time and price that you deem appropriate.
 
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Cautionary Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements, which involve risks and uncertainties. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “confident,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. All statements other than statements of historical facts contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future net sales, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” and include, among other things, statements relating to:

our strategy, outlook and growth prospects;

our operational and financial targets and dividend policy;

general economic trends and trends in the industry and markets; and

the competitive environment in which we operate.
These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from expectations include, but are not limited to:

secular shifts in consumer demand for swimming pools and spending on outdoor living spaces;

slow pace of material conversion from concrete pools to fiberglass pools in the pool industry;

general economic conditions and uncertainties affecting markets in which we operate and economic volatility that could adversely impact our business, including the COVID-19 pandemic;

changes in access to consumer credit or increases in interest rates impacting consumers’ ability to finance their purchases of pools;

the impact of weather on our business;

our ability to attract new customers and retain existing customers;

our ability to sustain further growth and to manage it effectively;

the ability of our suppliers to continue to deliver the quantity or quality of materials sufficient to meet our needs to manufacture our products;

the availability and cost of third-party transportation services for our products and raw materials;

product quality issues;

our ability to successfully defend litigation brought against us;

our ability to adequately obtain, maintain, protect and enforce our intellectual property and proprietary rights and claims of intellectual property and proprietary right infringement, misappropriation or other violation by competitors and third parties;

failure to hire and retain qualified employees and personnel;

exposure to risks associated with international sales and operations, including foreign currency exchange rates, corruption and instability;

security breaches, cyber-attacks and other interruptions to our and our third-party service providers’ technological and physical infrastructures;

catastrophic events, including war, terrorism and other international conflicts, public health issues or natural catastrophes and accidents;
 
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risk of increased regulation of our operations, particularly related to environmental laws;

fluctuations in our operating results;

inability to compete successfully against current and future competitors; and

other risks, uncertainties and factors set forth in this prospectus, including those set forth under “Risk Factors.”
These forward-looking statements reflect our views with respect to future events as of the date of this prospectus and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this prospectus and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. You should read this prospectus and the documents filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.
 
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Use of Proceeds
We estimate that our net proceeds from this offering will be approximately $365.7 million (or approximately $421.5 million if the underwriters exercise their option to purchase additional shares in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, based on an assumed initial public offering price of $20.00 per share (the midpoint of the range set forth on the cover page of this prospectus).
A $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share (the midpoint of the range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by approximately $18.6 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $18.6 million, assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We will use $152.7 million of the net proceeds from this offering to repay $152.7 million of the Amended Term Loan under our Credit Agreement. In February 2021, we used $175.0 million that we borrowed under our Credit Agreement to repay a loan to our Parent in the amount of $64.9 million and to pay a $110.0 million dividend to our Parent. Amounts paid to our current executive officers and directors as part of the 2021 Financing Transactions were approximately $2.2 million. Amounts paid to our Sponsors as part of the 2021 Financing Transactions were approximately $163.8 million. The Amended Term Loan bears interest at (1) a base rate equal to the highest of (i) the Federal Funds Rate, plus 1/2 of 1.00%, (ii) the “prime rate” published in the Money Rates section of the Wall Street Journal and (iii) LIBOR plus 1.00% (2) plus a loan margin, of (i) 6.00% for Eurocurrency Rate Loans and (ii) 5.00% for Base Rate Loans. The Amended Term Loan has a maturity date of June 18, 2025. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Indebtedness.”
We will use $16.0 million of our net proceeds from this offering to repay the $16.0 million outstanding on the Revolving Credit Facility. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Indebtedness” for a description of the terms of the Revolving Credit Facility. The Revolving Credit Facility allows for either Eurocurrency borrowings, which bear interest ranging from 4.50% to 4.75%, or U.S. dollar base rate borrowings, which bear interest ranging from 3.50% to 3.75% depending on the First Lien Net Leverage Ratio, as defined in the Credit Agreement. The Revolving Credit Facility matures on December 18, 2023.
We will use approximately $172.0 million of our net proceeds from this offering to repurchase 8,829,191 shares of our common stock from the Principal Stockholders and 418,121 shares of common stock from a current employee who is not an executive officer or a director of the Company (or if the underwriters exercise their option to purchase additional shares in full, approximately $227.8 million of our net proceeds from this offering to repurchase 11,693,545 shares of common stock from the Principal Stockholders and 553,767 shares of common stock from a current employee who is not an executive officer or a director of the Company) at a price per share equal to the price per share paid by the underwriters to us for shares of our common stock in this offering. See “Certain Relationships and Related Party Transactions—Purchases from Equityholders.”
We will use $25.0 million of our net proceeds for general corporate purposes, including to generate funds for working capital.
 
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Dividend Policy
We currently do not intend to pay cash dividends on our common stock. However, we may, in the future, decide to pay dividends on our common stock. Any declaration and payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, cash flows, capital requirements, levels of indebtedness, restrictions imposed by applicable law, our overall financial condition, restrictions in our debt agreements and any other factors deemed relevant by our board of directors.
As a holding company, our ability to pay dividends depends on our receipt of cash dividends from our operating subsidiaries. Our ability to pay dividends will therefore be restricted as a result of restrictions on their ability to pay dividends to us under our Credit Agreement and under other current and future indebtedness that we or they may incur. See “Risk Factors—Risks Relating to this Offering and Ownership of our Common Stock” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
 
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Capitalization
The following table sets forth our cash and our capitalization as of December 31, 2020 on:

an actual basis;

an as adjusted basis to give effect to (i) the Reorganization, (ii) the 2021 Financing Transactions, and (iii) our draw of $16.0 million on our Revolving Credit Facility subsequent to December 31, 2020; and

an as further adjusted basis to give effect to the adjustments set forth above and (i) the issuance and sale of 20,000,000 shares of our common stock in this offering at an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions payable by us and (ii) the application of the net proceeds of this offering as described under “Use of Proceeds.”
The as further adjusted information below is illustrative only, and our cash and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with the information included elsewhere in this prospectus, including “Prospectus Summary—Summary Consolidated Financial and Other Data,” “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes.
As of December 31, 2020
Actual
As Adjusted
As Further Adjusted
(in thousands, except share and per share data)
Cash
$ 59,310 $ 74,180 $ 99,181
Long-term debt, including current portion:
Amended Term Loan(1)
221,496 395,337 242,637
Revolving Credit Facility(2)
16,000
Parent Note(3)
64,938
Total debt, net of discount and debt issuance costs
286,434 411,337 242,637
Stockholders’ equity:
Preferred stock, $0.0001 par value; no shares authorized, issued or outstanding, actual or as adjusted; 100,000,000 shares authorized, no shares issued or outstanding, as further adjusted
Common stock, $0.0001 par value; 500,000,000 shares
authorized, 109,673,709 issued and outstanding, actual and
as adjusted; 900,000,000 shares authorized, 120,426,397
shares issued and outstanding, as further adjusted
11 11 12
Additional paid-in capital(4)
200,541 156,270 349,969
Retained earnings (accumulated deficit)(4)
13,765 (51,997) (51,997)
Accumulated other comprehensive income
2,354 2,354 2,354
Total stockholders’ equity
216,671 106,638 300,338
Total capitalization
$ 503,105 $ 517,975 $ 542,975
(1)
On January 25, 2021, in connection with the 2021 Financing Transactions, we entered into a third amendment to the Term Loan to borrow an additional $175.0 million. For a further description and definition of the Amended Term Loan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Indebtedness.”
(2)
As of December 31, 2020, no amount was drawn, and we had $30.0 million of availability under the Revolving Credit Facility. As of the date of this registration statement, $16.0 million was drawn, and after giving effect to the proceeds from this offering we will have $30.0 million of availability under the
 
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Revolving Credit Facility. For a further description and definition of the Revolving Credit Facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Indebtedness.”
(3)
The Parent Note bore interest at 0.15% per annum and was due on October 20, 2023. The Parent Note was settled in full on February 2, 2021 with the proceeds from the Amended Term Loan.
(4)
Additional paid-in capital and retained earnings (accumulated deficit) were reduced by $96.2 million and $13.8 million, respectively, on an as adjusted basis, to reflect the $110.0 million dividend paid to Parent in connection with the 2021 Financing Transactions.
A $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the as further adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $18.6 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the as further adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $18.6 million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The information presented in the table above is based on the number of shares of our common stock outstanding as of December 31, 2020, and:

excludes 4,830,086 shares of common stock reserved for issuance under the Omnibus Incentive Plan, including stock options to purchase 842,524 shares of our common stock at an exercise price equal to the price to the public in this offering to be issued to certain employees in connection with this offering and 325,753 shares of common stock underlying restricted stock units to be granted to certain of our employees and directors in connection with this offering.
 
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Dilution
If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the as further adjusted net tangible book value per share of our common stock after this offering.
Our historical net tangible book value (deficit) as of December 31, 2020 was $(189.6) million or $(1.73) per share of our common stock. Our historical net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities. Historical net tangible book value (deficit) per share represents historical net tangible book value (deficit) divided by the number of shares of common stock outstanding as of December 31, 2020.
Our as adjusted net tangible book value (deficit) as of December 31, 2020 was $(299.6) million or $(2.73) per share of our common stock, based on the total number of shares of our common stock outstanding, as adjusted, as of December 31, 2020 after giving effect to (i) the Reorganization, (ii) the 2021 Financing Transactions and (iii) our draw of $16.0 million on our Revolving Credit Facility subsequent to December 31, 2020. As adjusted net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities, after giving effect to (i) the Reorganization, (ii) the 2021 Financing Transactions and (iii) our draw of $16.0 million on our Revolving Credit Facility subsequent to December 31, 2020. As adjusted net tangible book value (deficit) per share represents as adjusted net tangible book value (deficit) divided by the aggregate number of shares of our common stock outstanding as of December 31, 2020 after giving effect to (i) the Reorganization, (ii) the 2021 Financing Transactions and (iii) our draw of $16.0 million on our Revolving Credit Facility subsequent to December 31, 2020.
After giving further effect to our issuance and sale of 20,000,000 shares of our common stock in this offering at an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the net proceeds of this offering as described under “Use of Proceeds,” our as further adjusted net tangible book value as of December 31, 2020 would have been approximately $(104.9) million, or approximately $(0.87) per share. This represents an immediate increase in as further adjusted net tangible book value of $1.86 per share to our existing stockholders and an immediate dilution of $20.87 per share to new investors purchasing shares of common stock in this offering. Dilution per share to new investors purchasing common stock in this offering is determined by subtracting as further adjusted net tangible book value (deficit) per share after this offering from the initial public offering price per share of common stock.
The following table illustrates the dilution per share of our common stock, assuming the underwriters do not exercise their option to purchase additional shares of our common stock:
Assumed initial public offering price per share
        
$ 20.00
Historical net tangible book value (deficit) per share as of December 31, 2020 
$ (1.73)
Increase in as adjusted net tangible book value (deficit) per share attributable to the Reorganization, the 2021 Financing Transactions and our draw of $16.0 million on our Revolving Credit Facility subsequent to December 31, 2020
(1.00)
As adjusted net tangible book value per share before this offering
(2.73)
Increase in as adjusted net tangible book value per share attributable to new investors purchasing common stock in this offering
1.86
As further adjusted net tangible book value per share immediately after this offering
(0.87)
Dilution per share to new investors purchasing common stock in this offering
$ 20.87
The dilution information described above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), would increase (decrease) our as further adjusted net tangible book value per share after this offering by $0.15 and dilution per share to new investors purchasing common stock in
 
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this offering by $0.85, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase our as further adjusted net tangible book value per share after this offering by $0.16 and decrease the dilution per share to new investors purchasing common stock in this offering by $(0.16), assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease our as further adjusted net tangible book value per share after this offering by $(0.16) and increase the dilution per share to new investors purchasing common stock in this offering by $0.16, assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares in full, our as further adjusted net tangible book value per share after this offering would be $(0.87), representing no change in the as further adjusted net tangible book value per share to existing stockholders and no change in the as further adjusted net tangible book value per share to new investors purchasing common stock in this offering, assuming an initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, as of December 31, 2020, on the as further adjusted basis described above, the total number of shares of common stock owned by existing stockholders and to be owned by new investors, the total consideration paid, and the average price per share paid by our existing stockholders and to be paid by new investors in this offering at the assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus), before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid.
Shares Purchased
Total Consideration
Average Price
Number
Percentage
Amount
Percentage
Per Share
Existing stockholders
100,426,397 83.4% $ 200,552,000 33.4% $ 2.00
New investors
20,000,000 16.6 400,000,000 66.6 $ 20.00
Total
120,426,397 100.0% $ 600,552,000 100.0%
A $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the total consideration paid by new investors by $20.0 million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by 1.1 percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by 1.1 percentage points, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $20.0 million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by 1.1 percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by 1.1 percentage points, assuming no change in the assumed initial public offering price.
The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters were to fully exercise their option to purchase additional shares of our common stock, the percentage of common stock held by existing investors would be reduced to 80.9% of the total number of shares of our common stock outstanding after this offering, and the percentage of shares of common stock held by new investors would be increased to 19.1% of the total number of shares of our common stock outstanding after this offering.
 
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The foregoing tables and calculations are based on 109,673,709 shares of our common stock outstanding as of April 13, 2021, and except as otherwise indicated:

exclude 4,830,086 shares of common stock reserved for issuance under the Omnibus Incentive Plan, including stock options to purchase 842,524 shares of our common stock at an exercise price equal to the price to the public in this offering to be issued to certain employees in connection with this offering and 325,753 shares of common stock underlying restricted stock units to be granted to certain of our employees and directors in connection with this offering;

give effect to the completion of the Reorganization prior to the closing of this offering, as a result of which there will be an aggregate of 109,673,709 shares of common stock outstanding (including 8,328,344 shares of restricted stock which will be issued under the Omnibus Incentive Plan) based on an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) as further described in the section titled “Reorganization”; and

assume an initial public offering price of $20.00 per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus.
We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.
 
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Selected Historical Consolidated Financial Data
The following tables present our selected historical consolidated financial data for the periods indicated. We have derived our historical consolidated statement of operations data for the years ended December 31, 2016 and 2017, for the period from January 1, 2018 through December 18, 2018 (Predecessor) and for the period from December 19, 2018 through December 31, 2018 (Successor) from our unaudited consolidated financial statements not appearing in this prospectus. We have derived the selected historical consolidated statement of operations data and the selected historical consolidated statement of cash flows data for the years ended December 31, 2019 and 2020 (Successor) and our selected historical consolidated balance sheet data as of December 31, 2019 and 2020 (Successor) from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that should be expected in the future.
The following summary consolidated financial and other data should be read in conjunction with the sections titled “Prospectus Summary—Summary Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and the related notes included elsewhere in this prospectus.
Consolidated Statements of Operations Data:
(in thousands, except share and per share data)
Predecessor
Successor(1)
Year ended December 31,
Period of
January 1,
2018 through
December 18,
Period of
December 19,
2018 through
December 31,
Year ended December 31,
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2018
(unaudited)
2019(2)
2020(2)
Net sales
$ 247,496 $ 265,247 $ 285,838 $ 1,374 $ 317,975 $ 403,389
Cost of sales
168,021 178,761 190,834 2,881 219,819 260,616
Gross profit
79,475 86,486 95,004 (1,507) 98,156 142,773
Selling, general and administrative expense
47,268 43,931 67,466 2,689 57,388 85,527
Amortization
8,990 8,288 7,992 1,068 15,643 17,347
Income (loss) from operations
23,217 34,267 19,546 (5,264) 25,125 39,899
Other expense (income):
Interest expense
14,550 14,143 11,116 664 22,639 18,251
Other expense (income), net
47 (1,596) 2,312 85 (300) (1,111)
Total other expense (income), net
14,597 12,547 13,428 749 22,339 17,140
Income (loss) before income taxes
8,620 21,720 6,118 (6,013) 2,786 22,759
Income tax (benefit) expense
5,720 (13,516) 4,229 (981) (4,671) 6,776
Net income (loss)
$ 2,900 $ 35,236 $ 1,889 $ (5,032) $ 7,457 $ 15,983
Net income (loss) per share attributable to common stockholders:(3)
Basic and diluted
$ (0.05) $ 0.07 $ 0.14
Weighted-average common shares outstanding:(3)
Basic and diluted
109,673,709 109,673,709 116,469,884
Pro forma net loss per share attributable to common stockholders:(4)
Basic and diluted
$ (0.31)
Pro forma weighted-average common
shares outstanding:(4)
Basic and diluted
121,279,040
 
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Consolidated Statements of Cash Flows Data:
(in thousands)
December 31,
2019
2020
Net cash provided by operating activities
$ 35,655 $ 63,161
Net cash used in investing activities
(27,083) (115,805)
Net cash provided by financing activities
16,551 54,302
Consolidated Balance Sheets Data:
(in thousands)
As of December 31,
2019
2020
Cash
$ 56,655 $ 59,310
Working capital(5)
77,496 73,389
Total assets
525,711 646,676
Total debt(6)
223,223 286,434
Total liabilities
331,916 430,005
Total stockholders’ equity
193,795 216,671
(1)
Our operating results and financial position for the years ended December 31, 2019 and 2020, and for the period from December 19, 2018 through December 31, 2018, the Successor periods, are impacted by the Acquisition. Due to the Acquisition and the application of purchase accounting, the Successor and Predecessor periods are not necessarily comparable.
(2)
Our operating results and financial position for the years ended December 31, 2019 and 2020 were impacted by the adoption of ASC 606. We used the modified retrospective method of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historical accounting guidance under ASC 605. See Note 2, Summary of Significant Accounting Policies, to our audited consolidated financial statements included elsewhere in this prospectus for more information.
(3)
See Note 18, Net Income Per Share, to our consolidated financial statements included elsewhere in this prospectus for additional information regarding the calculation of basic and diluted income per share attributable to common stockholders.
(4)
Pro forma net loss per share, basic and diluted, is computed by dividing pro forma net loss of $37.9 million by 121,279,040 pro forma weighted-average shares outstanding. For the year ended December 31, 2020, pro forma net loss gives effect to (i) the immediate recognition of $52.0 million of stock-based compensation expense upon the Reorganization due to the accelerated vesting and incremental fair value resulting from modifications made to the profits interest units’ awards and (ii) the incremental interest expense of $1.9 million resulting from the additional $175.0 million borrowed under the Amended Term Loan as part of the 2021 Financing Transactions, reduced by the application of $152.7 million of the net proceeds to repay $152.7 million of the Amended Term Loan under our Credit Agreement, as if the offering had occurred on January 1, 2020, as set forth under “Use of Proceeds.” For the year ended December 31, 2020, pro forma weighted-average shares outstanding gives effect to the issuance of 13,137,500 shares of common stock, which is the number of shares that would be attributable to the proceeds used to (i) repay $152.7 million of the Amended Term Loan under our Credit Agreement, (ii) repay the $16.0 million outstanding on our Revolving Credit Facility as described in “Use of Proceeds” and (iii) pay the portion of the dividend to Parent in excess of net income for the year ended December 31, 2020 of $94.1 million, at an assumed initial public offering price of $20.00 per share (the midpoint of the price range set forth on the cover page of this prospectus). Pro forma weighted-average shares outstanding also gives effect to a reduction of 8,328,344 shares, which reflects the restricted stock issued to our shareholders as part of the Reorganization. We issued 9,247,312 shares of common stock, of which the proceeds received were used to repurchase the same number of shares and therefore, the use of those proceeds to repurchase shares did not impact pro forma weighted-average shares outstanding. This pro forma per share information is presented for informational purposes only and does not purport to represent what our net income (loss) or net income (loss) per share actually would have been had the Reorganization, the offering and use of proceeds to repay $152.7 million of the Amended Term Loan under our Credit Agreement, repay the $16.0 million outstanding on our Revolving Credit Facility, repurchase shares of common stock as described in “Use of Proceeds” or pay the dividend to Parent occurred on January 1, 2020, or to project our net income (loss) or net income (loss) per share for any future period. The pro forma per share
 
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information does not give effect to the new rate of interest that would be applicable to the extent the third amendment to the Credit Agreement was in effect on January 1, 2020.
(5)
Working capital is defined as current assets minus current liabilities.
(6)
Total debt includes current and non-current portion of long-term debt, net of discount and debt issuance costs and the Parent Note.
 
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section of this prospectus titled “Selected Historical Consolidated Financial Data” and our consolidated financial statements and the related notes to the consolidated financial statements appearing at the end of this prospectus. This discussion contains forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions and forecasts. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth under the section of this prospectus titled “Risk Factors” and elsewhere in this prospectus. You should carefully read the “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section of this prospectus titled “Cautionary Note Regarding Forward-Looking Statements.”
Overview
We are the largest designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand. We hold the #1 market position in North America in every product category in which we compete. We believe that we are the most sought-after brand in the pool industry and the only pool company that has established a direct relationship with the homeowner. We are Latham, The Pool CompanyTM.
With an operating history that spans over 60 years, we offer the industry’s broadest portfolio of pools and related products, including in-ground swimming pools, pool liners and pool covers. In 2020, we sold over 8,700 fiberglass pools in the United States, which we believe represents approximately one out of every ten in-ground swimming pools sold in the United States.
We have a heritage of innovation. In an industry that has traditionally marketed on a business-to-business basis (pool manufacturer to dealer), we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey. Through this marketing strategy, we are able to create demand for our pools and generate and provide high quality, purchase-ready consumer leads to our dealer partners. In 2020, the first year in which all elements of our digital and social marketing strategy were available to homeowners, we have delivered over 45,000 consumer leads to our dealer network, representing growth of 210% over the prior year.
Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. In 2020, we sold to over 6,000 dealers; we also entered into a new and exclusive long-term strategic partnership with the nation’s largest franchised dealer network. We support our dealer network with business development tools, co-branded marketing programs and in-house training, as well as a coast-to-coast operations platform consisting of over 2,000 employees across 32 facilities. The broad geographic reach of our manufacturing and distribution network allows us to deliver a fiberglass pool in a cost-effective manner to approximately 95% of the U.S. population in two days. No other competitor in the residential in-ground swimming pool industry has more than three manufacturing facilities.
The full resources of our company are dedicated to designing and manufacturing high-quality pool products with the homeowner in mind, and positioning ourselves as a value-added partner to our dealers. As a result of this approach, 2020 marked our 11th consecutive year of net sales growth and Adjusted EBITDA margin expansion. Net income does not adhere to this trend.
We conduct our business as one operating and reportable segment that designs, manufactures and markets in-ground swimming pools, liners and covers.
Key Factors Affecting our Performance
Our results of operations and financial condition are affected by the following factors, which reflect our operating philosophy and focus on designing, manufacturing and marketing high quality and innovative pools and pool covers for the in-ground swimming pool market.
 
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Volume of Products Sold
Our net sales depend primarily on the volume of products we sell during any given period, and volume is affected by the following items, among others:

Sales, distribution and marketing: While we have traditionally relied on our dealers and distributors to raise awareness of our products, we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey. Through this marketing strategy, we are able to create demand for our pools and generate and provide high quality, purchase-ready consumer leads to our dealer partners.
In order to strengthen our relationship with our loyal dealer partners, we have implemented “Latham Grand,” a key dealer strategy whereby we have secured exclusivity from over 250 of our largest dealers, which also includes the nation’s largest franchised dealer network, Premier Pools & Spas. We also have a strong distribution network as a result of over 450 distributor branch locations that represent our products. Through our significant investments in partnerships with dealers and distributors and our consumer-oriented marketing efforts, we have created both a “push and pull” demand dynamic for our products in the marketplace. We invest in our exclusive dealers through localized marketing spend, co-branding opportunities, tailored offerings and priority lead generation. We also provide our dealers with enhanced product literature, in-store display samples and other initiatives to drive sales. We have directed a significant portion of our advertising spend to digital channels, including social media and search advertising. Our improved digital marketing engine has the ability to strategically target market spend and generate leads in territories where dealers have capacity to install more pools, markets where we are underpenetrated, or simply into the largest in-ground swimming pool markets. Our volume of product sales in a given period will be impacted by changes in our distribution platform, and by our ability to generate leads for our dealers.

Material conversion: We have continued to increase sales of our products through our focused efforts to drive material conversion and market penetration of our products, specifically our fiberglass pools, which continue to take market share from traditional concrete pools and enable dramatically improved economics for consumers, dealers and for pool installers. We believe that this will be a long-term trend toward material conversion from traditional concrete pools. We believe that our fiberglass pools offer a compelling value proposition due to their lower up-front and lifecycle cost of ownership, less maintenance, higher quality, lower usage of harsh chemicals, quicker installation and more convenient experience, compared to products manufactured from traditional materials, and we anticipate that sales of our fiberglass pool products will continue to benefit from material conversion. The success of our efforts to drive conversion during any given period will impact the volume of our products sold during that period.

Product Innovation: We continue to develop and introduce innovative products to accelerate material conversion and expand our markets. The continuous evolution and expansion of our product portfolio is critical to our sales growth, expanding market share and overall success. Our broad product offering allows dealers and distributors to offer consumers a wide variety of innovative pool shapes, depths and lengths. Specifically, our innovative fiberglass pool offering employs the most durable components, consisting of a carbon fiber, Kevlar and ceramic fiberglass build. Our use of innovative technology and premium materials result in long-lasting products that not only require lower up-front costs, but also save homeowners time and money from continuous maintenance throughout the product lifecycle. We believe that new products will enhance our ability to compete with traditional materials at a variety of price points, and we expect to continue to devote significant resources to developing innovative new products. The volume of our products sold during a given period will depend in part on our successfully introducing new products that generate additional demand, as well as the extent to which new products may impact our sales of existing products.

Economic conditions: Demand for our products is affected by a number of economic factors impacting our customers and consumers. The in-ground swimming pool market depends in part on home equity financing, and accordingly, the level of equity in homes will affect consumers’ ability to obtain a home equity line of credit and engage in backyard renovations that would result in purchases of our products. Demand for our products is also affected by the level of interest rates and the availability of credit, consumer confidence and spending, housing affordability, demographic
 
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trends, employment levels and other macroeconomic factors that may influence the extent to which consumers engage in renovations to their backyard, including pool installation projects to enhance the outdoor living spaces of their homes.

Seasonality and weather: Although we generally have demand for our products throughout the year, our business is seasonal, and weather is one of the principal external factors affecting the business. In general, net sales and net income are highest during spring and summer, representing the peak months of swimming pool use, pool installation and remodeling and repair activities. Calendar years having severe weather also may play a role in affecting sales growth, as particularly rainy or cold years tend to slow the volume of sales, including as a result of complicating conditions for pool installations. Catastrophic events, such as hurricanes, tornadoes, and earthquakes, can cause interruptions to our operations and these scenarios are at least partially mitigated by our geographic diversity, both across the United States and through international markets.
Pricing
In general, our products are priced to be competitive in the in-ground swimming pool market and to keep in line with changes in our input costs.
Cost of Materials
Raw material costs, including costs of PVC, galvanized steel, fiberglass, aluminum, carbon fiber, Kevlar fiber, various resins, gelcoat, polypropylene fabric, ceramic and roving, represent a majority of our cost of sales. Our contracts with key suppliers are typically negotiated on an annual basis. The cost of the raw materials used in our manufacturing processes is subject to volatility and has been affected by changes in supply and demand. We have no fixed-price contracts with any of our major vendors. We have not entered into hedges of our raw material costs at this time, but we may choose to enter into such hedges in the future.
Prices for spot market purchases are negotiated on a continuous basis in line with current market prices. Other than occasional strategic purchases of larger quantities of certain raw materials, we generally buy materials on an as-needed basis. Changes in prices of our raw materials have a direct impact on our cost of sales.
Acquisitions and Partnerships
On May 31, 2019, we acquired Narellan, a fiberglass pool manufacturer based in Australia with existing operations in Australia, New Zealand and Canada. The acquisition expanded our market share giving us a broader geographical footprint and an increase in dealer and franchise relationships.
On October 22, 2020, we acquired GLI, which specializes in manufacturing custom vinyl pool liners and safety covers. The acquisition expanded our liner and safety cover product offerings.
The consolidated financial statements include the results of operations of the Narellan and GLI acquisitions since their respective acquisition dates. The total purchase consideration was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition, as determined by management. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill.
On October 30, 2020, we entered into a long-term strategic partnership with and acquired a 28% equity interest in Premier Pools & Spas, a pool builder focusing on in-ground swimming pools. The purpose of this investment in Premier Pools & Spas is to help expand our sales and distribution channels. Our investment in Premier Pools & Spas is reflected as an equity method investment on our consolidated balance sheet as of December 31, 2020, and our proportionate share of earnings or losses of Premier Pools & Spas is recognized in earnings (losses) from equity method investment in our consolidated statement of operations on a three-month lag. Accordingly, our consolidated statement of operations for the year ended December 31, 2020 does not reflect any proportionate share of earnings or losses of Premier Pools & Spas.
Product Mix
We seek to continue to enhance our gross margins by improving the mix of products we sell, improving efficiency across our operations, including by investing in, and expanding, our digitally-enabled lead sourcing
 
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capabilities, expanding our specialized training opportunities, such as “Latham University,” and sales support initiatives, such as localized digital marketing spend, co-branding, enhanced product literature, in-store display samples and social media initiatives.
Impact of COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. In response to the COVID-19 pandemic, federal, state and local governments put in place travel restrictions, quarantines, “shelter-in-place” orders, and various other restrictive measures in an attempt to control the spread of the disease. Such restrictions or orders have resulted in, and continue to result in, business closures, work stoppages, slowdowns and delays, among other measures that affect our operations, as well as customer demand and the operations of our suppliers.
Since the onset of the COVID-19 pandemic, we have been focused on protecting our employees’ health and safety, meeting our customers’ needs as they navigate an uncertain financial and operating environment, working closely with our suppliers to protect our ongoing business operations and rapidly adjusting our short-, medium- and long-term operational plans to proactively and effectively respond to the current and potential future public health crises. While the COVID-19 pandemic presents very serious concerns for our business and operations, our employees and their families, our customers and our suppliers, we believe that we are adapting well to the wide-ranging changes that the global economy is currently undergoing, and we remain confident that we will continue to maintain business continuity, produce and sell our products safely and in compliance with applicable laws and governmental orders and mandates, maintain our robust and flexible supply chains and be in a strong position to maintain financial flexibility in the event of a potentially extended economic downturn.
To mitigate the impact of the COVID-19 pandemic on our business, we increased frequency and intensity of cleaning of our properties, implemented policies to enable our factory employees to work flexible working hours, shifted our corporate employees to remote work, temporarily stopped hiring, temporarily cut salaries (which cuts we repaid to our employees later in the year), and have greatly reduced travel for our employees. Substantially all of our plants have remained operational throughout the pandemic and we have not experienced any significant supply issues. We did not experience any significant impacts on our liquidity as a result of the COVID-19 pandemic.
Following a significant slow-down in orders in March and April of 2020 as some of our dealers shut down during the peak season, we have seen a sustained increase in demand for our products during 2020. We believe that the COVID-19 pandemic accelerated the secular trend of growing demand for pools by homeowners in the United States. Stay-at-home directives and remote work increased consumer focus on the home environment and safety. A significant portion of travel and leisure spending was redirected to home-related investments as people spent more time at home. We believe that the COVID-19 pandemic was a driver of lasting changes in consumer behavior that favors home-related spending, and we believe that these changes support short-term momentum growth, as well as long-term growth, in demand for pools.
Although we have implemented measures to mitigate the impact of the COVID-19 pandemic on our business, financial condition and results of operations, we expect that these measures may not fully mitigate the impact of the COVID-19 pandemic on our business, financial condition and results of operations. We cannot predict the degree to, or the period over, which we will be affected by the pandemic and resulting governmental and other measures. The global impact of the COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the situation closely. As the COVID-19 pandemic continues, it may also have the effect of heightening many of the risks described in “Risk Factors” in this prospectus. See “Risk Factors—Risks Related to Our Operations—The current outbreak of the COVID-19, or the future outbreak of any other highly infectious or contagious diseases, has caused, and will continue to cause, disruption to our business and operations” for a further discussion of the adverse impacts of the COVID-19 pandemic on our business.
Key Performance Indicators
Adjusted EBITDA and Adjusted EBITDA Margin
We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to
 
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establish our annual management incentive bonus plan compensation and to compare our performance against that of other peer companies using similar measures. We define Adjusted EBITDA as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, (iii) income tax (benefit) expense, (iv) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) management fees, (vii) stock-based compensation expense, (viii) other expense (income), net, (ix) other non-cash items, (x) strategic initiative costs, (xi) acquisition and integration related costs, (xii) other, (xiii) IPO costs, and (xiv) COVID-19-related expenses (income). We believe excluding these items allows for better comparison of our financial results across reporting periods.
We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. Our definitions of Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies.
We believe Adjusted EBITDA and Adjusted EBITDA margin are useful measurements for investors as they help identify underlying trends that could otherwise be masked by certain expenses that we do not consider indicative of our ongoing operating performance. We also use Adjusted EBITDA and Adjusted EBITDA margin for planning purposes, assessing our financial performance, and other strategic decisions. For a discussion of Adjusted EBITDA and Adjusted EBITDA margin and the limitations on their use, and the reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure, and our calculation of Adjusted EBITDA margin see “—Non-GAAP Financial Measures” below.
Key Components of Results of Operations
Net Sales
We derive our revenue from the design, manufacture and sale of in-ground swimming pools, pool covers and liners. We sell fiberglass pools, which are one-piece manufactured fiberglass pools that are ready to be installed in a consumer’s backyard and custom vinyl pools, which are manufactured pools that are made out of non-corrosive steel or composite polymer frame, on top of which a vinyl liner is installed. We sell liners for the interior surface of vinyl pools (including pools that were not manufactured by us). We also sell all-season covers, which are winterizing mesh and solid pool covers that protect pools against debris and cold or inclement weather and automatic safety covers for pools that can be operated with a switch.
Our sales are made through one-step and two-step business-to-business distribution channels. In our one-step distribution channel, we sell our products directly to dealers who, in turn, sell our products to consumers. In our two-step distribution channel, we sell our products to distributors who warehouse our products and sell them on to dealers, who ultimately sell our products to consumers.
Each product shipped is considered to be one performance obligation. With the exception of our extended service warranties and our custom product contracts, we recognize our revenue when control of our promised goods is transferred to our customers, either upon shipment or arrival at our customer’s destination depending upon the terms of the purchase order. Sales are recognized net of any estimated rebates, cash discounts or other sales incentives. Revenue that is derived from our extended service warranties, which are separately priced and sold, is recognized over the term of the contracts. Revenue from custom products is recognized over time utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation. Custom products are generally delivered to the customer within three days of receipt of the purchase order. See “—Critical Accounting Policies and Estimates—Revenue Recognition.”
Cost of Sales
Cost of sales includes the cost of materials and all costs to make products saleable, such as materials, labor, inbound freight, including inter-plant freight, purchasing and receiving costs, operating lease costs related to our distribution and manufacturing facilities, and warehousing and distributions costs. Cost of sales also includes depreciation expense associated with assets used to manufacture our products and make them saleable and warranty costs. We record warranty costs within cost of sales at the time product revenue is recognized based on historical experience and any specific warranty issues that have been identified. Shipping and handling costs associated with outbound freight are included in cost of sales when the related
 
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revenue is recognized. The components of our cost of sales may not be comparable to our peers. The changes in our cost of sales generally correspond with the changes in net sales and may be impacted by any significant fluctuations in the cost of the components of our cost of sales.
Gross Profit and Gross Margin
Gross profit is calculated as net sales less cost of sales. Gross profit is dependent upon several factors, such as changes in the volume and the relative sales mix among product lines, prices of raw materials and the average price of our products sold and plant performance, among other factors.
Gross margin is gross profit as a percentage of our net sales. Gross margin is dependent upon several factors, such as changes in prices of raw materials, the volume and relative sales mix among product lines, the average price of our products sold and plant performance, among other factors. Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary.
Our gross profit is variable in nature and generally follows changes in net sales. The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of other companies. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies.
In the near term, we expect that we will sustain our increasing gross margin as a result of a continued shift in our product mix.
Selling, General and Administrative Expense
Selling, general and administrative expense primarily consists of personnel costs, such as salaries, incentive plan costs, and health and welfare benefits, as well as other costs, including sales and marketing, technology infrastructure, research and development, finance, legal, human resources, marketing and advertising, facility costs such as operating lease costs for our corporate office, allowances for bad debt, professional services costs, and insurance expense.
We expect that our selling, general and administrative expense will increase in future periods due to additional legal, finance, insurance and other expenses that we expect to incur as a result of being a public company, including compliance with the Sarbanes-Oxley Act. Any increase in future incentive awards or other stock-based compensation will also increase our personnel expense included in selling, general and administrative expense. However, we expect our selling, general and administrative expense to decrease as a percentage of net sales over the long term as our net sales increase and we realize economies of scale.
Amortization
Amortization consists of any amortization from acquired intangible assets through business combinations, including patented technology, trade names and trademarks, pool designs, franchise relationships and dealer relationships. We expect our amortization may increase as we expand our operations through acquisitions of additional businesses in the future.
Interest Expense
Interest expense primarily consists of any cash interest on outstanding borrowings under our Amended Term Loan and our Revolving Credit Facility, as well as the non-cash amortization of debt issuance costs and original issue discount. For a further description and definition of Amended Term Loan and Revolving Credit Facility, see “—Our Indebtedness.”
Other Expense (Income), Net
Other expense (income), net consists primarily of foreign currency transaction gains and losses associated with our international subsidiaries and changes in the fair value of the contingent consideration recorded in connection with the acquisition of Narellan, which was settled in September 2020. Foreign currency transaction gains and losses primarily result from intercompany purchases of a short-term
 
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nature denominated in currencies other than the functional currency of the legal entity in which the transaction is recorded.
Income Tax (Benefit) Expense
We are subject to income taxes in the various jurisdictions in which we operate. Our income taxes are estimated based on taxable income earned in each jurisdiction. We file a federal consolidated tax return inclusive of all U.S. entities, and several consolidated state tax returns and separate state tax returns. We also file Canadian, Australian and New Zealand tax returns for our Canadian, Australian and New Zealand entities. Our effective tax rate varies depending on the proportion of domestic to foreign earnings, the realizability of any deferred tax assets and liabilities, and changes in tax rates and laws in any jurisdictions in which we operate.
Net Income
Net income is our income after considering our expense (benefit) from income taxes.
Results of Operations
Year ended December 31, 2020 Compared to Year ended December 31, 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019:
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Year Ended December 31,