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STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2023

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

18.STOCK-BASED COMPENSATION

On April 12, 2021, the Company’s stockholders approved the 2021 Omnibus Equity Incentive Plan (the “2021 Omnibus Equity Plan”), which became effective on April 22, 2021, upon pricing of its initial public offering. The 2021 Omnibus Equity Plan provides for the issuance of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based and cash-based awards. The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the 2021 Omnibus Equity Plan during any one fiscal year, together with any cash fees paid to such non-employee director during such fiscal year, is $750,000.

On May 2, 2023, at the 2023 annual meeting of stockholders the Company, the stockholders approved the first amendment (the “Equity Plan First Amendment”) to the Latham Group, Inc. 2021 Omnibus Equity Plan, which was previously approved by the Board of Directors of the Company. The Equity Plan First Amendment became effective upon stockholder approval, and provides for (i) an increase by 8,000,000 shares of the share pool, i.e. the maximum number of shares of the Company’s common stock that may be issued pursuant to awards granted under the 2021 Omnibus Equity Plan, (ii) a prohibition on recycling of shares withheld or remitted to pay taxes for all awards, (iii) a minimum vesting period of one year for all awards, with an exception for shares representing 5% of the share pool, and (iv) a prohibition on the transfer of stock options and stock appreciation rights for value or to third-party financial institutions without stockholder approval.

Except as amended by the Equity Plan First Amendment, the other terms of the 2021 Omnibus Equity Plan remain in full force and effect. Subsequent to the Equity Plan First Amendment, the maximum aggregate number of shares reserved for issuance under the 2021 Omnibus Equity Plan is 21,170,212 shares. The following table summarizes the Company’s stock-based compensation expense (in thousands):


		Year Ended
		December 31,
		2023			2022			2021
Cost of sales		$	81		$	3,762		$	8,697
Selling, general, and administrative			18,723			46,872			120,078
		$	18,804		$	50,634		$	128,775

The recognized income tax benefit related to stock-based compensation was $0.5 million for the year ended December 31, 2023. The recognized income tax benefit related to stock-based compensation was $0.8 million for the year ended December 31, 2022. The recognized income tax benefit related to stock-based compensation was $0.1 million for the year ended December 31, 2021. As of December 31, 2023, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $7.4 million, which is expected to be recognized over a weighted-average period of 1.53 years.

The following table sets forth the significant assumptions used in the Black-Scholes option-pricing model on a weighted-average basis to determine the fair value of stock appreciation rights awards granted:


		Year Ended
		December 31, 2023
Risk-free interest rate		3.54	%
Expected volatility		40.34	%
Expected term (in years)		6.25
Expected dividend yield		0.00	%

The following table sets forth the significant assumptions used in the Black-Scholes option-pricing model on a weighted-average basis to determine the fair value of option awards granted:


		Year Ended
		December 31, 2022
Risk-free interest rate		2.06	%
Expected volatility		39.68	%
Expected term (in years)		6.25
Expected dividend yield		0.00	%

No stock options were granted under this plan during the year ended December 31, 2023.

Restricted Stock Awards

The following table represents the Company’s restricted stock awards activity during the year ended December 31, 2023:


				Weighted-
				Average Grant-
		Shares		Date Fair Value
Outstanding at January 1, 2023		2,576,219		$	19.00
Granted		—			—
Vested		(2,377,883)			19.00
Forfeited		(155,450)			19.00
Outstanding at December 31, 2023		42,886		$	19.00

Restricted Stock Units

The following table represents the Company’s restricted stock units activity during the year ended December 31, 2023:


				Weighted-
				Average Grant-
		Shares		Date Fair Value
Outstanding at January 1, 2023		617,941		$	8.37
Granted		2,345,746			3.18
Vested		(465,863)			7.63
Forfeited		(262,345)			3.90
Outstanding at December 31, 2023		2,235,479		$	3.60

Stock Options

The following table represents the Company’s stock option activity during the year ended December 31, 2023:


					Weighted-		Weighted-
					Average		Average
				Exercise Price			Remaining		Aggregate
		Shares		per Share			Contract Term		Intrinsic Value
							(in years)		(in thousands)
Outstanding at January 1, 2023		1,914,670		$	14.85
Granted		—			—
Exercised		—			—
Forfeited		(311,344)			11.37
Expired		(82,922)			17.75
Outstanding at December 31, 2023		1,520,404		$	15.40		7.94		$	—
Vested and expected to vest at December 31, 2023		1,520,404		$	15.40		7.94		$	—
Options exercisable at December 31, 2023		521,173		$	16.38		7.77		$	—

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

No stock options were granted during the year ended December 31, 2023. The weighted average grant-date fair value of stock options granted during the year ended December 31, 2022 was $5.53 per share.

Stock Appreciation Rights

During the quarter ended April 1, 2023, as a portion of the annual equity award grants to the Company’s executive officers, the Compensation Committee of the Board of Directors approved stock appreciation rights for an aggregate of 790,181 shares of the Company’s common stock, with a strike price of $3.24 per share (the “Contingent Grants”). At the time of such approval, the Company did not have enough shares of the Company’s common stock in the share pool under the 2021 Omnibus Equity Plan to support such grant. As of April 1, 2023, the Contingent Grants remained subject to stockholder approval of the Equity Plan First Amendment. On May 2, 2023, following stockholder approval of the Equity Plan First Amendment, the foregoing stock appreciation right awards became effective without condition.

The following table represents the Company’s stock appreciation rights activity during the year ended December 31, 2023:


					Weighted-		Weighted-
					Average		Average
				Exercise Price			Remaining		Aggregate
		Shares		per Share			Contract Term		Intrinsic Value
							(in years)		(in thousands)
Outstanding at January 1, 2023		—		$	—
Granted		849,058			3.17
Exercised		—			—
Forfeited		(93,256)			3.24
Outstanding at December 31, 2023		755,802		$	3.16		9.37		$	24,729
Vested and expected to vest at December 31, 2023		755,802		$	3.16		9.37		$	24,729
Stock appreciation rights exercisable at December 31, 2023		—		$	—		—		$	—

The aggregate intrinsic value of stock appreciation rights is calculated as the difference between the strike price of the stock appreciation rights and the fair value of the Company’s common stock for those stock appreciation rights that had strike prices lower than the fair value of the Company’s common stock.

The weighted average grant-date fair value of stock appreciation rights granted during the year ended December 31, 2023 was $1.08 per share.