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Latham Group, Inc. misses on earnings expectations. Reported EPS is $-0.19 EPS, expectations were $-0.09.

Operator: Good afternoon. And welcome to the Latham Group, Inc. Fourth Quarter and Full Year 2024 Earnings Conference Call. All participants will be in a listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Casey Kotary, Investor Relations representative. Please go ahead. Thank you.

Casey Kotary: This afternoon, we issued our fourth quarter and full year 2024 earnings press release, which is available on the Investor Relations portion of our website where you can also find the slide presentation that accompanies our prepared remarks. On today’s call are Latham Group, Inc.’s President and CEO, Scott Rajeski, and CFO, Oliver Gloe. Following their remarks, we will open the call to questions. During this call, the company may make certain statements that constitute forward-looking statements, which reflect the company’s views with respect to future events and financial performance as of today or the date specified. Actual events and results may differ materially from those contemplated by such forward-looking statements due to risks and other factors that are set forth in the company’s annual report on Form 10-K and subsequent reports filed or furnished with the SEC as well as today’s earnings release.

The company expressly disclaims any obligation to update any forward-looking statements except as required by applicable law. In addition, during today’s call, the company will discuss certain non-GAAP financial measures. Reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that accompanies our prepared remarks which can be found on our Investor Relations website. I’ll now turn the call over to Scott Rajeski.

Scott Rajeski: Thanks, Casey, and thank you all for participating in today’s call to discuss our fourth quarter and full year 2024 results and review our outlook for 2025. We are pleased with how well the team navigated challenging industry conditions in 2024. In the face of an estimated decline of approximately 15% in US pool starts, Latham Group, Inc. continued to outperform the market. We are positioned to achieve considerable sales growth and accelerated profitability in 2025 and beyond. Key takeaways of our full year performance include first, our success in driving increased market penetration of fiberglass pools. By our analysis, fiberglass pools represented 24% of US pool starts in 2024, up from 23% in 2023, and a gain of six percentage points since 2021.

In addition to the cost advantages, our sales and marketing campaigns have been focusing on the key competitive benefits of fiberglass over concrete pools, mainly their fast and easy installation, low maintenance requirements, and eco-friendly attributes which are resonating with consumers. In 2024, fiberglass pools represented 75% of our in-ground pool sales, compared to 73% in 2023. Second, our adjusted EBITDA results were a highlight of the year, reaching just over $80 million, representing an adjusted EBITDA margin of 15.8%, 30 basis points ahead of the prior year and considerably lower sales. This strong performance was led by robust gross margin expansion that reflects our structurally reduced cost structure, and disciplined SG&A spending while we continue to increase investments in growth initiatives.

Third, the benefits of our acquisition of CoverStar Central, which has enabled us to vertically integrate our automatic safety cover line in the 29 states where CoverStar Central was our exclusive dealer and has set the stage for revenue synergy opportunities and additional acquisitions in this arena. CoverStar is a good example of the type of accretive acquisition opportunities in the market. And lastly, we ended 2024 in a very strong financial position, providing the flexibility to invest in organic growth projects and consider potential acquisitions. Oliver will cover the specifics of our fourth quarter and full year results later in this call. We were pleased that our performance was in line with our expectations and enabled us to exceed the midpoint of our full year sales guidance and demonstrated our ability to continuously drive operational efficiencies and savings even under a declining demand environment.

Importantly, while we effectively managed through the substantial decline in US pool starts in 2024, we also moved ahead with strategic investments in initiatives that are designed to drive substantial growth over time, and are focused primarily on our two major growth product categories, namely fiberglass pools and automatic pool safety covers. The most prominent of these growth initiatives is the planned expansion of Latham Group, Inc.’s market share in the sand states, which we define as Florida, Texas, Arizona, and California. To put this opportunity in context, the sand states collectively account for approximately two-thirds of US pool starts in the US. In 2024, we expect that number will be similar in 2025. Approximately 17% of Latham Group, Inc.’s total fiberglass pool sales in 2024 were in the sand states.

As we are the largest pool manufacturer in North America, with nine plants producing fiberglass pools, the market share expansion opportunity for us is clear. In executing on our sand state strategy, we are focused on four key priorities: expanding our pool dealer base, which involves working to increase the productivity of our existing dealers, as well as standing up new builders and converting concrete builders to fiberglass; targeting master-planned communities, which are large-scale mixed-use residential developments with robust curated amenities, the largest of which are found in Florida and Texas; aligning our product offerings with market demand in the sand states, where builders and consumers tend to favor rectangular pool shapes, pool-spa combos, and smaller size plunge pools.

This year, we plan to launch several new fiberglass pool models with these characteristics to continue to increase our market share in the sand states; and addressing our marketing campaigns specifically to consumers and builders in those markets. In other words, we are highlighting the faster installation and lower cost of ownership than concrete to consumers, and stressing the benefits to builders such as being more profitable and faster to scale than concrete. And we believe the scarcity of skilled labor will be a tailwind for fiberglass given the much greater labor intensity associated with building a concrete pool versus a fiberglass pool. Of course, gaining a meaningful share of the sand states marketplace will take time. But we are encouraged by the initial dealer, builder, and consumer response in the short time since we began implementing this strategy.

For example, our Goosa ad campaign, which stands for Get Out of the Stone Age, was launched in Texas during the fourth quarter of 2024 and resulted in over 40% more leads for our dealers than the prior year. And in Florida, Latham Group, Inc. sponsored events at Babcock Ranch, a master-planned community over 170,000 acres, have attracted large crowds and solid lead generation. We have a full range of targeted marketing activities planned in Florida and Texas in the coming months and are expecting to see incremental sales from these initiatives beginning this year. And while our primary focus in the sand states is on conversion to fiberglass pools from concrete, we also see the sand states as an excellent market for increased adoption of automatic safety covers.

Latham Group, Inc.’s automatic pool covers offer unparalleled safety, forming an isolation barrier when they are closed that seals off all sides of the pool. In addition to its safety benefits, this product line offers several important savings and maintenance benefits for pool owners, including significant reductions in water evaporation, lower pool heating and electricity costs, and reduced chemical usage. In essence, they often pay for themselves after four to five years of ownership and come with a multi-year warranty. In August 2024, we acquired our largest automatic safety cover dealer, CoverStar Central. The vertical integration of this product line in the acquired geographies has expanded our adjusted EBITDA margin. We are working together with the leadership team at CoverStar Central to accelerate the adoption of this excellent product line.

Today, we are also very excited to announce two smaller but strategic acquisitions, bringing our CoverStar New York and CoverStar Tennessee VARs, which further strengthens our position in this growing product category. Looking ahead to 2025, industry conditions are slightly more favorable than they were one year ago. But we believe trough market conditions are likely to continue through much of the year. Therefore, we are managing to a new US pool starts in 2025 that will approximate 2024 levels. But we have the ability to quickly and efficiently ramp up to capture any increase in market demand. You have seen from our earnings release, we expect to considerably outperform the market in 2025, supported primarily by our market share gains in the sand states, increased adoption of auto covers, the impact of last year’s acquisition of CoverStar Central, along with the contribution from the two small acquisitions we just completed.

I will now turn the call over to Oliver, our CFO, to review our fourth quarter and full year financial performance and discuss our guidance for 2025. Oliver?

Oliver Gloe: Thank you, Scott. And good afternoon, everyone. Please note that all comparisons we discuss today are on a year-over-year basis compared to the fourth quarter of fiscal 2023, and full fiscal year 2023 unless otherwise noted. Net sales for the fourth quarter of 2024 were $87 million, down 4% compared to the $91 million in Q4 2023, reflecting lower volumes from industry softness partially offset by continued fiberglass conversion and the acquisition of CoverStar Central. Based on the normal seasonal cadence, Q4 is our slowest period and our sales performance was slightly ahead of our expectations. By product line, in-ground pool sales were $44 million, down 5% from Q4 2023, reflecting soft industry conditions while still outperforming the overall pool market.

Cover sales were $31 million in the quarter, down 2% with declines from industry softness partially offset by the benefits from our CoverStar Central acquisition in August. Liner sales were $12 million, down 5% compared to the fourth quarter of 2023, remaining resilient relative to the overall pool market due to the replacement cycle of these products. Despite the decline in sales, we achieved a fourth quarter gross margin of 25%, which is 130 basis points above last year’s 23%. This is the result of our production efficiencies, gained from our lean manufacturing and value engineering initiatives and a benefit from the acquisition of CoverStar Central. SG&A expenses increased to $27 million, up $3.6 million from $24 million in Q4 of 2023, largely driven by investments made in sales and marketing initiatives to drive fiberglass penetration, increased performance-based compensation, as well as by the acquisition of CoverStar Central.

Net loss was $29 million or $0.25 per diluted share compared to $0.1 million of net income or $0.00 per diluted share for the prior year fourth quarter. Our net loss for Q4 2024 includes a $9 million of nonrecurring noncash income tax expense due to a valuation allowance established on foreign deferred tax assets and a $5 million loss on foreign currency transactions associated with our international subsidiaries. Fourth quarter adjusted EBITDA was $4 million, down $6 million or 63% from $10 million in the prior period, primarily resulting from increased sales and marketing spend and higher performance-based compensation. Adjusted EBITDA margin was 4%, a 670 basis point decline year over year. Turning to our full year results. Net sales were $509 million, down 10% compared to $566 million in the prior year, reflecting lower sales volume due to industry softness.

By product line, Latham Group, Inc.’s in-ground pool sales for the full year were $259 million, down 13% year over year but importantly, above the estimated 15% decline in in-ground pool starts in the US in 2024. Throughout the year, we have outperformed the overall in-ground pool market primarily as a result of our success in increasing the awareness and adoption of fiberglass pools. As Scott mentioned, market penetration of fiberglass pools increased by one percentage point in 2024 and we are working to drive continued growth of fiberglass across the US with particular emphasis on the sand states where there is significant opportunity for us. Our liner sales of $180 million declined 8% while cover sales of $131 million were down 7% reflecting softer demand due to the ongoing challenging industry environment partially offset by our acquisition of CoverStar Central.

Gross profit was $154 million, slightly up compared to 2023, a strong indication of the substantial operating improvements we have made. Gross margin exceeded 30%, an expansion of 320 basis points compared to 27% in the prior year, primarily resulting from production efficiencies related to lean manufacturing and value engineering initiatives, improved procurement, and modest deflation. SG&A expenses decreased to $108 million from $110 million in 2023, reflecting an $11 million reduction in non-cash stock-based compensation expense as well as the benefits from our various cost reduction actions and restructuring programs. These savings more than offset the $8 million in higher performance-based compensation and our increased investments in sales and marketing initiatives to expand the awareness and adoption of fiberglass pools and grow our market share in the sand states.

Net loss for the full year was $18 million or $0.15 per diluted share compared to $2 million or $0.02 per diluted share for the prior year. The net loss for the full year 2024 included $9 million of nonrecurring noncash income tax expense due to a valuation allowance established on foreign deferred tax assets and a $6 million loss on foreign currency transactions associated with our international subsidiaries. Adjusted EBITDA was $80 million compared to $88 million in the prior year as a result of higher performance-based compensation and sales and marketing spend I just mentioned while the impact of lower net sales was offset by our structurally improved cost basis. Adjusted EBITDA margin of 15.8% was 30 basis points above the 15.5% in 2023 thanks to our strong gross margin performance.

Turning to the balance sheet, we ended the year in a strong financial position which gives us the financial flexibility to pursue organic and inorganic growth opportunities. We ended the year with a cash position of $56 million even after the purchase of CoverStar Central for approximately $65 million in August, and the repayment of approximately $21 million of debt during the year. Net cash provided by operating activities was $6 million in the fourth quarter and $61 million for the full year 2024. We ended the year with total debt of $282 million, net debt of $225 million, and a net debt leverage ratio at 2.8. On a pro forma basis, our net debt leverage ratio was 2.6 at the end of the quarter. Capital expenditures were $20 million for full year 2024 compared to $33 million in the prior year.

This is in line with our estimate of approximately $5 million of CapEx spend per quarter. As Scott noted, we are pleased to have recently completed the acquisition of two additional CoverStar dealers. We expect the combined impact to provide incremental net sales of approximately $5 million and incremental adjusted EBITDA of about $1 million, which we have included in our 2025 guidance. We have successfully navigated a year of challenging market conditions. Contributing to that success was our ability to drive meaningful cost structure improvements, including $4 million of savings from restructuring programs and $9 million of savings from lean manufacturing and value engineering initiatives. We see further opportunities to gain operating efficiencies through continued lean manufacturing and value engineering initiatives in 2025 and beyond.

We believe these cost improvements have structurally changed our financial model, positioning Latham Group, Inc. for increased earnings potential amidst an eventual industry rebound. Turning to our outlook for 2025, as Scott noted, we believe that new US pool starts this year will be similar to 2024 with some room on the upside if consumer confidence improves. With this as a backdrop, we expect to achieve meaningful growth in net sales and adjusted EBITDA underpinned by key growth drivers which primarily include accelerating share gains in the sand states, and the benefits of the CoverStar Central, New York, and Tennessee acquisitions, and the continued awareness and adoption of automatic safety covers. These factors have informed our 2025 guidance for net sales of between $535 million and $565 million and adjusted EBITDA of between $90 million and $100 million, representing year-on-year growth of 8% and 19% respectively at the midpoints.

With respect to the cadence of the year, we expect a measured ramp-up in orders and a first quarter 2025 net sales to be similar to last year’s first quarter performance, and first quarter adjusted EBITDA to reflect increased investments in the build-out of our presence in the sand states. This should be followed by progressively higher year-on-year comparisons in the seasonally stronger second and third quarters of the year. Capital expenditures are projected to be in the range of $27 million to $33 million, higher than 2024, with approximately $10 million resulting from our decision to develop production molds for new fiberglass pool models specifically designed to appeal to the sand states market, and the addition of usable space in our Florida and Oklahoma manufacturing facilities for future expansion in anticipation of increased market penetration in the sand states.

With that, I will turn back the call to Scott for his closing remarks.

Scott Rajeski: Thanks, Oliver. To sum up, 2024 was a very productive year for us. One that demonstrated the increased market penetration of fiberglass pools and automatic safety covers and the benefits of the structural cost reductions we have implemented over the last two years. As Oliver noted, we expect these factors to drive Latham Group, Inc. to above-market growth in 2025 and beyond. During our site visit to Latham Group, Inc.’s Zephyrhills fiberglass facility in November 2024, we shared a longer-term vision. I invite you to review the Zephyrhills site tour presentation posted to the news and events section of our IR website. In this presentation, we describe a path for advancing our growth strategy and the results we can achieve.

When new US pool starts return to 78,000 per year, we can achieve revenue of about $750 million and adjusted EBITDA of around $160 million. The last time the market was at that level was 2019, and our revenues were $318 million and our adjusted EBITDA was $61 million. Meaning Latham Group, Inc. is positioned for outsized growth and we believe our growth has continued potential even beyond this point. We are looking forward to a growth year for Latham Group, Inc. in 2025 and tracking toward even more expansive growth in the years to come. With that operator, I would like to open the call to questions.

Operator: Thank you. We will now begin the question and answer session. If at any time your question has been addressed, you would like to withdraw your question, today will come from Ryan Merkel with William Blair. Please go ahead.

Ryan Merkel: Everyone, thanks for taking the questions. First off, on the guide for 8% sales growth, could you break that down between volume, price, and M&A?

Oliver Gloe: Ryan, this is Oliver. Thanks for the question. So the 8% sales growth in our guide from $509 million to $550 million breaks down at about 3% coming from the full-year run rate effect from CoverStar Central as well as the two new acquisitions which we closed last week, leaving about 5% for organic growth. Right? And that’s the combination of continued fiberglass penetration that we have driven successfully over the past few years as well as the first dividends from our growth strategy, especially the sand states, as well as we continue the way under the deduction of auto covers. Pricing, similar to last year, in our guidance is flattish and therefore not a major impact. Okay.

Ryan Merkel: That’s helpful. Thank you. And then my second question, could you can you just talk about feedback from dealers heading into the season here? What do leads look like? And I’m specifically interested in what you’re hearing in the sand states. So you’re starting to see evidence that that strategy and your investment there is starting to pay off.

Scott Rajeski: Yeah. Ryan, good afternoon. I’ll take this one. So, you know, feedback from dealers, I’ll say, has been a lot more positive this year than last year at the same point in time. Again, as you’re you guys are all aware. Right? We’re coming off of our dealer conference. Heavy show season a lot of time in the field with with all of our builders, and say just everyone in the industry in general I think the the word we’ve been using with everyone is think everyone’s cautiously optimistic about about the year. Now, clearly, a lot of this before you know, the the the tariff scenario we’re all we’re all fighting with right now real time, But, you know, the the way I like to judge is just, like, coming into the last same point in time, You know, if if we look at the majority of our larger dealers, you know, about a third of them said that their backlogs are flat, if not up.

This year versus the same point in time last year. You know, if I rewind a year ago when when we were asked that same question, no one was seeing flatter up. So right. So that’s a good indication that they’re feeling good. And specifically in the sand states, I’d say we’re we’re seeing really good progress there. You know, new new dealers coming into the area. Increase in leads. You know, I think one of the things I like to point to is we we fired up our Goosa campaign in Texas in the fourth quarter, and the number of leads that we were generating from that campaign at the end of the year was up 40% versus the prior year. And we’re just getting ready to launch the Goosa campaign here in in Florida as well. So I’d say early progress, you know, as as we start to ramp all of that up.

Bring new dealers into new master plan communities, and specifically because we’ve been at Babcock Ranch a little bit longer with with our dealer there, I’d say we’ve seen a lot of really good traction all the events we’ve been hosting. You know, the last, you know, four to five months there. And we would expect that will start to translate into a a nice uptick You know, as we go forward, And I think one of the things I think we can quantify for you guys, you know, we did see about a 2% increase in our on our revenue with fiberglass specifically in the sand stakes year over year going from 15% to 17% of bull sold. So we were really happy with that starting to move in the right direction. As we’re kind of here in the the early innings of the game.

Ryan Merkel: Great. That’s encouraging. I’ll pass it on. Good luck.

Oliver Gloe: Alright. Thanks, Ryan. You too. And your next question today will come from Andrew Carter with Stifel. Please go ahead.

Andrew Carter: Hey. Thank you very much. Good afternoon. So I guess you mentioned it tariffs. So could you walk us through kind of your exposure? You obviously have a business in Canada, so you got some stuff moving north potentially. Some of that, I guess, is self-contained. And then I guess specifically just to kinda, you know, kind of anchor us around what Kingston is, doing now, what the kind of expectations were for it? Was it not only for Canada, but was it for the northeast? And and does that change at all after kinda, you know, territory tariffs, tariffs coming in? Stop there and let you guys talk.

Scott Rajeski: Yeah. So so, you know, look, it’s a very dynamic situation. I think good news, bad news is know, we have we have had some time to get out in front of this and prepare for the impact for 2025. You know, I guess the better news is it’s not a significant impact for us overall if you look at what we’re importing from the currently announced tariff impacted countries You know, think think around a $15 million material buy for us overall from from what we see today. What we’ve really been able to do is as over the years as we’ve completely diversified our supplier base. Right? We’ve been dual and tri source. So right the first lever is you know, shift shift the buy back to domestic providers, which has been a big help to us.

We had had the ability to say pre buy material and more importantly, I’ll say, pre stage raw material as well as finished goods into the countries ahead of any of the enact of any of this. And we also have the ability to shift manufacturing production between the facilities Kingston specific, Andrew, as you asked, Right? The original intent was to you know, be able to put production up there that we could ship back into the northeast, Again, I’d say we brought a lot of pools down into our storage yard, you know, specifically here in Queensbury. We will probably pivot and and use Kingston for local production in the Canadian market. And again ship production from some of the other facilities here in the US. To fill back into the US. I think that’s the benefit of our, you know, really great manufacturing footprint we have.

Having the nine facilities, having multiple line of facilities in US and Canada, we we can we can quickly maneuver things back and forth and look. And and at the end of the day, to kinda mitigate the full impact of anything we would see, you know, price would be the final lever that we would be able to pull in terms of passing it on, you know, to to the dealers, ultimately, the consumers But again, it it wouldn’t need to be a big number to kinda mitigate the impact. For for the for this year.

Andrew Carter: Gotcha. And then and then second question, just going back to the site the site tour in November, Guess I walked away thinking, like, a know, a capex around the sand states would be taken with a lot of traction. You’re taking some today. Is that based on what you’ve seen? And is it how should we think about the SandState strategy being effective? And is it gonna be this kinda stepped up, add five to ten million of capex per year from here for the next couple of years. Or will you do another Kingston plant if it’s really successful pick, you know, pick a good location? Just how how how does that kind of capital plan change?

Scott Rajeski: Yeah. You know, I I think what we wanna do know, Andrew, you you were at with us at the site in Zephyrhills. You know, it’s really about flow and continuing our journey of being able to have better production, better flow to get more pulled out of the existing location there. So one, right, it’s it’s new models and mold that we wanna introduce that will resonate in the sand stage, you know. Smaller pools, more more feature rich, with with spas and ledges built into it. And more of the plunge pool lineup. So I’d say, building out that product portfolio to meet the demand profile there, is one. Right two, I’m working on some expansion encourage better flow, increased kind of capacity, so we can kinda get more pooled in and out the door there on a daily basis.

And then a similar concept with Oklahoma. Right? When we bought Oklahoma, we had a multi staged concept there. Of building that site out over a, you know, three to five year period as we saw demand come in. We had really good success in the southwest last year. I think we’re just starting to set the stage for smaller capex investments in those plants. You know, I don’t see a need for a Kingston like investment in the near term horizon. You know, we’ve we’ve got plenty of capacity to to grow into, let’s say, that seventy eight thousand number that we talked about, before we would have to go drop another big capex investment like a Kingston into the network for us.

Andrew Carter: Thanks. I’ll pass it on.

Oliver Gloe: Thanks, Andrew.

Operator: And your next question today will come from Tim Wojs with Baird. Please go ahead.

Tim Wojs: Hey. Hey, guys. Good afternoon. Thanks for all the information. Maybe just on, you know, the first question on on fiberglass penetration. I I don’t expect exact numbers, but as you kinda look at you know, 24% penetration, you know, in total for fiberglass, Do do you think the sand states, just kinda based on your work, is is at that same level, or do you think it’s actually below kind of the overall penetration you know, of of fiberglass in in the US.

Scott Rajeski: Yeah. It’s a really really good question. So I think that’s been one of the things we’ve been talking about as we’ve kinda laid out our strategy and the road map. Clearly, fiberglass is significantly underpenetrated. In the sand state market, you know, in total. I’d say significantly below, let’s say, the 24% number we talked about. For for total US. That’s why we really like it. Right? It’s a huge opportunity, you know, 65% roughly of all pool starts are in. The four sand states as we’ve defined it. You know, under penetration, So that’s really why we’re excited about what can happen in a maybe a slower, you know, new pool start growth market here as we continue to take share against fiberglass there, rapidly build scale the business and grow it, You know, we’re not at a point where we wanna disclose those numbers yet. I think we’re still trying to do our homework on laying that all out but I could I could tell you it’s it’s well below the 24% number.

Tim Wojs: Yeah. Okay. No. That’s helpful. Because I mean, it it does imply that the non non sand state penetration would be significantly higher, I guess, than you know, that where you’re seeing the stand, so so it seems like a pretty pretty big opportunity. So I guess second question just on on the EBITDA bridge. Kinda similar to Ryan’s question just with revenue, Oliver, just could you kinda kinda walk through the the, you know, midpoint to midpoint call it fifteen million dollar kinda EBITDA bridge and and kinda what are the key kinda buckets we should we should about in that

Oliver Gloe: Yeah. Tim, glad glad to do so. So in our walk from twenty four EBITDA of eighty to or midpoint twenty five guide of ninety five Think of really three key tailwinds here. First one being the volume leverage, obviously, the eight percent additional volume or, you know, the the the organic five percent that that drives an an EBITDA impact. We talked about some of the incrementals that that would drive probably in the high thirties. So that’s the first impact. Second impact is lean value engineering. In two thousand twenty four, we realized nine nine million from that program relatively consist two two and a half a quarter. We expect that at least to continue, if not with increased volume, accelerate And then lastly, it’s the the addition of the three covers the acquisitions.

Right? And then the most impactful one is run rate and cover start centric. That is being passed by, you know, increased SG and A spend. Right? You you’ve heard us talk about in, you know, with regards to our sense of strategy. Funding that with additional sales, you know, boots on the ground salespeople as well as marketing, especially around the Gucci campaign, as well as the acceleration of our efforts to digitize the company. Right? So that would be the the the key headwind here. To drive us from eighty to ninety five million. There’s a lot of other things happening under the hood but these are the key impacts. Okay.

Tim Wojs: And would you say the you’re you’re at a point now where, like, increases or the year over year kinda incremental increases in SG and A spend are you’re effectively kind of self funding that you know, through the through the enterprise now, or or do you do you feel like there’s you know, still still a lot more SG and A best investment that needs to be kinda put into the business

Oliver Gloe: So I think we’ll we’ll we’ll adjust as we go. Right? And, you know, within in increasing success, you know, I would love to add over time additional salespeople as we go in into new neighborhoods and new geographies. Right? I think in terms of marketing, that’s more enough for an investment to drive the initial awareness. And then potentially, you know, maintaining that awareness. Will, you know, that then that will probably be easier at a lower run rate. But, you know, for now, I would say we have what we need for two thousand twenty five. We have what we need to to fund that that presumption of five percent organic growth.

Tim Wojs: Okay. Okay. Great. Good luck on the year.

Operator: Your next question today will come from Greg Palm with Craig Hallum Group. Please go ahead.

Greg Palm: Yeah. Thanks, and congrats on all the progress last year, all things considered.

Scott Rajeski: Thanks, Greg.

Greg Palm: I’d like to come back first to the full year revenue guide. So you have the company specific driver you know, going after the sand states. Then maybe some structural drivers out there that’s, you know, potentially making concrete pools less attractive. So I’m curious, does the guide assume an acceleration of fiberglass penetration in twenty twenty five, or could that be a source of upside maybe?

Oliver Gloe: Our guides include first dividends from from our SandState strategy from driving awareness and adoption of auto covers beyond what we have been used to on an annual basis. The normal kind of you know, demand driven fiberglass penetration outside of the sense that

Greg Palm: Okay. So so to be clear, it does imply some sort of acceleration. That is correct. Yep. Okay. And, you know, as it relates to the SandState strategy specifically, I’m curious, how are you measuring success? I don’t know if there’s, you know, KPIs you’re looking at But trying to figure out, you know, what determines a, how much investment you wanna make from a market side and and b, you know, how many other dealer locations you might wanna stand up down there in those states over the coming years.

Scott Rajeski: Yeah. So, Greg, it’s a hot hot question that we’ve been discussing here, you know, quite a bit, you know, last several months. As we put this strat together and and came into the guide here. And I I think, you know, the first one is kinda what I mentioned, you know, earlier on the call. You know, percentage of fiberglass pools of of our our revenue or units being sold in the stand states going from fifteen to seventeen Right? So I think that’ll be the first one we’ll start reporting on an annual basis. And I think as we start to understand what what is the right penetration number down there versus, let’s say, the national average penetration number you know, we’ll we’ll probably start to do something on that on that point, you know, maybe maybe later this year or you know, as we get get through twenty twenty five, And I think when it comes to dealers, right, the the game for us in the sand states is we’ve already got quite a few dealers there in the sand states.

You know, let’s say say specifically in Florida, I think the two issues we have is one, the average number of pulls they do versus a fiberglass dealer in the non sand states, And then two, where are they physically located? A lot of these folks are not in the circles of these master plan communities. So what we’re trying to do is actually get some of them to shift or create a second location in these MPC’s, as we like to call them, I think the other thing is as some of our other bigger dealers nationally, let’s say our grand dealers or some of our president club award winners, They see the investments we’re making, the marketing work we’re doing, the Gucci campaign we’re launching, some in third territories, let’s say, maybe in Texas, and they’re now asking us, hey, I’d be willing to come and work with you guys.

And tackle some of these MPCs if you don’t have dealers present there. So I think we’ve made really good progress since the Zephyrhills one. You know, we’re probably you know, a little bit accelerate on the pace of dealers and we’re going into. And like I said, we’re we’re really just gonna start spending some money on the Gucci campaigns here in the Florida markets Sendbeck And, look, we would love to see similar gains like we saw in Texas of, you know, forty, fifty percent year over year incremental leads You know, we we it does take time to convert a lead. To an order. And look, as we as we move forward, we’ll give more and more color so you guys could clearly see the success we’re having on there. How it’s moving the the overall needle.

Greg Palm: That’s that’s helpful. I mean, do you have a target in mind in terms of the number of MPC locations you wanna be in, you know, pick some amount of time, whether that’s twenty four months from now, Three years from now, etcetera?

Scott Rajeski: Yeah. We we we kinda gave a tease of that when we were in the Denver hills of of what we wanna do here and and in twenty five, you know, trying to get in the first giant remember the exact number, Greg. I have to go back. You know, three or four communities, let’s say, But, look, there’s there’s twenty big MPCs in Florida and Texas that we’ve targeted You know, we we do wanna go slow a little bit because I think we will learn a lot as we get into them. Just like we’ve learned a ton with Concord and Babcock Ranch, let’s say over the last year or so, you know, we’ll be an evolving strategy. And I think as we start get success and we see more dealers coming to us wanting to move to Florida and work with us. I said, I mentioned, you know, we just had several existing approaches that we’re working with now to get into some of those markets and communities.

You know, we’ll we’ll we’ll continue to drive that. And I think when we get to a point where it makes sense, now we can start, you know, reporting on on progress. And to me, it’s Maybe it’s probably not important how many MPCs are we in, but how many pools do we sell and what percentage of our total Soul is increased, and then how are we driving that overall penetration number specifically in the sand states trying to get it up, let’s say, the national average, that 24% number where we we believe the market landed last year.

Greg Palm: Yep. Makes sense. Alright. I will leave it there. Best of luck.

Scott Rajeski: Alright. Thank you. Bye, Greg.

Operator: Your next question today will come from Greg Badishkanian with Wolfe Research. Please go ahead.

Scott Stringer: Hey, guys. This is Scott Stringer on for Greg. If I heard correctly, one q sales is twenty twenty five expected to be sort of flattish. That includes some m and a. So if the industry is still, you know, somewhat soft today, what gives you confidence in that eight percent growth for the full year?

Oliver Gloe: So the let me start with the con confirming your understanding that we think that Q1 will be flat That is essentially know, the as I said, the first dividend from from our ten state strategy and then auto covers, right, But then the acquisition of Covers South Central has has the impact to to push out, you know, some some of some of the sales versus last year. Right? What used to be a sale from Lasum to cover Central in q one last year end of the season is now a sales from the combined entity into the market in q q. In Q2. So, you know, those those roughly offset each other. Hence, you know, in in in q one, we we are thinking flat here. As you go into future quarters, a, you know, the the the Calabasas dynamics kind of reverse out.

And then as we go into the full swing of the season, you would you would think that fiberglass penetration of video is increasing fiberglass penetration. As well as what I always call the dividends of of our strategies then you will see those those kicking in. Right? So overall, again, we we we’ve estimated everything on a on a slight Mark, And these are the the sort of the main cornerstone of our campaign.

Scott Stringer: That’s helpful. I’ll just leave it there. Thanks, guys.

Oliver Gloe: Thanks, John.

Operator: Your next question today will come from Matthew Bouley with Barclays. Please go ahead.

Matthew Bouley: Hey, good evening, everyone. Thank you for taking the questions. Just wanted to ask, maybe just a little more clarity on on the margin guide. So you know, sort of sort of fairly healthy hundred fifty basis point increase to adjusted EBITDA you know, twenty twenty five. I just wanted to be clear if I guess, number one, if if kind of the tariff exposure. I know you you got a lot of mitigation efforts, but maybe some of the cost of those mitigation measures Just kinda if if that’s included in the guide or if this obviously very recent tariff issue is is still not in the guide, so that’s kind of part one. And then I guess just secondly, what was the implication that you know, most of that increase in adjusted EBITDA margin an anticipation of a little bit of SG and A leverage as well? Thank you.

Oliver Gloe: Okay. Well, thanks for the question. So let me let me address tariffs first. What technically is in the guidance is is it’s China. As you have heard Scott saying, you know, our portfolio of of imports is really limited to about fifteen percent of total of the the total raw material bus. Right? You know, we the team has done, not over the last few weeks, but months, a great job of near shoring. We have been pre buying now admittedly know, that doesn’t eliminate the exposure. It just delays the exposure. Then really leveraging our network to to work on you know, mitigating the exposure for two thousand twenty five and and and beyond. Right? In our in our guidance, as I said, is is China We believe that the combination of the supply chain driven mitigation levels as well as what has what has proven effective to us is you know, the pricing level to to both the remaining get that our guidance given the announcements today there was not meaningful change including Mexico and and Canada.

Right? No. You know, there’s there’s always a little bit of impact of tariffs also on the domestic market as supply and demand balances shift and change. Right? We’ve seen based on the recent announcements of, you know, steel and aluminum that the domestic market have, you know, also also seen a spike here. Right? So you know, for the what I would call the more indirect impact of a tariff, we will have to wait and see you know, what needs to be mitigated and and how we will mitigate that. In terms of, you know, our gross margin, we don’t specifically guide towards gross margin, but, you know, as you recall from a previous answer, You know, we have three tailwinds to our EBITDA margin. And they are all highly relevant for gross margin.

Matthew Bouley: Right?

Oliver Gloe: And then our one headwind being in SG and A where we increase our s g and a spend to to to fund our fan stay journey and then no other growth levers. That that is entirely you know, in the in the SG and A line. Right?

Matthew Bouley: So

Oliver Gloe: you know, that that being said, right, you you can imagine that the gross margin outperformance over twenty four And then I remind you that gross margin sends that, thirty point two, so, you know, above thirty percent nicely. It’s three hundred and twenty basis points up on two thousand twenty three. We’ll take another step towards our stated goal of of thirty five percent in twenty twenty five. So most of the EBITDA outperformance actually, more of more than a hundred fifty basis point in EBITDA performance is in gross margin.

Matthew Bouley: Perfect. Okay. Got it. Yep. And thank you for clarifying. Every piece of that. So I guess, secondly, just shifting to, you know, m and a. Right? Kind of two point six pro form a net leverage. I mean, I guess, are there more opportunities to kinda go downstream on the cover side, you know, other, I don’t know, other CoverStar regions or perhaps other targets separate to that in the sand states that kinda help move the needle there. Or is this gonna be kind of a year where you guys wanna digest the leverage a little bit?

Scott Rajeski: Thank you. Yeah. No. Matt Matt, good question. Look. There’s there’s always a good healthy list of m and a targets out there. Write it up. Like I said before, right, it always comes down to timing of when is someone you know, ready to to make that transact transaction transition. Based on their career or other, let’s say, business focus priorities. They may they may wanna shift to I think these these last two that we did here, CoverStar New York, CoverStar Tennessee, Again, you know, smaller territory is much different than, let’s say, the CoverStar Central acquisition. And again, I’d say two very very unique opportunities based on dialogues and conversations we we had with both of the owners there. That allowed us to strike quickly.

And, you know, there are other CoverStar dealers or VARs out there in our network I’d say, you know, we’ll continue to have dialogue with those guys You know, we’ve we’ve got quite a bit. We’ve got a digest right here. Know, I’d say the integration with Carrefour Central is going extremely, extremely well. Holding these two back onto that one will really open a lot of new auto cover growth opportunities for us. Better alignment, how we go to market, You know, I think we’ll continue to do do extremely well with our other partners out there. And I think in, let’s say, the non auto cover space, you know, we’ll we’ll continue to have dialogues with other, but and I I can say right now, there’s nothing active pending that we’re working on other than these two that we just closed.

And, getting them folded in along with CoverStar Central.

Matthew Bouley: Got it. Thanks, Scott and Oliver. Good luck, guys.

Oliver Gloe: Alright. Thanks, Matt. Thanks, man.

Operator: Your next question today will come from Susan Maklari with Goldman Sachs. Please go ahead.

Susan Maklari: Thank you. Good afternoon, everyone. My my first question is hi. My first question is going back to the margin. You’ve done a really good job over the last year of realizing this cost savings and and the lean manufacturing efforts. And I know that I think you said that you did about two to two and a half million a quarter last year. And you think you could at least do that, if not more this year. Can you talk a bit more about what those opportunities are and how we should think about them coming through the business over the next several quarters?

Scott Rajeski: Yeah. So so, Susan, I’ll I’ll hit a high level on the opportunities. Say it’s a it’s a lot more of what we’ve been doing. Right? So you know, I’ll I’ll hit lean first because that’s the easiest one. Right? That’s just continue to do a events in our plants, I’m looking at process flow, know, how do you drive more capacity? You know, less less tact time with the product flow through the factories? Taking hours out of the process, getting that labor productivity, I I think that journey is accelerating as we go forward here. Know, and again, as we get more people trained on that, I’d say they’re doing their own events within the plants now. It’s just part of what the teams do when they show up for every single day, and the entire manufacturing operation’s done a tremendous job with with the the individual that’s leading that for us.

We continue to add new engineering talent into the organization. Now the value engineering products where you’re looking at how parts are made, how they’re constructed, what the materials are made out of, you know, how do you redesign those products and components, Right? Those take a little bit longer, but again, we’re starting to build a good mass of engineering talent. That’s been in the business now for a few years. Good ROIs and paybacks, And I would say I’ll I’ll let Aldrin, but I think it’s fairly consistent as we go through the quarter in terms of the value engineering of lean Because a lot of these projects are being built out six, nine, twelve months in advance. So you have good visibility looking forward in terms of when the realization of those will hit And again, I’d say, a lot of lot of singles, doubles, they’re not gonna get a triple.

And I think the guys are starting to look at, you know, some of the bigger more structural things we could be doing in the future you know, as as we we we gain more expertise on the engineering front there.

Oliver Gloe: And so in terms of in terms of fading, fading, a lot of the projects live with, you know, the savings per piece. So the more pieces you sell and produce, the more savings you realize. So know, given all the seasonality, expect the quarters that are more towards the two and a half million to be q two and q three with the lighter quarters being in q one and four.

Susan Maklari: Okay. That that’s helpful. And then, you know, thinking about the new products that you are developing for the sand states, how should we think about the rollout of those, the timing of that? And then as they do start to gain momentum, are there any implications in terms, again, of the margins and the returns that should think about there?

Scott Rajeski: Yeah. So look, I think we we we just came off of, you know, pretty much the kick off of the season here in the last three or four months. So, you know, I think we’ve introduced all of the new products that that we put out to the market. We’ve got some really really great press on on those models, on the plunge pools, I actually think some of the plunge pools actually won a few awards. And a couple of the shows for us. And I and I think, Susan, that will be an ongoing initiative. Right? So we’ve got a price a pipeline of product development, that our our, you know, product directors and marketing team are working on. As we build through the capacity of how we can build these molds and launch them But again, there is a seasonality aspect that if you wanna be launching these things, you know, in the late four q, early one q time frame, So as the selling season starts for our dealers to the consumers, they have all the literature and brochures they need to get to that people building season.

You know, so you’ll see the next wave of that come late summer, early fall. For new model launches that we would be planning and wanting for for twenty twenty six. As we accelerate on the capability there And I think the other other part of your question was kind of the yield margin impact. I think, you know, fiberglass will will be a little bit more competitive in the sand states you know, versus, let’s say, the concrete fiber or the concrete pools down there. But again, I think you you’ve seen that we’ve made a lot of investment in capacity in SG and A, in marketing, So as we start to sell more and more pools where we’re underpenetrated there, I think we’ll have really nice leveraging in our factories which will, you know, allow us to continue to grow not only GM, but I’d say EBITDA margins you know, as we as we march back to try and get back to what, you know, twenty two percent, twenty three percent EBITDA margin, consistently from where we were back, you know, peep full building times of, twenty one, twenty two,

Susan Maklari: Okay. That’s great color. Thank you both, and good luck with everything.

Scott Rajeski: Alright. Thanks, Susan.

Operator: And your next question today will come from Shaun Calnan with Bank of America. It’s just you had mentioned shifting some production from Kingston to the US. Can you talk about the difference in margins on the US production versus Kingston? And if that’s factored into your guidance?

Oliver Gloe: Yeah. So, you know, so there’s not really a difference in kind of the producer’s margin. Right? You’re trading you know, the the variable cost up in case with the variable cost, you know, and then and then in West Virginia, for example, is one of the receiving parts. Right? I think the the thought process is really about balancing your tariffs with logistics. Australia. So, you know, by by making the shift, you you mitigate on the tariff side. There’ll be a little bit more logistics cost. Right? In in our guidance, we have not factored in the impacts from the twenty five percent Canadian and and and Mexican tariffs that that starts earlier today. But then but then again, you know, we we have we have mitigated, Sarah a fair amount of the impact, a fair share of the impact And then, you know, as as we said, pricing what it has to do in an effective lever to those the the remainder in the past.

Okay. Great. And then I just wanted to clarify an earlier comment. When you were talking about the value engineering, there was a nine million benefit last year. Can you talk about what the carryover from that is into twenty twenty five? And then I think you said you expect something similar next year. Does that mean another nine million of incremental savings from value engineering?

Oliver Gloe: Yeah. So, you know, so there’s there’s always gonna be a carryover. So so I would say, hey, as as we look you know, for two thousand twenty four projects to to pay its full dividend in twenty twenty five. You know, there will also be twenty twenty five projects that we will implement throughout the year that that that that have their full potential than in twenty twenty six. Right? So at this point in time, I I look at what we throw into the funnel exactly the same way what comes out of the funnel in terms of the p and l. Right? And so right now, on both sides of the equation, new project, project generated and then what materialize and, you know, you have this nice nine million run rate. About two to two and a half million every quarter.

Shaun Calnan: Great. Thank you.

Operator: Thanks, concludes our question and answer session. Would like to turn the conference back over to Scott Rajeski for any closing remarks.

Scott Rajeski: Hey, look, thanks everyone for your time here this afternoon, early this evening. We really, really appreciate all of your continued support for for Latham Group, Inc. And, you know, I know all of myself are really looking forward to seeing all of you that upcoming conferences and meetings. As we roll through the first quarter here. And we’re definitely looking forward to our our one q earnings call know, once we get out into our early early mid two q. So, again, thanks everyone. Have a good

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.