Latham Group, Inc. Q4 FY2024 earnings call

• Fiberglass pool market penetration increased: Fiberglass pools represented 24% of US pool starts in 2024, up from 23% in 2023, with 75% of in-ground pool sales in 2024. Sales and marketing campaigns highlighted fiberglass pools' fast installation, low maintenance, and eco-friendly attributes. • Adjusted EBITDA performance: Adjusted EBITDA in 2024 was over $80 million, with a margin of 15.8%, driven by gross margin expansion and disciplined SG&A spending while investing in growth initiatives. • Acquisition impact: Acquisition of CoverStar Central enabled vertical integration of automatic safety cover line in 29 states and set stage for revenue synergy and additional acquisitions. Recently completed two smaller acquisitions: CoverStar New York and CoverStar Tennessee VARs. • 2025 strategic investments: Focus on expanding market share in sand states (Florida, Texas, Arizona, California), which account for two-thirds of US pool starts. Promotion of automatic safety covers with benefits like safety, water and cost savings. Plan to launch new fiberglass pool models in sand states to meet market demand.

In the fourth quarter of 2024, net sales were $87 million, down 4% compared to Q4 2023. For the full year 2024, net sales were $509 million, down 10% compared to 2023. By product line, in-ground pool sales in Q4 2024 were $44 million, down 5% year-over-year; full-year in-ground pool sales were $259 million, down 13% year-over-year but outperforming the estimated 15% decline in US in-ground pool starts. Liner sales in Q4 2024 were $12 million, down 5% year-over-year; full-year liner sales were $180 million, down 8%. Cover sales in Q4 2024 were $31 million, down 2% year-over-year; full-year cover sales were $131 million, down 7%. Fiberglass pools represented 24% of US pool starts in 2024, up from 23% in 2023, and 75% of in-ground pool sales in 2024, compared to 73% in 2023. Adjusted EBITDA in 2024 reached just over $80 million, with an adjusted EBITDA margin of 15.8%.

• 2025 US pool starts expected to be similar to 2024 with upside if consumer confidence improves. • Net sales guidance: $535 million to $565 million, representing 8% year-over-year growth at midpoint. • Adjusted EBITDA guidance: $90 million to $100 million, representing 19% year-over-year growth at midpoint. • Cadence: First quarter 2025 net sales similar to prior year's first quarter; second and third quarters expected to have progressively higher year-over-year comparisons. • Capital expenditures: Projected to be $27 million to $33 million, higher than 2024, with $10 million for developing production molds for new fiberglass pool models and expanding facilities in sand states.

• Industry challenges: Trough market conditions likely to continue through much of 2025. • Tariffs: Potential impact on material costs and pricing, though mitigation efforts like near-shoring and shifting production are in place but could still affect business.

Q: Could you break down the 8% sales growth guide between volume, price, and M&A?

A: Oliver Gloe said about 3% comes from the full-year run rate effect from CoverStar Central and the two new acquisitions, leaving about 5% for organic growth. Pricing is flattish.

Q: What's the feedback from dealers heading into the season, especially in the sand states?

A: Scott Rajeski said dealer feedback is more positive than last year. Majority of larger dealers have flat or up backlogs. Goosa campaign in Texas led to 40% more leads, and progress in Florida master-planned communities.

Q: Talk about exposure to tariffs and impact on production?

A: Scott Rajeski said they have diversified supplier base, pre-bought material, and can shift production between facilities. Pivot to use Kingston for local Canadian production and ship from US facilities to fill US market.

Q: How to think about the SandState strategy's capital plan?

A: Scott Rajeski said it's about building out product portfolio for sand states, improving flow in existing facilities, and making smaller capex investments in Oklahoma-like plants, no immediate need for a large Kingston-type investment.

Q: On fiberglass penetration in sand states and guide assumptions?

A: Scott Rajeski said fiberglass penetration in sand states is significantly below the national average, and the guide includes first dividends from SandState strategy and adoption of auto covers.

Q: Clarity on EBITDA bridge and SG&A spend?

A: Oliver Gloe said key tailwinds include volume leverage, lean value engineering (similar $9M benefit as 2024 expected to continue), and acquisitions. SG&A spend is to fund growth initiatives and is expected to support organic growth.

Q: Success measurement of SandState strategy and M&A opportunities?

A: Scott Rajeski said success will be measured by percentage of fiberglass pools sold in sand states and progress in master-planned communities. There are ongoing M&A opportunities, but currently focused on integrating recent acquisitions.

Q: Margin guide and tariff impact?

A: Oliver Gloe said tariffs on China are mitigated but indirect impacts from other tariffs are pending. Gross margin outperformance is a key driver of EBITDA margin improvement.

Q: New products for sand states rollout and margin implications?

A: Scott Rajeski said new products were launched earlier in the season, with ongoing product development. Launch of new models will continue, and fiberglass pools in sand states are expected to drive margin leveraging as market penetration increases.

Q: Value engineering carryover and capital shift impact on margins?

A: Oliver Gloe said value engineering projects have carryover, with savings per piece increasing with more production. Shifting production has implications on tariffs and logistics but producer margins are balanced.