Latham Group, Inc. Q1 FY2025 earnings call

• Relative strength in fiberglass and auto cover product categories.
• Progress on Sand States expansion strategy with four key priorities: expanding pool dealer base, targeting master plan communities, aligning product offerings with market demand, and targeting marketing campaigns. Notable progress made in expanding dealer base, engaging with master plan communities, launching new fiberglass pool models, and running the GOOTSA ad campaign.
• 190 basis point expansion in gross margin due to lean manufacturing and value engineering initiatives.
• Acquisitions of Latham auto cover dealers (Coverstar New York, Coverstar Tennessee, and completed Coverstar Central in August 2024) integrating well and strengthening position in auto cover category.
• Partnership with Olympic gold medalist Bode Miller to raise awareness about pool safety.
• Rollout of Measure by Latham for liners and covers, a user-friendly AI-powered tool improving efficiency for dealers.

In the first quarter of 2025, net sales were $111.4 million. In-ground pool sales were $58 million, down 4% from Q1 2024. Cover sales were $32 million, up 18%. Liner sales were $22 million, down 8%. Revenue contributions: In-ground pools accounted for approximately 52% of net sales, covers for about 28.7%, and liners for around 19.7%.

• Maintaining 2025 revenue growth expectation of 8% at midpoint, consisting of approximately 5% organic growth and 3% growth related to Coverstar acquisitions.
• 2025 adjusted EBITDA guidance of 19% growth at midpoint, reflecting operating leverage in the business model.
• Seasonal ramp up in orders aligns with expectations for stronger second and third quarters.

• Tariff related uncertainty impacting raw material costs, though efforts to offset through strategic pre-purchasing and operational adjustments are in place.
• Limited access to qualified labor affecting pool building, which is a tailwind for fiberglass pools due to lower labor intensity compared to concrete pools.
• General market conditions and economic uncertainties potentially affecting pool buying decisions.

Q: How does SG&A leverage factor into the margin expansion outlook for the year?

A: For the cadence of the year, some cost increases will anniversary out and leverage will increase as year-over-year sales increase. Sales are expected to go from $508 million to $550 million by 8% year-over-year, leading to increased leverage as SG&A remains flat year-over-year in the third quarter while sales increase.

Q: What's the reaction to new molds and progress in the Sand States?

A: There's been good progress with builders aligned in the Sand States markets. New models fit smaller backyards and are resonating. Expect an acceleration in Sand States revenue with a target of 200-300 basis points improvement in related metrics.

Q: How does the short cycle of fiberglass pools affect risk and opportunity?

A: Fiberglass pools have a short installation cycle (average week or so). The pool buying decision is a 6-18 month journey. No significant impact or slowdown in buying decisions seen, with the affluent consumer base and strong market positioning helping to maintain trends. Share gains in Sand States and auto cover conversion drive growth in a flat pool start environment.

Q: How are tariffs quantified and how are prices offsetting them?

A: Tariffs represent a headwind of 350-400 basis points on about $20 million. Over half the headwind is mitigated through supply chain efforts, with the remaining impact offset by targeted price increases effective early in June.

Q: How many large MPCs are targeted in the Sand States and progress?

A: There are 20 large MPCs in Florida and Texas. Initial target is 3-5 out of the gate, with progress on track in Florida and plans to ramp up faster in 2025.

Q: Thoughts on demand environment and marketing conversion rates?

A: No significant change in demand trajectory seen. Marketing initiatives drive consumer awareness, with leads taking time to mature. Conversion rates around 10-20%, higher for hot leads. Marketing spend drives long-term brand awareness and consumer understanding of fiberglass and auto cover benefits.

Q: Breakout of M&A vs organic in cover sales and driver of safety cover growth?

A: Auto cover business was strong in Q1, with outperformance primarily driven by Coverstar Central acquisition ($3 million) and organic growth. Safety cover growth is due to higher attachment rates on pools being installed, as well as awareness and benefits driving sales on existing pools.