Latham Group, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights:

• Financial Performance: Net sales up 7.6% year-on-year. Adjusted EBITDA increased by $8.5 million or 28.5%. Gross margin at 35.4%, up 300 basis points. Adjusted EBITDA margin at 23.7%, up 390 basis points.
• Product Line Growth: All 3 product lines grew. Fiberglass pools continued to gain market share, with 75% of in-ground pool sales in 2025 expected to be fiberglass. Covers saw 15% growth driven by auto covers. Liners up 13% due to Measure by Latham tool.
• Market Expansion: Gained traction in sand states, particularly Florida. Dealer conversions in Florida were high, with Florida sales up high single-digit. Established partnerships with custom homebuilders in Florida. Launched Measure Pro and Measure Go apps to expand liner and safety cover measurement tools.
• Margin Expansion: Considerable margin expansion due to operating leverage, lean manufacturing, and value engineering initiatives.

Segment Performance:

• In-ground pools: Net sales modestly up year-on-year. Fiberglass pools showed positive momentum, partially offset by softness in packaged pool sales.
• Covers: Sales up 15% year-on-year, driven by strong consumer response to auto covers and synergies from Coverstar acquisitions.
• Liners: Sales up 13% in the quarter, aided by industry-leading lead times and the Measure by Latham tool. In-ground pool liners saw share gains, and the tool also helped in the winter safety cover market. Revenue contributions: Specific percentages not explicitly stated in absolute terms but each segment contributed to overall growth.

Guidance:

• Revised net sales guidance range: $540 million to $550 million, representing 7% year-over-year growth at midpoint.
• Adjusted EBITDA guidance range: $92 million to $98 million, representing 19% year-over-year growth at midpoint.
• CapEx estimate revised to $22 million to $24 million.
• Long-term outlook: When new U.S. pool starts return to 2019 levels (78,000 per year), expects $750 million in net sales and $160 million in adjusted EBITDA.

Risks:

• Tariff uncertainties impacting consumer confidence in making pool buying decisions.
• Interest rate uncertainties.
• Challenges in Texas and California markets.
• Market share gains in some areas dependent on continued consumer awareness and dealer conversions.

Question and Answer: Q: In terms of upstream metrics like leads, consumers, contractors, what's been seen through the quarter with tariff and interest rate uncertainties?

A: Leads have been strong, but confidence in making pool buying decisions lags due to tariff and interest rate uncertainties. Still, a lot of leads and demand to work from.

Q: On liners performance, 17% growth. Context on replacement vs new construction?

A: Combo of share gains in replacement side with Measure tool and lower end of new construction market being down. Dealers converting to fiberglass due to labor challenges.

Q: Geographical demand progress, especially Florida?

A: Strength in most of country, Florida has seen high single-digit sales growth, gained traction in MPCs, partnered with custom homebuilders.

Q: Price and tariffs update?

A: Price up about $3 million in quarter due to June price increase. Tariff net exposure remained at $10 million after supply chain mitigation.

Q: Productivity initiatives and future savings?

A: Lean manufacturing and value engineering efforts contributed to gross margin. Structural improvements to cost base with $2-2.5 million quarterly contribution expected.

Q: SG&A growth and marketing spend?

A: SG&A comp due to stepped-up investments in Sand states and Coverstar acquisition. No change in seasonal spend behavior, consistent with strategy.