NASDAQ:SWIM Latham Group Q4 2023 Earnings Report $4.91 +0.08 (+1.66%) Closing price 04/17/2025 04:00 PM EasternExtended Trading$4.90 0.00 (-0.10%) As of 04/17/2025 04:07 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Latham Group EPS ResultsActual EPS-$0.06Consensus EPS -$0.14Beat/MissBeat by +$0.08One Year Ago EPS-$0.17Latham Group Revenue ResultsActual Revenue$90.90 millionExpected Revenue$86.95 millionBeat/MissBeat by +$3.95 millionYoY Revenue Growth-15.80%Latham Group Announcement DetailsQuarterQ4 2023Date3/12/2024TimeAfter Market ClosesConference Call DateTuesday, March 12, 2024Conference Call Time4:30PM ETUpcoming EarningsLatham Group's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Latham Group Q4 2023 Earnings Call TranscriptProvided by QuartrMarch 12, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Good afternoon, and welcome to the Latham Group 4th Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Casey Coterie, Investor Relations representative. Operator00:00:41Please go ahead. Speaker 100:00:44Thank you. This afternoon, we issued our 4th quarter and full year 2023 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's President and CEO, Scott Rajeski and CFO, Oliver Glow. 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 the future events and financial performance as of today or the date specified. Speaker 100:01:20Actual 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 ks 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 Rijeski. Speaker 200:02:06Thank you, Casey. Good afternoon and thank you all for joining us to review our Q4 and full year 2023 results and discuss our outlook for 2024. We were pleased that our 4th quarter results came in slightly ahead of our guidance range, capping a year in which we focused on several structural cost saving initiatives to mitigate the impact of another year of lower pool starts. It also was another year that shows the resilience of our business and Latham's ability to both outperform the overall market decline and to generate substantial cash flow from operations. There are several key takeaways worth noting that help First, we continue to drive the conversion to fiberglass pools over concrete pools. Speaker 200:02:57As a result of Latham's leadership in this category, we were able to report sales for the year that outperformed the decline in new pool starts in the U. S. By approximately 10 percentage points. 2nd, we ended 2023 in a strong competitive position with leading market share in all product categories in which we compete and energized dealer network and greater consumer engagement, all supporting LatAm's ability to capture additional market share as industry conditions improve. 3rd, we took decisive actions early in the year that have fundamentally improved our cost structure by closing facilities, streamlining operations and accelerating our value engineering and lean manufacturing initiatives, we have structurally reduced our costs and increased our capacity, giving us the ability to considerably increase our profit margins once volumes recover. Speaker 200:03:49Lastly, we strengthened our financial position in 2023, ending the year with a record cash position of just over $100,000,000 providing substantial financial flexibility and demonstrating our ability to efficiently manage through difficult market conditions. In summary, Latham exited a year which saw significant decline in new in ground pool starts and has entered 2024, which strengthened market positioning and the resources that quickly take advantage of the eventual rebound. Specifically, we continue to see progress in fiberglass' penetration of the new in ground pool market and expected fiberglass now accounts for approximately 22% of pool starts in the U. S. This compares with 21% and 18% in 2022 and 2021 respectively, a clear indication of our leadership position in fiberglass driving this ongoing conversion progress. Speaker 200:04:45Latham's fiberglass product sales accounted for approximately 73% of Latham's full year 2023 in ground pool sales. Since 2019, we have grown our fiberglass product sales at a compounded annual rate of about 15%. And we have several strategic initiatives in process to leverage the share gains we've achieved to date in states like Texas and the Carolinas to further penetrate the sand states, notably California, Florida, Arizona and Nevada, where concrete pools continue to dominate. The value proposition is compelling. Fiberglass pools have an average 25% to 30% lower upfront cost versus concrete and a total overall lower cost of ownership of 35% to 40% over time. Speaker 200:05:31They can be installed as fast as one day by some of the best dealers and approximately 3 days on average for the majority of our dealers, compared to 3 to 6 months for most concrete pools. Also, fiberglass pools are more eco friendly than concrete pools using 30% less chlorine, eliminating the pollution created by the production of concrete and not requiring the ongoing maintenance, repair and refinishing generally needed for concrete pools. In 2023, we had approximately 300 Fiberglass Grand dealers who sold at least 5 pools, which is about 100 more than we had in 2019 and speaks to the positive momentum for both fiberglass pools and for LatAm's expansive dealer network. While dealer recruitment is important to our growth strategy, increasing dealer productivity is an even greater priority and we moved ahead with several initiatives in 2023 that have done just that. These include the Latham Design Center, which enables our dealers to easily create branded content and customized collateral materials, our fiberless bootcamp training sessions, and of course, our lead generation programs, which result from the direct consumer engagement that we continue to build in 2023. Speaker 200:06:52And in 2023, our website traffic increased substantially over 2022 levels, pointing to pent up consumer demand for pools, which we believe is substantial. Our integrated marketing programs that inform and educate the consumer and feature regional builders have been successful in driving traffic along with our robust tools that give homeowners the ability to design, plan and actually visualize how a new pool will look in their outdoor space. Through this direct engagement with consumers, we are able to provide our dealers with an increasing number of highly qualified leads in their respective markets. While fiberglass conversion represents Latham's largest growth potential, approximately 47% of our total 2023 sales came from our covers and liners product lines, the majority of which represent replacement products that are not as tied to new pool starts and are therefore more resilient during cyclical downturns. We also continue to prioritize new product introductions within these categories to drive sales. Speaker 200:07:55In particular, our automatic safety covers, which can be used on any type of in ground pool, experience increased consumer adoption and demand in 2023. In addition to their safety features, these covers provide the homeowner with significant energy, water and maintenance savings. And measured by Latham, our proprietary AI powered measurement tool for pool covers and liners has been met with very positive dealer response and should continue to help drive demand for these product lines as we continue to roll it out through 2024. To sum up, there were many bright spots for Latham in what was a very difficult industry environment in 2023. We have entered the New Year cautiously mindful that lower interest rates and improved consumer confidence levels are not likely to occur in time to benefit the 2024 pool buying season. Speaker 200:08:45We do expect that there will be a tailwind as we exit 2024 and head into the 2025 season. Our conversations with channel partners and colleagues in the field and at recent trade shows, as well as our own data indicate a high level of consumer interest in pool ownership, but buying decisions are being delayed, particularly by those who plan to finance the purchases. We do not expect the projected declines in interest rates will occur quickly enough to impact our peak pool building season in 2024 and therefore we are managing to an approximate 15% decline in new pool starts in 2024. Within that context, you can expect Latham to continue to reduce structural costs, while maintaining investments in future growth and capability, so that we are positioned to rapidly capture pool starts increase, which we anticipate will occur in 2025. Let me now turn over the call to our CFO, Oliver Glow, who will provide a review of LatAm's 4th quarter and full year financial results. Speaker 200:09:46Oliver? Speaker 300:09:47Thank you, Scott, and good afternoon, everyone. Please note that all comparisons we discuss today on a year over year basis compared to the Q4 of fiscal 2022 and full fiscal year 2022 unless otherwise noted. Net sales for the Q4 of fiscal 2023 were €91,000,000 compared to €108,000,000 in Q4 of 2022, reflecting lower volumes. Softness in demand was the key factor in the 23% decline in in ground pool sales. Our other product lines were more resilient and helped to mitigate the quarter sales declines. Speaker 300:10:26Cover sales only declined 10% during the quarter to €32,000,000 as we saw continued success in our winter covers and continued adoption of automatic safety covers. Liner sales of 13,000,000 were essentially flat from previous year driven by strong replacement activity. Despite the decline in sales, our 4th quarter gross margin reached 23.3 percent increasing 540 basis points compared to the 17.9% reported in the Q4 of 2022. The strong showing resulted from the benefits of our cost reduction programs, lean manufacturing initiatives and site consolidation that more than offset low absorption due to reduced production volumes at our plants. SG and A expenses decreased to $24,000,000 or 26% of sales from $33,000,000 or 31 percent of sales during Q4 of 2022, reflecting ongoing cost containment programs and a significant decrease in non cash stock based compensation expense. Speaker 300:11:334th quarter adjusted EBITDA was €10,000,000 more than double the 4,400,000 reported in last year's Q4 driving a 6 80 basis point expansion in adjusted EBITDA margin to 10.9%. Turning to our full year results, net sales were €566,000,000 compared to €696,000,000 in the prior year period. By product line, Latham's in ground swimming pool sales for the full year were 298,000,000 down 23% year over year. As Scott mentioned, in ground pool sales performance outpaced the U. S. Speaker 300:12:12New in ground pool installation market for 2023, which we estimate to have declined by 30% in 2023 compared to 2022. This is a strong indication of the positive momentum we have demonstrated in driving conversion to fiberglass pools, where our year over year sales declined 20% or about 10 percentage point less than the overall market. Liner sales of €128,000,000 were down 16%, while cover sales of $141,000,000 declined 11%, reflecting softer homeowner demand in the current economic environment, partially offset by a pickup in demand for automatic safety covers. Gross margin was 27% compared to 31.1% in the prior year. Fixed cost leverage improved throughout the year and actually was a slight tailwind in Q4, but was lower for the full year. Speaker 300:13:10Margin headwinds continue to be partially offset by benefits from cost reduction programs as well as our lean driven site consolidation initiatives where we have reduced the number of production sites while maintaining capacity. SG and A expenses decreased to $110,000,000 from $147,000,000 in fiscal 2022, reflecting a $28,000,000 reduction in non cash stock based compensation expense as well as the benefits from our various cost reduction actions. Excluding non cash stock based compensation, SG and A was €92,000,000 a decrease of €8,000,000 or 8%. Adjusted EBITDA was $88,000,000 compared to $143,000,000 in the prior year, resulting in an adjusted EBITDA margin of 15.5% compared to 20.6% in 2022. Turning to the balance sheet. Speaker 300:14:06We ended the year with a very strong financial position. Net cash provided by operating activities more than tripled to $116,000,000 for full year 2020 3, which reflected the cash generation capability of Latham's business augmented by the benefit from inventory reduction. The strong cash flow performance yielded a net cash position of $102,800,000 at year end, giving Latham substantial financial flexibility to navigate a range of economic scenarios. We also repaid €13,000,000 of our term debt in 2023, ending the year with a total debt of €301,000,000 and a net debt leverage ratio at 2.25, well below our debt covenant of 5.5. Capital expenditures were $33,000,000 for full year 2023 compared to €40,000,000 in the prior year. Speaker 300:15:02Now that we have completed investments in our new Kingston facility and integrated our acquired fiberglass manufacturing assets in Seminole, Oklahoma, we expect to return to a more normalized CapEx run rate for the business. Turning to our outlook for fiscal 2024, as Scott noted, while we anticipate increased consumer interest in pool buying from easing interest rates in 2024, meaningfully lower rates are not expected to occur in time to benefit our 2024 pool building season, which peaks in Q2 and early Q3. Although we are managing to a down year in 2024, we are optimistic that we are reaching the bottom of the cycle and are planning for a recovery in U. S. Pool starts to be realized in 2025. Speaker 300:15:52Against this backdrop, we are providing 2024 guidance of net sales of $490,000,000 to $520,000,000 that reflects our expectation that our sales will outpace new U. S. Pool starts due to continued fiberglass conversion. Adjusted EBITDA is anticipated between €60,000,000 €70,000,000 and assumes stable pricing, continued investment in sales, marketing and engineering and R and D to accelerate the conversion to fiberglass, ongoing digital transformation programs and normalized performance based compensation. Capital expenditures are projected to range from $18,000,000 to $22,000,000 and include continued investments in new cost reduction and lean initiatives, new fiberglass models, manufacturing facility improvements, digital transformation and ongoing safety initiatives. Speaker 300:16:49As we enter 2024, we are seeing a return to a normalized seasonal sales cadence reflecting historical backlog levels and distributors taking a cautious position early in the season. We expect total Q1 sales of between $98,000,000 $104,000,000 and adjusted EBITDA of between $6,000,000 $8,000,000 As Scott noted earlier in today's call, we have responded to difficult market dynamics with cost reduction actions that have reduced our manufacturing overhead headcount and spend resulting in $20,000,000 of reduced spending in 2023 with an additional $4,000,000 carryover benefit to be realized in 2024. We continue to focus on enhancing our productivity and executing on value engineering and lean initiatives. Our balance sheet remains in excellent condition. In addition to repaying $13,000,000 of debt in 2023, we paid down another $18,000,000 in debt earlier this month and we anticipate generating positive operating cash flow in 2024. Speaker 300:17:59Given the economic outlook, we continue to be thoughtful and disciplined in our capital allocation strategy. With that, I will turn back the call to Scott for his closing remarks. Thank you, Oliver. Speaker 200:18:11As you have heard, Latham has entered 2024 in a very strong financial position. Our priorities are clear: continue to drive the adoption and awareness of both fiberglass and automatic safety covers, which will lead to increased conversion of fiberglass pools and growth in auto covers as more consumers purchase them for peace of mind. Continue to gain additional operating efficiencies through our ongoing value engineering and lean manufacturing initiatives and maintain a strong balance sheet. The long term fundamentals of our industry are very compelling. Outdoor living remains one of the fastest growing categories in the repair and remodel sector. Speaker 200:18:49Pool ownership is a natural addition for consumers who are spending more time in their homes and want to fully enjoy their outdoor spaces while building the value of their homes. Additionally, the value proposition of fiberglass products provides an excellent opportunity for consumers to become pool owners and gives Latham an excellent platform to drive accelerated growth. The actions we took in 2023 and our priorities for this year should enable us to outperform the market again in 2024 and to achieve meaningful share gains and expanded margins and profitability as the pool industry conditions improve. Operator, I would like to open the call to questions. Operator00:19:28We will now begin the question and answer The first question comes from Tim Weisz with Baird. Please go ahead. Speaker 400:20:06Hey, guys. This is Robert Schultz on for Tim this afternoon. First, just want to say thanks for providing the incremental data on fiberglass sales for 2023. That's a really helpful color to have. So appreciate that. Speaker 400:20:21And then moving on to the balance sheet, it's nice to see leverage moved a little bit lower sequentially. Could you provide some additional color maybe on how you're trying to manage the balance sheet for 2024? And then related to that, kind of what are the puts and takes to cash flow for 2024? Speaker 300:20:38Let me start good afternoon, Roger. Let me start with your second question, Suresh, on cash flow in 2024. We traditionally haven't given guidance for cash flow specifically, but I can help your modeling there is to start with our EBITDA midpoint guidance at €65,000,000 You deduct about €27,000,000 in interest rate and 20 €1,000,000 which is the midpoint of our CapEx range. That is a good proxy for cash flow. And as you heard me saying in my prepared remarks, we do expect that 2024 is another year where we stay where we are cash flow positive. Speaker 300:21:19In terms of your question on how do we manage the balance sheet, we are quite pleased on where we are at year end. That is due to 2023 with solid cash flow generation, augmented by a significant reduction in net working capital, especially inventory. And all that gave us the luxury to have a cash position of €102,800,000 at the end of the year. As a result of that net debt, so that €200,000,000 and as a result of this, our net debt leverage rate was at 2.25. So all in all, quite comfortable on where the balance sheet stands right now. Speaker 400:22:02Great. Thanks. And then, if I think about the 2024 EBITDA guidance, what would you say are the key bridge items to consider to get to the $65,000,000 at the midpoint? Speaker 300:22:14Robert, let me take that one as well. As you think of our 2024 EBITDA guidance, there are really 4, 5 positions to consider here. The most impactful one that is driving the entire EBITDA margin gap here is the impact from lower volume and lower fixed cost levels, right? That is offset by a modest small level of deflation, nothing in comparison to the inflation we've seen over the last few years. There is another tailwind coming from our cost containment initiatives. Speaker 300:22:49That is the carryover of about EUR 4,000,000 from the previously announced and all implemented cost saving programs that we have discussed in prior calls as well as our increasing focus on lean and value engineering going forward. So the combination of those 2, we do expect not only in 2024, but also in the years thereafter to more than offset cost inflation. So again, tailwind from that. What you've also seen us talking about is that we are protecting some investments. These investments help us to fare better than the overall market. Speaker 300:23:26As we look back over a couple of years, the market declined, we less than the market and which help us once the market returns to outperform the market. And these are the investments in the network, lead generation, fiberglass conversion and so forth. I think the last point I would add here Robert is the accrual for performance based compensation. We are, in the beginning of the year, accruing towards full achievement of our goals, which are the basis for our guidance today. And as that didn't pay out in prior year, that is a year over year headwind. Speaker 400:24:02Got it. Thanks for the color. I'll leave it there. Speaker 200:24:05Thank you. Operator00:24:07The next question comes from Sean Collin with Bank of America. Please go ahead. Speaker 500:24:14Hi, guys. Thank you for taking my questions. Just first, your assumption on new pool construction is a bit lower than most of your peers. What do you think is driving the difference there? Is it conservatism? Speaker 500:24:27Is it regional exposure? Or is it just kind of better insight from what you're hearing from the dealers? Speaker 200:24:34Yes. Hey, good afternoon, Sean. Good to catch up here again. And I think when you step back, if we look at ourselves really as the leader in the in ground pool industry, when you think about new pools going in the ground, we probably got some of the best insights into what's happening in the market out there versus maybe some of the other equipment guys in that. And look, we're managing the business to what we believe to be a decline of about 15 percent on average here in the U. Speaker 200:25:02S. And I think really what we've done kind of back to Oliver's point of investments we've made in the business, we've really positioned ourselves that we can quickly ramp up production if that number turns out to be a little too conservative. And I think incrementally, we're continuing to drive increased website activity, trying to drive the lead generation. And the goal will really be for us to try to outperform the overall market as we look at 2024 and I think similar to what we've done over the last couple of years here. Speaker 500:25:36Okay, thanks. And then the midpoint of the guidance is down 11% year over year. So does that assume you're taking share on the new pool side? And then can you give us any insight into your expectations for the other buckets, meaning covers and liners? Speaker 200:25:54Yes. So Sean, I'll take that. The midpoint down at 11 percent, again, I think back to the fiberglass world and driving fiberglass penetration, taking a higher percentage of share from concrete and in some cases vinyl. We'll continue to drive that, which will help some. And then if you look at the recurring revenue portion of our business with the liners and covers, that replacement and repair remodel piece of the business performs a lot better for us from a stability standpoint. Speaker 200:26:29So I think when you think of that of maybe being down in the low to mid single digits, I think that's what's helping to blend to the 11% number at the midpoint. Speaker 500:26:41Okay. Thank you. Operator00:26:45The next question comes from Scott Stringer with Wolfe Research. Please go ahead. Speaker 600:26:52Hi, guys. Thanks for taking my question. I was wondering if you could provide some outlook for gross margins for the year in terms of cadence, how are commodity costs trending and is like sell through of higher cost inventories an impact? Speaker 300:27:05Yes, I'd let you take that again. We haven't traditionally provided a guidance specifically around gross margin, but I'll give you the key building blocks here, right? So obviously, like with my prior answer to EBITDA margins, also gross margins will be primarily impacted by the fact that we are planning for a year with lower volumes. That will be slightly this will be offset by cost deflation, commodity cost deflation. And again, it's small versus the inflation we've seen over the past year that some commodities in our bucket moved down, some up. Speaker 300:27:48But on balance, the bucket is still at close to the highest we've seen the past few years. That is also there's a slight tailwind from our continuing cost containment actions. So overall, I would say, gross margin roughly in line with where we were in 2023. Speaker 600:28:17Okay, got it. And then on the CapEx for 20 24, is there any way you can parse out like maintenance CapEx versus investment CapEx? How are you feeling about investing in capacity today for the current environment? Speaker 300:28:33I think with regards to CapEx, we certainly come from a couple of years investing in capacity with the Kingston, which is now fully completed. As we've indicated in our last earnings call, so that €5,000,000 quarterly or €20,000,000 annual run rate is sort of what we think of being normal here. Specifically with regards to 2024, there's a lot of maintenance investment in there. But also complemented by investments in our lean and value engineering projects or investments into efficiency of our assets. And then there's a little bit of digital transformation in there as well. Speaker 200:29:19And the one thing I would throw in there incrementally, Scott, is we are continuing to invest in new fiberglass models as we roll out and refresh the lineup there. So there is a little bit of growth CapEx on the fiberglass side, but more model related and incremental molds in certain facilities to build out the network. Speaker 600:29:38Great. That's helpful. That's all I had. Thanks. Speaker 200:29:41Thanks, Scott. Thank you. Operator00:29:43The next question comes from Jonathan Bettenhausen with Truist Securities. Please go ahead. Speaker 500:29:51Hey, I'm on for Keith this evening. Thanks for taking my question. I was wondering if you could give us some more color on your current capacity utilization rates and kind of how you're planning on taking your production levels going into Speaker 200:30:02the spring? Yes. So Jonathan, good to Choute here this afternoon. We've not distinctly disclosed capacity utilization in some time. But if you kind of go back to the 2021, 2022 timeframe when we talked about ramping Kingston and get that fully ramped, we're in a really good position capacity wide throughout entire network. Speaker 200:30:26Just kind of go back and look at the numbers we were running in the 2021 timeframe, we've got a lot of strength from a positioning standpoint in all of the facilities. Oliver mentioned a couple of times some of the lean activities we've done in the rest of the business to give us some better capacity. We sit in a really good lead time delivery position throughout the entire network in terms of kind of I'd say back to probably some of the best lead time delivery service levels since I've been in the business going back 12 years now. So good position. We don't need to put more plants in the ground or anything like that, but we will evaluate opportunistic things that could be out there from an M and A standpoint. Speaker 200:31:08And just kind of if you cycle back to 2023, a lot of the activities we did, did enable us to do some rooftop consolidation, close some facilities, which drove some of that cost savings in 2023 and to carry over into 2024. Speaker 500:31:25That's helpful. Thanks. And was there any price impact on 4th quarter sales? Speaker 300:31:32Price was roughly flattish with most of our price anniversarying So think of Q4 price again roughly Operator00:31:50The next question comes from Matthew Bouley with Barclays. Please go ahead. Hey, good afternoon, everyone. Thanks for taking the questions. Speaker 600:32:10Do you think it would take, I guess, for new pool builds to recover? Is it simply an interest rate issue, kind of looking at more home turnover, kind of general consumer sentiment from your perspective and history in the industry, what do you think it would take to kind of reinvigorate the market? Thank Speaker 200:32:29you. I think Matt, good afternoon. I think you kind of hit several of the key points there with if you look back and say ballpark 50% of all pools are financed and you can kind of say most of the financing has dried up. Not to say that it's gone to 0, but I think a movement in interest rates seems to be the common denominator that we're hearing from consumers and our dealers that's keeping people on the sideline. If you look at the activity on our website, the lead generation folks establishing their My Latham account. Speaker 200:33:05The interest in the pools is definitely there and we continue to hear more and more the homeowner is just awaiting a move in interest rates to get them back into the game. And I think the $1,000,000 question is how much of a move will start to get them off the sidelines. And I think in some of our prepared remarks and the data we've published, is probably not going to be enough to greatly impact the second half of this year. But I think it definitely will start to create the tailwind as we move into and through 2025. So the good news is interest is there, wants there, the number of homes that don't have swimming pools we've talked about is there. Speaker 200:33:47It's really just getting rates down 100 basis points, 200 basis points to get people back into the buying decision for pools. Speaker 600:33:57Got it. Okay. That's helpful. I guess secondly, just on your kind of dealer conversion efforts. And you have this kind of slower pool market. Speaker 600:34:10How are dealers, I guess, approaching willingness to migrate to fiberglass given that market? So is it the type of thing where people don't really want to rock the boat when the market is slow like this? Or on the other hand, is it a situation where when you have this kind of slowish trends in the market, maybe it's actually easier to kind of convert your business from a dealer's perspective? So kind of how is that playing out in this market? Speaker 200:34:41Yes. Look, there's a lot of pieces in there, Matt, in that question. I think if you go back to some of the data, if you think about where we stood in 2023 with over 300 grand dealers who did at least 5 pools, right, 100 more than 2019 And you think about the fact that we've had 2 consecutive down years, but we've been able to drive more productivity at the dealer level, right? We've talked many times, this isn't about how many more dealers we need to add, it's about how do we make our existing dealers more efficient with the build and get them going. I think dealers are seeing the acceptance and adoption of fiberglass grow more and more. Speaker 200:35:22Again, 600 basis point improvement in the fiberglass penetration number since 2019, right? Our fiberglass sales have grown at about 15% CAGR since 2019, while the markets declined about 3% on average per year. If you look 2019 to 2023, we've not had issues recruiting dealers and bringing them on board for fiberglass. It's, I think it's been easier with the slowdown. It's allowed our team, our marketing team to develop more tools, getting to build a portal out there, providing really great visibility to the dealers now with the lead generation where we can now monitor and watch how the lead is moving through the system with them and follow ups and getting leads closed. Speaker 200:36:10So again, it's about continuing to give them the tools to make their life easier. And look, I think we've even bridged a little bit further in helping them in how do you actually estimate a full project in the backyard for a consumer understanding their profit profile at a install level of profitability and how they should properly price a pool. I think bigger picture, Matt, when you think about the cost advantage of fiberglass versus concrete, as consumers are looking at how much the cost of the pool has gone up, I think some dealers are trying to say, look, I struggle selling a concrete pool at $105,000,000 100 and 25,000 $150,000 depending on where you are. The fiberglass value proposition at the consumer level is very appealing for them to go and market and sell that to others. Speaker 600:37:02Yes, got it. Well, thanks, Scott. Good luck, guys. Speaker 200:37:05Thanks, Matt. Operator00:37:07The next question comes from Andrew Carter with Stifel. Please go ahead. Speaker 700:37:12Hey, thank you. Good evening. I'm just kind of going through your guidance here and just wanted to understand, well, actually first clarifying question. The $4,000,000 in cost savings, is that all in the Q1, The incremental Speaker 300:37:26Yes, front end loaded is a combination of 1st and second quarter. Speaker 700:37:30Okay. I'll assume 2. So I guess my question is then, I'm looking at your decremental in 1Q and I'm getting like something in the mid teens. And then for the final 9 months of the year, I'm getting a decremental of somewhere at the midpoint of 80%. So and I'm getting that off of a $37,000,000 to $13,000,000 revenue decline with EBITDA down 23 to 15. Speaker 700:37:55What's going on there? Is there a stepped up investment in SG and A? Do you expect a lot of gross margin pressure? I know you expect to finish even. You just had some gross margin momentum. Speaker 700:38:04Anything helps out that was there? Speaker 300:38:08Yes. I think when it comes to our Q1, this is where you typically see a lot of marketing investments. This is where our dealer conference is. And so for saying in terms of SG and A, it's not a perfect seasonality between the quarters. But I think what you'll also see again is the ability of the team to contain cost and you'll see that in our decrement, especially in Q1. Speaker 700:38:35Well, I mean, I'm asking about the 9 final 9 months of the year. The decrementals, I'm getting a 90% decremental. Speaker 200:38:46All right. Speaker 700:38:48We can take it offline. No. No. Let's take it offline. I guess the second question is you pretty much banked in, I don't know, almost like the season's gone. Speaker 700:38:57How quickly can things turn? And I guess importantly, how quickly could you flex, pay the quick turn of demand, maybe give a surprise on interest rates, something of that sort. Is there any fear in that of not being invested for a quick turn versus your turn in 2025 that you're expecting? Speaker 200:39:14Yes. So Andrew, I'll take that one. Couple of pieces in there. 1, I think as I mentioned earlier, we've actually probably not cut as much cost as we could have. We continue to stay invested in the business, maybe held on to a little bit more labor with the expectation that this thing is going to turn at some point and we want to be prepared. Speaker 200:39:38We have plenty of the capacity we need to quickly ramp up. And if you just go back to 2021 and look at how quickly the business ramps in that 2021, 2022 timeframe, we have more capacity and capability and efficiency than we had then. So the ability to ramp faster is a lot better. We've not talked supply chain issues in a long time and that's a good thing because all of that's behind us. We've got a much stronger vendor base and supply chain stood up both where and how we store materials and diversity of the base, which will enable us to turn quickly fair to say that we're probably taking a little bit more conservative approach. Speaker 200:40:30It's early in the year, right? We're not mailing in saying the year is over. We're starting to see the season ramp here nicely. We've got to work with our wholesale distribution partners. They're continuing to run lean with their inventory levels until they see how the season is going to play out. Speaker 200:40:47And if it does move and pop, we will be able to take advantage of it pretty easily. Operator00:41:00The next question comes from Michael Francis with William Blair. Please go ahead. Speaker 500:41:07Hey, guys. I'm on for Ryan Merkel today. I had one clarifying question and a follow-up to that. Did you say that liners and covers are going to be down low single digit to mid single digits? Speaker 200:41:23On a volume basis, so think from a unit standpoint, probably in that down 3% to 5% range. Speaker 500:41:34Any price on that? Speaker 200:41:37I think probably think price flattish. Speaker 500:41:43Okay. And then my follow-up is and this might be Speaker 200:41:47something that I can just Michael, just if I can step back and clarify, we talked to covers, we need to remember there's that recurring revenue portion of the winter safety cover in there. Then there is the automatic cover portion of the business in there. But I think in total, Oliver, probably the total cover product category. Speaker 300:42:06It's a blended rate between what we've assumed for the replacement piece, which is significantly it's a significant portion for both the safety covers and vinyl liners kind of down mid single digit. But then there's also the share, which is which grow and shrink in accordance with new pool starts and our assumption there is minus 15%. Speaker 500:42:29Okay. So I'm just making sure I get this straight because if I take both liners and covers down about 4% that has in ground pools in my model down about 15%. Am I thinking about that wrong or right? Because if it's down 15%, there's no share gain there. Speaker 300:42:49You'll probably end up in the inground food category at 15, maybe slightly better driven by fiberglass conversion. Yes. Speaker 500:42:58Got it. Thank you. That's all I had. Operator00:43:01The next question comes from Susan Maklari with Goldman Sachs. Please go ahead. Speaker 800:43:08Thank you. Good afternoon, everyone. Speaker 200:43:12Hey, Susan. How are you doing? Speaker 800:43:14I'm good, Scott. How are you? Speaker 200:43:16Good. Thanks. Speaker 800:43:18My first question, Scott, is around thinking about the pricing on the pools. If we start to see costs deflate and especially if we start to get bigger moves down on the cost side of things. Do you think that there's an opportunity to adjust your net pricing to help alleviate some of that affordability constraint Speaker 600:43:37that you talked about that's Speaker 800:43:37happening on the ground? And I guess generally, how Speaker 200:43:49Yes. Susan, I think it's a good question. I think as we've thought about it, this is part of what we like about our business and where we sit in the categories. We're a small percentage of that total backyard project, right? So our view is to change our pricing a few $100 on a liner or cover or $1,000 or $2,000 on a fiberglass pool is probably not going to get pushed all the way out to the end consumer and be enough to stimulate demand at the consumer level to make that buying decision on a project that could be 4,000 or 5,000 for a replacement line or a cover or call it $75,000 $80000 for a fiberglass pool install. Speaker 200:44:40As we work with our dealers, there are different regional competitive dynamics at play that we need to think about. There's more than just what the list price is or how we would change our pricing at the list. There's rebates, there's other marketing programs we run with them. But we think we can hold our price fairly well. And we've not really seen a significant movement yet on the direct material cost side. Speaker 200:45:08Labor continues to trend up, freight is continuing to go up. And rates or I should say material costs are still in many cases fairly elevated from where we were back in the 2019 2020 time frame when we took on $100,000,000 plus $1,000,000,000 of inflation in the business and really never were able to pass full pricing on to maintain margin levels, which has driven some of the compression we've seen. But look, it's different in every product category. I think that's where we need to maintain flexibility as we go forward. And look, if we get a massive tailwind from deflation, it could be a different story as we look out in time. Speaker 200:45:50But right now, it's kind of flat pricing for the year is the assumption and the approach we're taking. Speaker 800:45:58Okay. That's very helpful color. And then thinking about the productivity Speaker 600:46:02and the efficiencies that you can realize, I know you talked Speaker 800:46:03about that $4,000,000 of side as we go through this year and other opportunities that perhaps can come through over time? Speaker 200:46:21Yes. So Susan, we've continued to ramp up our value engineering efforts and initiatives on all fronts. We've talked a lot about the lean. A lot of that was not to say we haven't been doing it, but I think we've continued to accelerate that. We've continued to add more engineering resources to the team. Speaker 200:46:43And part of the incremental decremental margin we're seeing as we move through the year is as we ramp and bring more engineers on to start to build that pipeline of productivity and efficiency projects on the material side in fiberglass and the other product areas, increase the number of lean events we're doing in the factories. It's going to take a little while for that ROI to kick in, but what we've seen from the initial waves, there clearly is more to become from all of those initiatives. We got some really, really neat things in the hopper. And I think as we move through time, that pipeline will build and we're trying to get on to ongoing 3% to 5% productivity gain every year on the material front from those efforts and initiatives. Speaker 800:47:30Okay, that's great. Thank you and good luck with everything. Speaker 300:47:34All right. Thanks, Susan. Thank you. Operator00:47:36This concludes our question and answer session. I would like to turn the conference back over to Scott Rodjeski for any closing remarks. Speaker 200:47:45Yes, thanks. Hey, thank you for your time everyone. They called you this afternoon and your ongoing interest in Latham. As we think about Latham, right, we're extremely well positioned to continue to outperform the overall market and drive that continued acceleration in fiberglass penetration as a total of the new in ground pool starts like we discussed earlier today. We also remain very confident in the long term growth opportunities we see not only in our business, but in the industry overall. Speaker 200:48:14And we look forward to catching up with all of you at upcoming investor events. Thanks for your time and have a good evening. Operator00:48:22The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallLatham Group Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Latham Group Earnings HeadlinesLatham Group, Inc. Announces First Quarter 2025 Earnings Release and Conference Call DateApril 8, 2025 | finance.yahoo.comLeisure Products Stocks Q4 Teardown: Latham (NASDAQ:SWIM) Vs The RestMarch 26, 2025 | uk.finance.yahoo.comTrump’s Secret WeaponHave you looked at the stock market recently? Millions of investors are scrambling trying to figure out what's coming next. But here's the truth… This is just the beginning. Trump has made it clear his tariffs are coming, and that the market will get worse before it gets better. Luckily, our FREE Presidential Transition Guide details exactly what will happen in the next 100 days, and how to protect your hard-earned savings during these times. Don't wait for the next crash to wipe you out. Act now.April 18, 2025 | American Alternative (Ad)Latham Group (SWIM) Gets a Buy from Craig-HallumMarch 13, 2025 | markets.businessinsider.comTariff threat prompts Latham Group to adjust its game planMarch 10, 2025 | bizjournals.comLatham Group price target raised to $8.50 from $7 at BairdMarch 5, 2025 | markets.businessinsider.comSee More Latham Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Latham Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Latham Group and other key companies, straight to your email. Email Address About Latham GroupLatham Group (NASDAQ:SWIM) designs, manufactures, and markets in-ground residential swimming pools in North America, Australia, and New Zealand. It offers a portfolio of pools and related products, including in-ground swimming pools that include fiber glass and packaged pools; and pool covers and liners under the Latham, Narellan, CoverStar, Radiant, and GLI brand names. The company was formerly known as Latham Topco, Inc. and changed its name to Latham Group, Inc. in March 2021. Latham Group, Inc. was founded in 1956 and is headquartered in Latham, New York.View Latham Group ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Archer Aviation Unveils NYC Network Ahead of Key Earnings Report3 Reasons to Like the Look of Amazon Ahead of EarningsTesla Stock Eyes Breakout With Earnings on DeckJohnson & Johnson Earnings Were More Good Than Bad—Time to Buy? Why Analysts Boosted United Airlines Stock Ahead of EarningsLamb Weston Stock Rises, Earnings Provide Calm Amidst ChaosIntuitive Machines Gains After Earnings Beat, NASA Missions Ahead Upcoming Earnings Tesla (4/22/2025)Intuitive Surgical (4/22/2025)Verizon Communications (4/22/2025)Canadian National Railway (4/22/2025)Novartis (4/22/2025)RTX (4/22/2025)3M (4/22/2025)Capital One Financial (4/22/2025)General Electric (4/22/2025)Danaher (4/22/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 9 speakers on the call. Operator00:00:00Good afternoon, and welcome to the Latham Group 4th Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Casey Coterie, Investor Relations representative. Operator00:00:41Please go ahead. Speaker 100:00:44Thank you. This afternoon, we issued our 4th quarter and full year 2023 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's President and CEO, Scott Rajeski and CFO, Oliver Glow. 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 the future events and financial performance as of today or the date specified. Speaker 100:01:20Actual 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 ks 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 Rijeski. Speaker 200:02:06Thank you, Casey. Good afternoon and thank you all for joining us to review our Q4 and full year 2023 results and discuss our outlook for 2024. We were pleased that our 4th quarter results came in slightly ahead of our guidance range, capping a year in which we focused on several structural cost saving initiatives to mitigate the impact of another year of lower pool starts. It also was another year that shows the resilience of our business and Latham's ability to both outperform the overall market decline and to generate substantial cash flow from operations. There are several key takeaways worth noting that help First, we continue to drive the conversion to fiberglass pools over concrete pools. Speaker 200:02:57As a result of Latham's leadership in this category, we were able to report sales for the year that outperformed the decline in new pool starts in the U. S. By approximately 10 percentage points. 2nd, we ended 2023 in a strong competitive position with leading market share in all product categories in which we compete and energized dealer network and greater consumer engagement, all supporting LatAm's ability to capture additional market share as industry conditions improve. 3rd, we took decisive actions early in the year that have fundamentally improved our cost structure by closing facilities, streamlining operations and accelerating our value engineering and lean manufacturing initiatives, we have structurally reduced our costs and increased our capacity, giving us the ability to considerably increase our profit margins once volumes recover. Speaker 200:03:49Lastly, we strengthened our financial position in 2023, ending the year with a record cash position of just over $100,000,000 providing substantial financial flexibility and demonstrating our ability to efficiently manage through difficult market conditions. In summary, Latham exited a year which saw significant decline in new in ground pool starts and has entered 2024, which strengthened market positioning and the resources that quickly take advantage of the eventual rebound. Specifically, we continue to see progress in fiberglass' penetration of the new in ground pool market and expected fiberglass now accounts for approximately 22% of pool starts in the U. S. This compares with 21% and 18% in 2022 and 2021 respectively, a clear indication of our leadership position in fiberglass driving this ongoing conversion progress. Speaker 200:04:45Latham's fiberglass product sales accounted for approximately 73% of Latham's full year 2023 in ground pool sales. Since 2019, we have grown our fiberglass product sales at a compounded annual rate of about 15%. And we have several strategic initiatives in process to leverage the share gains we've achieved to date in states like Texas and the Carolinas to further penetrate the sand states, notably California, Florida, Arizona and Nevada, where concrete pools continue to dominate. The value proposition is compelling. Fiberglass pools have an average 25% to 30% lower upfront cost versus concrete and a total overall lower cost of ownership of 35% to 40% over time. Speaker 200:05:31They can be installed as fast as one day by some of the best dealers and approximately 3 days on average for the majority of our dealers, compared to 3 to 6 months for most concrete pools. Also, fiberglass pools are more eco friendly than concrete pools using 30% less chlorine, eliminating the pollution created by the production of concrete and not requiring the ongoing maintenance, repair and refinishing generally needed for concrete pools. In 2023, we had approximately 300 Fiberglass Grand dealers who sold at least 5 pools, which is about 100 more than we had in 2019 and speaks to the positive momentum for both fiberglass pools and for LatAm's expansive dealer network. While dealer recruitment is important to our growth strategy, increasing dealer productivity is an even greater priority and we moved ahead with several initiatives in 2023 that have done just that. These include the Latham Design Center, which enables our dealers to easily create branded content and customized collateral materials, our fiberless bootcamp training sessions, and of course, our lead generation programs, which result from the direct consumer engagement that we continue to build in 2023. Speaker 200:06:52And in 2023, our website traffic increased substantially over 2022 levels, pointing to pent up consumer demand for pools, which we believe is substantial. Our integrated marketing programs that inform and educate the consumer and feature regional builders have been successful in driving traffic along with our robust tools that give homeowners the ability to design, plan and actually visualize how a new pool will look in their outdoor space. Through this direct engagement with consumers, we are able to provide our dealers with an increasing number of highly qualified leads in their respective markets. While fiberglass conversion represents Latham's largest growth potential, approximately 47% of our total 2023 sales came from our covers and liners product lines, the majority of which represent replacement products that are not as tied to new pool starts and are therefore more resilient during cyclical downturns. We also continue to prioritize new product introductions within these categories to drive sales. Speaker 200:07:55In particular, our automatic safety covers, which can be used on any type of in ground pool, experience increased consumer adoption and demand in 2023. In addition to their safety features, these covers provide the homeowner with significant energy, water and maintenance savings. And measured by Latham, our proprietary AI powered measurement tool for pool covers and liners has been met with very positive dealer response and should continue to help drive demand for these product lines as we continue to roll it out through 2024. To sum up, there were many bright spots for Latham in what was a very difficult industry environment in 2023. We have entered the New Year cautiously mindful that lower interest rates and improved consumer confidence levels are not likely to occur in time to benefit the 2024 pool buying season. Speaker 200:08:45We do expect that there will be a tailwind as we exit 2024 and head into the 2025 season. Our conversations with channel partners and colleagues in the field and at recent trade shows, as well as our own data indicate a high level of consumer interest in pool ownership, but buying decisions are being delayed, particularly by those who plan to finance the purchases. We do not expect the projected declines in interest rates will occur quickly enough to impact our peak pool building season in 2024 and therefore we are managing to an approximate 15% decline in new pool starts in 2024. Within that context, you can expect Latham to continue to reduce structural costs, while maintaining investments in future growth and capability, so that we are positioned to rapidly capture pool starts increase, which we anticipate will occur in 2025. Let me now turn over the call to our CFO, Oliver Glow, who will provide a review of LatAm's 4th quarter and full year financial results. Speaker 200:09:46Oliver? Speaker 300:09:47Thank you, Scott, and good afternoon, everyone. Please note that all comparisons we discuss today on a year over year basis compared to the Q4 of fiscal 2022 and full fiscal year 2022 unless otherwise noted. Net sales for the Q4 of fiscal 2023 were €91,000,000 compared to €108,000,000 in Q4 of 2022, reflecting lower volumes. Softness in demand was the key factor in the 23% decline in in ground pool sales. Our other product lines were more resilient and helped to mitigate the quarter sales declines. Speaker 300:10:26Cover sales only declined 10% during the quarter to €32,000,000 as we saw continued success in our winter covers and continued adoption of automatic safety covers. Liner sales of 13,000,000 were essentially flat from previous year driven by strong replacement activity. Despite the decline in sales, our 4th quarter gross margin reached 23.3 percent increasing 540 basis points compared to the 17.9% reported in the Q4 of 2022. The strong showing resulted from the benefits of our cost reduction programs, lean manufacturing initiatives and site consolidation that more than offset low absorption due to reduced production volumes at our plants. SG and A expenses decreased to $24,000,000 or 26% of sales from $33,000,000 or 31 percent of sales during Q4 of 2022, reflecting ongoing cost containment programs and a significant decrease in non cash stock based compensation expense. Speaker 300:11:334th quarter adjusted EBITDA was €10,000,000 more than double the 4,400,000 reported in last year's Q4 driving a 6 80 basis point expansion in adjusted EBITDA margin to 10.9%. Turning to our full year results, net sales were €566,000,000 compared to €696,000,000 in the prior year period. By product line, Latham's in ground swimming pool sales for the full year were 298,000,000 down 23% year over year. As Scott mentioned, in ground pool sales performance outpaced the U. S. Speaker 300:12:12New in ground pool installation market for 2023, which we estimate to have declined by 30% in 2023 compared to 2022. This is a strong indication of the positive momentum we have demonstrated in driving conversion to fiberglass pools, where our year over year sales declined 20% or about 10 percentage point less than the overall market. Liner sales of €128,000,000 were down 16%, while cover sales of $141,000,000 declined 11%, reflecting softer homeowner demand in the current economic environment, partially offset by a pickup in demand for automatic safety covers. Gross margin was 27% compared to 31.1% in the prior year. Fixed cost leverage improved throughout the year and actually was a slight tailwind in Q4, but was lower for the full year. Speaker 300:13:10Margin headwinds continue to be partially offset by benefits from cost reduction programs as well as our lean driven site consolidation initiatives where we have reduced the number of production sites while maintaining capacity. SG and A expenses decreased to $110,000,000 from $147,000,000 in fiscal 2022, reflecting a $28,000,000 reduction in non cash stock based compensation expense as well as the benefits from our various cost reduction actions. Excluding non cash stock based compensation, SG and A was €92,000,000 a decrease of €8,000,000 or 8%. Adjusted EBITDA was $88,000,000 compared to $143,000,000 in the prior year, resulting in an adjusted EBITDA margin of 15.5% compared to 20.6% in 2022. Turning to the balance sheet. Speaker 300:14:06We ended the year with a very strong financial position. Net cash provided by operating activities more than tripled to $116,000,000 for full year 2020 3, which reflected the cash generation capability of Latham's business augmented by the benefit from inventory reduction. The strong cash flow performance yielded a net cash position of $102,800,000 at year end, giving Latham substantial financial flexibility to navigate a range of economic scenarios. We also repaid €13,000,000 of our term debt in 2023, ending the year with a total debt of €301,000,000 and a net debt leverage ratio at 2.25, well below our debt covenant of 5.5. Capital expenditures were $33,000,000 for full year 2023 compared to €40,000,000 in the prior year. Speaker 300:15:02Now that we have completed investments in our new Kingston facility and integrated our acquired fiberglass manufacturing assets in Seminole, Oklahoma, we expect to return to a more normalized CapEx run rate for the business. Turning to our outlook for fiscal 2024, as Scott noted, while we anticipate increased consumer interest in pool buying from easing interest rates in 2024, meaningfully lower rates are not expected to occur in time to benefit our 2024 pool building season, which peaks in Q2 and early Q3. Although we are managing to a down year in 2024, we are optimistic that we are reaching the bottom of the cycle and are planning for a recovery in U. S. Pool starts to be realized in 2025. Speaker 300:15:52Against this backdrop, we are providing 2024 guidance of net sales of $490,000,000 to $520,000,000 that reflects our expectation that our sales will outpace new U. S. Pool starts due to continued fiberglass conversion. Adjusted EBITDA is anticipated between €60,000,000 €70,000,000 and assumes stable pricing, continued investment in sales, marketing and engineering and R and D to accelerate the conversion to fiberglass, ongoing digital transformation programs and normalized performance based compensation. Capital expenditures are projected to range from $18,000,000 to $22,000,000 and include continued investments in new cost reduction and lean initiatives, new fiberglass models, manufacturing facility improvements, digital transformation and ongoing safety initiatives. Speaker 300:16:49As we enter 2024, we are seeing a return to a normalized seasonal sales cadence reflecting historical backlog levels and distributors taking a cautious position early in the season. We expect total Q1 sales of between $98,000,000 $104,000,000 and adjusted EBITDA of between $6,000,000 $8,000,000 As Scott noted earlier in today's call, we have responded to difficult market dynamics with cost reduction actions that have reduced our manufacturing overhead headcount and spend resulting in $20,000,000 of reduced spending in 2023 with an additional $4,000,000 carryover benefit to be realized in 2024. We continue to focus on enhancing our productivity and executing on value engineering and lean initiatives. Our balance sheet remains in excellent condition. In addition to repaying $13,000,000 of debt in 2023, we paid down another $18,000,000 in debt earlier this month and we anticipate generating positive operating cash flow in 2024. Speaker 300:17:59Given the economic outlook, we continue to be thoughtful and disciplined in our capital allocation strategy. With that, I will turn back the call to Scott for his closing remarks. Thank you, Oliver. Speaker 200:18:11As you have heard, Latham has entered 2024 in a very strong financial position. Our priorities are clear: continue to drive the adoption and awareness of both fiberglass and automatic safety covers, which will lead to increased conversion of fiberglass pools and growth in auto covers as more consumers purchase them for peace of mind. Continue to gain additional operating efficiencies through our ongoing value engineering and lean manufacturing initiatives and maintain a strong balance sheet. The long term fundamentals of our industry are very compelling. Outdoor living remains one of the fastest growing categories in the repair and remodel sector. Speaker 200:18:49Pool ownership is a natural addition for consumers who are spending more time in their homes and want to fully enjoy their outdoor spaces while building the value of their homes. Additionally, the value proposition of fiberglass products provides an excellent opportunity for consumers to become pool owners and gives Latham an excellent platform to drive accelerated growth. The actions we took in 2023 and our priorities for this year should enable us to outperform the market again in 2024 and to achieve meaningful share gains and expanded margins and profitability as the pool industry conditions improve. Operator, I would like to open the call to questions. Operator00:19:28We will now begin the question and answer The first question comes from Tim Weisz with Baird. Please go ahead. Speaker 400:20:06Hey, guys. This is Robert Schultz on for Tim this afternoon. First, just want to say thanks for providing the incremental data on fiberglass sales for 2023. That's a really helpful color to have. So appreciate that. Speaker 400:20:21And then moving on to the balance sheet, it's nice to see leverage moved a little bit lower sequentially. Could you provide some additional color maybe on how you're trying to manage the balance sheet for 2024? And then related to that, kind of what are the puts and takes to cash flow for 2024? Speaker 300:20:38Let me start good afternoon, Roger. Let me start with your second question, Suresh, on cash flow in 2024. We traditionally haven't given guidance for cash flow specifically, but I can help your modeling there is to start with our EBITDA midpoint guidance at €65,000,000 You deduct about €27,000,000 in interest rate and 20 €1,000,000 which is the midpoint of our CapEx range. That is a good proxy for cash flow. And as you heard me saying in my prepared remarks, we do expect that 2024 is another year where we stay where we are cash flow positive. Speaker 300:21:19In terms of your question on how do we manage the balance sheet, we are quite pleased on where we are at year end. That is due to 2023 with solid cash flow generation, augmented by a significant reduction in net working capital, especially inventory. And all that gave us the luxury to have a cash position of €102,800,000 at the end of the year. As a result of that net debt, so that €200,000,000 and as a result of this, our net debt leverage rate was at 2.25. So all in all, quite comfortable on where the balance sheet stands right now. Speaker 400:22:02Great. Thanks. And then, if I think about the 2024 EBITDA guidance, what would you say are the key bridge items to consider to get to the $65,000,000 at the midpoint? Speaker 300:22:14Robert, let me take that one as well. As you think of our 2024 EBITDA guidance, there are really 4, 5 positions to consider here. The most impactful one that is driving the entire EBITDA margin gap here is the impact from lower volume and lower fixed cost levels, right? That is offset by a modest small level of deflation, nothing in comparison to the inflation we've seen over the last few years. There is another tailwind coming from our cost containment initiatives. Speaker 300:22:49That is the carryover of about EUR 4,000,000 from the previously announced and all implemented cost saving programs that we have discussed in prior calls as well as our increasing focus on lean and value engineering going forward. So the combination of those 2, we do expect not only in 2024, but also in the years thereafter to more than offset cost inflation. So again, tailwind from that. What you've also seen us talking about is that we are protecting some investments. These investments help us to fare better than the overall market. Speaker 300:23:26As we look back over a couple of years, the market declined, we less than the market and which help us once the market returns to outperform the market. And these are the investments in the network, lead generation, fiberglass conversion and so forth. I think the last point I would add here Robert is the accrual for performance based compensation. We are, in the beginning of the year, accruing towards full achievement of our goals, which are the basis for our guidance today. And as that didn't pay out in prior year, that is a year over year headwind. Speaker 400:24:02Got it. Thanks for the color. I'll leave it there. Speaker 200:24:05Thank you. Operator00:24:07The next question comes from Sean Collin with Bank of America. Please go ahead. Speaker 500:24:14Hi, guys. Thank you for taking my questions. Just first, your assumption on new pool construction is a bit lower than most of your peers. What do you think is driving the difference there? Is it conservatism? Speaker 500:24:27Is it regional exposure? Or is it just kind of better insight from what you're hearing from the dealers? Speaker 200:24:34Yes. Hey, good afternoon, Sean. Good to catch up here again. And I think when you step back, if we look at ourselves really as the leader in the in ground pool industry, when you think about new pools going in the ground, we probably got some of the best insights into what's happening in the market out there versus maybe some of the other equipment guys in that. And look, we're managing the business to what we believe to be a decline of about 15 percent on average here in the U. Speaker 200:25:02S. And I think really what we've done kind of back to Oliver's point of investments we've made in the business, we've really positioned ourselves that we can quickly ramp up production if that number turns out to be a little too conservative. And I think incrementally, we're continuing to drive increased website activity, trying to drive the lead generation. And the goal will really be for us to try to outperform the overall market as we look at 2024 and I think similar to what we've done over the last couple of years here. Speaker 500:25:36Okay, thanks. And then the midpoint of the guidance is down 11% year over year. So does that assume you're taking share on the new pool side? And then can you give us any insight into your expectations for the other buckets, meaning covers and liners? Speaker 200:25:54Yes. So Sean, I'll take that. The midpoint down at 11 percent, again, I think back to the fiberglass world and driving fiberglass penetration, taking a higher percentage of share from concrete and in some cases vinyl. We'll continue to drive that, which will help some. And then if you look at the recurring revenue portion of our business with the liners and covers, that replacement and repair remodel piece of the business performs a lot better for us from a stability standpoint. Speaker 200:26:29So I think when you think of that of maybe being down in the low to mid single digits, I think that's what's helping to blend to the 11% number at the midpoint. Speaker 500:26:41Okay. Thank you. Operator00:26:45The next question comes from Scott Stringer with Wolfe Research. Please go ahead. Speaker 600:26:52Hi, guys. Thanks for taking my question. I was wondering if you could provide some outlook for gross margins for the year in terms of cadence, how are commodity costs trending and is like sell through of higher cost inventories an impact? Speaker 300:27:05Yes, I'd let you take that again. We haven't traditionally provided a guidance specifically around gross margin, but I'll give you the key building blocks here, right? So obviously, like with my prior answer to EBITDA margins, also gross margins will be primarily impacted by the fact that we are planning for a year with lower volumes. That will be slightly this will be offset by cost deflation, commodity cost deflation. And again, it's small versus the inflation we've seen over the past year that some commodities in our bucket moved down, some up. Speaker 300:27:48But on balance, the bucket is still at close to the highest we've seen the past few years. That is also there's a slight tailwind from our continuing cost containment actions. So overall, I would say, gross margin roughly in line with where we were in 2023. Speaker 600:28:17Okay, got it. And then on the CapEx for 20 24, is there any way you can parse out like maintenance CapEx versus investment CapEx? How are you feeling about investing in capacity today for the current environment? Speaker 300:28:33I think with regards to CapEx, we certainly come from a couple of years investing in capacity with the Kingston, which is now fully completed. As we've indicated in our last earnings call, so that €5,000,000 quarterly or €20,000,000 annual run rate is sort of what we think of being normal here. Specifically with regards to 2024, there's a lot of maintenance investment in there. But also complemented by investments in our lean and value engineering projects or investments into efficiency of our assets. And then there's a little bit of digital transformation in there as well. Speaker 200:29:19And the one thing I would throw in there incrementally, Scott, is we are continuing to invest in new fiberglass models as we roll out and refresh the lineup there. So there is a little bit of growth CapEx on the fiberglass side, but more model related and incremental molds in certain facilities to build out the network. Speaker 600:29:38Great. That's helpful. That's all I had. Thanks. Speaker 200:29:41Thanks, Scott. Thank you. Operator00:29:43The next question comes from Jonathan Bettenhausen with Truist Securities. Please go ahead. Speaker 500:29:51Hey, I'm on for Keith this evening. Thanks for taking my question. I was wondering if you could give us some more color on your current capacity utilization rates and kind of how you're planning on taking your production levels going into Speaker 200:30:02the spring? Yes. So Jonathan, good to Choute here this afternoon. We've not distinctly disclosed capacity utilization in some time. But if you kind of go back to the 2021, 2022 timeframe when we talked about ramping Kingston and get that fully ramped, we're in a really good position capacity wide throughout entire network. Speaker 200:30:26Just kind of go back and look at the numbers we were running in the 2021 timeframe, we've got a lot of strength from a positioning standpoint in all of the facilities. Oliver mentioned a couple of times some of the lean activities we've done in the rest of the business to give us some better capacity. We sit in a really good lead time delivery position throughout the entire network in terms of kind of I'd say back to probably some of the best lead time delivery service levels since I've been in the business going back 12 years now. So good position. We don't need to put more plants in the ground or anything like that, but we will evaluate opportunistic things that could be out there from an M and A standpoint. Speaker 200:31:08And just kind of if you cycle back to 2023, a lot of the activities we did, did enable us to do some rooftop consolidation, close some facilities, which drove some of that cost savings in 2023 and to carry over into 2024. Speaker 500:31:25That's helpful. Thanks. And was there any price impact on 4th quarter sales? Speaker 300:31:32Price was roughly flattish with most of our price anniversarying So think of Q4 price again roughly Operator00:31:50The next question comes from Matthew Bouley with Barclays. Please go ahead. Hey, good afternoon, everyone. Thanks for taking the questions. Speaker 600:32:10Do you think it would take, I guess, for new pool builds to recover? Is it simply an interest rate issue, kind of looking at more home turnover, kind of general consumer sentiment from your perspective and history in the industry, what do you think it would take to kind of reinvigorate the market? Thank Speaker 200:32:29you. I think Matt, good afternoon. I think you kind of hit several of the key points there with if you look back and say ballpark 50% of all pools are financed and you can kind of say most of the financing has dried up. Not to say that it's gone to 0, but I think a movement in interest rates seems to be the common denominator that we're hearing from consumers and our dealers that's keeping people on the sideline. If you look at the activity on our website, the lead generation folks establishing their My Latham account. Speaker 200:33:05The interest in the pools is definitely there and we continue to hear more and more the homeowner is just awaiting a move in interest rates to get them back into the game. And I think the $1,000,000 question is how much of a move will start to get them off the sidelines. And I think in some of our prepared remarks and the data we've published, is probably not going to be enough to greatly impact the second half of this year. But I think it definitely will start to create the tailwind as we move into and through 2025. So the good news is interest is there, wants there, the number of homes that don't have swimming pools we've talked about is there. Speaker 200:33:47It's really just getting rates down 100 basis points, 200 basis points to get people back into the buying decision for pools. Speaker 600:33:57Got it. Okay. That's helpful. I guess secondly, just on your kind of dealer conversion efforts. And you have this kind of slower pool market. Speaker 600:34:10How are dealers, I guess, approaching willingness to migrate to fiberglass given that market? So is it the type of thing where people don't really want to rock the boat when the market is slow like this? Or on the other hand, is it a situation where when you have this kind of slowish trends in the market, maybe it's actually easier to kind of convert your business from a dealer's perspective? So kind of how is that playing out in this market? Speaker 200:34:41Yes. Look, there's a lot of pieces in there, Matt, in that question. I think if you go back to some of the data, if you think about where we stood in 2023 with over 300 grand dealers who did at least 5 pools, right, 100 more than 2019 And you think about the fact that we've had 2 consecutive down years, but we've been able to drive more productivity at the dealer level, right? We've talked many times, this isn't about how many more dealers we need to add, it's about how do we make our existing dealers more efficient with the build and get them going. I think dealers are seeing the acceptance and adoption of fiberglass grow more and more. Speaker 200:35:22Again, 600 basis point improvement in the fiberglass penetration number since 2019, right? Our fiberglass sales have grown at about 15% CAGR since 2019, while the markets declined about 3% on average per year. If you look 2019 to 2023, we've not had issues recruiting dealers and bringing them on board for fiberglass. It's, I think it's been easier with the slowdown. It's allowed our team, our marketing team to develop more tools, getting to build a portal out there, providing really great visibility to the dealers now with the lead generation where we can now monitor and watch how the lead is moving through the system with them and follow ups and getting leads closed. Speaker 200:36:10So again, it's about continuing to give them the tools to make their life easier. And look, I think we've even bridged a little bit further in helping them in how do you actually estimate a full project in the backyard for a consumer understanding their profit profile at a install level of profitability and how they should properly price a pool. I think bigger picture, Matt, when you think about the cost advantage of fiberglass versus concrete, as consumers are looking at how much the cost of the pool has gone up, I think some dealers are trying to say, look, I struggle selling a concrete pool at $105,000,000 100 and 25,000 $150,000 depending on where you are. The fiberglass value proposition at the consumer level is very appealing for them to go and market and sell that to others. Speaker 600:37:02Yes, got it. Well, thanks, Scott. Good luck, guys. Speaker 200:37:05Thanks, Matt. Operator00:37:07The next question comes from Andrew Carter with Stifel. Please go ahead. Speaker 700:37:12Hey, thank you. Good evening. I'm just kind of going through your guidance here and just wanted to understand, well, actually first clarifying question. The $4,000,000 in cost savings, is that all in the Q1, The incremental Speaker 300:37:26Yes, front end loaded is a combination of 1st and second quarter. Speaker 700:37:30Okay. I'll assume 2. So I guess my question is then, I'm looking at your decremental in 1Q and I'm getting like something in the mid teens. And then for the final 9 months of the year, I'm getting a decremental of somewhere at the midpoint of 80%. So and I'm getting that off of a $37,000,000 to $13,000,000 revenue decline with EBITDA down 23 to 15. Speaker 700:37:55What's going on there? Is there a stepped up investment in SG and A? Do you expect a lot of gross margin pressure? I know you expect to finish even. You just had some gross margin momentum. Speaker 700:38:04Anything helps out that was there? Speaker 300:38:08Yes. I think when it comes to our Q1, this is where you typically see a lot of marketing investments. This is where our dealer conference is. And so for saying in terms of SG and A, it's not a perfect seasonality between the quarters. But I think what you'll also see again is the ability of the team to contain cost and you'll see that in our decrement, especially in Q1. Speaker 700:38:35Well, I mean, I'm asking about the 9 final 9 months of the year. The decrementals, I'm getting a 90% decremental. Speaker 200:38:46All right. Speaker 700:38:48We can take it offline. No. No. Let's take it offline. I guess the second question is you pretty much banked in, I don't know, almost like the season's gone. Speaker 700:38:57How quickly can things turn? And I guess importantly, how quickly could you flex, pay the quick turn of demand, maybe give a surprise on interest rates, something of that sort. Is there any fear in that of not being invested for a quick turn versus your turn in 2025 that you're expecting? Speaker 200:39:14Yes. So Andrew, I'll take that one. Couple of pieces in there. 1, I think as I mentioned earlier, we've actually probably not cut as much cost as we could have. We continue to stay invested in the business, maybe held on to a little bit more labor with the expectation that this thing is going to turn at some point and we want to be prepared. Speaker 200:39:38We have plenty of the capacity we need to quickly ramp up. And if you just go back to 2021 and look at how quickly the business ramps in that 2021, 2022 timeframe, we have more capacity and capability and efficiency than we had then. So the ability to ramp faster is a lot better. We've not talked supply chain issues in a long time and that's a good thing because all of that's behind us. We've got a much stronger vendor base and supply chain stood up both where and how we store materials and diversity of the base, which will enable us to turn quickly fair to say that we're probably taking a little bit more conservative approach. Speaker 200:40:30It's early in the year, right? We're not mailing in saying the year is over. We're starting to see the season ramp here nicely. We've got to work with our wholesale distribution partners. They're continuing to run lean with their inventory levels until they see how the season is going to play out. Speaker 200:40:47And if it does move and pop, we will be able to take advantage of it pretty easily. Operator00:41:00The next question comes from Michael Francis with William Blair. Please go ahead. Speaker 500:41:07Hey, guys. I'm on for Ryan Merkel today. I had one clarifying question and a follow-up to that. Did you say that liners and covers are going to be down low single digit to mid single digits? Speaker 200:41:23On a volume basis, so think from a unit standpoint, probably in that down 3% to 5% range. Speaker 500:41:34Any price on that? Speaker 200:41:37I think probably think price flattish. Speaker 500:41:43Okay. And then my follow-up is and this might be Speaker 200:41:47something that I can just Michael, just if I can step back and clarify, we talked to covers, we need to remember there's that recurring revenue portion of the winter safety cover in there. Then there is the automatic cover portion of the business in there. But I think in total, Oliver, probably the total cover product category. Speaker 300:42:06It's a blended rate between what we've assumed for the replacement piece, which is significantly it's a significant portion for both the safety covers and vinyl liners kind of down mid single digit. But then there's also the share, which is which grow and shrink in accordance with new pool starts and our assumption there is minus 15%. Speaker 500:42:29Okay. So I'm just making sure I get this straight because if I take both liners and covers down about 4% that has in ground pools in my model down about 15%. Am I thinking about that wrong or right? Because if it's down 15%, there's no share gain there. Speaker 300:42:49You'll probably end up in the inground food category at 15, maybe slightly better driven by fiberglass conversion. Yes. Speaker 500:42:58Got it. Thank you. That's all I had. Operator00:43:01The next question comes from Susan Maklari with Goldman Sachs. Please go ahead. Speaker 800:43:08Thank you. Good afternoon, everyone. Speaker 200:43:12Hey, Susan. How are you doing? Speaker 800:43:14I'm good, Scott. How are you? Speaker 200:43:16Good. Thanks. Speaker 800:43:18My first question, Scott, is around thinking about the pricing on the pools. If we start to see costs deflate and especially if we start to get bigger moves down on the cost side of things. Do you think that there's an opportunity to adjust your net pricing to help alleviate some of that affordability constraint Speaker 600:43:37that you talked about that's Speaker 800:43:37happening on the ground? And I guess generally, how Speaker 200:43:49Yes. Susan, I think it's a good question. I think as we've thought about it, this is part of what we like about our business and where we sit in the categories. We're a small percentage of that total backyard project, right? So our view is to change our pricing a few $100 on a liner or cover or $1,000 or $2,000 on a fiberglass pool is probably not going to get pushed all the way out to the end consumer and be enough to stimulate demand at the consumer level to make that buying decision on a project that could be 4,000 or 5,000 for a replacement line or a cover or call it $75,000 $80000 for a fiberglass pool install. Speaker 200:44:40As we work with our dealers, there are different regional competitive dynamics at play that we need to think about. There's more than just what the list price is or how we would change our pricing at the list. There's rebates, there's other marketing programs we run with them. But we think we can hold our price fairly well. And we've not really seen a significant movement yet on the direct material cost side. Speaker 200:45:08Labor continues to trend up, freight is continuing to go up. And rates or I should say material costs are still in many cases fairly elevated from where we were back in the 2019 2020 time frame when we took on $100,000,000 plus $1,000,000,000 of inflation in the business and really never were able to pass full pricing on to maintain margin levels, which has driven some of the compression we've seen. But look, it's different in every product category. I think that's where we need to maintain flexibility as we go forward. And look, if we get a massive tailwind from deflation, it could be a different story as we look out in time. Speaker 200:45:50But right now, it's kind of flat pricing for the year is the assumption and the approach we're taking. Speaker 800:45:58Okay. That's very helpful color. And then thinking about the productivity Speaker 600:46:02and the efficiencies that you can realize, I know you talked Speaker 800:46:03about that $4,000,000 of side as we go through this year and other opportunities that perhaps can come through over time? Speaker 200:46:21Yes. So Susan, we've continued to ramp up our value engineering efforts and initiatives on all fronts. We've talked a lot about the lean. A lot of that was not to say we haven't been doing it, but I think we've continued to accelerate that. We've continued to add more engineering resources to the team. Speaker 200:46:43And part of the incremental decremental margin we're seeing as we move through the year is as we ramp and bring more engineers on to start to build that pipeline of productivity and efficiency projects on the material side in fiberglass and the other product areas, increase the number of lean events we're doing in the factories. It's going to take a little while for that ROI to kick in, but what we've seen from the initial waves, there clearly is more to become from all of those initiatives. We got some really, really neat things in the hopper. And I think as we move through time, that pipeline will build and we're trying to get on to ongoing 3% to 5% productivity gain every year on the material front from those efforts and initiatives. Speaker 800:47:30Okay, that's great. Thank you and good luck with everything. Speaker 300:47:34All right. Thanks, Susan. Thank you. Operator00:47:36This concludes our question and answer session. I would like to turn the conference back over to Scott Rodjeski for any closing remarks. Speaker 200:47:45Yes, thanks. Hey, thank you for your time everyone. They called you this afternoon and your ongoing interest in Latham. As we think about Latham, right, we're extremely well positioned to continue to outperform the overall market and drive that continued acceleration in fiberglass penetration as a total of the new in ground pool starts like we discussed earlier today. We also remain very confident in the long term growth opportunities we see not only in our business, but in the industry overall. Speaker 200:48:14And we look forward to catching up with all of you at upcoming investor events. Thanks for your time and have a good evening. Operator00:48:22The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by