Latham (SWIM) 12 Nov 222022 Q3 Earnings call transcript

Welcome to the Latham Group Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nicole Briguet, Investor Relations Representative. Please go ahead.

Thank you, and welcome to Latham’s Q3 fiscal 2022 earnings call. slide issued Investor press website, Relations can find we available which where morning, our also the accompanies on portion the this our release, earnings is you prepared Earlier remarks. that presentation of our CEO, are Masson. CFO, and Rajeski, and On today’s President Scott call Latham’s Robert

to Following their call remarks, open will we the up questions.

the and based During forward-looking respect reflect Form or to are XX-Q statements views XXXX. a or with our statements. the fiscal to whether could new as to other required today events release that the events website The disclaims a forth information, earnings on the law. result risks beliefs may as company Relations of by of Investor cause These risks statements of obligation any certain are posted make events for our expectations, and will update its results projections, company call, are materially. set be in current expressly Such otherwise, this review statements, differ year statements subject constitute and future publicly applicable as future estimates, to that in company’s management’s assumptions, forward-looking of actual third except information. company’s quarter number and provided to factors forecasts, and any Such

I income Rajeski. included the could Scott XXXX. for net In and will addition, to release in useful be Form evaluating in in will believe under financial to call during now adjusted over our our XX-Q our be we EBITDA found today’s call, Reconciliations press which the non-GAAP company GAAP will be turn QX measures, earnings performance. of can discuss calculated

revised time quarter Today, for what We quarter highlights as adjusted increasingly with up year-to-date Good macro discussing environment million. XX% and another have joining with fiscal drive our will the you team’s EBITDA product cost reduction some we’re as well our quarter we QX backdrop third line Latham’s thank ability review growth net to $XX in to and and up and North morning, and year-over-year growth Rob actions, portfolio. in QX seeing across times top difficult delivered macro We earnings non-fiberglass lead spend everyone million the substantially actions call. sales drove product guidance. really across third to We financials, from review nice amid XX% fiberglass portfolio. were then ahead. our we pleased the I and to taken our $XXX year of look XXXX American as normal improvement returned year-over-year will production an

although benefits to We also pricing at which hold continue to magnitude realize offset actions year-over-year inflation, gross not our the margins. of a

to guidance XXXX the we reflect of market fiscal fourth conditions. and the current quarter revising for look we year, the As our are remainder to

distribution packaged pool wholesale supply. to in demand levels destock resulted packaged in dealer partners our Our continued through existing pool This declines continue in inventory volume service as QX. they products has

in light remains Additionally, purchase dates macroeconomic the and taking time of some more are in pool on establishing their ownership while interest current decisions strong, environment. installation homeowners

We cover reduction with footprint workforce is efficiency to streamline now talent. our the implemented allowing Two, and strides retaining three, our manufacturing liner Louisiana with City, schedules. a with the over Bossier including us advantage on have our to top reduce production to and last shift optimizing dynamics actions taking costs, these one, a immediate years, of responded facility. focus have production our of And our closure X to improve made we which

the to focus cost for business million a Lean continue reduction purchase-ready execute fiscal coupled us other in to our manufacturing This At engineering our We with we over line on on to of same expect continue these and to our continue expense operating expanding This, long drive actions includes our forward. efforts allow initiatives, time, the top annual our savings that generate execute dealers, value value-added expand $XX and to will initiatives term. drive generate fiberglass XXXX. moving initiatives on leads pools, will fiberglass to growth believe consumer capacity. we our awareness of approximately

our the Our journey, brand. tool, buying demand direct-to-homeowner and Pool the lead competitive awareness thanks We Visualizer tools, app, resource throughout Latham augmented platform, an pieces remain for are blogs, Estimator. and strategy homeowners remain in Cost and and our to of strategy generation including advantages digital critical to Latham fiberglass their Liner and pool investments engine website reality important for us our of drive My

outperform dealers where deliver XXXX. regions American been broadly our further build installations, in capacity fiberglass expected be for have We downloads demand to in of pipeline XXXX, of marketing into believe launched have increasing looking ability into down translate to select including has tools, market, Pool traffic and see website, for benefits years. and initiatives is the these our pool our unit in untapped of which down year are driving driver ultimately campaigns a our the it We regional and Estimator continue to we tremendous expect in and today, their to North we there to growth. Latham leads a homes targeted Fiberglass Cost pool dealers. is important an to without Even My in U.S.

enhance and continue deepening We our our relationships. dealer to position expanding model through and leadership expansion lineup by fiberglass initiatives and capacity

on Kingston, make great track XXXX. new of remains which progress construction We on to continue to in our facility, begin production Ontario the

will will and replace our our consumer markets manufacturing to Seminole, strong for costs, fiberglass markets are closer allow of these We ripe fiberglass two Odessa, production place also The in tap recently lead addition conversion. the that into region. acquired Oklahoma, facilities reduce and manufacturing to Texas in fiberglass freight capacity in times, large lost pool us which tighten assets

remain will to the flexibility plans capacity to manufacturing demand. with diligent We staffing have and manage match

markets a the of share market. fiberglass U.S. of share mature discussed, have installs like where more below pool fiberglass’ sits XX% has well we Australia, As

As representation installs pool the of Latham. durability macro have the awareness over we can summary, drive of challenging performance time proposition environment. strong aesthetics, and fiberglass for U.S. and gunite, value versus despite of In we increase long-term we delivered growth believe we drive year-to-date fiberglass’s

market greater As continuing manage to and to our we costs prudently have investments us to the actions stronger position make conditions environment. that, We from With drive balanced the this while taken I’ll industry-leading growth. to call believe targeted detail. to will results in review emerge over evolve, future enable turn our to maintain Rob current our our approach

as a were third $XX and $XX of of million. Today, ability continuous quarter that X Covers million, million. year-over-year compared our while challenging another in-ground operating followed review to pricing third volumes $XX a quarter year-to-date in flat the pools are improvement good on million, more and this review our deliver $XX revised I’ll and our comparisons and in increased for Scott, relatively will first Net to prior are XX% quarter everyone. Then with increased driven I and detail basis for X% cost year-over-year. line, a up all Note by swimming by of you, provide $XXX reduction growth Thank sales quarter net $XXX morning, culture bit results. third our million fiscal increase on quarter were to environment. third team’s we By XX% fiscal versus proud The XXXX. months XXXX guidance. QX, Starting net million to increased sales sales year. was liners of product to or XX% plan,

up distribution the to continued offset We compensation prior million decrease million XX channel. expense. QX, volume million nicely year, not While it softness destocking sales basis QX $X non-cash gross versus fiberglass stock-based to packaged XX% our in increase enough was grew by due net the to gross pool profit margin $XX in wholesale pools a of and points in generated driven in XX.X%. or $X in year-over-year an decreased

gross about gross Excluding not XXX basis compensation last by pricing margin. year’s margin non-cash points decreased XX.X%, driven inflation, but that to to maintain expense, offset enough stock-based

by cost decrease normal Selling, XXXX. million lead expense. decreased administrative in partially negative primarily build million return in as and which $XX driven times. stock-based of well to general to by This to was non-cash As efficiencies million was $XX to from leverage, compensation QX the inventory fixed a compared offset $XX operational expenses of

$XXX or and to prior liners X $XXX X XX% pricing XX% compared to adjusted XX% up By compensation stock-based decreased EBITDA Adjusted profit margin to product for attributable XX.X%. prior net to SG&A Gross for to $XXX for flat the EBITDA year up This in was $XXX Gross year-over-year. primarily increased about or million months million. non-cash actions Excluding were the our line, or million. million increased XXXX $XX first pools in-ground to Net $X X%. million net $XXX margin from XX.X% XX% at sales XX% fiscal increased Covers first and for to the to increased increased expense, inflation. period. XXXX up million, the million address XX% increased to million, remained $XX $X sales $XXX of growth year. months million, sales XX.X% of million,

driven million compensation months $XXX.X results. of XX-basis $XX a basis similar XX.X%. by margin $XX to administrative decreased first expenses compensation million was This in non-cash excluding gross to the stock-based to primarily QX compared by in million factors million Excluding points impacted general non-cash non-cash gross Selling, decreased XX and about stock-based that stock-based compensation point The in million was $X and decrease expense, expense, margin, X decrease expense. gross increased XXXX. decrease $XXX.X driven profit in

million from first margin prior year X and $X stock-based adjusted XX.X% $XXX XXXX, compensation period, SG&A XX the points million basis increased from EBITDA Adjusted non-cash increased XX% the expense, EBITDA months for prior year to period. or Excluding was of X%. the up

notably XXXX expenditures lead in million was levels balance operating Turning net to of to primarily months last Kingston, million working Capital the to capital, packaged to our pools. prior third of compared had project. prior year, $X year impact most for million million, inflation XXXX leverage change capacity, the inventory, $X fiberglass and and $XX we first return in of totaled X compared generated the inventory the year-over-year equivalents on investment investments mainly $XX ratio the debt X, of by the times, in QX increased X XXXX, with Ontario of million the in the ended embedded the totaled ended expenditures in and October October facility associated primarily Net inventory manufacturing in $XX year cash $XXX $XX Capital months period. by activities X, X, our XXXX, driven $XX period, cash million in was driven sheet, debt elevated fiscal October to quarter with X.Xx. compared by million normalized million, to cash total as

nature variable to Lean the an and resulted our efficiency enables we our As also of savings and quickly engineering Throughout manufacturing have of a hard promote continuous work organization, manufacturing manage and culture initiatives of act not processes. adjust Which has decisively cost continuously the been discipline operations only disciplines of to cost into our XXXX, we our time. how to at business. structure improvement us team discrete value over a improve embedding projects, but our processes number or our in

market both given to in we’re As cost growth fiberglass funding strengthen haul. engine structural deliberate actions market, investments across efforts These our current reduction our while over taking drive challenging conditions, the and to Scott ability costs several long efforts reduce weather to a generation the mentioned company. also lead earlier,

million we expect costs in and actions, of incur assets expenses. to As $X and total charges facility-related fixed these severance related for approximately a and employee result

to We first of quarter fourth XXXX the into XXXX. these the recognize charges quarter of in expect and

annual approximately savings to of generate fiscal expense XXXX. $XX million expect We in

in resulting expenditures this the guidance demand installation representing XX% fiscal to $XXX Updated to on of sell-through issued market partners’ current $XX timeline about and $XXX the existing as and reflect $XXX declines our pool business product EBITDA million year-over-year and X% macro bottom to Adjusted representing full million, million, seasonality of million. year-over-year top to Based XXXX revised schedule guidance. line homeowner continued of sales our to about million of of their have $XXX softer capital growth. to dates. $XX of a volume packaged year conditions, million well in category net our to environment place new for as we extends Turning as outlook and flat inventory, wholesale about growth orders X%

in Our our our continued in capacity, facility revised as pullback to on investments primarily investing commitment reflects non-fiberglass capital Ontario guidance spend. as a reflecting expenditure fiberglass Kingston, well

in sales look quarters in Not represent we the QX trends worth As periods. months, and seasonality peak lower winter out it’s next look as and surround sales ahead, over weather highlighting QX. we mostly months our warm few surprising, the QX QX months. Conversely,

the few challenges past years, seasonality somewhat times impact chain and supply Over moderated of extended on lead results. our the

the as largely With updated to resolved, return issues current seasonality these reflects conditions. market both normal our guidance as well

We business. Scott, XXXX the be expect to of fourth of I’ll the it seasonality quarter the lightest closing of back consistent you for with remarks. to year, the quarter historical turn

Thanks, Rob.

We our scale. pool as with position brand and have consumer market secured in leading reach geographic residential the the unparalleled

our with have direct-to-homeowner strides and awareness of industry our We model made driving fiberglass. have adoption the transformed and in

homes year We had our have existing conviction on sales migration our our of X believe sales are XXXX, purchases attractive from prior. continue and we tied of net strong trends of to to from majority more in industry. new strategy, the In in capitalize XX% Meaning housing benefit suburbs not of home. about We confidence our and products built from to us and been starts. than which underlying pools to the positions came that ongoing other work

cater As higher home attractive stay investment income and people remodeling, backyard. renovating in cools value. market homes repairing, with from We homeowner the to and the benefit higher equity in demographics, we housing longer, families continued may individuals, and current their

to can products of of every estimate those opportunities. in hold be easily must recurring and different also XXX,XXX a position all We about to vinyl that our U.S. generate about replaced including year styles XXX,XXX the that offer across subcategories, covers at a We all-season and points price liners that budgets. address revenue leading homeowner We XXX,XXX XXX,XXX range

As over the grow, also opportunities recurring for increase to these base the products revenue pool continues expect installed will we time.

Our employees the stronger no the of have challenges last and dealers. from one, grown thanks talented industry and and our shortage faced over several to years, support each dedication we for

with execute first our our year-over-year pleased you Thank to continue and direct-to-homeowner our months in of in and and our balanced conversion fiberglass to long-term while the interest X are in your position, deliver approach for cost structure business. prospects to for aligning today to giving confidence us We ability strategy XXXX growth continuing the our Latham. time

open now the questions. to line will We

first Bouley The go ahead. question Barclays. comes Instructions] Please with [Operator Matt from

volumes. if walk we can necessarily us if take to XXXX that speak industry Thanks. are year could you at guiding here, your next what to we kind the you annualize guys about that, what kind I you of year? through not and Questions. for curious short in how and it’s Obviously, hearing know How in this I’m budgeting are but where you’re of QX point? you’re of a and to XXXX little from taking of us bit but curious given customers approach, I’m of sort think backlogs, planning can terms

guidance we’re pool early Yes, to provide ‘XX. for will good is It’s to morning. this too what XXXX Matt, predict like, really starts look and Scott. really for here not

those And our I will as our I of everyone we expect of business think QX quarters needs can QX the to seasonality navigating QX. lightest being currently headwinds with typically into two the persist think is QX, the coming and we sales in the with strength that in remember what well QX we’re and say XXXX.

outline today? starts of how sort we fiberglass are Thanks, in outline versus competing just sort And Okay. or I big on the industry appreciate guys. us in clearly could can maybe this within performed of you of if the the lesson starts if recession, doing cost back you unit mentioned year. then you kind a maybe And fiberglass volumes outperforming pool you in history fiberglass materials came new recession. that, that. where of is prior Curious what terms when are give the new on pool down overall of

we’ve and down America think what back in none here just then. to year was outperformed few a in Matt, I years, New homeowner, the in we Look, whether us growth, X and our I this say people was the on in and fiberglass different expanding is as cycles, North ago. look growth a years were focusing I nice all rainy Yes. for let’s XXXXs. present, the last what base Australia in is, we over business fiberglass now investor market the And think think educating completely the of season, distribution season production we like a and the it back in can Zealand. take show a it many of what as And presentations, predicting has will consumer, XXXX are market And I’d a down XXXX. We’ve a saw it of the time say, few lot shared wet this is fiberglass, spent than

We fiberglass that costs last you guys that years. the And maintenance total story. of upfront and conversion pool. we’ve pool the to the that the pool. still Those material shared dynamics has concrete still on continue in lower of the and the the economics lower cost of hold for a to XX% still size, over comparable versus XX% long-term stay XX% to are gap upfront bullish Fiberglass over XX% with expands few the over of ownership

Scott, Rob. luck, Well, Great. Good guys.

Thanks, Matt.

you. Thank

next go The with Rafe Please of ahead. question from America. is Bank Jadrosich

taking Hi, question. good for morning, guys. Thanks my

Hi, Rafe.

relative at in how range into million to how If the And cost of $XX the about we decline, that, decremental wanted like I volume think just in ‘XX? it do reduction. the year? sort the think about next the continues How then it play I should in annualized that? decrementals we the XX% of was that to to of margins does guidance, terms looked the in savings, EBITDA if reduction sales – look

that. Rafe. Yes. Thanks, take I’ll

seasonality said. less then QX quarters volume about and and are, it’s we if QX as XXXX, we itself, the really seasonality and QX in you where more QX. volume We’re the being relatively not again, QX and peak giving But guidance in about for think

would anything there sort than for Is year? that’s near-term of more margins pressuring anticipate you next

our our I mentioned inflation, margin. haven’t which price Well, on been able One still I rate. things is is to same think gross ahead maintain margin the of but good, two remains we

pressure talked in and leverage think is, little terms dynamic a related, the with fixed a what’s inflation piece And I and is it’s but that of volume bit QX, there underlying in I there. again, cost certainly our more then happening that’s QX. about second

have you to And costs through material then would some come of your material costs when raw lower margins? the costs flow on – of material just PVC down, lower in raw and terms into have, expect

well Yes. value come to it I down. tend decreases pricing proposition and take at but supply. we as where some it’s that out have look mean, some have there, see was our we originally, We costs We fairly from much account elevated all into are. and of specific our we where

you. thank Okay,

The William Blair. next from go ahead. Merkel Ryan with question Please is

through guys. of and you the thought the guide. just take maybe Hey, and assumptions question. start start us help Thanks for there? And take answer then the first quarter about What about is us some to think XQ the are My in how of these pressures some when increase? question see taking on really you that did to key revenue

heading when wholesale coming think dynamic XXXX, saw category XQ it what channels packaged the earnings together the bigger products the is of a in it website, our pause. fiberglass starting pool there. see just our maybe morning, XQ a the news the distribution into on purchasing step pause call, board. or still the last the time interest we’re had we across been I early back Good and choosing lead delaying of so. a historically quickly continued of homeowner kind Yes. and from for look the I at on the We pools generation, They are as through kind and as date. destocking were they Ryan, they into really XX seeing take when not as call in environment, over we and pulling last think days macro the and take to demand trigger delay maybe decision is the the interest And is the headwinds the we is still there, installation good The some their

like just And And is packaged are is Okay. XQ, volumes Because pools, that in sort XX%. majority wondering, the ease? of it of seeing you’re looks when in it? down kind the does of that the that I’m destock

the packaged I’d the Yes, is say majority the destocking pool in probably category.

we’ve cover down, XQ the a The nice in had. is And XQ that seeing delay slow dealers really here season What couple we’re Christmas of they seen the again, winds Thanksgiving other it’s as decision fill and in is pools last at the dynamic those head safety homeowner season. as the versus able we just that into the purchasing slots years being level. with to in

that have seeing activity not pause. homeowner of because just typically that like we We’re

it. Got Thanks.

Kenneth ahead. from is question Markets. Capital next KeyBanc go The Zener with Please

Good morning.

Good morning, Ken.

out you’re the that So sales hearing I’m calling impact. two items for

your this? If Which just everyone, is it liners, you your referring about other? could is just and or the cover to is clarify your correct? business of Packaged, versus for XX% one

No, so…

It’s metal just the stuff for Yes, just the the liners? side? metal

wall when components. which pool, stents destocking, be the the Ken, the into ground, would would the go the into. components, wall that assembled, go It’s components, say Yes. we liner for polymer it’s the the packaged and the vinyl steel panel

liners the products we stock distributors. and kind the So of think covers to side, so are wholesale off keep to those

report it in-ground on is we don’t Ken. segment, the inside, pools separately, packaged but in so That’s

Okay. Right.

the Thank we any business – channel to on seeing X something can because Does Can the that this your farther? you. to attributing sense of question since prepared. about your fourth that to which X have how the there the have mean you you of from inventory you comment in all I’m to should customers you Just quarter? do a gone was that your sales? have the that separate better trigger. I’m you I mag versus then for – was way asking trying Just means infer is do that, they quantify know Is nascent into most you’re POS mean still the so in and what you’re the of months corrections, people, of headwind? a there we kind of that channel? of component that And this quantify sales, light pausing, terms to not be is expand pulling of sell to

take years, can had lead long coming we’ve supply back. What seasonality the it, Because to just and that, there seasonality. now have in pool is the had about through months That of times. is where for part in moderate which real we happened don’t chain I and tended we’re the seasonality a those, less talk activity is and we that the winter coming prior issues products.

And I think those drop XQ, the the think pool in of coming pool the which components drop, back Ken, it fiberglass. in-ground to category, majority packaged in the of is and

we distributor slowdown It’s decision, the to consumer. the – direct products. pulled of to be would the is of coming As it buying One kind see liners more of that that out getting other off let’s and/or particular it’s category than both our of applies covers. shelves, that factories say

your margins? that’s understand, XQ we should always assume naturally myself basically business – are have mean is are and already. Appreciate and thin think XQ is I in discern because the is deceleration EBITDA that weaker a going But cycle. certainly destocking EBITDA if quarters, what to of trend and that to I very that then trying what Right, we’re seasonality, people half the half perpetuity about to your we as seasonality Rob, to sales mean trying which means, does the what core is fiberglass And think earned short you’ve guidance here. mean, it. try is? Does

Yes.

you’re helpful second just quarters your one-thirds QX the We a more historically, bit season the QX ramps. X annualizing asked decision the March, a terms Matt weakest and has going to QX. they our yes, that kind the the and of with X.X at in roughly probably distribution can’t margin say ramp Clearly, was we Frame come lightest, and of is quarter. fiberglass of still off homeowner you two-thirds, who the remember dollars of going. QX. question historically in light February, there in-ground Rafe that the business ramp up, that to the months, quarters. think between slowing way. basis bulk in helpful, think up slowdown starts very that in QX let’s I and in bigger everything or it pools, quickly. been labor think you’ve than the is we to Ken, can’t again, starts the XQ maybe about But was that a if volume it forward. got months try so probably again, and QX And panels the that. We absolute EBITDA all of lightest, cost products, being I historically have And of south the you it’s this the the also quarters, of little facilities. the versus of as do down majority it, into coming our the and QX, middle fixed lot the quarters, the destocking Look, to the with – season is, opens been lightest split let’s QX look last just the in you season distribution with have that in retain lightest purchase where if when as and about say QX dips take on

I’d EBITDA positive. to our about about quite think though just and even you what this been ability. we’ve we’re year, if total numbers our the strength it’s you that seasonality, And there margins, and have reiterate generate talking the overall in Even adjusted able

Thank you, gentlemen.

Ken. welcome, You’re

ahead. Goldman Maklari is The from Instructions] Sachs. Susan next question go Please [Operator with

Thank you. Good morning, everyone.

Good morning, Susan.

that the is seen question revenue versus lot about in for next growth first volume of we’ve thinking My has price year. XXXX. a Clearly, led price

to volume? and ability can drivers talk the thinking the to of As we realized? what year also, you’ve you key how that revenues you’re forward think about the be price the will quarters, between the sustain next pricing about And

it’s question. Rob. Thanks Yes, Susan, for the

now. about We’re XXXX really talking not

today prepared nimble what do We not We we where too just I proposition and our price. sit confident at to remain do But adjust We’re is, that. on we early. that. to say It’s feel where would always value are. looking we’re

has We we are think so set appropriately pricing inflation, far. of our and ahead been

you and to when facilities about to the online can about, that And with be you’ve the been in ability your to coming demand line and Okay. some demand macro at speak that other Kingston adjust of the the talking think environment? you are

of we’ve at in service to of demand keeping lot trying levels. to schedules say times position the facilities, the half and a I’d inventories Susan, our ‘XX levels, second in what lead shift production production here has a balance been adjusting doing been outlook, healthy to industry-leading plan and what maintain Yes. our

be can cost as to look at to it we market in online. shipping with conversion other would it’s us It a fiberglass coming facilities shipping good facility get really to from in that The capacity, really There we service demand with had prudent fit up to This U.S. the and a market kind will driving great Ontario, there. a replace significant in Kingston, we out Kingston anymore. from and pool be location, our part decisions of a pools give that ability look, to our up a new times, to dealers, pretty other and and the guns will the locations. we’ve in us one. to market similar running we’re Texas serve ramp As smaller help so decision bays manufacturing Kingston, We for level our the CapEx personnel how costs rebalance help a many done the we attack that we particularly, because Odessa, the the into our a of pools. to hole focus there country could market standpoint molds in the lead and drive clearly we would great will and online. And in dealers. won’t there, the the need lead and is like and with And allow southwestern facility our great times decision on to conversion leads lower

we down rates, that the monitor. And balance want outperform up seen cycles have still long-term stay importantly, I outlook, type in doing. we of long-term all more to will and market generation, in of as fact both I well, growth We believe think dealer think environments. fiberglass to on sign-ups continue the we’ve and been all our we the lead the because the focused the

you. thank Okay,

You welcome. are

question-and-answer remarks. to This now Scott any concludes for session. like the conference back the would turn to I closing over

rest your providing today’s our appreciate We for with future call. on interest country, Veterans everyone just day. everyone I a of forward everyone country. you your service their again and really support continued of you I look Day, Day thank for served have to Happy on hope And who’s Veterans Latham. coming and to Thank great We to wanted the updates And all for guys up, time a I our calls. further wish

now has Thank today’s you attending conference The presentation. concluded. for

now may disconnect. You