Latham Group Inc Aktie

Good afternoon, and welcome to the Latham Group First Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Casey Kotary, Investor Relations Representative. Please go ahead.

Thank you. This afternoon, we issued our first quarter 2026 earnings press release, which is available on the Investor Relations portion of our website. On today's call are Latham's President and CEO, Sean Gadd; and CFO, Oliver Gloe.

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 future events and financial performance as of today or the date specified.

Actual 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-K 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 is available on our Investor Relations website.

I'll now turn the call over to Sean Gadd.

Thank you, Casey, and thank you all for joining us today to review our first quarter results and discuss our business outlook. Our first quarter results represent a good start to 2026. We are especially pleased with our performance given the adverse weather conditions that plagued most of North America.

There are several key takeaways from the quarter that are worth noting. First was another quarter in which we saw year-on-year sales growth in each of our product lines. Latham's category leadership position across our product portfolio and our geographic diversification are key competitive advantages for us.

Secondly, we continue to effectively execute our stand states strategy, showing double-digit sales gains in fiberglass pools in our priority Florida market. We are taking further actions to accelerate our growth in this region.

Third, we expanded our margins, benefiting from operating leverage inherent in our business model and from the lean manufacturing and value engineering initiatives that continue to yield very positive results. Oliver will provide additional detail on this later on in the call.

And lastly, we are pleased to confirm our 2026 guidance, which anticipates significant sales growth and even stronger growth in adjusted EBITDA within a challenging macro environment where pool starts will be about flat to last year.

Our guidance includes moderate increase in transportation and commodity costs due to today's high oil prices, which we are mitigating with temporary fuel surcharges. We are closely monitoring the dynamic situation in the Middle East and the potential impacts on costs and consumer demand.

Taking a closer look at our first quarter results, In-Ground pool sales increased 3.5% and virtually all of that growth can be attributed to the 1-month contribution from the Freedom Pools acquisition. Adverse weather was definitely a factor in our organic performance, keeping organic In-Ground pool sales steady year-on-year.

However, April sales trends were in line with our expectations, and we are on track for fiberglass pools to approach 80% of our full year In-Ground pool sales in 2026. The Freedom Pools acquisition we completed on February 26 is integrating as expected. As we've noted, the acquisition expands our presence in Australia and New Zealand, markets where fiberglass pool models have a strong foothold and broadens our reach into new markets in Western Australia, including Perth, which is the fastest-growing city in the country.

We recently spent a week in Australia, bringing together the Narellan and Freedom teams. In addition to this transaction being immediately accretive to Latham and giving us a market-leading position in the country, we anticipate achieving considerable revenue synergies from this combination over time as well as gaining firsthand experience from the direct-to-consumer business model.

Cover sales advanced 6% in the first quarter, driven by growth in autocover demand as consumers increasingly recognize the safety and economic benefits of this excellent product. Our industry-leading autocovers are compatible with all In-Ground pool types in many parts of the U.S., they provide the homeowner with an alternative to fencing while delivering additional cost savings from reduced evaporation and chemical usage.

Educational marketing campaigns, including our partnership with Olympic Gold Medalist and pool safety advocate, Bode Miller and his wife, Morgan, to promote pool safety have served to build consumer awareness and increase attachment rates for the covers to new pool installations. First quarter liner sales were up 9% year-on-year, reflecting increased demand and buying in advance of the pool season.

We continue to gain traction with our sand state strategy in the first quarter and are moving forward with plans to accelerate our growth in this important region. Many of the investors and analysts who I've met since taking on the CEO role in January have asked me where I see the major growth opportunities ahead for Latham, what our playbook is for capturing that growth.

Let me start by saying that the opportunity is substantial. We do not need to wait for the recovery in the U.S. pool market to drive growth. There are enough pool starts for us to go and attack the sand states now, given our relatively low penetration in that region. The key here is that fiberglass is a growing category, and we are the #1 player in the U.S., and so we are best positioned to gain share.

Fiberglass pools are an excellent fit for the sand states for many of the same reasons that the category is growing nationally, fast and easy installation, lasting durability, low maintenance and we have an exceptional design range of sizes and options to choose from, many of which are smaller rectangular shape pools with attached bars that are perfect for our target communities.

Latham has laid a good foundation for growth in the sand states. There is definitely increased brand awareness among consumers and dealers in Florida, thanks to several high-profile marketing campaigns paired with local activations.

In 2026, we plan to build on that foundation to set the stage for accelerated long-term growth. As you know, I have many years of experience successfully selling against the standard in the building products industry.

When I apply that experience to Latham's current position in the sand states, I have identified several actions to capture consumer demand and provide additional value to our dealers. First, we are building out our commercial organization with the key pillars being sales strategy, sales operation and sales execution with responsibilities to design and drive sales plans, product leadership and sales effectiveness.

Our goal is to provide a world-class commercial organization that supports our growth, not just in Florida but across all the sand states and all of North America. Second, we have introduced a new market development framework and approach at Latham that I believe will make us even more effective in capturing share. The key element of this framework is segmentation, meaning that we'll be very selective with our targeted sand state markets and determining the specific sections and neighborhoods that offer the greatest opportunity for us.

In essence, it's all about neighborhoods. We're looking for neighborhoods with a large number of homes with home values, lot sizes and household incomes that fall within our parameters. These can be in, adjacent to or outside of master-planned communities.

Third, we'll be adding sales resources in the field to make sure we stay close to the consumer throughout the pool buying process. In this way, we'll be able to assist our dealers in converting more leads into sales and getting greater understanding of the consumer journey.

We know that consumers are looking for designs that fit their lifestyles, and we believe that Latham has the best range of products to meet those needs. In 2026, we are increasing our investment in branding and marketing in a very targeted way to capture greater consumer awareness, together with our network of trusted dealers who are able to fulfill the demand we generate.

In support of all this, we are revamping our marketing and advertising campaigns to give homeowners a full understanding of the true benefits of fiberglass and why it is the right solution for their backyard to enable their dreams of creating wonderful memories to come true.

With that, I will turn over the call to Oliver Gloe, our CFO, for a financial review. Oliver?

Thank you, Sean, and good afternoon, everyone. I'm pleased to report on what was a solid start to 2026. Please note that all comparisons we discuss today on a year-over-year basis compared to the first quarter of fiscal 2025, unless otherwise noted. Net sales for the first quarter of 2026 were $117 million, 5% above $111 million in Q1 of 2025, of which 3% represented organic growth and 2% represented the 1 month's benefit of the Freedom Pools acquisition we completed at the end of February.

Organic growth was led by the continued strength of autocovers and increased demand for our pool liners. By product line, In-Ground pool sales were $60 million, up 4% from Q1 2025, with virtually all the year-on-year growth coming from Freedom's fiberglass pool sales. Cover sales were $33 million, up 6% and liner sales were $24 million, up 9% compared to the first quarter of 2025.

We achieved a first quarter gross margin of 32%, reflecting a 220 basis point increase above last year's 30%. This performance is primarily due to volume leverage, along with production efficiencies driven by our lean manufacturing and value engineering initiatives.

SG&A expenses increased to $37 million, up 20% from $31 million in Q1 of 2025. This was largely tied to strategic investments in sales and marketing to accelerate fiberglass adoption, digital transformation initiatives and acquisition and integration-related costs, which includes $2.3 million of performance-based compensatory earn-out expenses related to our Coverstar Central acquisition in 2024. Target synergies have been realized for Coverstar Central, and we are pleased with the contribution from the acquisition, which has exceeded our initial expectations.

This earn-out will total roughly $9 million over the course of the year with similar impact in each remaining quarter in 2026. Net loss was $9 million or $0.07 per diluted share compared to a net loss of $6 million or $0.05 per diluted share for the prior year's first quarter, primarily due to the aforementioned increase in SG&A expenses.

First quarter adjusted EBITDA was $12 million, 9% above $11 million in the prior year period, primarily resulting from volume leverage and efficiencies gained through our lean manufacturing and value engineering initiatives. Adjusted EBITDA margin was 10.4%, a 40 basis point expansion compared to last year's first quarter.

Turning to the balance sheet. We continue to maintain a strong financial position, ending the first quarter with a cash position of $27 million. In line with our expectations, net cash used in operating activities was $48 million, reflecting a seasonal increase in working capital needs ahead of peak pool selling season.

We ended the quarter with total debt of $311 million and a net debt leverage ratio of 2.8, also in line with our expectations. Capital expenditures were $23 million in Q1 2026 compared to $4 million in the prior year period. The increase is primarily due to the purchase of 4 key fiberglass manufacturing facilities in Florida, Texas, California and West Virginia for $18 million, including a $12 million deposit made in 2025 that was settled in Q1 2026.

Additionally, we incurred $5 million of CapEx relating to ongoing projects in line with our expectations. As a reminder, we expect CapEx to range between $42 million and $48 million in 2026. This includes $25 million of maintenance CapEx, expenditures related to the purchase of the fiberglass manufacturing facilities that I just mentioned and investments to upgrade our newly acquired Freedom Pools manufacturing facilities.

While the beginning of 2026 was affected by adverse weather conditions across North America, we are encouraged that April sales trends have been in line with the historical seasonal ramp. We continue to monitor geopolitical developments and their potential impact on our freight and raw material costs, but we believe we are well positioned to manage effectively through this pool building season.

We are pleased by the steady progress we are seeing from our fiberglass awareness and adoption initiatives, highlighted by strong consumer engagement with our branding and marketing campaigns and continued gains in Florida, our initial sand state target market.

Based on our performance to date and our current visibility into the remaining season, we are pleased to reaffirm our guidance for 2026 revenue growth of 9% and adjusted EBITDA growth of 13% at the midpoint and with expectation for new U.S. pool starts to be flat with last year.

With that, I'll turn the call back to Sean for his closing remarks.

Thanks, Oliver. In summary, we are pleased with our first quarter performance, encouraged by recent order trends and excited by the growth opportunities we see on the horizon. Latham is firmly on track to outperform the market for new U.S. pool starts again in 2026, and we intend to take advantage of soft markets to accelerate our sand state strategy and strengthen our execution.

I see tremendous opportunity for Latham to drive market penetration in the sand states as well as the rest of North America, Australia and New Zealand. And with that, operator, please open the call to questions.

[Operator Instructions] Our first question comes from Ryan Merkel with William Blair.

I wanted to start off with sort of the fiberglass backlog and orders as you enter the season. How is that looking? And then have you seen trends pick up now that the weather is cleared?

Yes. Thank you for that question, Ryan. In terms of backlog, I think we're seeing what we would have expected to see coming out of the first quarter. The order file in April looks strong to us and looks like it is picking up for the season. And we feel good enough that we obviously have reaffirmed guidance. But generally, we are seeing a pickup in orders and feel pretty good trends.

Got it. Okay. And then my second question is the fiberglass conversion is key to the story, Sean, you know that, and you're adding a bunch of resources, it seems. I'm curious, what are the biggest tweaks that you're making to the strategy? And then any early results or maybe it's a little too early?

Yes. We are definitely making some tweaks. It is -- I will tell you, it's too early. The main thing, and I talked about it earlier on is we are segmenting the market a little bit differently to how we have done it in the past. We've got our criteria now built up where we know we feel like if a neighborhood fits that criteria, the likelihood of them going to Latham and then to fiberglass is higher.

So we like that. We're starting to test that and we get those right with the right dealers, we'll be able to start building out more and more neighborhoods. And so we're early, but I feel like that's definitely on a good path for us.

The second thing we're doing is adding heads. And really, I'm trying to organize the commercial organization into sort of 3 areas: sales strategy, which is really just understanding where is the opportunity, doing more of the segmentation, becoming a little bit smarter around sales.

And then sales operations, which for me is really about converting what we think about the market into real game plans that the sales team can execute, then measuring that sales team and then sales team to go and execute. So just getting a little bit more organized so that we get the most out of our sales organization, and that's really across the whole U.S., but including in the sand states.

Our next question comes from Greg Palm with Craig-Hallum Capital Group.

I wanted to piggyback on the first question a little bit since a lot has happened in the last couple of months since you -- since we were all on the phone together. It doesn't sound like demand environment has changed like all that much, I guess, relative to maybe what you would have thought a couple of months ago.

So maybe you can just confirm that again. But from an input cost side of things, you mentioned freight. I wanted to get your sense on how you're dealing with that and also anything else that's on your radar, whether it be increasing resin prices? Are you seeing any availability shortages of key inputs like that, anything else that should be on our radar?

Thanks, Greg. I'll start by talking about the market a little bit. We still see the market overall for this year look likely to remain flat. So our assumption for that hasn't changed. But we are seeing some green shoots coming out, and we feel good about that.

So like I said, our order trend for April looks strong and then into the start of May. So we feel good about that. PK would have indicated that -- Pkdata would have indicated that some more growth starting to occur with cheaper pools. Again, we like that.

That's a good sign for us. Obviously, pools are getting smaller, so that is good. Obviously, the volatility is not helping, but I think we have a sound game -- I know we have a sound approach. So I think we'll work through that. And then from a dealer perspective, when we caught up with the dealers, what they tell us is it's pretty competitive, 4 or 5 quotes per job, which is generally up.

But from what I -- from my take is it's certainly uncertain. But I believe less people will be traveling, the price of gas doesn't help. And so they're staying at home. And I think that's the opportunity. And I think that's what the green shoots are we're seeing that people will rather now spend time at the home and hopefully, with that build a pool.

And Greg, let me address the second part of your question with regards to the conflict in the Middle East and some of the updates here on input costs. Let me start off by saying we don't see availability to be an issue as of today.

And then partially that's due to our supply diversification coming out of COVID a lot to be multi-sourced and be as diversified as possible. But we are seeing obviously headwinds in cost, right? That comes in 2 forms. One is transportation, the price at the pump and especially in the world of fiberglass, we are obviously incurring transportation costs. It's expensive to ship those fiberglass across the nation.

In terms of mitigation, what we've done on that side is to introduce temporary fuel surcharges that we plan to fully mitigate us when it comes to transportation costs. I think it's too early to tell what the impact is going to be on the commodity side.

Obviously, suppliers are reaching out. We are exposed to the -- again, the country in the Middle East as we consume a lot of oil derivatives in the world of resins, vinyl and so forth. Again, I think it's too early to tell, certainly currently in discussions with the suppliers.

I think we're making the first purchase orders as we speak on a slightly higher price levels. We'll have to see how the very dynamic situation evolves. But I'm confident in the playbook that we have. We have applied that playbook during COVID. We have applied that playbook certainly last year. And I think we have confidence that the playbook will also work this year as we work through commodities.

Okay. Great. And then on some of these initiatives that you talked about resegmentation, adding sales resources, I'm curious, how do you feel about your current dealer network right now? And how important of a lever can that be, not just adding new and more dealers, but also leaning into some of your more successful ones. Maybe you can talk a little bit about that as well.

Yes, sure. I'll start with dealers are very important. They are obviously the extension of us as they sit across the kitchen tables. And so we need them to basically close the sales. Now what I will tell you is I believe we've got the opportunity to get more out of our current network, which is goal #1.

So I'm talking really about our core, what I would call our core markets, Midwest, Northeast Canada, and that's really about account management. And we're going to be defining what account management looks like for Latham and making sure our organization is trained around good account management.

So I expect to get more out of our current network. Then I think about adding where we've got white space, we're always going to be looking for dealers to take on white space if our current dealer network doesn't get us there. That is going to be part of the strategy.

And then when I think about the sand states and material conversion, we have a good network of dealers there right now that we are going to be feeding as we go into these neighborhoods and they will be able to get the benefit of referrals and everything else that comes out of those neighborhoods. So we feel good about the network in the sand states, particularly Florida, but our intention will be over time to grow.

Our next question comes from Timothy Wojs with Baird.

Maybe just first question just on the -- just kind of the resegmentation of some of the sales force and things like that. Is the plan that there's incremental investments in terms of dollars that's going into some of the initiatives? Or are you just kind of reallocating what you have?

They do a little bit of both. We are definitely going to get ahead a little bit because we need more people on the ground and/or -- and actually thinking about our game plan. So that is. But our intention will be -- if you think about sales -- sorry, SG&A as a percentage of sales, we should -- over the medium and long term, that should stay the same. So we will continue to find that as we grow. And then we will look at opportunities to sort of trim back on the back side of the business to give us some space to spend on the front side of the business and invest.

Okay. Okay. And then, Oliver, just on the price cost question. I guess it's not totally clear if higher resins are kind of in the guide? Or is it kind of a wait-and-see approach right now? And if you do see higher resins, you guys have the ability to take cost out or improve efficiencies or pass them on price. Is that kind of the main message?

It's probably more than that. I think transportation cost is relatively foreseeable what that means to us, and that's in the guide, right? With commodities, I think it's too early to tell.

Our next question comes from Andrew Carter with Stifel.

I wanted to ask and just double-click to make sure we understand exactly what the pricing is for the year. You are putting in temporary fuel surcharges. Can you give a magnitude of how much that's kind of incremental to the old guidance? You are not taking any price increases on products for resins. Just want to make sure and triple check that. And I think you said we're well prepared for materials during the season.

So I'm guessing, is that a comment that everything is good for now and you take a price increase later? And then kind of finally, if you have to take a price increase, can you take one mid-season? Or does that mess things up? Or just how those dynamics work around when you have to make a decision on pricing?

Perfect. So Andrew, I would say the transportation cost and the temporary surcharge, I'd say, for the year is probably worth 60 basis points. But again, it's very dynamic and volatile, right? And obviously, as the headwinds change, that temporary surcharge can change over time as well, right?

But that's just order of magnitude, right? I think, again, for commodities, too early to tell. Quite frankly, we haven't even ordered or just about to start ordering materials that would be subject to a change in pricing. So it's really too early to tell.

And then obviously, the materials get shipped to our sites work their way through inventory ultimately as they consumed in the P&L. But we'll -- again, we have our playbook and we'll react in time as necessary. And I remind you last year, we actually did do a mid-season price increase catering to the environment last year that came in, in June. So it's not preferred, but it's also not unheard of.

Our next question comes from Scott Stringer with Wolfe Research.

I'm just wondering if the adverse weather mentioned in 1Q pushes some sales into the second quarter. And the guidance obviously implies some acceleration through the rest of the year, right? So I guess it would just be helpful to know the tailwind from sales being pulled into 2Q, if that is the case.

So I would say the adverse weather really means we had a lot of snow ice on the ground in January and February. If you think of our annual organic growth of 6%, we certainly didn't achieve -- didn't quite achieve that in Q1, it was probably half of that.

And I would attribute that to weather. So if you translate that to shipping days, that equates to about a shipping day in today's seasonality. So I'm not reading too much into that. The season is young. Q1 is a comparatively small quarter, again, translating our underproportional organic growth in Q1 vis-a-vis the annual guide due to shipping days, it's 1 day.

I think that's another way of saying we put in the prepared remarks that really the trends in April have been as expected. We are seeing the seasonal ramp. Whether we'll catch up on that 1 day in Q2 or in Q3, we will see it's early in the quarter. But certainly, nothing we have seen in Q1 and in our ramp in April that would make us change our view on '26 and the guide.

Okay. Got it. And then I think you guys talked about this a little bit earlier, but just curious on the visibility into 2Q and 3Q for In-Ground pool installs. Is that pretty much set? Or just curious how much variability is there over the next few quarters in that segment?

I'll start and then I'll hand it over to Oliver. I think from a Q2 perspective, we're all set, I mean, based on our lead times currently. But it looks like, as I said, we started the quarter really well.

Q3 is still obviously -- while we've got orders that do fall into Q3, it's probably too early to tell. But again, from what we're hearing inside of the market and from what we're seeing, we still feel very confident with what the order file looks like and we'll continue to hold guide.

And if I compare today's order book versus prior year, it's really nothing that would cause us to think differently about the seasonal pattern vis-a-vis the last year. Again, all confirming...

Our next question comes from Matthew Bouley with Barclays.

You have Elaine Ku on for Matt Bouley today. For my first question, I'm just curious like what are the top concerns you're seeing from buyers today, like between rates, economic uncertainty, just the need to step up more consumer awareness of fiberglass pools, what's kind of the biggest challenge today?

From what I've heard, the #1 thing would be -- which is tied to interest rates is basic financing is difficult to get. So anybody who hasn't got the cash or is able to get -- got a good FICO score is unable to get the financing. We're hearing there a fair bit which isn't all that different to what we would have heard last year.

And then I think the other part would be the dealers are saying that they're fighting -- they're having to fight for the sale a little harder than they were previously. So when I mentioned 4 to 5 quotes, it's typically 2 to 3 quotes. So everyone is fighting for the business pretty high. Now we are out of the years.

We feel in an environment where things are tough, I actually feel good about fiberglass pools because obviously, pools are getting smaller, that fits our trend pools of low maintenance. So the actual cost on an ongoing basis is lower than the alternatives out there. So the expenditure on chemicals and like I said, on evaporation is lower, especially if you have an autocover.

And the durability of the pool means that there's no ongoing expenses done with the pool. So while we see the market is a little tough, we still see it not adversely affecting us relative to last year.

Got it. And in terms of your increased branding and marketing spend, can you walk us through the cadence of what that might look like through the year and its impact on SG&A? And also, what does this sort of look like? Like is it a targeted brand program for dealers? Is it more salespeople on the ground? Or is it more like the ad and marketing spend?

Yes. It's a bit of both. We've got -- right now, we're running a national campaign. The national campaign is good because it lifts all markets up, which is great. The other good part of our national campaign is when you think about the sand states, there's a trend of people moving from the Midwest, Northeast into the sand states. We like that because fiberglass is the standard in those markets, so they know us.

So we like the marketing campaign being a national format. The increase -- and I'll just talk with the timing, the size of the time is really set for the pool season. So we started sort of February, mid- to late February, and we're moving all the way through to sort of July, August. That's the time frame for the national campaign.

And then when I think about my neighborhoods, that's going to be way more tactical in nature. So I'm talking about things like digital marketing, I'm talking about door hangers and marketing around the homes. I'm talking about doing events at the home to inspire the neighborhood. So those are pretty tactical small expenses that will run in every neighborhood.

So when it comes to the increase and the cadence of the increase, as we said earlier on, I think over the foreseeable future, SG&A as a percent of sales will roughly be flat. It was 22.5% last year. We expect it to be a similar amount this year. And the majority of that is spent in the sales organization and marketing.

There's a little bit of digital transformation in there and also inflation on the core, meaning G&A. But again, the majority is going into the sales organization and marketing. There's also a little bit of increase in the absolute dollar numbers as we bought Freedom and that comes with about $3 million of SG&A.

So that gives you the $22.5 million. But I would like to remind you that in addition, we have the earn-out expenses for Coverstar Central that is about $9 million that's tied to 2026, so it won't recur in '27, either didn't occur in '25. So that is an earn-out expense that is tied to 2026.

Now with regards to cadence, it's roughly the same as usual. You will see that Q1 and Q2 are a little bit heavier and that is because we are running our marketing campaign, our national TV campaign earlier and longer in '26 versus '25.

Our next question comes from Susan Maklari with Goldman Sachs.

This is Charles Perron in for Susan. First, I'd like to shift gear a little bit and talk about the autocover and the opportunities that you see in this market. Considering the changing macro dynamics, is there any impact you're seeing in terms of the adoption? And any efforts you can do here to further expand the penetration over the coming years?

Yes, I'll start that. I think -- so the answer is no, we're not seeing a decrease in adoption. We had a pretty good quarter in autocovers -- covers in general. We think we should -- I mean we had very large growth last year. We expect it to grow this year, and we expect it to grow in the coming years as well.

It's really about awareness for us. The reality is most people still don't know that autocovers are available. Autocovers can fit on every pool. So it doesn't really matter if it's the fiberglass pool or not. So the market is actually very large for us.

And we've got our value-added resellers set up to take advantage of that. And then we also are now getting our sales organization, Latham sales organization around that product, and it's still early for that to happen.

So we see that as more upside as we go. But the product is -- product is a good product. It does what it needs to do. Consumers who have it love it. And I think we just got to make sure we continue to drive the awareness. And I don't see that trend changing.

Got it. Okay. That's helpful, Sean. And then switching gear, I appreciate all the color so far on the call on input costs and inflation. But should we see more favorable dynamics coming through from a cost perspective? Can you talk about the opportunities to further lean on your lean manufacturing and value engineering initiatives to further protect your margins?

So I think lean and value engineering continues to be a key contributor to our P&L. Like you've heard me on prior calls, the contribution is about $2 million, $2.5 million per quarter. In Q1, it was $2 million, and that's just because Q1 is a light quarter and lean and value engineering programs go up and down with volume.

I think as some of those programs mature and you'll see the tailwind that's really now get into our DNA. This is how we lead our plants and factories, and it's part of the everyday cadence. So you'll see a lot more programs, maybe not of the same magnitude because the low-hanging fruits are being cleared here.

And that's more common for new manufacturing, whereas value engineering, we're really in the beginning of the journey. I think there are still some low-hanging fruits out there that our team of PhD level scientists is pursuing. So again, both initiatives under full steam and certainly in Q1, delivering what we expected them to deliver, and there's no change in our thoughts for the rest of the year.

Our next question comes from Shaun Calnan with Bank of America.

Just first, the double-digit growth in Florida was quite impressive. What do you think has led to the success in Florida versus the other sand states? And can you talk about what lessons you can take from Florida to apply to the other sand states?

Yes. I'll start with obviously our largest focus on all the sand states. We are set up quite well from a sales number perspective. We're working on dealers now over the last 18 months. So we've got a set of dealers that are really the right dealers for us to help fulfill the demand that we're creating. We've been running our marketing in general campaign for now 18 months, and we're seeing the flow of that.

And then we have got -- I mean, we've got a really good strong proposition -- value proposition relative to concrete. And we're getting deeper and deeper into the market and getting -- being able to communicate it.

So we are seeing good growth, and we feel good that -- and I feel good that if a homeowner understands the benefit of fiberglass over concrete, there's a really high chance that we go with fiberglass. We're just very early still in the adoption curve.

So our mission is to make sure our awareness goes continues to get driven up and that we have the connection between that awareness and our dealers positioning at the kitchen table. And then I'll just remind you, at the end of the day, while we are very pleased with the numbers, we will look to accelerate that. And in reality, we're still working on pretty small numbers when we think about Florida.

Okay. Great. And then just one cleanup question on the surcharges. Are you aiming to offset the higher transportation costs on a dollar basis or a margin basis?

On a dollar basis. So the headwind as we incurred is being passed on with the temporary surcharges.

Our next question comes from Andrew Carter with Stifel.

Just I wanted to double click and make sure on that incentive cost. You're not backing that out. So if you were to put that back in, the incremental here is still $28 million to $38 million in investment year. I just want to understand that double click -- the earn-out around Coverstar, my follow-up.

Right. So the -- so the earn-out is included in SG&A and will be sitting on top of the 22.5% of revenue, but as it is an expense tied to an acquisition for EBITDA purposes.

Okay. So it is just not excluded. It is within guidance that expense, just double checking.

It's an add to EBITDA and it is in SG&A.

This concludes our question-and-answer session. I would like to turn the call back over to management for closing remarks.

Thank you very much. I just want to thank everybody for getting on the call. We felt like we had a strong quarter. Obviously, a little bit with weather, but the momentum is there. April looks strong, and we feel confident about our guide. With that, I want to conclude the call. I look forward to seeing all the folks on the call over the coming weeks and months at different types of events. Again, thank you for everyone for attending. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Welcome to the Latham Group, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call.

[Operator Instructions]

Please note, this event is being recorded.

I would now like to turn the conference over to Casey Kotary, Investor Relations representative. Please go ahead.

Thank you. This afternoon, we issued our Fourth Quarter and Full Year 2025 Earnings Press Release, which is available on the Investor Relations portion of our website, where you can also find a slide presentation that accompanies our prepared remarks.

On today's call are Latham's President and CEO, Sean Gadd; and CFO, Oliver Gloe.

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 future events and financial performance as of today or the date specified. Actual 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-K 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 Sean Gadd.

Thank you, Casey, and thank you all for joining the call to discuss Latham's Fourth quarter and Full Year 2025 results.

In my first Conference Call as CEO of Latham I have the good fortune to be reporting on the strong results that the company achieved in both the fourth quarter and the full year of 2025. This performance demonstrates excellent execution by the Latham team. As you have seen from this afternoon's earnings release, fourth quarter revenues were up 15%, showing a solid growth across all of our product lines. We were especially pleased by the fourth quarter pickup in our In-Ground Pool sales which brought our full year In-Ground Pool sales to 1% above 2024 levels.

The impressive performance per year within an industry in which we estimate the U.S. In-Ground Pool start declined low to mid-single digits. With the benefit of good weather and extended [indiscernible] setting season, dealers were able to work through their backlog. The strong result reflects an increased demand for Latham's fiberglass pools. Fiberglass represented 76.5% of our In-Ground Pool sales in 2025 with the year-on-year growth of Latham's fiberglass pool sales of approximately 2.5%.

As a market leader, Latham has been the key driver behind the increased adoption of fiberglass pools, which we estimate gained another percentage point of market share in 2025 to account for approximately 24% of last year's U.S. pool starts. The steady growth in fiberglass market penetration in the U.S. reflects the success of Latham's branding and marketing programs, emphasizing the benefit of our fiberglass pool against any alternative solution. Competitive strength of fiberglass pools, mainly their fast and easy installation, sleek designs matching current consumer preference and lower maintenance requirements, all at an affordable price makes Latham fiberglass pools the best alternative in the marketplace.

While the estimated 24% penetration of U.S. pool starts for 2025 represents significant growth from 16% in 2019, this is considerably below the 70% fiberglass penetration in my home country of Australia and meaningfully below the approximate 40% to 50% penetration in key European markets, which really excites me as I think about the future and the size of the opportunity. I have considered the attributes to fiberglass from the vantage point of my many years of experience successfully selling against the standard in the boating industry, I see substantial runway for accelerated conversions to fiberglass, particularly in the sand states, which I'll talk about in a moment.

Another key accomplishment for 2025 has been the positive momentum in our covers and liners product lines, which delivered a meaningful contribution in both fourth quarter and full year sales results. The 22% growth in autocover sales in 2025 was a function of very positive consumer response to the unparalleled safety and peace of mind that autocovers offer. This is further highlighted by our partnership with Olympic Gold Medalist and Pool Safety Advocate, Bode Miller and his wife Morgan to promote full safety and the safety advantages of our autocovers.

As a reminder, Latham's autocovers are compatible with all the In-Ground Pool types with the advantage of providing the homeowner with a significantly more attractive alternative to fencing, while also delivering cost savings from reduced water evaporation, reduce energy for pool heating and reduced chemical consumption, essentially autocovers pay for themselves within 4 to 5 years. Liner sales increased 4% in 2025, thanks to our industry-leading lead times and the successful rollout of our proprietary AI-powered measuring tool. Measure streams lines, the liner and winter safety cover measurement, including process for installers, ensuring a high degree of accuracy that can be completed in as little as 30 minutes. This tool is fully integrated with the Latham order entry and processing system, which allows the installers to get real-time quotes to submit orders and track their status by providing Latham with first look at all quoting opportunities and helps optimize schedules and operations.

Approximately 20% of the installers who purchased this tool during the year were mutilated, enabling share gain in our liner and winter safety cover products. In 2025, the Latham team executed effectively on a strategic priority, expanding into the Sand States, in particular, and company gained considerable ground in FRGP, our initial target market, achieving double-digit sales growth for the year. This good growth was achieved by expanding our dealer network, establishing a presence for Latham in several master plan communities and nurturing our strategic partnerships with select custom homebuilders, who will feature our fiberglass pools in their developments when they begin building.

The percentage of Latham sales volumes derived from the Sand State states remains steady at approximately 17%. This reflects our considerable growth in Florida and a pickup in Arizona, offset by the tough Texas markets where pool permits declined at a double-digit rate. I recently spent 2 weeks in Florida engaging with the commercial team and some of our dealers, while visiting our priority Mastered Plan Communities and touring our Zephyrhills manufacturing facility, which demonstrated to me that Latham has the best fiberglass pools in the industry. I came away getting more enthusiastic about the opportunity and upside in Florida more than I had originally thought, as I do my research in joining Latham.

First, the opportunity for fiberglass pool penetration in Florida and other Sand States is large. Second, the advantage of fiberglass pools are resonating with qualified established dealers, several of whom indicated their desire to partner with us in our Mastered Plan Communities. They recognize the benefits of providing their customers with a high-quality product, which posts lighting durability, elegant appearances and a smooth low maintenance finish. Not only do they get to sell a great product that meets the needs of the homeowners that are able to capture the benefit of quicker, easier installation. Shorter cycle times mean that dealers can improve their cash flow through the install process and triple or quadruple the number of pools they sell an install, annually, resulting in more profit for them in the end.

Thirdly, Latham clearly has increased its brand awareness amongst consumers and leaders in Florida. With several high-profile marketing campaigns paired with logical activations. We still need to do more of this as the #1 gap I see is ensuring the homeowners gain awareness of the true benefits of fiberglass. Why is the right solution for their backyard to enable their dreams of creating wonderful memories to come true. Together with the speed at which our pools have installed allows homeowners to enjoy pools in days instead of the traditional months when compared to the standard, which is concrete.

In 2026, we plan to increase our investment in branding and marketing in a very targeted way to capture greater consumer awareness with a network of trusted dealers who are able to fulfill the demand we generate. I'm excited to bring a market development framework and approach to Latham and I believe will make us even more effective than we've been to date. As we continue to focus on accelerating organic growth, you can also expect Latham to continue to consider select acquisitions that provide us with revenue synergies and/or expanded geographic reach and will be accretive to our earnings.

Just a few days ago, we completed an acquisition that meets all 3 criteria. Oliver will provide more details shortly, from my perspective, Freedom Pools represent excellent acquisition, and that is: one, significantly expands our market position in Australia and New Zealand, 2 countries where fiberglass pools are highly preferred by consumers and builders; two, it gives us entry into new markets in Western Australia which represent a large markets of Perth, one of the fastest growing cities in Australia; and thirdly, it is immediately accretive to our earnings. We welcome the Freedom team to Latham.

To sum up, our fourth quarter and full year 2025 performance demonstrates Latham's fundamental strengths and ability to drive considerable growth in sales and adjusted EBITDA in a down market. This proven capability differentiates us in the marketplace and provides the foundation for future growth and enhanced profitability.

Now I'll turn over the call to our CFO, Oliver Gloe. Who will provide further detail in our Q4 and full year financial performance, including the drivers of our continued margin expansion in 2025 and in support of our 2026 guidance. Oliver?

Thank you, Sean, and good afternoon, everyone. I am pleased to review our fourth quarter and full year results and to report that our full year 2025 sales exceeded the midpoint of our guidance range, while our adjusted EBITDA performance was above our guidance range, demonstrating the benefits of volume leverage and production efficiencies. Please note that all comparisons we discussed today on a year-over-year basis compared to the fourth quarter and full fiscal year 2024, unless otherwise noted. Net sales for the fourth quarter of 2025 were $100 million, up 15% compared to EUR 87 million in the fourth quarter of 2024, reflecting strength in fiberglass pool sales as well as increased demand for autocovers.

Organic growth was 14% for the quarter. For the second consecutive quarter, all 3 of our product lines In-Ground Pools, pool covers and pool liners experienced year-over-year growth. By product line, In-Ground pools sales were $50 million, up 15% from Q4 2024, showing strength in both fiberglass and packaged pools and representing a quarterly shift in the sales cadence given an elongated season due to favorable weather conditions in Q4. Cover sales were $37 million in the quarter, up 19%, benefiting from increased adoption of order covers and the 2 small covers acquisitions we made in February of 2025. Liner sales were $13 million, up 2% compared to fourth quarter of 2024, remaining resilient relative to the overall pool market due to the replacement cycle of these products and our industry-leading lead times.

Gross margin expanded by 340 basis points to 28% in the fourth quarter, primarily resulting from volume leverage and the continued benefits from our lean manufacturing and value engineering initiatives. SG&A expenses increased to $31 million up $4 million from $27 million in Q4 of 2024, largely driven by investments made in sales and marketing initiatives and personnel to drive increased penetration of fiberglass pools and autocovers as well as higher performance-based compensation. Net loss was $7 million or $0.06 per diluted share compared to $29 million or $0.25 per diluted share for the prior year's fourth quarter.

Fourth quarter adjusted EBITDA was $10 million, up $7 million, almost 3x the $3.6 million in the prior year period. The strong performance primarily resulted from increased fiberglass pool sales, benefits from higher plant absorption, efficiencies from lean manufacturing and value engineering initiatives and continued cost discipline. Adjusted EBITDA margin was 11%, a 630 basis point increase year-over-year.

Now turning to our full year results comparisons. Net sales were $546 million, up 7% compared to $509 million in the prior year, reflecting higher sales volume from both organic and acquisition-related growth and tariff-related price increases. Notably, this performance was achieved while we estimate the U.S. In-Ground Pool market to be down low to mid-single digits in 2025. Organic growth of 5% benefited from execution on our key strategic priorities to drive awareness and adoption of fiberglass pools and autocovers. Acquisition-related growth reflected [indiscernible] central transaction that was completed in August of 2024 and the acquisitions of smaller [indiscernible] New York and Tennessee, which we completed in February of 2025.

All 3 product lines showed year-over-year growth. Latham's In-Ground Pool sales for the full year were $262 million, up 1% year-over-year. Importantly, this growth was achieved against a backdrop of a decline in U.S. In-Ground Pool starts in 2025, primarily as a result of our success in increasing the awareness and adoption of fiberglass pools. As Sean mentioned, we estimate that market penetration of fiberglass pools increased again by 1 percentage point in 2025, and we see a long runway for continued conversion from concrete pools, especially in the important Sand State markets. Cover sales were $161 million, up 22%, driven by organic and acquisition growth. Liner sales were $123 million, up 4% compared to the prior year period, reflecting our industry-leading lead times and the increased adoption of our MeasurePRO tool, which enables pool business to accurately and efficiently measure both pool liners and covers.

With the introduction of our mobile app MeasureGO in the third quarter of 2025, we broadened access to more business as we seek to make the measurement and quotation process as seamless as possible. Gross margin expanded by 320 basis points to 33% compared to 30% in the prior year, primarily resulting from our lean manufacturing and value engineering initiatives and a margin benefit from the 3 [indiscernible] acquisitions as well as volume leverage.

SG&A expenses increased to $123 million from $108 million in 2024, reflecting our increased investments in sales and marketing initiatives to expand the awareness and adoption of fiberglass pools and grow our market share in the Sand States as well as investments in digital transformation, along with the impact of the [indiscernible] acquisition. Net income for the full year was $11 million or $0.09 per diluted share compared to a net loss of $18 million or $0.15 per diluted share from the prior year. Adjusted EBITDA was $100 million, up $20 million compared to $80 million in the prior year as a result of higher volume and our structurally improved business model.

Adjusted EBITDA margin of 18.3% was 250 basis points above the 15.8% in 2024. Thanks to our strong gross margin performance which more than offset higher SG&A expense. Turning to our balance sheet and cash flow statement. We ended the year in a strong financial position, which gives us the financial flexibility to fund organic growth projects as well as acquisition opportunities. Our cash position at year-end was $71 million. Net cash provided by operating activities was $11 million in the fourth quarter and $51 million for full year 2025.

We ended the year with total debt of $280 million and a net debt leverage ratio of [indiscernible] 2.1%, in line with our expectations. Capital expenditures were $25 million for full year 2025 compared to $20 million in the prior year, with most of the additional investments going into our facilities in Florida and Oklahoma as well as malls for smaller rectangular pools with [indiscernible] spas, which are popular in the Sand States. As Sean noted, we are pleased to have recently completed the acquisition of Freedom Pools. We expect incremental net sales of approximately $20 million and incremental adjusted EBITDA of $4 million on an annualized basis, which we have reflected in our 2026 guidance.

In addition, we recently completed the purchase of 4 of our key fiberglass production sites. These sites, which previously [indiscernible] are important to our network and future growth. Including these acquisitions and the buildup of seasonal net working capital, we expect our net debt leverage ratio at the end of the first quarter to remain below [indiscernible] 3% and to approve again thereafter.

Turning to our outlook for 2026. We believe that U.S. In-Ground Pool starts this year will be approximately in line with 2025. Despite these continuing tough conditions, we believe Laser is uniquely positioned to outperform the overall market once again. This expectation is supported by our category leadership in fiberglass pools and autocovers and the continued execution of our strategic priorities, namely driving the awareness and adoption of fiberglass pools and autocovers, accelerating fiberglass conversion in the important Sand State markets and opportunistically making accretive acquisitions. With this as a backdrop, our 2026 guidance is between $580 million and $610 million in net sales and between $105 million and $120 million in adjusted EBITDA, representing year-on-year growth of 9% and 12.7%, respectively, at the midpoint.

This includes our expectation for mid-single-digit organic growth, together with the benefits from the Freedom Pools acquisition and consider increased marketing expenses. Capital expenditures are projected to be in the range of $42 million to $48 million. In addition to the $25 million that includes maintenance CapEx for 2026 and the carryover of certain projects from 2025, the additional expenditure relates to the purchase of 4 of our fiberglass manufacturing facilities in Florida, Texas, California and West Virginia as well as investments to upgrade the newly acquired Freedom Pools manufacturing facilities.

With that, I will turn back the call to Sean for his closing remarks.

Thank you, Oliver. As you just heard, we are expecting a year of very positive performance from Latham in 2026. Our 9% growth expectations for this year at midpoint guidance is underpinned by Latham's specific performance, as we believe trough market conditions are likely to continue through much of the year with new U.S. In-Ground Pool starts approximately at 2025 levels. From my experience, soft markets are good opportunities for us to accelerate our Sand State strategy and execution as dealers and homebuilders be more willing to consider change in soft markets versus stronger markets.

In 2026, we'll continue to execute on our key strategic priorities, namely to build the Latham brand and drive increased awareness and adoption of fiberglass pools and autocovers which we expect will enable us to continue to significantly outperform the U.S. In-Ground Pool market, while maintaining our focus on safety and excellent execution. Since joining Latham, I have met many of our customers industry leaders and our commercial people and have toured 3 of our manufacturing facilities. It is clear to me that Latham is a highly respected brand and a company with the best and broadest product lineup in the industry with a highly engaged workforce.

I see tremendous opportunity for Latham to grow in the years ahead. I'm excited to drive our market penetration in the Sand States, rest of North America, Australia and New Zealand. With our extensive distribution network, high-quality fiberglass pools and autocovers and best-in-class lead times, we are positioned for accelerated profitable growth, especially when the market rebounds over the coming years. I'll be leveraging my past experience to drive greater consumer awareness and demand for fiberglass and autocovers and further enhance the value we deliver to our dealers.

I would like to thank our dealers, industry partners and our employees for their contributions to our success in 2025, and I look forward to working together in 2026.

Operator, please open the call for questions.

[Operator Instructions]

The first question is from Greg Palm with Craig-Hallum Capital Group.

Congrats on a good finish to the year. Sean, I wanted to start with you and recognize it's been a kind of short time since you've been CEO, but what do you learn? What excites you? And it's probably a little bit too early to ask this question, but in terms of any change in strategy or anything you want to lean into a little bit more going forward?

Thanks, Greg. Good question. It's been a fast 5 weeks, I guess, and I've seen a lot of parts of the business. From our perspective, I'm very excited about what the opportunity looks like in the sand space. I think that is something we will continue to lean on. I think from my perspective, what I've learned from my past market development, I think I can help the team to get a little more focused to drive true market developments into the MPCs.

And for me, that's really about lead generation, quality of leads, getting the brand where we wanted at the same time, getting qualified dealers into the MPCs that are going to fulfill that demand. When I think about qualified dealers, I think there's a lot of work we can do around segmentation, targeting, positioning around which the right dealers, being clear on what our positioning is to do this, which is to make more money, and then being importantly -- like important for me is getting those dealers to position in the home to be able to talk to our fiberglass value proposition as well as [indiscernible].

And I think when we do all that right, I think we'll start to get some leverage in the Sand States. And when I back out a bit, in general, the business is running very well, a few opportunity even in our northern markets, which will ultimately help us fund or the things we want to do and need to do in order to grow in our Sand States.

And you seem pretty excited about the conversion opportunity. And I'm just curious, is there any change in strategy in helping to accelerate that conversion opportunity? Or is it more just sort of leaning into some of the initiatives that have been sort of done and really accelerated over the last year or so?

I think there's a long leaning in, but one of the things I'm add, add to it is is managing the installed cost of the job. So if anything, when you're selling against the standard, the natural state is to put insurances into the job, so we don't lose any money or the job doesn't go wrong. And so controlling that to some degree. Because again, we're a very small portion of the total cost of a job. So us being able to manage it all the way through, I think it will be an important addition to what we're trying to do.

And then just one for Oliver. Can you help just unpack the guide for '26 on a segment basis in terms of that mid-single-digit organic growth. Is that across the board in pools covers liners? Is it skewed towards one category versus the other? I know you're coming off of a pretty good year in coverage, but what's your overall thought on a segment basis?

Yes, Greg. So again, overall, the guidance is about 9%. The organic part of it across the different product categories, as you would expect, the majority of the growth and key growth drivers will continue to be fiberglass. The continued conversion, especially indexing towards the same state as well as continued growth through awareness and adoption of order covers. We do, as part of our guidance projects that all 3 of our products continue to grow like they have done in but again, indexing towards fiberglass pools as well as auto covers.

The next question is from Tim Wojs with Baird.

Maybe just first question that I had, just I guess how would you if you kind of step back and look at the early demand indicators that you have in maybe January and February and kind of coming into '26. I guess how would you kind of frame those relative to kind of a normal year for '26.

A couple of things. First, obviously, we just come out of the season where we get to meet all of our dealers and our industry partners. I think it's been a relatively strong -- obviously, a quarter is relatively strong in terms of Q4. And that's driven by a number of things. One, I think really good performance from the team Two, we've got an elongated sales cycle in that quarter because the weather turned out to be pretty good. which as we think about going to Q1, it's a little bit different with a bit of bad weather coming through.

But in general, I think the industry is sort of believing that it's going to be a flat year. And I think there are so many things that are kind of going against the industry today that we need to be lifted, things like interest rates, things like the consumer confidence that will help get the starts going. But in general, trough market conditions, but feel good about what we can deliver in that environment.

Okay. Okay. And then, Oliver, I think the midpoint of the guide is maybe 50, 60 basis points of EBITDA margin expansion. Could you just help us kind of break that down between what the gross margin contribution is and maybe what SG&A should be?

As you would expect, right? So the majority the margin contribution comes from higher gross margin, especially the continuation of our initiatives in lean manufacturing and value engineering, those paid dividends in 2025, they will continue to pay dividends in '26 as well. You will, with the increased top line, see a moderate degree of volume leverage. And then to bring that down on an EBITDA percentage which is 60 basis points up, you have higher gross margin that outperforms the increased investment in SG&A as we are ramping up our sales and marketing efforts in fiberglass, especially geared towards the sand states.

Okay. I mean I guess if I look at gross margins, you you're probably up close to 300 basis points a year for the last couple of years. I mean, is it that type of magnitude of gross profit improvement? Or is it a lot more measured this year?

I want to say it's probably not going to be the 300-plus gross margin expansion, 300 basis points plus gross margin expense that you've seen both in '25 as well as '24. It will be a little bit more moderate, but our expectation is that we take a meaningful step towards that 35% gross margin.

Okay. Okay. Very good. And then just the last one, just on the San state. Did you I didn't quite catch it. Do you say the sand states as a percentage of sales were about flat year-over-year in terms of, I think, 17% or, I guess, similar year-over-year. I guess, a, did you say that, I guess, two, how does Florida do within that? .

That's correct. So we stayed about flat within that Florida was the shining star and certainly our focus in 2025. with a double-digit growth and a strong outperformance versus the market, as measured against the Perma data. I think a close follow-up to that was Arizona, obviously, on a much more smaller scale for us, right? And then we had taxes, which obviously where permits were down and as a result, that reflected in our business as well as we shifted focus towards Florida.

And is it fair to think that now that you've become a little bit more seasoned in Florida and you've got at least one pool season, if not a seasons behind you that the Florida trends could actually begin to accelerate from here as you kind of build up.

I'll take that I'll take that. I do think we should able accelerate Florida. What I'm trying to figure out, as I get into the business is a formula that we can take into Texas. So obviously, we've got the Sand States strategy. I believe that we've got most of the pieces right for that. We've got to do some fine-tuning. And then I think there's a piece as well to think about, which is soda how we think about family new construction builders that have background in the construction world, and I think I've got some segmentation of thinking work. And like I said on my call was you got opportunity down market to really change the way people do things, and there's 2 different parts for builder when they think about a down market is to pretty much bad matches which will differentiate their way out of it because they're trying to sell more homes or sell more sell for more money.

And so we've got examples of both. I've got an example of a turning us back in Hatchiton. You've got a TaleMorrisons $350,000 of upgrades or actually including a pool. So I think that's a piece that I'd like to understand a little bit more before we go and really look to accelerate across the South.

The next question is from Scott Stringer with Wolfe Research. .

When I dig into your 10-Ks and 10-Qs, it seems like industry pricing has been fairly muted for the past couple of years. Maybe some of that's mix. So just wondering what your outlook for pricing is in 2026 and if there's any pricing power in the industry this year?

Yes, I think you're absolutely right. Price has been sort of flattish. And I'll remind you, though, that during 2025 right around June, we did have a price increase of about $10 million to to cater to the tariff headwinds that we saw at the diamond see today. So from a price perspective, in 2026, you'll have 2 things. One is the run rate and full year impact of the June 2025 price increase, again, for simply of [indiscernible] model in take half of the $10 million, plus the normal annual and seasonal price increase that we usually take for -- to cover inflation and so forth. So I want to say price given as being the combination of both will probably be adding 2% to our top line.

That's interesting. And then for my follow-up question, just on customer financing interest rates seem to be coming down a little bit here, but outlook for flattish pool installs. So is interest rates a tailwind in this sort of macro backdrop? Or is that not really embedded in the outlook? .

So I want to say -- so interest rates certainly health certainly come down. we don't yet see a pickup from that. And what I attribute that to is in an environment where the next quarter might have a lower interest rate I think a lot of homeowners on the sidelines, right? An expectation of lower interest rates ahead just means that the pool buying decision tomorrow will be less expensive than the pool buying decision today, at least for the part of interest costs.

So I think it's a good trend. I think what I would like to see in 2026 is that we get to the new normal, a new interest rate that is stable going forward. I think that might incentivize the home owner to make that decision to buy a pool in the season.

The next question is from Matthew Bouley with Barclays.

You have Anika Dholakia on for Matt today. So first off, I just wanted to circle -- so I just want to circle back on the MPC strategy. You guys spoke to leaning into the conversion efforts and you called out more growth this quarter in Florida, which is great to hear. Right now, it seems that you guys are targeting smaller midsized communities. So I'm just curious on the longer-term vision for this. is the vision to partner with large-scale production builders? Or how are you thinking about further penetration in this channel?

Thank you, Anika. I'll answer that. I mean we are -- the MPCs, I'll start with relatively large. When I drove through there, you're talking communities of 65,000 homes. So it's a pretty large community. Obviously, multiple builders in that community. The majority of pools, I want to understand, go in sort of 1 year after purchase or 1 year after you move in. And 1 to 3 years. So the start or where we are today is pretty much going aftermarket to go and go and take that MPC, but I do envisage us going up to builders, but you mentioned the big national voters, you're really got to earn your way to splice the national votes and from my perspective, market development starts the highest passport that's available to you and you're looking for a visionary builder, he wants to put pools in to differentiate themselves. And then slowly, you work your way down at crosspoints.

So you eventually land when you face the price competing with National Board at that point, the National Board started to pay attention. So I do think we'll end up playing in that space. I don't think we're ready to do that yet, but I do see that as being a future play for us as we slightly do our market development to get to that price points.

Great. And then for my second question, Oliver, can you give us more detail on the appetite for capacity expansion beyond these 4 facilities you guys mentioned? Or do you feel well equipped with the current capacity levels in 2026? And then just any details around the cadence of the spend flowing through the year?

Yes. I think First of all, let me address the purchase of the 4 fiberglass facilities. That were facilities that were sort of in our grid already. We lease them. They're very strategic for us. We didn't want to buy them and and did that earlier in the year. We did that early February. I think from a capacity standpoint, I think we have everything we need, right? I was in the earnings I always refer to when this business was or when the market was at 117,000 pools in 2021, we actually had free capacity especially in fiberglass.

Since then, obviously, the market is almost at half. And we've done some reduction of redundant capacity in the aftermath of that market decline. But we've also built capacity. We've built capacity through Kingston, the expansion of Oklahoma on net-net. And then I might add, we also build capacity through our lean and value engineering initiatives. So net-net, we probably today, have more capacity than we had when the market was double the size. So I think from a high-level perspective, we have what we need from a capacity standpoint for the foreseeable future.

I think as we develop our same-state strategy, there are some geographies with one in Arizona that may need some adjustments going forward. in terms of building capacity. But I think for now, we have what we need.

Next question is from Susan Maklari with Goldman Sachs.

My first question is on the dealer backlog coming into this year. Can you just talk a bit about where they are? And what you're hearing from your dealers ahead of the spring.

Yes. There's 2 parts to that question. The first one is our deals were able to get a lot of work done with the extended season in -- that said, when I think about even just our backlog, very pleasing results earlier in the year. Obviously, where there's playing a little part of it right now. I mean I'm sitting here in New York in Sloan. But in general, I'd say that backlogs look pretty good. I think that the dealers are feeling relatively optimistic about where the year might be.

Okay. All right. That's encouraging. And then turning back to the margins. You've made a lot of really nice progress with the value engineering initiatives. Can you talk about where you see opportunities from here? And how we should think about the benefits of that starting to flow through.

So I think let me start with lean manufacturing. Manufacturing is more working on the process, whereas value engineers were working on the product I think lean manufacturing between the tools, the more mature program, think of a lot of Kaizen events, workshops that are then after completion might expanded to best practice learning and expanded to the other side. I think lean manufacturing is in is how we improve on a year-to-date -- on a year-by-year basis.

So lots of little projects that add up to something meaningful at year-end. And I expect that to continue over the next few years as well, whereas value engineering thing of the work on the product to make the product more given the higher quality, give a better appearance, but also take out some costs, right? Reengineer the material basis. So we would say there are more low-hanging fruits and more bigger projects that we then can replicate across the grid. Again, lean manufacturing, a little bit mature, Value engineering is probably more new to us. We have a great organization with PhD level material scientists that we have great expectations for in 2026 as well as the years beyond.

Okay. And maybe just building on that, Oliver. You've done a lot in terms of new product introductions or relatively recently. Can you talk about the momentum that you're seeing with those? And anything that you have planned for 2026 in terms of product launches that we should be aware of or paying attention to?

I'll take that to I think from our perspective, we've done a fair bit of, to your point, a fair bit of innovation. We underscore kind of what we've seen so far in terms of growth. But what I will tell you based on my movements around the marketplace, we've got a -- we've reacted to some trends and have built the right product lines to basically cover where the market is going, in general. And then we've got Sand State specific investment around product, which has been completed.

So we have the right product for flow that will enable us to penetrate and we now start and have pretty much right process as well. So as the sand states grow, you would expect those product lines to grow as well. And then obviously, with measure, we continue to drive that. We have good penetration in the first year -- first full year of launching, and we see that as continuing to penetrate through the marketplace and getting more people using it, enabling us to get more liner and safety covers.

The next question is from Shaun Calnan with Bank of America.

Just the first one. So we've seen a pretty strong improvement in search trends for new pools and then meaningful outperformance in the search trends for Latham. What do you think is holding potential buyers back at this point? And how do you unlock that and turn those into sales? Is it just a matter of rates, consumer confidence? What do you think the key drivers are?

Yes, that's a good question. I think it's multifactor. One, when I was in Florida and soon at the International Builders are surprised how many people doesn't understand fiberglass, didn't even know how fiberglass pools get installed in the backyard. And one person actually asked as it comes in 2 pieces. So we've got some education, basic education we need to do awareness, which is -- and you'll see that we had on TV, and that will continue and will always be on.

The second part of it is, we are -- we don't -- homeowner does engage with our brand high frequency. So another consumer goods. However, when they were in the stock or buying something, they're doing gas. Now the key for me is ensuring when they engage and get onto the path to purchase that we don't drop them. Okay. I mean we don't lose them. And so when I think about what causes a homeowner angst and why they might drop of the part of purchase, it's usually around decision making. And the first decision-making is what contractors should I use?

Do I know these contracts is going to be here next year when something goes wrong. So that's the first question we have to help them feel comfortable with. And how do we do that is we make sure that again, segmentation, the right deals are available to them at the MPC so we can make sure that the story is being told in the kitchen table and the work and the quality is the way we want it to be in the MPCs.

The second part, the second challenge will be around colors, and around shapes and sizes, right? So those are all decision points where a homeowner might get frustrated and might decide to defer. And so we're going to make -- our job is to make all those things with tools and easy as possible which we'll develop over the over time, but make sure that we meet our consumer when we need to and make sure we have the right tools to make their decision-making much easier. Then at least we're controlling or we can control. The macro environment is out of our control. When that comes back, we'll get the benefit of it. But we have planning to do to make the part to purchase much easier than it is today.

Okay. Great. And then on the acquisition of the manufacturing facility, so that's increasing CapEx next year. Is there any impact to the P&L in terms of lease expense or depreciation and amortization? And then what are you guys expecting for free cash flow next year or this year?

So in terms of the impact to the P&L, and I'll limit my comments to EBITDA. So the purchase replaces a lease expense in the neighborhood of about $1.5 million annually. In terms of free cash flow, we don't specifically give guidance on free cash flow. But we've disclosed our CapEx need. The acquisition in Freedom was about $17 million and net of those 2 impacts, meaning the acquisition of the 4 fiberglass facilities as well as the acquisition of Freedom Pools, the additional EBITDA will flow through to free cash flow.

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

First of all, I want to thank everybody for joining us today. Obviously, this is my first call with Latham, and it's been a good time to join the business because we had a fantastic Q4 and certainly a good 2025. Very excited about what 2026 will bring and beyond. I think we've got lots of opportunity, great product, a great brand, and I think we can build on that to make it even better.

With that, obviously, I've met some of you in the different shows, I look forward to catching up with you on calls post this call and then out at some conferences in the near future. So thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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" Stifel

" Craig-Hallum Capital Group

" William Blair

" Baird

" Barclays

" Goldman Sachs

" Bank of America

Good afternoon, and welcome to the Latham Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Casey Kotary, Investor Relations Representative. Please go ahead.

Thank you. This afternoon, we issued our third quarter 2025 earnings press release, which is available on the Investor Relations portion of our website. On today's call are Latham's President and CEO, Scott Rajeski; and CFO, Oliver Gloe.

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 future events and financial performance as of today or the date specified. Actual 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-K 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 is available on our Investor Relations website. I'll now turn the call over to Scott Rajeski.

Thank you, Casey, and thank you all for participating in today's call to review our third quarter and year-to-date results as well as discuss our business outlook.

This was another strong quarter for Latham. Net sales were up 7.6% year-on-year, significantly outpacing the U.S. in-ground pool market, which we expect to be flat to slightly below 2024 levels. Adjusted EBITDA increased by $8.5 million or 28.5%, a clear indication of the substantial operating leverage inherent in our business model. These results highlight Latham's competitive strengths, our diversified product portfolio and the actions we have taken to position the company for continued growth. I am pleased to report that our third quarter results showed progress across all of our key financial metrics.

First, all 3 of our product lines experienced year-on-year growth. In-ground pool sales were modestly ahead on a year-over-year basis, reflecting positive momentum in fiberglass pools, partially offset by continued softness in packaged pool sales. Second, both covers and liners showed strong year-on-year growth with sales up 15% and 13%, respectively. This considerable growth has been driven by investments we have made to strengthen Latham's market position in both product lines.

Third, this was another quarter of meaningful margin expansion. Gross margin increased to 35.4%, up 300 basis points year-on-year, and adjusted EBITDA margin increased to 23.7% for the quarter, up 390 basis points and with current tariffs fully mitigated. And lastly, we ended the third quarter in a strong financial position, providing Latham with the resources to invest in organic growth projects as well as considered accretive acquisitions.

Several factors have enabled Latham to continue to outperform the U.S. in-ground pool market. We have been investing in building the awareness and adoption of fiberglass pools and auto covers, 2 key growth drivers for Latham and in developing a proprietary measuring tool to increase our liner and safety cover sales. And in the third quarter, we posted year-on-year net sales growth in each of our product lines within an overall market that we expect is flat to slightly down for the year.

Our in-ground pool sales increased modestly, up just under 1% from last year, but we saw continued positive momentum in fiberglass pool sales, which are tracking to account for approximately 75% of our full year 2025 in-ground pool sales. Additionally, our initial analysis indicates that fiberglass pools is poised to gain another 1% of the total in-ground pool market to represent approximately 24% of total U.S. in-ground pool sales in 2025.

Latham has the broadest lineup of fiberglass pool configurations in the market, the widest range of price points and the greatest array of specialty features, including spas and tanning ledges. Our marketing programs emphasize the cost advantages, fast and easy installation and lower maintenance requirements of fiberglass pools compared to concrete pools, and these attributes are resonating well with both consumers and dealers. Installers rank the lack of available workforce as one of the top 5 impediments to growing the business. And with fiberglass, they can install 6 pools in the time it takes them to build concrete pool now and with 2/3 fewer workers.

This selling point has enabled us to convert a substantial number of dealers and installers so far in 2025, many of whom are located in our target growth geographies such as the Sand States. Sales of pool covers increased 15% year-on-year with a meaningful share of that representing organic growth in auto covers.

In addition to the revenue synergies we are gaining from the 3 Coverstar acquisitions, this considerable growth is a function of very positive consumer response to the unparalleled safety that auto covers offer. As a reminder, Latham's auto covers are compatible with all types of in-ground pools and their significant cost savings from reduced water, energy and chemical usage enable auto covers to effectively pay for themselves within 4 to 5 years.

Also, 16 states, in addition to a number of municipalities around the country have now expanded their pool safety regulations to allow auto covers to be used in place of traditional fencing around the pool, which results in additional savings for the pool owner.

Liner sales increased 13% in the quarter. Our industry-leading lead times, together with the investment we've made in our measure by Latham tool and its successful rollout are making a substantive difference for our liner business. This AI-powered tool is proprietary to Latham and streamlines the measurement and quoting process for installers, ensuring a high degree of accuracy in less than 30 minutes versus 2 to 4 hours to do the measurements manually. The tool is fully integrated with the Latham order entry system, which allows installers to get real-time quotes and seamlessly submit orders and track their status.

Year-to-date, 25% of the installers who purchased this tool were new to Latham, supporting our objective of leveraging this tool to gain share for our liner product line. It is also helping us gain share of the winter safety cover market. In September, we rebranded Measure as Measure Pro and also launched Measure Go, a new app that expands this technology's reach to more dealers by leveraging the iPhone LiDAR scanner to enable installers to accurately measure safety covers.

As you know, Latham's expansion in the sand states is a strategic priority for us as it represents a significant multiyear growth opportunity. In the third quarter, we gained traction on several pillars of our growth plan, laying the foundation for future long-term market share gains. Dealer conversions in Florida, one of our initial target markets, have been in high gear. Year-to-date, I am pleased to report that our Florida sales have increased at a high single-digit rate and Latham is now represented in several master planned communities or MPCs in Florida.

We continue to evaluate additional complementary strategies to further accelerate our growth in these MPCs, where we are already seeing increased awareness of the Latham brand and our product lineup. Additionally, we have established strategic partnerships with several custom homebuilders in Florida who are developing smaller scale, high-end communities that will feature Latham fiberglass pools.

To sum up, this was another quarter of considerable market outperformance for Latham. With much of the pool building season behind us, we are very pleased with our year-to-date sales trends. We have strengthened our market leadership position in fiberglass pools, auto covers and in-ground pool liners and gained traction in the sand states. All of this has been accomplished while significantly increasing our margins and improving our financial ratios. Now I will turn the call over to our CFO, Oliver, for a financial review.

Thank you, Scott, and good afternoon, everyone. I'm pleased to report on our strong third quarter financial performance, which highlighted Latham's competitive strength and continued ability to outperform the market. Please note that all comparisons that I will discuss today on a year-over-year basis compared to the third quarter and first 9 months of fiscal 2024, unless otherwise noted.

Net sales for the third quarter were $162 million compared to $151 million in the prior year, up $11 million or 7.6%. This increase was primarily driven by organic growth of 4.7% and reflected acquisition-related growth in sales volumes and a tariff-related price increase. All 3 of our product lines, in-ground pools, pool covers and pool liners experienced year-over-year growth in the period.

These results demonstrate the strength of our diversified product portfolio as well as continued progress in our strategic growth initiatives, namely increasing the awareness and adoption of fiberglass pools and automatic safety covers, expanding our sales of in-ground pool liners and gaining traction in the important sand state markets.

Across our product categories, in-ground pool sales increased by approximately 1% year-over-year in the third quarter. This performance was achieved against the backdrop of a U.S. in-ground pool market that we estimate will remain flat or decrease slightly, underscoring our ability to outperform the broader market. And this growth reflects continued momentum in fiberglass penetration as builders and consumers increasingly recognize the appeal and benefits of a fiberglass pool.

Cover sales increased by approximately 15%, driven by higher adoption rates for auto covers, which are typically purchased alongside a new pool as well as revenue synergies from our 3 Coverstar acquisitions and strong consumer engagement with our marketing initiatives, including our recent partnership with Olympic Gold Medalist and pool safety advocate, Bode Miller, which highlighted the important role of auto covers in overall pool safety.

Liner sales increased by approximately 13%, and this positive performance was driven by our industry-leading lead times and the increased adoption of our Measure by Latham tool. This year marks the second season of the Measure tool in use and pool builders are increasingly recognizing its accuracy and efficiency for measuring both pool liners and covers. Gross margin expanded by 300 basis points to 35.4% in the third quarter, primarily due to the accretive benefit of the 3 Coverstar acquisitions and the continued success of our lean manufacturing and value engineering initiatives in driving production efficiencies.

SG&A expenses increased slightly to $28.6 million, approximately in line with the $28.3 million recorded in the prior year period. The stable level of SG&A spend this quarter included increased investments in sales and marketing initiatives and personnel as we move forward with our strategic growth initiatives, along with investments in new ERP infrastructure, partially offset by the timing of performance-based compensation.

Net income was $8.1 million or $0.07 per diluted share, an increase of $2.2 million or 37.7% compared to the $5.9 million or $0.05 per diluted share for the prior year's third quarter. Adjusted EBITDA was $38.3 million, an increase of $8.5 million or 28.5% from last year's $29.8 million, and our adjusted EBITDA margin was 23.7%, a 390 basis point increase from 19.8% in the prior year period, including additional investments in marketing initiatives to drive share gains for fiberglass pools and order covers.

Now turning to our year-to-date results comparisons. Net sales were $446 million, up 5.9% compared to $421 million. Net income was $18.1 million, up 60.3% compared to $11.3 million. Adjusted EBITDA was $89.4 million, up 16.7% compared to $76.6 million in the prior year. Adjusted EBITDA margin increased 180 basis points to 20% from 18.2%.

Turning to our balance sheet and cash flow statement. We continue to maintain a strong financial position with cash of $71 million at the end of the quarter. Net cash provided by operating activities was $51 million in the third quarter and $40 million for the first 9 months. Total debt as of the end of the period was $281 million with a net debt leverage ratio of 2.3, considerably below the 3.0 in the year's second quarter, and we expect our net debt leverage ratio to approach 2 by year-end.

Our disciplined capital allocation strategy remains focused on deploying capital opportunistically to position Latham for profitable organic and acquisition-related growth and to delever and further reduce our net debt leverage ratio. Our capital expenditures were $5.8 million for the third quarter and $16.2 million for the first 9 months of 2025.

Moving on to our outlook. With the peak pool building season now behind us and based on our current visibility through year-end, we have narrowed our guidance ranges for net sales and adjusted EBITDA and revised our CapEx estimate for 2025. Our net sales guidance range is now $540 million to $550 million, representing 7% year-over-year growth at the midpoint, and our adjusted EBITDA range is now $92 million to $98 million, representing 19% year-over-year growth at the midpoint.

We've also revised our CapEx estimate to a range of $22 million to $24 million. With that, I will turn the call back to Scott for his closing remarks.

Thanks, Oliver. As I mentioned earlier in my remarks, we expect 2025 new U.S. pool starts to be flat to slightly down compared to 2024. Within this challenging industry environment, we are very pleased to be able to provide guidance of 7% sales growth and 19% adjusted EBITDA growth at the midpoint. Looking ahead, we are confident that increased fiberglass pool and auto cover adoption will enable Latham to continue to outperform the in-ground pool market. And as we have noted, when new U.S. pool starts return to 78,000 per year, meaning when they return to their 2019 level, our new structurally changed business model should enable us to achieve about $750 million in net sales and $160 million in adjusted EBITDA. This would represent more than double our 2019 revenue and 2.5x our adjusted EBITDA at the same volume of new U.S. pool starts. Operator, I would like to open the call to questions.

[Operator Instructions] The first question comes from Andrew Carter with Stifel.

First question I wanted to ask is in terms of kind of the upstream metrics you have from leads, consumers, contractor, anything like that, what have you seen as you've moved through the quarter and perhaps customers have started to digest tariff costs, the incremental uncertainty?

Andrew, this is Scott. I think leads have been a real strength of ours throughout the entire peak pool building season in 2Q and 3Q. And I think as we talked on one of the last calls, we did our first national DIRECTV campaign, and we got really phenomenal response off of that. I think exiting third quarter, we're tracking well ahead of all the leads we generated full year last year, and we were up significant double, if not triple digit year-over-year through several of those periods.

So the interest, the want for pool and everything is out there. I think what's still lagging is the confidence to make the ultimate pool buying decision based on tariff uncertainty and I'd say interest rate uncertainty. But clearly, we've got a lot of leads and demand to work from that we've been pushing to our dealers. I think that's kind of what really helped us have 5% organic growth here in the quarter.

Second question I would ask then getting to kind of the liners performance, up 17%. That's just -- there's 2 businesses to that. There's, of course, the replacement business and the new construction. On the first slide, is replacement now starting -- in this category starting to hit a cadence where some delays are starting to be caught up? Or is that category still bogged down by deferrals? And then when you say new construction down -- flat to down, I would assume the kind of package pools, the vinyl underperforms that. So could you just add some context to the overall liners performance? Is it -- I'm sorry, is it remodel catching up? Or is it just all really a function of your market share gains?

Yes. Andrew, I'd say it's a combo of the 2, right? So one, I'd say, I think with the Measured tool out there, we've seen some really nice share gains and pickup in the replacement side of the house for in-ground vinyl liners. The flip side is with the lower end of the market on, let's say, new vinyl liner pools being probably down more significantly than, let's say, the higher end of the market. A lot of the dealers who play in that space will focus on repair, replacement, remodel of existing pools renovating the liners for homeowners. And I think we've done a really nice job getting share gains out there, as I said, right upfront, bringing more dealers into that type of the category. And again, if you're a homeowner and you've got a pool and your liner has failed or just looks awful, you're going to make that discretionary spend to kind of get your pool functional again for the season. So we're really happy with the progress we've seen there. And on the new construction side, again, I think lower end of the market, which is more the vinyl side of the world, that's just still been a little bit tough and been down out there and completely different than what we see in the fiberglass side, where, again, higher-end consumer continuing to see good share gains there and the consumer wanting that fiberglass pool in the ground faster than other pool types.

The next question comes from Greg Palm with Craig-Hallum Capital Group.

This is Danny Eggerichs on for Greg today. I think I'd like to just start kind of maybe broader from a geographical perspective, how you saw demand kind of progress throughout your geographies throughout the quarter? And how is that different from a few months ago? And where are we seeing kind of outperformance, underperformance?

Yes. Look, I'd say it's been pretty consistent throughout the entire season. And what I would say is strength throughout most of the country, Canada, Northeast, Midwest, Southeast for us, we've been really happy with what we've seen in Florida despite a challenging environment down there with what some of the permit data shows. I think the 2 negative spots will continue to be Texas and California. I think others have talked about the difficulty in those 2 markets. they've been tough. But rest of the country, I'd say pretty consistent and strong throughout the entire build season for us.

Got it. Maybe if we can double-click on Florida there then. You mentioned your work with MPC. So maybe just a little more color on how exactly that progressed throughout the quarter. And then also, you made some comments on the strategic partnerships with a few custom homebuilders in the region. Just curious on what that entails and maybe whether or not that can be kind of replicated in other states going forward and part of the broader strategy.

Yes. Look, we're really happy with where we are in Florida, again, a little bit of a tough market down there. But I think that the team has been very focused to get into these MPCs, establish the relationships, whether we're going at with -- by ourselves or with some dealers in certain locations. I think the number of MPCs we've entered into is tracking probably ahead of what we had hoped for coming into the year. I think the team has done a really, really nice job targeting some of these smaller high-end custom homebuilders who really don't want to get bogged down on the pool installer build side of the equation. So we partnered with several of them, again, smaller communities, 15, 25, 30, 35, 40 homes. They're not these massive 1,000 type home communities. But our view is that it gives us a presence in these communities, gets more people touching feeling fiberglass and then the hope would be as the national guys start to see that regionally in some of these markets with these adjoining communities, that will help to drive the acceleration with some of the larger homebuilders out there as we continue to drive it.

And I think, look, we continue to learn this market, what will work and what won't work. I think we've established some really strong relationships with local installers and builders. Again, we've had several down there that have been really, really great builders for us. We're trying to bring in some new guys into the industry, into the business with some unique partnerships. And I think we're really happy where we sit. And look, this is a long-term play for us getting in there. I think we've talked about high single-digit kind of growth numbers in Florida season to date. So like I said, I'm really pleased, really happy, and we're really just starting to scratch the surface with all the things we can do here.

The next question comes from Michael Francis with William Blair.

This is Mike on for Ryan. I wanted to go a little deeper into Florida there. I would love to know if you think your outperformance there is largely a product of being in MPCs that are building at higher rates? Do you think you're taking much of share even in communities where the trends are following what new housing is doing overall?

Yes. Look, I think it's the presence in the MPC. If you look at some of the permitting data and where housing is tough, it's more in the coastal areas, which is probably the higher-end concrete side of the market. I think the one surprise, and I probably should answer that to Danny's question in Florida. The one thing I think that we've been really, really happy is the number of concrete dealers we've converted over to fiberglass I think as they see and feel and we see more labor challenges in the market and the number of people it takes to install or, let's say, construct a concrete pool in the field, they're realizing they can get a fiberglass pool in the ground with a lot less labor a lot faster for themselves, for the homeowner and probably make a little bit more money productivity-wise.

So I think that's been good. I think we have seen some share gains with dealers from some of the other folks in the industry. But again it's a combination of kind of all of the above, just targeting these new MPCs where there's a lot of homes in the ground with no pools and a lot of new phases of those developments coming online. And like I gave you a good stat that was interesting. We just did a big Halloween event in Babcock Ranch. I know we always tell Babcock, that's really the home base of where we've started to push. Over 1,000 people stopped by the Latham booth during the course of that event, inquiring about pools, talking to our sales reps who are there on the ground. It just shows you the power of being there and having a presence in the local communities, driving the awareness, which eventually, hopefully, those will turn into future pool sales for us.

Another one for me would love to know where price landed in the quarter and also get an update on tariffs. Any additional costs coming through? Or has that been fairly steady?

Yes. Let me take the price question first, right? So as you might remember, we implemented a price increase primarily addressing tariffs in June. So price in the quarter was actually up by about $3 million. And then moving on to the tariffs. You might recall from prior calls that we had a tariff exposure of about $20 million, supply chain-based mitigation, $10 million. And then we, as I said, implemented that price increase in June with an annual rate of about $10 million. Knowing that the environment has been dynamic in Q3, probably is going to continue to be dynamic as we go forward.

That net tariff exposure net between the tariffs and then our supply chain-based mitigation over the last weeks, probably months has still remained at that $10 million, right? As some tariffs go up, we have reacted on the supply chain side, moving things around between suppliers, geographies, plants. But that net really has stayed at about $10 million. And that $10 million, we have covered with that price increase in June. So again, knowing that it's probably going to stay dynamic for a while, at least at this point in time, everything we know, we feel comfortable where we are, having mitigated the 2025 impact and at least as of today, also the run rate impact going forward.

The next question comes from Bobby Schultz with Baird.

Maybe for Scott, bigger picture here, you guys have stated that fiberglass has taken about 1% of market share in the in-ground category over the past few years and expect to do so again here in '25. And just given your fiberglass market share and your evolving geographic mix with the investments you're making in the sand states and increasing dealer awareness, is there room for that 1% number to accelerate in the coming years, just given all the different growth initiatives you have going on?

Yes. Look, I think kind of a little bit tough question because I think our view has been the 100 basis points a year has kind of been what we've demonstrated in some years, a little bit more as pool starts will recover, let's say, through the COVID years. I think what the balance has to become is if the lower end of the market starts to pick back up, the vinyl consumer jumps back into the market, how would that impact the number. But clearly, we feel strongly that the 100 basis point increase is kind of what's embedded in that long-range outlook with pool starts returning to 79,000 with the 750 and 160 number we've been talking about now for almost a year with that long-term view.

But look, as we sit there and you just do the math, Bobby, right, 75% of pool starts roughly in the sand states, little presence. As we gain more and more traction there, you could argue that there could be and should be an acceleration of that for all of us in the industry.

Got it. And then one for Oliver here. It looks like SG&A for the full year will on pace to step up. Maybe how should we think about SG&A spend into the fourth quarter and then maybe into next year, assuming maybe the market is relatively stable from a new pool build perspective?

I mean let me walk you through this year. From a comp perspective, you saw us stepping up SG&A primarily with an eye on the sand states sales and marketing kind of midyear last year. So therefore, the first 2 quarters of this year, you saw a sizable year-over-year increases. And just because that's now in our base in 2024 in the third quarter, SG&A has been flattish.

I don't expect that to change a lot in Q4 either. And then as we think of going forward, we're going to continue to invest in our position in the sand states and step up our sales and marketing investment as we see the returns, right? So I think that journey is going to continue.

The next question comes from Matthew Bouley with Barclays.

You have Elizabeth Langan on for Matt today. I wanted to jump back to price. I know you had kind of given some comments around price increases this year relative to tariffs. I was wondering if you could talk about your pricing strategy going forward a little bit. Are you planning to announce an annual increase? Or is that something that you're going to kind of reserve in case you are seeing a higher tariff rate into next year?

I think the -- at one point in time, we will hopefully be able to go back to kind of a normal cadence of an annual seasonal increase that usually is announced in the winter break for the new season. And obviously, over the last few years, you've seen inflation, you've seen tariffs, so we got off that cadence a little bit. But assuming that things will normalize, then we will go back to kind of that annual seasonal increase.

Okay. And then is there anything that we should keep in mind in regards to orders or leads in terms of stocking and demand through the end of the year and into early 2026? Or if you have any early thoughts on the directionality for pool starts next year, that would be great.

Yes. Look, I'd say probably, Elizabeth, too early to kind of get a feel for '26 at this point. I think as we've said the last several years, we've been at a few conferences so far over the last 2 or 3 weeks. We've got several more upcoming over the next few months here. That's when we'll really gather the intel from our dealers, from the builders in terms of what they're seeing and feeling for backlogs out into 2026. Look, I'll still say we're kind of in this trough where plus or minus a few percent on a 60,000 or 62,000 pool start number is just too hard to call, and it's probably noise in the data that [ PK ] typically publishes. So it's really hard to call a number directionally.

And I think as you guys are all aware, right, 4Q is the typical wind down of the season. I think order rates have continued fairly strong as we're rolling through what's left of our winter safety cover season. That's winding down here as we kind of approach the Thanksgiving holiday. And then I think things will be kind of shutting down for the season once we kind of get into early to mid-December and dealers kind of take that break. But it's been pretty consistent through the entire season from an order rate standpoint. We're really happy with what we've seen out there. I put this winter safety cover season similar to liners, a little bit of a later start. liners ran a little longer, thus the great liner performance, slower start to winter safety covers because folks are trying to get pools in the ground in 3Q.

As the weather is now really starting to change, especially here in the Northeast, we've seen a nice acceleration of that winter safety cover business, orders staying strong and just we just want to wrap up Q4 here on a high note and kind of get to the midpoint of the guide numbers that Oliver mentioned in the earnings call there.

The next question comes from Susan Maklari with Goldman Sachs.

This is Charles Perron in for Susan. First, I'd like to talk a little bit more about some of the productivity initiatives. It was great to see the continued benefit to gross margin from those lean manufacturing and value engineering efforts this quarter. I guess, against that, how do you think about the path for future savings here? And can you unpack some of the initiatives that came through over the course of the quarter this year?

Can you please repeat the second part of your question?

Just can you unpack some of the initiatives that came through in those results?

Yes, perfect. So first of all, we are very pleased with our gross margin development in the third quarter, 300 basis points up, and that came pretty equally through lean value engineering, and that's obviously sponsored by some of the volume leverage that we saw in the quarter and then [ Coverstar ] Central was the remainder here.

Like I said on prior calls, $2 million to $2.5 million should be our quarterly contribution. So actually a little bit more. It was about $3 million, again, driven by volume in the third quarter. And those lean and value engineering improvements, these are structural improvements to our cost base. They're here to stay. They're in our run rate. We'll be a little bit on to that in future quarters. And I would say for the foreseeable future, that $2 million to $2.5 million is probably a good assumption to build into the model.

Got you. That's good color. And second, I want to switch to capital allocation. I think in your prepared remarks, you mentioned that you approach the 2.0 net debt-to-EBITDA leverage target by year-end. How do you think about that leverage going forward? Where is your -- what level are you comfortable with in terms of target? And then when you think about your growth initiatives, including M&A, how comfortable are you with M&A activity going forward? And what is the pipeline that you see currently right now for the business?

Yes. First of all, with now EUR 71 million in the bank as of quarter end, nearing 2 at the end of the year, very, very pleased with, a, the cash generation of this business and then how the balance sheet is managed. With 2, with a debt-to-EBITDA leverage ratio of 2, and we certainly have some dry powder to execute our capital allocation policy. We have done that very consistently. And the 3 key pillars are investing in the business. You saw stepping up CapEx this year. That's investing in the sand states models for pools that resonate, especially in the sand states, these are smaller rectangular pools than debottlenecking our 2 facilities in the sand states, Oklahoma, Florida.

So that's where additional focus has gone into. From an M&A perspective, you mentioned we are acquisitive. We've done historically about 1 acquisition a year. We've done 3 over the last 13, 14 months, and I expect a certain M&A activity going forward as well. And then lastly, opportunistically, we've paid down debt, right, about $35 million over the last 2, 2.5 years. So I think very active and consistent execution of our capital allocation policy, which I expect us to continue to do going forward as well.

[Operator Instructions] The next question comes from Shaun Calnan with Bank of America.

Going back to the SG&A. So the year-over-year growth in the first half was much higher than this quarter, and you still had the inclusion of acquisitions. So I'm just curious, did you guys slow any of the marketing spend? And if so, what drove that? Is it just the time of the year? Or did you feel like you guys had to just pull back a little bit there?

No, Shaun. So what's really driving the different comp to last year is that a lot of the increase you have in the basis, right? So we did 2 things happened about mid last year. We stepped up our investments in the Sand states, again, sales and marketing. And then we also bought the Coverstar Central business in early August. So that's in our base, base as well.

There's always a little bit of timing around performance-based compensation, which we had was slightly a tailwind in this quarter. But from a seasonal spend, and I'll remind you that most of our spend in marketing is sort of ahead of the season, Q1, Q2. Q3 is a normal quarter and I tell that in Q4, there's nothing we changed from a seasonality standpoint that I'd mention. It's quite consistent our behavior this year versus last year. Now obviously, that's recognizing that we did step up our marketing spend mid last year. So it's more a question of the comp versus any different change in behavior or a different change in how we see our strategy.

Okay. Got it. And then, so I think in the fourth quarter, you guys had to change some plans around shipping out of the Kingston facility with all the tariffs and trade war stuff going on with Canada. Now that, that's kind of eased a little bit, is there any different intention with that facility? Are you able to ship back to the U.S. now? Or just any update there in general?

No. Let me start off by saying we are very pleased with our 9 facilities coast-to-coast network of fiberglass facilities with 1 plant in Canada that we have that flexibility to ship. We never [ shipped ] just because our fiber glass pools are USMTA compliant, therefore, never have been subject to tariffs, those Kingston [indiscernible] coming south. And so we did produce in Kingston and are planning to produce in Kingston going forward.

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

All right. Thanks, Drew. Thanks, everyone, for participating in today's call. We look forward to seeing you guys at upcoming conferences and events. Most importantly, we want to wish you all a very happy holiday season. And just looking ahead into early '26 for the first time ever, Latham is planned to have a booth at the International Builders Show in Orlando in mid-February. And we hope to see many of you there as well as we showcase Latham right there in the heartbeat of the Sand States in Florida. Thanks for your time today, everyone. Have a good evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to Latham Group's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Casey Kotary, Investor Relations Representative. Please go ahead.

Thank you. This afternoon, we issued our second quarter 2025 earnings press release, which is available on the Investor Relations portion of our website. On today's call are Latham's President and CEO, Scott Rajeski; and CFO, Oliver Gloe. 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 future events and financial performance as of today or the date specified. Actual 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-K 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 is available on our Investor Relations website.

I'll now turn the call over to Scott Rajeski.

Thank you, Casey, and thank you all for participating in today's call to review our second quarter results and discuss our business outlook. The Latham team executed very well in the second quarter, driving year-on-year revenue growth of 7.8% and adjusted EBITDA growth of twice that at 15.7%. Our ability to achieve this level of organic- and acquisition-related sales growth, along with increased operating profitability despite ongoing trough industry conditions is supported by several key factors.

First, we have a diversified product portfolio and have the #1 share in every subcategory in which we compete. Second, we have been successful in driving the awareness and adoption of fiberglass pools and autocovers, 2 product categories with substantial growth runways. Third, we recently completed accretive acquisitions of 3 of our autocover dealers, contributing to sales growth and strengthening our margin profile. And lastly, our lean manufacturing and value engineering initiatives continue to drive production efficiencies that scaled further with higher second quarter volumes.

These factors were the major contributors to our strong second quarter and year-to-date performance, and they continue to underpin our confidence in Latham's ability to drive accelerated revenue and adjusted EBITDA growth as industry conditions improve.

Taking a closer look at second quarter business trends, adverse weather conditions in many parts of the country delayed pool building activity resulted in a slight decline in our in-ground pool sales. This had a greater impact on our packaged pool sales than on fiberglass pools and fiberglass pools are tracking to account for approximately 75% of our in-ground pool sales for the full year. And based on our current projections, we continue to expect fiberglass pools to gain another 1% of market penetration in the in-ground pool category in 2025.

Our investments in targeted marketing programs to drive the adoption and awareness of fiberglass pools are yielding positive results. Year-to-date, we have delivered an 18% increase in leads to our dealers, while consumer sessions on our website have increased 34%. We are also seeing strong signals of pool purchase interest and intent with consumers spending more time on our website, viewing more pages and increasingly engaging with our digital tools. All these metrics were up year-over-year in the second quarter and year-to-date compared to the same periods in 2024.

In particular, the cost benefits, and fast and easy installation of fiberglass pools are resonating with consumers. Given widespread labor shortages across many U.S. markets, we continue to believe the significantly lower labor requirements for installing a fiberglass pool will be a tailwind for fiberglass over concrete pools. According to recent research, 46% of pool builders cited limited access to qualified labor as having a substantial impact on their ability to build new pools.

Autocovers were a standout performer in the second quarter. Through a combination of organic- and acquisition-related growth, this product category was a key contributor to our second quarter sales growth and is gaining momentum with consumers.

Our marketing programs have been effective in driving home the benefits of autocovers, highlighting their unparalleled safety and significant cost savings from reduced water, energy and chemical use. These savings enable autocovers to effectively pay for themselves within 4 to 5 years of installation.

Additionally, 16 states in addition to a number of municipalities across the country have now expanded their pool safety regulations to allow for autocovers to be used in place of traditional fencing around the pool, which results in additional savings for the homeowner. Also, their compatibility with all types of in-ground pools significantly expands our addressable market.

Our replacement liner business also showed solid growth in the second quarter, which we attribute to our industry-leading lead times and the continued adoption of Measure by Latham, our proprietary pool liner and cover measuring AI tool. This is the only solution in the marketplace that streamlines the measurement and quoting process for installers, ensuring a high degree of accuracy and enabling a smooth and efficient installation. This tool is fully integrated with our order entry system, allowing dealers to generate real-time quotes, seamlessly submit orders and track their status.

In the first half of this year, 25% of the dealers who purchased this tool were new to Latham, supporting our expectation that Measure by Latham will not only improve the efficiency of our dealer network, but will also help expand our market share in liners and covers. And we are already seeing early signs of those gains.

Our consumer-facing marketing programs are centered around building awareness for Latham's fiberglass pools, autocovers and plunge pools with emphasis on the Sand State markets, which represent a substantial growth opportunity for us. Our initial targets in the Sand States are Florida and Texas, which together with Arizona and California account for approximately two-thirds of annual new pool starts in the United States.

Latham, as the largest in-ground pool manufacturer, is currently underrepresented in the Sand States, which provides us with a substantial growth opportunity. We launched our Sand State strategy in the late 2024 and we've made considerable progress in the first half of 2025 on the pillars that form the foundation of this strategy. Specifically, we have increased our pool dealer base in both Florida and Texas, adding additional dealers in the second quarter.

We expanded our plunge pool collection and launched new fiberglass pool models to align our product offerings with market preferences in the Sand States, and we ramped up our marketing efforts, drawing strong interest from both current and prospective homeowners, including in key target markets such as Florida and Texas.

Our national marketing efforts have resulted in over a 20% increase in dealer leads year-to-date, and Latham continues to be the most searched for fiberglass pool brand among major competitors. And we continue to actively partner with some of our top-performing pool dealers across the country to expand their operations into the Sand States by establishing a presence in key master planned communities or MPCs that we have identified in Florida and Texas.

At the same time, we're evaluating additional complementary strategies to further accelerate our growth in these MPCs, where we are already driving awareness of the Latham brand and our product lineup. More on that in the next quarter or 2.

In summary, our second quarter results were in line with our expectations and demonstrated the continued execution of our strategy to drive the awareness and adoption of fiberglass pools and autocovers, expand our presence in the Sand State markets and improve margin through accretive acquisitions, lean manufacturing and value engineering initiatives. Our lean manufacturing and value engineering initiatives have structurally changed our business model and are an important factor enabling us to achieve significant leverage as industry conditions improve.

We issued a release today and filed an 8-K, noting that Jeff Jackson, who currently serves as Chief Executive Officer at Cabinetworks Group, has joined our Board of Directors. Many of you may know Jeff is the former President and CEO of PGT Innovations before it was acquired in 2024. We are pleased to have Jeff on our Board and look forward to benefiting from his valuable operational and strategic experience.

I will now turn the call over to our CFO, Oliver Gloe, for a financial review of our second quarter and first half results. Oliver?

Thank you, Scott, and good afternoon, everyone. I'm pleased to report on our second quarter financial performance, which represented Latham's continued market outperformance. Please note that all comparisons that I will discuss today are on a year-over-year basis compared to the second quarter and first half of fiscal 2024, unless otherwise noted.

Net sales for the second quarter were $173 million compared to $160 million, up $13 million or 7.8%, reflecting both organic- and acquisition-related growth, primarily driven by an increase in volumes for autocovers as well as an increase in volume for pool liners. Our strong sales performance underscores our successful execution and continued commitment to delivering on our growth strategies, both organic and through opportunistic acquisitions.

Across our product categories, in-ground pool sales were $79 million, down 2.9% in the second quarter, reflecting a flat market as well as adverse weather conditions and delayed pool building activity across several important regions, primarily in the Northeast.

Cover sales were $37 million, an increase of 46%, reflecting both contributions from our recent acquisitions of Coverstar Central, New York and Tennessee, and importantly, organic growth driven by the increasing awareness and adoption of autocovers. We are very pleased to see the benefits of our autocover growth strategy materialize in such an impactful way.

Liner sales of $57 million grew 5.8%, driven by the continued adoption of Measure by Latham, our proprietary AI-powered measuring tool. We have a meaningful number of measure devices in the market, contributing to increased sales of liners and covers across North America. We delivered gross margin of 37.1% in the second quarter, 400 basis points above last year. This material improvement was primarily driven by volume leverage in our covers and liners product lines, the continued benefits of our lean manufacturing and value engineering initiatives and the margin benefit from our recent Coverstar acquisitions.

SG&A expenses increased to $31.9 million, up $5.3 million, primarily due to increased investments in marketing and new personnel to support our Sand State growth strategy, including expanding the awareness and adoption of fiberglass pools and autocovers. Investments in our new ERP infrastructure and the inclusion of Coverstar central-related overhead also contributed to the increase.

Net income was $16 million or $0.13 per diluted share, an increase from $13.3 million or $0.11 per diluted share for the prior year's second quarter. Adjusted EBITDA of $39.9 million increased $5.4 million or 15.7% from last year's $34.5 million, and adjusted EBITDA margin expanded to 23.1%, a 160-basis point improvement over 21.5% in the prior year period. This increase was primarily due to higher sales and gross profit that more than offset increased SG&A spending.

Now turning to our first half year-over-year result comparisons. Net sales were $284 million compared to $271 million, reflecting the benefit of both organic and acquisition growth. Net income was $10 million compared to $5.4 million in the prior year period. Adjusted EBITDA increased by 9.1% to $51 million from $46.8 million, and adjusted EBITDA margin increased by 70 basis points to 18% from 17.3%. This performance reflects higher revenue and improved gross margins, which more than offset our ongoing investments to increase the awareness and adoption of fiberglass pools and autocovers.

Turning to our balance sheet and cash flow statement. We continue to maintain a strong financial position with cash of $27 million at the end of the quarter. Net cash provided by operating activities was $36 million in the second quarter. And in the first half, net cash used in operating activities was $10.9 million. Total debt for the period was $281 million with a net debt leverage ratio of 3.0, and our capital expenditures were $7 million for the second quarter of 2025.

As we have previously noted, we expect 2025 CapEx to range between $27 million to $33 million with the increase from last year due to the development of new fiberglass pool models tailored to the Sand State markets as well as the addition of usable space at our fiberglass pool manufacturing facilities in Florida and Oklahoma. Our substantial financial flexibility allows Latham to pursue strategic growth opportunities, both organic and through acquisitions.

As we enter the second half of 2025, we are pleased with our financial progress to-date. Despite the pool market being in a trough period, we remain focused on executing on our strategic growth initiatives. Our Coverstar acquisitions have been fully integrated into the business, and we are seeing the anticipated benefits materialize in both incremental sales and margins.

As Scott mentioned, we remain focused on increasing awareness and adoption of fiberglass pools, particularly in the Sand State markets. We have seen encouraging progress to-date, which will position the business for accelerated profitable growth as the pool market rebounds.

Moving on to our outlooks. We are reconfirming our 2025 guidance of 8% net sales growth and 19% adjusted EBITDA growth at the midpoints. While market conditions remain challenging, we are cautiously optimistic heading into the second half of the year, and our guidance is based on our current market visibility and supported by our recent strategic acquisitions, ongoing efforts to grow our share in the Sand States and continued benefits from our lean manufacturing and value engineering initiatives.

With that, I will turn the call back to Scott for his closing remarks.

Thanks, Oliver. A word on market conditions. We expect approximately 60,000 U.S. pool starts in 2025, consistent with our original estimates and slightly down from the 62,000 that PK data reported for 2024. This softness aligns with our analysis that today's pool buyer is primarily a cash purchaser, representing only a portion of the long-term average of approximately 100,000 pool starts annually.

Within this challenging industry environment, we are pleased to be able to reconfirm our full year 2025 guidance, which anticipates another year of significant market outperformance for Latham. Additionally, we have outlined a clear path for advancing our growth strategy, including the specific financial results we expect to achieve in the future.

When new U.S. pool starts return to 78,000 per year, meaning when they return to their 2019 level, our new structurally changed business model should enable us to achieve about $750 million in net sales and $160 million in adjusted EBITDA. This would represent more than double our 2019 revenue and 2.5x our adjusted EBITDA at the same volume of new U.S. pool starts. And when the U.S. pool starts return to the long-term average of 100,000 pools per year, we project meaningful increases beyond the aforementioned financial results.

With that, operator, I would like to open the call to questions.

[Operator Instructions] The first question comes from the line of Greg Palm with Craig-Hallum Capital Group.

Congrats on the execution and sort of the continued outperformance in what we all know is a pretty difficult operating environment out there.

Thank you, Greg.

Thanks, Greg.

Maybe starting with kind of the investments around the marketing campaigns that you're making, I mean how are you measuring success right now, the return on investment? It's obviously not a robust environment, but you seem to be building interest. You're signing up dealers. Is the initial thought, hey, let's get the awareness up? Let's sign up a bunch of dealers. Maybe this materializes into orders activity next year. Maybe you're already seeing a little bit of that this year. I'd just love to get your sort of thoughts on kind of the return on that investment so far and what your expectations are sort of for the balance of the year.

Yes. So Greg, I think it's a little bit of everything you mentioned, right? It's clearly focused on driving the awareness of the brand and the awareness of fiberglass pools out there, making sure we've got the dealers and the dealer capacity in the areas where we're generating the demand and the lead. And then we talked a lot about our GOOTSA campaign. Hopefully, many of you have seen the DIRECTV campaign we've been running over the last couple of months. The interest generated from that was substantial in terms of -- we were able to measure it distinctly with the codes, the phone numbers, massive uptick in activity on the website, time on the website, leads generated from that.

A lot of great activity in both Florida and Texas, the Sand State as part of that strategy, significant numbers increasing there. It's not going to translate to an immediate pool sale. We all know that that buying decision is delayed with kind of, let's say, the -- where the consumer confidence sits today. But we view it as building the pipeline of future demand for us. Some of those pools of interest may translate to a sale this fall. More likely it will translate to hopefully nice tailwinds for us as we move into 2026.

Yes. Okay. That makes sense. And just on the Sand State strategy, just would love to get kind of an update on, a, how Florida is going. And then b, in terms of what you're targeting in terms of communities that you want to be in either by year-end or over the next 6 or 12 months? Just curious what the ramp-up of that looks like as well.

Yes. So again, I think we'll continue to accelerate the ramp-up there. I'd say right now, we're tracking ahead in terms of the number of new dealers we've recruited -- excuse me, and also the number of MPCs or other communities that we've entered into to get the pool installs going.

I'd say good progress. We don't like it to be a lot faster from a pace acceleration. I think what's maybe caused a little bit of a slowdown has really been just the general markets in Florida and Texas. A lot of folks have seen permit activities bent down. Again, we've seen some nice upticks. Recently we've seen really good increase in lead generation. The numbers have greatly turned positive for us significantly in Florida with lead generation there and interest. Texas has finally turned over the last 2 to 3 weeks as well in terms of incremental lead generation in a market that's been really tough from a weather standpoint.

So we like where we're headed. We like where we're going. We had a really good meeting here in the Albany area back about a month or so ago with a lot of our top dealers, many from the Sand States. I think the marketing that we're doing, the model that we're creating that resonate in the Sand States with all the different features, all going very, very well. And we'll be talking as we move forward more about the metrics of what we're doing.

And I think for now, what we've been saying is percentage of pool revenue in the Sand States kind of around that 17% number. Hopefully, we'll see that uptick here as we work through the back rest of the year towards a 19%, 20% number.

Next question comes from the line of Andrew Carter with Stifel.

I don't think I've ever heard you guys call out weather before in terms of like -- but you did say it did hit the package pools. If you look at the in-ground pools business in general, were fiberglass pool sales, have those returned to growth and it's just the weather/the package pools that's declining?

No, I think the in-ground pool category in the second quarter was around about 3% down, right? Both were affected by that, probably packaged pools, the impact was larger than fiberglass. We usually don't talk about weather, but I think we had an unusually wet spring. It rains in New England all the way up until June.

And once the season turned on us and then we had good weather. We actually saw a nice trajectory in June and July returning for fiberglass back to year-over-year growth. But it was a measurable impact, I would say, somewhere between $3 million and $5 million that we would attribute to weather here.

That's helpful. And I guess second question is, really strong gross margin performance in the quarter that brings your trailing 12 to 32%, which most of the acquisitions are in kind of -- is that the right structural level? Or were there any onetime items flattering this quarter? What should we think about structurally as the level? Of course, you want to -- you'll be building upon that.

I think we are very pleased where we are from a gross margin perspective. 400 basis points is the increase year-over-year. And the main buckets of that list comes again from the acquisitions. Lean value engineering is a really good contributor and a stable contributor from a sequential perspective.

And then nice to see volume kicking in, and that helps utilization and cost leverage, right? Not really a one-timer that I call out, probably a slight favorability in absorption. We had a couple of days of plant shutdowns in the first quarter. They were also weather-related that we caught up on early in the second quarter. But I want to say outside of this, a fairly normal quarter. And again, very pleased with our year-over-year improvement here.

Next question comes from the line of Ryan Merkel with William Blair.

My first question is just on the current orders. I think you mentioned it's tracking well. I'm curious, did you see a lift in June and July after the rainy May? Or would you say it's just been kind of steady as the year has progressed here?

Yes. Look, I think we did see some uptick in several of the categories as we kind of got post Memorial Day and really saw the weather turn kind of, let's say, now here in the heat of the summer, early August. Again, good strength in autocovers. Really good performance in liner categories. We've seen fiberglass turn nicely around.

I'd say packaged pools kind of continues to stay flat. It's a little bit maybe more of that lower end of the market entry level. I really haven't seen much movement there, but that's -- I don't attribute that to weather. I think that's just the consumer confidence, lack of financing out there for lower end of the market. I think looking good as we go forward.

I think the key thing we've got to start watching out for now as we kind of start to exit the pool building season is, right, we'll be entering into the fall pool closing season and the safety cover season for us. That's the next thing we want to continue to watch. And I think the early trends there have shown some positive movement over the last several weeks as well as many folks start thinking about back-to-school and closing pools in the next 30 to 45 days.

Got it. Okay. That's helpful. And then on fiberglass, you mentioned in the release substantial year-over-year growth in leads. And I'm just sort of curious, how is your backlog looking right now? Would you say it's normal for this time of year? Or is it a little depressed?

And the second part of that question, do you expect fiberglass to return to growth in the second half of the year, just given some of the sales and marketing seems to be working?

Yes. I'd say fiberglass or fiberglass backlog in general, Ryan, has held up pretty well for us. I think it's hard to judge backlog levels with our lead times and service levels right now. I think we're out there 3 to 5 days. In the majority of the business, fiberglass pools sit independent on region 2 to 4 weeks on average. So we're turning orders pretty quickly for dealers out there. But I'd say backlogs has held -- have held up well. We like where we sit as we're coming into 3Q.

I think fiberglass will definitely start to turn as we think about the back half of the year here. We've seen that last thing as Oliver said, 4, 5, 6 weeks. So like I said, I think we like where we're sitting. Still a tough market out there, right? I mean tough for the consumer, consumer confidence, what's happening. But again, the higher end consumer always doing well. And I think that's why we're really focused on trying to generate a lot of leads for dealers, keeping that funnel full, keeping the interest there and hoping some of those leads will convert to a sale here for a fall install for us.

Next question comes from the line of Tim Wojs with Baird.

I guess on the revenue guidance, just any -- I know you're reiterating it, but are there any kind of changes to the underlying components at all, whether it's just kind of fiberglass growth or liners or covers or pricing? Just is everything kind of similar to what you expected on the top line? Or is there anything kind of change under the surface?

No, I don't think that there's any change to the usual seasonal profile, right? As Scott just mentioned, this -- the safety cover season is now starting and I think with the Measure by Latham, we are set up well for that. We are very pleased with the organic growth in autocovers, obviously in addition to the impact of the acquisitions. We expect that to continue to benefit.

And then as we said, fiberglass returning to a year-over-year growth. I don't want to say that the second half of the year is anything unusual to what you've seen from a sales profile. I think one thing is from a year-over-year perspective, the acquisition of Coverstar Central that happened in August. So you'll see some dynamics of the changing comps here. But from a sequential perspective, as we navigate the season, I don't think there's anything overly extraordinary in our season in '24 versus prior year.

Okay. Okay. That sounds good. And then just, I guess, a couple of kind of cleanup modeling things. Just is there any way to kind of talk about how much price contributed in the second quarter and how much the acquisition sales were?

Yes, sure. So as you think of price, so we did price for some tariff impacts in June. Just as a reminder, and nothing really has changed to what we said about tariffs last quarter. About $20 million is the headwind. More than half is remediated and mitigated on the supply chain side with a little bit less than on the pricing side. So that went into effect in June. So I think about 1 month of that. So give it probably around $1 million.

And then you asked about the contribution of the Coverstar business in the quarter. It was probably about $7 million, all 3 acquisitions combined.

Okay. And then can you just remind us on the tariff side, does that have some -- just the way you've approached it, does it have some margin implications or just because you're taking the cost out and a little bit of price that the margin implication from offsetting tariffs is generally neutral?

Yes. I would put it broadly. It's neutral. I want to complement our supply chain team for having worked through a very dynamic tariff environment that keeps on changing. Since we met last time, China came down, some other countries went up. But I would say, at this point in time we are fairly balanced when it comes to the impact and the mitigation. And that comment is a run rate comment as well as a 2025 comment.

Next question comes from the line of Matthew Bouley with Barclays.

I guess, first one, I just wanted to ask around labor availability between both, I guess, installation of fiberglass, but then also, I don't know, I guess a competitive product. And the reason I ask is because, obviously, you guys highlight the sort of forever advantage that it's always going to be quicker and more cost effective to install fiberglass.

But just in a market where pool starts are down so much, I mean presumably there's more labor availability. So I just wanted to kind of get a sense of what you're hearing out there. And just how does that impact, I guess, the value prop of fiberglass versus installing the sort of traditional materials?

Yes. So Matt, I mean, I'll start maybe first for us internally, right? No issues, no challenges getting labor. I think we've been pretty stable throughout the entire season, year, seeing extremely low turnover numbers, great retention across the board. So we feel really good with the talent we have on the team to support and run the business in all of our factories as we balance the different seasonality aspects.

When we talk to our dealers, I think our dealers don't appear to be having any issues with labor. Again, I think they've got really great crews. They've had longevity with some of their core teams. But again, it takes a lot less people to install a fiberglass pool. We're talking 3 guys in the backyard for a couple of days to get that pool in the ground and set.

We have heard and seen some stats on the concrete side that trying to get subs and have the subs out there for 3, 4, 5 months at a time. There has been labor challenges. And that's why I think going back to one of the questions earlier in the call about dealer acquisition and dealer ramp-up. I think we have seen a lot of good success now of concrete builders making that change to Latham and Latham fiberglass because of the labor availability challenge. And I think that's going to be a big help for us and a nice tailwind as we go forward.

One of the things we've talked about is how do we target some good concrete builders for a conversion. I think we've kind of teed this one over the last quarter or 2, but Shasta Pools, right, based out of Phoenix, Arizona, probably one of the largest concrete builders out there in the country, now installing Latham fiberglass pool. They just opened a really nice beautiful new design center featuring fiberglass pools. They just did their big kickoff event, I think, about a week or so ago.

So getting them to come on board and support and install fiberglass, I think, is a testament to, one, what we've been able to do with demand lead generation, but I think also a great pool installer, pool builder out there realizing that that's going to help fight through labor challenges and issues. So I think that's going to be another one that we're going to see a lot of great success as we move forward.

Got it. Okay. No, that's super helpful color. Secondly, kind of drilling down into the gross margin, obviously up something like over 400 basis points year-over-year. I think you called out some good volume leverage and -- where you had the growth in covers and liners and then obviously the continued success with lean manufacturing and I think some accretion from Coverstar as well specifically.

I don't know, I mean, is it possible to kind of bucket that out between what drove that increase amongst those or if there was any other drivers? And then kind of any other help, I guess, when we think about those pieces, kind of how those may play into the margin in the second half?

Yes. I want to say -- so let me start off by Coverstar, which accounts for probably half of the contribution in line with expectations, in line with how we described the Coverstar business at the time of the acquisition. That margin profile continues in Q3 and Q4. And I remind you again that some of the benefits, they anniversary out as we did the Coverstar Central acquisition last year in August.

And then the remaining difference to -- the remaining balance to our 400 basis points gross margin improvement is pretty evenly split between the contribution of lean value engineering as well as the cost leverage through volume, maybe the slight edge and the majority on the lean and value engineering side.

The next question comes from the line of Susan Maklari with Goldman Sachs.

This is Charles Perron in for Susan. First, I just want to go back to your prepared comments about the liners. I think what the Measures by Latam is driving share gains relative to the underlying market. Can you maybe help us quantify the share gains and how you're outperforming the market? And also when you think about the change in the regulation to accept full safety covers instead of fences in some states, how is this part of your growth algorithm going forward and the opportunity set that it can provide for the business?

Yes. I would say we are very pleased with the performance of the liners business. It was 6% up year-over-year. I think a key contributor is our proprietary liners measurement tool. We don't specifically break out the contribution of that. But again, very, very pleased with the number of devices in the market, the feedback from our dealers and as a result, the year-over-year stats when it comes to volume and sales.

And any commentary on the pool safety cover and changes in regulation for fences?

Yes. So that's kind of more on the autocover side of the equation versus the winter safety cover. And look, I think when you just look at the underlying performance we've been seeing as Oliver has talked about our growth in autocovers organically from the acquisitions, our focus is there. It's clearly part of the algorithm of us being outperforming the market, right? That autocover goes on all pool types. It goes on competitor pools. It has a really nice ROI and payback for the homeowner with the lower chemical usage, less water evaporation, keeping your pool cleaner than just the ultimate safety aspect of it.

Again, we've talked a lot about, right? We've done a lot of marketing with Bode Miller and his foundation, knowing the SWIM, promoting it. And I think in the territories where an autocover can be used in lieu of a fence, we see a very high take rate and uptick in terms of the number of pools getting autocovers. And I think that's going to be part of that future growth algorithm of Latham to be able to outperform the market overall even in a flat or slower growth pool start environment.

So we're pleased with the progress we're making there. Again, we believe penetration of autocovers on new pools is in the low 20s. So definitely, a huge opportunity to really move the needle very similar to what we've talked about in the fiberglass arena.

Got it. That's good color. And then second, talking about capital allocation. Obviously, your balance sheet remains strong. But when you think about the capital allocation priorities going forward between deleveraging, opportunities to buy maybe more dealers and just the general M&A pipeline out there, how do you see the most important priorities going forward?

I want to say our capital allocation priorities remain unchanged. I'll give -- let me run down those priorities in order of priority here with -- starting with the most important one first. It's investing in the business, right? That is over the last 3, 3.5 years more than 40% of our capital has gone into. We've built a plant. You see us ramping up our investment in the Sand States to prepare for that growth.

I think the second priority is M&A. About 30% of our funds have been allocated to M&A. We've been buying about a company here over the last 1 -- 1.5 decades with the 3 Coverstar businesses being the last examples here.

And then debt repayment is a key pillar as well with about 15% of allocated capital. We've repaid $30 million, $35 million over the last 2, 2.5 years. And we'll certainly continue to pursue that as one of our uses for capital.

Next question comes from the line of Shaun Calnan with Bank of America.

First one, just a follow-up on the earlier revenue guidance question. So at the midpoint, it would imply second half revenue growth of double digits versus mid-single digits in the first half. And it seems like you're getting less of a contribution from M&A in the second half. So can you talk about what's driving that growth and your confidence that you can hit those numbers?

Yes. I think a couple of points, right? So we did see a little bit of weather delays, which should, at a minimum, not impact the second half of the year. And maybe there will be a little bit of uptick, and that's something we certainly saw in June and July, the fiberglass business returning to a year-over-year growth.

Please don't forget also the -- at one point in time, the acquisitions run rate, they were bought kind of mid to end of 3Q last year. So there will be still a contribution from Coverstar Central in the very important kind of third quarter season.

And then lastly, as we've talked about safety cover, we expect a strong season and the season supported again by -- measured by Latham. These are the 3 main building blocks obviously next to a little bit of pricing that we announced and implemented in June.

Okay. Got it. And then on the delayed pool builds, is that something that you guys have already realized the benefits of in the last month or so? Or do people typically delay them until after the summer if they can't get it built in time?

Yes. Look, I think it's going to be a continued push right up until, let's say, winter sets in. Folks that made that decision for the pool, call it, in the May -- April, May, June time frame that couldn't get it, they're still going to get their pool this summer, right? So builders will continue to build here in the slower month of August and September. We'll see the fall installs continue into early October, end of October.

So those pools will hopefully still get in the ground. I think that's where the advantage of fiberglass and, let's say, even our in-ground vinyl liner package pool for us is a much faster build, right? So the ability for our dealers to catch up and get those pools in the ground is much better than, let's say, someone who is hoping to get a concrete pool in, let's say, a wet market like Texas or something.

So I know our guys are busy. They're working really hard. And I think that's what also will help some of the second half revenue guide versus the first half of the year as we see stronger numbers.

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

Yes. Thank you all for your time this afternoon. Look, we really appreciate all of your continued support of Latham. I hope all you guys have a great end to the summer season as we head into the upcoming Labor Day holiday here in the U.S. and I'm looking forward to connecting with many of you at upcoming conferences and meetings. I hope you all have a great evening. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.