Latham (SWIM) - 2024 Q2 - Quarterly Results

Report Overview & Highlights Financial Highlights Latham Group reported second-quarter 2024 net sales of $160.1 million and net income of $13.3 million, expanding its net income margin by 500 basis points year-over-year, while also announcing the acquisition of Coverstar Central and increasing full-year 2024 guidance for net sales and Adjusted EBITDA Q2 2024 Financial Highlights | Metric | Value ($M) | Margin | | :--- | :--- | :--- | | Net Sales | $160.1 million | - | | Net Income | $13.3 million | - | | Adjusted EBITDA | $34.5 million | 21.5% | Six Months 2024 Financial Highlights | Metric | Value ($M) | Margin | | :--- | :--- | :--- | | Net Sales | $270.8 million | - | | Net Income | $5.4 million | - | | Adjusted EBITDA | $46.8 million | 17.3% | - Announced the acquisition of Coverstar Central, which is expected to be immediately accretive to earnings[1][4] - Increased full-year 2024 guidance, raising net sales by $5 million and Adjusted EBITDA by $15 million at the midpoints[1] Management Commentary & Strategic Initiatives CEO Commentary and Strategic Focus The CEO highlighted strong execution in Q2, with significant profitability increases driven by an improved cost structure, production efficiencies, and lower raw material costs, while key strategic priorities remain advancing the adoption of fiberglass pools and automatic safety covers as long-term growth drivers - Margin expansion in Q2 was a key highlight, attributed to improved cost structure, lean manufacturing, value engineering, and lower raw material costs[2] - The company is focused on increasing the awareness and adoption of fiberglass pools, which are positioned to gain market share due to cost, installation, and eco-friendly advantages over concrete pools[3] - Priorities for the remainder of the year include advancing fiberglass and automatic safety cover adoption, implementing cost-saving programs, and evaluating further acquisitions[15] Acquisition of Coverstar Central Latham acquired Coverstar Central, its exclusive automatic safety cover dealer in 29 states, for $64.5 million in cash, a strategic move expected to increase margins through vertical integration, accelerate sales growth of automatic covers, and leverage dealer relationships to promote fiberglass pools, being immediately accretive to earnings - The acquisition of Coverstar Central, a partner since 2006, is expected to increase margins through vertical integration and accelerate sales growth for automatic safety covers[4] - The transaction is expected to add approximately $20 million in annualized net sales and expand adjusted EBITDA margin by about 140 basis points annually[4] - The purchase price was $64.5 million, funded entirely with cash on hand[4] Financial Results Second Quarter 2024 Performance In Q2 2024, net sales decreased 9.6% to $160.1 million due to soft industry conditions, however, gross profit increased by 5.6% to $53.0 million, with gross margin expanding 470 basis points to 33.1%, while net income more than doubled to $13.3 million, and Adjusted EBITDA grew 11.2% to $34.5 million, with the margin expanding 400 basis points to 21.5%, reflecting successful cost management and efficiency programs Q2 2024 vs. Q2 2023 Key Metrics | Metric | Q2 2024 ($M) | Q2 2023 ($M) | Change ($M) | Change % | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $160.1M | $177.1M | ($17.0M) | (9.6%) | | Gross Profit | $53.0M | $50.2M | $2.8M | 5.6% | | Gross Margin | 33.1% | 28.4% | +470 bps | - | | Net Income | $13.3M | $5.7M | $7.6M | 133.3% | | Adjusted EBITDA | $34.5M | $31.0M | $3.5M | 11.2% | | Adj. EBITDA Margin | 21.5% | 17.5% | +400 bps | - | Q2 Net Sales by Product Line (in thousands) | Product Line | Q2 2024 (June 29) | Q2 2023 (July 1) | | :--- | :--- | :--- | | In-Ground Swimming Pools | $80,958 | $90,534 | | Covers | $25,503 | $28,755 | | Liners | $53,661 | $57,839 | | Total | $160,122 | $177,128 | - Selling, general, and administrative (SG&A) expenses decreased by 12.0% to $26.6 million, primarily due to lower non-cash stock-based compensation and cost containment initiatives[7] Six Months 2024 Performance For the first six months of 2024, net sales fell 14.0% to $270.8 million, attributed to macroeconomic weakness and lower backlogs, yet gross profit remained flat at $83.6 million, with gross margin expanding 430 basis points to 30.9%, and the company reported net income of $5.4 million, a significant improvement from a net loss of $8.7 million in the prior-year period, with Adjusted EBITDA increasing 11.3% to $46.8 million Six Months 2024 vs. Six Months 2023 Key Metrics | Metric | H1 2024 ($M) | H1 2023 ($M) | Change ($M) | Change % | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $270.8M | $314.8M | ($44.0M) | (14.0%) | | Gross Profit | $83.6M | $83.6M | $0.0M | 0.0% | | Gross Margin | 30.9% | 26.6% | +430 bps | - | | Net Income (Loss) | $5.4M | ($8.7M) | $14.1M | - | | Adjusted EBITDA | $46.8M | $42.0M | $4.8M | 11.3% | | Adj. EBITDA Margin | 17.3% | 13.3% | +400 bps | - | - SG&A expenses for the six-month period decreased by 16.5% to $52.8 million, driven by a $9.4 million reduction in non-cash stock-based compensation and other cost-saving initiatives[10] Financial Position and Outlook Balance Sheet, Cash Flow, and Liquidity Latham ended Q2 2024 with a strong liquidity position, holding $90.8 million in cash after repaying $19.6 million of debt in the first half of the year, with operating cash flow at $52.4 million for the quarter, and the net debt leverage ratio improved to 2.1x from 2.7x at the end of Q1, while capital expenditures were significantly reduced year-over-year - Ended Q2 with $90.8 million in cash and generated $52.4 million in net cash from operating activities during the quarter[12] - Net debt leverage ratio decreased to 2.1x at the end of Q2, down from 2.7x at the end of Q1 2024[12] - Capital expenditures were $4.5 million in Q2 2024, a sharp decrease from $13.4 million in Q2 2023[12] Full Year 2024 Guidance The company raised its full-year 2024 guidance, increasing the midpoint for net sales by $5 million, reflecting the contribution from the Coverstar Central acquisition, and the midpoint for Adjusted EBITDA by $15 million, with $12 million from organic business performance and $3 million from the acquisition, while capital expenditure guidance remains unchanged FY 2024 Updated Guidance Ranges (in millions) | Metric | Updated Guidance ($M) | Original Guidance ($M) | | :--- | :--- | :--- | | Net Sales | $495 - $525 | $490 - $520 | | Adjusted EBITDA | $75 - $85 | $60 - $70 | | Capital Expenditures | $18 - $22 | $18 - $22 | - The $15 million increase in the Adjusted EBITDA guidance midpoint is composed of $12 million from organic growth and $3 million from the Coverstar Central acquisition[13] Financial Statements & Reconciliations Condensed Consolidated Statements of Operations This section provides the unaudited consolidated statements of operations for the fiscal quarters and two fiscal quarters ended June 29, 2024, and July 1, 2023, detailing net sales, costs, expenses, and resulting net income (loss) and earnings per share Condensed Consolidated Statements of Operations (in thousands) | | Fiscal Quarter Ended | Two Fiscal Quarters Ended | | :--- | :--- | :--- | | | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | | Net sales | $160,122 | $177,128 | $270,751 | $314,847 | | Gross profit | $53,022 | $50,233 | $83,611 | $83,603 | | Income from operations | $20,006 | $13,389 | $17,933 | $7,070 | | Net income (loss) | $13,279 | $5,715 | $5,415 | ($8,653) | | Diluted EPS | $0.11 | $0.05 | $0.05 | ($0.08) | Condensed Consolidated Balance Sheets This section presents the company's financial position as of June 29, 2024, compared to December 31, 2023, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 29, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash | $90,768 | $102,763 | | Total current assets | $251,384 | $238,617 | | Total assets | $830,026 | $835,003 | | Liabilities & Equity | | | | Total current liabilities | $78,140 | $86,206 | | Long-term debt, net | $279,111 | $279,951 | | Total liabilities | $421,895 | $435,803 | | Total stockholders' equity | $408,131 | $399,200 | Condensed Consolidated Statement of Cash Flows This section outlines the cash inflows and outflows from operating, investing, and financing activities for the six-month periods ended June 29, 2024, and July 1, 2023 Condensed Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Two Quarters Ended June 29, 2024 (in thousands) | Two Quarters Ended July 1, 2023 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,911 | $36,289 | | Net cash used in investing activities | ($9,833) | ($23,365) | | Net cash used in financing activities | ($20,005) | ($1,884) | | Net (decrease) increase in cash | ($11,995) | $10,490 | | Cash at end of period | $90,768 | $43,116 | Non-GAAP Reconciliations This section provides reconciliations of non-GAAP financial measures, specifically Adjusted EBITDA and Net Debt Leverage Ratio, to their most directly comparable GAAP measures, detailing the adjustments made to net income (loss) to arrive at Adjusted EBITDA and the calculation of the net debt ratio Adjusted EBITDA Reconciliation Adjusted EBITDA Reconciliation (in thousands) | | Fiscal Quarter Ended | Two Fiscal Quarters Ended | | :--- | :--- | :--- | | | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | June 29, 2024 (in thousands) | July 1, 2023 (in thousands) | | Net income (loss) | $13,279 | $5,715 | $5,415 | ($8,653) | | Depreciation & amortization | $10,593 | $10,026 | $20,967 | $19,284 | | Interest expense, net | $6,013 | $4,486 | $10,995 | $15,290 | | Income tax expense | $442 | $4,884 | $974 | $1,956 | | Stock-based compensation | $2,100 | $5,764 | $3,343 | $12,533 | | Other Adjustments | $1,958 | ($1,125) | $5,076 | $1,612 | | Adjusted EBITDA | $34,478 | $30,999 | $46,770 | $42,032 | Net Debt Leverage Ratio Reconciliation Net Debt Leverage Ratio (in thousands) | | June 29, 2024 (in thousands) | March 30, 2024 (in thousands) | | :--- | :--- | :--- | | Total Debt | $282,361 | $282,781 | | Less: Cash | ($90,768) | ($43,811) | | Net Debt | $191,593 | $238,970 | | LTM Adjusted EBITDA | $92,763 | $89,285 | | Net Debt Leverage Ratio | 2.1x | 2.7x | Appendix Conference Call Details Latham will host a conference call on August 6, 2024, at 4:30 PM Eastern Time to discuss the Q2 2024 results, with participants able to pre-register online or dial in directly, and a live webcast and subsequent archive available on the company's investor relations website - A conference call to discuss results is scheduled for August 6, 2024, at 4:30 PM Eastern Time[16] - A live audio webcast and related materials are available on the investor relations section of the company's website[16] Non-GAAP Financial Measures and Forward-Looking Statements The report utilizes non-GAAP measures such as Adjusted EBITDA, Adjusted EBITDA margin, and net debt leverage ratio to monitor underlying financial performance, excluding certain items required under GAAP, while also containing forward-looking statements regarding future performance and strategy, which are subject to various risks and uncertainties detailed in SEC filings - The company uses non-GAAP measures like Adjusted EBITDA and net debt leverage ratio to monitor and manage underlying financial performance[18] - Adjusted EBITDA is used to evaluate business strategies, make budget decisions, and for incentive compensation, excluding items not considered indicative of core operating performance[19] - The report contains forward-looking statements that involve known and unknown risks, and the company undertakes no obligation to update them except as required by law[23][24]