Latham (US:SWIM)2021-11-13 05:23Financial Data and Key Metrics Changes - Latham reported record sales in Q3 2021, achieving net sales growth of 27% to $162 million compared to the prior year [6][35] - Adjusted EBITDA grew 2.7% to $36.1 million, with a decrease in adjusted EBITDA margin to 22.3% [7][40] - Gross profit increased by 1.4% to $51 million, but gross margin decreased to 31.5% from 39.5% year-over-year, reflecting 800 basis points of compression [36][37] Business Line Data and Key Metrics Changes - Net sales for in-ground pools, including fiberglass products, increased 7.6% to $84.1 million [35] - Sales for covers increased 71.7% to $44.1 million, and liners increased 42.4% to $33.8 million [35] - Fiberglass products accounted for about two-thirds of the gross margin compression due to lower sales and a less profitable sales mix [37] Market Data and Key Metrics Changes - Demand for fiberglass pools has outpaced supply since early 2020, with significant order backlogs extending into 2022 [17][18] - The company expects to sell every pool it can produce well into 2022, driven by strong consumer interest and a growing order book [49] Company Strategy and Development Direction - Latham aims to position itself as a household lifestyle brand, evolving the pool buying experience and driving material conversion from concrete to fiberglass [8] - The company is expanding its fiberglass manufacturing capacity, with plans to break ground on a new plant in Kingston, Canada, which will be the largest in its history [31][21] - Strategic initiatives include enhancing digital marketing efforts and improving lead qualification processes to drive sales [28][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in regaining margin trajectory through pricing actions and improved resin supply, anticipating strong revenue and adjusted EBITDA growth in 2022 [49][50] - The company is actively working to mitigate raw material shortages and improve production efficiency [10][14] Other Important Information - The company reported a net loss of $11.3 million for Q3 2021, primarily due to noncash stock-based compensation expenses [41] - Capital expenditures increased to $6.2 million in Q3 2021, reflecting investments in fiberglass capacity expansion [44] Q&A Session Summary Question: How safe is the backlog in terms of preventing customer dropouts? - Management indicated that the likelihood of cancellations is very low, as customers have been waiting for their pools for extended periods and have confirmed contracts with dealers [55][56] Question: Can you elaborate on pricing changes for long-dated orders? - Management discussed implementing more dynamic pricing strategies, including flexibility in contracts and surcharges to adapt to inflation [58][59] Question: What is the current resin availability situation? - Management noted that resin availability has improved compared to previous months, with new sources coming online and upstream vendor situations improving [66][67] Question: How do you expect margins to progress in Q4 and 2022? - Management anticipates alleviation of gross margin compression in Q4 due to improved resin supply and production efficiency, with expectations for better margins in 2022 [72][76] Question: Are there plans to slow down new order growth? - Management confirmed that they have not slowed down on any front and continue to add capacity to meet strong demand [82] Question: How are dealers responding to the new pricing environment? - Management emphasized that dealers are experienced and have adapted to the new pricing dynamics, maintaining open communication to navigate challenges [102][106]