Latham (SWIM) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q4 2024 were $87 million, down 4% from$ 91 million in Q4 2023, reflecting lower volumes due to industry softness [22] - Full year net sales were $509 million, down 10% compared to$ 566 million in the prior year, primarily due to lower sales volume [26] - Adjusted EBITDA for Q4 was $4 million, down 63% from$ 10 million in the prior period, with an adjusted EBITDA margin of 4%, a decline of 670 basis points year over year [25] - Full year adjusted EBITDA was $80 million, compared to$ 88 million in the prior year, with an adjusted EBITDA margin of 15.8%, up 30 basis points from 15.5% in 2023 [29] Business Line Data and Key Metrics Changes - In-ground pool sales for Q4 were $44 million, down 5% from Q4 2023, while cover sales were$ 31 million, down 2% [22] - Full year in-ground pool sales were $259 million, down 13% year over year, but above the estimated 15% decline in in-ground pool starts in the US [26] - Liner sales for the full year were$ 180 million, down 8%, and cover sales were $131 million, down 7% [27] Market Data and Key Metrics Changes - Fiberglass pools represented 24% of US pool starts in 2024, up from 23% in 2023, indicating increased market penetration [7] - Approximately 17% of Latham Group's total fiberglass pool sales in 2024 were in the sand states, which account for about two-thirds of US pool starts [12] Company Strategy and Development Direction - The company is focused on expanding market share in the sand states (Florida, Texas, Arizona, California) and increasing fiberglass pool penetration [11] - Key priorities include expanding the dealer base, targeting master-planned communities, aligning product offerings with market demand, and addressing marketing campaigns specifically to consumers and builders in those markets [13] - The company plans to launch new fiberglass pool models tailored to the preferences of consumers in the sand states [13] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the operating environment, noting that while industry conditions remain challenging, they expect to outperform the market in 2025 [19] - The company anticipates that new US pool starts in 2025 will be similar to 2024 levels, but they are prepared to ramp up quickly to capture any increase in market demand [19] - Management highlighted the importance of strategic investments in growth initiatives, particularly in fiberglass pools and automatic safety covers [11] Other Important Information - The company ended 2024 with a strong financial position, including a cash position of$ 56 million and total debt of $282 million [30] - Capital expenditures for 2024 were$ 20 million, with projections for 2025 to be in the range of $27 million to$ 33 million [36] Q&A Session Summary Question: Breakdown of the 8% sales growth guidance - The 8% sales growth is expected to come from approximately 3% from the full-year run rate effect of acquisitions and about 5% from organic growth driven by fiberglass penetration and the sand states strategy [43][44] Question: Feedback from dealers in the sand states - Dealer feedback has been more positive compared to the previous year, with many reporting flat or increasing backlogs, particularly in the sand states [48][50] Question: Exposure to tariffs and its impact - The company has limited exposure to tariffs, with around $15 million in material buys from impacted countries, and has diversified its supplier base to mitigate risks [59][61] Question: Effectiveness of the sand state strategy - The sand state market is significantly underpenetrated for fiberglass pools, presenting a substantial growth opportunity [75] Question: EBITDA bridge and key drivers - The increase in adjusted EBITDA is expected to be driven by volume leverage, lean value engineering, and the impact of acquisitions, with some headwinds from increased SG&A spending [81][82] Question: Future capital expenditures related to the sand states - The company plans to make smaller capital investments to improve production flow and introduce new models tailored to the sand states market, without the need for large investments like the Kingston plant in the near term [70]