• Net Sales: $150.5 million, down 6.4% from $160.8 million in the prior year.
• Gross Margin: Expanded by 250 basis points to 32.4%.
• Net Income: $5.9 million or $0.05 per diluted share.
• Adjusted EBITDA: $29.8 million, a decrease of 17.3% from $36.1 million last year.
• Adjusted EBITDA Margin: 19.8%, down 260 basis points from 22.4% in the prior year period.
• Cash Position: $59.9 million at the end of the quarter.
• Total Debt: $282.8 million with a net debt leverage ratio of 2.6.
• Capital Expenditures: $4 million for the third quarter and $13.9 million for the first nine months of 2024.
• 2024 Net Sales Guidance: Narrowed to $500 million to $510 million.
• 2024 Adjusted EBITDA Guidance: Narrowed to $77 million to $83 million.

• Warning! GuruFocus has detected 5 Warning Signs with GIFI.

Release Date: November 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Latham Group Inc (NASDAQ:SWIM) achieved stable gross profit and expanded gross margin by 250 basis points in the third quarter despite lower sales.
• The company ended the third quarter with a strong financial position, holding approximately $60 million in cash after significant acquisitions and debt repayments.
• Latham Group Inc (NASDAQ:SWIM) continues to drive awareness and adoption of fiberglass pools and automatic safety covers, which are key growth areas.
• The acquisition of Carstar Central has been successfully integrated, with revenue synergy initiatives underway, expected to add $20 million in net sales annually.
• Lean manufacturing and value engineering programs have resulted in nearly $8 million in savings year-to-date, enhancing production efficiencies and reducing costs.

Negative Points

• Net sales for the third quarter decreased by 6.4% year-over-year, primarily due to lower sales volumes.
• The company expects a 15% decline in new pool starts for 2024, reflecting challenging market conditions.
• Adjusted EBITDA decreased by 17.3% from the previous year, with a margin decline of 260 basis points.
• Hurricanes caused operational disruptions, including a week-long plant shutdown, impacting sales and shipments.
• Increased SG&A expenses, up by $4.9 million, were driven by higher sales and marketing investments and performance-based compensation.

Q & A Highlights

Q: Can you elaborate on the structural changes that have increased profitability and whether Latham can achieve 20%+ EBITDA margins in a recovery scenario? A: Scott Rajeski, CEO, explained that past restructuring initiatives, lean manufacturing, and cost reduction efforts have positioned Latham for higher margins. Oliver Gloe, CFO, added that the company has reduced its cost base and is prepared to handle increased volume, suggesting that 20% EBITDA margins are achievable with market recovery.

Q: How are dealers feeling about next year, and what are your plans for increased sales and marketing spending? A: Scott Rajeski noted that dealers are optimistic about 2025, expecting better conditions than 2024. The company is investing in sales and marketing, particularly in the sand states, to drive awareness and adoption of fiberglass pools, which should position Latham well for future growth.

Q: Can you quantify the impact of the recent hurricanes on sales and costs? A: Oliver Gloe stated that the hurricanes resulted in a $1.5 million to $2 million impact on Q3 sales, with a similar effect expected in Q4. The plant shutdown for a week due to the hurricane also contributed to these figures.

Q: What is the gross margin profile across different product lines, and how does the mix affect overall margins? A: Oliver Gloe explained that the gross margin profiles of different product categories are similar, with no significant impact from product mix on overall margins. The company focuses on cost control and supplier optimization to maintain margins.

Q: How is Latham positioned in the sand states, and what are your growth targets there? A: Scott Rajeski highlighted that the sand states represent a significant portion of new pool starts, and Latham is underpenetrated in these areas. The company is investing in dedicated teams and marketing initiatives to increase market share and capitalize on growth opportunities in these regions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.