10-Q: Latham Group Q1 2026: Sales Rise, Net Loss Widens

Latham Group reported a 5.3% increase in net sales for Q1 2026, driven by organic growth and acquisitions, but experienced a wider net loss.

Summary

• Net sales for the fiscal quarter ended March 28, 2026, increased by 5.3% to $117.3 million, up from $111.4 million in the prior year's quarter.
• The net loss for the quarter widened to $8.5 million ($0.07 per share) from $6.0 million ($0.05 per share) in the same period last year.
• Adjusted EBITDA increased by $1.0 million to $12.2 million, with the Adjusted EBITDA margin improving slightly to 10.4% from 10.0%.
• The company completed the acquisition of Freedom Pools in Australia for $15.4 million, expected to add approximately $20.0 million in net sales and $4.0 million in adjusted EBITDA annually.
• Latham Group purchased four fiberglass production facilities for $17.6 million, which were previously leased.
• The company's revolving credit facility has $31.0 million in outstanding borrowings with $44.0 million available for future borrowing, and the facility matures on February 23, 2027.
• Sean Gadd was appointed President and CEO effective January 5, 2026, succeeding Scott Rajeski.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this filing as having a negative sentiment due to the widening net loss and increased operating expenses, despite positive revenue growth and improved Adjusted EBITDA margin.

Positives

• Net sales increased by 5.3% to $117.3 million, driven by a $3.0 million increase in sales volume and a $2.9 million increase from higher pricing.
• Gross margin improved to 31.7% from 29.5% due to volume leverage and efficiencies from lean manufacturing and value engineering.
• Adjusted EBITDA increased by 9.2% to $12.2 million.
• Adjusted EBITDA margin improved to 10.4% from 10.0%.
• Acquisition of Freedom Pools is expected to be immediately accretive to earnings.
• The company continues to gain traction in Florida, with double-digit growth in fiberglass pool sales.
• The revolving credit facility has $44.0 million available for future borrowing.

Negatives

• Net loss increased by 43.1% to $8.5 million from $6.0 million in the prior year's quarter.
• Net loss margin increased to 7.3% from 5.4%.
• Selling, general, and administrative expenses increased by 19.5% to $36.6 million, largely due to acquisition and integration costs and increased marketing investments.
• Trade receivables increased by $49.5 million, and inventories increased by $9.6 million during the quarter.
• Cash used in operating activities was $47.7 million, a slight increase from $46.9 million in the prior year.

Risks

• Global political uncertainty, financial market volatility, changes in international trade relationships, and conflicts could make it more difficult to access financing and adversely affect business and operations.
• The conflict in the Middle East and related geopolitical instability may adversely affect business by disrupting global energy supplies, increasing energy prices, heightening inflationary pressures on input costs and supply chains, and impacting customer spending patterns.
• Increased trade protectionism or the perception of it could increase costs, lengthen transport times, and adversely impact business, operating schedules, and financial condition.
• A prolonged economic downturn could lead governments to implement new or enhanced trade barriers, depressing demand.
• The company is subject to interest rate risk, with a 1% increase in the effective interest rate potentially causing an increase of approximately $1.4 million in annual interest expense.

Future Outlook

The company anticipates that its existing cash, cash generated from operations, and availability under its Revolving Credit Facility will be adequate to fund its operating expenses and capital expenditure requirements over the next 12 months, as well as its longer-term liquidity needs. They may also issue debt or equity securities as an additional source of liquidity.

Management Comments

• "We continue to execute effectively on our strategic priorities and achieved sales growth in each of our product lines in the first quarter."
• "Adjusted EBITDA growth outpaced sales growth by a considerable margin, demonstrating our substantial operating leverage and cost discipline, which more than offset the impact of higher investments in growth initiatives."
• "To accelerate our growth in Florida and the other Sand State markets, we are moving forward with several new initiatives to capture consumer demand and provide additional value to our dealers."
• "Strategic transactions continue to be part of our growth strategy."

Industry Context

StockSavvy.ai notes that Latham Group, as the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand, is navigating a market influenced by seasonality, weather patterns, and strategic acquisitions. The company's focus on digital marketing and dealer partnerships is a key differentiator in an industry traditionally focused on business-to-business interactions.

Comparison to Industry Standards

• Latham Group's Adjusted EBITDA margin of 10.4% for Q1 2026 is presented as a key performance indicator. While direct comparisons to specific competitors are not provided in the filing, this metric is used internally and by analysts to evaluate performance against industry peers.
• The company's strategy of acquiring businesses like Freedom Pools ($15.4 million acquisition) is a common growth strategy within the pool and outdoor living industry, aiming to expand market share and product offerings.

Management Changes

Legal Proceedings

• Currently, there are no legal proceedings against the company that are believed to have a material adverse effect on its business, financial condition, results of operations, or cash flows.
• No material legal proceedings were terminated, settled, or otherwise resolved during the fiscal quarter ended March 28, 2026.

Stakeholder Impact

• Shareholders: The widening net loss and increased SG&A expenses may negatively impact shareholder value, while revenue growth and improved Adjusted EBITDA margin offer some positive outlook.
• Employees: The appointment of a new CEO and potential restructuring charges (though none explicitly noted for this quarter) could impact employee morale and operations.
• Dealers: The company's initiatives to support dealers in Florida and Sand State markets aim to strengthen these partnerships and drive sales.
• Creditors: The company's compliance with debt covenants and availability under its revolving credit facility suggest continued access to financing, which is positive for creditors.

Next Steps

• Continue executing on strategic priorities to achieve sales growth.
• Accelerate growth in Florida and other Sand State markets through new initiatives, including building out the commercial organization, implementing a new market development framework, and adding sales resources.
• Support targeted marketing campaigns to educate consumers on the benefits of fiberglass and pool ownership.
• Continue discussions to extend the Revolving Credit Facility before its maturity on February 23, 2027.
• Fund capital expenditures from net cash provided by operating activities or utilization of borrowing availability under the Revolving Credit Facility.

Key Dates

Recommendation

While Latham Group demonstrated revenue growth and improved Adjusted EBITDA margin, the significant increase in net loss and operating expenses raises concerns. The company's strategic acquisitions and market expansion efforts are positive, but the widening loss suggests that the costs associated with these initiatives are currently outweighing the benefits. A 'hold' recommendation is appropriate pending further clarity on the profitability impact of recent acquisitions and cost management.

Keywords

Latham Group, Form 10-Q, Quarterly Report, Swimming Pools, Pool Covers, Pool Liners, Financial Results, Net Sales, Net Loss, Adjusted EBITDA, Acquisition, Freedom Pools, SEC Filing