10-K: Latham Group Reports FY2024 Results: Sales Decline Amid Macroeconomic Headwinds, Strategic Acquisition Completed

Latham Group's FY2024 results reveal a decrease in net sales due to unfavorable economic conditions, partially offset by strategic initiatives and the acquisition of Coverstar Central.

Summary

• Latham Group's net sales for FY2024 decreased by 10.2% to $508.5 million, primarily due to a decline in volume driven by macroeconomic softness.
• The company reported a net loss of $17.9 million for FY2024, compared to a net loss of $2.4 million in the previous year.
• Adjusted EBITDA decreased by $7.8 million to $80.2 million, impacted by higher performance-based compensation and increased sales and marketing investments.
• Gross margin increased to 30.2%, driven by production efficiencies, improved procurement, and modest deflation.
• The company completed the acquisition of Coverstar Central in August 2024 for $64.5 million, funded with cash on hand.
• Latham is focused on driving adoption of fiberglass pools and automatic safety covers, along with improving operating efficiencies.
• The company is managing costs through cost reduction programs and lean manufacturing initiatives.
• Latham is investing in sales, marketing, and product development to capture incremental market share during an industry recovery.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While the company is taking strategic actions and improving efficiencies, the financial results show a decline in sales and profitability due to macroeconomic challenges. The outlook is cautiously optimistic, pending an industry recovery.

Positives

• Gross margin increased due to production efficiencies and improved procurement.
• The acquisition of Coverstar Central is expected to be accretive to net income, Adjusted EBITDA, and Adjusted EBITDA margin.
• The company is focused on strategic initiatives to drive fiberglass pool adoption and expand market share.
• Latham is implementing cost reduction programs and lean manufacturing initiatives to improve profitability.
• The company has sufficient capacity and capability to support growth targets over the next several years.

Negatives

• Net sales decreased by 10.2% due to unfavorable economic conditions.
• Net loss increased to $17.9 million.
• Adjusted EBITDA decreased due to higher compensation and increased marketing spend.
• The company expects ongoing macroeconomic softness to continue impacting consumer spending and demand into 2025.

Risks

• Unfavorable economic conditions and their impact on consumer spending could continue to adversely affect sales.
• Inflationary pressures on labor, raw materials, and services could increase operating costs.
• Reliance on third-party suppliers and potential disruptions in the supply chain could impact production.
• Competition from other pool manufacturers and outdoor living products could intensify.
• Natural disasters, geopolitical events, and public health emergencies could disrupt operations and demand.
• Cybersecurity threats and breaches to information technology systems could disrupt operations and compromise data.
• Adverse weather conditions could negatively impact sales and the timing of sales.
• Industry consolidation could lead to downward pressure on prices.
• Product quality issues, warranty claims, and installation concerns could negatively impact sales and increase costs.
• Delays in the implementation of the new enterprise resource planning system could adversely affect operations.

Future Outlook

The company expects ongoing macroeconomic softness to continue impacting consumer spending and demand. Latham is increasing investments in sales and marketing and product development initiatives to ensure that they capture an incremental share of in-ground pool sales once volumes rebound.

Management Comments

• Ongoing macroeconomic softness has impacted and is expected to continue to impact consumer spending and demand.
• We continue to make progress executing our strategy to drive adoption and awareness of fiberglass pools and automatic safety covers and gain additional operating efficiencies through value engineering and lean manufacturing initiatives.
• We believe that Lathams financial model has changed structurally, which has increased our underlying earnings capabilities amid an industry recovery.

Industry Context

The document highlights the shift in material from concrete to fiberglass in the North American in-ground swimming pool industry, which is expected to favor Latham's business. The company is also focused on expanding its market share in the Sand States (Florida, Texas, Arizona, and California), which account for approximately two-thirds of the pool starts in the United States.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or competitors in terms of financial performance.
• However, it mentions that Latham holds the leading position in each of its product categories in North America, Australia, and New Zealand.
• The company competes with regional and local manufacturers on the basis of brand recognition, quality, performance, product characteristics, marketing, sales and distribution, and price.

Stakeholder Impact

• Shareholders: The decrease in net sales and profitability may negatively impact shareholder value.
• Employees: Cost reduction programs and workforce reductions may impact employees.
• Customers: The company's focus on product innovation and customer service aims to enhance the customer experience.
• Dealers and Distributors: The company's strategic partnerships and support programs are intended to benefit dealers and distributors.

Next Steps

• Continue executing the strategy to drive adoption and awareness of fiberglass pools and automatic safety covers.
• Gain additional operating efficiencies through value engineering and lean manufacturing initiatives.
• Continue to take a disciplined approach to capital investments.
• Continue investment in sales, marketing, engineering and research and development efforts that are designed to accelerate conversion to fiberglass pool products and ongoing digital transformation programs.

Key Dates