8-K: Latham Group Reports Mixed Q1 Results: Cost Savings Drive Profitability Despite Sales Dip

Latham Group's first quarter results show a net loss of $7.9 million, but adjusted EBITDA exceeded expectations due to cost savings and strong execution.

Summary

• Latham Group reported net sales of $110.6 million for the first quarter of 2024, a decrease of 19.7% compared to the same period last year.
• The company experienced a net loss of $7.9 million, or $0.07 per share, which is an improvement from the $14.4 million loss in the first quarter of 2023.
• Adjusted EBITDA for the quarter was $12.3 million, an increase of 11.4% year-over-year, driven by cost management and higher-than-anticipated sales.
• Gross profit decreased by 8.3% to $30.6 million, but gross margin expanded by 350 basis points to 27.7% due to improved cost structure and productivity.
• Selling, general, and administrative expenses decreased by 20.6% to $26.3 million, primarily due to lower stock-based compensation and reduced headcount.
• The company ended the quarter with $43.8 million in cash after repaying $18.8 million of debt.
• Total debt was $282.8 million, and the net debt leverage ratio was 2.7 at the end of the quarter.
• Capital expenditures were $5.3 million, down from $9.9 million in the prior year's first quarter.
• Latham reaffirmed its full-year 2024 guidance, projecting net sales between $490 million and $520 million and adjusted EBITDA between $60 million and $70 million.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the better-than-expected adjusted EBITDA and improved cost management, despite the decline in sales. The reaffirmation of full-year guidance also contributes to the positive outlook.

Positives

• Adjusted EBITDA exceeded expectations, increasing by 11.4% year-over-year to $12.3 million.
• Gross margin improved significantly by 350 basis points to 27.7%, indicating better cost management.
• Selling, general, and administrative expenses decreased by 20.6%, showing effective cost control.
• The company reduced its debt by $18.8 million in the first quarter.
• Latham reaffirmed its full-year 2024 guidance, demonstrating confidence in future performance.
• Fiberglass pools showed relative strength, indicating a positive trend in that product line.
• The company launched new pool models and an AI-powered measurement tool, showing innovation and responsiveness to market demand.

Negatives

• Net sales decreased by 19.7% year-over-year to $110.6 million.
• The company reported a net loss of $7.9 million for the quarter.
• Net cash used in operating activities was $34.5 million, reflecting seasonal working capital requirements.
• In-ground pool sales declined due to lower packaged pool demand.

Risks

• Unfavorable economic conditions and their impact on consumer spending could affect future sales.
• Adverse weather conditions can lead to significant variability in sales.
• The company faces competitive risks in the swimming pool market.
• Inflationary impacts could affect consumer demand and the cost of raw materials.
• The company is dependent on information technology systems and faces risks from cyber-security breaches.
• The company has substantial indebtedness which could impact its ability to secure financing.

Future Outlook

Latham reaffirmed its full-year 2024 guidance, projecting net sales between $490 million and $520 million and adjusted EBITDA between $60 million and $70 million. The company is focused on advancing the adoption of fiberglass pools and automatic safety covers, while implementing cost reduction initiatives.

Management Comments

• Scott Rajeski, President and CEO, stated that the first quarter results represented a good start to 2024 and reflected the benefits of strong execution, cost savings, and lean and value engineering initiatives.
• Mr. Rajeski also noted that first quarter adjusted EBITDA outpaced comparable year-ago levels despite lower sales and was considerably above their guidance range for Q1.
• Mr. Rajeski concluded that the company is pleased with its positioning and is looking ahead to the continued ramp to peak pool building season.

Industry Context

The announcement comes during a period of soft pool industry conditions, where Latham is focusing on cost reduction and strategic initiatives to capture market share as demand increases. The company's emphasis on fiberglass pools and automatic safety covers aligns with trends towards more durable and efficient pool solutions.

Comparison to Industry Standards

• Latham's performance is being compared to other companies in the pool and leisure industry, such as Hayward Holdings and Pool Corporation.
• While Latham's sales declined, the improvement in adjusted EBITDA and gross margin suggests effective cost management, which is a key focus for many companies in the current economic climate.
• The company's focus on fiberglass pools is a strategic move to capitalize on a growing segment of the market, similar to how some competitors are focusing on energy-efficient pool equipment.
• Latham's net debt leverage ratio of 2.7 is a key metric that investors will compare to industry benchmarks to assess the company's financial health.

Stakeholder Impact

• Shareholders may view the improved profitability and reaffirmed guidance positively.
• Employees may be affected by cost reduction plans, including potential headcount reductions.
• Customers may benefit from new product launches and improved service levels.
• Suppliers may be impacted by changes in production and cost management initiatives.
• Creditors will be interested in the company's debt reduction and leverage ratio.

Next Steps

• The company will continue to advance the adoption and awareness of fiberglass pools and automatic safety covers.
• Latham will focus on implementing value engineering and lean initiatives to reduce structural costs.
• The company will hold a conference call to discuss the first quarter 2024 financial results.

Key Dates

Keywords

swimming pools, fiberglass pools, EBITDA, net sales, cost savings, financial results, Latham Group, pool industry, debt reduction, gross margin