10-Q: Latham Group Reports Strong Q3 Growth, Aligns with Expectations

Latham Group, Inc. announced a significant increase in net sales and profitability for the third fiscal quarter and first three fiscal quarters of 2025, driven by strategic acquisitions and operational efficiencies.

Summary

• Net sales for the fiscal quarter ended September 27, 2025, increased by 7.6% to $161.9 million, up from $150.5 million in the prior year.
• Net income for the fiscal quarter rose by 37.7% to $8.1 million, compared to $5.9 million in the same period last year, with net income margin improving to 5.0% from 3.9%.
• Adjusted EBITDA for the fiscal quarter increased by 28.5% to $38.3 million, up from $29.8 million, with Adjusted EBITDA margin expanding to 23.7% from 19.8%.
• For the three fiscal quarters ended September 27, 2025, net sales grew by 5.9% to $446.0 million, compared to $421.2 million in the prior year.
• Net income for the three fiscal quarters surged by 60.3% to $18.1 million, up from $11.3 million, with net income margin reaching 4.1% from 2.7%.
• Adjusted EBITDA for the three fiscal quarters increased by 16.7% to $89.4 million, from $76.6 million, with Adjusted EBITDA margin improving to 20.0% from 18.2%.
• Growth was primarily driven by category share gains in autocovers, contributions from the August 2024 Coverstar Central acquisition, and two smaller autocover dealer acquisitions in early 2025.
• Liner sales also saw growth, attributed to the success of the 'Measure by Latham' tool.
• The company implemented targeted price increases on certain products to mitigate the potential impact of tariffs.
• Cash at the end of the period was $70.5 million, an increase from $59.9 million in the prior year.

Sentiment

Score: 7

Explanation: The company reported strong financial performance with significant increases in net sales, net income, and Adjusted EBITDA, along with improved margins. Strategic initiatives and acquisitions are contributing positively. While the outlook for new pool starts is cautious (flat to slightly down), the overall tone is positive regarding operational execution and efficiency, aligning with expectations despite challenging market conditions.

Positives

• Net sales increased by 7.6% for the fiscal quarter and 5.9% for the three fiscal quarters, demonstrating continued revenue growth.
• Net income significantly improved by 37.7% for the quarter and 60.3% for the three fiscal quarters, indicating enhanced profitability.
• Adjusted EBITDA saw strong growth of 28.5% for the quarter and 16.7% for the three fiscal quarters, reflecting improved operational performance.
• Gross margin increased by 3.0 percentage points for the quarter (to 35.4%) and 3.2 percentage points for the three fiscal quarters (to 34.6%), driven by acquisitions, lean manufacturing, and production efficiencies.
• Interest expense, net, decreased by 33.7% for the quarter and 2.8% for the three fiscal quarters, partly due to changes in the fair value of interest rate swaps and a decrease in outstanding long-term debt.
• Strategic acquisitions of Coverstar Central and two smaller autocover dealers contributed to sales volume and margin accretion.
• The company is making progress on strategic initiatives like fiberglass pool adoption, automatic safety cover awareness, value engineering, and lean manufacturing.
• Capital expenditure estimates for 2025 have been reduced due to greater-than-expected efficiency of certain projects.

Negatives

• Net cash provided by operating activities decreased to $40.1 million for the three fiscal quarters ended September 27, 2025, from $55.2 million in the prior year, primarily due to a $50.4 million increase in trade receivables.
• New pool starts are projected to be flat to slightly down from 2024 levels, indicating a challenging market environment.
• In-ground swimming pool sales decreased by $3.9 million for the three fiscal quarters ended September 27, 2025, compared to the prior year.
• Income tax expense significantly increased to $7.5 million for the quarter and $8.5 million for the three fiscal quarters, compared to a benefit of less than $0.1 million and an expense of $0.9 million, respectively, in the prior year.

Risks

• The business is seasonal, and weather is a principal external factor affecting net sales and net income.
• Current macroeconomic and geopolitical conditions, as well as general reduced consumer confidence and increased economic uncertainty, could impact future results.
• The company operates in a very competitive and rapidly changing environment, with new risks emerging over time.
• Forward-looking statements involve known and unknown risks, uncertainties, assumptions, and other important factors that may cause actual results to differ materially.
• Past results may not be a reliable indicator of future performance and trends.
• There is no assurance that equity or debt financing will be available when needed or on satisfactory terms, and any such financing could be dilutive to current stockholders.
• The Credit Agreement contains negative covenants that restrict the company's ability to incur additional indebtedness, create liens, make investments, consolidate or merge, enter into transactions with affiliates, make prepayments on certain indebtedness, and make dividend payments or other distributions.

Future Outlook

The company projects 2025 new pool starts to be flat to slightly down from 2024 levels, based on sales for the first three fiscal quarters and current business trends and market conditions. Management is closely monitoring macroeconomic and geopolitical conditions, as well as general reduced consumer confidence and increased economic uncertainty. The company continues to execute its strategy to drive adoption and awareness of fiberglass pools and automatic safety covers, gain operating efficiencies, and invest in product innovation, facility upgrades, and technology, with a reduced capital expenditure estimate for 2025 due to efficiency gains.

Management Comments

• Our current business results reflect a strong third quarter sales growth despite challenging market conditions and our results of operations for the three fiscal quarters ended September 27, 2025 were aligned with our expectations.
• Growth was primarily driven by category share gains in autocovers, along with contributions from the Coverstar Central, LLC acquisition in August 2024 and the early 2025 acquisitions of two of our smaller autocover dealers.
• Liners also saw growth, reflecting success in our Measure by Latham tool.
• Based on sales for three fiscal quarters and current business trends and market conditions, we currently project 2025 new pool starts to be flat to slightly down from 2024 levels.
• We are closely monitoring the potential impact of current macroeconomic and geopolitical conditions, as well as general reduced consumer confidence and increased economic uncertainty.
• 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 continue to take a disciplined approach to capital investments, with the focus on product innovation, facility upgrades and technology and systems.
• Due to greater-than-expected efficiency of certain projects, we have reduced our capital expenditure estimate for 2025.

Industry Context

Latham Group, as the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand, operates in a seasonal and competitive industry. The company's focus on direct-to-homeowner digital marketing and strong dealer partnerships positions it uniquely. Despite challenging market conditions and projected flat to slightly down new pool starts for 2025, Latham's performance indicates resilience and effective strategic execution, particularly in gaining market share in autocovers and leveraging acquisitions for vertical integration and expanded reach. The emphasis on fiberglass pools and automatic safety covers aligns with potential shifts in consumer preferences towards lower maintenance and enhanced safety features.

Comparison to Industry Standards

• The filing does not provide specific comparable company or project data to global benchmarks. However, the company states it 'holds the leading position in North America in every product category in which we compete' and views itself as 'the most sought-after brand in the pool industry and the only pool company that has established a direct relationship with the homeowner.'
• The company's gross margin improvement (35.4% for Q3 2025, 34.6% YTD Q3 2025) and Adjusted EBITDA margin expansion (23.7% for Q3 2025, 20.0% YTD Q3 2025) suggest strong operational efficiency relative to its own past performance, which could indicate a competitive advantage within its market segments.
• The strategic acquisitions of autocover dealers and the focus on fiberglass pools suggest a move towards higher-margin, vertically integrated product lines, potentially outperforming competitors focused solely on traditional vinyl or concrete pools.

Management Changes

Corporate Governance

Legal Proceedings

• No legal proceedings against the company 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 September 27, 2025.

Related Party Transactions

• The company's equity method investment in Premier Pools & Spa generated earnings of $1.3 million for the fiscal quarter and $2.8 million for the three fiscal quarters ended September 27, 2025. Distributions received from this investment were $1.8 million for the three fiscal quarters ended September 27, 2025.

Stakeholder Impact

• Shareholders: Positive financial results (increased net income, Adjusted EBITDA, margins) and strategic growth initiatives could positively impact shareholder value. The expiration of the share repurchase program means no immediate buybacks, but potential future debt or equity issuance could affect ownership structure.
• Employees: The Officer Severance Program provides defined benefits for eligible officers in certain termination scenarios, offering clarity and security. Stock-based compensation remains a key element of the overall compensation package.
• Customers: Continued investment in product innovation, facility upgrades, and digital transformation aims to enhance product offerings and service levels. Acquisitions of autocover dealers expand product availability and dealer relationships.
• Creditors: The company is in compliance with all covenants under its Credit Agreement, indicating sound financial management and ability to meet debt obligations. Decreased interest expense and long-term debt balance are favorable.
• Suppliers: Lean manufacturing and value engineering initiatives, along with efforts to manage inventory, could influence relationships and demand patterns with suppliers.

Next Steps

• Continue executing the strategy to drive adoption and awareness of fiberglass pools and automatic safety covers.
• Further implement value engineering and lean manufacturing initiatives to gain additional operating efficiencies.
• Maintain a disciplined approach to capital investments, focusing on product innovation, facility upgrades, and technology and systems.
• Continue investment in sales, marketing, engineering, and research and development efforts to accelerate conversion to fiberglass pool products and ongoing digital transformation programs.
• Monitor macroeconomic and geopolitical conditions, consumer confidence, and economic uncertainty.
• Evaluate potential impact of new accounting pronouncements (ASU 2023-09, ASU 2024-03, ASU 2025-05) on future financial statements.

Key Dates

Recommendation

Latham Group's Q3 2025 results demonstrate solid financial performance, with significant growth in net sales, net income, and Adjusted EBITDA, coupled with improved margins. Strategic acquisitions and operational efficiencies are clearly contributing to these positive trends. However, the forward-looking statement projecting flat to slightly down new pool starts for 2025, along with ongoing macroeconomic uncertainties, suggests potential headwinds. While the company is executing well on its strategy, the broader market conditions for new pool construction remain challenging. The stock has shown resilience, but the cautious outlook warrants a 'hold' recommendation, advising investors to monitor the impact of market conditions on future pool starts and the continued effectiveness of the company's strategic initiatives before making further investment decisions.

Keywords

Swimming Pools, Pool Covers, Pool Liners, Fiberglass Pools, Automatic Safety Covers, Residential Pools, Manufacturing, Distribution, SEC Filing, Financial Results, Adjusted EBITDA, Acquisitions, Lean Manufacturing, Value Engineering