10-K: Latham Group's 2023 Performance: Navigating Economic Headwinds with Strategic Adjustments

Latham Group reports a decrease in net sales and adjusted EBITDA for 2023, while implementing cost reduction programs and focusing on fiberglass material conversion.

Summary

• Latham Group experienced a decrease in net sales by 18.6% to $566.5 million in 2023, compared to $695.7 million in 2022.
• The company's net loss decreased to $2.4 million in 2023 from $5.7 million in 2022.
• Adjusted EBITDA decreased by $55.3 million to $88.0 million in 2023, compared to $143.3 million in 2022.
• The decrease in net sales was primarily driven by a reduction in volume, partially offset by price increases.
• Latham implemented cost reduction programs that resulted in $19.5 million of savings in 2023.
• The company is focused on driving material conversion from concrete to fiberglass pools.
• Latham is in the middle of a digital transformation effort to upgrade technology and enterprise resource planning systems.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company is taking steps to improve efficiency and capitalize on market trends, the overall financial results are negative, indicating a challenging year. The sentiment is cautiously pessimistic.

Positives

• The company's net loss decreased by $3.3 million year-over-year.
• Latham is making progress in driving material conversion to fiberglass pools.
• The company is taking a disciplined approach to capital investments.
• Latham has implemented cost reduction programs and lean manufacturing initiatives.
• The company has a strong relationship with its dealer network, averaging over 14 years.

Negatives

• Net sales decreased by $129.2 million year-over-year.
• Adjusted EBITDA decreased by $55.3 million year-over-year.
• The company experienced volume declines in packaged pool products.
• The company is facing macroeconomic challenges impacting consumer spending and demand.
• The company is experiencing inflationary pressures in certain areas of its business.

Risks

• Unfavorable economic conditions and related impact on consumer spending could adversely affect sales.
• Adverse weather conditions could negatively impact sales and cause variability in reporting periods.
• Natural disasters, geopolitical events, and public health issues could disrupt operations.
• The company faces competition from within the industry and from other outdoor living products.
• The company depends on its ability to attract, develop, and retain qualified personnel.
• Inflation could adversely impact the company's financial condition and results of operations.
• The company depends on a global network of third-party suppliers for raw materials.
• The company's ability to collect accounts receivables from customers may impact cash flows.
• The company's ability to keep pace with rapidly evolving technological developments could impact future growth.
• Consolidation among dealers and distributors could lead to downward pressure on prices.
• An interruption of production capability at manufacturing facilities could adversely affect the business.
• Product quality issues, warranty claims, or safety concerns could negatively impact sales.
• Delays in the implementation of the new enterprise resource planning system could adversely affect operations.
• Cybersecurity breaches and data leaks could disrupt operations and expose the company to litigation.
• The company is subject to compliance with various governmental regulations.
• The company depends on third parties for transportation services.
• The company's business operations could suffer if it fails to protect its intellectual property rights.
• The company conducts business internationally, which exposes it to additional risks.
• The company processes, stores, and uses personal information, which subjects it to governmental regulation.
• The company's historical growth has been due to strategic transactions, which could be material to its business.
• Changes in trade policies, including the imposition of tariffs, could negatively impact the business.
• The company's insurance coverage may be inadequate to protect against potential hazards.
• The company's goodwill, other intangible assets, or fixed assets could become impaired.
• The company's substantial indebtedness could adversely affect its financial condition.
• The company's indebtedness is variable rate, subjecting it to interest rate risk.
• The company's stock price has been volatile.
• The company's principal stockholders have significant influence over the company.
• The company's organizational documents and Delaware law may impede or discourage a takeover.
• The company does not anticipate paying quarterly cash dividends.

Future Outlook

The company expects macroeconomic challenges to continue impacting consumer spending and demand in 2024. They will continue to focus on driving material conversion to fiberglass pools and implementing cost reduction programs.

Management Comments

• The company continues to make progress executing its strategy to drive material conversion from concrete to fiberglass swimming pools.
• The company continues to take a disciplined approach to capital investments.
• The company has responded to economic uncertainty by implementing cost reduction programs and lean manufacturing initiatives that structurally reduce our cost basis.

Industry Context

The document highlights a shift in the in-ground swimming pool market, with a growing preference for fiberglass pools over traditional concrete pools. This trend is driven by factors such as lower costs, faster installation, and easier maintenance. Latham is positioning itself to capitalize on this trend through its direct-to-homeowner marketing strategy and strategic partnerships with dealers.

Comparison to Industry Standards

• Latham Group is the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand, holding the #1 position in North America in every product category in which it competes.
• The company's direct-to-homeowner digital and social marketing strategy is a unique approach in an industry that has traditionally marketed from pool manufacturer to dealer.
• Latham's fiberglass pools offer significant cost, installation, and maintenance advantages over traditional concrete pools, which is a key differentiator in the market.
• The company's exclusive supply arrangements with many of its top dealer partners, including Premier Pools & Spas, provide a competitive advantage.
• Latham's manufacturing processes require significant capital investment and expertise, which creates a barrier to entry for new competitors.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net sales and adjusted EBITDA.
• Employees may be affected by the cost reduction programs and workforce reductions.
• Dealers may benefit from the company's lead generation efforts and strategic partnerships.
• Customers may benefit from the company's focus on fiberglass pools and innovative products.

Next Steps

• The company will continue to execute its strategy to drive material conversion from concrete to fiberglass swimming pools.
• The company will continue to take a disciplined approach to capital investments.
• The company will continue to implement cost reduction programs and lean manufacturing initiatives.
• The company will continue to upgrade its technology and enterprise resource planning systems.

Key Dates

Keywords

fiberglass pools, swimming pools, pool liners, pool covers, material conversion, digital marketing, dealer partnerships, cost reduction, manufacturing, in-ground pools