Latham Group, Inc. Third Quarter Fiscal 2026 Earnings - LATHAM GROUP INC

Explicit Guidance:

• FY2026 Net Sales: Reaffirmed and narrowed to $605–$615 million, representing an 11.7% year-over-year growth at the midpoint.
• FY2026 Adjusted EBITDA: Reaffirmed and narrowed to $112–$118 million, representing a 15.2% year-over-year growth at the midpoint.
• Guidance Rationale: Ranges narrowed to reflect the Q4 impact of the Middle East conflict (higher freight/transportation costs) and commodity pressures; Canadian tariffs and counter-tariffs expected to have an immaterial impact on FY2026 results.
• 2027 Outlook: Planning for a flat year regarding pool starts (no anticipated market rebound), though the company expects to continue growing by taking market share.

Business-Segment Outlook:

• Fiberglass Pools: Expected to gain at least one additional percentage point of total U.S. in-ground pool market share in 2026, reaching 25% of total sales. Management believes organic share gain of 1.5% to 2% was achieved this year, with an expectation of securing at least 1% of market share annually going forward.
• In-Ground Pools: Sales driven almost entirely by fiberglass models, which are on track to account for ~80% of total in-ground pool sales in 2026.
• Sand States (FL, TX, AZ): Sales growth of 21% in Q3 (16.6% YTD). Expecting step-changing company-wide sales over time as Florida expansion accelerates, Texas resources are finalized (hiring complete by year-end), and Arizona expansion begins in January 2027.
• Commercial Organization: Foundation established with new Chief Commercial Officer and leadership additions to drive growth across product lines and geographies; focus on sales process discipline and dealer network optimization.
• Home Builder Channel: Partnership with a national home builder established in Florida (1 unit installed); aiming to participate across move-up to custom home price points (approx. 50% of new Florida homes include pools).
• Product Launches: Three new fiberglass pool models purpose-built for Sand States (rectangular, spacious, built-in bench seating) launching ahead of the 2027 season.
• Water Covers: Sales growing 8.7% in Q3, driven by auto covers (approx. 66% of cover revenue); expecting continued revenue synergies from CoverStar acquisitions.
• Liner Sales: Currently facing headwinds (down 4.9% in Q3 due to difficult YoY comparison) but remains part of a strategy to take share in a K-shaped economy.

Market and Competitive Outlook:

• Market Share: Latham is gaining share within trough market conditions; fiberglass is outperforming concrete/gunite due to durability, installation speed, and lower long-term cost.
• Consumer Behavior: Primary buyers are cash buyers; financing impact is minimal. Anticipate potential upside as financing rates normalize.
• Lead Generation: National leads up 25% YTD; Florida leads up 89%; Texas leads up 115%. Latham remains the number one searched fiberglass brand.
• Competitive Positioning: Only competitor investing with comparable scale in advertising and marketing; leveraging brand recognition to increase builder adoption and consumer conversion.
• International Benchmarking: Cites Australia (70% fiberglass penetration) and Europe (40–50%) as benchmarks for U.S. growth potential as awareness increases.

Macro / Industry Outlook:

• Pool Starts: Expecting a flat year for 2027 pool starts; no significant macro rebound anticipated.
• Cost Environment: Elevated oil prices and commodity costs (resins) persist. Company positioned to fully offset headwinds via freight surcharges (increased) and price increases (announced on liners and auto covers).
• Tariffs: Proactively positioned 2026 seasonal inventory to mitigate Canadian tariffs/counter-tariffs; leveraging U.S. fiberglass manufacturing footprint to replace Canadian supply for 2027 and beyond.
• Inflation: Management confident in full pass-through of inflationary costs (freight, fuel, raw materials) to customers; margin expansion expected to continue if current pricing environments hold.
• Economic Climate: Viewing the market through a "K-shaped" lens; while macro uncertainty exists, demand for pools in high-temperature markets (FL) remains resilient.

Strategic Initiatives:

• Market Development Framework: Executing "direct-to-consumer" strategy in Sand States via community pool events (resulted in 15 additional pools sold in tested neighborhoods); plan to replicate in FL/TX neighborhoods.
• Acquisitions: Pursuing "creative" M&A targets that open new markets or adjacencies; pipeline consists of several medium-sized targets (no single large target currently in focus).
• Capital Allocation: $100 million, three-year stock repurchase program authorized by the Board; priority order: 1) Internal growth investments, 2) M&A, 3) Share buybacks.
• Capacity & Operations: Resolved Q2 manufacturing capacity constraints; Q2/Q3 CapEx included $34 million (first nine months), featuring purchase of four key leased fiberglass facilities; aiming to enter 2027 with higher inventory levels to meet demand.
• Digital Transformation: Investing in a digital transformation program and enhanced path-to-purchase planning tools to be rolled out early next year.

Risks and Headwinds to Outlook:

• Geopolitical: Ongoing Middle East conflict impacting freight/transportation costs;公司已 increasing surcharges to mitigate.
• Commodity/Fuel: Rising oil, gas, diesel, and resin prices; while currently covered by surcharges/pricing, dynamic environment poses ongoing risk.
• Tariffs: Canadian tariffs/counter-tariffs pose long-term exposure risk if supply chain localization is not fully executed.
• Execution Risk: Sand States expansion relies on successful hiring/training of field resources in TX/AZ and scaling the home builder channel; delays could impact growth velocity.
• Market Saturation: Continued reliance on share gain rather than volume growth if macro pool starts remain flat.

Management Tone on the Future:

• Confidence Level: High regarding the ability to outperform a flat market; explicitly stated they are "not waiting for the market to rebound."
• Strategic Conviction: Strong belief in the "step-changing" potential of the Sand States strategy and the superiority of the fiberglass value proposition.
• Operational Focus: Emphasis on "discipline," "sales excellence," and "lean manufacturing" as key drivers for margin expansion.
• Communication Style: Transparent regarding short-term headwinds (tariffs, freight) but optimistic about long-term structural growth and margin expansion.

Miscellaneous:

• Financial Flexibility: Debt refinancing completed in Q3 establishing a $300M term loan (2033) and $75M revolver (2031); net debt leverage ratio at 1.8x (target 2.0x).
• Rating Affirmations: Moody's and S&P affirmed ratings following refinancing.
• One-Time Items: Q3 included a $5M one-time loss on debt extinguishment/modification.