Latham Group, Inc. (SWIM)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 net sales declined 4% YoY to $87.3M, with gross margin expanding 130 bps to 24.6% on lean/value engineering and Coverstar Central benefits; adjusted EBITDA fell to $3.6M (4.2% margin) as SWIM invested in sales/marketing and incurred FX/tax items, driving a GAAP net loss of $29.2M (-$0.25) .
• 2025 guidance calls for 8% sales growth ($535–$565M) and 19% adjusted EBITDA growth ($90–$100M) at midpoints, with capex of $27–$33M focused on Sand States fiberglass expansion and capacity flow improvements—an execution pivot that can be a stock narrative catalyst if traction materializes .
• Strategic positives: fiberglass share gains (75% of in‑ground sales; U.S. fiberglass penetration 24% vs. 23% in 2023), growing autocover adoption/vertical integration (Coverstar Central + two VAR acquisitions), and structural gross margin progress (FY24 +320 bps to 30.2%) .
• Key headwinds: trough U.S. pool starts (management assumes 2025 2024 levels), tariff exposure ($15M materials from impacted countries) mitigated via dual-sourcing, pre-buys, production shifts, and pricing, and FX/tax items that impacted Q4 GAAP earnings .
• Consensus context: S&P Global daily limit prevented retrieval of Street EPS/revenue estimates for Q4; we cannot present beat/miss vs. consensus for this quarter (see “Estimates Context”) [GetEstimates error].

What Went Well and What Went Wrong

• What Went Well

  • Gross margin expanded YoY despite lower volume: Q4 gross margin 24.6% (+130 bps YoY) on lean and Coverstar Central accretion; FY24 gross margin rose to 30.2% (+320 bps YoY) .
  • Fiberglass leadership and share gains: fiberglass was 75% of in‑ground sales in 2024; U.S. fiberglass penetration reached 24% (from 23% in 2023). CEO: “This was a year of substantial achievement... expanding margins despite lower utilization” .
  • Strong liquidity and deleveraging: FY24 operating cash flow $61.3M, year‑end cash $56.4M after ~$65M acquisition and ~$21M debt paydown; net debt leverage 2.8x .

• What Went Wrong

  • Adjusted EBITDA compression in Q4: $3.6M (4.2% margin) vs. $9.9M (10.9%) last year on higher sales/marketing investments and performance-based comp to drive 2025 growth .
  • GAAP headwinds: Q4 net loss of $29.2M included $8.7M non‑recurring non‑cash tax valuation allowance and $4.5M FX loss; YoY swing from Q4’23 net income ~$0.1M .
  • Tariff/macro uncertainties: management flagged flat 2025 pool starts vs. 2024 and tariff exposure ($15M materials) requiring mitigation (dual/tri‑sourcing, production shifts, selective pricing) .

Financial Results

Headline P&L – Quarterly comparison (oldest → newest)

Product mix – Q4 Net Sales by Product Line

FY 2024 summary and KPIs

Context vs estimates

• We attempted to retrieve S&P Global consensus EPS and revenue for Q4 but were unable due to a daily request limit; therefore, we cannot present beat/miss vs. consensus for this quarter (see “Estimates Context”) [GetEstimates error].

Guidance Changes

• Management frames midpoints as +8% net sales and +19% adjusted EBITDA vs FY24 actuals; capex increase of ~$10M YoY to support Sand States fiberglass molds and capacity flow (Zephyrhills/Oklahoma) .

Earnings Call Themes & Trends

Management Commentary

• “This was a year of substantial achievement... we succeeded in expanding margins despite lower utilization, and we made investments that have positioned the Company for sales growth and increased profitability in 2025 and beyond” — CEO Scott Rajeski .
• “We expect to achieve meaningful growth in net sales and adjusted EBITDA, underpinned by accelerating share gains in the sand states and the benefits of the Coverstar Central, New York and Tennessee acquisitions” — CFO Oliver Gloe .
• Longer-term potential: “When new U.S. pool starts return to 78,000 per year, we can achieve revenue of about $750 million and adjusted EBITDA of around $160 million” — CEO Scott Rajeski .

Q&A Highlights

• Dealer tone and demand: management cited “cautiously optimistic” dealers; GOOTSA ads lifted TX leads >40%; Sand States fiberglass mix rose to 17% of fiberglass revenue (from 15%) .
• Tariff exposures & mitigation: ~ $15M material buy exposure; mitigation includes dual/tri‑sourcing, pre‑buying/staging, shifting manufacturing (e.g., Kingston focus on Canada, shift U.S. production), and pricing as a final lever .
• 2025 cadence: Q1 sales roughly flat YoY as Coverstar verticalization shifts early buys; stronger YoY in Q2–Q3 as seasonality and Sand States dividends kick in .
• EBITDA bridge FY24→FY25 midpoint: volume leverage (organic ~5%), continued lean/value engineering ($9M run‑rate with potential acceleration), contributions from Coverstar acquisitions; partially offset by higher SG&A for Sand States/marketing/digital .
• Gross margin path: most of 2025 EBITDA improvement to come from gross margin expansion as they step toward a long‑stated 35% target; tariffs from China included in guidance with mitigation; Canada/Mexico tariffs addressed via similar levers and pricing if needed .

Estimates Context

• We attempted to fetch S&P Global consensus estimates for Q4 2024 (EPS, revenue); request failed due to daily limit. As a result, beat/miss vs consensus cannot be presented in this report. We will incorporate S&P Global consensus in future updates when available [GetEstimates error].

Key Takeaways for Investors

• Structural margin progress is intact: FY24 gross margin +320 bps YoY to 30.2%; Q4 still expanded YoY despite lower volume. This underpins FY25 margin expansion embedded in guidance .
• Execution vector is clear: Sand States conversion (dealers, MPCs, targeted models), verticalized autocovers (Coverstar Central + NY/TN), and AI-enabled measuring (Measure by Latham) collectively support outgrowth vs pool starts .
• 2025 setup: Management plans for trough starts (~flat YoY) but guides +8% sales/+19% adjusted EBITDA at midpoints via share gains and operating leverage; investor focus should be on early Sand States order cadence and Q2–Q3 throughput .
• Risk management: Tariff headwinds (~$15M materials exposure) are being mitigated through supplier diversification, pre‑buys, and production shifts; pricing lever available if needed—watch gross margin trajectory vs. plan .
• Cash/Balance sheet supports growth: FY24 OCF $61.3M; YE cash $56.4M after ~$65M M&A and ~$21M debt paydown; net leverage 2.8x—sufficient flexibility for organic initiatives and tuck‑ins .
• Non‑GAAP vs GAAP: Q4 GAAP loss driven by discrete tax valuation allowance ($8.7M) and FX loss ($4.5M); adjusted EBITDA better reflects operating run‑rate but remains investment‑weighted in Q4 seasonality .
• Monitoring list: Sand States lead-to-order conversion, autocover synergy realization, gross margin step‑ups vs 35% aspiration, tariff flow‑through, and any incremental M&A in autocovers footprint .