Latham Group Inc.
11/05/2025 | Press release | Distributed by Public on 11/05/2025 06:31
Quarterly Report for Quarter Ending September 27, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our 2024 Annual Report on Form 10-K filed with the Securities and Exchange Commission, ("SEC") on March 5, 2025 (the "Annual Report").
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this report other than statements of historical fact may constitute forward-looking statements, including statements regarding our future operating results and financial position, our business strategy and plans, business and market trends, our objectives for future operations, macroeconomic and geopolitical conditions, changes in U.S. trade priorities, policies, regulations and tariffs, the implementation of our cost reduction plans and expected benefits, and the sufficiency of our cash balances, working capital and cash generated from operating, investing, and financing activities for our future liquidity and capital resource needs. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms "anticipate," "believe," "confident," "continue," "could," "estimate," "expect," "intend," "likely," "may," "plan," "possible," "potential," "predict," "project," "should," "target," "will," "would" and, in each case, their negative or other various or comparable terminology. These statements involve known and unknown risks, uncertainties, assumptions and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including those set forth under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in the Annual Report and as described in other subsequent reports we file or furnish with the SEC, including elsewhere in this Quarterly Report on Form 10-Q. For similar reasons, our past results may not be a reliable indicator of future performance and trends. We encourage you to read this report and our other filings with the SEC carefully. You also should be aware that these risk factors and other information do not describe every risk that we face. New emerging risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business, financial condition, results of operations and cash flows. We operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. Although we believe that the expectations reflected in the forward-looking statements are reasonable and our expectations based on third-party information and projections are from sources that management believes to be reputable, we cannot guarantee future results, levels of activities, performance, or achievements.
These forward-looking statements reflect our views with respect to future events as of the date of this Quarterly Report on Form 10-Q or the date specified herein, and we have based these forward-looking statements on our current expectations and projections about future events and trends. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. Our forward-looking statements further do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures, or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.
Overview
We are the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand. We hold the leading position in North America in every product category in which we compete. It is our view that we are the most sought-after brand in the pool industry and the only pool company that has established a direct relationship with the homeowner. We are Latham, The Pool Company.
With an operating history that spans over 65 years, we offer the industry's broadest portfolio of pools and related products, including in-ground swimming pools, pool covers, and pool liners.
We have a heritage of innovation. In an industry that has traditionally marketed on a business-to-business basis (pool manufacturer to dealer), we pioneered the first "direct-to-homeowner" digital and social marketing strategy that has transformed the homeowner's purchase journey. Through this marketing strategy, we are able to create demand for our pools and provide high quality, purchase-ready consumer leads to our dealer partners.
Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. We support our dealer network with business development tools and co-branded marketing programs.
The full resources of our Company are dedicated to designing and manufacturing high-quality pool products, with the homeowner in mind, and positioning ourselves as a value-added partner to our dealers.
We conduct our business as one operating and reportable segment that designs, manufactures, and markets in-ground swimming pools, pool covers, and pool liners.
Our operations consist of approximately 1,850 employees across about 30 locations. The broad geographic reach of our national manufacturing and distribution network allows us to service our customers on short lead times and to deliver our products in a cost-effective manner. Our mission is to design and manufacture high-quality pool products, with the homeowner in mind, and to be a value-added partner to our dealers.
Recent Developments
Highlights for the fiscal quarter ended September 27, 2025
| ● | Increase in net sales of 7.6%, or $11.4 million, to $161.9 million for the fiscal quarter ended September 27, 2025, compared to $150.5 million for the fiscal quarter ended September 28, 2024. |
| ● | Increase in net income of $2.2 million to a net income of $8.1 million and representing a 5.0% net income margin for the fiscal quarter ended September 27, 2025, compared to net income of $5.9 million and representing a 3.9% net income margin for the fiscal quarter ended September 28, 2024. |
| ● | Increase in Adjusted EBITDA (as defined below) of $8.5 million to $38.3 million for the fiscal quarter ended September 27, 2025, compared to $29.8 million for the fiscal quarter ended September 28, 2024. Adjusted EBITDA margin increased from 19.8% to 23.7%. |
Highlights for the three fiscal quarters ended September 27, 2025
| ● | Increase in net sales of 5.9%, or $24.8 million, to $446.0 million for the three fiscal quarters ended September 27, 2025, compared to $421.2 million for the three fiscal quarters ended September 28, 2024. |
| ● | Increase in net income of $6.8 million to a net income of $18.1 million and representing a 4.1% net income margin for the three fiscal quarters ended September 27, 2025, compared to net income of $11.3 million and representing a 2.7% net income margin for the three fiscal quarters ended September 28, 2024. |
| ● | Increase in Adjusted EBITDA of $12.8 million to $89.4 million for the three fiscal quarters ended September 27, 2025, compared to $76.6 million for the three fiscal quarters ended September 28, 2024. Adjusted EBITDA margin improved from 18.2% to 20.0%. |
Business Update
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. These results were primarily driven by category share gains in autocovers, along with contributions from the Coverstar Central, LLC ("Coverstar Central") 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. Additionally, we recently implemented targeted price increases on certain products to help further mitigate the potential impact of tariffs.
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. These initiatives complement continued investment in our sales, marketing, engineering and research and development efforts that are designed to accelerate conversion to fiberglass pool products and ongoing digital transformation programs.
Strategic Acquisition
Strategic transactions continue to be part of our growth strategy. On August 2, 2024, we completed a stock acquisition of Coverstar Central, our exclusive dealer of automatic safety covers in 29 states - mainly in the center of the U.S. Coverstar Central has been our trusted partner since 2006, and this acquisition represented a valuable strategic opportunity that we benefited from in multiple ways. First, the vertical integration of our automatic safety cover product line in the acquired geographies increased margins. Second, as one company with a fully integrated sales and marketing strategy, we were able to accelerate the sales growth of this product line. Finally, we leveraged Coverstar Central's long-standing relationships with pool builders in its markets to increase the awareness of, and conversion to, fiberglass pools. During the three fiscal quarters ended September 27, 2025, we further strengthened our position in this growing category by acquiring two of our smaller autocover dealers located in Tennessee and New York.
Key Performance Indicators
Net Sales
We derive our revenue from the design, manufacture, and sale of in-ground swimming pools, pool covers, and pool liners. We sell fiberglass pools, which are one-piece manufactured fiberglass pools that are ready to be installed in a consumer's backyard, and custom vinyl pools, which are manufactured pools that are made out of non-corrosive steel, or composite polymer frame, on top of which a vinyl liner is installed. We sell liners for the interior surface of vinyl pools (including pools that were not manufactured by us). We also sell all-season covers, which are winterizing mesh or solid pool covers that protect pools against debris and cold or inclement weather, and automatic safety covers for pools that can be operated with a switch.
Our sales are made through one-step and two-step business-to-business distribution channels. In our one-step distribution channel, we sell our products directly to dealers who, in turn, sell our products to consumers. In our two-step distribution channel, we sell our products to distributors who warehouse our products and sell them on to dealers, who ultimately sell our products to consumers.
Each product shipped is considered to be one performance obligation. With the exception of our extended service warranties and our custom product contracts, we recognize our revenue when control of our promised goods is transferred to our customers (dealer in one-step distribution channel or distributor in two-step distribution channel), either upon shipment or arrival at our customer's destination depending upon the terms of the purchase order. Sales are recognized net of any estimated rebates, returns, allowances, cash discounts, or other sales incentives. Revenue that is derived from our extended service warranties, which are separately priced and sold, is recognized over the term of the contracts. Revenue from custom products is recognized over time utilizing an input
method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation.
Gross Margin
Gross margin is gross profit as a percentage of our net sales. Gross margin depends upon several factors, such as the prices we charge buyers, changes in prices of raw materials, the volume and relative sales mix among product lines, and plant performance, among other factors. Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary.
Our gross profit is variable in nature and generally follows changes in net sales. The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of other companies. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management and our Board of Directors of the Company (the "Board") to assess our financial performance. Adjusted EBITDA and Adjusted EBITDA margin are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to utilize as a significant performance metric in our annual management incentive bonus plan compensation, and to compare our performance against that of other companies using similar measures. We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures because we believe they allow for a more complete analysis of results of operations and assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax expense (benefit), (iv) (gain) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized losses (gains) on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs and (x) other.
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and should not be considered as alternatives to net income (loss) as a measure of financial performance or any other performance measure derived in accordance with GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. There can be no assurance that we will not modify the presentation of Adjusted EBITDA and Adjusted EBITDA margin in the future, and any such modification may be material. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by any such adjustments. In addition, other companies, including companies in our industry, may not calculate Adjusted EBITDA and Adjusted EBITDA margin at all or may calculate Adjusted EBITDA and Adjusted EBITDA margin differently and accordingly, are not necessarily comparable to similarly entitled measures of other companies, which reduces the usefulness of Adjusted EBITDA and Adjusted EBITDA margin as tools for comparison.
We believe Adjusted EBITDA and Adjusted EBITDA margin are useful measurements for investors as they help identify underlying trends that could otherwise be masked by certain expenses that we do not consider indicative of our ongoing operating performance. We also use Adjusted EBITDA and Adjusted EBITDA margin for planning purposes, assessing our financial performance, and other strategic decisions. For a discussion of Adjusted EBITDA and Adjusted EBITDA margin and the limitations on their use, and the reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, and our calculation of Adjusted EBITDA margin see "- Non-GAAP Financial Measures" below.
Results of Operations
Fiscal Quarter Ended September 27, 2025 Compared to Fiscal Quarter Ended September 28, 2024
The following table summarizes our results of operations for the fiscal quarter ended September 27, 2025 and September 28, 2024 (dollars in thousands):
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Fiscal Quarter Ended |
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% of Net |
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% of Net |
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Change |
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Change in % |
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September 27, 2025 |
Sales |
September 28, 2024 |
Sales |
Amount |
of Net Sales |
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(dollars in thousands) |
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Net sales |
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$ |
161,903 |
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100.0 |
% |
$ |
150,496 |
|
100.0 |
% |
$ |
11,407 |
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0.0 |
% |
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Cost of sales |
|
104,596 |
64.6 |
% |
101,807 |
67.6 |
% |
2,789 |
(3.0) |
% |
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Gross profit |
|
57,307 |
35.4 |
% |
48,689 |
32.4 |
% |
8,618 |
3.0 |
% |
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Selling, general, and administrative expense |
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28,586 |
17.6 |
% |
28,336 |
18.8 |
% |
250 |
(1.2) |
% |
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Amortization |
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7,213 |
4.5 |
% |
6,982 |
4.7 |
% |
231 |
(0.2) |
% |
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Income from operations |
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21,508 |
13.3 |
% |
13,371 |
8.9 |
% |
8,137 |
4.4 |
% |
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Other expense (income): |
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Interest expense, net |
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6,067 |
3.7 |
% |
9,155 |
6.1 |
% |
(3,088) |
(2.4) |
% |
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Other expense (income), net |
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1,168 |
0.8 |
% |
(693) |
(0.5) |
% |
1,861 |
1.3 |
% |
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Total other expense, net |
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7,235 |
4.5 |
% |
8,462 |
5.6 |
% |
(1,227) |
(1.1) |
% |
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Earnings from equity method investment |
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1,310 |
0.8 |
% |
944 |
0.6 |
% |
366 |
0.2 |
% |
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Income before income taxes |
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15,583 |
9.6 |
% |
5,853 |
3.9 |
% |
9,730 |
5.7 |
% |
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Income tax expense (benefit) |
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7,466 |
4.6 |
% |
(43) |
- |
% |
7,509 |
4.6 |
% |
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Net income |
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$ |
8,117 |
5.0 |
% |
$ |
5,896 |
3.9 |
% |
$ |
2,221 |
1.1 |
% |
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Adjusted EBITDA(a) |
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$ |
38,328 |
23.7 |
% |
$ |
29,829 |
19.8 |
% |
$ |
8,499 |
3.9 |
% |
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________________________________________
(a)Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Financial Measures" for a reconciliation to net income, the most directly comparable GAAP measure, and for information regarding our use of Adjusted EBITDA.
Net Sales
Net sales were $161.9 million for the fiscal quarter ended September 27, 2025, compared to $150.5 million for the fiscal quarter ended September 28, 2024. The $11.4 million, or 7.6%, increase in net sales was due to a $8.4 million increase in sales volume and a $3.0 million increase from higher pricing. The sales volume increase was primarily driven by organic- and acquisition-related growth. The increase in net sales of $11.4 million across our product lines consisted of an increase of $7.1 million for covers, $3.7 million for liners and a $0.6 million increase for in-ground swimming pools.
Cost of Sales and Gross Margin
Cost of sales was $104.6 million for the fiscal quarter ended September 27, 2025, compared to $101.8 million for the fiscal quarter ended September 28, 2024. Gross margin increased by 3.0%, to 35.4% of net sales for the fiscal quarter ended September 27, 2025, compared to 32.4% of net sales for the fiscal quarter ended September 28, 2024. The $2.8 million, or 2.7%, increase in cost of sales was primarily the result of the increase in sales volume, partially offset by the impact of production efficiencies resulting from lean manufacturing and value engineering programs. The 3.0% increase in gross margin was primarily driven by the accretive benefit of the three Coverstar acquisitions, lean manufacturing and value engineering initiatives and production efficiencies.
Selling, General, and Administrative Expense
Selling, general, and administrative expense was $28.6 million for the fiscal quarter ended September 27, 2025, compared to $28.3 million for the fiscal quarter ended September 28, 2024. The $0.3 million, or 0.9%, increase in selling, general, and administrative expense was primarily driven by increased marketing and personnel investment tied to our Sand States strategy and
investments in new enterprise resource planning ("ERP") infrastructure, partially offset by the timing of performance based compensation.
Amortization
Amortization was $7.2 million for the fiscal quarter ended September 27, 2025, compared to $7.0 million for the fiscal quarter ended September 28, 2024. The $0.2 million, or 3.3%, increase in amortization was driven by the three Coverstar acquisitions.
Interest Expense, net
Interest expense, net was $6.1 million for the fiscal quarter ended September 27, 2025, compared to $9.2 million for the fiscal quarter ended September 28, 2024. The $3.1 million, or 33.7%, decrease in interest expense, net was primarily the result of the change in the fair value of our interest rate swap, compared to the fiscal quarter ended September 28, 2024.
Other Expense (Income), Net
Other expense, net was $1.2 million for the fiscal quarter ended September 27, 2025, compared to other income, net of $ (0.7) million for fiscal quarter ended September 28, 2024. The $1.9 million increase in other expense, net was primarily driven by an unfavorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.
Earnings from Equity Method Investment
Earnings from our equity method investment in Premier Pools & Spa were $1.3 million for the fiscal quarter ended September 27, 2025, compared to $0.9 million for the fiscal quarter ended September 28, 2024, due to the financial performance of Premier Pools & Spa.
Income Tax Expense (Benefit)
Income tax expense was $7.5 million for the fiscal quarter ended September 27, 2025, compared to income tax benefit of less than $0.1 million for the fiscal quarter ended September 28, 2024. Our effective tax rate was 47.9% for the fiscal quarter ended September 27, 2025, compared to (0.7)% for the fiscal quarter ended September 28, 2024. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for both the fiscal quarters ended September 27, 2025 and September 28, 2024 was primarily attributable to the discrete impact of stock-based compensation expense for which there is no associated tax benefit and the effects of branch accounting for Latham Canada.
Net Income
Net income was $8.1 million for the fiscal quarter ended September 27, 2025, compared to $5.9 million for the fiscal quarter ended September 28, 2024. The $2.2 million, or 37.7%, increase in net income was primarily because of the factors described above.
Net Income Margin
Net income margin was 5.0% for the fiscal quarter ended September 27, 2025, compared to 3.9% for the fiscal quarter ended September 28, 2024. The 1.1% increase in net income margin was driven by the factors described above.
Adjusted EBITDA
Adjusted EBITDA was $38.3 million for the fiscal quarter ended September 27, 2025, compared to $29.8 million for the fiscal quarter ended September 28, 2024. The $8.5 million, or 28.5%, increase in Adjusted EBITDA was primarily because of the gross profit growth from increase in net sales, as well as the other factors described above.
Adjusted EBITDA Margin
Adjusted EBITDA margin was 23.7% for the fiscal quarter ended September 27, 2025, compared to 19.8% for the fiscal quarter ended September 28, 2024. The 3.9% increase in Adjusted EBITDA margin was primarily because of a $8.5 million increase in Adjusted EBITDA, compared to the fiscal quarter ended September 28, 2024, which was impacted by the factors described above.
Three Fiscal Quarters Ended September 27, 2025 Compared to Three Fiscal Quarters Ended September 28, 2024
The following table summarizes our results of operations for the three fiscal quarters ended September 27, 2025 and September 28, 2024:
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Three Fiscal Quarters Ended |
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% of Net |
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% of Net |
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Change |
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Change in % |
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September 27, 2025 |
Sales |
September 28, 2024 |
Sales |
Amount |
of Net Sales |
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(dollars in thousands) |
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Net sales |
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$ |
445,962 |
100.0 |
% |
$ |
421,247 |
100.0 |
% |
$ |
24,715 |
0.0 |
% |
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Cost of sales |
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291,811 |
65.4 |
% |
288,948 |
68.6 |
% |
2,863 |
(3.2) |
% |
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Gross profit |
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154,151 |
34.6 |
% |
132,299 |
31.4 |
% |
21,852 |
3.2 |
% |
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Selling, general, and administrative expense |
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91,146 |
20.4 |
% |
81,174 |
19.3 |
% |
9,972 |
1.1 |
% |
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Amortization |
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21,704 |
4.9 |
% |
19,822 |
4.7 |
% |
1,882 |
0.2 |
% |
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Income from operations |
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41,301 |
9.3 |
% |
31,303 |
7.4 |
% |
9,998 |
1.9 |
% |
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Other expense (income): |
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Interest expense, net |
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19,587 |
4.4 |
% |
20,150 |
4.8 |
% |
(563) |
(0.4) |
% |
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Other (income) expense, net |
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(2,187) |
(0.5) |
% |
1,697 |
0.4 |
% |
(3,884) |
(0.9) |
% |
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Total other expense, net |
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17,400 |
3.9 |
% |
21,847 |
5.2 |
% |
(4,447) |
(1.3) |
% |
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Earnings from equity method investment |
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2,751 |
0.6 |
% |
2,785 |
0.7 |
% |
(34) |
(0.1) |
% |
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Income before income taxes |
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26,652 |
6.0 |
% |
12,241 |
2.9 |
% |
14,411 |
3.1 |
% |
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Income tax expense |
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8,517 |
1.9 |
% |
931 |
0.2 |
% |
7,586 |
1.7 |
% |
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Net income |
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$ |
18,135 |
4.1 |
% |
$ |
11,310 |
2.7 |
% |
$ |
6,825 |
1.4 |
% |
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Adjusted EBITDA(a) |
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$ |
89,354 |
20.0 |
% |
$ |
76,598 |
18.2 |
% |
$ |
12,756 |
1.8 |
% |
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(a)Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Financial Measures" for a reconciliation to net income, the most directly comparable GAAP measure, and for information regarding our use of Adjusted EBITDA.
Net Sales
Net sales were $446.0 million for the three fiscal quarters ended September 27, 2025, compared to $421.2 million for the three fiscal quarters ended September 28, 2024. The $24.8 million, or 5.9%, increase in net sales was due to a $22.8 million increase in sales volume and a $2.0 million increase from higher pricing. The sales volume increase was primarily driven by both organic- and acquisition-related growth. The increase in net sales across our product lines consisted of an increase of $23.6 million for covers and $5.0 million for liners, partially offset by a decrease of $3.9 million for in-ground swimming pools.
Cost of Sales and Gross Margin
Cost of sales was $291.8 million for the three fiscal quarters ended September 27, 2025, compared to $288.9 million for the three fiscal quarters ended September 28, 2024. Gross margin increased by 3.2%, to 34.6% of net sales for the three fiscal quarters ended September 27, 2025, compared to 31.4% of net sales for the three fiscal quarters ended September 28, 2024. The $2.9 million increase in cost of sales was primarily the result of the increase in sales volume, partially offset by the impact of production efficiencies resulting from lean manufacturing and value engineering programs. The 3.2% increase in gross margin was primarily driven by higher volumes, lean manufacturing and value engineering initiatives, and a margin benefit from the three Coverstar acquisitions.
Selling, General, and Administrative Expense
Selling, general, and administrative expense was $91.1 million for the three fiscal quarters ended September 27, 2025, compared to $81.2 million for the three fiscal quarters ended September 28, 2024. The $9.9 million, or 12.3%, increase in selling, general, and administrative expense was primarily driven by increased marketing and personnel investment tied to our Sand State strategy, investments in new ERP infrastructure and the inclusion of Coverstar Central.
Amortization
Amortization was $21.7 million for the three fiscal quarters ended September 27, 2025, compared to $19.8 million for the three fiscal quarters ended September 28, 2024. The $1.9 million, or 9.5%, increase in amortization was driven by the three Coverstar acquisitions.
Interest Expense, net
Interest expense, net was $19.6 million for the three fiscal quarters ended September 27, 2025, compared to $20.2 million for the three fiscal quarters ended September 28, 2024. The $0.6 million, or 2.8%, decrease in interest expense, net was the result of the change in the fair value of our interest rate swap and a decrease in the outstanding balance of long-term debt, compared to the three fiscal quarters ended September 28, 2024.
Other (Income) Expense, Net
Other income, net was $2.2 million for the three fiscal quarters ended September 27, 2025, compared to other expense, net of $1.7 million for the three fiscal quarters ended September 28, 2024. The $3.9 million increase in other income, net was primarily driven by a favorable change in net foreign currency transaction gains and losses associated with our international subsidiaries.
Earnings from Equity Method Investment
Earnings from our equity method investment in Premier Pools & Spa were $2.8 million for the three fiscal quarters ended September 27, 2025, largely unchanged from the three fiscal quarters ended September 28, 2024, due to the financial performance of Premier Pools & Spa.
Income Tax Expense
Income tax expense was $8.5 million for the three fiscal quarters ended September 27, 2025, compared to income tax expense of $0.9 million for the three fiscal quarters ended September 28, 2024. Our effective tax rate was 32.0% for the three fiscal quarters ended September 27, 2025, compared to 7.6% for the three fiscal quarters ended September 28, 2024. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for both the three fiscal quarters ended September 27, 2025 and September 28, 2024 was primarily attributable to the discrete impact of stock-based compensation expense for which there is no associated tax benefit and the effects of branch accounting for Latham Canada.
Net Income
Net income was $18.1 million for the three fiscal quarters ended September 27, 2025, compared to $11.3 million for the three fiscal quarters ended September 28, 2024. The $6.8 million, or 60.3%, increase in net income was primarily because of the factors described above.
Net Income Margin
Net income margin was 4.1% for the three fiscal quarters ended September 27, 2025, compared to 2.7% for the three fiscal quarters ended September 28, 2024. The 1.4% increase in net income margin was driven by a $6.8 million increase in net income, compared to the three fiscal quarters ended September 28, 2024 because of the factors described above.
Adjusted EBITDA
Adjusted EBITDA was $89.4 million for the three fiscal quarters ended September 27, 2025, compared to $76.6 million for the three fiscal quarters ended September 28, 2024. The $12.8 million, or 16.7%, increase in Adjusted EBITDA was primarily because of the increase in net sales that more than offset higher selling, general and administrative expense, as well as the other factors described above.
Adjusted EBITDA Margin
Adjusted EBITDA margin was 20.0% for the three fiscal quarters ended September 27, 2025, compared to 18.2% for the three fiscal quarters ended September 28, 2024. The 1.8% increase in Adjusted EBITDA margin was primarily because of the $12.8 million increase in Adjusted EBITDA, compared to the three fiscal quarters ended September 28, 2024, which was impacted by the other factors described above.
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management and our Board to assess our financial performance. Adjusted EBITDA and Adjusted EBITDA margin are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to utilize as a significant performance metric in our annual management incentive bonus plan compensation, and to compare our performance against that of other companies using similar measures. We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures because we believe they allow for a more complete analysis of results of operations and assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as (i) depreciation and amortization, (ii) interest expense, net, (iii) income tax expense (benefit), (iv) (gain) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized losses (gains) on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs and (x) other.
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and should not be considered as alternatives to net income (loss) as a measure of financial performance or any other performance measure derived in accordance with GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. There can be no assurance that we will not modify the presentation of Adjusted EBITDA and Adjusted EBITDA margin in the future, and any such modification may be material. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by any such adjustments. In addition, other companies, including companies in our industry, may not calculate Adjusted EBITDA and Adjusted EBITDA margin at all or may calculate Adjusted EBITDA and Adjusted EBITDA margin differently and accordingly, are not necessarily comparable to similarly entitled measures of other companies, which reduces the usefulness of Adjusted EBITDA and Adjusted EBITDA margin as tools for comparison.
Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA and Adjusted EBITDA margin:
| ● | do not reflect every expenditure, future requirements for capital expenditures or contractual commitments; |
| ● | do not reflect changes in our working capital needs; |
| ● | do not reflect the interest expense, or the amounts necessary to service interest or principal payments, on our outstanding debt; |
| ● | do not reflect income tax expense (benefit), and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate; |
| ● | do not reflect non-cash stock-based compensation, which will remain a key element of our overall compensation package; and |
| ● | do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations. |
Although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA and Adjusted EBITDA margin, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA margin do not reflect any costs of such replacements.
Management compensates for these limitations by primarily relying on our GAAP results, while using Adjusted EBITDA and Adjusted EBITDA margin as supplements to the corresponding GAAP financial measures.
The following table provides a reconciliation of our net income to Adjusted EBITDA for the periods presented and the calculation of Adjusted EBITDA margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended |
|
Three Fiscal Quarters Ended |
|
||||||||
|
|
September 27, 2025 |
September 28, 2024 |
September 27, 2025 |
September 28, 2024 |
|
|||||||
|
|
(dollars in thousands) |
|
||||||||||
|
Net income |
$ |
8,117 |
|
$ |
5,896 |
|
$ |
18,135 |
|
$ |
11,310 |
|
|
Depreciation and amortization |
|
12,881 |
|
|
11,323 |
|
|
37,978 |
|
|
32,291 |
|
|
Interest expense, net |
|
6,067 |
|
|
9,155 |
|
|
19,587 |
|
|
20,150 |
|
|
Income tax expense (benefit) |
|
7,466 |
|
|
(43) |
|
|
8,517 |
|
|
931 |
|
|
(Gain) loss on sale and disposal of property and equipment |
|
(26) |
|
|
41 |
|
|
20 |
|
|
118 |
|
|
Restructuring charges(a) |
|
- |
|
|
132 |
|
|
160 |
|
|
497 |
|
|
Stock-based compensation expense(b) |
|
1,980 |
|
|
1,844 |
|
|
5,332 |
|
|
5,187 |
|
|
Unrealized losses (gains) on foreign currency transactions(c) |
|
1,181 |
|
|
(722) |
|
|
(2,878) |
|
|
1,668 |
|
|
Strategic initiative costs(d) |
|
684 |
|
|
706 |
|
|
2,246 |
|
|
2,680 |
|
|
Acquisition and integration related costs(e) |
|
7 |
|
|
1,930 |
|
|
289 |
|
|
2,305 |
|
|
Other(f) |
|
(29) |
|
|
(433) |
|
|
(32) |
|
|
(539) |
|
|
Adjusted EBITDA |
$ |
38,328 |
|
$ |
29,829 |
|
$ |
89,354 |
|
$ |
76,598 |
|
|
Net sales |
$ |
161,903 |
|
$ |
150,496 |
|
$ |
445,962 |
|
$ |
421,247 |
|
|
Net income margin |
5.0 |
% |
3.9 |
% |
4.1 |
% |
2.7 |
% |
||||
|
Adjusted EBITDA margin |
23.7 |
% |
19.8 |
% |
20.0 |
% |
18.2 |
% |
||||
(a) Represents costs that include severance and other expenses for our executive management changes.
(b) Represents non-cash stock-based compensation expense.
(c) Represents unrealized foreign currency transaction losses (gains) associated with our international subsidiaries.
(d) Represents fees paid to external consultants and other expenses for our strategic initiatives.
(e) Represents acquisition and integration costs as well as other costs related to potential transactions.
(f) Other costs consist of other discrete items as determined by management, primarily including (i) fees paid to external advisors for various matters and (ii) other items.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are existing cash on hand, net cash provided by operating activities and availability under our Revolving Credit Facility (as defined below). Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, and debt service requirements with internally generated cash on hand, borrowings under our credit facilities, and the issuance of shares of our common stock. Our primary cash needs are to fund working capital, capital expenditures, debt service requirements, any acquisitions, or investments we may undertake, and any share repurchases we may make. As of September 27, 2025, we had $70.5 million of cash, $281.1 million of outstanding indebtedness and an additional $75.0 million of borrowing availability under our Revolving Credit Facility.
Our primary working capital requirements are for the purchase of inventory, payroll, rent, facility costs and other selling, general, and administrative costs. Our working capital requirements fluctuate during the fiscal year, driven primarily by seasonality and the timing of raw material purchases. Our capital expenditures are primarily related to investments in lean manufacturing and value engineering, including production capacity, diversifying our product offerings, storage, and delivery equipment. We are in the midst of a multi-year capital plan to invest in our facilities, technology, and systems.
We believe that our existing cash, cash generated from operations and availability under our Revolving Credit Facility will be adequate to fund our operating expenses and capital expenditure requirements over the next 12 months, as well as our longer-term liquidity needs. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We may issue debt or equity securities, which may provide an additional source of liquidity. However, there can be no assurance equity or debt financing will be available to us when we need it or, if available, the terms will be satisfactory to us and not dilutive to our then-current stockholders.
Our Indebtedness
On February 23, 2022, Latham Pool Products, Inc. ("Latham Pool Products"), our wholly owned subsidiary, and certain subsidiary guarantors entered into a credit and guaranty agreement (the "Credit Agreement") with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit in an initial principal amount of $75.0 million (the "Revolving Credit Facility") and a U.S. Dollar senior secured term loan (the "Term Loan") in an initial principal amount of $325.0 million.
The obligations under the Credit Agreement are guaranteed by certain of our wholly owned subsidiaries as defined in the security agreement. The obligations under the Credit Agreement are secured by substantially all of the guarantors' tangible and intangible assets, including, but not limited to, their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts.
We are required to meet certain financial covenants, including maintain specific liquidity measurements. There are also negative covenants, including certain restrictions on our ability and the ability of our subsidiaries to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates, make prepayments with respect to certain indebtedness, make dividend payments, loans, or advances to us, declare dividends and make restricted payments and other distributions.
As of September 27, 2025, we were in compliance with all covenants under the Credit Agreement.
Revolving Credit Facility
The Revolving Credit Facility may be utilized to finance ongoing general corporate and working capital needs and permits Latham Pool Products to borrow loans in U.S. Dollars, Canadian Dollars, Euros and Australian Dollars. The Revolving Credit Facility matures on February 23, 2027. Loans outstanding under the Revolving Credit Facility denominated in U.S. Dollars and Canadian Dollars bear interest, at the borrower's option, at a rate per annum based on Term SOFR or CDO (each, as defined in the Credit Agreement), as applicable, plus a margin of 3.50%, or at a rate per annum based on the Base Rate or the Canadian Prime Rate (each, as defined in the Credit Agreement), plus a margin of 2.50%. Loans outstanding under the Revolving Credit Facility denominated in Euros or Australian Dollars bear interest based on EURIBOR or the AUD Rate (each, as defined in the Credit Agreement), respectively, plus a margin of 3.50%. A commitment fee accrues on any unused portion of the commitments under the Revolving
Credit Facility. The commitment fee is due and payable quarterly in arrears, and initially was 0.375% per annum and thereafter accrues at a rate per annum ranging from 0.25% to 0.50%, depending on the First Lien Net Leverage Ratio (as defined in the Credit Agreement). Borrowings under the Revolving Credit Facility are not subject to amortization and are due at maturity.
During the three fiscal quarters ended September 27, 2025, we repaid the $25.0 million of outstanding borrowings on the Revolving Credit Facility. As of September 27, 2025, we had no outstanding borrowings under the Revolving Credit Facility and $75.0 million was available for future borrowing.
Term Loan
The Term Loan matures on February 23, 2029. Loans outstanding under the Term Loan bear interest, at the borrower's option, at a rate per annum based on Term SOFR (as defined in the Credit Agreement), plus a margin ranging from 3.75% to 4.00%, depending on the First Lien Net Leverage Ratio, or based on the Base Rate (each, as defined in the Credit Agreement), plus a margin ranging from 2.75% to 3.00%, depending on the First Lien Net Leverage Ratio. Loans under the Term Loan are subject to scheduled quarterly amortization payments equal to 0.25% of the initial principal amount of the Term Loan.
As of September 27, 2025, we had $281.1 million of outstanding borrowings under the Term Loan.
Share Repurchase Program
On May 10, 2022, our Board approved a stock repurchase program (the "Repurchase Program"), which authorized us to repurchase up to $100 million of our shares of common stock by May 2025. We did not repurchase any shares of our common stock during the three fiscal quarters ended September 27, 2025, and our Repurchase Program expired on May 10, 2025. We do not have an effective stock repurchase program.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
Three Fiscal Quarters Ended |
|
||||
|
|
September 27, 2025 |
September 28, 2024 |
|
|||
|
|
(in thousands) |
|
||||
|
Net cash provided by operating activities |
$ |
40,121 |
|
$ |
55,150 |
|
|
Net cash used in investing activities |
(21,094) |
|
(77,907) |
|
||
|
Net cash used in financing activities |
(4,918) |
|
(20,198) |
|
||
|
Effect of exchange rate changes on cash |
11 |
|
54 |
|
||
|
Net increase (decrease) in cash |
$ |
14,120 |
|
$ |
(42,901) |
|
Operating Activities
During the three fiscal quarters ended September 27, 2025, operating activities provided $40.1 million of cash. Net income, after adjustments for non-cash items, provided cash of $67.3 million. Cash provided by operating activities was partially reduced by changes in our operating assets and liabilities, which used $27.1 million. Net cash used by changes in our operating assets and liabilities for the three fiscal quarters ended September 27, 2025 consisted primarily of a $50.4 million increase in trade receivables, a $5.6 million increase in income tax receivable, a $0.8 million increase in prepaid expenses and other current assets, a $0.5 million decrease in other long-term liabilities and a $0.2 million increase in other assets, partially offset by a $16.3 million increase in accounts payable, a $7.3 million decrease in inventories and a $6.7 million increase in accrued expenses and other current liabilities. The change in trade receivables was primarily driven by the increase and timing of net sales and the change in accounts payable were primarily driven by volume of purchases and timing of payments.
During the three fiscal quarters ended September 28, 2024, operating activities provided $55.2 million of cash. Net income, after adjustments for non-cash items, provided cash of $60.3 million. Cash provided by operating activities was further impacted by changes in our operating assets and liabilities, which used $5.2 million. Net cash used by changes in our operating assets and liabilities for the three fiscal quarters ended September 28, 2024 consisted primarily of a $35.6 million increase in trade receivables, a $6.6
million increase in income tax receivable, a $2.3 million increase in prepaid expenses and other current assets and a $0.6 million increase in other long-term liabilities, partially offset by a $25.5 million decrease in inventories, a $10.4 million increase in accounts payable, a $3.4 million increase in accrued expenses and other current liabilities, and a $0.6 million decrease in other assets. The change in trade receivables was primarily driven by the timing of net sales, the change in inventories was driven by efforts to meet a reduced demand outlook while maintaining lead times and service levels and the changes in accounts payable were primarily driven by volume of purchases and timing of payments.
Investing Activities
During the three fiscal quarters ended September 27, 2025, investing activities used $21.1 million of cash, consisting of purchases of property and equipment for $16.2 million and the acquisition of two of our autocover dealers of $4.9 million. The purchase of property and equipment was primarily to expand capacity for production and diversify offerings, especially for fiberglass pools, as well as on-going strategic initiatives such as digital transformation.
During the three fiscal quarters ended September 28, 2024, investing activities used $77.9 million of cash, consisting of our acquisition of Coverstar Central for cash consideration of $64.0 million, net of cash acquired, and purchases of property and equipment for $13.9 million. The purchase of property and equipment was primarily to expand capacity for production and diversify offerings, especially for fiberglass pools, the majority of which related to finishing up carryover projects from the prior fiscal year.
Financing Activities
During the three fiscal quarters ended September 27, 2025, financing activities used $4.9 million of cash, primarily consisting of common stock withheld for taxes on restricted stock units of $2.7 million, Term Loan payments of $1.6 million and repayments of finance lease obligations of $0.6 million.
During the three fiscal quarters ended September 28, 2024, financing activities used $20.2 million of cash, primarily consisting of repayments on long-term debt borrowings of $19.6 million and repayments of finance lease obligations of $0.6 million.
Contractual Obligations
There have been no material changes, outside of the ordinary course of business, to our contractual obligations during the three fiscal quarters ended September 27, 2025 from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations" in our Annual Report.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. Throughout the preparation of these financial statements, we have made estimates and assumptions that impact the reported amounts of assets, liabilities, and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Our critical accounting policies and estimates are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our Annual Report and Note 2 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q. These estimates are based on historical results, trends, and other assumptions we believe to be reasonable. We evaluate these estimates on an ongoing basis. Actual results may differ from estimates.
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows, and notes to such financial statements, is disclosed in Note 2 to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Latham Group Inc. published this content on November 05, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 05, 2025 at 12:31 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]