Q4 2021 Latham Group Inc Earnings Call
Good day and welcome to you.
<unk> Group, Inc, fourth quarter and full year fiscal 2021 earnings conference call.
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I would now like to turn the conference over to Nicole per Guy Investor Relations Representative. Please go ahead. Thank you and welcome to late in Q4 and full year fiscal 2020 One earnings call earlier. This morning, we issued our earnings press release, which is available on the Investor Relations portion of our website, where you can also find the slide presentation that accompanies our prepared remarks.
On today's call are <unk>, President and CEO , Scott Rydzewski and CFO Mark Borsa.
Following their remarks, we will open the call up to questions.
This call the company may make certain statements that constitute forward looking statements.
Statements reflect the company's views with respect to future events as of today and are based on management's current expectations estimates forecasts projections assumptions beliefs and information.
These statements are subject to a number of risks that could cause actual events and results to differ materially.
Such risks and other factors are set forth in the company's earnings release posted on its Investor Relations website and will be provided in our Form 10-K for fiscal year 2021.
The company expressly disclaims any obligation to publicly update or review any forward looking statements, whether as a result of new information future developments or otherwise, except as required by applicable law.
In addition, during today's call the company will discuss non-GAAP financial measures, which we believe could be useful in evaluating our performance.
Reconciliation of adjusted EBITDA to net income calculated under GAAP can be found in our earnings press release and will be included in our Form 10-K for 2021.
I'll now turn the call over to Scott Rydzewski.
Thanks, Nicole good morning, Thank you for joining us for <unk> fourth quarter full year 2021 earnings call today I'll review the key highlights for Q4 and full year 2021 provide an update on our growth initiatives and briefly discuss our 2022 outlook Mark will then give a detailed.
A review of our financial results and guidance.
2021 was a milestone year for late in our first as a publicly traded company lethal posted a record fourth quarter with net sales growth of 24, 1% and adjusted EBITDA growth of 56, 5%.
In Q4 consumer interest and demand in pools remained very strong I'm also pleased this year, we made significant progress in enhancing our operations and resin supply position during Q4 fiberglass production levels and efficiency increased as expected through the end of 2021 with our North American.
Fiberglass production, increasing 35% on a sequential basis over Q3, and we expect it to continue improving as our resin supply increases throughout 2022.
This enabled us to deliver another strong year of tremendous growth for our business throughout 2021, we continue to execute on our growth strategy, which positions us well to capitalize on the growing consumer demand for pools.
And to deliver growth across our market leading product portfolio.
We continue to drive the material conversion from concrete poles of fiberglass. Thanks to our direct to consumer model and we continue to build out our digital tools and mildly.
Loss estimate.
We also expanded our addressable market by adding a new premium quality product portfolio and an attractive price point for homeowners with the acquisition of Radian pools, a leading manufacturer of vinyl line inflated aluminum Walt swimming pools.
Transaction completed in late Q4 demonstrates our ability to execute on attractive tuck in opportunities and enhance our ability to benefit from growing home more interested.
I am also very proud of the operations team and the progress they have made over the last six months Leatham has remained nimble in an ever changing operating environment.
We have diversified our raw material supply, especially in the resins used in manufacturing our fiberglass pools are current resin suppliers have improved both building and we continue advanced dialogues on future year supply agreements with them.
We are also in the process of adding new sources to ensure we have plenty of RASM to support our growth in 2022 and beyond.
As we build our resin position, we have the manufacturing capacity to support our planned growth in 2022, and we will continue to add capacity as we prepare for 2023 and beyond.
I'm also excited to share that we have welcomed sanjiv ball as our new CFO sanjiv constellation with over 20 years of experience in global supply chain procurement at companies like Newell brands Danaher Stanley Black <unk> Decker and United Technology Group. We believe he is the ideal candidate to lead our talented operations.
Innovation as we can change to advance our resident supply chain initiatives.
Expand our capacity to support our long term growth and drive ongoing lean and productivity initiatives throughout the business.
All of these efforts combined enabled us to deliver our <unk> consecutive year of net sales and adjusted EBITDA growth and adjusted EBITDA margin expansion in 2021, we could not have achieved this success without the devotion of our employees and the commitment of all of our dealers.
Diving more deeply into our progress on our key growth initiatives.
Work, we have done with our digital strategy, specifically search engine optimization has enabled us to remain the digital marker market leader in our space. We have improved our search rankings from priority keywords, and where our website traffic remains very strong with over two 5 million sessions and over 7 million page views while.
Scaling back our paid search spend in 2021.
We also saw year over year growth in page durations. This means consumers are spending more time on our site.
We continue to evolve and enhance the way we reach homeowners and dealers digitally. This includes continued enhancements to our augmented reality App, which has now had over 84000 downloads and has resulted in nearly 350000 virtual pool will be installed in 2019.
As we work to drive fiber less share of U S tool installs, we are expanding our capacity to be able to meet that future demand. This includes our new fiberglass facility being built in Kingston, Canada, which we broke ground on LNG.
We are seeing ongoing success in expanding our strategic partnerships with labor exclusive dealers. We continue to teach our dealers how does scale their business to capitalize on the tremendous momentum demand for pools through our training programs and business excellent coaching enabling them to add more installation capacity.
We see opportunity to continue to drive fiberglass penetration, especially in the sand States, Florida, Texas, Nevada and Arizona.
And we are focused on enhancing our dealer base in these regions.
Our strategic partnership with Premier pools, and spas as one of the keys to this we're really pleased with the exceptional growth we drove with premier in 2020 . One we are very excited to continue to expand on this partnership in 2022.
As we look to next year, we expect to deliver exceptional growth well above our three to five year targets.
In 2022, we are expecting full year net sales to be $850 million to $880 million in full year, adjusted EBITDA to be 185 million to $205 million.
We operate in a large and attractive market homeowner demand for our products is strong driven by secular trends like the acceleration of investments in outdoor living and migration to suburban communities.
Over the last several years, we've established a strong track record of outperforming the industry are key to that is the success, we're seeing in driving the conversion the fiberglass fiberglass a share of U S pool installed is well below our more mature markets like Australia, where fiber less currently enjoys a 70% share of the market.
This means that late in the day long runway for growth.
We look forward to continuing to execute on our growth strategy in 2022, and working together with our suppliers and dealers to advance our mission of making high quality swimming pools and attainable luxury for every hallmark.
I'll now turn the call over to Marc to review, our financial results and outlook in greater detail Mark.
Thank you Scott and good morning, everyone.
First I'll provide an overview of our financial results for the fourth quarter and full year 2021.
All comparisons are on a year over year basis, compared to fourth quarter and full year fiscal 2020.
Please note that Q4 2020 results do not include our investment in Premier pools, and spas since we began booking our equity pick up in the first quarter of 2021.
Our Q4 2020 does include results from Gli for two months since we closed that acquisition towards the end of October 2020.
Our Q4 and full year 2021 reflect one month of results from Radian since we closed that acquisition towards the end.
Net sales for the fourth quarter 2021 were up by 27.0 million or 24, 1% year over year to $138 9 million.
For the quarter or 24, 1% net sales increase was 16, 1% from price and 8.0% print volume.
All three of our product lines increased sales year over year led by a 15.0 million increase for in ground swimming pools to $82 8 million.
Is $6 8 million increase recovers to $37 8 million.
And the $5 1 million increase for liners to $18 3 billion.
We are pleased to have sold more fiberglass pools in Q4 than Q3 in part due to the increased resin suppliers and production you heard Scott talk about.
So on a year over year basis fiberglass sales volume was slightly lower compared to a strong Q4 last year.
And if we include <unk> sales for the entire fourth quarter of 2020.
And exclude any radiant sales from Q4 of 2021.
Our pro forma sales growth for the quarter would be 16, 9%.
Gross profit increased by $4 4 million or 11, 5% to $42 4 million driven by an increase in net sales, which was partially offset by the addition of noncash stock based compensation expense of $1 9 million.
Our Q4 gross margin was 35% compared to 34.0% last year.
Lower year over year gross margin in the quarter was due in part to noncash stock based compensation expense.
Our sales mix away from in ground pool sales, particularly in fiberglass and the timing difference between our price increases and cost inflation.
Partially offset by improving fixed cost leverage and productivity.
As expected our year over year gross margin compression improved significantly from Q3.
Excluding noncash stock based compensation expense, our Q4 gross margin was 31, 9%.
210 basis points lower than last year.
Compared to 680 basis points of year over year gross margin compression in Q3.
With our improved RASM supply, we saw North American fiberglass pool production increased over 35% for Q3.
Combined with higher average selling prices as we increased our fiber glass surcharge in mid November .
We were able to reduce our year over year margin compression in Q4 by 470 basis points compared to Q3 year over year results.
In Q4.
Selling general and administrative expenses increased to $42 7 million or 34.0% of sales from $34 6 million or 39% of sales in Q4 of 2020.
This increase was primarily driven by a $21 9 million increase in noncash stock based compensation expenses to $22 3 million and ongoing public company costs.
Excluding non cash stock based compensation expense.
And the net of other costs added back in the calculation of adjusted EBITDA.
SG&A costs in the quarter was $20 6 million.
Or 14, 8% of sales down $2 6 million from primarily from prior year, primarily due to lower incentives.
Q4, adjusted EBITDA increased by $9 9 million or <unk> 56, 5% to.
To $27 3 million and adjusted EBITDA margin increased 410 basis points to 19, 7%.
As Scott mentioned results for 2021 marked our 12th consecutive year of net sales and adjusted EBITDA growth.
And adjusted EBITDA margin expansion.
Net sales for the year increased $227 1 million or 56, 3% to $635 million.
Volumes across our product lines increased 42, 6% year over year.
Driven by strong market demand.
Homeowner preferences for laser products.
We expanded strategic partnerships within our dealer network and the acquisition of <unk>.
The balance of our year over year sales growth or 13, 7% came from higher selling prices.
The increase in total net sales across our product lines was $131 $1 million in ground swimming.
$47 6 million for covers and $48 4 million for liners.
If we include <unk> for all of 2020 and.
And exclude radian from 2021.
Our pro forma sales growth would have been 36, 5%.
Gross profit in 2021 increased 43.0% to $204 2 million largely driven by the growth in net sales.
Gross margin decreased to 32, 4% compared to 35, 4% for the prior year period.
Driven by supply chain headwinds strategic.
Eric decisions do not reprice, the backlog orders, which opened a timing difference between our price increases and the cost inflation associated with the fiberglass pool. So.
And noncash stock based compensation expense of $8 7 million.
Excluding noncash stock based compensation gross margin was down 160 basis points year over year from 2020.
Adjusted EBITDA in 2021 was up 56.0 million or 66, 8% to $139 8 million.
And adjusted EBITDA margin increased 130 basis points to 22, 2% from 28% last year.
Turning to the balance sheet.
As of December 31, 2021, we had cash and cash equivalents of $44 million.
Total debt of $280 4 million and our net debt leverage ratio was one seven times.
Net cash provided by operating activities was $33 7 million versus $63 2 million in the prior year period with the year over year decrease driven by increased investments in working capital to support our sales.
Capital expenditures totaled 25.0 million for 2021.
Compared to $16 3 million in 2020.
The increase in capital spending was primarily related to our fiberglass capacity expansion initiatives.
Subsequent to quarter end.
We refinanced our term loan and revolving credit facilities.
On February 23, we entered into a credit agreement that provides a senior secured term loan facility in an initial principal amount of $325 million.
And a senior secured revolving line of credit in an initial principal amount of 75 billion.
This refinancing further enhances our financial flexibility reduces our interest expense increases our borrowing capacity and extends our revolver maturity date into 2027 and term loan maturity date into 2029.
Now turning to our outlook.
First I'd like to share a reminder, on the seasonality of our business.
Although we see demand for our products throughout the year spring and summer are typically our peak seasons as they are the highest swimming will use <unk>.
Fluid installation and remodeling and repair activities as.
As a result, our net sales are historically highest during Q2 and Q3.
Looking at net sales as a percentage of total sales for the year.
We typically see a relatively even split between the first half and second half of the year.
This was not the case in 2020, when the onset of the pandemic and lockdown shifted our sales split away from the historical first half second half split.
However, we saw a return to more historical norms in 2020.
As you saw on the guidance provided in our earnings release. This morning, we expect to achieve another year of robust growth in 2022.
The investments in outdoor living in the backyard and the demand for our products remains strong.
We continue to benefit from our strategic initiatives, including our unique direct a homeowner model and our efforts to drive the material conversion to fiberglass.
We've made significant progress in navigating supply chain and raw material related headwinds, resulting in improving production levels and lead times.
We are realizing the benefits of our pricing actions and surcharges and as a result, the gap between price and inflation will continue to narrow in the first quarter.
Notably our price actions have had no impact on fiberglass demand as.
As the volume proposition of fiberglass continues to hold versus government include.
Including faster installation times, and lower upfront and lifetime costs in there.
Edition, we're delivering beautiful premium products to the homeowners backyard.
Our outlook assumes softer year over year volume in the first half given the comp against the very strong growth. We saw in the first half of fiscal 2021.
Some labor availability impacts from the old crop area.
And continued improvement in resin supplier in fiberglass production.
As well as an expected ramp up in fiberglass volume growth in the back half of 2022 as.
As we realize the benefits of our resin supply actions.
And comp a period of softer volumes driven by limited raw material availability in the second half of 2020.
As a result for the full year 2022, we expect net sales of $850 million to $880 million.
Representing 35% to 40% year over year growth.
Adjusted EBITDA of $185 million to $205 million, representing 32% to 46% year over year growth.
This growth is well above our long term targets for net sales and adjusted EBITDA growth of 10% to 12%.
And 12% to 15% respective.
We also guided to capital expenditures of $45 million to $60 million.
We will continue to invest in incremental fiberglass capacity to broader network with the majority of the year over year increase in Capex driven by investments in our new Kingston manufacturing facility.
As well as incremental steel panel capacity for our vinyl line packaged pool products.
In addition to our formal full year guidance. We also want to provide a little color around noncash stock based compensation expense.
In 2022, we currently anticipate noncash stock based compensation to be about $56 million.
$52 million of which would be included in SG&A and $4 million and cost of goods sold.
Of the total expense of about $56 million approximately 88% is related to the issuance of common stock upon conversion of pre IPO class B units.
In addition, we currently expect the first half noncash stock based compensation to represent about 60% of our full year expense.
Lastly, given the unique operating environment.
We have also provided an outlook for 2022 first quarter net sales in the first quarter, we expect to deliver net sales between 170 and $180 million.
In addition, as I mentioned earlier, we do expect a return to more normal seasonality in 2022 and as such we expect first half net sales to represent a little less than half of full year 2022 net sales.
With that I'll turn it back to Scott before opening the call for Q&A.
Thanks, Mark we drove significant growth in 2021, and we expect to continue our strong trajectory in 2022, we serve a large and attractive outdoor repair and remodel market and are benefiting from growing consumer demand for our products. We are driving a material conversion of fiberglass. Thanks to our unique direct the homeowner model.
Which continues to transform our industry and position us as a partner of choice for our dealers and we feel good about continuing to expand the fiberglass a share of the U S residential pool starts over time.
We have the broadest portfolio of products and a strong reputation for quality durability anesthetics continued robust homeowner interest in pools increase in installation capacity in resin supply and our pricing actions position us well for another strong year of revenue and adjusted EBITDA growth in 2020 to our consumer.
<unk> strategy proven ability to drive the material conversion from concrete fiberglass pools capacity investments and disciplined approach to pricing cost management also give us confidence in our 2022 guidance and three to five year targets. We will now open the line for questions.
Thank you.
We will now begin the question and answer session.
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Please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Matthew Bouley with Barclays. Please go ahead.
Hey, Good morning. This is Ashley Kim on for Matt today, Thanks for all the detail at the top end and congratulations on a good quarter and a nice outlook for 'twenty two.
So I guess my first question just in light of the recent move in oil are you thinking about the pricing strategy any differently potentially building in some escalators or getting ahead with even more price just given what that impact.
Rather this could be.
Yeah. So good morning actually on thanks for filling in for Matt. Thanks for your comments look we'll continue to monitor inflation in general not just oil about resin all of our commodities at this point I think the key thing is that we've got all the pricing in place that we need to deliver the 22 outlook that we've given.
As we've talked in the Q4 call. We got the surcharges in place we can be a lot more flexible with the actions we need to take to continue to improve and grow our margin rates.
Yes.
Thanks, Scott that's that's helpful. And then just anything on the growth of Gran dealers or conversion from Grand dealers that you can share.
And maybe specifically in the sand states as you've kind of called that out as an area of growth.
That something that you're kind of able to lean harder into with production improvements are just seeing good traction out there with dealers or any more detail on that strategy.
Yes, I think it's more of the same Ashley we're just going to continue to focus on growing the dealer installation capacity across the board.
More resident clearly has led to greater production to 35% up in Q4, we.
We do have that big sand state strategy, that's where the premier pools and spas relationship as well as all the grand dealers that sit in those states exist.
We saw really nice progress there in 'twenty, one and we expect we'll see even more.
Better progress in 'twenty two is the resin supply continues to improve.
Alright, Thanks, I'll leave it there and good luck.
Thank you. Thank you.
Our next question comes from Jason Macquarie with Goldman Sachs. Please go ahead.
Thank you good morning, everyone.
Susan.
I just wanted to follow up Scott on your comment that you have all the pricing in place that you need in order for.
The 22 numbers it feels like you know with the move that we are seeing in some of those underlying energy prices that the inflationary environment could shift somewhat they sharon. So just wondering if you could give a little more color on the price cost where you are with that and maybe as it relates to lead times and the backlogs just how to think about those dynamics.
And then through over the next couple of quarters.
Hey, Susan it's Marc let me just jump in a little on the on the price.
As Scott mentioned as we head into 'twenty, two and baked into our guidance. We believe we've got the.
The pricing in there that we need based on our current knowledge of our business and what's going on.
We all know Theres a lot of uncertainty out there. So we continue to monitor that situation very carefully.
Also as Scott mentioned, it's one of the reasons, we decided to implement the surcharge approach on fiber glass, which is the primary backlog that we have in the business. It gives us the flexibility to move that up and down.
As we see the need to as things evolve.
Over the course of the year. So we feel good where we're sitting right now.
Obviously, we continue to monitor that and we will take the necessary actions.
See things unfold throughout the year.
Okay. Okay. That's helpful and can you give us a bit of color I guess on the backlogs you know exactly where those are sitting now in how youre thinking about the ability to get through that this year. I know you mentioned that you expect volumes to be lower in the first half of the year and then ramping in the back half, but just any color on those backlogs in and sort of the timing.
And where we are.
Yes, sure Susan again Mark.
And we saw that let's call it the price gap the gap between average selling prices run it through our P&L and the inflation close considerably in the fourth quarter of the year, we would expect that to continue to narrow in the first quarter, Susan and as we look out through 2022.
It's probably late Q2 early Q3 by the time that we've gotten to the point, where we've run through all let's say it all the lower priced pools that are currently sitting in our backlog so.
Late first half more strongly in the second half of 'twenty two.
Okay.
That's helpful. Thank you good luck.
Youre welcome. Thank you.
Our next question comes from Ryan Merkel with William Blair. Please go ahead.
Thanks, a couple questions for me so Scott first off you mentioned improved resin supply can you just unpack this a little bit more and really my question is do you have enough of resin to build all the pools in your backlog.
Yes, so gomorrah Orion.
Resin supply really improved in Q4, I think as we talked in the back part of the year.
The new source came online.
We've recently qualified another new source, which actually started to come in in the last week or so into our facilities.
And just if you look at the production numbers in Q4 fiberglass products was up 35% versus Q3, and we actually had two of our biggest production weeks in Q4 and the entire year of 2021, so as that rate continues to ramp and increase and as we worked with our existing.
Flyers in several of the new suppliers, we've acquired and brought online.
We're looking to bring in resin.
So far outpace not what's just weapons in the backlog, but all the expectations for new orders in 'twenty, two what we need to deliver the guidance and I would say, it's even a little bit beyond that Brian . We're looking at what we need for 'twenty, three and 'twenty four and <unk> focused on making sure we have resin to build at Kingston plant when that comes online in <unk>.
103, and more importantly, just continuing to focus on that fiberglass material conversion story.
And as we drive, let's say to a 40% conversion number like in Europe .
We're looking at long term commitments and agreements with a diverse supply base.
So its more future based on the current backlog of what we're driving to and I think we feel really good and with sanjiv on the team now will drive that much more of a focus on that particular aspect.
Or is it for us.
Got it alright, so it sounds like youll ramp rather than supply and and maybe second half of this year is when you get to a point where you have enough is that is that what youre, saying.
Yes, I would say, what we will be ramping significantly right right now as we speak and <unk> and I think it'll be a nice linear ramp throughout the entire year as we'll have multiple vendors coming online another big one coming online in <unk>.
Offshore sources will continue to ramp in <unk> and then.
Q3, and Q4 will continue we will see continued improvements in that supply and it's almost.
Almost just thing I'll draw a linear line out through time to match our growth rates, that's what we're focused on.
Got it Okay and then.
Can you give us the volume and price breakout for the 'twenty two guide that would be helpful. And how are you thinking about the surcharges in that guide because it's possible you remove those at some point or even raise them.
Hey, Ryan it's Mark good morning.
As we look at the guide for next year.
We're talking top line growth of between 35% and 40%.
As you saw in Q4, we had a price impact of about 16% I think for the full year. It was close to 14% in 2021, so we're thinking more than half of our growth in 2022 is likely to come from price.
As a result of all the pricing actions that we've taken throughout 2021.
As it relates to the surcharge.
As we mentioned.
As we sit here today, we think we've got the pricing we need for 2022.
That surcharge is expected to stay in place for 2022 and our guide.
But the nice thing about that is it gives us the flexibility to more.
Quickly respond or down to what we see in the marketplace. So it's a nice it's a nice lever that we can use to manage through the year.
Okay.
Alright, good thanks for the color.
Youre welcome Brian .
Our next question comes from Keith Hughes with curious please go ahead.
Thank you and just to add on to Ryans question.
Much as the acquisition going to add or.
Part of the 2022 revenue guidance.
Hey, good morning, Keith Nice nice to hear from you.
We're super excited about the Radian acquisition and you've heard us talk about that previously.
We've mentioned when we acquired the business that.
Last year, they did around $35 million in revenue.
Which while we're super excited about it it's still a relatively small.
Component of the overall business and I think on top of that like.
Other parts of their order book is pretty well booked out for 2022, so we're probably not going to see much growth synergy until we get to 2023, but specifically we don't breakout exactly what.
We have built into the guide for radio.
Okay.
On volume for you you talked about the Delta between first half second half.
Do you think for the year based on the plan, we've laid out and you think fiberglass doors will be up.
Sales in total in 2002.
Yes.
I think as the volume guide goes fiberglass sales will certainly be up year over year and will be a contributor to the volume growth.
We are guiding softer volume year over year in the first half for a couple of reasons, one pretty tough comps.
Coming off of the first half of last year.
Two while we saw more than 35% increase in fiberglass production in Q4 versus Q3 that will continue to ramp.
In Q1.
But we have a little bit of catching up to do versus prior year and I think when we get to the second half as our resin actions continue to pan out as our production continues to scale, we will be putting out more pools in the second half than in the first half of this year and as you know Keith. We also then have a little bit easier comp in the second half due to.
The resin challenges we had in the second half of 'twenty one.
Okay.
Given what you described in the first half of the year.
We continue to see some gross margin compression just on mix alone.
At a time.
Yes.
We were really pleased Keith with with the improvement in gross margin compression that we saw in Q4 versus Q3, which which was expected and we are happy to put that on board we would expect.
For a variety of reasons, including the continued narrowing of the price gap on fiberglass pools, we would expect that gross margin compression to continue to shrink as we jump into Q1 and the balance of 'twenty two.
Okay. Thanks.
Youre welcome.
Sure.
Again, if you'd like to ask a question. Please press Star then one at this time.
Our next question comes from Ross generous.
Bank of America. Please go ahead.
Hi, Good morning, it's Rafe thanks for taking my question.
Hey, Robert.
Right.
The 2022 guidance has a big step up in Capex for the capacity expansion can you talk about.
How much you'll be expanding capacity like after the Kingston facility open through what level of sales does that support now how do we think about the longer term run rate of Capex.
Okay.
So <unk> I'll take the first part and then maybe Mark can take the back part.
Sorry, Mark.
Kingston comes online.
That will ramp through 2023, so that is a significant step up in the capex numbers that we flashed for 'twenty two.
You could almost say the majority of its probably Kingston related and a few other strategic capacity since we're making.
You could argue that should take us out into may.
Mid mid to late 'twenty, four, but if you step back and just look at what we've been doing over time right. We've continued to invest in facilities and many smaller investments whether its molds vehicle base gone delivery equipped bonds for the gone and equipment the delivery vehicles.
Burners technology to get more permitted capacity, it's all of those small things plant by plant that we continue to do to try to stay at least at 12 to 18 months out in front on.
This was a big step up as a result of the fiberglass door conversion story really taken hold in the Canadian market with the neurology brand in the late the brand and it got to the point, where we needed the facility up there and look we'll continue to evaluate next steps as we look at the bigger picture on especially as we drive to that 40% conversion.
Number like we see in Europe market any color you want to add I think thats, well said Scott I would just add you know as we look at our guide for Capex 45 to 60. This year I mean, it's quite a step up from where we were in 2021.
And look we're going to continue to do all of those incremental things that Scott talked about because of the demand for fiber glass just continues to grow.
And so we're going to continue to invest there, but look the biggest reason for the step up is the kingstone investment.
Most of that spend is going to incur in 2022, as we start getting ready for production in 'twenty three but I do also want to mention that we're also increasing capex spend in our packaged pool portion of the business. The demand. There is very strong as we are bringing some incremental capacity up there, but look the biggest.
Cause of the jump on here.
Best of luck.
Yes.
Thank you that's really helpful and then.
I think last quarter, you spoke about the utilization rate just below 60%.
Where does that finish up for 2021, and then what is the expectation embedded in your guidance in terms of utilization as we exit 2022, how high do you expect that to get up to where will that compare to your long term run rate.
Yes, so <unk> if you think about.
If we just kind of look at 'twenty, one as an anomaly because of the resin shortage and just.
Let's go back to Q4, 35% improvement in production rates some of the biggest weeks of production all year happened in November and December on the fiberglass front going back to that chart, you'll probably all familiar with.
With the capacity adds coming online in 2022, using 21 as a baseline we were talking 20% to 25% increase in capacity and then going back to let's say, a normalized 70%, 80% utilization of the fiberglass facilities based on how the capacity ramps.
And that number does not include any of the Kingston capacity adds so kingstone will be additive to those numbers. So you can be thinking you know, 40% to 50% higher capacity run rate based on that investment.
When we get into 2024.
Okay, Great that's very clear thank you.
Thanks, Greg.
Our next question comes from Josh Chan with Baird. Please go ahead.
Hi, Good morning, Scott and Mark Congrats on a good quarter and outlook.
Hi, Yeah, I guess my first question hopefully we can start to use the phrase post pandemic here, a little bit, but I guess, how do you see.
Coal demand overall trending over the next call. It two to three years post pandemic as consumers may be shift their behavior from.
Staying at home to a more normal activities like how do you see the sustainability of industry demand trending there.
Yes.
Let's shrink post pandemic, we're just in a different crisis.
The enthusiasm so thank you for that.
Demand continues to stay strong and if you think about our business strategy of refocusing on the consumer marketing direct to the consumer educating on the awareness of fiberglass pools and all of the benefits at the homeowner level as well as the benefits for the dealer that story is really resonating and it's showing in the phenomenal growth we've been seeing.
And we all know where the European market sits.
Australia market is 70% so no matter what happens if demand slows a little bit in terms of new pool starts or continues to grow at a 3% to 5% historical rate that conversion is what's going to drive our growth with a much faster <unk> market growth there.
The demand we see for 'twenty two's extremely strong dealers talk in there. So now we're.
We're working to kind of double if not triple capacity with those dealers.
Orders in pools are being booked out into 2023 and in many areas of the country and look the one the one thing to step back and look at is we're still a far cry from the peak of new pool starts in the U S. When it was 175000 back in or buy so theres a lot of runway and I'll go back to one of my <unk>.
Numbers 90 million homes existing homes in the U S. Now have a swimming pool today. So there's still a lot of backyards looking to have a late <unk>, we'll put into them. So we feel really strong on the demand front and look just the auto cover business is also performing extremely well I want to go back to that cover segment again.
What about the adoption and the awareness of our product that is not known and that story is really starting to resonate at the homeowner level as well and I think we'll see.
Growth continue in that category.
That's really encouraging color yeah. Thanks, thanks for that and I guess dovetailing into that from the fiberglass conversion perspective.
'twenty three is close getting closer and so how confident are you that the industry can get to that 25% penetration that you sort of laid out for 'twenty three and if it does what does that mean in terms of your growth rate.
Next year. Thanks.
Yes, I think if you look at the guidance we provided for 'twenty two that's the anticipation of continuing on that trend that try to get to that 25% number in 'twenty three.
With the growth and where pool starts are.
I think what we're looking at.
23 of his dollars year away.
We're looking at where do we need to be out in 'twenty, four 'twenty, five and kind of really reset in the benchmark of how do we double the fiberglass business on the next three or four years and that's the capacity riding with Kingston, It's the resin work, we're doing on suppliers. So we still feel pretty comfortable and confident we can hit that number.
We will be getting the PK data on pool starts here in a few months, we'll sit down and go through the analytics spot. We still believe we can we can continue to double this business the outlook for fiberglass were extremely strong at that conversion story resonates.
That's great yeah, thanks for the color and congrats congrats on the quarter again.
Thanks, Josh.
This concludes our question and answer session I would like to turn the conference back over to Scott Rydzewski for any closing remarks.
Yes. Thank you.
Just a few key points to kind of go back to on.
On the call. This morning as I, just said consumer demand remains extremely strong out there on all fronts for all product categories.
Ross the globe for us.
Our resin suppliers greatly improved and will continue to improve as we move through 2022, we're going to continue to add capacity and stay out in front of that demand curve, that's important to us not the big investment decision in Kingston.
Again, just want to thank the team and all of our dealers and partners are just great great 'twenty. One results. Despite many many challenges 21 was a very tough year really excited about about the expectations. We've laid out today to deliver exceptional growth in 2022 and more importantly, just want to thank you all for your time this morning.
Your continued support and hope you guys all have a great safety data. Thank you.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.