Q1 2022 Latham Group Inc Earnings Call
Okay.
Good day and welcome to away from group first quarter 2022 earnings Conference call.
All participants will be in listen only mode.
So if you need assistance please for myself as vessels for a person who historically you followed by zero.
As you've heard from vision or over an opportunity to ask questions.
To ask a question in my Press Star then one on your house from phone.
The majority of your question first draw them too please.
Please note today's event is being.
Recorded.
I would now like to turn the conference over Jimmy Cobra.
So I'm not sure relations representative. Please go ahead. Thank you and welcome to late Q1 fiscal 2022 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.
All our Laythan, President and CEO , Scott Rydzewski and CFO Mark Borsa.
Following their remarks, we will open the call up to question.
During this call the company may make certain statements that constitute forward looking statements.
Such statements reflect the company's views with respect to future events as of today and are based on our 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.
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-Q for the first quarter of fiscal year 2022 they.
The company expressly disclaims any obligation to update or have you publicly any forward looking statements, whether as a result of new information future events 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 can 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-Q for the for Q1 2022 I'll now turn.
The call over to Scott Rydzewski.
Thanks, Nicole good morning, Thank you for joining us for our first quarter 2022 earnings call. Just a few weeks ago, we celebrated the one year anniversary of our IPO and I am proud of all that we've accomplished in that time.
We have consistently executed on our strategy navigating the constantly changing environment and delivered strong growth. We have entered 2022 and a position of strength and I want to thank our employees dealer partners and.
And investors for their ongoing support the first quarter was a strong one for late we are encouraged by the early excitement and anticipation we're seeing from both consumers and dealers as we head into the peak pool building season, we.
You've been on the road connecting with dealers and homeowners across the country further educating the market on the value proposition of fiberglass, what we're seeing and hearing across the board is homeowner demand pool ownership is strong and awareness of the Lincoln brand and advance the fiberglass continues to grow.
We continue to focus on dealer education, we are pleased that our new World Class Training Center in Florida is now open the hands on training that we can provide at this generally is in high demand in our schedule is quickly going up for the rest of this year. This is just one of the many measures were taken to help our dealers increased installation capacity.
And we're excited to welcome new dealers and quickly and successfully onboard them in a flexible technologically advanced learning environment.
The homeowner interest in pools is there and during the quarter, we continued to enhance our ability to meet demand. Our fiberglass production continued to improve and we brought on new material sourcing and expanded resin supply more existing sources as a result, north American fiberglass production increased.
About 50% sequentially in Q1 versus Q4 last year and that came on top of a 35% sequential improvement in Q4 versus Q3 last year.
We continue to make progress on our fiberglass order backlog, especially on pools that were ordered at a lower price that we are charging now.
Lead times have improved across many of our fiberglass plant and models.
Turning to improve lead times is a key focus for us across the business.
And I am proud to say, we're tracking back toward normalized competitive lead times in all of our other product categories. We also turbocharged our employee recruitment efforts during Q1 and meaningfully fill open direct labor positions.
In turn this has enabled us to successfully navigate labor headwinds related to the almost $1 billion in January and February .
Our branding and digital initiatives continue to differentiate us from subscale regional manufacturers and remain an important driver of our ability to create demand and drive future growth.
The work we have done with search engine optimization continues to strengthen our competitive leadership position in the market. Our website traffic remains strong with 700000 sessions and $2 1 million page views year to date.
It's organic web traffic and it's also further improved our search rankings across all our product categories.
In addition, we continue to develop tools that empower homeowners to build to pool. Their dreams. We have made updates to key product areas linked fiberglass, enabling users to view different designs and select what that speaks to their style.
All our work to further our branding and digital initiatives, coupled with our operational excellence efforts is helping to drive the awareness and adoption of fiberglass and the result of all of these efforts Q1 net sales grew approximately 29% year over year in adjusted EBITDA grew about 43.
Percent year over year, getting us off to a great start to the year.
Q1 was a great demonstration of the team's ability to successfully execute tremendous growth while navigating the difficulties that come with today has disrupted global supply chain. Our business continues to face new short term challenges each quarter, a few of which we expect to impact Q2.
First like many others, we continue to face an unprecedented supply chain environment, and we're not immune to short term supply challenges to that end. During Q2, we were experiencing a temporary shortage of material that goes into the production of our unique fiber lastly for several of our fiberglass color offerings.
To address this we are leveraging our vendor relationships to ramp up supply of this import and we expect to return to full availability of this material in early Q3.
We have a proven ability to respond quickly to supply chain challenges as our team has done a tremendous job shoring up our resin supply for our fiberglass pool, both through productivity initiatives in supply diversification efforts just as we saw throughout 2020 in 2021, we believe the breadth of our offering and strong.
Supplier and dealer relationships will enable us to navigate today's difficult supply chain environment.
Second one seasonable weather in April impacted dealers' ability to install pools in the northeast Midwest and Canada.
It gets warmer and we approach peak pool building months in Q2, and Q3, we expect installations to pick up quickly.
Lastly, as many of you know in April we experienced a fire at one of our smallest fiberglass facilities in Odessa, Texas Thankfully none of our employees were on site at the time of the incident and I am Grateful to report there were no injuries.
Proud of our team's efforts to quickly redeploy assets and resources to mitigate the impact of this lost capacity.
We have shifted production from this facility for other fiberglass manufacturing sites, which have capacity to accommodate the additional orders thanks to our ongoing expansion investments across our manufacturing footprint.
We are currently in the process of cleaning up the site in.
In evaluating future uses for the location in the interim we are using the Odessa facility for distribution purposes to service the region. Although this will impact Q2, net sales and gross margins. We anticipate the Odessa incident will have minimal impact on the full year as we quickly shifted production to our other fiberglass.
<unk> manufacturing facilities.
Despite these near term issues, we feel good about the actions we are taking to position ourselves for success as we enter the peak pool building season in the back half of the year.
We continue to see growth across our product portfolio and our dealers continue to book orders through 2022 and even into 2023.
Where our dealers have additional capacity or are expanding their installation crews are digital marketing engine is ensuring a healthy supply of consumer leads to drive them to more pool installs.
We will continue to ramp up fiberglass volume growth in the second half of the year as we realize the benefits of our residents supply actions and comparable period of softer volumes because of the raw material availability challenges, we experienced in the back half of 2021.
Our pricing actions and surcharges have enabled us to counter the impact of cost inflation on raw material freight and labor.
We continue to see cost inflation, although the rate of the increase doesn't seem to be abating, we are comfortable with our current pricing levels is it.
Value proposition of our product offerings remain intact.
And we will remain nimble and addressing inflation and are prepared to respond quickly to any future market changes. Thanks to our strong focus on operational excellence continued execution of our growth strategy and the health of our industry. We are pleased to reiterate our fiscal 2022 guidance, which implies <unk> 35 to <unk>.
40% year over year, net sales growth and 32% to 46% year over year adjusted EBITDA growth.
Looking further ahead, we continue to build our business for the long term as demand for our products grows we continue to expand our manufacturing capacity.
We are in the final stages of installing a new state of the art highly automated line in Fort Wayne, Indiana, which will drive a more efficient manufacturing process for steel count package pools, and add incremental capacity to support future growth.
I'm also pleased to share that the construction of our new changes in facility remains on track to begin production. In 2023. We have also started hiring efforts at the new Kingston facility.
The dynamics of the large outdoor repair and remodel market remain attractive as investments in the backyard continue as the only pool company with a direct relationship with the homeowner and the market leader every pool sub category in which we compete and we remain confident in our ability to deliver outsized growth.
The Companys and our future is shared by our board of directors, who have approved a share repurchase program with an authorization of up to $100 million of our common stock over the next three years with that I'll turn the call over to Marc to review, our financial results outlook and capital allocation priorities in greater detail.
Mark.
Thank you Scott and good morning, everyone.
Today I'll review our results for the first quarter of fiscal 2022 and discuss our outlook for the year.
First an overview of Q1 results.
Please note that all comparisons are on a year over year basis compared to the first quarter of fiscal 2021.
Net sales for the first quarter 2022 were up about $43 million or 29% year over year to 192 million.
These results are on top of a very strong period of growth as you recall Q1, 2021 sales grew 191% year over year.
Price represented 24% of the 29% year over year net sales increase in Q1, as we continued to realize the benefits of our pricing actions.
Volume grew 5% versus Q1 of 2021, which as I just mentioned was a quarter of outsized growth in a tough comp.
Net sales increased year over year in all three of our product lines in Q1.
This growth was led by an $18 million increase for in ground swimming pools, where we saw strong fiberglass sales growth that was somewhat offset by softer package pool sales, which were impacted in part by a relatively full distribution channel.
Whiners increased about $16 million and our cover business increased by about 9 million.
Gross profit increased $18 million or 35% to approximately 71 million.
Driven by an increase in net sales, which was partially offset by the addition of noncash stock based compensation expense of $1 2 million.
Q1, gross margins, excluding noncash stock based compensation expense.
Expanded about 220 basis points versus last year to 37, 5% of sales.
Our pricing actions continue to offset inflation on raw materials labor and freight.
Which as Scott mentioned earlier continues to increase however at lower rates of increases than we've been seeing in prior quarters.
Our average selling prices are increasing.
Particularly in our fiberglass business. Thanks to the improved revenue supply in staffing levels, which led to increased production and sales as we work through our lower priced fiberglass order backlog.
Q1 gross margins also benefited from the building of inventory from year end to support the business, which aided Q1 gross margins by 230 basis points.
We expect this benefit will reverse as inventory levels come down through the balance of the year.
Gross margins were also impacted by negative fixed cost leverage as we ramp up our infrastructure to support future volume growth.
In Q1, selling general and administrative expenses increased to about $45 million or 23, 6% of sales from about 27 million or 18, 3% of sales in Q1 of 2021.
This is primarily driven by a $14 million increase in noncash stock based compensation expense to 16 million.
Excluding the increase in noncash stock based compensation expense.
SG&A costs increased about 4 million or 13, 9% versus prior year, providing some nice leverage to the bottom line.
Of the $4 million increase above 30% was related to ongoing public company costs with the balance related to supporting the ongoing growth of the business.
Excluding noncash stock based compensation expense SG&A for Q1 was about 30 million or 15, 4% of sales.
As a result, adjusted EBITDA increased by $14 4 million or 43% to 48 million.
And our adjusted EBITDA margin increased 250 basis points to 25.0% of net sales.
Turning to the balance sheet.
As of April <unk>, 2022, we had cash and cash equivalents of $19 million.
$65 million of availability on our revolver and total debt of about 324 million.
Net cash used in operating activities was a seasonally driven 57 million versus 41 million in the first quarter of last year.
As a result of both higher receivables tied to increasing levels of sales and increased inventory.
The increased inventory was driven in part by a strategic decision to minimize the impact of any supply chain interruptions as well as by cost inflation.
As a result, our net debt leverage ratio was two one times at the end of Q1 2022.
Capital expenditures totaled about 7 million in the first quarter of fiscal 2022.
<unk> to less than 5 million in the same quarter last year.
The increase in capital spending was primarily related to our fiberglass capacity expansion initiatives.
In light of our share repurchase program announcement today I'd like to take a minute to touch on our capital allocation priorities.
As a growth business are first and foremost priority is reinvesting in the business as we see this as a means to drive continued opportunities to generate significant returns and value creation.
We've been increasing our capex spend over time as we have accelerated investments in our fiberglass manufacturing capacity.
Second we have a history of accretive acquisitions, and we will continue to be opportunistic on executing selective tuck in M&A and business development investments.
Third pay down of debt, we have a strong balance sheet and a low net debt to adjusted EBITDA leverage.
Lastly, we announced the approval of a share repurchase program.
Which authorized us to purchase up to 100 million of our common stock over the next three years.
Our strong cash flow generation and balance sheet position enables us to continue to prioritize organic growth investments in the business.
As well as strategic M&A.
While also providing us the flexibility to further drive shareholder value through our share repurchase program.
We would expect to opportunistically repurchase shares as windows of opportunity arise.
Now turning to our outlook.
As you saw on the guidance provided in our earnings release. This morning, we reiterated our outlook for 2022.
Net sales of 850 to 880 million reps.
Representing 35% to 40% year over year growth.
Adjusted EBITDA of $185 million to $205 million, representing 32% to 46% year over year growth.
And capital expenditures in the range of $45 million to $60 million.
In addition at the midpoint of our net sales guidance range. We now expect first half net sales to represent about 46% to 48% of full year 2022 net sales.
We delivered robust first quarter growth on top of strong year over year comparison.
Despite a few short term challenges in Q2.
We remain confident in our team's continued execution of our growth strategy positioning us well to deliver another strong year.
Consumer demand for pools are strong and we are well positioned to capture that demand as we continue to advance our brand and digital strategy and drive the awareness and adoption of fiberglass we've.
We believe we have taken necessary pricing actions to help counter inflationary pressures.
We've made significant progress in navigating resin supply challenges, resulting in improving production levels and lead times across many of our fiberglass plants of mobs.
As a result.
We remain confident in our full year guidance as well as our three to five year outlook.
With that I'll turn it back to Scott Scott Thanks, Mark.
So proud of all the progress we have made and grateful for our experienced team that works to make us better every day our conviction in the success of our fiberglass conversion strategy remains strong as we continue to drive education and spread awareness of the value proposition of fiberglass Q1 was a great start to the year and we look forward to.
Seeing this continued positive impacts already imagine pool by an experience we will now open the line for questions.
Thank you we will now begin the question and answer session.
I ask the question in My Press Star then one on the telephone keypad.
If you're using a speaker phone please pickup your handset before pressing the keys.
To withdraw your question. Please first on them too.
Today's first question comes from Matthew Bouley with Barclays. Please go ahead.
Hi, This is Ashley Kim on for Matt today, and congrats on the strong quarter and thank you for taking my question.
So.
Just with the Q1 margin coming in pretty strong I think that implies a step down from these levels through the rest of the Arabs. All your guide should we think of that as mostly lost volume leverage in Q2 or anything else to kind of call out there.
With the cadence.
Hey, good morning, Ashley Nice nice to hear from you and thanks for your question.
Very pleased with our first quarter results as you mentioned both the.
Top and bottom line growth in a very nice margin.
A lot of good things happen for us there in the quarter you know we don't we don't provide.
Ordinary EBITDA guidance, but our full year context too.
You know some some EBITDA margin expansion.
We have a few short term challenges in Q2 that we're going to work our way through.
As we go through the year and I think also as we look at our gross margin, which was very strong in Q1.
We had a nice pick up from some inventory build but we don't see repeating and we'll probably give some of that back as we go through the balance of the year and worked on our inventories, but feel very good about the full year guidance and our ability to deliver that.
Alright understood. That's helpful. And then just my second question, how do you think about investing through the downturn and things.
Like going after new dealer is no capacity addition, marketing dollars would you kind of continue to invest threat in order to keep on driving material conversion.
What kind of pet.
Sure.
Yes, so Ashley good morning again.
So I think.
If there was a downturn look we have very strong balance sheet healthy business, we generate a lot of cash flow, we would continue to invest in and one of the things with the magic of what we could do you know driving that fiberglass penetration story with a lower upfront cost of that product versus the concrete pool total lower cost of ownership.
You know we would continue to push the lead generation engine driving demand to our dealers make sure. We can meet all of our dealer partners you know pretty full from a new construction standpoint, and just to remind everyone. We also have a pretty good recurring revenue business with a liner and cover segments of ours.
Which we could generate a lot of demand as well. So we would continue to invest our long term thesis is we want to stay out in front of the demand. The capacity. We believe you know the secular trends in this industry are phenomenal out there.
As consumers want to continue to hunker down and invest in their backyard. You know we will do what we need to do to stay in the forefront I'm just to be the leading pool brand out there.
Thanks, Scott Thanks, Mark I'll leave it there.
Youre welcome.
I don't know this wasn't very helpful. I'm sure somebody as well are you with Goldman Sachs. Please go ahead.
Thank you everyone. Good morning.
My first question is Brazil.
Yeah. Thank you. My first question is you know can you give a little bit more context on the inflation side of things I know that you mentioned that you are seeing there was pressure somewhat abate I guess, just any context on how we should be thinking about the magnitude of that and how to roll through the year.
Yeah, Hey, good morning, Susan It's Marc Nice nice to hear from you.
As we mentioned inflation is not born.
You know, we do see it continue to increase it seems to be increasing its ore rates than we've previously seen.
The other side of that and we're expecting that to continue Susan I think the other side of that is we are continuing to see the benefits of our pricing actions and realizing some of those and some of that was reflected in our gross margin here in the first quarter.
We feel really good about you know the pricing actions, we've taken were staying a heavily inflation curve as we sit here today.
And we continue to monitor that situation very closely it is very dynamic.
And we will continue to monitor it and we'll be very nimble adjusting as we need to going forward.
Okay. That's that's helpful color.
Just following up a little bit I guess, obviously, there's been a lot of concern about consumers and our you know the overall sort of inflationary backdrop in a rising rate environment. All these sort of different macro cross wins that are coming through when you talk to your dealers on the ground what are you hearing about.
You know the consumers' interest and willingness to spend on pools, what are the dealers really concerned about today and has they're concerned shifted any more recently as we've come into the year.
Yes, so Susan.
We've been chatting with quite a few dealers recently, we went back out there talking to folks and I think the general view is for us and I'll say, the short and medium term, we've not really seen a slowdown in the demand at the consumer level with our dealers a lot of our dealers are booked out through 2022 for new pool installs many of them.
Booking out into early 2023 as well now there's also pockets of the country, where we have dealers that have capacity. They can still get pools in the ground. This year, we have dealers, we're continuing to add crews based on the demand and for our dealers who may maybe seen a slowdown that's where we're cranking up.
Our lead generation engine to make sure we keep beliefs flowing do that there's plenty of demand out there I think we will feel strong with its fiberglass conversion story, which can help drive it with the cost very devoted a project well look in general I think we do need to be cautious of it and watch it.
As interest rates and everything increase what the pool buying decisions. One that's made over many months if not years.
We will continue to drive the demand and leads to our dealers and we feel really good where we sit with a long term projections of the industry, we're still well off the.
Peak of where we were before and I think there's still a lot of room for Ron here for us in general.
Yeah, and just following up on that really quickly.
You know you made the comment that you've got backlogs, although all the way through this year and then even into the early parts of twenty-three are those people that have put deposits down on their pools are or how secure is that backlog how should we think about exactly what that is indicating.
Yeah, and I think we've talked about this a couple of times on various calls we really don't see cancellations in the industry to any extent at least we don't we've not seen any change in the trajectory of cancellations you know there are some.
The power of it for US is right. If there was a cancellation we can take that pool just flip. It next you'll learn a homeowner that's waiting for it but again at the consumer level. The homeowner level right, they're putting down a significant deposit for that pool buying decision look it could vary from 510 15, 20% I think the consumers.
Likely to walk away from that cash deposit once they've made that decision and I think more importantly, one big bold the family and the children, they're getting a pool is going to be tough to tell the kid not not to walk away from it. So we don't we don't worry about it we think it's pretty solid and strong across the board and I and again, you know the ability to crank.
That lead engine and I can't stress. This one it off you know the power of that SCO and driving the demand. We can talk about how many homes, rather that don't have a swimming pool homes in existence, where folks are out there, replacing something else in their backyard invest in their home wanting that outdoor lifestyle space. We don't we don't worry about it.
Not at all.
Okay, Alright, that's very helpful color. Thank you good luck with everything.
Thank you again.
Ladies and gentlemen, the last question, but it.
It sounds from Josh.
With Morgan Stanley . Please go ahead.
Hey, good morning, guys.
Oh gosh.
So just a couple of questions here I guess first could.
Could you just sort of refresh us on where we're at maybe versus the start of the pandemic on.
Kind of where the the all in price to a consumer is for a fiberglass pool versus where you think a good night well it might be coming in just just trying to see what kind of the relative inflation looks like and what maybe that gap has looked like over time.
Yeah. Good good question, Josh you know I don't get all stay high level without giving specific dollar amounts because I think.
It varies region to region fiberglass versus versus concrete or gunite I'd say overall I think we still maintained the same gap in.
And a pricing standpoint.
I could sit there and say, it's exactly 28%, but let's just say it's in that 25% to 30% range from the data that I've seen the average ticket price of a swimming pool to the consumer in the backyard has gone up you know over the last two to three years.
Bye you could call. It again, just an average number I'll throw out there you know, 20%, 25%, but the gap and the advantage we have versus concrete still hold that thesis is still strong it's still resonates at the consumer level for us we continue to see the conversion being driven there and look I think.
This is one where the radian acquisition really played well for us where it's maybe a little bit more on the lower price entry level pool. So a great pool, great product were seeing really nice success, there, where if a homeowner didn't want to pay the higher ticket price.
We have that full product offering from that entry level pool, all the way up through the premium product with a fiberglass, but we still maintain that advantage, which which is very powerful for us and where we sit today.
Got it that's helpful and then I know that a lot of it.
The strategy around deal worse than you're kind of getting your best dealers to be able to sell even more but if you had to break down sort of the volume growth that you guys have seen here how much of that would you sort of attribute to kind of more sales per dealer versus bringing on are more deal.
Ours over over the past two years.
And over the past two Oh I don't have the hard data, it's probably 50 50 right. So if you remember as we move through some of the challenges we had last year with RASM and you don't want to really go back there right. We focused on supporting our bigger and better dealers that were out there right. We wanted to drop off the best deal to make sure they have the supply of product.
So I'd say, probably the majority of our revenue has come from driving incremental capacity with our existing dealer base that doesn't mean, we stop the slowdown of signing up new dealers at the core thesis to us and it's something we always do is bringing on new dealers and I would tell you I think that's a big lever where.
Gonna use to our advantage now I think we've talked about the new training center opened up down in Florida, We were actually down there two weeks ago for our board meeting and I'm, telling you at some point, we will get all of your down there. It is an extremely impressive facility. The work that the entire team has done to stand at all where it is.
Sold out for all of our boot camps as we go through next year and how those boot camps are gonna be new dealers coming into the pipeline for us to teach them how to install fiberglass package pools liners auto covers the full product array as well as bringing in some dealers who've been with us for the last two or three years that we brought on new who were not able to comment a little wide.
Hands on training boot camp like we did in the past.
Went to the virtual boot boot camp training. So the fact that we're sold out through the rest of the year with those boot camps tells you. We've got good healthy flow of new and existing dealers in the pipe wanted to continue to drive that capacity creation in the industry to get more pools in the ground for the whole.
Perfect I appreciate it.
Are you on that.
Ladies and gentlemen, as a reminder to ask a question. Please press Star then alone.
Our next question comes from Ryan Merkel with William Blair. Please go ahead.
Yeah.
Hey, guys. Thanks for taking the questions.
Sure Ryan.
So my first question is on the outlook can you help us quantify the impact to Q either for sales or EBITDA from the three headwinds that you've called out and then sort of related do you see most of the recovery in <unk> or just some of that recovery from these issues also bleed into <unk>.
Hey, Ryan it's Mark Nice nice to hear from you and thanks. Thanks for the question.
Coming on top of our really strong Q1, which we were very pleased with posting up today.
<unk> did mention a couple of challenges that we face in Q2 that we believe are very short term in nature.
But when you kind of think about those three things, whether it's the the fire, which which very unfortunate as it so happens that nobody was injured there.
Which we believe will have a minimal impact on our full year, they're really tough weather that we experienced in the month of April as we kicked off Q2, and then some of the supply chain challenges that we're seeing and working our way through and it could be through by the end of the second quarter.
At the end of the day, you could probably split those a third a third a third.
We've looked at that thought about those things and again, we think of those as for a short term impact in Q2 as a result of that.
We combined our very strong Q1 with what we were gonna see in Q2 here and are providing some color around that first half split.
We think is going to be in that 46% to 48%.
Midpoint guidance for the full year. So you put those two things together, we think we're going to land there for the first half for.
For the balance of the year I think the thing I would comment on there.
Ryan is as we talked in our Q4 call when we thought about.
Volumes throughout the year, we did expect to see softer volume in the first half of this year coming off of a really strong performance. We had last year in the first half and then picking up pretty significantly in the second half of this year.
Fortunately we are tough.
Resident and availability challenge for us in the second half last year. So we're coming up on some softer comps in the second half so we'd expect to see volumes pick up in the second half of this year, which then gets us to the full year outlook that we're very happy to stand behind it.
That's really helpful. Mark Thanks for that.
For my second question, maybe maybe over to Scott you know back to all this worry about the consumer it's.
It's kind of been taken a lot of questions about how your business might perform in a downturn. So.
I I I think it would be helpful. If you could discuss how each of your three product segments might perform if we see a consumer downturn and then also what what could decremental margins look like if you see a sales decline I'm not looking for anything specific, but maybe a range or or even a way to think about it.
Yeah, Brian .
But a quick financial model together for you to answer this one blown degree and you have to pay for that.
High level I think the important thing for everyone to understand here is the business. We've created is just so different from where we were three or four years ago five years ago 10 years ago. So I think we're much better positioned in terms of how we run the business overall and the variability of the cost structure that we've created.
Good Lord the.
The diversity of the product offering and the regional offering we have we now also have the business down in Australia, and New Zealand. So we're positioned a lot better than we've ever been.
If you think about the different categories product categories that repair and replacement market for US is always a very healthy growing segment of the business. If you own a swimming pool and you need a new line or a new copper you really can't go without that very long rate you want your pool operational so that business, we really.
You don't typically see any kind of downturn as it goes if anything you might seen uptake where people are making the decision hey things are top I'm gonna get like pool redox I'm going to stop at all.
Let's.
Let's say the in ground category, which is its fiberglass and the other packaged food segment.
Well again I think so.
But the price point of those pools versus the competitive product that concrete pool, we have a cost advantage right out of the gate upfront and we have the lower the lower cost of total cost of ownership. So I think what we would see in the switching power potentially from concrete the fiberglass <unk> lineup.
Pool accelerate and again the auto cover category. The cover category is just such a critical component from the safety the efficiency of operating your pool.
I think we're in the early early stages of really driving the penetration of that one and we would continue to push that on our products and even if pool starts, let's say slow down flattened out or a slight pullback.
Thesis of our long term growth model is to drive penetration against that other product right and we believe we can continue to grab share and grow and that's why as we've been talking over the last year or so since we became public we have such confidence in that 10% to 12% top line growth algorithm of bars.
Well what's.
Thank God oddly Ryan back to your point on the margins and all of that I think we've got a lot of triggers we can pull from a variability the breadth of our offering.
All of the programs, we offer out there across the board from a cost containment cost contingency, where we should be able to maintain pretty healthy margins across the board in pretty much any any scenario that could be out there other than let's say the doomsday scenario of a really deep.
No recession down, but I think again, we we would weather every single scenario that we could come through and that's what's great about this team and if you think about the last three years, how many challenges have been thrown at us and how the team has performed and the results of this business as opposed to over a three year period, that's a testament to the strength of our.
Team, our dealers and the brand we have here at least.
Really helpful. Thanks, Scott.
Okay.
Our next question today comes from Palm Woods with Baird. Please go ahead.
Hey, guys good morning.
Uh huh.
Maybe just on the demand side.
As you kind of think about incoming orders and kind of the perspective buyer pool.
Buyer I guess pun intended buyer pool for pools, that's out there.
And have you seen any change in kind of the income level cohort you know with the new orders so to for example.
Are you seeing more orders from kind of higher income households are or less from lowering come out. So just kind of wondering what the the mix on the income level cohort looks like with new orders.
Yeah. Good question, we don't we don't really see that detail of what the income level for.
For the consumer who's buying who's buying the pools from from our dealers, but I can share with you a couple of key data points that I picked up with some time I spend with some folks out there the average price point of let's say the pool going into the backyard continues to increase and.
Look there's a couple of anecdotal points, where a few dealers have said they've seen the average price point of the backyard pool install move up significantly by 2025%, which could be an indicator that there's there is a strength at the higher income level or the higher net worth equity level of homeowners willing to double down and invest.
The new yards.
Again as the price point has moved up in general we've not really seen a slowdown in that demand and errors are dealers being sold out.
23.
But I think it is an interesting question of is one we watch but again back to work the breadth of our portfolio. We have a price point approval that starts at the at the lower level all the way up to the premium level. So even if you did see a slowdown.
It would just shifts someone from avian fibroblast pool to a wider pool. The one of the aluminum <unk> and still make sure. We got a late them for in the backyard.
Okay. Okay.
And then just on on on the on the weather side I guess, how does a slower kind of start to April kind of filter in for the rest of the season I guess is there any way just to think about how much of your your businesses in the mid west North Eastern Canada.
Just for perspective.
Yeah. So so you know what.
Every every year season into the pool industry, you've got to fight through weather and it's just part of the business we're in.
And there's always a slow start to the season and just back to 1919 was the wettest spring on record in the U S. Probably a couple of times here over the over the months and you know we're really just entering the peak pool building season right as you come into let's say the middle of May folks are trying to get that first pool in for me.
Morial day to Memorial day Barbecue I, then theres the big push in June for the fourth of July Party. Then it's everyone. You know you've got the whole August September build season, there's a lot of runway to.
To make up if you get off to a slow start like which seems to be happening here and in many areas of the country. So we don't worry about it I think that's the magic of our dealers do.
Though they might have to start working on a Saturday or Sunday here and there to catch up what they can do that to get those tools and liners and for the homeowner. So we don't I don't think we really worry about it.
Because just look at what happened 19 2021 right.
You keep pushing pools right up to the Christmas I think that's worth fiberglass product can continue to be installed deeper into the winter month than the other two types of products that are out there, which gives us that confidence that.
Slow start won't hurt us long term for the season, okay. Okay. Good. Thanks, a lot guys. Good luck on the rest of the year.
Yeah.
And ladies and gentlemen, our next question comes from Keith Hughes insurers. Please go ahead.
Yeah, two questions I guess first on backlog.
What can you quote dealers in terms of delivery time for most of your fiberglass cells now versus what it was six months ago.
Yes, Keith I'll answer it two ways one it really is region, depending where you sit and what I'll say, there's parts of the country right now where we've we've worked through the backlog were in a really good position, whereas if you the consumer wants your local dealer and you wanted a pool.
And the dealer had the open slot right. That's the key thing at the dealer had capacity had an open slot and had a crew.
I can ship your pool tomorrow in some locations. So I would say in many places we're kind of back to what I would call a normal lead times, where we used to set we used to quote it in in a couple of weeks or other places again, if it's a particular model or a region, where we're still churning through.
Yeah, what it could be out you know still several several months in particular regions where deals have healthier backlogs. Those that are sold out into 2023, So it's really that dynamic and in for the rest of the business again back to the team we've done a tremendous job.
Getting back to what I would call our world class, leading service levels across the industry covers liners.
In ground, our vinyl business, we're in a really good position across the board there and it's not just US I think it's the entire channel the W. Destock into product a deal you can walk in and get the components they need to quickly turn those pools around for the consumer but.
But fiberglass is a little little extended out still in many of the regions of the country.
Okay and.
The acquisition quite roll quarter in Colombia.
Okay.
It's mark.
So we're you know as far as our Radiant goes look we're very very pleased with the way that business is performing.
As part of our Ah in ground pool.
Category, which I think is up around 111 112 million grew nicely in the quarter, we don't specifically break out radiant I'd just remind everybody. It's a it's a relatively small business I think we disclosed that last year total sales were somewhere in the $35 million range.
As pleased as we are with that performance. They also have a pretty full order.
Order book right now so we're not really expecting any real significant growth synergies.
This year, it's probably going to be more of a 2023 before we start seeing that.
Okay. Thank you.
Youre welcome.
And ladies and gentlemen, our next question comes from comes up with.
Keybanc. Please go ahead.
Good morning, everybody.
Okay Ken.
Well I appreciate your patience with all of these questions around a relatively.
New market to us most.
Most of us on the public side of it.
I think like all concerned.
So just within that vein, obviously held the guidance for the year that's good.
And our world.
Better on the gross margin and called out two key headwinds so could you.
Just trying to understand the cadence here.
You talked about any inventory lift and <unk> Mark would you care to quantify the benefit of that.
Yeah, Hey.
Yeah.
Yeah in the in the Hall.
First quarter.
Look we have some nice things going on.
In the gross margin, we continue to realize the benefits of our pricing actions and we're seeing it a S piece increase.
We continue to stay out ahead of inflation the inventory benefit that we mentioned was 230 basis points in the quarter.
And look we're going to give that back over the year as inventory levels come down.
Okay and could you, perhaps I mean generally speaking I think about hard assets.
Get better fixed cost absorption with that largest a component of that 200.
30 basis point lift that how we should think about it.
I think the way you want to think about that is as we've made some decisions to increase our inventory levels. Since the end of the year to help support the business, we see some of our overhead being absorbed into the inventory sitting on the balance sheet.
We do continue to invest in our manufacturing overhead capability.
Which gave us some negative fixed cost leverage because we do want to stay ahead of demand here and make sure that we can address demand going forward. So it's really two different things one is the benefit of the inventory build the other is the absolute size of our overhead going forward that gave us a little bit.
Negative leverage in the quarter.
Interesting interesting and then.
When you talked about kind of headwinds into Q is it reasonable to assume that.
There might be a little more pressure in <unk> versus that.
Adjusted baseline ex the inventory build or is there some seasonality.
That's what that we might expect I'm, just asking last year obviously.
Increasing car.
Cost two Q3 Q4, Q, so I'm not sure we have a clear sense on the operating cadence there.
Yeah, I think as we look at the challenges that Scott mentioned in Q2.
We tend to think about those more as top line challenges and short term in nature.
You know the supply chain challenge.
Has the potential to impact our revenue a bit in Q2, as we worked through that issue and come out clean in Q3.
The same thing with the weather right.
The more of a top line issue, which you know was an April event I think the one that maybe impacts cost a bit can you is the fire right. We'll have to see how that impacts a little it'll have some impact on the top line will probably incur a few incremental dollars there as well.
In the second quarter as we think about the guide for the second quarter as part of our first half color of 46% to 48% of the time line.
Ladies and gentlemen, this concludes our question and answer session.
All of those.
And just do some closing remarks.
Hey, Thanks, everyone. Thank you for joining us this morning.
Really excited for another great year, and we look forward to speaking to you all on the next call have a great day alright. Thanks, everyone. Thanks, everyone.
This concludes today's conference call. Thank you all for attending today's presentation. You may disconnect your lines and have a wonderful day.