Latham Group Inc. Q1 2023 Earnings Call

Good day and welcome to the laser group first quarter fiscal 2023 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Nick Coe Harlow Investor Relations Representative. Please go ahead and begin.

Earlier. This morning, we issued our first quarter fiscal 'twenty to 'twenty three earnings press release, which is available on the Investor relations portion of our website.

You can also find the slide presentation that accompanies our prepared remarks.

On today's call Army, Who's President and CEO , Scott Rydzewski and interim CFO Mark Borsa.

Following their remarks, we'll open up the call to questions.

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.

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 risks and other factors are set forth in the company's all over our report on Form 10-K and subsequent.

Reports filed or furnished with the SEC as well as the earnings release for this quarter posted to its Investor Relations website.

The company expressly disclaims any obligation to update or review 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.

We believe could be useful in evaluating our performance.

Reconciliations of historical adjusted EBITDA to net loss.

Adjusted EBITDA margin and that lost margin calculated under GAAP can be found in our earnings press release.

Will be included in our Form 10-Q for Q1 of 2023.

Reconciliations of net debt and net debt leverage to the comparable GAAP measure can be found in the slide presentation that accompanies our prepared remarks can also be found on the investor Relations website.

I'll now turn the call over to Scott Rydzewski.

Thanks, Nicole good morning, everyone. Thank you for joining us for our first quarter fiscal 2023 earnings call.

I'll begin today's call with a review of highlights from Q1, and a discussion of the momentum we're seeing in our dealer training and Onboarding. The right. The homeowner marketing fiberglass material conversion and auto cover awareness strategies.

Sure, It's Mark to review, our financial results and outlook for 2023.

We delivered net sales of $138 million and adjusted EBITDA of $11 million in the first quarter.

As we discussed on our last earnings call. The pool market has returned to pre 2000, twenty's seasonality versus the demand patterns of the preceding three years. In fact, Q1 2022 set of particularly high record Q1 net sales for our business as we benefited from elevated backlog.

And increased production levels, following a period of supply chain issues and challenges.

Despite the difficult year over year comparison due to our strong operational execution, we delivered stronger than expected sales performance across all three product lines.

Swimming pool covers and wires, we recognized that 2023 will be another tough year for the pool market and have taken deliberate actions to adjust our cost structure.

In November we announced several cost reduction initiatives that we expect to yield annualized savings of about $12 million in fiscal 2023.

This is further supported by our ongoing lean and value engineering work aimed at continuous improvement of our manufacturing processes.

We have also right sized our inventory to align with current demand, while still ensuring excellent delivery lead times across our product portfolio.

All of these efforts supported Q1, adjusted EBITDA of $11 million and adjusted EBITDA margin of 8% exceeding our expectations on both an absolute dollar and margin basis.

Turning to an update on our strategic initiatives.

Late last year, we set an ambitious goal to recruit new dealers ahead of the selling season in 2023, and I'm pleased to say that we've achieved that milestone.

We are also actively continuing to recruit new dealers throughout 2023, and we will continue to train and ramp them up while most of these new deals are small for now they will we believe set us up well for future growth.

Our dealers continue to recognize the value proposition of fiberglass and more specifically I'm working with them as we invest in our regeneration efforts dealer education and training.

We continue to see strong demand for lithium University, where we hosted numerous fiberglass boot camps year to date.

Concerns of an economic slowdown and the interest rate environment continued to weigh on consumer spending which is reflected in our Q1 results and fiscal 2023 guidance. However, our lead generation engine and digital tools continue to point to strong underlying consumer interest in poor shape, giving us confidence in our long term outlook.

Our business and industry.

In light of our strong lead times and enhanced manufacturing capacity, we have been able to ramp up our regeneration efforts, which is translating into momentum and website activity the dealers.

We saw strength across our website and digital tools and apps in Q1.

The number of sessions page views and average session duration across our website all increased year over here we.

We grew users on our my leasing platform I, 100% versus Q1 of 2022 and the number of submissions for pool cost estimate are in downloads of our augmented reality app both grew over 40% year over year in the first quarter.

This supports our ability to drive leads and orders in fact, the number we sent to dealers in Q1 2023 was actually greater than Q1 of 2022 loves.

As we expand our dealer base and deepen our existing partnerships enhance our manufacturing capability.

To execute our director of homeowner strategy, we feel well positioned to drive consumer demand and a difficult macro environment.

We remain confident in the ability of fiberglass pools outperformed the total U S. New pool installation market as we again demonstrated in 2022.

Fiberglass pools are vastly underpenetrated in the U S compared to more mature markets like Australia, where fiberglass represented 70% of inbound swimming pools.

In 2019, we acquired the largest pool manufacturer in Australia, New Zealand neurology, because we admire how they drove the conversion from concrete pools to fiberglass in Australia.

Our North American market growth strategy is led by a similar focus on marketing the benefits of fiberglass molds versus concrete pool directly to both homeowners and dealers.

We're still early in our journey of driving the conversion from foundry to fiberglass in the U S. But we are seeing strong momentum driven by leap.

We are pleased to report that fiberglass penetration grew to 21% share of U S. In ground pool installations in 2022.

The gain of three points of share versus the prior year. Despite the U S in ground pool installations being down 16%.

We see this as a testament to the momentum we are building for fiberglass and reinforces our confidence in our strategy since we launched a rebrand and b to B to C strategy in 2019, we've now driven five points of share gain for fiberglass in three years.

Another product line I'd like to highlight is cars. We've told you before about the winter Stacy covers which go on food. After the spring season is over I'll protect pools from winter weather and provide laser with a steady revenue stream, both new installations and replace that.

Winter safety covers needed replaced every eight to 10 years across all places in ground pool, whether they are lethal pools or not.

Today I'd like to also talk to you about automatic safety Commerce automatic safety covers housekeep children and pets when it cools out and use the help keep pools clean and a lower homeowners cost of maintenance and energy water and chemicals.

In Q1, we grew automatic Stacy covered in that sale, even when compared to strong net sales level with the prior year first quarter. In fact, we doubled net sales for our automatic safety covers in fiscal 2022 versus fiscal 2019, we take pride in our auto cars each one of them late in the automatic stay.

E Commerce is made to order precisely, but a whole lot of exact all dimensions.

Separately, we are excited about the launch as measured by labor.

AI powered digital measuring tool that will modernize and simplify the measurement experience for dealers for winter safety covers and for England liners.

This technological breakthrough allows dealers to measure the entire pool perimeter and to capture interior renderings of the pool shape and unique features with measure dealers have precise specifications for winter safety covers and inbound liners within minutes saving them time and labor. We have launched the initial rollout of measured by late.

But what are safety cover select dealers well all know why we're now in the early innings. We believe measure will be a growth opportunity for winter safety covers an in ground liners has been looking at 'twenty 'twenty four and beyond.

Before I hand, the call off the Mark I'd like to touch on what gives us the confidence reiterate our fiscal 'twenty two 'twenty three outlook today.

First we delivered Q1 performance that beat expectations in spite of a continued challenging macro environment and a difficult year over year comparison.

Second based on what we're seeing in the market much of the softness in overall U S School starts this year isn't a concrete pool market driven by weakness for newly constructed houses, especially in many states, where we are underpenetrated.

We view this as an exciting opportunity to convert what would otherwise be a concrete pool. The fiberglass tools in those markets down the road as we target. These homeowners build their awareness of fiberglass and support their pool purchase journey.

Third and most importantly, we're seeing momentum in our website activity and regeneration pools given the results that we are driving we will continue to focus our efforts and lead generation to drive increased demand in the second half of the year and into 2024 as dealers starting to plan for next year with that I'll turn the call over to Mark.

To review, our first quarter 2020 results in greater detail Mark.

Thank you Scott and good morning, everyone.

Please note that all comparisons we discussed today are on a year over year basis compared to the first quarter of fiscal 2022 unless noted otherwise.

Net sales for the first quarter of fiscal 2023, $138 million, which is down $54 million or 28% as compared to Q1 of 2022 a.

A quarter in which we delivered 29% year over year growth.

This year's 28% sales reduction was comprised of a 30% decline in volume, partially offset by a 2% increase in price.

As expected year over year comparisons reflect similar trends to what we saw in Q4 of 2022, notably are returned to pre 2000 twenty's seasonality in Walmart.

Q1 of 2022 was a tough comparison for us as those results benefited from elevated backlog and increasing production levels.

You may recall in the second half of 2021, our lead times extended as we saw strong demand coupled with raw material supply shortages, which limited our production.

As we took action to resolve our supply chain challenges. We entered Q1 of 2022, well positioned to fulfill customer orders at an accelerated rate leading to a quarter in which we delivered 29%.

In Q1 of this year, we experienced continued destocking in our packaged foods product line as our wholesale distribution partners normalized their inventory.

Which has taken on greater urgency as interest rates make inventory carrying costs more expense.

Lastly, macroeconomic challenges.

Driven in part by those higher interest rates persistent inflation.

Ongoing recessionary concerns have continued.

Looking at our net sales results across our product categories for the quarter.

And growing pool sales declined 30% to $79 million driven by the combination of continued wholesaler destocking and packaged schools.

Lower year over year fiberglass pool sales compared to the unseasonably strong sales levels in Q1 of 2022.

Miners declined 44% to $26 million.

Driven by strong sales in the year ago period, due to elevated backlogs and improved production levels.

Lastly, we're pleased to see our cover product line sales flat year over year at $33 million, reflecting the strength of our market leading automatic safety.

We see auto covers as a growth opportunity as we continue to drive awareness of the economic and environmental benefits of this product.

We anticipate that sales will decline sharply in Q1, and we're pleased the actual level of sales that we delivered was above our expectations.

Gross profit of $33 million decreased by $38 million or 53% compared to Q1 of 2022, primarily driven by the lower level of sales.

Gross margin decreased to 24, 2% compared to 36, 9% for the prior year period.

<unk> than two thirds of the gross margin decline was driven by negative fixed cost leverage due to volume declines driven in part by the pool markets returned to pre 2000 twenty's seasonality.

And the sell through of higher cost inventory due to inflation, we experienced throughout 2022.

We expect to see noticeable improvements in both of these headwinds going forward as we head into the peak selling season in Q2 and Q3.

During which we see our highest level of net sales and with inflation monitoring moderating in several of our raw materials are year over year comp becomes less of a drag on gross margin.

We also reduced inventory in the first quarter negatively impacting our gross margin.

We expect this to continue as we rightsize, our inventory to better align with current demand.

We will of course maintain sufficient inventory to maintain our industry leading lead times.

Selling general and administrative expenses decreased to $33 million from $45 million in Q1 of 2022.

This decrease was primarily driven.

By a $9 million decrease in noncash stock based compensation expense.

SG&A, excluding noncash stock based compensation expense decreased $3 million, reflecting benefits from our cost reduction actions taken in the fourth quarter of fiscal 2022.

As a percentage of net sales SG&A, excluding noncash stock based compensation increased to 19, 4% from 15, 4% for Q1 last year.

As a result.

Adjusted EBITDA for the first quarter was $11 million a.

A decrease of $37 million or 77% from Q1 of 2022.

Adjusted EBITDA margin decreased to 8% from 25% in Q1 of 2022.

Both our adjusted EBITDA dollars and margin exceeded our expectations driven by better net sales and the resulting impact on profit.

We continue to work to improve margins by focusing on operational efficiently efficiency and prudently managing our costs.

We took deliberate cost actions in response to the market conditions, including a reduction in our workforce and streamlining our cover M aligner manufacturing footprint.

We continue to manage our cost structure to align with the demand environment, including data hiring.

Optimizing our production and staffing levels and managing down our inventory.

We are pleased to have begun production, both our Kingston in Oklahoma fiberglass manufacturing plants.

As part of our continue evaluation of the demand environment, we are slowing the production ramp up in these two facilities, while ensuring we are positioned to maintain lead times and capitalize on the long term growth and distribution cost reduction opportunities. These regions present.

We continue to feel comfortable with our balance sheet health and remain disciplined in our capital allocation strategy.

As of April one, we had cash and cash equivalents of $55 million and $27 million of borrowing availability remaining on our $75 million revolver.

Giving us total liquidity of $82 million, which is more than sufficient as we head into the time of the year our operations typically generate the majority of our cash.

Net cash used in operating activities was $14 million for Q1, 'twenty three versus $57 million last year drew.

Driven by year over year decreases in working capital.

Total debt was $360 million at the end of Q1 and as expected we saw our net debt leverage ratio increased to two nine times at the end of the quarter, primarily as a result of the year over year reduction in adjusted EBITDA.

As we head into the peak pool building season, and the time of year, our business normally generates the majority of our cash we would expect our net debt leverage ratio to moderate in the second half of the year.

Looking at Capex spend.

Capital expenditures were $10 million compared to $7 million in Q1 last year, primarily driven by investments in our Kingstone and Oklahoma manufacturing facility projects.

With our solid Q1 performance and as we gear up for crude oil building season, we.

We are pleased to affirm fiscal year 2023 outlook for net sales of $565 million to $615 million adjusted.

Adjusted EBITDA of $90 million to $110 million and capital expenditures of $35 million to $40 billion.

Our outlook reflects our first quarter performance as well as continuing macroeconomic challenges.

Driven by the interest rate environment and concerns of an economic slowdown.

Weighing on consumer spending and demand.

This is resulting in anticipated declines in the industry for new U S in ground pool installations in 2023.

We expect a normalization of packaged food inventory in the wholesale distribution channel from elevated levels to remain a headwind at least through the first half of 2023.

At the same time, we continue to make progress executing our strategy to drive material conversion from concrete fiberglass swimming pools.

Supported by our continued momentum on our lead generation efforts in digital tools.

We would expect this to enable us to outperform the market again this year.

We're also realizing the benefits from previously announced cost reduction actions and continuous improvement initiatives and we continue to closely monitor manage and adjust our cost structure.

Lastly, we continue to take a disciplined approach to capital investments with a focus on the completion of our Kingston in Oklahoma fiberglass manufacturing facilities with the majority of spend weighted in the first half of the year.

Scott with that I'll turn it back to you for closing remarks. Thanks, Mark looking ahead, we remain confident in the long term fundamentals and growth opportunities of our business.

As I discussed earlier U S fiberglass penetration that expanded to 21% in 2022, proving fiberglass is ability to take share even in a down market as U S. Ingraham residential pool inflation in 2022 were down 16% year over year.

We continue to position ourselves well to capture opportunities with fiber glass with enhancing our manufacturing capabilities, notably our new Kingston fiberglass manufacturing facility began producing the first pools in April enabling us to continue to grow in the eastern Canadian and U S northeast and upper Midwest regions.

And to better balance our manufacturing footprint.

We are also now shipping orders out of our Oklahoma fiberglass manufacturer facility, which will allow us to better service existing dealers in the U S southwest as well as the significantly ramp up do you have a recruiting efforts in that market.

We are driving a similar awareness driven strategy with our automatic safety covers which is translated to momentum in net sales as the installed pool base continues to grow and age overtime, we see strong opportunities for recurring revenue portion of our business replacement covers and liners. We believe we can further capitalize on growth opportunities.

Attunity the winter safety covers an in ground liners as we continue with the launch of measured by late.

Our rollout plan is quickly ramping up for cars and we will continue to accelerate its route to <unk> and <unk> as we head into the key cover season in late Q.

We continue to benefit from our lead generation efforts and are seeing strong performance across our website and digital tools. This indicates continued consumer interest in pool ownership that we can tap into over time.

We are focused on deepening and expanding our relationships with dealers by enhancing our lead generation and on training and providing value added resource.

All of this gives us strong confidence in our long term growth strategy, which we believe positions us to capitalize on the attractive trends in our industry overtime.

We will now open the line for questions.

Thank you will.

I'll begin the question and answer session.

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At this time, we will pause momentarily to assemble our roster.

And the first question will come from Shaun Calnan from Bank of America. Please go ahead.

Hi, guys. Thank you for taking my question.

First the top line came in ahead of your expectations. Despite some of the other pool companies missing when you talk about where you outperformed versus your expectations coming into the year and then what are you seeing in a market. That's keeping you from raising the full year guide despite the speed.

Hey, Good morning, Sean This is mark nice.

Nice to hear from you. Thanks for your question, Yes, we're.

We're pleased with the start that the team here to deliver to get us off to the first quarter here in 2023.

As we mentioned, we outperformed slightly in all three of our product lines.

So we feel good about that starts I think it's really a reflection of good work of the team here.

So im little stronger demand than we had expected.

As far as our full year guide.

Very pleased to reaffirm where we're at.

It's still early in the season, Jon We're just now starting to get into the peak pool building season.

So we feel very confident about where we are we're happy with the start.

A little soon to start thinking about raising guidance until we get further through the cool building season and look there's there's still the macroeconomic challenges out there continuing the rates and higher interest rates inflation.

So if there is some uncertainty there's a long way to go on here, yet, but we feel really good about where we are to get started.

Okay. Thanks, and then so we're seeing new pool permits come down as much as 50% year over year in some region, but based on the lead generation metrics you've provided it looks like the interest in Latham as the offering is still pretty high. So can you talk about what youre hearing from your dealers in terms of backlog.

And those leads turning into actual product or project.

Yes, Sean so good morning. This is Scott I'll I'll take this one.

I think when you look at correlating data that's out there and published in various reports and a lot of that is in what we would refer to as the sand states, which we all know we're kind of on a concrete dominant.

<unk> locations out there and believe them locations. We're not you know we don't have high penetration yet.

So as we're funneling leads to our dealers where they have capacity you know, we're able to continue to drive that lead generation.

Prove the quality of the leads I think more importantly, as we look at where fiberglass sits from a value a value proposition standpoint versus concrete.

Upfront costs little lower cost of ownership.

We're seeing consumers start to trade down from concrete the fiber glass, which is driving the acceleration that we showed in our results last year and also part of why we believe fiberglass will outperform the market here in 2023.

So the backlog I think it's back what was the other piece of the question in there I think we still see some dealers with good backlogs you know through the first half of the year starting to think about the second half of 2003 and why we are really trying to in general try lead gen to them to make sure they stay full and the back half and just expanding a little.

Kingston, and Oklahoma coming online have given us the ability to now re ramp up new dealer acquisition in those territories, where we've been paused to start to fill those facilities by driving incremental demand in locations, where we've been maybe maybe longer lead time than we had wanted out of factories not generate.

Any any digital work or effort. So I think good job across the board as Mark said with the team firing on all cylinders here, but I'd say cautiously optimistic as we do come into the second half with the economy. The uncertainty that's out there, but we feel pretty good covenants of the peak building season right now.

Great. Thank you.

Youre welcome.

And the next question will be from Matthew Bouley from Barclays. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions and welcome back Mark.

So.

<unk> up.

Picking up on the fiber.

<unk> fiberglass versus concrete it sounded like when you guys speak of a decline in the industry. This year I think I heard you say at the top that you would expect that to be more concentrated on the on the concrete side and.

Now you've got the final PK data for 'twenty. Two so just curious your thoughts on you know what is embedded from a market expectation perspective.

You know in terms of new pool starts this year within your guide and kind of your own expectations for fiberglass share gain within that thank you.

Yeah, So so Matt.

I think when we set the guidance for the full year, we anticipated now another tough year from a down market standpoint, no. We don't have a lot of exposure to that concrete market, which is tied to new housing and I think our expectation is we'll see that category all much more drastically than in <unk>.

Line with probably what some others are saying out there from a market standpoint.

Our view is that you know continuing to focus on on the fiberglass conversion story, you know, 25% to 30% lower upfront cost as I said, just a few moments ago.

Resonating and when you look at the data. We finally share with you guys you know the market was down.

The 16% last year, and we were able to grow fiberglass unit volumes in a down market.

Picking up three points of share. This has been a metric I think we've been asked a lot about over the last couple of years, you know we put it back out there in the five points of share gain we're going back to 2019 and this is what's going to drive our long term growth strategy here is continuing to focus on it.

On all fronts with the new facilities coming online banking good capacity back into the supply chain standpoint, you know, we believe we will outperform the market again, we have not.

Come out and said specifically what do we think fiberglass growth will be or will there be growth in 2023, but we would get it clearly state will outperform and that's been the focus of what we've done you'll have just in the last couple of years, but I think last now.

Six seven years, we've proven that with some of the data we've shared with you guys. Prior.

Okay.

Awesome, that's great color. Thank you for that Scott and then.

Second one on the on the gross margin side and kind of.

Cadence and seasonality and all that I mean, it sounded like as you know we've sort of return to the normal seasonality. This year that you guys expect to increase production volumes as you move into the summer.

Summer months and all that.

Just just curious if you can put a finer point on on that.

What what do you think the impact of increasing.

Production will be or the benefit will be as you go through this year and kind of what what's the kind of result in cadence that we should expect on the gross margin side. Thank you.

Hey, Matt. Thanks. So this is this is mark on that cadence I think maybe a couple of things just to start with.

The midpoint of our guide for the year were reaffirming today as a cause our adjusted EBITDA margin of 17%, which is obviously better than what we delivered in the first quarter.

I think we start with the seasonality concept that you mentioned, we like we saw in Q4 and in Q1, we're seeing a return to that I.

I would call it the pre 2020 seasonal pattern of the of the season.

With Q1, and Q4 being our lowest revenue.

Quarter is we tend to see lower lowest gross margins in our lowest EBITDA margins and so we're seeing that play out.

I would expect that as we move into Q2 and Q3 the peak cool building seasons, Matt that we would see improvements in both of those.

Also when you look at the.

Q1 gross margin.

We have a really tough comp.

Coming off of Q1 of 2022.

I had a couple of things really impacted us on the gross margin side one is negative.

Negative fixed cost leverage while we've been right sizing our cost structure as you know what the actions we took in Q4.

With that kind of a revenue decline and we have a fixed cost structure in place to support the peak will building season.

That gave us some headwinds in the first quarter I think the other thing we saw Matt was some really higher cost inventory running through our P&L versus last year as we experienced inflation throughout the year both of those things the negative fixed cost leverage will mitigate as we move into.

The second and third quarter and as we start seeing a moderating.

Inflation and maybe even some deflation for the year over year impact of that higher cost material will also start to mitigate so we should see improvements going into the second and third quarter for both of those things.

And at the same time, Matt we continue to manage and look at our cost structure right. The macroeconomic challenges out there are continuing.

<unk> gaming hiring we're looking at optimizing production.

Our staffing we're taking the steps now what we're very happy to see Oklahoma.

It seems to come up to speed on production, we are slowing the ramp there to better lineup with demand. So I think you put all those things together, we would expect to see margins improving as we go through forward for the balance of the year and get us to that guide that we reaffirmed.

Great Mark Scott. Thank you guys and good luck.

Okay. Thanks.

And the next question is from Susan Mcclary from Goldman Sachs. Please go ahead.

Thank you good morning, everyone.

Yes.

My first one Susan wants to.

Good.

Good morning, welcome back Mark.

Thank you nice to talk with you, yes, you too.

First question is can you talk a bit about what youre hearing from the dealers and activity on the ground are you seeing that theres been any impact to consumers the ability or the willingness to take on these projects as lending standards tightened over the last month or two and how are they thinking about working through.

Of those headwinds.

From a dealer perspective.

And so Susan I'll I'll take this one.

We spent quite a time with dealers over the last few months just trying to get a gauge as to season's ramping what do they need and you know the one thing they've asked for as you know Hey, we would like to see more leads online as they start to look at second half of the year. So you know we kind of double down on our efforts there on the digital and the lead Gen.

We shared with you guys and a lot of the metrics.

Thank you.

The consumer who's buying let's say late in fiberglass rule as we spoke before and a higher income level, maybe your own a better financial position situation. You know people are staying in their homes a little bit longer now. So what we're seeing is folks are still not a lot of equity still sitting on on.

Cash and still willing to plunk down you know that.

Cash buyer mentality for swimming pool in the backyard and and even with rising interest rates from a housing standpoint, we're hearing a lot of people, saying.

I'm, probably not going to be moving now I'm gonna be here for a while I'm sitting on a mortgage.

In the.

Mid twos, maybe 3% like in where they are like in the equity in their home you know continuous basket of hundred $125000 on the backyard makeover.

So dealers feel pretty good.

There are pockets, where some dealers are saying Hey look you know what we've seen it slowing you know we know we'd see folks getting a little concerned on where pricing is right.

Pool in the backyard and I think that benefits us again as consumers might have been looking at a concrete pool downshifting to that fiberglass pool.

And let's say, we've even seen someone who might monitor fiberglass will not be able to maybe make that reach versus the final.

Step into a late the bile pool, which were completely okay with.

Well I would say overall, our dealers I think so feel very upbeat and I think the telling sign for us it's been new dealer activity that we're seeing dealers willing to come into the industry right now see an opportunity seem demand in markets seeing some dealers completely sold out for the year.

Not able to get a pool in the ground and one one last thing I'll share, which I thought was very very creative a lot of dealers.

Advertising kind of what I call. It the BMW these payment for how to get into a swimming pool, you can be swimming for as little as $2 99 a month.

In your backyard. This summer so theyre getting creative with the financing angle, making it feel like a car payment in some cases to get activity in the showroom now granted the interest rate on that loan and maybe the length of the loan maybe.

Amongst these longer than a car payment, but it is making the pool affordability, a little bit better for the consumer and as we've talked you know, there's just that long term interest in swimming pools in North America.

A lot of backyard without a pool.

And we're going to continue to support the dealers with the training and all the initiatives, we do and try to get them full for the second half of the year.

24.

Okay. That's very helpful color, Scott and I guess following up a bit on that.

Mentioned that you do you expect the debt.

Inflation to moderate a bit as we go through this year, but I guess as you do think about the competitive dynamics on the ground. How are you thinking about price cost going forward and the ability to hold onto some of that pricing that you've put in place in the last two or three years and any anything on that side that we should be aware of.

Yeah, I'll take the pricing piece.

<unk> comment on the price versus cost impact on the margins going forward.

As we said you know the industry typically and historically have not rolled back prices.

As we look forward and even though maybe we are seeing inflation or cost moderate across the board.

There is still extremely elevated if you look back to 2019 type levels, we still have the surcharge in place on fiberglass.

That as we see fit but when you start looking at labor and sometimes even gas oil free delivery, we've seen a little bit of relief there, but still fairly elevated so we feel pretty good on on where we will sit with our price at this point, we will be selective on here and there where we can on <unk>.

Well I don't think we need to see any drastic peeling back of the price.

So that's kind of our current views right now thats, what kind of laid out in our in our guidance.

The guidance now marketing you want to talk to your margin piece on the cost side, Yeah. Sure can do so you know in the first quarter here we saw.

2% benefit from higher prices, which is much closer to kind of our historical level of annual pricing.

As we see inflation moderating, maybe even a little bit of deflation.

We would anticipate that we'd be able to stay ahead of <unk>.

Things on a cost price cost basis, if inflation.

Picks back up again or that proves not to be the case, we're prepared to do whats necessary with pricing.

To stay ahead of the game.

Yeah.

Okay. Thank you for all that color and good luck with everything.

Thanks, Susan.

Again as a reminder, if you have a question. Please press star one.

Our next question is from Andrew Carter from Stifel. Please go ahead.

Hey, Thanks, Good morning, first thing I wanted to ask about it but I think he said they leads were up from the prior year number one I forgot I think we've talked about this I think you've kind of redefined kind of leads that you're sending to your dealers is that the case, therefore highly quality comp and within that I don't know how much you can tell in the shoulder.

<unk> like probably since October through April , but what have you been seeing on conversion of elites encouraging or really too early to tell for the season.

Yes.

Yeah. So.

I mean youre right Andrew on the lease right. It's not just the absolute number but it's also focused on improving the quality of the leads and we've not disclosed kind of conversion percentages or anything because it does vary dealer by dealer, but what we can say is as we improve the quality of the lead like the White Hot Lee.

There is there is a much higher probability of the conversion factor of those types of lead because the consumers right establish their budget they picked out their pool and established in my late the Macao you know, they're ready to make that purchasing decision and maybe the last thing they've got to do is just talk to a dealer and finalized how theyre going to finance it.

So those that are getting those leads are seeing very high conversion rates on from a percentage standpoint, and I think as Joel and the marketing team continue to fine tune this engine.

Region by region, where we're really dialing in the dynamics of how we do this on being very creative.

The dealers right down as we've talked a lot. So the ZIP code level. So we like where we are I think the dealers are starting to see the incremental activity. They are feeling good about it.

But you know it's one of those things we will just continue to do continue to drive it and when you look at that.

The numbers on the slide.

Slide we shared with you guys and we haven't given the absolute number but its substantial in terms of the numbers, we're talking about and it will continue to ramp.

As we move through this season I'm trying to get that second half of 2023 fill garnered 24 season.

Okay.

Second question I think if I, if I understood. This correct, Italy, the Kingston, Oklahoma, you're kind of adjusting to a slower ramp just because of demand I guess when you think about those two facilities I guess Kingston in particular, it's a little bit of a game changer for your supply chain.

Do those potentially open up additional optimization opportunities with the network I imagine youre kind of thinking a different volume environment than you were two years ago is that a good way to think or is this purely a this opened up sales.

It puts you in a better competitive position.

Yeah, Andrew it's a good point, because it's I'd say, it's a whole will be above you know we have been limited with our ability to kind of grow and expand in the northeast where we are capped from a capacity standpoint in the facility that was up there as well as west Virginia. So you know as I mentioned a moment ago.

So we really werent able to actively be recruiting dealers the cost to serve those markets with somewhat of a disadvantage to us and the dealer on freight and getting pools into that region. So getting that plant up ramping it recruiting new dealers into that market.

Potential savings coming down the road from the freight helping to drive the margin improvements as we as we ramp those facilities and more importantly, I think the lead time of <unk>.

Pools in those markets will shrink drastically.

From where we have been over the last say 12 months.

Same exact story in Oklahoma up getting Oklahoma ramp.

Not having to ship tools into that market from California, Tennessee, Florida will be a cost advantage to us better lead times better service able to term dealer acquisition back on what we do want to be cautious with how we do ramp those facilities block now we're happy to say both have come online.

With the ramp would be really nice.

No I think we actually just heard yesterday.

And one of my staff calls, but first pool that came out of cadence than last week got installed yesterday as well with just do you think about that you know for one week from when that first tool rolled off the line now that pools now on the ground with another satisfied all linked to the homeowner enjoying there.

Kingston fiberglass swimming pool out of Kingston.

Hum.

That's all I'll pass it on.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Scott Rydzewski for any closing remarks.

And so again thanks, everyone for your continued interest and support of late so I'm going to look for.

Part of meeting with many of you in upcoming conferences, this spring and into the summer and providing further updates on the next earning call and hope everyone has a great day take care.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Well done.

Yeah.

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