Q4 2024 Latham Group Inc Earnings Call
Good afternoon, and welcome to the lay them groups fourth quarter and full year 'twenty 'twenty four earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey 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 and then two.
Please note that this event is being recorded.
Casey Coterie: I would now like to turn the conference over to Casey Coterie Investor Relations Representative. Please go ahead.
Speaker Change: Thank you. This afternoon, we issued our fourth quarter and full year 'twenty 'twenty four 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 president and CEO, Scott Rich F E N C F O olive or a cloud.
Speaker Change: Following their remarks, we will open the call to questions. During this call. The company may make certain statements that constitute forward looking statements, which reflect the company's views with respect to future events and financial performance as of today or the date specified.
Speaker Change: Actual events and results may differ materially from those contemplated by such forward looking statements due to risks and other factors that are set forth in the company's annual report on Form 10-K, and subsequent reports filed or furnished with the SEC as well as today's earnings release.
Speaker Change: Company expressly disclaims any obligation to update any forward looking statements, except as required by applicable law.
Speaker Change: In addition, during today's call the company will discuss certain non-GAAP financial measures reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that accompanies our prepared remarks, which can be found on our investor Relations website I'll now turn the call over to Scott Rydzewski.
Scott Rydzewski: Thanks, Stacey and thank you all for participating in today's call to discuss our fourth quarter and full year 2024 results and review our outlook for 2025, we are pleased with how well the team navigated challenging industry conditions in 2024 in the face of an estimated decline approximately 15% in U S will start.
Scott Rydzewski: Ladies and continue to outperform the market and we are positioned to achieve considerable sales growth and accelerating profitability in 2025 and beyond key takeaways of our full year performance include.
Scott Rydzewski: First our success in driving increased market penetration of fiberglass.
Scott Rydzewski: By our analysis.
Scott Rydzewski: Last pools represented 24% of U S School starts in 2024 up from 23% in 2023, and a gain of six percentage points in 2021.
Scott Rydzewski: In addition to the cost advantages are sales and marketing campaigns have been focusing on our key competitive benefits of fiberglass over concrete pool, mainly go fast and easy installation low maintenance requirements.
Scott Rydzewski: Oh friendly attributes, which are resonating with consumers in 2024, but I realised schools represented 75% of our inbound wholesale compared to 73% in 2023.
Scott Rydzewski: Second our adjusted EBITDA results were a highlight of the year, reaching just over 80 million and representing an adjusted EBITDA margin of 15, 8% 30 basis points ahead of the prior year and considerably lower sales. The strong performance was led by robust gross margin expansion that reflects our structural <unk>.
Scott Rydzewski: <unk> cost structure and disciplined SG&A spending while we continue to increase investments in growth initiatives.
Scott Rydzewski: Third the benefits of our acquisition of <unk> Central which has enabled us to vertically integrate our automatic safety car line and in 29 States recover star Central was our exclusive dealer and has set the stage for revenue synergy opportunities and additional acquisitions. In this arena cover story is a good example of the types of accretive acquisition opportunities.
Scott Rydzewski: In the market.
Scott Rydzewski: And lastly, we ended 2024 and a very strong financial position, providing the flexibility to invest in organic growth projects and consider potential acquisitions.
Scott Rydzewski: Oliver will cover the specifics of our fourth quarter and full year results later on this fall.
Scott Rydzewski: We were pleased that our performance was in line with our expectations and enabled us to exceed the midpoint of our full year sales guidance and demonstrated our ability to continuously drive operational efficiencies and savings even in a declining demand environment.
Scott Rydzewski: Importantly, while we effectively manage through the substantial decline in U S School starts in 2024. We also moved ahead with strategic investments in initiatives that are designed to drive substantial growth over time and are focused primarily on our two major growth product categories, namely fiberglass pool and automatic pool safety cars.
Scott Rydzewski: The most prominent lead growth initiatives in the plant expansion of laser market share in the same state, which we define as Florida, Texas, Arizona and California.
Scott Rydzewski: This opportunity in context, the Santa Fe collectively approximately two thirds of U S School starts in the U S. In 2024, and we expect that number will be similar in 2025.
Scott Rydzewski: Approximately 17% of <unk> total fiberglass fulfilled in 2024 were in the San space and we're the largest pool manufacturer in North America with nine plants, producing Barbara last rule the market share expansion opportunity for us is clear.
Scott Rydzewski: And executing on our sand state strategy, we're focused on four key priorities.
Scott Rydzewski: We ended our pool dealer base, which involves working to increase the productivity of our existing dealers as well as standing up new builders and converting concrete builders to fiberglass.
Scott Rydzewski: Targeting masterplan communities, which are large scale mixed use residential developments with robust curated amenities the largest of which are found in Florida and Texas.
Scott Rydzewski: Aligning our product offerings with market demand and the sand states, where builders and consumers tend to favor rectangular pool shapes pool spa combos and smaller sized one pool. This year, we plan to launch several new fiberglass pool models, but these characteristics to continue to increase our market share in the same states.
Scott Rydzewski: Addressing our marketing campaigns, specifically to consumers and builders in those markets in other words, we're highlighting the vast our installation and lower cost of ownership and concrete to consumers and stressing the benefits to builders, such as being a more profitable and faster to scale in concrete and we believe the scarcity of labor will be a tailwind.
Scott Rydzewski: For fiberglass given a much greater labor intensity associated with building a concrete pool versus the fiberglass.
Scott Rydzewski: Of course, gaining a meaningful share of the same states marketplace will take time, but we're encouraged by the initial dealer builder and consumer response in the short time since we began mining the strategy for example, our <unk> AD campaign, which stands for and get out of the stone age when Washington, Texas during the fourth quarter of 2024.
Scott Rydzewski: Sure and resulted in over 40% more leads for our dealers than the prior year and in Florida later sponsored events Babcock Ranch Master planned community on over 170000 acres have attracted large crowds and solid regeneration. We have a full range of targeted marketing activities planned in Florida and Texas.
In the coming months and are expecting to see incremental sales from these initiatives beginning this year.
Scott Rydzewski: And while our primary focus in the same state non conversions of fiberglass pools from concrete. We also see the CMC does an excellent market for increased adoption of automatic safety Commerce lengthens automatic pool covers offer unparalleled safety women in isolation barrier, when they're closed or sealed off all sides of the pool.
Scott Rydzewski: In addition towards safety benefits. This product line offers several important savings in maintenance benefits for pool owners, including significant reductions in water evaporation.
Scott Rydzewski: Lower pool heating and electricity costs and reduced chemical usage in essence, they often pay for themselves at the four to five years of ownership and comedy multiyear warranty.
Scott Rydzewski: In August 2024, we acquired our largest automatic safety cover dealer cover star Central the vertical integration of this product line and the acquired geographies and expanded our adjusted EBITDA margin and we're working together with the leadership team at cars are central to accelerate the adoption of this excellent product line.
Scott Rydzewski: Today, we are also very excited to announce two smaller but strategic acquisitions, bringing in our cover star in New York and cover start, Tennessee bars, which further strengthens our position in this growing product category.
Scott Rydzewski: Looking ahead to 2025 industry conditions are slightly more favorable than they were one year ago, but we believe trough market conditions are likely to continue through much of the year. Therefore, we are managing to a new U S. Cold starts in 2025 that will approximate 2024 levels, but we have the ability to quickly and efficiently.
Scott Rydzewski: The ramp up to capture any increase in market demand.
Scott Rydzewski: As you have seen from our earnings release, we expect to considerably outperformed the market in 2020 by supported primarily by our market share gains in the sand states increase adoption of auto covers and the impact of last year's acquisition of course, our central along with the contribution from the two small acquisitions, we just completed.
Speaker Change: I will now turn the call over to Oliver our CFO to review, our fourth quarter and full year financial performance and discuss our guidance for 2025 Oliver.
Thank you Scott and good afternoon, everyone. Please note that all comparisons we discussed today on a year over year basis compared to the fourth quarter of fiscal 2023, and full fiscal year 2023, unless otherwise noted.
Oliver: Net sales for the fourth quarter of 2024 with $87 million down 4% compared to the 91 million in Q4, 2023, reflecting lower volumes from industry softness partially offset by continued fiberglass conversion and the acquisition of come of South central.
Oliver: Based on the normal seasonal cadence Q4 is our slowest period and all of our sales performance was slightly ahead of our expectations.
Speaker Change: Byproduct line Enron Kuehne says were $44 million down 5% from Q4, 2023, reflecting soft industry conditions, while its still outperforming the overall pool market.
Speaker Change: <unk> says were 31 million in the quarter down 2% with declines from industry softness partially offset by the benefits from our <unk> Central acquisition in August.
Speaker Change: Lino says were 12 million down 5% compared to the fourth quarter of 'twenty two 'twenty three remaining resilient relative to the overall pool market due to the replacement cycle of these products.
Speaker Change: Despite the decline in sales, we achieved a fourth quarter gross margin of 25%, which is a 130 basis points above last year's 23%.
Speaker Change: This is the result of our production efficiencies gained from our lean manufacturing and value engineering initiatives and they benefit from the acquisition of cover South central.
Speaker Change: SG&A expenses increased to 27 million up $3 6 million from 24 million in Q4, 2023, largely driven by investments made in sales and marketing initiatives to drive fiberglass penetration increased performance based compensation as well as by the acquisition of <unk>.
Speaker Change: South central.
Speaker Change: Net loss was $29 million or 25 cents per diluted share compared to 0.1 million of net income or zero cents per diluted share for the prior year fourth quarter.
Speaker Change: Our net loss for Q4 of 2024 includes a $9 million of nonrecurring noncash income tax expense due to a valuation allowance established on foreign deferred tax assets and a 5 million loss on foreign currency transactions associated with our international subsidiaries.
Speaker Change: Fourth quarter, adjusted EBITDA was $4 million down 6 million or 63% from 10 million in the prior period.
Speaker Change: Primarily resulting from increased sales and marketing spend and higher performance based compensation.
Speaker Change: Adjusted EBITDA margin was 4%, a 670 basis point decline year over year.
Speaker Change: Turning to our full year results net sales were $509 million down 10% compared to 566 million in the prior year.
Speaker Change: Afflicting lower sales volume due to industry softness.
Speaker Change: Byproduct line lasers in growing food sales for the full year were $259 million down 13% year over year, but importantly above the estimated 15% decline in inbound pud starts in the U S. In 2024.
Speaker Change: Throughout the year, we've outperformed the overall in ground pool market, primarily as a result of our success in increasing the awareness and adoption of fiberglass pools as Scott mentioned market penetration of fiberglass pool increased by one percentage point in 2024, and we are working to drive.
Speaker Change: Continued growth of fiber glass across the U S with particular emphasis on the fence states, where there is significant opportunity for us.
Speaker Change: Our lightest sales of $118 million declined 8%, while the common sense of $131 million were down 7%, reflecting softer demand due to the ongoing challenging industry environment.
Speaker Change: The offset by our acquisition of cobalt et cetera.
Speaker Change: Gross profit was $154 million slightly up compared to 2023, a strong indication of the substantial operating improvements we have made.
Speaker Change: Gross margin exceeded 30% an expansion of 320 basis points compared to 27% in the prior year.
Speaker Change: Primarily resulting from production inefficiencies related to lean manufacturing and value engineering initiatives.
Speaker Change: Through procurement and modest deflation.
Speaker Change: SG&A expenses decreased to $108 million from $110 million in 2023.
<unk> and 11 million reduction in noncash stock based compensation.
Speaker Change: Expense as well as the benefits from our various cost reduction actions and restructuring programs.
Speaker Change: These savings more than offset the 8 million and higher performance based compensation and increased investments in sales and marketing initiatives to expand the awareness and adoption of fiberglass pools and grow our market share in defense States.
Speaker Change: Net loss for the full year was $18 million or 15 cents per diluted share compared to $2 million or <unk> <unk> per diluted share for the full for the prior year.
Speaker Change: The net loss for the full year 2024 included $9 million of nonrecurring noncash income tax expense.
Speaker Change: To a valuation allowance established on foreign deferred tax assets and a $6 million loss on foreign currency transactions associated with our international subsidiaries.
Speaker Change: Adjusted EBITDA was $80 million compared to $88 million in the prior year as a result, Ohio performance based compensation and sales and marketing spend I. Just mentioned what is the impact of lower net sales was offset by a structurally improved cost basis.
Speaker Change: Adjusted EBITDA margin of 15, 8% was 30 basis points above the 15, 5% in 2023 same store strong gross margin performance.
Speaker Change: Turning to the balance sheet, we ended the year in a strong financial position, which gives us the financial flexibility to pursue organic and inorganic growth opportunities.
Speaker Change: We ended the year with a cash position of $56 million, even after the purchase of <unk> centre for approximately 65 million in August and the repayment of approximately $21 million of debt during the year.
Speaker Change: Net cash provided by operating activities was $6 million in the fourth quarter and $61 million for the full year 2024.
Speaker Change: We ended the year with total debt of $282 million net debt of $225 million and a net debt leverage ratio at 2.8.
Speaker Change: On a pro forma basis, our net debt leverage ratio was two six at the end of the quarter.
Speaker Change: Capital expenditures were $20 million for full year 2024, compared to $33 million in the prior year.
Speaker Change: This is in line with our estimate of approximately 5 million of Capex spend per quarter.
Speaker Change: As Scott noted we are pleased to have recently completed the acquisition of two additional <unk>.
Speaker Change: We expect the combined impact to provide incremental net sales of approximately $5 million in incremental adjusted EBITDA of about $1 million, which we have included in our 2025 guidance.
Speaker Change: We have successfully navigated a year of challenging market conditions.
Speaker Change: Contributing to that success was our ability to drive meaningful cost structure improvements, including 4 million all savings from restructuring programs and $9 million savings from lean manufacturing and value engineering initiatives.
Speaker Change: We see further opportunities to gain operating efficiencies through continued lean manufacturing and value engineering initiatives in 2025 and beyond.
Speaker Change: We believe these cost improvements have structurally changed our financial model positioning lays them for increased earnings potential amid an eventual industry rebound.
Speaker Change: Turning to our outlook for 2025 as Scott noted, we believe that new U S. Pool starts this year will be similar to 2024 with some room on the upside if consumer confidence improves.
Speaker Change: With this as a backdrop, we expect to achieve meaningful growth in net sales and adjusted EBITDA underpinned by key growth drivers, which primarily include accelerating share gains in the sense, Dave and the benefits of the cover Central New York, and Tennessee acquisition and the <unk>.
Speaker Change: Renewed awareness and adoption of automatic safety covers.
Speaker Change: These factors have informed our 2025 guidance for net sales of between 535 and $565 million and adjusted EBITDA of between 90 and $100 million representing year on year growth of 8% and 19% respectively at the midpoint.
Speaker Change: <unk>.
Speaker Change: With respect to the cadence of the year, we expect a measured ramp up in orders and a first quarter 2025 net sales to be similar to last year's first quarter performance and first quarter adjusted EBITDA to reflect increased investments in the build out of our presence.
Speaker Change: In the sense that.
Speaker Change: This should be followed by progressively higher year on year comparisons in the seasonally strongest second and third quarters of the year.
Speaker Change: Capital expenditures are projected to be in the range of 27% to $33 million higher than 2024 by approximately $10 million, resulting from our decision to develop production molds for new fiberglass poorer models, specifically designed to appeal to the same states market.
Speaker Change: And the addition of usable space in our Florida, and Oklahoma manufacturing facilities for future expansion in anticipation of increased market penetration in the same state.
Scott: With that I will turn back the call to Scott for his closing remarks.
Scott: Thanks, Oliver to sum up 2024, it was a very productive year.
Scott: <unk> demonstrated the increased market penetration of fiberglass and automatic safety covers and the benefits of the structural cost reductions we have implemented over the last two years as Albert noted we expect these factors to drive later as above market growth in 2025 and beyond.
Scott: During our site visit the Laythan separate <unk> fiberglass manufacturing facility in November 2024, we shared our longer term vision I invite you to review the separate site tour presentation posted to the news and events section of our IR website.
Scott: In this presentation, we describe a path for advancing our growth strategy and the results we can achieve.
Scott: When new U S pool starts returned to 78000 per year, we can achieve revenue about $750 million in adjusted EBITDA of around $160 million.
Last time, the market was at that level as 2019, and our revenues were $318 million and our adjusted EBITDA was $61 million, meaning lytham is positioned for outsized growth and we believe our growth has continued potential even beyond this point.
Scott: We're looking forward to a growth year for lasers in 2025 and tracking toward even more expansive growth in the years to come with that operator, I would like to open the call to questions.
Scott: Thank you.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you were using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: At any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
And your first question today will come from Ryan Merkel with William Blair. Please go ahead.
Speaker Change: Everyone. Thanks for taking the questions first off on the guide for 8% sales growth could you break that down between volume price and M&A.
Oliver: Brian This is Oliver thanks, Thanks for the question so the 8%.
Speaker Change: Sales growth in <unk>.
Speaker Change: Our guide from $5 nine to 550 breaks down at about three to about 3% coming from.
Speaker Change: Full year run rate effect from covers our centers as well as the two new acquisitions, which we closed last week, leaving about 5% for organic growth right and Thats. The combination of fiber continued fiber penetration that.
Speaker Change: We have driven success really over the past few years.
Speaker Change: As well as.
The first dividends from our gross revenues, especially the sense that as well as the continued awareness and adoption of <unk>.
Speaker Change: Pricing similar to last year in our guidance is flattish and therefore, not a major thing.
Speaker Change: Okay. That's helpful. Thank you and then my second question can you just.
Speaker Change: Can you just talk about feedback from dealers heading into the season here are what it leads look like and.
Speaker Change: I'm specifically interested in what you are hearing in the sand states that you're starting to see evidence of that.
Speaker Change: That strategy in your investment there is starting to pay off.
Speaker Change: Yeah, Ryan good afternoon, I'll I'll take this one so feedback from dealers all I'll say, it's been a lot more positive this year than last year at the same point in time, you know again as you guys are all aware right, we're coming off of our dealer conference heavy show season, a lot of time in the field with all of our builders and I'd say just everyone in the industry in general.
Speaker Change: I think the word we've been using with everyone as I think everyone's cautiously optimistic about about the year and clearly a lot of this was before that.
Speaker Change: The tariff scenario, we're all fighting with right now real time.
Speaker Change: The way I like to judge as just like <unk> said last year at the same point in time.
Speaker Change: If we look at the majority of our larger dealers.
Speaker Change: One third of them said that their backlogs are flat if not up this year versus the same point in time last year.
Speaker Change: I rewound a year ago. When we were asked that same question.
Speaker Change: No one was seen flat or up so right. So that's a good indication that they are feeling good and specifically in the sand States I'd say, where we're seeing really good progress there.
Speaker Change: New dealers im coming into the area.
Speaker Change: Increase in leads you I think one thing I would like to point to is we we fired up our goods a campaign in Texas in the fourth quarter and the number of leads that we're generating from that campaign at the end of the year was up 40% versus the prior year and we're just getting ready to launch the <unk> campaign here in Florida as well.
Speaker Change: So I'd say early progress.
Speaker Change: As we start to ramp all of that up and bring new dealers in a new master planned communities and specifically because we've been at Babcock ranch little bit longer with our dealer there I'd say, we've seen a lot of really good traction on all the events we've been hosting.
Speaker Change: Last four to five months, there and we would expect that we will start to translate into a nice uptick.
Speaker Change: And as we go forward and I think one of the things I think we can quantify for you guys. You know we did see about a 2% increase in our revenue with fiberglass specifically in the sand states year over year going from 15% to 17%.
Speaker Change: Gold sold so we were really happy with that starting to move in the right direction as we're kind of year end up the early innings of the game.
Speaker Change: Great that's encouraging I'll pass it on best of luck.
Roger: Alright, Thanks Roger.
Speaker Change: And your next question today will come from Andrew Carter with Stifel. Please go ahead.
Andrew Carter: Okay. Thank you very much.
Roger: Afternoon.
Speaker Change: I guess, you mentioned tariffs so could you walk us through kind of your exposure you obviously have a business in Canada. So you've got some stuff moving north potentially some of that I guess is self contained.
Speaker Change: And then I guess, specifically just to kind of kind of anchor us around what Kingston is doing now what kind of expectations were for it was it not only for Canada, but was it for the northeast and does that change at all after kind of California tariffs tariffs coming in I'll stop there and let you guys talk.
Speaker Change: Yes. So so look it's a very dynamic situation I think good news bad news is we have we have had some time to get out in front of this and prepare for the impact for 2020 by I guess the better news is it's not a significant impact for US overall, if you look at what we're importing from the currently announced that tariff impacted country.
Speaker Change: Trees.
Speaker Change: Thank you round up $15 million, our material buy for us overall.
Speaker Change: From from what we see today, what we've really been able to do that over the years as we've completely diversified our supplier base right. We've been dual and Tri source alright. The first lever is ship shifts the buyback to domestic providers.
Speaker Change: Which has been a big help to us.
Speaker Change: Had the ability to say pre buy material and more importantly, a three stage raw material as well as finished goods into the country is ahead of any of the enactment of any of this and we also have the ability to shift manufacturing production between the facilities Kingston specific Andrew as you asked.
Speaker Change: Right the original intent was to.
Speaker Change: I'll be able to put production up there that we could ship back into the northeast again, I'd say, we brought a lot of pool down into our own storage yard presumably here in queensbury.
Speaker Change: We will probably pivot and use Kingston for local production in the Canadian market and again shift production from some of the other facilities here in the U S to fill back into the U S and I think thats the benefit of our really great manufacturing footprint, we have having the nine facilities, having multiple line of facilities in the U S and Canada.
Speaker Change: We can we can quickly maneuver things back and forth and look in at the end of the day to kind of mitigate the full impact of anything we would see price would be the final lever that we would be able to pull in terms of passing it on to the dealers and ultimately the consumers, but again it wouldn't need to be a big number to kind of mitigate.
Speaker Change: Impact.
Speaker Change: For this year.
Speaker Change: Okay.
Speaker Change: Second question, just going back to you.
Speaker Change: The site tour.
Speaker Change: Remember, yes, I'll walked away thinking like eight.
Speaker Change: Capex around the sand states would be taken with a lot of traction youre, taking some today is that based on what you've seen and is it how should we think about the sand states strategy being effective and is it going to be this kind of stepped up add $5 million to $10 million of capex per year from here for the next couple of years or will you do another.
Speaker Change: Kingston plant, if it's really successful pick pick a good location, just how does that kind of capital plan change.
Speaker Change: Yes, I think what we wanted to do.
Andrew Carter: Andrew you are at with Us at the site and Zephyr Hills.
Andrew Carter: It's really about flow and continue on our journey of being able to have better production better flow to get more pulled out the existing location. There. So one right. It's new models in malls that we want to introduce that will resonate in the sand States you know.
Andrew Carter: Smaller pools are more more feature rich with spas and largest built into it and.
Andrew Carter: And more of the plunge pool lineup. So I would say building out that product portfolio to meet the demand profile there.
Andrew Carter: As one right too.
Andrew Carter: Looking on some expansion opportunities at the separate health facility to encourage better flow increase kind of capacity. So we can kind of get more pools in and out the door. There on a daily basis, and then a similar concept with Oklahoma right. When we bought Oklahoma with a multi staged concept there of building that site.
Andrew Carter: Our over a three to five year period as.
Andrew Carter: As we saw demand comment we had really good success in the southwest last year. So I think we're just starting to set the stage for.
Andrew Carter: Smaller capex investments in those plants.
Andrew Carter: I don't see a need for our Kingston like investment in the near term horizon.
Andrew Carter: We've got plenty of capacity to grow into lets say at 78000 number that we talked about before we would have to go drop another big Capex investment like Kingston into the network for us.
Andrew Carter: Thanks, I'll pass it on.
Speaker Change: Thanks, Andrew.
Speaker Change: And your next question today will come from Tim Weiss with Baird. Please go ahead.
Tim Weiss: Hey, guys good.
Speaker Change: Good afternoon, Thanks for all the information.
Speaker Change: Maybe just on the first question on fiberglass penetration.
Speaker Change: I don't expect exact numbers, but as you kind of look at in a 24% penetration in total for fiberglass.
Speaker Change: Do you think the sand states just kind of based on your work is is at that same level or do you think it's actually below.
Speaker Change: Kind of the overall penetration.
Speaker Change: You know of fiberglass and the U S.
Speaker Change: Yes.
Speaker Change: Really good question because the thing Thats been one of the things we've been talking about we've kind of laid out our strategy and the roadmap.
Speaker Change: <unk> fiberglass is significantly underpenetrated.
Speaker Change: In the sand state market in total and I would say significantly below let's say, 24% number we've talked about for total U S. So that's why we really liked it right. It's a huge opportunity you know 65% roughly of our pool starts are in the four sand states as we've defined it.
Speaker Change: Under penetration so that's really why we're excited about what can happen.
Speaker Change: Maybe a slower new pools start growth market here as we continue to take share against fiberglass there rapidly build scale the business and grow it.
Speaker Change: Or not at a point, where we want to disclose those numbers yet I think we're still trying to do our homework on laying that all out but I can I can tell you is well below the 24% number.
Speaker Change: Yeah, Okay. No that's helpful. Because I mean, it doesn't imply that the non <unk> non <unk> penetration would.
Speaker Change: It would be significantly higher I guess.
Speaker Change: That where you're seeing the stance and so it seems like a pretty pretty big opportunity. So.
Speaker Change: I guess second question just on the EBITDA bridge kind of it kind of similar to Ryan's questions. Just with revenue Oliver just could you kind of walk through that mid point to mid why call. It $15 million kind of EBITDA bridge in and kind of what are the key kind of buckets. We should we should think about in that.
Oliver: Yes, Tim glad glad to do so so it all a walk from 'twenty four EBITDA of 82.
Oliver: 25 guide of 95 single really three key tailwind here.
Oliver: First one being the volume leverage obviously, the 8% additional volume or.
Oliver: <unk>, 5% that drives an EBITDA impact we talked about some of the incrementals that that will drive probably in the highest therapies. So that's the first impact.
Oliver: Second impact is lean and value engineering in 2024, we realized $99 million from that program relatively consistently to join the other quarter. We expect that at least to continue if not with increased volume accelerated and then lastly.
Oliver: The addition of the three of Us acquisitions right Amendable.
Oliver: <unk>, one is run rate and cover sub sector.
Oliver: If that is being passed that.
By increased SG&A spend right.
Oliver: Talk about then with regards to a sensitive strategy funding that with additional boots on the ground salespeople as well as marketing, especially around the <unk> campaign as well as the acceleration of our efforts to digitize the company right. So that would be the the key headwind here to drive us from <unk>.
Oliver: To 95 million there is a lot of other things happening under the Hood, but these are the key index.
Oliver: Okay and would you say that you're.
Speaker Change: You're at a point now where like increases are the year over year kind of incremental increases in SG&A spend are you effectively kind of self funding that through.
Speaker Change: Through the through the enterprise now or do you do you feel like there are some.
Speaker Change: Still it's still a lot more SG&A investment that needs to be kind of put into the business itself.
Speaker Change: So I think we will adjust as we go right with an increasing success.
Speaker Change: Love to add overtime additional salespeople as we go into new neighborhoods in new geography is right I think in terms of marketing that's more of an upfront investment to drive the initial awareness.
Speaker Change: And then potentially you know maintaining that awareness.
Speaker Change: Yeah.
Speaker Change: That will probably be at a lower run rate.
Speaker Change: But.
Speaker Change: And I would say we have what we need for 2025, we have what we need to fund that.
Speaker Change: In terms of 5% organic growth.
Speaker Change: Okay, Okay great.
Speaker Change: Good luck on the air.
Speaker Change: Thank you.
Speaker Change: Your next question today will come from Greg Palm with Craig Hallum Capital Group. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Thanks, and congrats on all the progress last year all things considered.
Speaker Change: Thanks, Greg.
Speaker Change: I'd like to come back first to the full year revenue guide. So you have the company specific driver you know going after the sand States and then maybe some structural drivers out there that's potentially making concrete pools less attractive so I'm curious.
Speaker Change: Does the guide assume an acceleration of fiberglass penetration in 2025 or could that be a source of upside maybe.
Speaker Change: So our guidance include first dividend from promo centered strategy from driving awareness and adoption of auto covers beyond what we have been used to on an annual basis the normal cutoffs.
Speaker Change: Demand driven.
Speaker Change: Fiberglass penetration outside of the sensitive.
Speaker Change: Okay. So so to be clear it does imply some sort of acceleration.
Speaker Change: That is correct, yes, okay and as it relates to the sand state our strategy specifically I am curious how are you measuring success on all three kpis, you're looking at but trying to figure out what determines a how much investment you want to make from a marketing side and b.
Speaker Change: How many other dealer locations you might want to stand up.
Speaker Change: Down there in those states over the coming years.
Speaker Change: Yeah, so great.
Speaker Change: A question that we've been discussing here quite a bit over the last several months.
Speaker Change: As we put the strat together and came into the guide here and I think the first one is kind of what I mentioned earlier on the call percentage of fiberglass pools, so of our revenue.
Speaker Change: Or units being sold in the sand states going from 15 to 17 right. So I think that will be the first one we will start reporting on an annual basis I think as we start to.
Speaker Change: Understand what what is the right penetration number down there versus let's say the national average penetration number.
Speaker Change: We'll probably start to do something on that on that point, maybe maybe later this year or so.
Speaker Change: As we get get through 2025, and I think when it comes to dealers right. The game for us in the sand states as we've already got quite a few dealers there in the sand states, let's just say specifically in Florida I think the two issues. We have is one the average number of pools, they do versus a fiberglass dealer.
Speaker Change: In the non sand states and then two where are they physically located a lot of these folks are not in the circles of these master planned communities. So what we're trying to do is actually get some of them.
Speaker Change: To shift or create a second location in these empty seasons will like to call on I think the other thing is as some of our other bigger dealers nationally, let's say, our grand dealers or some of our President called award.
Speaker Change: Winners they see the investments, we're making the marketing work.
Speaker Change: The Goethe campaign, we're launching some in their territories, let's say, maybe in Texas and they are now asking us hey, I'd be willing to come and work with you guys and tackle some of these mpc's. If you don't have dealers present, there. So I think we've made really good progress since the Zephyr and <unk> one we're probably.
Speaker Change: You know I'm little bit accelerate on the pace of dealers in Mpc's, we're going into and like I said, we're really just going to start.
Speaker Change: Spending some money on the <unk> campaigns here in the Florida market specific and look we would love to see similar gains like we saw in Texas.
Speaker Change: 40%, 50% year over year incremental leads.
Speaker Change: It does take time to convert a lead to an order and look as we as we move forward, we will give more and more color. So you guys can clearly see the success, we're having on there and how it is moving the overall needle.
Speaker Change: That's helpful. I mean, do you have a target in mind in terms of the number of M. P. C locations you want to be in pick some amount of time, whether that's 24 months from now.
Speaker Change: Three years from now et cetera.
Speaker Change: Yes, we kind of gave a T. The bathroom Defra hills of what we wanted to do here in.
Speaker Change: In 25, I'm trying to get in the first I can't remember the exact number Greg ought to go back three or four communities, let's say, but look Theres 20, Big Mpc's in Florida, and Texas that we've targeted we do on a go slow a little bit because I think we will learn a lot as we get into <unk> just like we've learned.
Speaker Change: Tun with Conger and Babcock ranch, let's say over the last year or so.
Speaker Change: It will be an evolving strategy and I think as we start yet success, when we see more dealers coming to us wanting to move to Florida and work with US like I said I mentioned, we just had several existing approaches that we're working with now to get into some of those markets and communities.
Speaker Change: So we'll continue to drive that and I think when we get to a point where it makes sense now we can start with <unk>.
Speaker Change: Reporting on our progress and to me, it's maybe it's probably not important how many mpc's are we and how many pools that we sell and what percentage of our total pool sold has increased and how are we driving that overall penetration number specifically in the sand states trying to get it up let's say the national average that 24% number where we believe the.
Speaker Change: Market landed last year.
Speaker Change: Yeah makes sense, alright, I will leave it there best of luck.
Speaker Change: Alright, Thank you Greg.
Greg Palm: And your next question today will come from Greg <unk> with Wolfe Research. Please go ahead.
Speaker Change: Hey, guys. This is Scott Stringer on for Greg If I heard correctly <unk> sales in 2025 expected to be sort of flattish, but that includes some M&A. So if the industry is still somewhat soft today, what gives you confidence in that 8% growth for the full year.
Speaker Change: So the let.
Speaker Change: Let me start with the kind of confirming your understanding that we think that Q1 will be flat.
That is essentially.
Speaker Change: As I said, the first dividend from from a sensitive strategy in auto Cabos right, but then the.
Speaker Change: Additional comments on our central events at the impact to <unk>.
Speaker Change: Push out some.
Speaker Change: Some of some of the sales growth was last year right what used to be a sale from laser <unk> central in Q1 last year ahead of the season is now a sale from the combined entity into the market in Q2.
Speaker Change: In Q2.
Speaker Change: Those those roughly offset each other.
Speaker Change: In Q1, we were thinking flat here and as you can.
Speaker Change: Go into future quarters.
Speaker Change: The color of the dynamics kind of reverse out and then as we go into full swing of the season. You would you would think that fiberglass penetration of video to increases in fiberglass penetration as well as what I always call. It the dividends of our.
Speaker Change: Strategies that you would see those those kicking in right. So overall again, we've estimated everything on a sled market.
Speaker Change: And these are the sort of the main cornerstones of arcane.
Speaker Change: Google input.
Speaker Change: That's helpful. I'll just leave it there thanks guys.
Speaker Change: Thanks, a lot.
Speaker Change: Your next question today will come from Matthew Bouley with Barclays. Please go ahead.
Matthew Bouley: Hey, good evening, everyone. Thank you for taking the questions.
Matthew Bouley: I just wanted to ask maybe just a little more clarity on the margin guide so.
Matthew Bouley: Sort of fairly healthy 150 basis point increase to adjusted EBITDA margins in 2025.
Matthew Bouley: I just wanted to be clear if.
Matthew Bouley: I guess number one if kind of the tariff exposure I know you've got a lot of mitigation efforts and maybe some of the costs of those mitigation measures just kind of if that's included in the guide or obviously very recent tariff issue is still not in the guide. So that's kind of part one and then I guess just secondly, what was the implication.
Matthew Bouley: That.
Matthew Bouley: Most of that increase in adjusted EBITDA margin would be on the gross margin side or was there an anticipation of a little bit of SG&A leverage as well. Thank you.
Matthew Bouley: Thanks for the question.
Matthew Bouley: So let me, let me address tariffs versus what technically is in the guidance.
Speaker Change: China as you have heard Scott, saying our portfolio of imports is really limited to about 15% of total <unk>.
Matthew Bouley: Lower raw material basket right.
Matthew Bouley: The team has done over the last few weeks, but months a great job of near shoring, we've been pre buying admittedly that doesn't eliminate useful just delays the exposure.
Matthew Bouley: But then really leveraging our network to work on mitigating the exposure for 2025 and beyond right.
Matthew Bouley: In our guidance as I said is China, we believe that the combination of the supply chain driven mitigation levers as well as what is what has proven effective for us as well.
Matthew Bouley: The pricing lever to load the remaining debt that our guidance given the announcements today.
Matthew Bouley: It will not.
Matthew Bouley: Meaningful change, including Mexico and Canada.
Matthew Bouley: No.
Matthew Bouley: There is always a little bit of impact of tariffs also on the domestic market as supply and demand balances shifted change right. We've seen based on the reason announcement of <unk>.
Matthew Bouley: Steel and aluminum that the domestic markets.
Matthew Bouley: <unk>.
Matthew Bouley: We're also assessing the spike year right. So.
Matthew Bouley: What I would call the more indirect impact of tariffs, we will have to wait and see.
Matthew Bouley: What needs to be mitigated and how we mitigate that.
Matthew Bouley: In terms of.
Matthew Bouley: Gross margin, we don't specifically guide towards gross margin, but as.
Matthew Bouley: If you recall from our previous answer you know we have three <unk>.
Tailwind to our EBITDA margin and they are all highly relevant for gross margin right.
Matthew Bouley: Our one headwind being in SG&A, where we increase our SG&A has been to fund our sense that journey.
Matthew Bouley: Other growth levers.
Matthew Bouley: The entire year.
Matthew Bouley: And the SG&A line right, so that being said right. We can imagine that the gross margin outperformance over 24, and let me remind you that gross margins in that 30 point tools or above 30% nicely is 320 basis points up on 2023 will take another step.
Matthew Bouley: Towards our stated goal of 35% in 2025, so most of the EBITDA outperformance actually more more than 150 basis points and EBITDA per Boe consistent gross margin.
Matthew Bouley: Perfect. Okay I got it yes. Thank you for clarifying every piece of that so.
Matthew Bouley: Secondly, just shifting to M&A right kind of 2.6 pro forma net leverage.
Speaker Change: I mean, I guess are there more opportunities to kind of go downstream on the cover side.
Matthew Bouley: The other I don't know if other cover star.
Matthew Bouley: Regions or perhaps other target set.
Matthew Bouley: Separate to that in the sand states that kind of help move the needle there or is this going to be kind of a year, where you guys wanted to digest the leverage a little bit. Thank you.
Matthew Bouley: Yeah No Matt. Good question look there is there is always a good healthy list of M&A targets out there and like I've said before right. It always comes down to timing when is someone ready to make that transact transaction transition based on their career or other let's say business.
Matthew Bouley: Focused priorities they may they may want to shift too.
Matthew Bouley: I think these last two that we did here cover start New York Comstock, Tennessee, again smaller territories much difficult, let's say to cover star Central acquisition, and again I would say two very very unique opportunities based on dialogues and conversations we have with both of the owners there that allowed us to strike quickly and there.
Matthew Bouley: There are other cover star.
Matthew Bouley: Dealers are vars out there in our network.
Matthew Bouley: I'd say, we'll continue to have dialogue with those guys, but we've got quite a bit we've got to digest right year I'd say the integration will cover star essential is going extremely extremely well bolting. These two back onto that one will really open a lot of new auto cover growth opportunities for us on better alignment.
Speaker Change: How we go to market I think we will continue to do extremely well with our other partners out there and I think in let's say the non auto cover space.
Speaker Change: We'll continue to have dialogues with others, but I can say right now there's nothing active pending that were working on other than these two that we just closed.
Speaker Change: And then fold in along with our <unk> central.
Speaker Change: Got it thanks, Scott and all of our good luck guys.
Matthew Bouley: Alright, Thanks, Matt Thanks, Matt.
Matthew Bouley: Your next question today will come from Susan Mcclary with Goldman Sachs. Please go ahead.
Susan Mcclary: Thank you good afternoon, everyone.
Susan Mcclary: Hi, My first question.
Susan Mcclary: My first question is going back to the margin and you've done a really good job over the last year of realizing those cost savings and our lean manufacturing efforts and I know that I think you said that you gave about two to $2 5 million a quarter last year and you think you can at least do that if not more are they share can you talk a bit more about what those opportunities are and how we should think about them.
Susan Mcclary: Going through the business over the next several quarters.
Susan Mcclary: Yes, so it does not.
Susan Mcclary: At high level and the opportunities I would say.
Susan Mcclary: A lot more of what we've been doing right. So.
Susan Mcclary: I'll hit lien first because that's the easiest one right. That's just continuing to do events and our plants I am looking at process flow, how do you drive more capacity.
Susan Mcclary: Less less Tac time with the product flow through the factories, taking hours out of the process getting that labor productivity.
Susan Mcclary: That journey is accelerating as we go forward here and again as we get more people trained on that I would say they are doing their own events within the planned analysis part of what the teams do when they show up to work every single day and the entire manufacturing operation has done a tremendous job.
Susan Mcclary: Individuals, leaving that for us.
Susan Mcclary: We continue to add new engineering talent into the organization the value engineering products, where youre looking at how parts are made how they're constructed what the materials are made out of.
Susan Mcclary: How do you redesign those products and components right those take a little bit longer but again, we're starting to build a good mass of engineering talent.
Susan Mcclary: That's been in the business now for a few years.
Susan Mcclary: Good Rois and paybacks.
Susan Mcclary: And I would say I'll, let al rates, but I think it's fairly consistent as we go through the quarter in terms of the value engineering lean because a lot of these.
Susan Mcclary: Projects are being built out six 912 months in advance. So you have good visibility looking forward in terms of when the realization of those will hit and again I would say you don't have a lot of.
Susan Mcclary: A lot of singles doubles triples, and I think the guys are starting to look at some of the bigger more structural things we could be doing in the future.
Susan Mcclary: As we gain more expertise on the engineering front, there and some of them in terms of in terms of fading failing a lot of the projects live with.
Speaker Change: The savings per piece of the Morpheus with you so that produce the most savings you realize so given our seasonality expect the quarters that are more towards the towards millions would.
Susan Mcclary: In Q2, and Q3 with a lighter quarter speaking in Q1.
Susan Mcclary: Okay.
Susan Mcclary: That's helpful. And then you know thinking about the new products that you are developing for the sand states. How should we think about the rollout of those the timing of that and then as they do start to gain momentum are there any implications in terms again of the margins and the returns that we should think about there.
Susan Mcclary: Yes, So look I think we just came off of pretty much the kickoff of the season here in the last three or four months. So I think we've introduced all of the new products that we put also the market. We've got some really really great fresh on on those models on the plunge pools I actually think some of the plunge pool is actually one of them.
Susan Mcclary: Q awards at a couple of the shows for us.
Susan Mcclary: And I think Susan that will be an ongoing initiative right. So we've got a pipeline.
Susan Mcclary: Pipeline of product development that are our product.
Susan Mcclary: Product directors and marketing team are working on as.
Susan Mcclary: As we build through the capacity of how we can build these malls and launch them, but again there is a seasonality aspect. If you want to be launched these things.
Late <unk> early <unk> timeframe, so as the selling season starts for our dealers to the consumers. They have all the literature and brochures they need to get to that peak will building season.
Susan Mcclary: Youll see the next wave of that come late summer early fall for new model launches that we would be planning on wanting for for 2026 as we accelerate on the capability there.
Susan Mcclary: The other other.
Susan Mcclary: Part of your question was kind of a margin impact.
Susan Mcclary: Fiberglass <unk> will be a little bit more competitive in the sand states.
Susan Mcclary: Versus let's say the concrete or concrete pool down there, but again I think you've seen that we've made a lot of investment in capacity in SG&A and marketing so as we start to sell more and more pools, where we're underpenetrated. There I think we'll have a really nice leveraging in our factories.
Susan Mcclary: Which will allow us to continue to grow not only GM, but I'd say EBITDA margins.
Susan Mcclary: As we as we March back to try and get back to 'twenty, two 'twenty, 3% EBITDA margin.
Susan Mcclary: Consistently from where we were back people building times of 'twenty, one 'twenty two.
Speaker Change: Okay. That's great color. Thank you both and good luck with everything.
Susan Mcclary: Thanks, Susan.
Speaker Change: And your next question today will come from Shaun Kelley with Bank of America. Please go ahead.
Speaker Change: It's just you had mentioned shifting some production from <unk> to the U S. Can you talk about the.
Speaker Change: The difference in margins on the U S production versus Kingston, and if that factored into your guidance.
Speaker Change: Yes.
Speaker Change: So theres not really a difference in kind of the produce those margin Ryan youre trading the variable costs increased with a variable cost.
Speaker Change: Invest Virginia for example is one of the receiving box rates I think the thought process of really about balancing your tariffs with logistics costs rise so by.
Speaker Change: By making that shift.
Speaker Change: Mitigated on the tariff side, but there'll be a little bit more logistics costs right.
Speaker Change: In our guidance, we have not factored in the impact from the year.
Speaker Change: 25% Canadian and Mexican tariffs.
Speaker Change: Earlier today.
Speaker Change: But then again we are.
Speaker Change: We have mitigated.
Speaker Change: A fair amount of the impact of fair share of the impact and then as we said pricing.
Speaker Change: <unk> has been an effective level both for the remainder of the cost.
Speaker Change: Okay, Great and then I just wanted to clarify an earlier comment when you were talking about the value engineering. There was a $9 million benefit last year can you talk about what the carryover from that is into 2025, and then I think you said you expect something similar next year does.
Speaker Change: That mean, another $9 million of incremental savings from value engineering.
Speaker Change: Yes, so so.
Speaker Change: Always going to be a carryover. So so I would say hey, as we look forward 2020 for projects to pay us dividends in 225. There will also be 2025 projects that we will implement throughout the year that have therefore potential than in 2026 right. So.
Speaker Change: At this point in time I look at what we've thrown into the funnel.
Speaker Change: <unk> the same way of what comes out of the Formula in terms of the P&L right.
Speaker Change: So right now on both sides of the equation, New project project generated and what materialized.
Speaker Change: You had nice 9 million run rate about two two and half million every quarter.
Speaker Change: Great. Thank you.
Speaker Change: Thanks Al.
Speaker Change: Concludes our question and answer session I.
Scott: I would like to turn the conference back over to Scott <unk> for any closing remarks.
Scott: Alright, well thanks, everyone for your time here. This afternoon early this evening, we really really appreciate all your continued support for later on.
No all of myself, we're really looking forward to seeing all of you at upcoming conferences and meetings as we roll through the first quarter here and we are definitely looking forward to our <unk> earnings call. Once we get out into our early early to mid <unk>. So again, thanks, everyone have a good evening.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Scott: Yes.
Scott: [music].
Scott: Yeah.
Scott: [music].