Q1 2025 Latham Group Inc Earnings Call
Speaker Change: Good day and welcome to the Latham Group Inc. 1st quarter, 2025 earnings conference call. All participants will be in lesson only more.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star, then one on your telephone on your telephone phone.
Please note, this event is being recorded!
Speaker Change: I would now like to turn the conference over to Ms. Kasek.
Kotary, Investor Relations Representative, please go ahead.
Speaker Change: Thank you. This afternoon, we issued our first quarter 2025 earnings press release, which is available on the Investor Relations portion of our website.
Speaker Change: On today's call are Latham's president and CEO Scott Rajeski and CSO Oliver Gloe.
Following their remarks, we will open the call to questions.
Speaker Change: 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 10K and subsequent reports filed or furnished with the SEC, as well as today's earnings release.
Speaker Change: The 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. Reconciliation of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that is available on our investor relations website. I'll now turn the call over to Scott Rajeski.
Scott Rajeski: Thank you, Casey, and thank you all for participating in today's call to review our first quarter results and discuss our business outlook.
Scott Rajeski: Our first quarter performance was in line with our expectations and although this quarter represents only a small percentage of our annual seasonal demand, we were pleased with the direction it represents. After a few slow weeks in early January , we saw a nice sequential pickup of business activity in March that continues through April and into May. [inaudible]
Scott Rajeski: Overall, business trends remain consistent with what we discussed two months ago on our fourth quarter of 2024 earnings fall.
Scott Rajeski: A slightly more favorable industry outlook heading into the season than we observed this time last year but still expecting drop market conditions to persist for 2025 with new pool starts projected to be stable with 2024 levels.
Scott Rajeski: As a result, the key takeaways from our first quarter performance are even more encouraging. First, we saw relative strength in our fiberglass and auto-cover product categories.
Scott Rajeski: Second, we made notable progress on our San State expansion strategy which represents a significant growth opportunity for Latham.
Scott Rajeski: In third, we delivered a 190 basis point expansion in gross margin that reflected the ongoing benefits from our lean manufacturing and value engineering initiatives.
Scott Rajeski: Taking a closer look at business trends, we expect fire glass pools to gain another 1% of market share in the in-ground pool sector in 2025 as consumers are attracted by the cost advantages,
Scott Rajeski: Additionally, we believe that scarcity of labor will be a tailwind for fire glass given the much greater labor intent to be associated with building a concrete pool compared to a fire glass pool.
Scott Rajeski: According to the research, 46% of pool builders cited limited access to qualified labor as having a substantial impact on their ability to build new pools
Scott Rajeski: As you may recall, from last quarter, we announced two smaller acquisitions to late them auto-cover dealers, Coverstar New York and Coverstar Tennessee, in addition to the Coverstar Annual Acquisition, which we completed last August .
Scott Rajeski: These tucking acquisitions are integrating well and further strengthening our position in this growing product category. Our sale of auto covers outperformed in the first quarter reflect an accommodation or organic growth and the benefits of all free acquisitions. Our sale of auto covers outperformed in the first quarter reflect an accommodation or organic growth
Scott Rajeski: Auto Covers offer significant savings and maintenance benefits for pool owners. These include reduced water evaporation, lower pool heating and electricity cost, and decreased chemical usage, allowing the auto cover to effectively pay for itself within four to five years through cost savings.
Scott Rajeski: May is National Water Safety Month, and last week we announced a meaningful partnership with Olympic gold medalist, Vody Miller, for Raid Awareness about pool safety.
Scott Rajeski: Pool safety is an issue that deeply personal to both Bowdie and Latham. In 2018, Bowdie's 19-month-old daughter accidentally drowned in a neighbor's pool. While pools are a source of joy for families, it's essential that they are safe as possible.
Scott Rajeski: Automatic safety covers are constructed with ultra durable, virtually impenetrable materials, creating a secure barrier that protects kids, pets, wildlife, and guests from accidentally entering the water. Our goal is to ensure that every family can enjoy their pool while preventing avoidable tragedies.
Scott Rajeski: Also, our recent roll-off of Measure by Latham for Liners, along with the earlier release for covers is going very well. This AI-powered tool is the only solution in the marketplace that streamlined the measurement and quality process for pool liner and cover installers while ensuring precision and accuracy.
Scott Rajeski: It is user friendly and fully integrated with our order entry system, allowing dealers to generate real-time quotes, submit orders, and track their status seamlessly.
Scott Rajeski: In the first quarter, almost half the dealers who purchased this tool were new to Latham, supporting our expectation that measured by Latham will not only improve the efficiency of our dealer network, but also help expand our market share and liners and covers.
Scott Rajeski: And we are pleased to know that our increased spend on marketing and sales campaigns is resonating with consumers. Latham continues to lead the industry in brand visibility and engagement.
Scott Rajeski: This highlights the progress we're making in building consumer awareness around our key differentiators. The industry leading quality and aesthetic appeal of our products, the assurance of our lifetime warranties, the side and scope of our operations, and our strong commitment to customer service.
Scott Rajeski: Originally, all of the increase in our SG-8 spend in this quarter was in support of our San State expansion strategy, which represent the major growth opportunity for Latham.
Scott Rajeski: Our objective is to significantly expand our presence in Florida, Texas, Arizona, and California. Markets that collectively account for approximately two-thirds of annual new pool starts, yet where Latham is currently under represented. Four key priorities formed the foundation of this strategy.
Scott Rajeski: Expand in our pool of dealer base targeting master plane communities or MPCs, which are large-scale, mixed use, residential development, the largest of which are in Florida and Texas.
Scott Rajeski: Aligning our product offerings with market demand in the sandstakes, in targeting our marketing campaigns to builders and consumers in those markets.
Scott Rajeski: Though this strategy was only launched in the second half of 2024, we have already made meaningful progress in all four objectives.
Scott Rajeski: We are actively partnering with some of our top performing tool dealers to expand their operations in the sand stage.
Scott Rajeski: These dealers see strong business potential for fire less pooled in these geographies, and together we are actively engaging in key master plan communities.
Scott Rajeski: Earlier this year, we launched two new Fireless Pool Model that especially appealed the
Scott Rajeski: The Astoria 14 is a sleep rectangle model with a built-in spa and the Apollo 14 also a rectangle includes integrated features such as a large tanning ledge.
Scott Rajeski: and an ample room for swimming. Also, our plenifulls are popular in the sandstakes as they are compact and offer almost any outdoor space and are a good option for the budget conscious consumer.
Scott Rajeski: This has led to a significant increase in internet search activity for latent pools in those states. Our marketing activities in the targeted MPCs are attracting large crowds of current and prospective homeowners and driving increased awareness of fiberglass pools and oil covers.
Scott Rajeski: Of course, gaining a meaningful share of the sand-thaked marketplace will take time, but we are encouraged by the initial dealer builder and consumer response we've had in the short time since we began implementing the strategy.
Scott Rajeski: We're also very pleased with the continued expansion of our gross margin, which increased by 190 basis points in the first quarter on similar volumes.
Scott Rajeski: Alder will provide you with further detail on this in a moment.
Scott Rajeski: Our lean manufacturing and value engineering initiatives that structurally change our business model and our key part of our investment thesis. An important factor in enabling us to achieve significant operating leverage as industry conditions improve.
Scott Rajeski: We filed an AK today noting the resignation of Josh Colley, our chief commercial officer, to pursue another opportunity. We wish Josh the very best and his new endeavor.
Speaker Change: Fortunately, we have a very strong commercial team that will continue to execute our sales and marketing strategy. I will now turn the call over to Oliver, our CFO , for a financial review of our first quarter results and our full year guidance. Oliver?
Oliver Gloe: Net sales for the first quarter of 2025 were 111.4 million, slightly above the 110.6 million in Q1 of 2024, reflecting the positive momentum in sales for fiberglass pools and order covers that we experienced at the end of the quarter.
Oliver Gloe: Sales were closely in line with our expectations, and while the quarter began slowly in early January , we saw a meaningful pickup in order in March that continued in April .
Oliver Gloe: By product line, in ground pool sales were 58 million, down 4% from Q1 2024, reflecting the impact of soft industry conditions and adverse weather conditions.
in a seasonly slow period.
of Our Folier Sales.
Oliver Gloe: Cover sales were 32 million, up 18% which includes both organic growth and auto covers and the benefits from our Covers the Central Acquisition.
Oliver Gloe: Liner sales were 22 million, down 8% compared to the first quarter of 2024.
Oliver Gloe: We achieved a first quarter gross margin of approximately 30% reflecting a 190 basis point increase above last year's 28%.
Oliver Gloe: This performance is primarily due to production efficiencies driven by our lean manufacturing and value engineering initiatives and the margin benefit from the three cover-side positions.
Oliver Gloe: SNA expenses increased to 31 million, up by 4.4 million, from 26 million in Q1 of 2024.
Oliver Gloe: This was largely related to strategic investments in sales and marketing to accelerate fiberglass adoption as well as the three cover style acquisitions.
Oliver Gloe: NEDLOS narrowed to 6 million or 5 cents per diluted share from a NEDLOS of 8 million or 7 cents per diluted share from the prior year's first quarter.
Oliver Gloe: First quarter, Justin Ibadar was 11 million, 1 million below 12 million in the prior period.
Oliver Gloe: Primarily resulting from higher sales and marketing spend, that was partially your set by efficiencies, came through our lean manufacturing and value engineering initiatives.
Oliver Gloe: Adjusted even to our margin was 10%, 110 basis points below last year's first quarter.
Oliver Gloe: Inline with our expectations, Netcash-used and operating activities was 47 million in the first quarter reflecting a seasonal increase in working capital needs the head of peak pool selling season.
Oliver Gloe: to fund seasonal networking capital needs in addition to approximately 10 million of accelerated inventory purchases in anticipation of tariffs.
Oliver Gloe: As of today, we have reduced our revolver usage to 22 million and expect to fully repay our revolver by the end of the second quarter.
Oliver Gloe: Capital expenditures were 4 million in Q1 2025 compared to 5 million in the prior period.
Oliver Gloe: As a reminder, we expect Catex to range between 27 and 33 million in 2025.
Oliver Gloe: A 10 million increase from 2024, resulting from our decision to develop additional production models for new fiberglass pool models specifically designed to appeal to the sandstates markets.
Oliver Gloe: and the addition of usable space in our Florida and Oklahoma manufacturing facilities.
Oliver Gloe: Imports represent about 15 to 20% of raw materials used in our manufacturing process, so exposure is relatively limited.
Oliver Gloe: While Terry related uncertainty remains, we are confident in our ability to offset raw material cost increases through strategic pre-purchasing and operational adjustments.
Oliver Gloe: Additionally, we recently implemented targeted price increases on certain products to help mitigate the impact of tariffs.
Oliver Gloe: Based on current business trends, we are encouraged by the constructive signals in the pool market and steady progress across our fiberglass awareness and adoption initiatives.
Oliver Gloe: These include cautiously optimistic feedback from our annual dealer conference, increasing consumer engagement, driven by our branding and marketing campaigns, and continued progress in executing our sense-state strategy.
Oliver Gloe: Based on these insights and our current visibility we are maintaining our expectations for 2025 revenue growth of 8% at the midpoint comprised of approximately 5% organic growth and 3% growth related to the cover star acquisitions.
Oliver Gloe: Our 2025, adjusted EBITDA guidance of a 19% growth at the midpoint reflects the significant operating leverage inherent in our business model.
Scott Rajeski: With that I will turn back the call to Scott for his closing remarks.
Scott Rajeski: Thanks, Oliver our first quarter results represent a solid start to the year supporting our 2025 full year guidance the seasonal ramp up in orders that we've experienced for the past two months aligns with our expectations for progressively higher year on year comparisons and a typically stronger second and third quarters of the year.
Scott Rajeski: Laser has entered 2025 with key competitive advantages that we believe will enable us to again outperformed the industry this year and strengthen our market position in future periods.
Scott Rajeski: During the visit to our separate Hillsboro less manufacturing facility in November last year, we laid out a path for advancing our growth strategy and discuss the results. We can achieve in future periods. In summary, we noted that when U S. Pool starts returned to 78000 per year, which is where they were in 2019, our new biz.
Scott Rajeski: In this model can be enable us to achieve revenues of about $750 million.
Scott Rajeski: And adjusted EBITDA of around $160 million.
Scott Rajeski: This represents more than twice the revenues, we had in 2019 and two and a half times. The adjusted EBITDA. We produced at year at the same level of new pool starts and there is even further potential beyond that point with that operator, I would like to open the call to questions.
David: Thank you David.
David: We will now begin the question and answer session to ask a question you May Best Star then one on your desktop phone.
David: If youre using a speakerphone please pick up your handset before pressing the keys.
David: If at any time. Your question has been address and you would like to withdraw your question. Please press Star then two.
David: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Ryan Merkel with William Blair. Please go ahead.
Ryan Merkel: Hey, good afternoon, thanks for taking the question.
Ryan Merkel: You know the the outlook for the margin expansion. This year is really compelling can you just talk about SG&A leverage you know I realize one Q you had some investment going on but as we think about the rest of the year should we be thinking about SG&A leverage or is this a year, where you know its more of an investment year and you expect more of the mall.
Ryan Merkel: An expansion on the gross margin line.
Ryan Merkel: Well the cadence of the year, you would see some of the cost increases anniversarying all other than the leverage increasing.
Ryan Merkel: Setting and this is a year over year growth again.
Ryan Merkel: At mid point year over year sales will increase from $508 million to $550 million up 8%, you will see that increase setting and.
Ryan Merkel: So leverage should.
Ryan Merkel: So it should increase.
Ryan Merkel: Again, the combination of.
Ryan Merkel: As we go throughout the year.
Ryan Merkel: Third quarter flat year over year, SG&A and breathing space.
Speaker Change: Got it Alright, and then for my second question you know, it's good to hear.
Ryan Merkel: Business is still tough.
Speaker Change: Lending up here.
Speaker Change: I'm curious, what's the reaction to the new molds and then how are you doing in the sand States I know it's early in the season that.
Speaker Change: Have you seen the marketing efforts there.
Speaker Change: I'll help you with sales.
Speaker Change: Yeah, Ryan when you think about where we are into Q right you you've been around the business for a while you know we're kind of coming up that sequential ramp where each week you know sales increases as we kind of get to the I'll say the first peak Bill point of May 15th followed by June 15th So we're really happy with the trends we've been seeing across.
Speaker Change: The bore.
Oliver Gloe: Oliver myself, where in Florida back probably three or four weeks ago. Now we spent almost a full week down there and look I came away even happier than than I was going into that week really good progress on all fronts with the builders were aligned with again some of the biggest builders that we have in.
Oliver Gloe: In the country, you know five by folks who are attracted to expand in Florida aligning them to these npcs.
Oliver Gloe: We haven't I haven't had a chance to travel through these communities and see pools in the ground see what kinds of styles of resonating in all of our new models that these smaller backyard the lanai the extension off the kitchen.
Great opportunity for Us and I think you.
Oliver Gloe: You know, we're kind of in <unk>, right, which isn't peak will build so it's tough to sit there and say how much progress we've made versus the 17% of our pool sales, we talked about last time.
Oliver Gloe: I'd like to frame. It up is you know if you think about the 100 to 200 basis points, we improved 23% 24 in San State revenue I think it's safe to say, we should see an acceleration of that as we as we come into 2025. So if you're thinking 200 to 300 basis points of improvement in that metric, we share that's kind of what.
Oliver Gloe: The <unk>.
Oliver Gloe: We've got our eyes on for this year, but really happy with the progress. The team has made and now we're doing everything we can to continue to accelerate it.
Speaker Change: Alright, that's great guys I'll pass it on thanks.
Speaker Change: Alright, Thanks Ray.
Speaker Change: Thank you. The next question comes from Andrew Carter with Stifel. Please go ahead.
Andrew Carter: Thanks, very much so I guess thinking about the fiberglass pool, it's a short cycle pool, meaning you can make a decision be swimming, you know with a weeks or maybe help us with that is how do you think about that that as a risk or opportunity. In this environment. You. Obviously the April trends were encouraging I don't think there would be any subject any cancellations, but others.
Andrew Carter: Have said, hey, if you've started to pull youre not youre not canceling at this point because you're more worried would you see that risk manifest later or Conversely, if everything you know we just get the sale of uncertainty lifted you would just see you could you could really start to see that turn just anything to help us out on that thank you.
Speaker Change: Yeah. So there's a couple I think key key points embedded in that question of yours. One Youre right. You know you can have a fiberglass pool installed in a couple of days you know say a week on average maybe.
Speaker Change: I like to take it back to the pool buying decision of the consumer right theyre, not theyre not going into to a builder and saying Hey, I want a pool next week and this is a 612 18 months buying decision buying journey. The homeowner goes through with their family I'm getting to the point of making that decision and typically once you've made the decision that you're going to be.
Speaker Change: By your pool, depending on where you are in the season, you might be looking out six more months before you're actually going to get it installed so people who are having pools installed in the ground now on let's say a lethal bobber last pool. They probably made that decision back late last fall or early January February of this year.
Speaker Change: There's folks that let's say as we came through February March and April are making the decision for you know second half year installs we've.
Speaker Change: We've not seen any impact or slowdown in in trends rates. What we're hearing from dealers again, it's there's a pocket here or there I know everyone says, Texas has been a little bit slow well you know, we're not seen any indicators.
Speaker Change: Folks you know lagging on that buying decision and I think the key reason there again is we market and sell to a much more affluent consumer they may be at the lower end tools that are out there, let's say some of the vinyl liner product and even in the vinyl liner space I think we've seen almost steady consistent pace.
Speaker Change: Again, you guys have heard me say many times, mostly cash buyers left on the people who want to let them pool can afford to wait them pool and I think we should be able to kind of hang hang in there and that's why our views and reaffirming the guide we're holding the line on that assumption of flat starts for the year and look you know.
Speaker Change: We can catch a break here there that'd be great, but I think you know that the share gains we're experiencing in the sand states. Some of the other stuff we're doing with the auto cover conversion, that's really what's driving our key growth thesis for us here in a flat market.
Speaker Change: Thanks, and then a second question you quantified the percentage of raw materials could you quantify like what percentage of Cogs and then how much pricing are you taking kind of to offset that or your pricing to protect margin rate or are you pricing to protect dollars. Thanks.
Speaker Change: So let me start off by giving you a rough kind of idea on quantifying the headwind that comes.
Speaker Change: No screen mitigation that I would put that.
Speaker Change: Somewhere 350 to 400 basis points.
Speaker Change: About 20 million right.
Speaker Change: And that is a bad represents the tariffs as they stand today.
Speaker Change: You've heard me last time on the call, saying that you know our supply chain team has done an extraordinary job over the last months to prepare us for environmental.
Speaker Change: So I would say at this point in time through a combination of pre purchases through working through our supplier network with <unk>.
Speaker Change: <unk> sources.
Speaker Change: Negotiating.
Speaker Change: A little bit more than half of.
Speaker Change: But that headwind is mitigated.
Speaker Change: Based on the supply chain, which means that a little bit less than half because we invest over to be mitigated the NOLA price increase that we have.
Speaker Change: It's early on the call of the aims to mitigate the remaining impact on a dollar basis.
Speaker Change: Thank you very much I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question comes from Robert <unk> from Baird. Please go ahead.
Hey, guys. Thanks for taking the questions I'm going back to tariffs there when did the pricing go into effect and will there be any lagged.
Speaker Change: Mitigation ability just given when the pricing went in to effect versus when the tariffs started to start to impact the P&L.
Speaker Change: But we have had.
Speaker Change: A sort of a normal seasonal price increase on a couple of our product categories earlier in the season.
Speaker Change: Well in Q1.
Speaker Change: But then the price increase that we referred to in our prepared remarks earlier in the in the quarter.
Speaker Change: The effective early in Jordan.
Speaker Change: From a sort of savings perspective, we also tried to match the headwinds that we've seen from both for the Arab perspective, with both the supply chain based mitigation as well as the timing of all the price increase.
Speaker Change: Got it helpful. And then I think you guys have said that you're kind of targeting 20 big M. P CS and the sand states.
Speaker Change: Can you just give us an idea of a ballpark how many are in today and kind of what are your expectations for that number towards the end of the year.
Speaker Change: Yeah, So Robert I think what we've referred to in the past is Theres 20, large npcs and <unk> and the contrary in Florida and Texas.
Speaker Change: Our initial view was to kind of go in targeting three three to five out of the gate here, let's say specifically in Florida.
Speaker Change: On track for that and again I think as we learn and go right wall will decide to ramp that up.
Speaker Change: Fast there.
Speaker Change: Again, as we maybe align builders into those communities and.
<unk> access with our sales folks to stand them up you know so that's kind of the initial target here, but we will go as fast as we can like I said I think we'll see a faster pace than in 25 year than we had seen last year.
Speaker Change: Awesome. Thanks, guys.
Speaker Change: Yes.
Speaker Change: Thank you. The next question comes from Greg <unk>.
Speaker Change: Craig Hallum Capital Group. Please go ahead.
Speaker Change: Yeah. Thanks, I wanted to just spend maybe another minute on kind of the environment out there I just want to make sure. We're clear it doesn't sound like you've seen much of a change in sentiment demand environment over the last you know call. It 556 weeks I mean do you think that's the case for the industry as well.
Speaker Change: Or do you think maybe you're taking even more share just kind of curious to get your thoughts there.
Speaker Change: Yeah, So look Greg what I would say as you know we've not seen any any impact slowdown change in the trajectory than what we were expecting and a flat will start environment with our growth objectives have taken share for fiberglass and auto covers as laid out at our midpoint of the <unk>.
Speaker Change: Guy.
Speaker Change: And again, we're kind of coming up for vote in the let's say <unk> with the peak pool building season.
Speaker Change: You know are we taking share versus competition has gotten too early or too hard to tell I think if you look at most of the reports that have been out there in the industry I think I think a lot of folks are in line with US you know slow start to the quarter and January quickly ramp sequentially as we saw the incremental build batch and seasonal curves.
Speaker Change: On track for our mid point of our full year guide.
Speaker Change: Just really not seen any slowdown with some of the changing consumer confidence and stuff that's out there and again I attribute that so I think that more affluent consumer added the house reinvested in the backyard has the equity.
Speaker Change: As the cash to buy the pool.
Speaker Change: And even let's say on the lower end of the market lower price point pools, we've really not seen any change in trajectory versus our assumptions there either and we use our wider business is a really good proxy as an indicator.
Speaker Change: That business has been performing very well for us as we as we go up the curve here I'm getting what I would say they're really important.
Speaker Change: And Memorial Day, you know official pool opening season out there for many of the northern climates.
Speaker Change: Yeah, Okay that makes sense and I guess, just kind of digging in to some of the marketing initiatives a little bit more you mentioned social media engagement you know we've been talking about some of this marketing stuff for a few quarters now but.
Speaker Change: Based on the stuff we track it it seems like more recently, a really big jump in website traffic and I think you alluded to this as well. So are you able to track conversion rates at all like are you building a pipeline and I'm curious is this kind of stuff can any of that benefit this year or is this more of like a <unk>.
Speaker Change: 2026, and beyond type of a of a thing.
Speaker Change: Yeah.
Speaker Change: So we got the ability to track kind of all of the different campaigns, we run whether it's the user campaign, we talked about in Texas or Florida in driving let's say consumers to the goods of Pes and eventually coming over to them.
Speaker Change:
Speaker Change: With cookie tracking all of that it gets a little bit tougher to track to that did that hit on a goose or main website converts will lead unless they actually you know what the information in which again, we can track that and look let's take time to kind of maturing I think we've talked about you know, we see at least a 10% to 20%.
Speaker Change: Conversion rate overall.
Speaker Change: Again, it depends how hot the leader is right if they've got their pool. They are ready they got their financing they got their project cost those converted at a much higher rate Greg as we've talked about in the past.
If it's someone just starting to inquire now for a purchase a year out you know that one is going to take a little bit more nurturing either by our team or by abide by our dealers.
Speaker Change: I think the other thing with some of the marketing spend hours, let's see the SG&A investments, let's say specific specifically in the sand.
Speaker Change: Those are a little bit more about consumer awareness of the brand late them fiberglass Wi fiberglass the benefits of it. So those may may translate to some immediate sales like we're seeing now but to me that's probably driving the success further down the road and look I will say is out of myself traveled right. We had our laid them gear on.
Speaker Change: Every community, we went into new who laid them was new fiberglass was due to dealer there knew what we were due and knew what we were sponsoring. So there is a buzz starting we just need to drive that to conversion with more pools in the ground in those communities.
Speaker Change: That's great to hear I will leave it there good luck guys.
Speaker Change: Alright, Thanks, Greg Thanks, Rick.
Matthew Bouley: Thank you. The next question comes from Matthew Bouley with Barclays. Please go ahead.
Matthew Bouley: Good evening do you have any could talk you on for Matt today. Thanks for taking the questions. So first off just kind of on the demand backdrop. So just not to harp on it but understanding you guys are seeing demand hold up in the near term I'm I'm wondering with that if you have any early thoughts on the shape of demand into 2026 could we see kind of continued flatter transit.
Matthew Bouley: 25, or maybe a recovery type scenario.
Matthew Bouley: Yes.
Matthew Bouley: I'd say, it's too early to talk about 2006 at this point in time I think we wanted to get through <unk> and <unk>. The peak will build in you know look I I would come back and say think about our thesis with what we're trying to do with fiberglass conversion the auto cover penetration awareness.
Matthew Bouley: Replacement liners and covers with measure a better tool for the dealer.
Matthew Bouley: Entering into the sand state markets, where we're underrepresented right, where we're going to show really nice growth numbers at the midpoint and a flat who will start number. This year. So I think that's kind of the base expectation you can think in a trough market.
Matthew Bouley: I don't have my Crystal ball polished up enough to think about what a 26 view it looks like at this point in time or then we'll do what we always do right outperformed the market.
Matthew Bouley: Yeah, I think we got to get through the next couple of quarters here first.
Speaker Change: Awesome Awesome, and then I guess second just last quarter you guys added those two new cover started dealers curious how you're thinking about further deals today in this environment as you guys expand and invest in this category and then what your overall thoughts are on consumer appetite for automatic safety cap rates today versus your other products.
Matthew Bouley: Yeah, well you're right.
Matthew Bouley: Let's go back to Cobre Star Central for a second you know the one we did last fall you know I think we can say that's pretty much fully integrated at this point in a few small things to do here and there business performing extremely well.
Matthew Bouley: I think the two small ones, we just announced here last quarter, no again integration gone very well for them under the Costar central business.
Matthew Bouley: So I think everything's hitting an on track expectations performing well I think we're going to continue to drive a lot of awareness with auto covers we talked about the partnership with body could not be more than more than thrilled with what we're gonna be doing with him in and some things going on further again trying to drive the awareness of the.
Product again, I'll just go back to Florida distinct and I think we saw very high.
Matthew Bouley: Number is in terms of people Gabby and interest in the pool on that seeing what deal or what community about 50% of the pools being sold in one market.
Matthew Bouley: Have an auto cover common with them, which I think is much different than what you would typically see what again the families understand the benefit.
Matthew Bouley: And then the lower cost of usage where that is.
Matthew Bouley: As well and again all of myself, we're out in the West Coast, a few months back and talk to our var partner out there was talking to a few dealers. Some of the dealers out there are doing you know 80 plus percent covers on pools of very high penetration rate in certain communities, which again shows the success.
Matthew Bouley: With Great partners, Great marketing, great awareness, we can drive a very high percentage from let's say the low twenty's than it is today.
Speaker Change: I appreciate the details thanks I'll pass it on.
Speaker Change: Thank you again, if you have a question. Please press Star then one.
Moderator: The next question comes from Shaun Kelly with Bank of America. Please go ahead.
Shaun Kelly: Hi, guys. Thanks for taking my question.
Just a follow up on the last one so the strengthen covers it's pretty impressive this quarter can you guys break out.
Shaun Kelly: What was the M&A driven and what was organic and then it sounds like safety covered growth is really strong and outperformed the pool sales growth. So are you just seeing higher attachment rates on the pools and you are putting in the ground or selling or are these going onto existing pools, just kind of what the main drivers there.
Speaker Change: Hey, Sean let me take the first part of your question so.
Shaun Kelly: As you said.
Speaker Change: Auto cover business.
Speaker Change: We're very strong in Q1.
Speaker Change: The outperformance was was.
Speaker Change: <unk> was primarily driven by the additional color so central so M&A driven.
Speaker Change: But you know.
Speaker Change: Also there will have an organic impact so.
Speaker Change: Positive organic impact.
Speaker Change: So about $3 million was the.
Speaker Change: Performance addition, too because of because of the acquisition with the remainder being being organic.
Speaker Change: Great. Thanks, and then just going back to the demand environment. Some of your peers cut their outlook for discretionary spend on the new pool side. So if that ends up playing out what would be the impact to SG&A.
Speaker Change: You guys touched some of these marketing expenses or is this more like a long term play at this point.
Speaker Change: Thank you.
Speaker Change: So I think.
Speaker Change: Regarding costs, then the operating environment I think.
Planting all business.
Speaker Change: Expectation.
Speaker Change: Woodstock, right and again, we've seen a slightly slower January.
Speaker Change: Probably so.
Speaker Change: So having said weather related but really good momentum in March and April feedback from Ord <unk>.
Speaker Change: So.
Speaker Change: So both our assumption in the guidance right.
Speaker Change: With regards of course, we've been operating environment with schools over the last three years have gone from one <unk>.
Speaker Change: 17 to 62.
Speaker Change: Right so.
Speaker Change: As you saw.
Speaker Change: We have a playbook that we have consistently applied that at all.
Speaker Change: And you would as restructuring at times to reduce duplicative and excess capacity.
Speaker Change: But you also saw us having discipline.
Speaker Change: Across our cost base when it comes to the plans and function.
Speaker Change: I would expand that common to include as management, you've seen us taking $80 million out of the balance sheet over the last two years, while at the same time, adding lead value engineering capability investing in growth driving fiberglass conversion.
Speaker Change: <unk> talked about the growth in auto covers organic but also.
Speaker Change: As you asked about the <unk>.
Speaker Change: Three businesses that we recently acquired as a result, we've stabilized EBITDA above 15%.
Speaker Change: Prof market right.
Speaker Change: And especially in 'twenty four.
Speaker Change: The margin despite an approximate 50% decline so.
Speaker Change: <unk> also been consistently cash flow positive.
Speaker Change: And you know we've been consistently applying our capital allocation strategy.
Speaker Change: Included accelerating the repayment of our loan financing the acquisition of Casuals Thats, a long way of saying we have a strong label.
Speaker Change: We have consistently applied to a bias but.
Speaker Change: Yes, Sir.
Speaker Change: Sorry to interrupt.
Speaker Change: Yeah, Shaun I hope that answers your question.
Speaker Change: Yes. Thank you.
Speaker Change: Thank you so much.
Scott Rajeski: This concludes our question and answer session I would like to turn the conference back over to Mr. Scott <unk> for any closing remarks.
Scott Rajeski: Alright, Thanks Jacob.
Scott Rajeski: Thanks, everyone for your time. This afternoon, we do really appreciate all your continued support of late though I hope everyone has a great start to the summer season with the upcoming Memorial day holiday here in the U S and we really look forward to connecting with many of you at several upcoming conferences and meetings that we will be attending and thanks for the time and have a great evening. So you guys.
Scott Rajeski: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Scott Rajeski: Okay.
Scott Rajeski: [music].