Q2 2025 Latham Group Inc Earnings Call

Good afternoon, and welcome to Latham Group's second quarter 2025 earnings conference call.

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Please note this event is being recorded. I would now like to turn the conference over to Casey code 3 in Mr. Relations representative.

Please go ahead.

Thank you, this afternoon, we issued our second quarter 2025 earnings press release, which is available on the investor relations portion of our website.

On today's call, our lean President and CEO Scott Rajeski, and CFO Oliver Gloe.

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, 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 the company expressly, disclaims any obligation to update any forward-looking statements, except as required by applicable law, in addition, during today's call, the company will discuss certain non-gaap Financial measures. Reconciliations of the direct.

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.

Thank you, Casey, and thank you all for participating in today's call to review our second-quarter results and discuss our business outlook.

The lean team executed very well in the second quarter driving year-on-year Revenue growth of 7.8% in adjusted ebit Thea growth of twice that at 15.7%, our ability to achieve this level of organic and acquisition related sales growth along with increased operating profitability despite ongoing trop industry conditions is supported by several key factors.

First, we have a diversified product portfolio and have the number 1 share in every subcategory in which we compete.

Second, we have been successful in driving the awareness and Adoption of fiberglass, pools and auto covers 2, product categories, with substantial growth runways. Third. We recently completed a creative Acquisitions of 3 of our Auto cover dealers contributing the sales growth and strengthening our margin profile and lastly our lean manufacturing and value. Engineering initiatives. Continue to drive production efficiencies that scaled further with higher second quarter volumes.

These factors were the major contributors to our strong, second quarter, and year-to-date performance. And they continue to underpin our confidence in Lam's ability to drive accelerated revenue and adjusted ebitda growth as industry conditions improve

Taking a closer look at second quarter business Trends, adverse, weather conditions, in many parts of the country delayed pool building activity resulted. In a slight decline in our inground pool sales, this had a greater impact on our package pool sales than on fiberglass pools.

In fiberglass pools are tracking to account for approximately 75% of our inground, pool sales for the full year. And based on our current projections, we continue to expect fiberglass pools to gain another. 1% of Market penetration in the ing. Ground pool category in 2025,

We have delivered, an 18% increase in leads to our dealers. While consumer sessions on our website have increased 34%.

We are also seeing strong signals of pool purchase interest and intent with consumer, spending more time on our website, viewing more pages and increasingly engaging with our digital tools.

All these metrics were up year-over-year and the second quarter and year to date compared to the same periods in 2024.

In particular, the cost benefits and fast and easy installation of fiberglass pools are resonating with consumers.

Given widespread labor shortages, across many US markets, we continue to believe the significantly lower labor, requirements for installing a fiberglass. Pool will be a Tailwind for fiberglass, over concrete pools.

According to recent research, 46% of pool builders cited limited access to qualified labor as having a substantial impact on their ability to build new pools.

Auto covers were a standout performer in the second quarter through a combination of organic and acquisition-related growth. This product category was a key contributor to our second quarter sales growth, gaining momentum with consumers.

Our marketing programs have been effective in driving home. The benefits of Auto covers highlighting, their unparalleled safety and significant cost savings from reduced water energy and chemical use.

These savings enable auto covers to effectively pay for themselves within 4 to 5 years of installation.

Additionally, 16 States. In addition to a number of municipalities across the country have now, expanded their pool safety regulations, to allow for auto covers to be used in place of traditional fencing. Around the pool which results in additional savings for the homeowner.

Also, their compatibility with all types of ground pools significantly expands our addressable Market.

Our replacement liner business also showed solid growth in the second quarter, which we attribute to our industry-leading lead times and the continued adoption of Measure by Laam, our proprietary pool liner and cover measuring AI tool.

This is the only solution in the marketplace that streamlines the measurement and quoting process for installers. Ensuring a high degree of accuracy in enabling a smooth and efficient installation.

This tool is fully integrated with our order entry system, allowing dealers to generate real-time quotes seamlessly submit orders and track their status in the first half of this year. 25% of the dealers who purchased this tool were mutilate. Them supporting our expectations that measure by late them will not only improve the efficiency of our dealer Network.

But we'll also help expand our market share on liners and covers, and we are already seeing early signs of those gains.

Our consumer-facing marketing programs are centered around building awareness for Latham's fiberglass pools, auto covers, and plunge pools, with emphasis on the Sand State markets, which represent a substantial growth opportunity for us.

Our initial targets in the sand states are Florida and Texas, which, together with Arizona and California, account for approximately two-thirds of annual new pool starts in the United States.

Leam, as the largest inground pool manufacturer, is currently underrepresented in the Sam states, which provides us with a substantial growth opportunity. We launched our Sand State strategy in late 2024, and we've made considerable progress in the first half of 2025 on the pillars that formed the foundation of the strategy.

Specifically.

We have increased our pool dealer bass in both Florida, and Texas. Adding additional dealers in the second quarter, we expanded our plunge, pool collection, and launched new fiberglass pool models to align our product offerings with Market preferences in the sand States and we've ramped up. Our marketing efforts drawing strong inches from both current and prospective homeowners including in key Target markets, such as Florida and Texas. Our national marketing efforts have resulted in over a 20% increase in dealer leads year to date and let them continue to be the most searched for fiberglass. Pool brand among major competitors.

And we continue to actively partner with some of our top performing, pool dealers across the country to expand their operations into the sand. States by establishing a presence in Key Master Plan communities, or MPCs that we have identified in Florida and Texas.

At the same time we're evaluating additional complimentary strategies to further accelerate our growth, in these MPCs where we are already driving awareness of the lean brand and our product lineup.

More on that in the next quarter or 2.

Manufacturing and value engineering initiatives, our lean manufacturing and value. Engineering initiatives have structurally changed, our business model, in our important factor, enabling us to achieve significant leverage as industry conditions improve

We issued a release today and filed an EK noting that Jeff Jackson Who currently serves. As chief executive officer at cabinet Works group has joined our board of directors. Many of you may know Jeff as the former president CEO of PGT Innovation before it was acquired in 2024. We are pleased to have Jeff on our board and look forward to benefiting from his valuable operational and strategic experience.

I will now turn the call over to our CFO, Oliver Gloe, for a financial review of our second quarter and first half results. Oliver?

Thank you, Scott and good afternoon everyone. I am pleased to report on our second quarter financial performance which represented Lam's continued Market, outperformance,

please note that all comparisons that I will discuss today on a year-over-year basis. Compared to the second quarter and first half of fiscal 2024, unless otherwise noted

Net sales for the second quarter were 173 million compared to 160 million up, 13 million or 7.8% reflecting both organic and acquisition related growth.

Primarily driven.

By an increase in volumes for auto covers as well as an increase in volume for pool liners.

Our strong sales performance underscores our successful execution and continued commitment to delivering on our growth strategies, both organic and through opportunistic acquisitions.

Across our product categories in ground pool sales were 79 million down 2.9% in the second quarter, reflecting a flat Market. As well as adverse weather conditions and delayed pool building activity across several important regions primarily in the Northeast.

Cover cells were 37 million in entries, reflecting a 46% increase due to contributions from our recent acquisitions of Coverstar Central, New York, and Tennessee, and importantly, organic growth driven by the increasing awareness and adoption of auto covers.

We are very pleased to see the benefits of our Auto Cover growth strategy materialize in such an impactful way.

Lina sales of 57 million grew 5.8% driven by the continued adoption of measure by lacm our proprietary AI powered measuring tool.

We have a meaningful number of measured devices in the market contributing to increased sales of liners and covers across North America.

We delivered gross margin of 37.1% in the second quarter 400 basis points above last year.

This material Improvement was primarily driven by volume leverage in our covers and liners product lines. The continued benefits of our lean manufacturing and value, engineering initiatives and the margin benefit from our recent covers the acquisitions.

Sgna expenses increased to 31.9 million up. 5.3 million, primarily due to increased investments in marketing and new Personnel to support our send State growth strategy, including expanding the awareness and Adoption of fiberglass pools and auto covers.

Investments in our new Erp infrastructure. And the inclusion of coverstar central related, overhead also contributed to the increase.

Net income was 16 million or 13 cents per diluted share and increase from 13.3 million or 11 cents per diluted share for the prior Year's second quarter.

Adjusted eov 39.9 million increased 5.4 million or 15.7% from last year's 34.5 million and adjusted ibida, margin expanded to 23.1%, a 160 basis, point improvement over 21.5% in the prior year period.

This increase was primarily due to higher sales and gross profit that more than offset increased SG&A spending.

Now, turning to our first half year-over-year result comparisons.

Net sales were $284 million compared to $271 million, reflecting the benefit of both organic and acquisition growth.

Net income was 10 million compared to 5.4 million in the prior year period.

This performance reflects higher revenue and improved gross margins, which more than offset our ongoing investments to increase the awareness and adoption of fiberglass pools and auto covers.

Turning to our balance sheet and cash flow statement. We continue to maintain a strong financial position with cash of 27 million at the end of the quarter.

Net cash provided by operating activities was 36 million in the second quarter. And in the first half, net cash used in operating activities was 10.9 million.

Total depth for the period was 281 million with a net debt. Leverage ratio of 3.0 and our Capital expenditures were 7 million for the second quarter of 2025.

As we have previously noted, we expect 2025 capex to range between 27, to 33 million with the increase from last year, due to the development of new fiberglass, pool models, tailored to the sand State markets as well, as the addition of usable space at our fiberglass.

Pool manufacturing facilities in Florida and Oklahoma.

Our substantial Financial flexibility allows laam to pursue strategic growth opportunities, both organic and through acquisitions.

As we enter the second half of 2025, we are pleased with our financial progress to date. Despite the pool market being in a trough period, we remain focused on executing on our strategic growth initiatives.

Our covers the Acquisitions have been fully integrated into the business. And we are seeing the anticipated benefits materialized in both incremental, sales and margins.

As Scott mentioned, we remain focused on increasing awareness and adoption of fiberglass pools, particularly in the sand state markets. We have seen encouraging progress to date, which will position the business for accelerated profitable growth as the pool market rebounds. Moving on to our outlook, we are reconfirming our 2025 guidance of 8% net sales growth and 19% adjusted EBITDA growth at the midpoints.

While market conditions, remain challenging.

We are cautiously optimistic heading into the second half of the year, and our guidance is based on our current market visibility and supported by our recent strategic acquisitions, ongoing efforts to grow our share in the Sand States, and continued benefits from our lean manufacturing and value engineering initiatives. With that, I will turn the call back to Scott.

For its closing remarks, thanks Oliver award on market conditions. We expect approximately 60,000 US Pool starts in 2025 consistent with our original estimates and slightly down from the 62,000 that PK data reported for 2024.

This softness aligns with our analysis that today's pool buyers primarily represent cash purchasers. This only constitutes a portion of the long-term average of approximately 100,000 pool starts annually.

Within this challenge in the tree environment, we are pleased to be able to reconfirm our full year 2025 guidance, which anticipates another year of significant market outperformance for leatham. Additionally, we have outlined a clear path for advancing. Our growth strategy, including the specific Financial results, we expect to achieve in the future. When new US Pool starts return to 78,000 per year meaning when they return to their 2019 level. Our new structurally change business model should enable us to achieve about 750 million in net sales and 160 million in adjusted ebit da. This would represent more than double our 2019 revenue and 2 and a half times. Our adjusted ebit da at the same volume of new US, Pool starts.

And when the US Pool starts returning to the long-term average of 100,000 pools per year, we project meaningful increases beyond the aforementioned Financial results.

With that operator, I would like to open the call to questions.

Thank you. We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone,

if you are using a speaker-phone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question please press star then 2 as a reminder. Please restrict yourself to 1 question and 1 follow.

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

First question comes from the line of Greek Palm with Greek column Capital group. Please go ahead.

Execution and sort of continued uh outperformance and what we all know is a pretty difficult operating environment out there.

Thank you. Thanks Greg.

Um,

I, I maybe starting with, with kind of the, the Investments, around the marketing campaigns that you're, you're making, I mean, how, how are you measuring success right now? The return on investment it. It's it's obviously not a robust environment, but you seem to be building interest. You're you're signing up dealers. You you know, is the initial thought, you know, hey let's you know, get the awareness up. Let's sign up a bunch of dealers, maybe this materializes into, you know, orders activity, you know, next year, maybe you're already seeing a little bit of that this year. I just love to get your sort of thoughts on kind of the return on that investment so far and what your expectations are sort of for the balance of the year.

Yeah, yeah. So Greg, I think it's a little bit of everything you mentioned, right? It's, it's clearly focused on driving the awareness of the brand and the awareness of fiberglass, pools out there. Um, making sure we've got the dealers and the dealer capacity in the areas where we're generating the demands in the lead and we talked a lot about our Goods at campaign. Um, hopefully many of you just seen the uh, Direct TV campaign. We've been running over the last couple months. Um the interest generated from that was substantial in terms of uh you know we were able to measure it distinctly with with the codes. It's the phone numbers. Um massive uptick in activity, on the website time.

On the website leads generated from that. Um a lot of great activity um in both Florida and Texas. The sand States is part of that strategy, um, you know, significant numbers increasing their, you know, it's not going to translate to an immediate pool sale, you know, we all know that that buying decision is delayed with kind of, let's say the, um, you know, where the consumer confidence sits today, but we do it is building the pipeline a future, demand for us, you know, some of those, some of those, uh,

Pools of Interest May translate to a sale this fall um more likely it will translate. So you know hopefully nice Tailwind for us as we move into 2026.

Yep. Okay, that that makes sense and just on the sand State strategy, just would love to get kind of an update on, you know, a how you know Florida is going and then B, you know, in terms of, you know, what you're targeting in terms of, you know, communities that you want to, you know, be in either by your end or over the next

You know, 6 or 12 months, just curious what the the ramp up of that looks like, as well.

Yeah, so again I think we'll we'll continue to, you know, accelerate the ramp up there. I'd say right now we're tracking ahead in terms of the number of new dealers. We've recreate recruit recruited excuse me, and also the number of MPCs or other communities that we, we've entered into to get, get the, um, you know, pool installed going. I'd say good progress, you know, we'd all like it to be a lot faster from a pace acceleration. Um, I think, you know what's maybe caused a little bit of a Slowdown as

Really been just the the general markets in Florida and Texas. Um you know a lot of a lot of folks have seen permit activities, bend down. Um you know again we've seen some nice upticks recently, we've seen really good uh increase in lead generation. Um the numbers, if I greatly turn positive for us um uh significantly in Florida with lead generation there and interests um Texas is finally turned over the last 2 to 3 weeks as well. In terms of incremental lead generation in a market that's been really tough from a weather standpoint. So we like we like where we're headed we like, where we're going. Um, we had a really good meeting uh, here in the Albany area, back about a month or so ago with, um, a lot of our top dealers, many many from the sand States. Um, I think, you know, the, the marketing that we're doing the models that we're creating the resonate in the sand states, with all the different features. Um, all all going very, very well and, you know, we'll, we'll be talking, you know, as we move forward more about the metrics of what we're doing. I think for now, but we've been saying is, you know, percentage,

Of of cool Revenue in the sand States kind of on that 17% number. Um you know, hopefully we'll see that uptick here, you know, as we work through the back, rest of the year um you know, towards the 1920 percent number,

Okay, uh, appreciate the color, thanks.

All right, thanks Greg.

Thank you. Next question. Comes from the line of Andrew Carter with stifel please. Go ahead.

Hey, thank you. Good evening. Uh, I don't think I've ever heard you guys call out weather before, in terms of like, but you did say it did hit the package pools. If you look at the inground pools business in general, we're fiberglass. Pool sales. Have those returned to growth, and it's just the weather package pools that are declining? Thanks.

Um, affected by that probably you know, package pools, you know, the the impact was larger than fiberglass. Um you know we usually don't talk about whether but I think we had an unusually wet spring it it rained in in New England all the way up until until June and and once once the season turned on us and and we had good weather, we actually saw, you know, nice trajectory in June and July returning for fiberglass, back to year-over-year growth. Um, but but it was a measurable impact, I would say somewhere between 3 and 5 million, um, that that we would attribute to to weather here.

That's helpful and I guess second question is really strong. Gross margin performance in the quarter that brings your trailing 12 to 32%, which most the Acquisitions are in kind of is that the right structural level or were there any 1 time the atoms, flattering this quarter? What should we think about structurally is the level, of course, you'll, you'll want to. You'll be building upon that. Thanks. I think that we, we are very pleased where we are from a, from a gross margin perspective, 400 basis points is the increase year-over-year.

And you know this the main buckets of of of that list comes again from from the Acquisitions lean value engineering, is is really good. Contributor in a stable contributor from a, from a sequential perspective and then, um, nice to see volume picking in and that, that helps you utilization and uh, and and cost leverage right, not really, you know,

A, a 1 time without call out, probably a slight favorability and absorption, you know, we had a couple of days of of plant shutdowns in, in the first quarter. They, they were also weather related, um, that we caught up on early in in the second quarter. But I want to say outside of this, fairly normal quarter and again, very pleased with our e over here. Moving here.

Thanks, I'll pass it on.

Thank you. Next question, comes from the line of Ryan, Merkel with William player. This go ahead.

Hey everyone, thanks for taking the question. Um, my first question is just on the current orders. I think you mentioned is tracking. Well, I'm curious. Did you see a lift in June and July after the Rainy May, or would you say it's just been kind of steady as the year has progressed here?

Yeah, you know, look, I I think we, we did see some uptick in in several of the categories, you know, as we kind of got post-memorial day and really saw the weather turn and kind of let's say now here in the, In the Heat of the summer, you know, early early August, um, you know, again you know, good, good strength and auto covers, you know, really good performance and the liner categories, you know, we've seen fiberglass, turn nicely around. I'd say package, pools kind of continues to stay flat, which is a little bit, maybe more of that lower end of the market entry level. I'm really haven't seen much movement there, but that's that, you know, I don't attribute that to the weather. I think that's just the consumer confidence, you know, lack of finance and all

For uh, lower end of the market. So, you know, I think, you know, looking looking good as we go forward. And I think the key thing we've got to start watching out for now is we kind of start to exit, you know, the pool building season is right. We'll be entering into the, the fall pool closing season and the safety cover season for us. So, that's the next thing we want to continue to watch. And I think the the early Trends there have shown some positive movement um over the last several weeks, as well as um you know, many folks start thinking about back to school and closing pools, you know, in the next you know, 30 to 45 days.

Got it. Okay, that's helpful. And then, on fiberglass, you mentioned in the release substantial year-over-year growth in leads, and I'm just sort of curious.

How is your backlog looking right now? Would you say it's normal for this time of year or is it a little depressed and you know the second part of that question? Do you expect fiberglass to return to growth in the second half of the year? Just giving some of the sales and marketing seems to be working?

Yeah, you know.

Or proper glass backlog in general. Um, Ryan is is held up pretty well for us, you know? I, I think, um, it's hard to judge backlog of levels with our lead times and service levels right now. I think we're we're out there, you know, 3 to 5 Days, Inn in the majority of the business fiberglass, pools, you know, sit independent on, you know, Region 2 to 4 weeks on average. So we're turning orders pretty quickly for dealers, um, out there but I'd say backlog.

Consumer I was doing well and I think that's that's why we're really focused on trying to trying to generate a lot of leads, um, for dealers keeping that funnel full keeping the interest there and um, you know, hoping some of those leads, you know, will convert to a sale here um, for a fall install for us.

Okay, that's encouraging, nice job. I'll pass it on.

Thank you.

Thank you. Next question, comes from the line of Tim Ty voices with bad. Please go back.

Hey guys, uh, good, uh, good afternoon, nice, nice job. Um, I I get on the, on the revenue Guidance. Just any, I know you're reiterating it, but, but are there any kind of changes to the, to the, under underlying components at all? Whether it's just kind of fiberglass growth, or liners or covers or pricing? Just is, is everything kind of similar to what we expected on the top line or is there anything kind of changed under the the surface?

No, I I don't think that there's any change to the to the usual seasonal profile, right? It's got just mentioned. You know, this the um, safety cover season is is now starting and, um,

You know, I think with the, with the, with the measure by late and we are set up well for that, you know, we are very pleased with the organic growth in in Auto covers. Obviously in addition to, to, to the impact of of the Acquisitions. Um, we expect that to, to, to um, continue to, to benefit. And then, you know, as we said fiberglass.

Returning to a year-over-year growth. Um I don't want to say that, you know, the the the second half of the year is anything unusual to what you've seen from a from a sales profile, I think 1 thing is from a year-over-year perspective, you know, the acquisition of coverstar central um, that happened in August. So you'll see some Dynamics. Um you know the changing changing comps here but from a sequential perspective, as we navigate the season, I don't think there's anything overly extraordinary in our season in 24 versus prior years.

Okay. Okay, that sounds good and may I just, I guess a couple of kind of clean up modeling things, just is there any way to, to kind of talk about how much price contributed in the second quarter and and how much the the acquisition sales were?

Yeah, sure. Um, so as you as you think of price, so we did we did price for um, some some terrorists impacts in in June, um, just as a reminder, and then nothing really has changed to what we, what we said about tariffs. Last last quarter about 20 million is the the headwind more than half is is, is remediated and mitigated on the, on the supply chain side with a little bit less than half on the pricing side, so that went into effect in in June. So I think about 1 month of that. Um so you know give it a, give it a probably a rounded million. Um and then you you asked about the contribution of uh, of of the cover stuff. This is in the quarter.

Um, it was probably about 7 million that all 3 acquire combined.

Okay. Okay. And then

can you just remind us on the on the Tariff side? Does that have some

Just the way you've approached it, does it have some margin implications or or just because you're taking you know the cost out and adding a little bit of price that it it it um the the margin implication from offsetting tariffs is generally neutral.

Yeah, I I would I would put, it broadly is, is neutral. Um, you know, I want to um, you know, complement our supply chain team. Um, for having, you know, worked through a very Dynamic pair of environment that keeps on keeps on changing. Um, since we met last time, China came down, um some other countries went up, but I want to say at this point in time, we are fairly balanced when it comes to the impact. And the mitigation and that comment is a is a run rate, comment as well as is a 2025 call.

Great. Sounds good. If you look on the back half of the year,

thank you. Next question, comes from the line of Matthew bully with Bless, please. Go ahead.

Uh, good afternoon, everyone. Thanks for taking the questions. Um,

I guess. Uh first 1 I I just wanted to ask around. Um labor availability. Um

Fiberglass versus, you know, installing the sort of traditional materials. Thank you.

Yeah, so, so man, I mean, I'll start maybe first for us infernally right? No, no issues, no challenges getting labor. I think we've been pretty stable throughout the entire season year, um, seeing extremely low turnover numbers, great retention across the board. So we feel really good with the talent we have on the team to support and run the business and all of our factories as we, you know, balance the, the different seasonality aspects.

Um, you know, when we talked to our dealers, I think our dealers um, don't appear to be having any issues with labor, again, I think they've got, you know, really great, um, Crews. You know, they've had longevity with some of their core teams. Um, but again, it takes a lot less people to install a fiberglass pool. We're talking, you know, 3 Guys in the backyard for a couple of days, to get that pool in the ground and set, you know, we, we have heard and seen some stats on the concrete side that, you know, trying to get subs and have the subs out there for 3, 4 5 months at a time, there has been labor challenges and, um, that's why I think going back to 1 of the questions earlier in the call about, um, dealer acquisition and dealer ramp up. I think we have seen a lot of good success. Now of concrete Builders making that change so late them and late them fiberglass because of the labor availability Challenge. And I think that's going to be a big help for us and a nice Tailwind as we go forward. Um you know 1 of the things we've talked.

Talked about is you know you know, how do we target some good concrete builders for a conversion? Um I think we've kind of teased this 1 over the last quarter or 2 um but Shasta pools, right based out of Phoenix, Arizona, probably 1 of the largest concrete, Builders out there in the country. Um, now installing late them, fiberglass pools. They just opened a really nice, beautiful new design center, um, featuring fiberglass pools. They just did their big kickoff event. I think about a week or so ago. Um, so getting them to come on board and support and install fiberglass, I think is a testament to, you know, 1 what we've been able to do um with demand lead generation, but I think also a great tool installed at pool builder out there realizing that, you know, that's going to help fight through Labor challenges and issues. So I think that's going to be another 1, that we're going to see a lot of great success.

Got it. Okay, no, that's that's super helpful caller. Um, secondly, um, kind of drilling down into the gross margin. Um, obviously up something like, you know, over 400 basis points year-over-year. I think you called out, uh, some good volume leverage, um, in the, you know, where you have the growth and covers and liners. And then, you know, obviously this continued success with lean manufacturing and I think some uh accretion from cover Star as well specifically. Um, I don't know. I mean is it possible to kind of bucket that out between, you know, what drove that increase um, you know, amongst those

Or if there was any other drivers uh and then kind of any other help. I guess when we think about uh those pieces kind of how those may may play into the margin in the second half. Thank you.

Yeah, I want to say, um, so let me start off by cover star, which accounts for probably half of half of the contribution in line with expectations in line with, um, you know how we described the cover star business at the time of the acquisition. Um, you know, that margin profile continues in Q3 Q4. And I remind you again that that some of the benefits, the anniversary artists, we did the central because last year, in August,

And then the remaining difference to, you know, the remaining balance to our 400 basis points across margin Improvement is pretty evenly split between the contribution of lean value, engineering, as well as the um, cost levels through volume, maybe this slide Edge and and you know, the the majority on the mean value engineering side.

All right, got it. Well, thanks guys. Good luck.

And thank you.

Thank you. The next question comes from the line of Susan maclari with Goldman Sachs. Please go ahead.

Good afternoon, everyone. This is Charles Brown in for Susan. Thanks for taking my question.

Um, first I just want to talk about

I just want to go back to your prepare comments about um, the liners I think, look, the measures by lay them is driving share, gains relative to the underlying Market. Can you maybe help us quantify, you know, the share gains and how your your outperforming the market. And also, when you think about the change in regulation, uh, to accept pool safety covers instead of fences in some states, has this part of your growth algorithm going forward and, and the opportunity that it can provide for the business.

Um, 6% up. Um, you'll be

Here. I think a a key contributor is is our proprietary liners measurement tool. We don't specifically break out um you know the contribution of that. Um but but but again very very pleased with the number of devices in the market, the feedback from uh from our dealers and as a result, the uh the new over here that's when it comes to to volume and and uh and sales.

And any commentary on the the pool safety cover and and uh, changes in regulation for fences.

Yeah. So that that's kind of more on the auto cover side of the equation versus the winter safety cover. And you look, I think when you just look at the underlying performance, we've been seeing as hours and talk about growth and auto covers, um, organically from the Acquisitions our Focus there. You know, it's clearly part of the algorithm of us, being able to outperform in the market and write that auto cover goes on all pool types that goes on competitor pools. Um, it has a really nice Roi and payback for the homeowner, um, with the lower chemical usage, you know, less water evaporation, um, keeping your pool cleaner and then just the ultimate safety aspect of it. You know, again, we we've talked a lot about, right? We we've done a lot of marketing with Bodie Miller and his foundation, you know, In The Swim promoting it. And I think in in the territories where um, Auto cover can be used in lie of offense, we see a very high

I um, take rate and uptick in terms of the number of pools getting Auto covers and I think that's going to be part of that, you know, future growth, algorithm of late, and be able to outperform the market overall um even in a flat or slower growth pool start, um environment. So we're we're pleased with the progress. We're making their um, again, we we believe penetration of Auto covers on New Pools is in the low 20s. So, definitely a huge opportunity to really move the needle. Very similar to what, uh, we've talked about in the fiberglass Arena,

Got it that that's good color. And then second talking about Capital allocation obviously your balance sheet remains strong. Uh but when you think about the capital allocation priorities going forward between delivering, you know, opportunities to buy maybe more dealers and and just the general I mean a pipeline out there. How do you see the most important priorities going forward?

Yeah, I want to say, if you know, a capital location priority is, remain unchanged. Um, you know, I I give it, you know, let me, let me run, run down those, those priorities in order of, of priority here with starting with the most important 1. First, it's investing in the business, right? That is over the last 3, 3, 3 and a half years, um, more than 40% of our capitalists got into we build a plan. Um, you know, you see us ramping up our investment in the sense that it's to prepare for that growth. Um, I think the second priority is, is, is m&a about 30% of, of our funds have have been allocated to m&a. We've been buying about a company year over the last 1 1 and a half decades.

With the 3 covers the businesses, um, being the last last last examples here, and then, you know, debt repayment is, is, is a, is a key pillar, as well, with about 15% of of allocated Capital, we have we've repaid, 30, 35 million over the last 2 2 and a half years and will not leave, you know, um, continue to pursue that as, as 1 of our uses for for Capital.

Thank you Oliver. That's good caller.

Thank you.

Thank you. Next question, comes from the line of Shan Khan with Bank of America. Please go ahead.

Hi guys, thank you for taking my question. Um, first, I just want to follow up on the earlier revenue guidance question. So, at the midpoint, it would imply second half of revenue growth of double digits versus mid-single digits in the first half, and it seems like you're getting less of a contribution from M&A in the second half. So, can you talk about what's driving that growth and your confidence that you can hit those numbers?

I think a couple of points, right? So

We did see a little bit of of, of, of, of whether, um, delays, which, um, you know, should at a minimum not impact the second half of the year, um, and maybe there will be a little bit of uptick and that's something we certainly saw in, in June and July, the fiberglass, business returning to an old, um, a year-over-year growth. Um, please don't forget, also the

anesthesia supported Again by by, um, measure measure by Le

These are the 3 main building blocks obviously, next to a little bit of pricing that we um announced and implemented in in engineering.

Okay. Got it and then on the delayed pool builds, is that something that um you guys have already um realized the benefits of in the last month or so or do people typically delay them until after the summer if they can't get it built in time?

yeah, look I I think it's

It's going to be a continued push right up until let's say winter sets in um you know, folks that made that decision for the pool, call it in the may, you know, April May June time frame that couldn't get it. They're still going to get their pool this summer, right? So Builders will continue to to build here in the summer month of August and September. Um, you know, we'll we'll see the fall installs continue into early October end of October. Um, so, you know, those pools will hopefully still get in the ground. And I think that's where the advantage of fiberglass, and let's say, even our inground vinyl liner package pool for us is a much faster build, right? So, the ability for our dealers to catch up and get those pools in the ground, is much better than let's say. Someone who's hoping to get a concrete pool, you know, and let's say, a wet market like like Texas or something. So, you know, I know our our guys are are busy, they're working really hard. And, um, I think that's what also will.

Help. Some of the second half uh Revenue guide versus the first half of the year as we, you know, see stronger numbers.

Great. Thank you.

Thanks, Sean.

Thank you. This includes a question and answer session. I would like to turn the conference back over to Scott rajeski for closing remarks.

Yeah. Thank you all for your time this afternoon. Look we we really appreciate all your continued support of leam. Um you know I hope all you guys have a great end to the summer season. You know as we head into the upcoming Labor Day uh holiday here in the US and I'll look forward to connecting with many of you at upcoming conferences and meetings. Um, hope you all have a great evening, thank you.

Thank you to conference has. Now concluded. Thank you for attending today's presentation. You may now disconnect