Q3 2025 Latham Group Inc Earnings Call

Speaker #3: Good afternoon and welcome to the Latham Group . Third quarter 2020 Earnings Conference Call . All participants will be in listen only mode should you need assistance .

Speaker #3: Please signal a conference specialist by pressing the star key , followed by zero . After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star , then one on your telephone keypad .

Speaker #3: To withdraw your question , please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to Casey Casey Kotary Investor Relations representative .

Speaker #3: Please go ahead .

Speaker #4: Thank you . This afternoon , we issued our third quarter 2020 earnings press release , which is available on the Investor Relations portion of our website .

Speaker #4: On today's call , are Latham's president and CEO , Scott Rajeski and CFO , Oliver Gloe . Following their remarks , we will open the call to questions .

Speaker #4: During this call , company may the certain statements that constitute forward looking statements which reflect the company's views with respect to future events and financial performance .

Speaker #4: 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 10-K and subsequent reports filed or furnished with the SEC , as well as today's earnings release .

Speaker #4: 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 directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that is available on our Investor Relations website .

Speaker #4: I'll now turn the call over to Scott Rajeski .

Speaker #5: Thank you . Casey , and thank you all for participating in today's call to review our third quarter . And year to date results , as well as discuss our business outlook .

Speaker #5: This was another strong quarter for Latham . Net sales were up 7.6% year on year , significantly outpacing the US in-ground pool market , which we expect will be flat to slightly below 2024 levels .

Speaker #5: Adjusted EBITDA increased by 8.5 million , or 28.5% , a clear indication of the substantial operating leverage inherent in our business model . These results highlight Latham's competitive strengths .

Speaker #5: Our diversified product portfolio , and the actions we have taken to position the company for continued growth . I am pleased to report that our third quarter results showed progress across all of our key financial metrics .

Speaker #5: First , all three of our product lines experienced year on year growth . In ground pool sales were modestly ahead on a year over year basis , reflecting positive momentum in fiberglass pools , partially offset by continued softness in package pool sales .

Speaker #5: Second , both covers and liners showed strong year on year growth , with sales up 15% and 13% , respectively . This considerable growth has been driven by investments we have made to strengthen Latham's market position in both product lines .

Speaker #5: Third, this was another quarter of meaningful margin expansion. Gross margin increased to 35.4%, up 300 basis points year on year.

Speaker #5: And adjusted EBITDA margin increased to 23.7% for the quarter , up 390 basis points . And with current tariffs fully mitigated . And lastly , we ended the third quarter in a strong financial position , providing Latham with the resources to invest in organic growth projects as well as consider accretive acquisitions .

Speaker #5: Several factors have enabled Latham to continue to outperform the US in-ground pool market . We have been investing in building the awareness and adoption of fiberglass pools and auto covers , two key growth drivers for Latham and in developing a proprietary measuring tool to increase our liner and safety cover .

Speaker #5: Sales . And in the third quarter , we posted year on year net sales growth in each of our product lines within an overall market that we expect is flat to slightly down for the year .

Speaker #5: Our in-ground pool sales increased modestly , up just under 1% from last year , but we saw continued positive momentum in fiberglass pool sales , which are tracking to account for approximately 75% of our full year 2025 in-ground pool sales .

Speaker #5: Additionally , our initial analysis indicates that fiberglass Pools is poised to gain another 1% of the total in-ground pool market to represent approximately 24% of total US in-ground pool sales in 2025 .

Speaker #5: Latham has the broadest lineup of fiberglass pool configurations in the market , the widest range of price points , and the greatest array of specialty features , including spas and tanning ledges .

Speaker #5: Our marketing programs emphasize the cost advantages fast and easy installation , and lower maintenance requirements of fiberglass pools compared to concrete pools , and these attributes are resonating well with both consumers and dealers .

Speaker #5: Installers ranked the lack of available workforce as one of the top five impediments to growing the business , and with fiberglass , they can install six pools in the time it takes them to build one concrete pool .

Speaker #5: Now . And with two third fewer workers , this selling point has enabled us to convert a substantial number of dealers and installers so far in 2025 .

Speaker #5: Many of whom are located in our target growth geographies such as the Sand States . Sales of pool covers increased 15% year on year , with a meaningful share of that representing organic growth in auto covers .

Speaker #5: In addition to the revenue synergies we are gaining from the three cover star acquisitions . This considerable growth is a function of very positive consumer response to the unparalleled safety that auto covers offer .

Speaker #5: As a reminder , Latham's auto covers are compatible with all types of in-ground pools and their significant cost savings from reduced water , energy , and chemical usage .

Speaker #5: Enable auto covers to effectively pay for themselves within 4 to 5 years . Also , 16 states , in addition to a number of municipalities around the country , have now expanded their pool safety regulations to allow auto covers to be used in place of traditional fencing around the pool , which results in additional savings for the pool owner .

Speaker #5: Liner sales increased 13% in the quarter . Our industry leading lead times , together with the investment we've made in our measure by Latham Tool and its successful rollout , are making a substantive difference for our line of business .

Speaker #5: This AI-powered tool is proprietary to Latham and streamlines the measurement and quoting process for installers, ensuring a high degree of accuracy in less than 30 minutes versus 2 to 4 hours to do the measurements manually.

Speaker #5: The tool is fully integrated with Latham order Entry System , which allows installers to get real time quotes and seamlessly submit orders and track their status year to date , 25% of the installers who purchased this tool were new to Latham .

Speaker #5: Supporting our objective of leveraging this tool to gain share for our liner product line . It is also helping us gain share of the winter Safety Cover market in September .

Speaker #5: We rebranded measure as Measure Pro and also launched Measure Go , a new app that expands this technology's reach to more dealers by leveraging the iPhone's LiDAR scanner to enable installers to accurately measure safety covers .

Speaker #5: As you know , Latham's expansion in the Sand States is a strategic priority for us as it represents a significant multi-year growth opportunity in the third quarter , we gained traction on several pillars of our growth plan , laying the foundation for future long term market share gains , dealer conversions in Florida .

Speaker #5: One of our initial target markets have been in high gear year to date . I am pleased to report that our Florida sales have increased at a high single digit rate , and Latham is now represented in several master plan communities or mpcs in Florida .

Speaker #5: We continue to evaluate additional complementary strategies to further accelerate our growth in these mpcs , where we are already seeing increased awareness of the Latham brand and our product lineup .

Speaker #5: Additionally , we have established strategic partnerships with several custom home builders in Florida who are developing smaller scale high end communities that will feature Latham Fiberglass Pools , to sum up , this was another quarter of considerable market outperformance for Latham , with much of the pool building season behind us .

Speaker #5: We are very pleased with our year to date sales trends . We have strengthened our market leadership position in fiberglass pools , auto covers and in-ground pool liners and gain traction in the sand states .

Speaker #5: All of this has been accomplished while significantly increasing our margins and improving our financial ratios . Now I will turn the call over to our CFO , Oliver , for a financial review .

Speaker #5: Thank you , Scott , and .

Speaker #6: Good afternoon , everyone . I'm pleased to report on our strong third quarter financial performance , which highlighted Latham's competitive strength and continued ability to outperform the market .

Speaker #6: Please note that all comparisons that I will discuss today are on a year over year basis , compared to the third quarter and first nine months of fiscal 2020 .

Speaker #6: Four . Unless otherwise noted . Net sales for the third quarter were 162 million , compared to 151 million in the prior year , up 11 million , or 7.6% .

Speaker #6: This increase was primarily driven by organic growth of 4.7% and reflected acquisition related growth in sales volumes and a tariff related price increase .

Speaker #6: All three of our product lines in pool pool covers and pool liners experienced year over year growth in the period . These results demonstrate the strength of our diversified product portfolio as well as continued progress in our strategic growth initiatives , namely , increasing the awareness and adoption of fiberglass pools and automatic safety covers , expanding our sales of in-ground pool liners and gaining traction in the important sand state markets across our product categories .

Speaker #6: In-ground pool sales increased by approximately 1% year over year in the third quarter . This performance was achieved against the backdrop of a US in-ground pool market that we estimate will remain flat or decrease slightly , underscoring our ability to outperform the broader market and this growth reflects continued momentum in fiberglass penetration as builders and consumers increasingly recognize the appeal and benefits of a fiberglass pool cover , sales increased by approximately 15% , driven by higher adoption rates for auto covers , typically purchased alongside a new pool , as well as revenue synergies from our three cover star acquisitions and strong consumer engagement with our marketing initiatives , including our recent partnership with Olympic Gold medalist and pooled safety advocate Bodie Miller , which highlighted the important role of auto covers in overall pool safety which are liner sales increased by approximately 13% , and this positive performance was driven by our industry leading lead times and the increased adoption of our measure by Latham Tool .

Speaker #6: This year marks the second season of the Measure tool in use and pooled builders are increasingly recognizing its accuracy and efficiency for measuring both pool liners and covers .

Speaker #6: Gross margin expanded by 300 basis points to 35.4% in the third quarter , primarily due to the creative benefit of the three covers .

Speaker #6: Acquisitions and the continued success of our Lean manufacturing and value engineering initiatives in driving production efficiencies . G&A expenses increased slightly to 28.6 million , approximately in line with the 28.3 million recorded in the prior year period .

Speaker #6: The stable level of SG&A spend this quarter included increased investments in sales and marketing initiatives and personnel . As we move forward with our strategic growth initiatives , along with investments in new ERP infrastructure , partially offset by the timing of performance based compensation .

Speaker #6: Net income was 8.1 million , or $0.07 per diluted share , an increase of 2.2 million , or 37.7% , compared to the 5.9 million , or $0.05 per diluted share , for the prior year's third quarter .

Speaker #6: Adjusted EBITDA was 38.3 million , an increase of 8.5 million , or 28.5% , from last year's 29.8 million . And our adjusted EBITDA margin was 23.7% , a 390 basis point increase from 19.8% in the prior year period , including additional investments in marketing initiatives to drive share gains for fiberglass pools and auto covers .

Speaker #6: Now , turning to our year to date results , comparisons . Net sales were 446 million , up 5.9% compared to 421 million , net income was 18.1 million , up 60.3% compared to 11.3 million adjusted EBITDA was 89.4 million , up 16.7% compared to 76.6 million in the prior year .

Speaker #6: Adjusted EBITDA margin increased 180 basis points to 20% from 18.2% . Turning to our balance sheet and cash flow statement , we continue to maintain a strong financial position with cash of 71 million at the end of the quarter .

Speaker #6: Net cash provided by operating activities was 51 million in the third quarter , and 40 million for the first nine months . Total debt .

Speaker #6: As of the end of the period, net debt was $281 million, with a net debt leverage ratio of 2.3, considerably below the 3.0.

Speaker #6: In the year's second quarter , and we expect our net debt leverage ratio to approach two by year end . Our disciplined capital allocation strategy remains focused on deploying capital opportunistically to position Latham for profitable , organic and acquisition related growth , and to deliver and further reduce our net debt leverage ratio .

Speaker #6: Our capital expenditures were 5.8 million for the third quarter , and 16.2 million for the first nine months of 2025 . Moving on to our outlook with the peak pool building season now behind us , and based on our current visibility through year end , we have narrowed our guidance ranges for net sales and adjusted EBITDA and revised our CapEx estimate for 2025 .

Speaker #6: Our net sales guidance range is now 540 to 550 million , representing 7% year over year growth at the midpoint and our adjusted EBITDA range is now 92 to 98 million , representing 19% year over year growth at the midpoint .

Speaker #6: We've also revised our CapEx estimate to a range of 22 to 24 million , with that , I will turn the call back to Scott for his closing remarks .

Speaker #5: Thanks , Oliver . As I mentioned earlier in my remarks , we expect 2025 new US pool starts to be flat to slightly down compared to 2024 .

Speaker #5: Within this challenging industry environment , we are very pleased to be able to provide guidance of 7% sales growth and 19% adjusted EBITDA growth at the midpoints .

Speaker #5: Looking ahead , we are confident that increased fiberglass pool and auto cover adoption will enable Latham to continue to outperform the in-ground pool market .

Speaker #5: And as we have noted , when new US pool starts return to 78,000 per year , meaning when they return to their 2019 level , our new structurally changed business model should enable us to achieve about $750 million in net sales and 160 million in adjusted EBITDA .

Speaker #5: This would represent more than double our 2019 revenue , and two and a half times our adjusted EBITDA . At the same volume of new US pool starts .

Speaker #5: Operator I would like to open the call to questions .

Speaker #3: We will now begin the question and answer session to ask a question . You may press star then one on your telephone keypad .

Speaker #3: If you are using a speakerphone, 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 two.

Speaker #3: Please limit yourself to one question and one follow up . At this time , we will pause momentarily to assemble our roster . The first question comes from Andrew Carter with Stifel .

Speaker #3: Please go ahead .

Speaker #7: Hey , thank you very much . First question I wanted to ask is in terms of kind of the upstream metrics you have from leads , consumers , contractor , anything like that , what are you what have you seen as you've moved through the quarter and perhaps customers have started to digest , you know , tariff costs , the incremental uncertainty .

Speaker #7: Thanks .

Speaker #5: Yeah . Hey , Andrew , this is Scott . You know , I think leads have been a real strength of ours throughout the entire peak pool building season in two Q and three Q .

Speaker #5: I think as we talked on one of the last calls , we did our first National direct TV campaign , and we got really phenomenal response off of that .

Speaker #5: I think exiting third quarter , we're tracking well ahead of all the leads . We generated full year last year . And we were we were up significant double if not triple digit year over year through several of those periods .

Speaker #5: So the interest , the want for a pool and everything is out there . I think what's still lagging is the confidence to make the ultimate pool buying decision based on tariff uncertainty .

Speaker #5: And I'd say interest rate uncertainty . But clearly we've got a lot of leads and demand to work from that . We've been pushing to our dealers .

Speaker #5: And I think , you know , that's kind of what really helped us . Have , you know , 5% organic growth here .

Speaker #5: You know , in the quarter .

Speaker #7: Second question I would ask then getting to kind of the liners performance up 17% , that's just there's two businesses to that . There's of course the replacement business and the new construction on the first slide is replacement .

Speaker #7: Now starting in this category , starting to hit a cadence where some delays are starting to be caught up . Or is that category still bogged down by deferrals ?

Speaker #7: And then when you say new construction down , you know , flat to down , I would assume the kind of package pools the vinyl underperforms that .

Speaker #7: So could you just add some context to the overall liners performance ? Is it I'm sorry , is it remodel catching up or is it just all really a function of your market share gains ?

Speaker #7: Thanks .

Speaker #5: Yeah . Andrew I'd say the combo of the two . Right . So one , I'd say , you know , I think with the measure tool out there , we've seen some really nice share gains .

Speaker #5: And pickup in the replacement side of the house for in-ground vinyl liners . You know the flip side is with the lower end of the market on , let's say new new vinyl liner pools being probably down more significantly than , let's say , the higher end of the market .

Speaker #5: A lot of the dealers who play in that space will will focus on repair , replacement , remodel of existing pools . You know , renovating the liners for homeowners .

Speaker #5: And I think we've done a really nice job getting , you know , share gains out there , as I said , right up front , bringing more dealers into that type of the category .

Speaker #5: And again , if you're a homeowner and you've got a pool and your liner has failed or just looks awful , you're going to you're going to make that discretionary spend to kind of get your pool functional again for the season .

Speaker #5: So we're really happy with the progress we've seen there . And on the new construction side , again , I think lower end of market , which is more the vinyl side of the world , there's just still been been a little bit tough and been down out there and complete different than what we see in the fiberglass side , where again , higher end consumer , you know , continuing to see good share gains there .

Speaker #5: And , you know , the consumer wanting that fiberglass pool in the ground faster than other pool types .

Speaker #7: Thanks . I'll pass it on .

Speaker #3: The next question comes from Greg Palm with Craig-hallum Capital Group . Please go ahead .

Speaker #8: Hey guys . This is Danny on for Greg . Today . I appreciate you taking the questions . I think I'd like to just start kind of maybe broader , you know , from a geographical perspective how you saw , you demand kind of progress throughout your geography , geographies , throughout the quarter , you know , and how is that different from a few months ago ?

Speaker #8: And where are we're seeing kind of outperformance , underperformance .

Speaker #5: Yeah . Look , I'd say it's been pretty consistent throughout the entire season . And what I would say is , you know , strength throughout most of the country , you know , Canada , Northeast , Midwest , southeast for us , you know , we been really happy with what we've seen in Florida despite a challenging environment down there with what some of the permit data shows .

Speaker #5: I think the two , the two negative spots have continued to be Texas and California . I think others have talked about the difficulty in those two markets .

Speaker #5: They've been, they've been consistent. But the rest of the country, I'd say, has been pretty strong throughout the entire build season for us.

Speaker #8: Got it . Maybe if we can double click on on Florida there , then , you know , you mentioned your work with MPC .

Speaker #8: So maybe just a little more color on on how exactly that progressed throughout the quarter . And then also , you know , you made some comments on on the strategic partnerships with , with a few custom homebuilders in the region .

Speaker #8: You know , just just curious on what what that entails . And maybe whether that whether or not that can be kind of replicated in other states going forward .

Speaker #8: And part of the broader strategy .

Speaker #5: Yeah . Look , we're real happy with where we are in Florida . Again , a little bit of a tough market down there .

Speaker #5: But I think the team's been very focused to get into these NPCs , establish the relationships , whether we're going at with our by ourselves or with , you , some , some dealers in certain locations .

Speaker #5: So I think the number of NPCs we've entered into is tracking probably ahead of what we had hoped for coming into the year .

Speaker #5: I think the team's done a really , really nice job targeting some of these smaller , high end custom home builders who really don't want to get bogged down , you know , with on the pool and pool installer build side of the equation .

Speaker #5: So we've partnered with several of them . Again , smaller communities , you know , 15 25 , 30 , 35 , 40 homes .

Speaker #5: They're not these massive thousand type home communities , but our view is that it gives us a presence in these communities , gets more people touch and seen feeling fiberglass .

Speaker #5: And then the hope would be as the national guys start to see that regionally in some of these markets , with these adjoining communities , you know , that will help to drive the acceleration with some of the larger homebuilders out there .

Speaker #5: As we continue to drive it . And I think , look , we continue to learn in this market what will work and what won't work .

Speaker #5: I think we've established some really strong relationships with local installers and builders . Again , we've had several down there that have been really , really great builders for us .

Speaker #5: We're trying to bring in some new guys into the industry , into the business with some unique partnerships . And I think , you know , we're really happy where we sit and look , this is a long term play for us getting in there .

Speaker #5: I think we talked about , you know , high single digit kind of growth numbers in Florida season to date . So like I said , I'm really pleased really happy .

Speaker #5: And we're really just starting to scratch the surface with all the things we can do here .

Speaker #8: Yeah . Sounds good . I will leave it there . Thanks .

Speaker #5: Thanks , Danny .

Speaker #3: The next question comes from Michael Francis with William Blair . Please go ahead .

Speaker #9: Hey , guys , it's Mike on for Ryan . Thanks for taking the question . I wanted to go a little deeper into Florida .

Speaker #9: There . I would love to know if you think your outperformance there is largely by product of being an NPC's that are building at high rates .

Speaker #9: Do you think you're taking a bunch of share even in a communities where the trends are following what what new housing is doing overall ?

Speaker #5: Yeah . Look , I think it's the presence in the NPC . You know , if you look at if you look at some of the permitting data and where housing is tough , it's more in the coastal areas , which is probably the the higher end concrete side of the market .

Speaker #5: And I think the one surprise and I probably should answer that to Danny's question in Florida , the one thing I think that we've been really , really happy is , is the number of concrete dealers we can we've converted over fiberglass , and I think as they see and feel and we see more labor challenges in the market and the number of people it takes to install or let's say , construct a concrete pool in the field .

Speaker #5: They're realizing they can get a fiberglass pool on the ground with a lot less labor , a lot faster for themselves , for the homeowner , and probably , you know , make a little bit more money , productivity wise .

Speaker #5: So I think , you know , that's that's been good . I think we have seen some share gains with dealers from from some some of the other folks in the industry .

Speaker #5: But again , the combination of kind of all the above , just , you know , targeting these new NPCs where there's a lot of homes in the ground with no pools and , you know , a lot of new phases of those developments coming online .

Speaker #5: And , look , I'll give you a good , a good stat . That was interesting . You know , we just did a big Halloween event in Babcock Ranch .

Speaker #5: And I know we always talk Babcock because that's really the home base of where we've started to push over a thousand people stopped by the booth during the course of that event .

Speaker #5: You know , inquiring about pools , you know , talking to our sales reps who were there on the ground . It just shows you the power of being there and having a presence in the local communities , driving the awareness , which , you know , eventually , you know , hopefully those will will turn in the future .

Speaker #5: Pool sales for us .

Speaker #9: And . Another one for me would love to know where price landed in the quarter . And also get an update on tariffs .

Speaker #9: Any any additional cost coming through , or has that been fairly steady ?

Speaker #6: Yeah . Let me let me take the price question first . Right . So you might remember we implemented a price increase primarily addressing tariffs in June .

Speaker #6: So some price in the quarter was actually up by about 3 million . And then you know , moving on to the tariffs you might recall from prior calls that , you know , we we had a tariff exposure of about 20 million supply chain based mitigation , 10 million .

Speaker #6: And then we , as I said , implemented that price increase in June with an annual rate of about 10 million . Knowing that the environment has been dynamic in Q3 probably is going to continue to be dynamic as we go forward .

Speaker #6: You know , that that net tariff exposure , net between , you know , the tariffs and then our supply chain based mitigation over the last two weeks , probably months , has still remained at that , at that 10 million , right .

Speaker #6: Some tariffs go up . You know we have reacted on the , on the , on the on the supply chain side moving things around between suppliers , geographies , plants .

Speaker #6: But that net really has stayed at about 10 million . And that 10 million . You know we have covered with that with that price increase in June .

Speaker #6: So again knowing that it's probably going to stay dynamic for a while , at least at this point in time . Everything we know , we feel comfortable where we are having mitigated the 2025 impact .

Speaker #6: And at least as of today , you know , also the run rate impact going forward .

Speaker #9: All right , I appreciate the questions . I'll pass it on .

Speaker #3: The next question comes from Bobby Schultz with Baird . Please go ahead .

Speaker #10: Hey guys . Thanks for taking the question . Maybe for Scott . Bigger picture here . You guys have stated that fiberglass is taking about a percent of market share in the in-ground category over the past few years .

Speaker #10: And expect to do so again here in 2025 . And just given your fiberglass market share and your evolving geographic mix with investments you're making in the sand States and increasing dealer awareness , is there room for that 1% number to accelerate in the coming years ?

Speaker #10: Just given all all the different growth initiatives you have going on ?

Speaker #5: Yeah , I think it's a , you know , kind of a little bit of a tough question because I think , you know , our view has been , you know , the 100 basis points a year is kind of been what we've demonstrated , you know , in some years , a little bit more .

Speaker #5: You know , as pool starts recovering , let's say , through the Covid years , I think , you know , the balance has to become is , you know , if the lower end of the market starts to pick back up the vinyl consumer jumps back into the market , you how would that impact the number ?

Speaker #5: But clearly we feel strongly that the 100 basis point increase is kind of what's embedded in that that long range outlook with pool starts returning to 79,000 .

Speaker #5: You know , with the 750 and 160 number . We've been talking about now for almost almost a year with that long term view .

Speaker #5: But look , as we sit there and you just do the math , Bobby . Right . 75% of pool starts roughly in the sand .

Speaker #5: States little presents as we gain more and more traction . There . You could argue that there could be and should be an acceleration of that , you know , for for all of us in the industry .

Speaker #10: Got it . And then one for Oliver here . Looks like SG&A for the full year will on pace to step up . Maybe .

Speaker #10: How should we think about SG&A spend into the fourth quarter and then maybe into next year , assuming maybe the market is relatively stable from a new pool build perspective ?

Speaker #6: I mean , let me let me walk you through this , this year . You know , from a compass , you saw us stepping up as primarily with with an eye on the sand state sales , marketing kind of midyear last year .

Speaker #6: So therefore , you know , the first two quarters this year , you saw sizable year over year increases . And just because that's now in our base in 2024 and the third quarter , you know , SG&A has been has been has been flattish , I don't expect that to change a lot in Q4 either .

Speaker #6: And then as we think of going going forward , you know , we're going to continue to invest in our position in the sense that and step up our sales and marketing investments as , as we see see the returns , right .

Speaker #6: So I think that journey is is going to continue .

Speaker #10: Understood . Thanks , guys .

Speaker #3: The next question comes from Matthew Bouley with Barclays . Please go ahead .

Speaker #11: Good evening . You have Elizabeth Langan on for Matt today . Thank you guys for taking the questions . I wanted to jump back to price .

Speaker #11: I know you had kind of given some comments around price increases this year relative to tariffs . I was wondering if you could talk about your pricing strategy going forward a little bit .

Speaker #11: Are you planning to announce an annual increase, or is that something that you're going to kind of reserve in case you are seeing a higher tariff rate into next year?

Speaker #6: I think the , you know , at one point in time , you know , we we hopefully be able to go back to kind of a normal cadence of an annual seasonal increase that usually is is announced in the winter break for the new season .

Speaker #6: And , you know , obviously over the last few years , you've seen , you know , inflation , you've seen tariffs . So we got off that cadence a little bit .

Speaker #6: But you know , assuming that that things will normalize , you know , then we will go back to kind of that annual seasonal increase .

Speaker #11: Okay . Thank you . And then is there anything that we should keep in mind in regards to orders or leads in terms of stocking and demand through the end of the year and into early 2026 ?

Speaker #11: Or if you have any early thoughts on the directionality for pool starts next year , that would be great .

Speaker #5: Yeah , I'd say probably Elizabeth two to early to kind of get a feel for 26 . At this point . I think as we've said the last several years , you know , we've been at a few conferences so far over the last 2 or 3 weeks .

Speaker #5: You know , we've got several more upcoming over the next few few months here . That's when we'll really gather the Intel from our from our dealers , from the builders , in terms of what what they're seeing and feeling for backlogs out into 2026 .

Speaker #5: Look, I'll still say we're kind of in this trough where plus or minus a few percent on a 60,000 or 62,000 pool start number is too hard to call.

Speaker #5: And it's probably noise in the data on peak typically publishes . So it's really hard to call a number directionally . And I think , you know , as you guys are all aware , right .

Speaker #5: For Q is the typical wind down of the season . And I think order rates have continued fairly strong as we're rolling through what's left of our winter safety cover season .

Speaker #5: You know , that's winding down here as we kind of approach the Thanksgiving holiday . And then I think , you know , things will be kind of shutting down for the season once we kind of get into early to mid December and dealers kind of take that break .

Speaker #5: But it's been pretty consistent through the entire season from an order rate standpoint . We're really happy with with what we've seen out there .

Speaker #5: You know , I put this winter safety cover season similar to liners , a little bit later , start liners ran a little longer .

Speaker #5: Thus , the great liner performance , slower start to winter safety covers because folks were trying to get pools in the ground in three .

Speaker #5: Q you know , as the weather is now really starting to change , especially here in the northeast , we've seen a nice acceleration of that winter safety cover business orders , staying strong .

Speaker #5: And just , you know , we just want to wrap up Q4 here on a on a high note . And , you know , you know , kind of get to the midpoint of the guide numbers that Oliver mentioned in , in the , in the , in the earnings call , there .

Speaker #11: That makes sense . Thank you much .

Speaker #3: The next question comes from Susan McClary with Goldman Sachs . Please go ahead .

Speaker #12: Good evening everyone . This is Charles Peron in for Susan . Thanks for taking my question . First , I'd like to talk a little bit more about some of the productivity initiatives .

Speaker #12: It was great to see the continued benefit to gross margin from those lean manufacturing and value engineering efforts . This quarter . I guess against that , how do you think about the path for future savings here , and can you impact some of the initiatives that came through over the course of this year ?

Speaker #6: Can you please repeat the second part of your question ?

Speaker #12: Yes . Can you unpack some of the initiatives that came through in those results ?

Speaker #6: Yeah . Perfect . So first of all , we are very pleased with our gross margin improvement in the third quarter , 300 basis points up .

Speaker #6: And that that came pretty equally through lean value engineering . And that's obviously sponsored by some of the volume leverage that we saw .

Speaker #6: You know , in the quarter . And then covers the central was was the remainder here . You know , like I said on prior calls , you know , 2 to 2.5 million should be our quarterly contribution .

Speaker #6: So it's actually a little bit more . It was about three again driven by volume in the third quarter . And you know those those lean and value engineering improvements .

Speaker #6: These are structural improvements to our cost base . They're here to stay . There in our run rate will be will build onto that in future quarters .

Speaker #6: And I would say for the foreseeable future , you know that that two , 2.5 million is probably a good a good assumption to , to to build into the model .

Speaker #12: Gotcha . That's good color . And second , I want to switch to capital allocation . I think in your prepared remarks , you mentioned that your approach to 2.0 net debt to EBITDA leverage target by year end .

Speaker #12: How do you think about that leverage going forward ? Where is your level of you comfortable with in terms of target ? And then when you think about your growth initiatives , including M&A , how comfortable are you with M&A activity going forward and what is the pipeline that you see currently right now for the business ?

Speaker #6: Yeah , first of all , with now 71 million in the bank as of quarter end , you know , you know , nearing to at the end of the year , very , very pleased with a the cash generation of this business and then how the balance sheet is managed you know with with two with a net debt leverage ratio of two .

Speaker #6: And then , you know , we'll certainly have some dry powder to execute our capital allocation policy . We have done that very consistently .

Speaker #6: And the three key pillars are investing in the business . You saw stepping up CapEx this year . That's investing in the states models for pools that resonate , especially in the states .

Speaker #6: Either they are smaller , rectangular pools , then , you know , Debottlenecking , our two facilities in the San states or Oklahoma , Florida .

Speaker #6: So that's where additional focus has gone into , you know , from an M&A perspective , you mentioned we're acquisitive . We've done historically about one acquisition a year .

Speaker #6: We've done three over the last 13 , 14 months . And I expect a certain M&A activity going forward as well . And then lastly , opportunistically , we've we've paid down debt right about 35 million over the last two , two and a half years .

Speaker #6: So I think very active and consistent execution of our capital allocation policy , which which I expect us to continue to do going forward as well .

Speaker #12: Okay . Thank you for the the color and good luck with the quarter .

Speaker #6: Thanks .

Speaker #5: Charles .

Speaker #3: Again, if you have a question, please press star, then one. The next question comes from Sean Calnan with Bank of America. Please go ahead.

Speaker #13: Hi guys . Thank you for taking my question . Going back to the CA . So the year over year growth in the first half was much , much higher than this quarter .

Speaker #13: And you still had the inclusion of acquisitions . So I'm just curious did you guys slow any of the marketing spend and if so , what drove that ?

Speaker #13: Is it just the time of the year or did you feel like you guys had to just pull back a little bit there ?

Speaker #6: Sean . So what's really driving the different com to last year is that a lot of the increase you now have in the basis .

Speaker #6: Right . So we did two things happen about mid last year . We stepped up our investments in the states against sales and marketing .

Speaker #6: And then we also bought the central business you know in early August . So that's in our base base as well . There's always a little bit of timing around performance based compensation which which we had was slightly a tailwind in this quarter .

Speaker #6: But from a seasonal spend that I remind you that most of our spend in marketing is sort of ahead of the season . Q1 Q2 Q3 is a normal quarter .

Speaker #6: And then it tells us in Q4 , there's nothing we changed from a from a seasonality standpoint that that , that that I mentioned , it's quite consistent .

Speaker #6: I'll behavior this year versus versus last year . Obviously that's that's recognizing that we did step up our our marketing spend mid mid last year .

Speaker #6: So it's more a question of the comp versus any different change in behavior or a different change in how we see our that strategy .

Speaker #13: Okay . Got it . And then so I think in the fourth quarter , you guys had to change some plans around shipping out of the Kingston facility with all the tariffs and trade war stuff going on with Canada .

Speaker #13: Now that that's kind of eased a little bit . Is there any different intention with that facility ? Are you able to ship back to the US now or just any update there in general ?

Speaker #6: No . Let me start off by saying we are very pleased with our nine facility coast to coast network of fiberglass facilities with one plant in Canada that we have that flexibility to shift .

Speaker #6: We never shifted just because our fiberglass pools are Usmca compliant . Therefore never have been subject to tariffs . Those Kingston pools are coming south and so we we did produce in Kingston and are planning to produce in Kingston going .

Speaker #13: Okay . Great . Thank you .

Speaker #3: This concludes our question . And answer session . I would like to turn the conference back over to Scott Rajeski . For any closing remarks .

Speaker #5: All right . Thanks , drew . Hey , thanks everyone for participating in today's call . We look forward to seeing you guys upcoming conferences and events .

Speaker #5: You know , most importantly , you know , we want to wish you all a very happy holiday season . And just looking ahead into early 26 for the first time ever , you know , Latham is planning to have a booth at the International Builders Show in Orlando in mid and we hope to see many of you there , as well as we showcase Latham right there in the heartbeat of

Speaker #5: the stand States in Florida . Thanks for your time today , everyone . Have a good evening forward .