Latham Group, Inc. (SWIM) Q2 2025 Earnings Call Transcript

Latham Group (SWIM) reported robust Q2 2025 results, with revenue up 7.8% to $173 million and adjusted EBITDA increasing 15.7% to $39.9 million, expanding margins by 160 basis points to 23.1%. This strong performance, achieved despite 'trough industry conditions' and adverse weather impacting in-ground pool sales, was primarily driven by a 46% surge in autocover sales (boosted by accretive acquisitions like Coverstar Central and organic growth), 5.8% growth in liner sales via their 'Measure by Latham' AI tool, and ongoing lean manufacturing initiatives. The company reconfirmed its 2025 guidance for 8% net sales and 19% adjusted EBITDA growth, underscoring confidence in its strategy to expand fiberglass pool and autocover adoption, penetrate key 'Sand States,' and capitalize on operational efficiencies for accelerated profitable growth as the pool market recovers.

Analysis

Latham Group (SWIM) delivered strong Q2 2025 results, demonstrating significant market outperformance despite what management describes as "trough industry conditions." The company reported a 7.8% year-over-year revenue increase to $173 million and a 15.7% rise in adjusted EBITDA to $39.9 million, resulting in a 160-basis-point expansion in adjusted EBITDA margin to 23.1%. This performance was driven by strategic execution in specific product categories, which successfully counteracted weather-related weakness in the core in-ground pool segment, where sales declined 2.9%. The standout performer was the Covers division, with sales surging 46% due to a combination of organic growth and accretive acquisitions of Coverstar dealers. Liner sales also grew a solid 5.8%, attributed to market share gains from its proprietary 'Measure by Latham' AI tool, which is successfully attracting new dealers. The reaffirmation of full-year 2025 guidance for 8% net sales and 19% adjusted EBITDA growth underscores management's confidence. This outlook is supported by strategic initiatives, including penetrating underrepresented "Sand State" markets and leveraging a structurally improved cost base, which the company projects will deliver significantly higher profitability when the pool market recovers to historical norms.

Key Decisions for Investors

• Investors should recognize the company's ability to execute its growth strategy in a weak macro environment, as strength in the high-margin autocover and technology-driven liner segments is successfully offsetting cyclical headwinds in new pool construction.
• The expansion into the 'Sand States' represents a key long-term catalyst, and progress in recruiting dealers and gaining share in markets like Florida and Texas should be monitored as a primary indicator of future accelerated growth.
• Consider the significant operating leverage in the business model, as management's long-term targets suggest the company is positioned for substantial earnings acceleration when industry-wide pool starts revert to historical averages.
• While performance is strong, investors should remain mindful of the risk associated with the timing of a broader market recovery, as the company's growth is still partially dependent on a rebound in consumer demand for new pools.