SWIM — Latham Group, Inc.

Summary of Latham Group Q2 2026 Earnings Call

1. Key Financial Results and Metrics

• Net Sales: $197 million, a 14% increase year-over-year (YoY) from $173 million in Q2 2025, with 10% organic growth and 4% from the Freedom Pools acquisition.
• Gross Profit: Increased by 9.6% to $70 million, with a gross margin of 35.5%, down 160 basis points YoY due to ramp-up costs and demand surge.
• Net Income: $13 million (11 cents per diluted share), down from $16 million (13 cents per diluted share) in Q2 2025.
• Adjusted EBITDA Margin: 22.6%, a decline from 23.1% YoY.
• Total Debt: $280 million, with a net debt leverage ratio of 2.2, expected to drop below 2 by year-end.

2. Strategic Updates and Business Highlights

• Sales Growth: Strong performance in in-ground pool sales, up 23% overall, with fiberglass pools expected to account for 80% of full-year sales.
• Market Expansion: Continued focus on the Sand States (Florida, Texas, Arizona, California) with significant investments in marketing and sales resources.
• Operational Initiatives: Implementation of lean manufacturing and value engineering programs contributing to gross profit improvements.
• Safety Initiative: Launch of the "Zero is Possible" safety initiative aimed at fostering a culture of safety across all facilities.

3. Forward Guidance and Outlook

• Revised Guidance: Full-year sales growth guidance increased to 11.7% from 9%, and adjusted EBITDA growth guidance raised to 15.2% from 12.7%.
• Market Trends: Positive sales trends observed in July, with expectations for continued growth driven by strategic initiatives and market share gains.

4. Challenges and Points of Concern

• Gross Margin Pressure: The gross margin was affected by ramp-up costs due to a sudden surge in demand, which led to higher production costs and underabsorption in manufacturing.
• Cost Inflation: Ongoing impacts from the Middle East conflict affecting transportation costs, with plans for price adjustments to mitigate these headwinds.
• Market Uncertainty: Potential risks associated with the broader economic environment and competition in pricing strategies for pool installations.

5. Notable Q&A Insights

• Demand Environment: Surge in demand was broad-based across all geographies, attributed to effective marketing and pent-up demand from Q1.
• Cost Management: The company is implementing price increases to offset rising input costs, particularly in response to commodity inflation.
• M&A Strategy: Latham is actively seeking acquisition opportunities but remains cautious, focusing on organic growth and market expansion first.
• Operational Readiness: Plans to carry additional inventory and staffing to better prepare for future demand surges, learning from the current ramp-up experience.

Overall, Latham Group reported a strong second quarter with significant growth in sales and strategic initiatives aimed at expanding market share, despite facing challenges related to cost pressures and operational ramp-up. The company remains optimistic about its growth trajectory and market opportunities.