Latham Group, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; the filing text does not provide a clear standalone Q4 financial result. Latham designs, manufactures, and markets residential in-ground pools, liners, and covers, selling primarily through dealers and distributors. It reports one operating segment.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $695.7 million | $630.5 million |
| Gross profit / margin | $216.5 million / 31.1% | $204.2 million / 32.4% |
| Operating income (loss) | $30.0 million | $(36.2) million |
| Net income (loss) | $(5.7) million; $(0.05) per share | $(62.3) million; $(0.56) per share |
| Adjusted EBITDA / margin | $143.3 million / 20.6% | $139.8 million / 22.2% |
| Cash from operating activities | $32.3 million | $33.7 million |
| Capital expenditures | $39.7 million | $25.0 million |
Sales rose 10.4%, driven by $109.6 million of pricing, partly offset by a $44.4 million decline in volume. By product, in-ground pools generated $385.5 million, covers $158.4 million, and liners $151.8 million. International markets represented 19.7% of sales.
At year-end, cash was $32.6 million, current assets $255.0 million, and current liabilities $86.9 million. Inventory increased to $165.2 million from $109.6 million. Operating cash flow was reduced by $57.0 million of inventory growth and other working-capital outflows. Long-term debt had $322.6 million face value outstanding ($312.9 million carrying value); the $75 million revolving facility had no year-end borrowings and $75 million of availability. The term loan’s stated effective interest rate was 9.14%, including the swap. Debt is secured by substantially all relevant assets. A $200 million interest-rate swap was due to terminate in May 2023.
Changes, outlook, and material items
- Gross margin fell 1.3 percentage points, primarily due to input-cost inflation and negative fixed-cost leverage as packaged-pool volumes declined. Adjusted EBITDA increased 2.5%, but its margin decreased 1.6 percentage points.
- Management cited softer consumer demand and lower U.S. new pool installations in 2022, and expects further declines in in-ground pool sales in 2023. Wholesale packaged-pool inventory destocking is expected to remain a headwind. Management expects fiberglass conversion to provide a modest tailwind. The filing does not provide specific revenue or earnings guidance.
- A November 2022 cost-reduction plan includes workforce reductions, production and shift changes, and closure of the Bossier City, Louisiana facility in Q1 2023. Latham recorded $1.1 million of related costs in 2022, expects about $0.5 million more in 2023, and forecasts approximately $12 million of operating-expense savings in FY2023.
- An April 2022 fire caused a total loss of the Odessa, Texas production facility’s manufacturing area. Latham acquired fiberglass manufacturing assets in Seminole, Oklahoma to replace capacity; insurance-related and fire costs are included among adjusted EBITDA exclusions.
- In February 2022, Latham refinanced its debt with a $325 million term loan and $75 million revolving facility. It recorded a $3.5 million loss on extinguishment of debt. The company also recorded $11.4 million of underwriting fees related to a January 2022 stock offering.
- In 2022, the company repurchased $23.0 million of shares under its $100 million authorization; $77.0 million remained available at year-end. It does not anticipate paying cash dividends.
- On January 19, 2023, Latham announced the CFO would step down effective March 17; a former CFO was named interim CFO effective March 18 while a permanent replacement search continued.
Key risks and contingencies
- Pool purchases are discretionary and sensitive to interest rates, consumer credit, housing and economic conditions, and weather; sales are seasonal, typically strongest in spring and summer.
- Customer and supplier concentration is material: the largest customer accounted for 20.3% of 2022 sales, and the top ten dealers and distributors accounted for 39.4%. The largest supplier represented 17% of purchases; the top ten suppliers represented 63%.
- Raw-material inflation and availability, particularly resin, can constrain production and margins. Prior shortages limited fiberglass production in 2021 and the first half of 2022; Latham does not hedge raw-material costs.
- Substantial variable-rate debt, covenant restrictions, mandatory repayment provisions, and reliance on subsidiary cash distributions may limit financial flexibility. Management believes available cash, operating cash flow, and revolver availability will cover needs over the next 12 months, but that assessment depends on assumptions.
- Product warranty, environmental and permitting, transportation, cyber/privacy, ERP implementation, labor, and acquisition-integration risks could affect results. Management reported no pending legal proceedings it believes would materially affect the company and no known environmental liabilities expected to have a material adverse effect.
Important facts for investors to verify
- Whether expected 2023 pool-sales declines and wholesale inventory normalization are tracking management’s expectations, and how much pricing can offset lower volumes.
- Whether the projected $12 million of FY2023 savings is achieved, including costs and operational effects of the Bossier City closure.
- Inventory quality and sell-through following the $55.7 million year-over-year increase, and the resulting effect on cash conversion.
- Debt service, covenant headroom, interest expense, and refinancing or hedging terms after the May 2023 swap termination date.
- Production recovery and capacity utilization at the Seminole and Kingston facilities, and any remaining impact from the Odessa fire.
- Customer/supplier concentration, warranty reserves, and the unusual or excluded costs used in management’s Adjusted EBITDA calculation.