Latham Group, Inc. — Q1 2024 Form 10-Q
Business context and reporting period
For the fiscal quarter ended March 30, 2024, Latham reported as one operating and reportable segment. It designs, manufactures, and markets in-ground residential pools, covers, and liners in North America, Australia, and New Zealand. The business is seasonal, with sales and earnings historically strongest in the second and third fiscal quarters.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $110.6 million | $137.7 million | Down 19.7% |
| Gross profit / margin | $30.6 million / 27.7% | $33.4 million / 24.2% | Profit down $2.8 million; margin up 3.5 percentage points |
| Operating loss | $2.1 million | $6.3 million | Loss narrowed $4.2 million |
| Net loss / margin | $7.9 million / 7.1% | $14.4 million / 10.4% | Loss narrowed $6.5 million |
| Adjusted EBITDA / margin | $12.3 million / 11.1% | $11.0 million / 8.0% | Up $1.3 million |
| Net cash used in operating activities | $34.5 million | $14.5 million | Cash use increased $20.0 million |
| Capital expenditures | $5.3 million | $9.9 million | Down $4.6 million |
Sales fell $27.1 million: $25.8 million from lower volume and $1.3 million from lower pricing. Sales declined across pools ($18.8 million), covers ($5.9 million), and liners ($2.4 million). Gross margin improved on lower material costs, better productivity, and cost-structure improvements, while lower sales volume weighed on results. SG&A declined $6.8 million, including lower stock-based compensation, reduced headcount, and lower expenses.
Liquidity, debt, and cash flow
At March 30, 2024, cash was $43.8 million, down from $102.8 million at year-end 2023. Current assets were $221.3 million and current liabilities $70.9 million. Operating cash outflow of $34.5 million primarily reflected a $44.9 million increase in trade receivables, partly offset by higher accounts payable and lower inventory. Financing used $19.0 million, mainly for $18.8 million of debt repayments.
Debt had a $282.8 million carrying value, including a $290.5 million term-loan principal balance before unamortized discounts and issuance costs. The term loan matures in February 2029; the company had no revolving-facility borrowings and $75.0 million available under its $75.0 million facility. The effective term-loan interest rate was 9.89%, including swaps. Management reported covenant compliance and stated that cash, expected operating cash generation, and revolver availability should meet needs over the next 12 months, while noting the estimate depends on assumptions.
Outlook, commentary, and risks
- Management cited macroeconomic pressure on consumer spending, lower U.S. new pool installations, lower packaged-pool demand, a lower opening backlog, and normalized seasonality. Fiberglass products continued to show relative strength.
- The company expects an additional $4.8 million in annualized savings during 2024 from cost-reduction plans initiated in 2023. It reported $2.7 million realized in Q1, with the remainder expected in Q2. It is pursuing lean manufacturing, value engineering, fiberglass and automatic-cover adoption, and previously announced facility investments.
- No full-year revenue or earnings guidance is provided in the filing. Results are not necessarily indicative of the full year.
- Key exposures include seasonal and weather-related demand, economic conditions, variable-rate debt and foreign-exchange movements. A 1-percentage-point change in the effective interest rate would affect annual interest expense by approximately $1.3 million. Management noted that a sustained share-price decline or other adverse factors could require future goodwill impairment testing; goodwill was not impaired in its October 2023 annual test.
- Q1 income tax expense was $0.5 million despite a pretax loss; the effective tax rate was negative 7.2%, primarily reflecting stock-compensation expense without an associated tax benefit. Adjusted EBITDA is a non-GAAP measure and excludes, among other items, stock compensation, restructuring, strategic-initiative costs, and unrealized currency losses.
- The company reported no legal proceedings it believes would have a material adverse effect and no material changes to previously disclosed risk factors. Its $100 million repurchase authorization had $77 million remaining; no shares were repurchased in Q1.
Important facts for investors to verify
- Whether the large seasonal receivables build converts to cash on schedule and whether operating cash outflow moderates.
- Demand, backlog, product mix, and the pace of recovery in pool installations, particularly packaged pools.
- Progress toward the remaining $2.1 million of expected 2024 annualized cost savings and associated implementation costs.
- Term-loan interest costs, swap effects, covenant headroom, and liquidity under weaker demand scenarios.
- The reconciliation and exclusions in Adjusted EBITDA; it rose while sales fell and should be assessed alongside GAAP results and cash flow.