Latham Group, Inc. (SWIM) - Q2 2025 10-Q Summary
Business Context and Reporting Period
Latham Group, Inc. is the largest designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand. The company operates as a single segment, selling fiberglass pools, vinyl pools, covers, and liners. This report covers the fiscal quarter and two fiscal quarters ended June 28, 2025.
Key Financial Metrics
| Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 |
|---|---|---|---|---|
| Net Sales | $172.6 million | $160.1 million | $284.1 million | $270.8 million |
| Gross Profit | $64.0 million | $53.0 million | $96.8 million | $83.6 million |
| Gross Margin | 37.1% | 33.1% | 34.1% | 30.9% |
| Net Income | $16.0 million | $13.3 million | $10.0 million | $5.4 million |
| Diluted EPS | $0.13 | $0.11 | $0.08 | $0.05 |
| Adjusted EBITDA | $39.9 million | $34.5 million | $51.0 million | $46.8 million |
| Adjusted EBITDA Margin | 23.1% | 21.5% | 18.0% | 17.3% |
| Cash and Equivalents | $26.9 million | $90.8 million (End Q2 2024) | N/A | |
| Operating Cash Flow (YTD) | ($10.9 million) | $17.9 million | N/A | |
| Total Debt (Net) | $281.5 million | $281.5 million | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Q2 net sales increased 7.8% year-over-year, driven by a $12.0 million increase in sales volume and $0.5 million from pricing. Growth was led by the "Covers" category (+$11.7M) and "Liners" (+$3.1M), partially offset by a decline in "In-ground Swimming Pools" (-$2.4M).
- Margin Expansion: Gross margin improved 4.0 percentage points to 37.1% in Q2, attributed to higher volumes, lean manufacturing efficiencies, and margin benefits from the Coverstar Central acquisition.
- Expense Increases: Selling, general, and administrative (SG&A) expenses rose 20.1% to $31.9 million due to marketing investments (Sand States strategy), ERP infrastructure costs, and the inclusion of Coverstar Central. Amortization increased 13.6% due to recent acquisitions.
- Cash Flow: Operating cash flow turned negative ($10.9 million used) for the first two quarters of 2025, compared to $17.9 million provided in the prior year. This was primarily driven by a $57.4 million increase in trade receivables and a $4.9 million increase in income tax receivables.
- Acquisitions: The company completed the acquisition of Coverstar Central in August 2024 and two smaller autocover dealers in early 2025, contributing to revenue and goodwill increases.
Guidance, Outlook, and Risks
- Outlook: Management remains cautious regarding 2025 new pool starts, projecting them to be roughly in line with 2024 levels. The company is monitoring macroeconomic conditions, consumer confidence, and geopolitical factors.
- Strategic Initiatives: The company continues to implement targeted price increases to mitigate tariff impacts and is focusing on converting customers to fiberglass pools and automatic safety covers.
- Liquidity: As of June 28, 2025, the company had $26.9 million in cash and $75.0 million available under its Revolving Credit Facility (which was fully repaid in June 2025). Total outstanding debt was $281.5 million.
- Tax Legislation: The company is assessing the impact of the "One Big Beautiful Bill Act" (OBBBA) signed into law on July 4, 2025, which includes permanent extensions of certain tax provisions.
- Risks: Key risks include seasonality, weather dependence, raw material costs, and the potential impact of tariffs. The company also faces execution risks related to its multi-year ERP implementation.
Investor Verification Checklist
- Working Capital Trends: Verify the sustainability of the $57.4 million increase in trade receivables and its impact on future cash conversion cycles.
- Acquisition Integration: Monitor the realization of synergies and margin improvements from the Coverstar Central and other autocover dealer acquisitions.
- Debt Service: Review the impact of the effective interest rate (9.24%) and the recent interest rate swap adjustments on future interest expense.
- Pool Starts: Track industry data on new pool starts to validate management's projection of flat growth for 2025.
- ERP Implementation: Assess the progress and cost implications of the new enterprise resource planning system rollout.