Business Context and Reporting Period
Company: Latham Group, Inc. (SWIM)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: Latham 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, focusing on fiberglass pools, vinyl pools, pool covers, and liners. It utilizes a "direct-to-homeowner" digital marketing strategy to generate leads for its dealer network.
Key Financial Metrics
| Metric | 2025 | 2024 |
|---|---|---|
| Net Sales | $545.9 million | $508.5 million |
| Gross Profit | $182.1 million | $153.7 million |
| Gross Margin | 33.4% | 30.2% |
| Net Income (Loss) | $11.1 million | ($17.9 million) |
| Net Income Margin | 2.0% | (3.5%) |
| Adjusted EBITDA | $99.8 million | $80.2 million |
| Adjusted EBITDA Margin | 18.3% | 15.8% |
| Cash and Cash Equivalents | $71.0 million | $56.4 million |
| Total Debt (Face Value) | $279.8 million | $281.5 million |
| Revolving Credit Availability | $75.0 million | $75.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7.4% ($37.4 million) driven by a $32.8 million volume increase (organic and acquisition-related) and a $4.6 million increase from tariff-related pricing.
- Profitability Turnaround: The company returned to profitability with $11.1 million in net income, reversing a $17.9 million net loss in 2024. This was driven by improved gross margins and reduced tax expenses.
- Margin Expansion: Gross margin improved by 320 basis points to 33.4%, attributed to production efficiencies from lean manufacturing initiatives and the accretive impact of Coverstar acquisitions.
- Acquisitions: In 2025, the company acquired two smaller Coverstar dealers in New York and Tennessee. In February 2026 (subsequent event), it acquired Freedom Pools in Australia/New Zealand for $17.0 million.
- Leadership Change: Sean Gadd was appointed President and CEO effective January 5, 2026, succeeding Scott Rajeski.
Guidance, Outlook, and Risks
Outlook and Strategy
- 2026 Strategy: Management expects the U.S. in-ground pool market to remain flat in 2026. Latham aims to outperform the market by expanding brand awareness, driving fiberglass and automatic safety cover adoption, and increasing penetration in "Sand States" (Florida, Texas, Arizona, California).
- Capital Allocation: Focus remains on disciplined capital investment in product innovation, facility upgrades, and digital transformation. The company plans to de-lever and reduce its net debt leverage ratio.
Risks and Contingencies
- Economic Sensitivity: Demand is highly correlated with consumer discretionary spending, housing affordability, and interest rates. Higher rates and inflation may soften demand.
- Supply Chain and Tariffs: The company relies on global suppliers for raw materials (PVC, steel, fiberglass). Tariffs and trade policies could increase costs, though the company has passed some costs to customers.
- Debt Covenants: The company has $279.8 million in term loan debt. It must maintain specific liquidity measurements and leverage ratios under its Credit Agreement. Failure to comply could result in default.
- Seasonality: Sales are concentrated in the second and third quarters; adverse weather can significantly impact volume and timing.
Investor Verification Checklist
- Debt Service Coverage: Verify the company's ability to service $25.8 million in annual interest expense and principal amortization given the variable interest rate environment.
- Customer Concentration: Confirm the stability of the largest distributor, which accounted for 22.6% of 2025 net sales, and the top ten customers (49.0% of sales).
- Acquisition Integration: Monitor the realization of synergies from the Coverstar Central acquisition and the subsequent Freedom Pools acquisition.
- ERP Implementation: Assess progress and potential disruptions related to the multi-year enterprise resource planning (ERP) system upgrade.
- Stock-Based Compensation: Review the impact of $9.2 million in stock-based compensation expense and the vesting of performance stock units tied to Adjusted EBITDA targets.