Latham Group, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request refers to 2021 Q4, this filing reports annual results; the supplied text does not provide clear standalone fourth-quarter financial results.
Business context
Latham designs, manufactures and markets in-ground residential pools, liners and covers, primarily in North America, Australia and New Zealand. It describes itself as the leading North American manufacturer by volume in its product categories. Its strategy emphasizes fiberglass pool adoption, direct-to-homeowner marketing, dealer partnerships, capacity expansion and acquisitions.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $630.5 million | $403.4 million |
| Gross profit / margin | $204.2 million / 32.4% | $142.8 million / 35.4% |
| Operating income (loss) | ($36.2) million | $39.9 million |
| Net income (loss) | ($62.3) million | $16.0 million |
| Adjusted EBITDA / margin | $139.8 million / 22.2% | $83.8 million / 20.8% |
| Cash provided by operating activities | $33.7 million | $63.2 million |
- Sales increased 56.3%, reflecting $171.7 million of volume growth and $55.4 million of pricing. Volume growth included $68.5 million from a full year of GLI sales. Product-line sales rose across pools, covers and liners.
- Gross margin fell 3.0 percentage points amid supply-chain constraints, raw-material inflation, delayed pricing recovery on the existing fiberglass-pool backlog and stock-based compensation. Resin shortages limited estimated North American fiberglass production to 58% of capacity.
- GAAP results included $128.8 million of stock-based compensation, including $49.0 million related to modification of awards in the reorganization. SG&A rose to $217.8 million, primarily due to this compensation and increased public-company, acquisition and staffing costs.
- Operating cash flow declined by $29.5 million, with working capital using $54.8 million, including increases in inventory and receivables. Investing activities used $108.2 million, including $90.5 million for Radiant and $25.0 million of capital expenditures.
- At year-end, cash was $44.0 million; debt was $284.0 million face value ( $280.4 million carrying value), with $30.0 million available under the then-existing revolver. Current assets were $229.1 million and current liabilities $115.2 million.
- On February 23, 2022, the company refinanced its debt: a $325.0 million term loan and $75.0 million revolving facility replaced the prior credit agreement. As of that date, it reported $10.0 million drawn on the new revolver and $65.0 million of availability. The new facilities are secured and carry variable rates.
Material changes, outlook and risks
- The company completed its IPO in April 2021, receiving $399.3 million net; proceeds were used in part to repay debt and repurchase shares. A $110.0 million distribution to pre-IPO Class A unitholders was funded by incremental borrowing in February 2021. A January 2022 secondary offering generated no proceeds for the company.
- Radiant Pools was acquired in November 2021 for approximately $90.7 million, expanding the vinyl-lined and aluminum-walled pool portfolio. The company also owns an 18.2% economic interest and 20.1% voting interest in Premier Pools & Spas.
- Management cited strong demand and expects fiberglass supply improvements to support higher production and a better sales mix. It is investing in capacity, including a new Ontario facility expected to begin production in 2023, and believes existing cash, operating cash flow and revolver availability will fund operating and capital needs over the next 12 months. The filing provides no formal numeric revenue or earnings guidance.
- Key risks include discretionary consumer demand and housing/credit conditions, weather and seasonality, continued raw-material and transportation availability and cost pressures, capacity and permitting constraints, and dependence on channel partners. The largest distributor represented 25.0% of FY2021 sales; the top ten dealer and distributor relationships represented 46.0%.
- Debt service, variable interest rates, restrictive covenants and refinancing needs are material financial risks. The company reported covenant compliance at December 31, 2021. It also identified COVID-19, labor availability, competition, product warranty and safety exposure, environmental regulation, and international and cybersecurity risks. No pending legal matter was identified as expected to materially affect results.
Key facts for investors to verify
- Whether resin and other supply constraints eased as expected, and whether fiberglass production, orders and backlog converted into sales.
- How much of reported Adjusted EBITDA growth is sustainable after considering its exclusions, particularly stock compensation, acquisition costs and other adjustments.
- Cash conversion and working-capital trends, including inventory levels, receivables and capital spending.
- Post-refinancing debt balances, interest expense, covenant headroom and liquidity under the new credit agreement.
- Returns and integration progress from Radiant and other acquisitions, and the economics of the Premier Pools & Spas relationship.