Latham Group, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 13, 2024. This is an annual report, not a standalone fourth-quarter earnings report. The supplied filing text does not provide a clear set of standalone Q4 results.
Business context
Latham designs, manufactures, and markets residential in-ground pools, liners, and covers, primarily in North America, Australia, and New Zealand. It reports one operating segment and describes itself as a category leader. Its strategy emphasizes fiberglass pool adoption, homeowner-focused digital marketing, dealer partnerships, manufacturing productivity, and selective acquisitions.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $566.5 million | $695.7 million |
| Gross profit / margin | $152.9 million / 27.0% | $216.5 million / 31.1% |
| Operating income / margin | $16.1 million / 2.8% | $30.0 million / 4.3% |
| Net loss / net loss margin | $2.4 million / 0.4% | $5.7 million / 0.8% |
| Adjusted EBITDA / margin | $88.0 million / 15.5% | $143.3 million / 20.6% |
| Net cash from operating activities | $116.4 million | $32.3 million |
Sales fell 18.6%, driven by a $143.0 million volume decline, partly offset by $13.8 million of pricing. Management attributed lower volume principally to fewer new pool starts and continued wholesale-channel inventory destocking. Sales declined across pools, covers, and liners. Gross margin contracted 4.1 percentage points, mainly because of lower manufacturing utilization; material cost deflation and lower fixed costs partly offset the impact.
Operating cash flow increased substantially, supported in part by a $68.2 million inventory reduction as the company aligned stock with demand. Investing activities used $31.7 million, including $33.2 million of property and equipment purchases. Cash at year-end was $102.8 million. The balance sheet reported $301.2 million of debt carrying value; face-value term debt was $309.3 million. There were no revolver borrowings and $75.0 million remained available. The term loan’s effective interest rate was 10.82%; an interest-rate swap fixed the rate on $161.0 million of notional debt through May 2026. A $1.0 million change in effective rates was estimated to affect annual interest expense by about $1.5 million.
Changes, outlook, and notable items
- Interest expense rose to $30.9 million from $15.8 million, reflecting swap fair-value changes and a higher effective rate. Lower net loss despite weaker operations was aided by a $7.7 million income tax benefit, including release of uncertain tax positions following expiration of a statute of limitations.
- Management said economic pressures were expected to weigh on consumer spending and that declines in U.S. new in-ground pool installations were expected to continue into 2024. It provided no specific numerical sales or earnings guidance in the supplied text.
- Cost-reduction and lean-manufacturing actions generated $19.5 million of savings in 2023, according to management; $4.8 million of additional savings was expected in 2024. The company continued its technology and ERP transformation.
- The company believes existing cash, operating cash generation, and revolver availability will meet operating and capital needs over the next 12 months, while cautioning that its assumptions may prove inaccurate. It reported compliance with debt financial covenants at year-end and made an $18.0 million term-loan payment in Q1 2024.
- Key risks include discretionary consumer demand, interest rates and housing affordability, seasonal weather, raw-material and freight costs, supplier and customer concentration, product warranty exposure, ERP implementation, cybersecurity, and substantial variable-rate debt. The largest distributor represented 20.3% of 2023 sales; the top ten dealers and distributors represented 40.4%. The largest supplier accounted for 16% of purchases.
- No material pending legal proceeding was identified. Goodwill was not impaired in the 2023 annual test. The financial statements received an unqualified audit opinion; the auditor did not provide an internal-control attestation because the company qualified as an emerging growth company.
Investor verification priorities
- Check subsequent quarterly disclosures for whether pool-start demand, channel destocking, and margins stabilized or worsened.
- Track operating cash flow quality, especially the effect of inventory reductions and receivables, and compare cash generation with debt service and capital spending.
- Review debt balances, interest costs, swap coverage, covenant headroom, and the impact of the Q1 2024 $18.0 million payment.
- Assess whether announced cost savings are recurring and whether lower factory utilization continues to pressure gross margin.
- Monitor customer and supplier concentration, warranty reserves, and the progress and control implications of the ERP implementation.