Latham Group, Inc. Common Stock 2026 Q2 Earnings Call

This afternoon, we issued our second quarter 2026 earnings press release, which is available on the Investor Relations portion of our website. On today's call are Latham's President and CEO, Sean Gadd, and CFO, Oliver Gloe. Following their remarks, we will open the call to questions. During this call, the company may make certain statements that constitute forward-looking statements, which reflect the company's views with respect to future events and financial performance as of today or the date specified. Actual events and results may differ materially from those contemplated by such forward-looking statements due to risks and other factors that are set forth in the company's annual report on Form 10-K and subsequent reports filed or furnished with the SEC, as well as today's earnings release. The company expressly disclaims any obligation to update any forward-looking statements except as required by applicable law.

During today's call, the company will discuss certain non-GAAP financial measures. Reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that is available on our Investor Relations website. I'll now turn the call over to Sean Gadd.

Thank you, Casey, and thank you all for joining today's call to review our second quarter and discuss our business outlook for the remainder of the year. This was a strong quarter for Latham, demonstrating our ability to execute on our strategic priorities and deliver growth despite a flat market for new U.S. pool starts, which was in line with our expectations. There is still substantial runway to outpace the market as our strategic initiatives gain traction. Now, more than two full quarters into my tenure as CEO, I've had the opportunity to develop a deep understanding of the business. I'm encouraged by the positive momentum we are seeing. Several initiatives we have put in place are already producing encouraging early results. I'm confident they position us to drive sustained growth in the quarters and years ahead.

With that, I would like to highlight a few key takeaways from the quarter. First, our sales grew 14% year-over-year, 10% of which was organic growth. Second, we continued to make solid progress in the Sand States, where sales increased at a double-digit rate. Building on this foundation, we are moving ahead with new strategies and resources designed to further accelerate growth. Third, we delivered solid growth in gross profit, driven by higher volumes and continued benefits from our lean manufacturing and value engineering initiatives. The sharper-than-expected surge in demand early in Q2 resulted in quarter-specific ramp-up costs that capped gross margin in the quarter at 35.5%. We expect to recapture the majority of these costs over the next two quarters and remain confident in our ability to deliver year-over-year growth and EBITDA margin expansion, Oliver will provide more detail later in the call.

Finally, our year-to-date results, together with the current order trends, have led us to increase our full-year sales and adjusted EBITDA guidance for 2026, raising the midpoint of our sales growth guidance to 11.7% from 9%, and the midpoint of our adjusted EBITDA growth guidance to 15.2% from 12.7%. This reflects our expectation for higher volumes due to continued share gains and the recapture of operating leverage. Let's take a closer look at the main contributors to our second quarter sales growth. In-ground pool sales were up substantially on both a total and organic basis, thereby strong growth in fiberglass pools. Fiberglass pools are on track to account for approximately 80% of our full-year 2026 in-ground pool sales, and we expect fiberglass to gain another percentage point of market share this year, representing approximately 25% of new U.S. pool starts.

Cover sales were up year-over-year, primarily driven by the continued growth in auto covers due to what we believe is a steady increase in auto cover attachment rate on new pool installations. Liner sales also increased in the second quarter, driven by our proprietary Measure by Latham technology and benefiting from our industry-leading lead times. Looking ahead, Latham has substantial growth opportunities that are not reliant on the rebound in new U.S. pool starts. To fully capture these opportunities, we are concentrating our efforts on four strategic priorities to drive growth. One, we wanted to continue to grow our core business in established markets, including the Northeast, Midwest, Canada, Australia, and New Zealand. Two, we want to drive material conversion to fiberglass from concrete in the Sand States. Three, we want to increase the attachment rate of our auto covers, aiming for an auto cover on every new pool installation.

Four, continue to complete accretive acquisitions that expand our market leadership and/or our geographic reach, and that are culturally aligned with Latham. To support these growth drivers, we need to achieve sales excellence across all of our markets, follow a disciplined market development approach, market directly to the consumer, and own their path to purchase, continue to gain efficiencies through lean manufacturing and value engineering programs, and strengthen our focus on improving safety in all of Latham's facilities. I'm pleased to report that all these initiatives are underway. Our Sand States strategy continued to gain traction in the second quarter, benefiting from the close collaboration between our sales teams and the dealer network. This contributed to another quarter of double-digit growth in Florida, our initial target market, and a double-digit growth for the Sand States overall.

We believe success in the Sand States has the potential to drive a step change in the company-wide growth, and we are expanding our efforts to further accelerate growth in 2027 and beyond. We introduced several initiatives designed to capture consumer demand in the Sand States, including strengthening our commercial organization, implementing a new market development framework, and adding sales resources in the field. Through our new market development framework, we are taking a highly targeted approach by identifying areas that offer the greatest growth opportunities. Beginning in Florida, we have identified multiple high-potential micro markets, communities with favorable home values, lot sizes, and household income profiles, and we have deployed additional sales resources in the field to work alongside our dealers and partners to increase market penetration.

At the same time, our national advertising and marketing campaigns continue to reinforce Latham's reputation for industry-leading product range, quality, and lead times. Those campaigns are resonating with consumers, generating increased demand, and supporting our growth initiatives across our target markets. In the second quarter, consumer leads were up 60% versus prior year. Latham website traffic was up 30%. Google search demand for Latham was up over 100%, and Latham remains the number one searched-for brand among fiberglass competitors. Additionally, as part of our Sand States strategy, I recently spent time in Texas, and I believe it represents the next significant growth opportunity for Latham. We plan to expand our market development framework from Florida into Texas and thereafter extend it into the other Sand States, Arizona, and California.

Importantly, we're funding some of this expansion through programs to optimize certain operational and administrative functions, allowing us to redeploy resources for the highest return growth initiatives. Oliver Gloe will provide additional insight on these programs, as well as the contributions from our lean manufacturing and value engineering initiatives in the second quarter. Finally, we recently launched our Zero Is Possible safety initiative, which is being rolled out across all of Latham's manufacturing facilities worldwide. More than a safety program, Zero Is Possible represents a foundational shift on how we operate, fostering greater workforce engagement and reinforcing the belief that every incident is preventable. I believe that this mindset is foundational to a world-class manufacturing organization. While safety is the immediate focus, the benefits will extend well beyond safety over time through stronger operational discipline, reliability, employee engagement, and overall performance.

In summary, we are pleased with our second quarter performance and the momentum we are seeing across the business. This momentum has given us increased confidence in our outlook and supported our decision to raise our full year 2026 sales and adjusted EBITDA guidance, and sales trends in July are tracking towards those expectations. Now, I will turn it over to our CFO, Oliver Gloe, for the financial review.

Oliver. Thank you, Sean, and good afternoon, everyone.

I am pleased to report on our second quarter financial performance, which clearly demonstrates Latham's continued outperformance of the market. Please note that all comparisons that I will discuss today on a year-over-year basis compared to the second quarter and the first half of fiscal 2025, unless otherwise noted. Net sales for the second quarter were $197 million, 14% above $173 million in Q2 of 2025, of which 10% represented organic growth and 4% represented growth from the Freedom Pools acquisition, which we completed at the end of February 2026. Organic growth was led by robust demand for Latham products, reflecting the strength of our sales and marketing efforts and progress of our growth strategy.