Latham Group (SWIM) Q4 2025 Earnings Transcript

Motley Fool Transcribing, The Motley FoolTue, March 3, 2026 at 11:13 PM UTC

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March 3, 2026, 4:30 p.m. ET

CALL PARTICIPANTS -

President and CEO — Sean Gadd

Chief Financial Officer — Oliver Gloe

Investor Relations — Casey Kotary

Need a quote from a Motley Fool analyst? Email pr@fool.com

TAKEAWAYS -

Revenue Growth -- Net sales were $100 million in Q4, a 15% increase, and $546 million for the full year, up 7%.

Organic Growth -- Organic sales rose 14% for the quarter and 5% for the year, with all three product lines contributing.

In-Ground Pool Sales -- Quarterly sales reached $50 million, up 15%, and full-year sales totaled $262 million, up 1%.

Fiberglass Pools Market Share -- Fiberglass pools comprised 76.5% of in-ground pool sales and achieved approximately 2.5% sales growth and an estimated 24% U.S. pool starts share (up 1 percentage point).

Sand States Expansion -- The Sand States contributed approximately 17% of total sales, with Florida posting double-digit growth, and Arizona showing improvement, offset by double-digit declines in Texas pool permits.

Cover Sales -- Cover product sales reached $37 million in the quarter, up 19%, and $161 million for the year, up 22%.

Liner Sales -- Quarterly liner sales were $13 million, up 2%, while full-year liner sales were $123 million, up 4%.

Adjusted EBITDA -- Q4 adjusted EBITDA was $10 million, up from $3.6 million, and full-year adjusted EBITDA totaled $100 million (up $20 million).

Adjusted EBITDA Margin -- Q4 margin rose 630 basis points to 11%; full year margin was 18.3%, 250 basis points above the prior year.

Gross Margin -- Q4 gross margin expanded 340 basis points to 28%; full year gross margin rose 320 basis points to 33%.

SG&A Expenses -- Q4 SG&A increased to $31 million (from $27 million); full-year SG&A was $123 million, up from $108 million, mainly due to higher sales, marketing, and compensation expenses.

Net Income/Loss -- Net loss for Q4 was $7 million ($0.06 per diluted share) vs. $29 million loss; full-year net income was $11 million ($0.09 per diluted share) compared to an $18 million loss.

Cash Position -- Year-end cash was $71 million; net cash from operating activities was $11 million in Q4 and $51 million for the year.

Net Debt and Leverage -- Total year-end debt was $280 million; net debt leverage ratio stood at 2.1x.

Capital Expenditures -- CapEx for 2025 was $25 million, up from $20 million, targeting facilities and product molds; 2026 CapEx guidance is $42 million-$48 million, plus $25 million for maintenance and carryover.

Acquisitions -- The acquisition of Freedom Pools is expected to add roughly $20 million in net sales and $4 million in adjusted EBITDA annually; four key fiberglass production sites previously leased were also purchased.

Product Innovation and Digital Tools -- The Measure AI-powered measuring tool and the rollout of the MeasureGo mobile app expanded builder access and contributed to share gains in liners and covers.

Guidance for 2026 -- Net sales forecast between $580 million and $610 million, and adjusted EBITDA between $105 million and $120 million, reflecting approximately 9% and 12.7% growth at midpoint, respectively.

Pricing -- CFO Oliver Gloe stated that "price, given as you know being the combination of both, will probably be adding 2% to our top line" in 2026.

Latham Group (NASDAQ:SWIM) reported significant revenue growth and margin expansion, outperforming the depressed U.S. in-ground pool market through higher fiberglass pool adoption, gains in the Sand States, and successful acquisition integration. Management highlighted the 1 percentage point market share gain in fiberglass pools, double-digit growth in Florida, and measurable benefits from digital and value engineering initiatives as critical drivers. The acquisition of Freedom Pools expands Latham Group’s geographic reach and is expected to be immediately accretive, contributing directly to 2026 guidance.

CEO Sean Gadd stressed that the U.S. fiberglass pool market "is considerably below" penetration rates in Australia and Europe, pointing to long-term conversion opportunity.

The increased investment in branding and marketing for 2026 targets consumers and trusted dealers, aiming to accelerate fiberglass adoption in key regions.

The integration of proprietary measurement and quoting tech tools is designed to further streamline installer operations and capture new liner and cover market share.

Management noted that macro factors, including interest rates and consumer confidence, continue to weigh on U.S. pool starts, with expectations for flat industry volume in 2026, but continued company outperformance through share gains.

The purchase of four core fiberglass production facilities transitions previous leasing expense to ownership, supporting network growth and yielding an annual lease expense reduction of approximately $1.5 million.

CFO Oliver Gloe cited that lean manufacturing is now well embedded, while the value engineering program is expected to drive further improvements in product quality and cost structure in the coming years.

INDUSTRY GLOSSARY -

Sand States: Industry shorthand for U.S. states with hot, dry climates (e.g., Florida, Texas, Arizona), representing critical high-growth pool markets.

MPC: Master-Planned Community, a large-scale residential neighborhood with centralized amenities, targeted by Latham Group as a strategic sales channel.

Measure: Latham Group's proprietary AI-powered tool for measuring and quoting pool liners and covers, streamlining installer workflow.

MeasureGo: A mobile application from Latham Group providing on-site pool measurement and quotation capabilities to builders.

Full Conference Call Transcript

Operator: Welcome to the Latham Group, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please note this event is being recorded. I would now like to turn the conference over to Casey Kotary, Investor Relations representative. Please go ahead.

Casey Kotary: Thank you. This afternoon, we issued our fourth quarter and full year 2025 earnings press release, which is available on the Investor Relations portion of our website, where you can also find the slide presentation that accompanies our prepared remarks. On today's call are Latham Group, Inc.'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-Ks 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. In addition, 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 accompanies our prepared remarks, which can be found on our Investor Relations website. I will now turn the call over to Sean Gadd.

Sean Gadd: Thank you, Casey, and thank you all for joining the call to discuss Latham Group, Inc.'s fourth quarter and full year 2025 results. My first conference call as CEO of Latham Group, Inc., I had the good fortune to be reporting on the strong results that the company achieved in both the fourth quarter and the full year of 2025. This performance demonstrates excellent execution by the Latham Group, Inc. team. As you have seen from this afternoon's earnings release, fourth quarter revenues were up 15%, showing solid growth across all of our product lines.

We were especially pleased by the fourth quarter pickup in our in-ground pool sales, which brought our full year in-ground pool sales to 1% above 2024 levels. Impressive performance for a year within an industry in which we estimate the U.S. in-ground pool starts declined low to mid single digits. With the benefit of good weather and an extended setting season, dealers were able to work through their backlog. The strong result reflects an increased demand for Latham Group, Inc. fiberglass pools. Fiberglass represented 76.5% of our in-ground pool sales in 2025; the year-on-year growth of Latham Group, Inc. fiberglass pool sales was approximately 2.5%.

As a market leader, Latham Group, Inc. has been the key driver behind increased adoption of fiberglass pools. We estimate we gained another percentage point of market share in 2025 to account for approximately 24% of last year's U.S. pool starts. The steady growth in fiberglass micro penetration in the U.S. reflects the success of Latham Group, Inc.'s branding and marketing programs emphasizing the benefits of a fiberglass pool against any alternative solution. The competitive strength of fiberglass pools, mainly their fast and easy installation, sleek designs matching current consumer preference, and lower maintenance requirements, all at an affordable price, makes Latham Group, Inc. fiberglass pools the best alternative in the marketplace.

While the estimated 24% penetration of U.S. pool starts for 2025 represents significant growth from 16% in 2019, this is considerably below the 70% fiberglass penetration in my home country of Australia, and meaningfully below the approximate 40% to 50% penetration in key European markets. Which really excites me as I think about the future and the size of the opportunity. I consider the attributes of fiberglass from the vantage point of my many years of experience successfully selling against the standard in the boating industry; I see substantial runway for accelerated conversions to fiberglass, particularly in the Sand States, which I will talk about in a moment.

Another key accomplishment for 2025 has been the positive momentum in our cover line of product lines, which delivered a meaningful contribution in both fourth quarter and full year results. The 22% growth in auto cover sales in 2025 was a function of very positive consumer response to the unparalleled safety and peace of mind that auto covers offer. This is further highlighted by our partnership with Olympic gold medalist and Pool Safety Advocate, Bode Miller, and his wife, Morgan, to promote pool safety and the safety advantages of our auto covers.

As a reminder, Latham Group, Inc.'s auto covers are compatible with all the in-ground pool types, with the advantage of providing the homeowner with a significantly more attractive alternative to fencing while also delivering cost savings from reduced water evaporation, reduced energy for pool heating, and reduced chemical consumption. Essentially, auto covers pay for themselves within four to five years.

Liner sales increased 4% in 2025, due to our industry-leading lead times and the successful rollout of our proprietary AI-powered measuring tool. Measure streamlines the liner and winter safety cover measurement and quoting process for installers, ensuring a high degree of accuracy can be completed in as little as 30 minutes. This tool is fully integrated with the Latham Group, Inc. order entry and processing system, which allows installers to get real-time quotes, to submit orders, and track their status. By providing Latham Group, Inc. with first look at all quoting opportunities, it helps optimize schedules and operations.

Approximately 20% of the installers who purchased this tool during the year were new to Latham Group, Inc., enabling share gain in our liner and winter safety cover product.

In 2025, the Latham Group, Inc. team executed effectively on a strategic priority: expanding into the Sand States. In particular, the company gained considerable ground in Florida, our initial target market, achieving double-digit sales growth for the year. This good growth was achieved by expanding our dealer network, establishing a presence for Latham Group, Inc. in several master-planned communities, and nurturing our strategic partnerships with select custom homebuilders who will feature our fiberglass pools in their developments when they begin building. The percentage of Latham Group, Inc. sales volumes derived from the Sand States remains steady at approximately 17%. This reflects our considerable growth in Florida and a pickup in Arizona, offset by the tough Texas market with pool permits declining at a double-digit rate.

I recently spent two weeks in Florida engaging with the commercial team and some of our dealers while visiting our priority master-planned communities and touring our Zephyrhills manufacturing facility, which demonstrated to me that Latham Group, Inc. has the best fiberglass pools in the industry. I came away even more enthusiastic about the opportunity upside in Florida, more than I had originally thought while I was doing my research in joining Latham Group, Inc. First, the opportunity for fiberglass pool penetration in Florida and other Sand States is large. Second, the advantages of fiberglass pools are resonating with qualified, established dealers, several of whom indicated their desire to partner with us in our master-planned communities.

They recognize the benefits of providing their customers with a high-quality product which boasts lasting durability, elegant appearances, and a smooth, low-maintenance finish. Not only do they get to sell a great product that meets the needs of the homeowners, we are able to capture the benefit of quicker, easier installation. Shorter cycle times mean that dealers can improve their cash flow through the install process and triple or quadruple the number of pools they sell and install annually, resulting in more profit for them in the end. Thirdly, Latham Group, Inc. clearly has increased its brand awareness amongst consumers and dealers in Florida, with several high-profile marketing campaigns paired with local activations.

We still need to do more of this, as the number one gap I see is ensuring that homeowners gain awareness of the true benefits of fiberglass—why it is the right solution for their backyard to enable their dreams of creating wonderful memories to come true—together with the speed at which our pools can be installed, allowing homeowners to enjoy their pools in days instead of the traditional months when compared to the standard, which is concrete. In 2026, we plan to increase our investment in branding and marketing in a very targeted way to capture greater consumer awareness with a network of trusted dealers who are able to fulfill the demand we generate.

I am excited to bring a market development framework and approach to Latham Group, Inc. that I believe will make us even more effective than we have been to date. As we continue to focus on accelerating organic growth, we can also expect Latham Group, Inc. to continue to consider select acquisitions that provide us with revenue synergies and/or expanded geographic reach that will be accretive to our earnings.

Just a few days ago, we completed an acquisition that meets all three criteria. Oliver will provide more details shortly. From my perspective, Freedom Pools represents an excellent acquisition that is, one, significantly expanding our market position in Australia and New Zealand, two countries where fiberglass pools are highly preferred by consumers and builders; two, it gives us entry into new markets in Western Australia, which represents a large market with Perth, one of the fastest-growing cities in Australia; and thirdly, it is immediately accretive to our earnings. We welcome the Freedom team to Latham Group, Inc.

To sum up, our fourth quarter and full year 2025 performance demonstrates Latham Group, Inc.'s fundamental strengths and ability to drive considerable growth in sales and adjusted EBITDA in a down market. This proven capability differentiates us in the marketplace and provides the foundation for future growth and enhanced profitability. I will now turn the call over to our CFO, Oliver Gloe, who will provide further detail in our Q4 and full year financial performance, including the drivers of our continued margin expansion in 2025 and in support of our 2026 guidance.

Oliver Gloe: Thank you, Sean, and good afternoon, everyone. I am pleased to review our fourth quarter and full year results and to report that our full year 2025 sales exceeded the midpoint of our guidance range while our adjusted EBITDA performance was above our guidance range, demonstrating the benefits of volume leverage and production efficiency. Please note that all comparisons we discuss today are on a year-over-year basis compared to the fourth quarter and full fiscal year 2024 unless otherwise noted.

Net sales for the 2025 quarter were $100 million, up 15% compared to $87 million in the fourth quarter 2024, reflecting strength in fiberglass pool sales as well as increased demand for auto covers. Organic growth was 14% for the quarter. For the second consecutive quarter, all three of our product lines—in-ground pools, pool covers, and pool liners—experienced year-over-year growth. By product line, in-ground pool sales were $50 million, up 15% from Q4 2024, showing strength in both fiberglass and packaged pools, and representing a quarterly shift in the sales cadence given an elongated season due to favorable weather conditions in Q4.

Cover sales were $37 million in the quarter, up 19%, benefiting from increased adoption of auto covers and the two small cover acquisitions we made in February 2025. Liner sales were $13 million, up 2% compared to 2024, remaining resilient relative to the overall pool market due to the replacement cycle of these products and our industry-leading lead times. Gross margin expanded by 340 basis points to 28% in the fourth quarter, primarily resulting from volume leverage and the continued benefits from our lean manufacturing and value engineering initiatives.

SG&A expenses increased to $31 million, up $4 million from $27 million in 2024, largely driven by investments made in sales and marketing initiatives and personnel to drive increased penetration of fiberglass pools and auto covers, as well as higher performance-based compensation. Net loss was $7 million, or $0.06 per diluted share, compared to $29 million, or $0.25 per diluted share, for the prior year's fourth quarter. Fourth quarter adjusted EBITDA was $10 million, up $7 million, almost three times the $3.6 million in the prior-year period. The strong performance primarily resulted from increased fiberglass pool sales, benefits from higher plant absorption, efficiencies from lean manufacturing and value engineering initiatives, and continued cost discipline.

Adjusted EBITDA margin was 11%, a 630 basis point increase year over year.

Now turning to our full year results comparison. Net sales were $546 million, up 7% compared to $509 million in the prior year, reflecting higher sales volume from both organic and acquisition-related growth and tariff-related price increases. Notably, this performance was achieved while we estimate the U.S. in-ground pool market to be down low to mid single digits in 2025. Organic growth of 5% benefited from execution on our key strategic priorities to drive awareness and adoption of fiberglass pools and auto covers. Acquisition-related growth reflected the Coverstar Central transaction that was completed in August 2024 and the acquisitions of smaller cover assets in New York and Tennessee, which we completed in February 2025.

All three product lines showed year-over-year growth. Latham Group, Inc. in-ground pool sales for the full year were $262 million, up 1% year over year. Importantly, this growth was achieved against a backdrop of a decline in U.S. in-ground pool starts in 2025, primarily as a result of our success in increasing the awareness and adoption of fiberglass pools. As Sean mentioned, we estimate that market penetration of fiberglass pools increased again by one percentage point in 2025, and we see a long runway for continued conversion from concrete pools, especially in the important Sand State markets. Cover sales were $161 million, up 22%, driven by organic and acquisition growth.

Liner sales were $123 million, up 4% compared to the prior year period, reflecting our industry-leading lead times and the increased adoption of our Measure Pro tool, which enables pool builders to accurately and efficiently measure both pool liners and covers. With the introduction of our mobile app, MeasureGo, in 2025, we broadened access to more builders as we seek to make the measurement and quotation process as seamless as possible.

Gross margin expanded by 320 basis points to 33% compared to 30% in the prior year, primarily resulting from our lean manufacturing and value engineering initiatives and a margin benefit from these three cover acquisitions, as well as volume leverage. SG&A expenses increased to $123 million from $108 million in 2024, reflecting our increased investment in sales and marketing initiatives to expand the awareness and adoption of fiberglass pools and grow our market share in the Sand States, as well as investments in digital transformation, along with the impact of the cover acquisition.

Net income for the full year was $11 million, or $0.09 per diluted share, compared to a net loss of $18 million, or $0.15 per diluted share, from the prior year. Adjusted EBITDA was $100 million, up $20 million compared to $80 million in the prior year, as a result of higher volume and our structurally improved business model. Adjusted EBITDA margin of 18.3% was 250 basis points above the 15.8% in 2024, thanks to our strong gross margin performance, which more than offset higher SG&A expense.

Turning to our balance sheet and cash flow statement. We ended the year in a strong financial position, which gives us the financial flexibility to fund organic growth projects as well as acquisition opportunities. Our cash position at year end was $71 million. Net cash provided by operating activities was $11 million in the quarter, and $51 million for full year 2025. We ended the year with total debt of $280 million and a net debt leverage ratio of 2.1x, in line with our expectations.

Capital expenditures were $25 million for full year 2025, compared to $20 million in the prior year, with most of the additional investments going into our facilities in Florida and Oklahoma, as well as molds for smaller rectangular pools with spas, which are popular in the Sand States.

As Sean noted, we are pleased to have recently completed the acquisition of Freedom Pools. We expect incremental net sales of approximately $20 million and incremental adjusted EBITDA of $4 million on an annualized basis, which we have reflected in our 2026 guidance. In addition, we recently completed the purchase of four of our key fiberglass production sites. These sites, previously leased, are important to our network and future growth. Including these acquisitions, and the build-up of seasonal net working capital, we expect our net debt leverage ratio at the end of the first quarter to remain below 3x and to improve again thereafter.

Turning to our outlook for 2026. We believe that U.S. in-ground pool starts this year will be approximately in line with 2025. Despite these continuing trough conditions, we believe Latham Group, Inc. is uniquely positioned to outperform the overall market once again. This expectation is supported by our category leadership in fiberglass pools and auto covers, and the continued execution of our strategic priorities, namely driving the awareness and adoption of fiberglass pools and auto covers, accelerating fiberglass conversion in the important Sand State markets, and opportunistically making accretive acquisitions.

With this as a backdrop, our 2026 guidance is between $580 million and $610 million in net sales and between $105 million and $120 million in adjusted EBITDA, representing year-on-year growth of 9% and 12.7%, respectively, at the midpoint. This includes our expectation for mid single-digit organic growth, together with the benefits from the Freedom Pools acquisition and considered increased marketing expenses. Capital expenditures are projected to be in the range of $42 million to $48 million, in addition to the $25 million that includes maintenance CapEx for 2026, and the carryover of certain projects from 2025.

The additional expenditure relates to the purchase of four of our fiberglass manufacturing facilities in Florida, Texas, California, and West Virginia, as well as investments to upgrade the newly acquired Freedom Pools manufacturing facility.

Casey Kotary: With that, I will turn back the call to Sean for his closing remarks.

Sean Gadd: Thank you, Oliver. As you just heard, we are expecting a year of very positive performance from Latham Group, Inc. in 2026. Our 9% growth expectations for this year at midpoint guidance is underpinned by Latham Group, Inc.'s specific performance, as we believe trough market conditions are likely to continue through much of the year, with new U.S. in-ground pool starts approximately at 2025 levels. From my experience, soft markets are good opportunities for us to accelerate our Sand State strategy and execution, as dealers and homebuilders will be more willing to consider change in soft markets versus stronger markets.

In 2026, we will continue to execute on our key strategic priorities, namely to build the Latham Group, Inc. brand and drive increased awareness and adoption of fiberglass pools and auto covers, which we expect will enable us to continue to significantly outperform the U.S. in-ground pool market while maintaining our focus on safety and excellent execution. Since joining Latham Group, Inc., I have met many of our customers, industry leaders, and our commercial people, and I have toured three of our manufacturing facilities. It is clear to me that Latham Group, Inc. is a highly respected brand, a company with the best and broadest product lineup in the industry, with a highly engaged workforce.

I see tremendous opportunity for Latham Group, Inc. to grow in the years ahead. I am excited to drive our market penetration in the Sand States, the rest of North America, Australia, and New Zealand. With our extensive distribution network, high-quality fiberglass pools and auto covers, and best-in-class lead times, we are positioned for accelerated profitable growth, especially as the market rebounds over the coming years. I will be leveraging my past experience to drive greater consumer awareness and demand for fiberglass and auto covers and further enhance the value we deliver to our dealers.

I would like to thank our dealers, industry partners, and our employees for their contributions to our success in 2025, and I look forward to working together in 2026. Operator, please open the call for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one. If you are using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster. The first question is from Gregory William Palm with Craig-Hallum Capital Group. Please go ahead.

Gregory William Palm: Congrats on a good finish to the year. Sean, I wanted to start with you, and, you know, it has been a kind of short time since you have been CEO. But what have you learned? What excites you? And, you know, it is probably a little bit too early to ask this question, but in terms of any change in strategy or anything you want to lean into a little bit more going forward?

Sean Gadd: Thanks, Greg. Good question. It has been a fast eight weeks, I guess, and I have seen a lot of parts of the business. From my perspective, I am very excited about what the opportunity looks like in the Sand States. I think that is something we will continue to lean on. I think from my perspective, what I have learned in my past market development, I think I can help the team to get a little more focused and drive true market development into the MPCs. And for me, it is really about lead generation, quality of leads, getting the brand where we want it.

At the same time, getting qualified dealers into the MPC that are going to fulfill that demand. When I think about qualified dealers, I mean, you know, I think there is a lot of work we can do around segmentation, targeting, positioning around which are the right dealers, being clear on what our positioning is for the dealers, which is to make more money. And then importantly for me is getting those dealers positioned in the home to be able to talk to our fiberglass value proposition as well as we would. And I think when we do all that right, I think we will start to get some leverage in the Sand States.

And when I back out a bit, in general, the business is running very well. I see opportunity even in our Northern markets, which will ultimately help us fund the things we want to do and need to do in order to grow in our Sand States.

Gregory William Palm: And you seem pretty excited about the conversion opportunity. And I am just curious, is there any change in strategy in helping to accelerate that conversion opportunity, or is it just sort of leaning into some of the initiatives that have been sort of done and really accelerated over the last year or so?

Sean Gadd: I think there is a lot of leaning in, but one of the things I have added and will add to it is managing the install cost of the job. So if anything, when you are selling against the standard, the natural state is to put insurances into the job so you do not lose any money or the job does not go wrong. And so controlling that to some degree because, again, we are a very small portion of the total cost of a job. So us being able to manage it all the way through, I think, will be an important addition to what we are trying to do.

Gregory William Palm: Yep. Okay. And then just one for Oliver. Can you help just unpack the guide for 2026 on a segment basis in terms of, you know, that mid single-digit organic growth? Is that across the board in pools, covers, liners? Is it skewed towards one category versus the other? I know you are coming off of a pretty good year in covers, but what is your overall thought on a segment basis? Thanks.

Oliver Gloe: Yeah, Greg. So, again, you know, overall, the guide is about 9%. The organic part of it is 6%. Across the different product categories, as you would expect, the majority of the growth and key growth drivers will continue to be fiberglass, the continued conversion especially indexing towards the Sand States, as well as continued growth through awareness and adoption of auto covers. We do, as part of our guidance, project that all three of our product categories continue to grow like they have done in 2025. But again, indexing towards fiberglass pools as well as auto covers.

Gregory William Palm: Okay. Appreciate the color. Thanks.

Sean Gadd: Thanks, Greg. Thank you.

Operator: The next question is from Timothy Ronald Wojs with Baird. Please go ahead.

Timothy Ronald Wojs: Hey, guys. Good afternoon. Welcome, Sean. Maybe just first question that I had, I guess, how would you, if you kind of step back and look at the early demand indicators that you have in maybe January and February and kind of coming into 2026, I guess, would you kind of frame those relative to kind of a normal year for 2026?

Sean Gadd: A couple of things. First, obviously, we just came out of the season where we get to meet all of our dealers and our industry partners. I think it has been a relatively strong—obviously, the quarter is relatively strong in terms of Q4. And that is driven by a number of things. One, I think really good performance from the team. Two, we got an elongated sales cycle in that quarter because the weather turned out to be pretty good. Which, as we think about going to Q1, is a little bit different with the bad weather coming through. In general, you know, I think the industry is sort of believing that it is going to be a flat year.

And I think there are so many things that are kind of going against the industry today that we need to be lifted—things like interest rates, things like consumer confidence—that will help get the starts going. But in general, tough market conditions, but we feel good about what we can deliver in that environment.

Timothy Ronald Wojs: Okay. And then, Oliver, I think the midpoint of the guide is maybe 50, 60 basis points of EBITDA margin expansion. Could you just help us kind of break that down between what the gross margin contribution is and maybe what SG&A should be?

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Oliver Gloe: As you would expect, right, so the majority of the margin contribution comes from higher gross margin, especially the continuation of our initiatives in lean manufacturing and value engineering. Those paid dividends in 2025. They will continue to pay dividends in 2026 as well. You will, with the increased top line, see a moderate degree of volume leverage. And then, you know, to bring that down on an EBITDA percentage, which is 60 basis points up, you have higher gross margin that outperforms the increased investment in SG&A, as we are ramping up our sales and marketing efforts in fiberglass, especially geared towards the Sand States.

Timothy Ronald Wojs: Okay. I mean, I guess if I look at gross margins, you are probably up close to 300 basis points a year for the last couple of years. I mean, is it that type of magnitude of gross profit improvement? Or is it a lot more measured this year?

Oliver Gloe: Yeah. I want to say it is probably not going to be the 300-plus basis points gross margin expansion that you have seen both in 2025 as well as 2024. It will be a little bit more moderate. But our expectation is that we take a meaningful step towards that 35% gross margin.

Timothy Ronald Wojs: Okay. Okay. Very, very good. And then just the last one just on the Sand States. Did you—I did not quite catch it. Did you say the Sand States as a percentage of sales were about flat year over year in terms of, I think, 17%, or, I guess, similar year over year? I guess, A, did you say that? And, two, how did Florida do within that?

Oliver Gloe: That is correct. So we stayed about flat within that. Florida was the shining star, and certainly our focus in 2025, with double-digit growth and a strong outperformance versus the market as measured against the permit data. I think a close follow-up to that was Arizona, obviously on a much, much smaller scale for us, right? And then we had Texas, where permits were down and, as a result, that reflected on our business as well as we shifted focus towards Florida.

Timothy Ronald Wojs: And is it fair to think that, now that you have become a little bit more seasoned in Florida and you have got at least a, you know, one pool season, if not a season and a half behind you, that, you know, the Florida trends could actually, you know, begin to accelerate from here as you kind of build up the—?

Sean Gadd: I will take that. I do think we should be able to accelerate Florida. What I am trying to figure out as I get into the business is a formula that we can take into Texas. So, you know, obviously, we have got the Sand State strategy. I believe that we have got most of the pieces right for that. We have got to do some fine-tuning. And then I think there is a piece as well to think about, which is build up how we think about, you know, single-family new construction builders. I have got a background in the new construction world, and I think I have got some segmentation models that I think can work.

And, like I said on my call, you have got an opportunity down market to really change the way people do things. And there are two different paths for a builder when they think about a down market: it is pretty much batten the hatches or to differentiate their way out of it, because they are trying to sell more homes or sell more homes for more money. And so we have got examples of both. I have got an example of Lennar telling us they are going to batten the hatches, and you have got D.R. Horton and Taylor Morrison offering $50,000 of upgrades or actually including a pool.

So I think that is a piece that I would like to understand a little bit more before we go and really look to accelerate it across the South.

Timothy Ronald Wojs: Great. Well, thanks a lot. Thanks for all the color, and good luck this year.

Sean Gadd: Thank you.

Operator: The next question is from Scott Stringer with Wolfe Research. Please go ahead.

Scott Stringer: Hey, guys. Thanks for the time. When I dig into your 10-Ks and 10-Qs, it seems like industry pricing has been fairly muted for the past couple of years, maybe some of that is mix. So just wondering what your outlook for pricing is in 2026 and if there is any pricing power in the industry this year.

Oliver Gloe: Yes. I think you are absolutely right. Price has been sort of flattish. Now I will remind you, though, that during 2025, right around June, we did have a price increase of about $10 million to cater to the tariff headwinds that we saw then and still see today. So from a price perspective in 2026, you have two things. One is the run-rate and full-year impact of the June 2025 price increase—again, for simplicity of math and modeling, take half of the $10 million—plus the normal annual and seasonal price increase that we usually take to cover inflation and so forth.

So I want to say price, given as you know being the combination of both, will probably be adding 2% to our top line.

Scott Stringer: Yeah. That is interesting. Then for my follow-up question just on customer financing, and rates seem to be coming down a little bit here, but outlook for flattish pool installs. So is interest rates a tailwind in this sort of macro backdrop, or is that not really embedded in the outlook?

Oliver Gloe: I want to say interest rates certainly help. They have certainly come down. We do not yet see a pickup from that. And what I attribute it to is an environment where, you know, the next quarter might have a lower interest rate. I think a lot of homeowners are on the sidelines, right? An expectation of lower interest rates ahead just means that the pool buying decision tomorrow will be less expensive than the pool buying decision today, at least for the part of interest cost. So I think it is a good trend.

I think what I would like to see in 2026 is that we get to the new normal, a new interest rate that is stable going forward. I think that might incentivize the homeowner to make that decision to buy a pool in the season.

Scott Stringer: Got it. Really appreciate the detail. Good luck, guys.

Sean Gadd: Thank you. Thanks, Scott.

Operator: The next question is from Matthew Adrien Bouley with Barclays. Please go ahead.

Anika Dholakia: Good evening. You have Anika Dholakia on for Matt today. Thank you for taking my questions. First off, I just wanted to circle back on the MPC strategy. You guys spoke to leaning into the conversion efforts, and you called out more growth this quarter in Florida, which is great to hear. Right now, it seems that you are targeting smaller, mid-sized communities. So I am just curious on the longer-term vision for this. Is the vision to partner with large-scale production builders? How are you thinking about further penetration in this channel? Thanks.

Sean Gadd: Thank you, Anika. I will answer that. I mean, the MPCs I will start with are relatively large. When I drove through there, you are talking communities of 65,000 homes. So it is a pretty large community. Obviously, multiple builders in that community. The majority of pools, from what I understand, go in one year after you move in, and one to three years. So the start where we are today is pretty much going aftermarket—go and attack that MPC—but I do envisage us going up to builders. But you mentioned the big national builders. You really have to earn your way to the space of national builders.

And, you know, from my perspective, market development starts at the highest price point that is available to you, and you are looking for a visionary builder who wants to put pools in to differentiate themselves. And then slowly, you work your way down to price points till you eventually land where you are face to face competing with national builders. At that point, the national builder starts to pay attention. So I do think we will end up playing in that space. I do not think we are ready to do that yet. But I do see that as being a future play for us, as we slowly do our market development to get to their price points.

Anika Dholakia: Great. Thank you for that, Sean. And then for my second question, Oliver, can you give us more detail on the appetite for capacity expansion beyond these four facilities you guys mentioned? Or do you feel well equipped with the current capacity levels in 2026? Then just any details around the cadence of the spend flowing through the year. Thanks.

Oliver Gloe: Yeah, I think first of all, let me address the purchase of the four fiberglass facilities. Those were facilities that were in our grid already. We leased them. They are very strategic for us. We wanted to buy them and did that earlier in the year. We did that early February. I think from a capacity standpoint, I think we have everything we need. Right? I always, in the earnings, refer to when this business—or when the market—was at 117,000 pools in 2021. We actually had free capacity especially in fiberglass. Since then, obviously, the market is almost at half.

And, you know, we have done some reduction of redundant capacity in the aftermath of that market decline, but we have also built capacity. We have built capacity through Kingston, the expansion of Oklahoma. So net-net—and then I might add, we also built capacity through our lean and value engineering initiatives—so, net-net, we probably today have more capacity than we had when the market was double the size. So, I think from a high-level perspective, we have what we need from a capacity standpoint for the foreseeable future. I think as we develop our Sand State strategy, you know, there are some geographies—one eye in Arizona—that may need some adjustments going forward in terms of building capacity.

But I think for now, we have what we need.

Anika Dholakia: Thanks, both. I will pass it on.

Sean Gadd: Thank you.

Operator: The next question is from Susan Maklari with Goldman Sachs. Please go ahead.

Susan Maklari: Thank you. Good afternoon, everyone. My first question is on the dealer backlogs coming into this year. Can you just talk a bit about where they are and what you are hearing from your dealers ahead of the spring?

Sean Gadd: Yeah. I think there are two parts to that question. The first one is, our dealers were able to get a lot of work done with the extended season in Q4. That said, when I think about even just our backlog, very pleasing results early in the year. Obviously, weather is playing a little part of it right now. I am sitting here in New York. But in general, I would say that backlogs look pretty good. I think that the dealers are feeling relatively optimistic about where the year might be.

Susan Maklari: Alright. That is encouraging. And then turning back to the margins, you have made a lot of really nice progress with the value engineering initiative. Can you talk about where you see opportunities from here and how we should think about the benefits of that starting to flow through?

Oliver Gloe: So I think—let me start with lean manufacturing. Lean manufacturing is more working on the process, whereas value engineering is more working on the product. I think lean manufacturing, between the tools, is the more mature program. Think of a lot of, you know, Kaizen events, workshops, that are then after completion expanded to best-practice learning and expanded to the other sites. I think lean manufacturing is in our DNA. It is how we improve on a year-to-year basis. So lots of little projects that add up to something meaningful at year-end, and I expect that to continue over the next few years as well.

Whereas value engineering—think of the work on the product to make the product have a higher quality, give it a better appearance, but also take out some cost, right? Reengineer the material base. So you would say there are more low-hanging fruits and more bigger projects that we then can replicate, you know, across the grid. Again, lean manufacturing, a little bit more mature. Value engineering is probably more new to us. We have a great organization with PhD-level material scientists that we have great expectations for in 2026, as well as the years beyond.

Susan Maklari: Okay. And maybe just building on that, Oliver, you know, you have done a lot in terms of new product introductions more relatively recently. Can you talk about the momentum that you are seeing with those? And anything that you planned for 2026 in terms of product launches that we should be aware of or paying attention to?

Sean Gadd: I will take that too. From my perspective, we have done a fair bit of, to your point, a fair bit of innovation. We understand what we have seen so far in terms of growth, but what I will tell you based on my movements around the marketplace, we have reacted to some trends and have built the right product lines to basically cover where the market is going in general. And then we have got Sand State-specific investments around product, which have been completed. So we have the right product for Florida that will enable us to penetrate, and we now are starting to—and have—pretty much the right products for Texas as well.

So as the Sand States grow, you would expect those product lines to grow as well. And then, obviously, with Measure, we continue to drive that with a good penetration in the first year of fiscal year of launching, and we see that as continuing to penetrate through the marketplace and getting more people using it, enabling us to get more liner and safety covers.

Susan Maklari: Okay. Alright. Thank you both for the color, and good luck with the quarter.

Sean Gadd: Thank you. Thank you.

Operator: The next question is from Sean Callan with Bank of America. Please go ahead.

Sean Callan: Hi, guys. Thank you for taking my questions. Just the first one. So we have seen a pretty strong improvement in search trends for new pools and then meaningful outperformance in the search trends for Latham Group, Inc. Do you think is holding potential buyers back at this point? And how do you unlock that and turn those into sales? Is it just a matter of rates, consumer confidence? What do you think the key drivers are?

Sean Gadd: Yeah. That is a good question. I think it is multifaceted. One, when I was in Florida and certainly at the International Builders’ Show, I was surprised how many people did not understand fiberglass, did not even know how a fiberglass pool is getting installed in the backyard. And one person actually asked if it comes in two pieces. So we have got some basic education we need to do, and awareness, which is why you will see that we have been on TV, and that will continue. It will always be on. The second part of it is, you know, a homeowner does not engage with our brand with high frequency, so we are not a consumer good.

However, when they are in the cycle of buying something, they do engage. Now the key for me is ensuring when they engage and get onto the path to purchase, that we do not drop them, okay? We do not lose them. And so when I think about what causes a homeowner angst, and why they might drop off the path to purchase, it is usually around decision making. And the first decision making is what contractor should I use? Do I know this contractor is going to be here next year when something goes wrong? So that is the first question we have to help them feel comfortable with.

And how do we do that is we make sure that, again, through segmentation, the right dealers are available to them at the MPCs so that we can make sure that the story is being told at the kitchen table and the work and the quality is the way we want it to be in the MPC. The second challenge will be around colors, and around shapes and sizes, right? So those are all decision points where a homeowner might get frustrated and might decide to defer.

And so our job is to make all those things, with tools we will develop over time, as easy as possible, but make sure that we meet our consumer when we need to and make sure we have the right tools to make their decision making much easier. Then at least we are controlling what we can control. The macro environment is out of our control. When that comes back, we will get the benefit of it, but we have plenty to do to make the path to purchase much easier than it is today.

Sean Callan: Okay. Great. Thank you. And then on the acquisition of the manufacturing facility, so that is increasing CapEx next year. Is there any impact to the P&L in terms of lease expense, or depreciation and amortization? And then what are you guys expecting for free cash flow next year, or this year?

Oliver Gloe: So in terms of the impact to the P&L—and I will limit my comments to EBITDA—the purchase replaces a lease expense in the neighborhood of about $1.5 million annually. In terms of free cash flow, we do not specifically give guidance on free cash flow. But we have disclosed our CapEx need. The acquisition in Freedom was about $17 million, and net of those two impacts, meaning the acquisition of the four fiberglass facilities as well as the acquisition of Freedom Pools, the addition of EBITDA will flow through to free cash flow.

Sean Callan: Great. Thank you.

Oliver Gloe: Thanks, Sean.

Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Sean Gadd: First of all, I wanted to thank everybody for joining us today. Obviously, this is my first call with Latham Group, Inc., and it has been a good time to join the business because we had a fantastic Q4 and certainly a good 2025. I am very excited about what 2026 will bring and beyond. We have got lots of opportunity, a great product, a great brand, and I think we can build on that and make it even better. I have met some of you at the different shows. I look forward to catching up with you on calls post this call and then out at some conferences in the near future. So thank you very much.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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