Prepared remarks
Thank you. Welcome to the Latham Group second quarter 2026 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Casey Coterie, Investor Relations Representative. Please go ahead.
Thank you. 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 filings, including the 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. 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 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 and am encouraged by the positive momentum we are seeing. Several initiatives we have put in place are already producing encouraging early results and I am 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 Sun 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. And finally, our year-to-date results, together with the current trends, have led us to increase our full-year sales and adjusted EBITDA guidance for 2026. We raised 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, driven by 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 automatic covers due to what we believe is a steady increase in automatic cover attachment rates on new pool installations. Liner sales also increased in the second quarter, driven by proprietary, made-to-measure technology, and benefiting from our industry-leading lead times. Looking ahead, Latham has substantial growth opportunities that are not reliant on a rebound in new U.S. pool starts. To fully capture these opportunities, we are focused on four strategic priorities to drive growth. One, continue to grow our core business in established markets including the Northeast, Midwest, Canada, Australia and New Zealand. Two, drive material conversion to fiberglass from concrete in the Sun States. Three, increase the attachment rate of our automatic covers, aiming for an automatic 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 parts of the purchase journey, 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 Sun State strategy continues to gain traction in the second quarter, benefiting from the close collaboration between our sales team and the dealer network. This contributed to another quarter of double-digit growth in Florida, our initial target market, and double-digit growth for the Sun States overall. We believe success in the Sun States has the potential to drive a step change in 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 Sun States, including strengthening our commercial organization, implementing a new market development framework, and adding sales resources in the field. Our new market development 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 time. 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% year over year. Latham website traffic was up 30%. Google search demand for Latham was up over 100%. Latham remained the number one brand search among fiberglass competitors. Additionally, as part of our Sun State 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 into 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 will provide additional insight on these programs, as well as the contributions from lean manufacturing and value engineering initiatives in the second quarter. And 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 in 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. Sales trends in July are tracking towards those expectations. Now I will turn it over to our CFO, Oliver Gloe, for the financial review.
Thank you, Sean, and good afternoon, everyone. I'm pleased to report on our second quarter financial performance, which clearly demonstrates continued outperformance of the market. Please note that all comparisons I will discuss today on a year-over-year basis compare to the second quarter and 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 strategies. Across our product categories, in-ground pool sales were $96 million, up 23% in the second quarter, or 14% organically, driven by a rapid and better-than-anticipated influx of orders that temporarily outpaced production early in the quarter. With our manufacturing lines ramping to current demand levels, we are well positioned for the remainder of the season. Cover sales were $41 million, an increase of 10%, and liner sales were $60 million, up 6%. Gross profit increased 9.6% to $70 million. Gross margin was 35.5% in the second quarter, a 160-basis-point decline compared to last year. We continue to see benefits from our lean manufacturing and value engineering programs, which had a positive impact on gross profit of approximately $2.7 million in the second quarter. However, the sudden surge in demand for fiberglass pools caused our ramp to be more pronounced compared to prior years, resulting in approximately $2.8 million of incremental costs in the quarter, which represented a gross margin headwind of approximately 140 basis points. The majority of these costs are expected to be recovered in the second half of this year. SG&A expenses increased to $38 million, up $6 million, primarily due to investment in our growth strategies. The timing of sales and marketing initiatives related to our fiberglass conversion strategy, acquisition and integration-related costs, which includes $2.2 million of performance-based compensation expense related to our CoverStar Central acquisition in 2024, and costs related to our digital transformation program contributed to the increase. We completed a restructuring and voluntary early retirement program, resulting in $2.5 million of annualized savings. These savings will be redeployed to align talent, structure, and resources with the company's strategic priorities, including strengthening the commercial organization against our highest-impact growth opportunities. We will incur an associated one-time charge of $1.5 million in the second half of the year. Net income was $13 million, or $0.11 per diluted share, a decrease from $16 million, or $0.13 per diluted share, for the prior year's second quarter. Net income margin was 6.5% compared to 9.3% and included an unfavorable change in net foreign currency transaction gains and losses associated with our international subsidiaries of $5 million. Adjusted EBITDA increased $5 million, or 12%, to $40 million, and adjusted EBITDA margin contracted to 22.6%, a 50-basis-point decline from 23.1% in the prior year period. This decrease was primarily due to lower gross margin and the timing of sales and marketing initiatives to accelerate growth. For cash flow, we continued to maintain approximately $150 million of cash on hand. Net cash provided by operating activities was $54 million in the second quarter, and in the first half, net cash provided by operating activities was $6 million. Total debt for the period was $280 million with a net debt leverage ratio of 2.2. Based on expected cash flow generation for the remainder of the season, we expect to reduce our net debt leverage ratio to below 2 by year end. Our capital expenditures were $6 million for the second quarter of 2026. First half capital expenditures were $28.1 million, including the purchase of the four key fiberglass production sites we have previously discussed. As we have also previously discussed, the company completed the acquisition of Freedom Pools for a purchase price of $17 million in February 2026. I would like to emphasize our capital allocation priorities, which are reinvesting in the business to capture organic growth opportunities, selectively pursuing strategic acquisitions, and evaluating opportunities to return capital to shareholders over time while maintaining a strong balance sheet. Moving on to our outlook. Our first half performance reinforced our view and led us to raise our full-year outlook for both net sales and adjusted EBITDA. At the midpoint of our revised guidance, we now expect net sales growth of 11.7%. This increase in guidance reflects stronger sources of demand for our products, continued execution of our growth initiatives, and our current visibility into the remainder of the pool season. We will continue investing to strengthen our leadership position in our core markets while accelerating fiberglass conversion across the Sun States. Our revised guidance takes into account our assessment of the impact of the ongoing conflict in the Middle East on our costs. To mitigate the increase in our transportation costs, we instituted a surcharge and we have additional mitigation strategies in place to fully or mostly offset commodity headwinds related to higher oil prices.
With that, I will offer a few closing remarks before we open the call to questions. As you have heard, we are excited about the growth opportunities on the horizon. I see tremendous potential to expand our share in each of the markets we serve and throughout our product portfolio. We tend to take advantage of soft markets to accelerate our Sun-State strategy and strengthen our execution. It is an exciting time to be at Latham. We appreciate the commitment to excellence that our people show each day and the loyalty and trust of our dealers and customers. We have growing confidence in our future performance. Operator, please open the call to questions.
Questions and answers
We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then 2. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Timothy Weiss with Baird. Please go ahead.
Hey, everybody. Good afternoon. Thanks for taking my questions and the detail. Maybe just to start off, could you talk about the demand environment? Obviously you're talking about a surge in demand, so I'm curious how the quarter played out and what specifically was better than your expectations?
Yes, thanks Tim. I'd start with understanding Q1 was pretty soft with all the bad weather we had in the country. So I think there's a bit of pent-up demand through Q1 that built into Q2. That said, the demand in Q2 was higher than we had expected. We were planning on, and still are planning on, a flat to slightly up housing cost environment, so it looked like there was a true spark in demand, which is, in my view, a result of our taking share over the last 12 months and that starting to culminate into the new season. We didn't get any indicators in Q1, but certainly in Q2 it accelerated faster than we expected compared to previous years.
Okay. And then, based on the KPIs you see internally, is this just core share gain, or is this a much better or faster return on some of the sales strategies you've changed or the Sun States investments?
I think it's a little bit of everything. It's a result of our marketing campaign being further into its run; it's resonating. We hear from dealers that homeowners are saying they saw us and heard about us. That's starting to kick in. I think our core markets are growing, which reflects share gain, and we're moving into more markets in the North, the Northeast, Midwest, and Canada. We are also getting good gains in the South. So everything is clicking, although there's still plenty of upside in terms of execution.
Okay. And then just on the cost side, Oliver, it sounds like price versus cost is going to be kind of net neutral this year, is that accurate? And then the second piece, why do you get the inefficiencies back in the back half of the year? What happened in Q2 and why will you recover it?
Yes, Tim, let me start by saying this was actually the second-highest gross profit in our history as a public company. We were within a percent of our record, which was at the peak of COVID in Q1 2022. Gross profit—and with that gross margin—could have been even higher. What held us back was that Q1 was light; we had snow on the ground up until late March, so we ran the facilities comparatively light going into Q2. We were met with almost instant demand and an instant start of the season early in Q2. We didn't see the usual ramp, and that caused an underabsorption in our plants and we sold product to fulfill demand out of inventory. That's about two-thirds of the headwind I outlined; it's the portion we plan to recover. Over the balance of the year we will restock inventory and get that absorption back as we prepare for the 2027 season. About one-third of the headwind is associated with the accelerated ramp—overtime, hiring, training, and so forth—which increased costs. We ultimately ramped up to demand, but at comparatively higher cost. Regarding price versus raw materials, think of it this way: the combination of price actions and the contribution of lean and value engineering roughly offset commodity inflation, tariffs, and other cost inflation in our plants—about a 50-basis-point tailwind. Adding Freedom Pools is slightly lower-margin, so that was about a 40-basis-point headwind to group gross margin. The overriding contributor to the gross margin gap was the volume-leverage impact—incremental absorption costs and incremental costs associated with the accelerated ramp. We also had two other impacts of roughly $1 million each that offset each other: we received tariff refunds, which were a tailwind, and we had transportation headwinds from the Middle East conflict. We instituted a surcharge, but the timing lagged the impact and the surcharge was set assuming oil and diesel prices below certain levels, so temporarily we were a bit uncovered. In summary, gross margin could have been higher if the ramp had been more gradual, but I'm glad our operations team enabled that 14% top-line growth and 10% growth in gross profit. From a cadence perspective, the headwind was mainly in April and spilled into May and June; July shows the usual gross margin and EBITDA expansion versus prior year that you're used to seeing from us.
Okay. That's a lot of great color. I appreciate it. Nice job and good luck. Thank you.
Thank you. Our next question comes from Ryan Merkel with William Blair. Please go ahead.
Hey everyone, thanks for taking my question. I want to follow up on the sudden surge of demand. Is that comment broad-based across all geographies or did you see that surge sort of in the Midwest and Northeast as the weather thawed? Also, contractors say everyone wants less expensive pools because in-ground pools have gotten so expensive. Are you starting to hear that from contractors and is that helping demand?
Yes, I think it's across the board. When we looked at how the quarter performed, there wasn't one geography outperforming another—generally, we saw lift everywhere. I think that has a lot to do with our national advertising. We've had our sales teams in place consistently in our core markets for some time, so we're getting the benefit of that. Our southern markets are also executing the right activities and starting to see results in the data they're working with. Regarding less expensive pools, I've traveled through many states and spoken with dealers. Some dealers are testing different price points to see if it opens up the market. In Texas, for example, some dealers are offering a basic pool at $50,000 to test the market response. We're not hearing widespread demand for cheaper pools, but dealers are experimenting with entry-level offerings to see if it expands demand.
Too early to tell. Got it. Okay, that's helpful. And then on seasonality, typically revenues are down about 6% from Q2 to Q3. It sounds like you might beat that seasonality—orders look good. Any comments on Q3 sales and seasonality?
Yes, the order file is looking robust, so we like that. We feel good about Q3 and where it's going. The only challenge would be if we had an unexpected weather event like early snow. Otherwise, we expect a standard seasonal flow and cadence.
All right. Got it. Thanks. Good quarter.
Our next question comes from Andrew Carter with Stifel. Please go ahead.
Thank you. Good evening. I wanted to better understand the issue you had during the quarter with the ramp-up. Was it all about planning? Ideally you'll see pools start growing in low single digits—does this suggest anything about your future ability to capitalize on a tidal wave of demand, or was this truly a planning-for-this-year, isolated issue that doesn't say anything about future demand?
Thank you, Andrew. The ramp-up was certainly more extreme than we've seen in the past, so it really is a planning issue. As we refine our strategic planning, we're going to make two adjustments. One, I'm confident we'll continue to grow in the coming years. Two, we'll carry a bit more insurance—either through people or inventory or both—so we can respond faster. To be honest, we weren't quite in the ready position when the market hit because we didn't expect it to accelerate as quickly as it did. So it was a planning and preparedness issue, not an indication we can't handle future demand. We'll adjust accordingly going forward.
Fair enough. Second question: I think in the deck you have the model of $750 million sales, $160 million EBITDA. At today's midpoint that suggests about a 32% EBITDA margin. With the commercial initiatives you have in place, do you have the resources in hand to pursue that without a step change in SG&A or other investments, i.e., should you still be planning on that 32% incremental margin from here?
Yes, I think the strategic model we outlined about two years ago is still very much intact. We are on track to deliver the strategic elements of the model. The market has been less favorable than expected, so the contribution toward that model is more skewed toward execution of the strategy rather than a simple market snap-back. We remain confident in the trajectory, and our investments are aligned with the plan.
Our next question comes from Jackson Schroeder with Craig-Hallum. Please go ahead.
Hi, thanks. I wanted to talk more about the Sun States and growth out there. Can you give more on the timeline for Arizona–California expansion, where you are with Texas, and what lessons from growth in Florida will inform that expansion?
Yes, good question. Starting with Texas, my visit suggests the majority of the market will behave similarly to Florida. Our segmentation, targeting, and neighborhood-focused approach should work in Texas. One reason we're expanding into Texas faster is that we're currently undermanned there—Texas is a very big market and we have coverage primarily around Dallas. We want to expand into San Antonio, Austin, and Houston, and we will staff those markets. This expansion will be self-funded through the optimization programs I mentioned earlier. For the West Coast, we have an open role for the Vice President of Sun States West. Once that hire is made, we'll move into Arizona and Southern California. I'm actually visiting Arizona in two weeks to evaluate the market.
Perfect. A quick follow-up: should we assume similar margin profiles across geographies or are there differences given volume and production flows?
Generally, margins are similar across geographies, though there will always be local variations driven by product mix, logistics, and site-specific efficiencies.
Our next question comes from Matthew Bouley with Barclays. Please go ahead.
Good afternoon. Thanks for taking my question. Within your high single-digit organic growth guidance, can you call out which categories—pools, liners, covers—are driving that level of growth? Also across customer channels and backlog, what's driving your confidence in the sustainability of this high single-digit organic trend?
Thank you. From a growth perspective, all our product lines are growing: automatic covers, liners, and in-ground pools. We feel good across the portfolio. Our fiberglass pipeline flows directly to installations, so there's no meaningful inventory buildup. Liners flow through distribution and are moving normally. After talking to dealers over the last few weeks, their backlogs look sustainable and normal in terms of weeks of jobs outstanding.
Great, thanks. My second question: can you elaborate on how your variable cost base is trending—raw materials, freight, labor exposure?
Coming out of COVID, we did a thorough review of our cost base. Roughly speaking, total cost is about 70% variable and 30% fixed, though the split between raw materials and plant costs varies by product category. After restructuring and right-sizing, that split has been fairly consistent.
Our next question comes from Susan McCleary with Goldman Sachs. Please go ahead.
Hi, Sean and Oliver. First, I want to ask about the momentum you're seeing from the Sun State strategy in Florida. As you expand in Texas, Arizona, and California, can you talk about the investments needed to support that growth and how this informs your ability to get SG&A leverage in the back half and in coming years to support growth?
I think it will require a relatively small investment. Marketing campaigns are already national so we're present in most markets. Local marketing in Texas is reasonably inexpensive and effective. The bigger investments are salespeople—boots on the ground—and we are funding that through optimization programs that eliminate duplication across certain functions. That frees up dollars to fund our southern-market efforts. I would not expect SG&A as a percentage to rise materially because the expansion is being largely self-funded through these optimizations and through volume.
Let me add that on the CapEx side we are planning roughly $10 million between this year and next to build molds and tools for models that resonate in those markets—smaller rectangular, feature-rich models—and to de-bottleneck and optimize flow through our Sun State sites, especially in Florida and Oklahoma.
Got it, that's helpful. My second question: you expect to end the year with net leverage below 2. How do you think about the ability and willingness to do more M&A in this environment? Specifically for expansion in Texas, Arizona, California, do you see M&A as a way to support growth and capacity across your network, or do you plan organic expansion first?
We are continuously evaluating acquisition opportunities and have a background of about one per year historically. We are working on several opportunities, but none at a point to announce. Regarding the Sun States, it's early. The initial initiatives are showing positive signs, and we want to play that out before considering broader M&A for those markets. So M&A is part of the toolkit, but we are executing the organic plan first in these markets.
From a net debt leverage perspective, targeting below 2 by year-end is realistic and gives us dry powder to execute our capital allocation policy, which includes M&A but is not limited to it.
Our next question comes from Sean Cowan with Bank of America. Please go ahead.
Hi, guys. Thanks for taking my questions. The organic growth in in-ground pool sales was obviously impressive in the quarter. Are you able to break out price versus volume there? And are you seeing an acceleration in fiberglass share gains versus overall in-ground pools?
If you take apart the 14% reported growth, it's 10% organic, of which roughly 3 percentage points were price. The majority of the organic growth sits in volume and share gains. Across product lines, the growth is driven by in-ground pools and specifically fiberglass pools, which is where our strategy is executing.
Okay, and if I back out the $2.8 million one-time expense, gross margin was slightly down year over year. Do you think you need to increase prices further this year to offset the input cost inflation you're seeing?
Adding back the one-time ramp-up expense and adjusting for the Freedom acquisition's margin profile, you would see gross margin slightly up. Going forward, some impacts from the Middle East on commodity costs will start to hit the P&L toward mid- to late Q3. We have mitigation strategies including price increases; earlier this week we announced price increases for vinyl liners. Price is one of several mitigation tools—volume and cost management contribute as well. So yes, additional pricing will flow into Q3 based on the recent announcements.
Okay, great. Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Thank you. Once again, thank you for joining us. I feel very good about where the business is. I'm excited about the year and the progress we're making both operationally and on the demand side. The sales and commercial organizations are coming together, and the business is running well. We appreciate your interest and support, and we'll speak with you soon. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. This live transcript is auto-generated without human intervention or review.