Latham Group Earnings Call Highlights Growth Amid Headwinds

Latham Group Inc ((SWIM)) has held its Q1 earnings call. Read on for the main highlights of the call.

Latham Group’s latest earnings call carried a cautiously upbeat tone as management balanced modest sales growth with notable margin gains and an accretive acquisition. Executives acknowledged higher operating costs, heavier capital spending, and weather‑related softness, yet stressed operational efficiencies, strong early‑season orders, and reaffirmed guidance as reasons for a constructive outlook.

Steady Top-Line Growth With Acquisition Boost

Latham posted Q1 2026 net sales of $117 million, up 5% from $111 million a year earlier, with 3% organic growth and 2% from the one‑month contribution of Freedom Pools. Management framed the pace as solid given flat U.S. pool‑start expectations, emphasizing that the combined organic and M&A growth supports its medium‑term revenue targets.

Broad-Based Product Line Gains

Growth was spread across in‑ground pools, covers, and liners, with in‑ground pool sales reaching $60 million, up 4% year over year, largely helped by Freedom Pools. Cover sales climbed 6% to $33 million and liner sales jumped 9% to $24 million, underscoring resilient demand across the portfolio despite mixed macro and weather conditions.

Margin Expansion Signals Operational Progress

Gross margin improved to 32% from 30% a year earlier, a 220‑basis‑point jump driven by volume leverage and ongoing lean manufacturing and value‑engineering initiatives. Management highlighted these productivity levers as core to offsetting cost pressures and supporting future profitability as the business scales.

Adjusted EBITDA Moves Higher

Adjusted EBITDA rose to $12 million in Q1 from $11 million last year, marking 9% growth and lifting the margin to 10.4%, up 40 basis points. While the improvement is incremental, executives pointed to this trajectory as evidence that the company can grow earnings faster than sales over time.

Reaffirmed 2026 Growth Targets

Despite a flat outlook for U.S. pool starts, Latham reaffirmed its full‑year 2026 guidance for roughly 9% revenue growth and about 13% adjusted EBITDA growth at the midpoint. Management argued that Q1 performance, combined with early‑season order strength and ongoing efficiency gains, supports confidence in hitting these targets.

Freedom Pools Deal Expands Global Reach

The Freedom Pools acquisition, which closed in late February, was described as immediately accretive and strategically critical for expanding in Australia and New Zealand, including the key Perth market. Latham also expects substantial revenue synergies and valuable direct‑to‑consumer learnings from the acquired operations to benefit its broader network.

Fiberglass Strategy and Sand States Focus

The company reported double‑digit fiberglass sales growth in its priority Florida market and reiterated its expectation that fiberglass will approach 80% of full‑year in‑ground pool sales in 2026. To capture growth in sun‑belt “Sand States,” Latham is accelerating investments in sales, dealer segmentation, and marketing, betting on fiberglass as the primary engine.

Operational Discipline and Balance Sheet Management

Lean manufacturing and value engineering are delivering an estimated $2.0 to $2.5 million of benefits per quarter, helping protect margins amid inflationary pressures. The company ended Q1 with $27 million in cash, a net leverage ratio of 2.8x, and has completed purchases of key fiberglass facilities, bolstering capacity while maintaining what management views as a manageable debt profile.

Early-Season Orders Support Outlook

Executives highlighted a strong April order file and improving momentum into May, suggesting a healthy seasonal ramp into the key selling months. This early demand strength was cited as a major reason for sticking with full‑year guidance despite macro headwinds and competitive pressures in the marketplace.

Net Loss Widens on Higher Overheads

Latham reported a Q1 net loss of $9 million, or $0.07 per diluted share, compared with a $6 million loss, or $0.05 per share, in the prior year. The wider loss was driven primarily by higher SG&A expenses tied to strategic investments, integration costs, and acquisition‑related earnouts.

Rising SG&A and Acquisition-Linked Expenses

SG&A climbed 20% to $37 million from $31 million, reflecting increased spending on sales and marketing, digital transformation, and acquisition and integration activities, including a $2.3 million Q1 earnout for Coverstar Central. Management signaled that SG&A will remain around 22.5% of sales, as the company continues to fund growth initiatives while integrating recent deals.

Earnout Obligations Inflate Near-Term Costs

The Coverstar Central earnout is expected to total roughly $9 million in 2026, with similar quarterly impacts throughout the year recorded in SG&A. While these payments weigh on near‑term operating expenses, management framed them as the cost of securing acquisitions that are intended to be accretive over the long term.

Seasonal Working Capital Drains Cash Flow

Net cash used in operating activities reached $48 million in Q1, driven by seasonal working capital builds ahead of the peak pool‑building season. Management characterized this cash outflow as typical for the business model, with expectations that inventories and receivables will normalize as the season progresses and shipments accelerate.

CapEx Surges on Facility Purchases

Capital expenditures jumped to $23 million in Q1 from $4 million a year earlier, largely due to the $18 million purchase of four fiberglass manufacturing facilities and other projects. Full‑year CapEx guidance was raised to $42–$48 million, including about $25 million of maintenance spending tied to these acquired fiberglass assets.

Input Costs and Transport Pressures

Management flagged higher transportation and commodity cost risks amid elevated oil prices and geopolitical uncertainty, with a temporary fuel surcharge expected to offset roughly 60 basis points of transportation pressure for the year. Inflation in key inputs such as resins and HDPE remains uncertain, but the company is using pricing and efficiency measures to mitigate these headwinds.

Weather and Competition Weigh on Organic Demand

Adverse North American weather in Q1 dented organic in‑ground pool demand, keeping organic in‑ground sales flat year over year and effectively delaying about one shipping day. At the same time, competition has intensified, with dealers seeing four or five quotes per job and higher interest rates constraining some buyers’ ability to finance purchases.

Guidance Underscores Confidence Despite Headwinds

Reaffirmed 2026 guidance calls for roughly 9% revenue growth and about 13% adjusted EBITDA growth at the midpoint, assuming flat U.S. pool starts and factoring in moderate transportation and commodity cost increases. Management pointed to Q1’s 5% sales growth, 220‑basis‑point gross margin expansion, 10.4% adjusted EBITDA margin, and strong early‑season order trends as key supports for this outlook, while acknowledging elevated CapEx, earnouts, and SG&A as near‑term drags.

Latham’s earnings call painted a picture of a company leaning into growth through fiberglass expansion, strategic M&A, and operational efficiency, even as net losses widen and cash flow remains seasonal. For investors, the story hinges on whether margin gains, capacity investments, and a strong fiberglass mix can ultimately translate into sustained earnings growth despite cost inflation and a more competitive, rate‑sensitive market.