Latham Group, Inc. Q1 FY2021 Earnings Call

Good morning, everyone, and welcome to the Latham Group Incorporated First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Nicole Briguet, Latham's Investor Relations Representative. Ma'am, please go ahead.

Thank you, operator. Good morning, everyone. Welcome to Latham’s Q1 Fiscal 2021 Earnings Call. Earlier this morning, we issued our earnings press release, which is available on the Investor Relations portion of our website. On today's call are Latham's President and CEO, Scott Rajeski; and CFO, Mark Borseth. Following their remarks, we'll open up the call to questions. During this call, the company may make certain statements that constitute forward-looking statements. Such statements reflect the company's views with respect to future events as of today and are based on our management's current expectations, estimates, forecasts, projections, assumptions, beliefs, and information. These statements are subject to a number of risks and uncertainties that could cause actual events and results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please see our final prospectus for the initial public offering filed with the SEC on April 26, 2021. The company expressly disclaims any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments, or otherwise, except as required by applicable law. In addition, during today's call, the company will discuss non-GAAP financial measures, which we believe could be useful in evaluating our performance. Reconciliations of adjusted EBITDA to net income calculated under GAAP can be found in our earnings press release and will be included in our Form 10-Q for Q1 2021. I'll now turn the call over to Scott Rajeski.

Thank you, Nicole. Good morning and welcome to Latham's first earnings call as a public company. We completed our IPO in late April, and I want to take this opportunity to thank the entire team who supported that successful process. Several years ago, we set out on a journey to reimagine the pool buying experience for customers and increase awareness and adoption of fiberglass pools. As a public company, we now have greater opportunities and resources to continue on that path. Before we dive into the quarter, I'd like to share a little more about Latham and our industry. Latham is the largest designer, manufacturer, and marketer of residential in-ground swimming pools in North America, Australia, and New Zealand. We are the leader in the fiberglass pool product category of the residential in-ground swimming pool market in North America with over 50% share. We are transforming our industry with our unique direct-to-homeowner model, which places the consumer at the center of everything we do. Our strategy is powered by our leading brand and superior suite of digital technology that engages the homeowner, drives them to the Latham brand, and then walks them through the decision-making process of pool selection. We are then able to deliver purchase-ready leads to our dealers. Latham is the only pool company that has established a direct relationship with the homeowner. Our strong brand awareness and go-to-market strategy have enabled us to build the largest dealer network in North America and continue to drive the material conversion towards fiberglass pools. The pool market dynamics are very attractive with strong underlying growth. We are positioned to benefit from the favorable long-term consumer demand trends driven by continued homeowner investment in outdoor living. We are especially excited about the opportunities in the fast-growing fiberglass segment as we drive education on the benefits of fiberglass over concrete, including superior lifetime performance, lower upfront and lifecycle costs, faster and easier installation, premium quality and aesthetics, and easier maintenance along with less chemical usage. Latham would not be the company it is today without our dedicated team members. Their hard work and commitment, especially in the face of what has been an incredibly challenging and uncertain time over the last year, is key to our success. We are heavily invested in our employees' well-being and strive to ensure our employees know how much they mean to Latham and our future. So, I'm excited to share that Latham was recently awarded a 2021 top workplaces honor by the Albany Times Union. We are honored and humbled to have received this recognition. Let's now turn to a high-level overview of our first quarter results. Our strong results are a testament to our team's hard work and dedication to our mission of making high-quality in-ground swimming pools an attainable luxury for every homeowner's backyard. Net sales for the first quarter grew from $51.1 million in 2020 to $148.7 million in Q1 of 2021, representing a $97.6 million or 191% increase. This translated to strong adjusted EBITDA growth, reaching $33.5 million in the first quarter of 2021, increasing by $35.4 million from the prior year period. As we think about our long-term growth strategy, our results will be driven by four strategic pillars: one, strong consumer demand as a result of our brand and digital initiatives; two, enhancing our leadership position across our entire product portfolio; three, accelerating the material conversion to fiberglass; and four, expanding our strategic partnership with Latham's exclusive dealers. Starting with the first pillar, we continue to drive purchase-ready leads to our dealer partners by focusing on our digital initiatives, which have resulted in new customer acquisition metrics that continue to outpace our expectations. We are seeing greater searchability and visibility through our search engine optimization efforts, with Latham ranking on Page 1 for over 2,000 keywords. Also, we are excited to report we just launched our new Plan Your Pool section on our website. This new section provides a unique immersive experience to consumers as they plan their pool and backyard project. It also includes two new interactive pieces: a pool cost estimator that enables users to build their dream pool and generate an estimate for it. Another interactive piece is My Latham, our first log-in area for homeowners where they can save their preferences and options for their dream backyard, as well as all of the estimated scenarios that they may have. Moving to the second pillar, we offer the industry's broadest portfolio of pools and related products, including in-ground swimming pools, pool liners, and pool covers. We hold the number one market position in North America in every product category in which we compete and continue to focus on strengthening our leadership position. Third, material conversion is key to our growth. We see significant opportunity to continue to accelerate the trend from concrete pools to higher-quality fiberglass pools. We remain focused on driving awareness and education with homeowners and dealers on the many benefits fiberglass presents. Fiberglass is extending the pool installation season by giving dealers the ability to install earlier and later in the year. Our dealers are investing in their business to increase their capacity and capitalize on the opportunities within fiberglass. In fact, we had dealers installing fiberglass pools in New England starting as early as February of this year. Today, fiberglass accounts for about 18% of the U.S. residential in-ground swimming pool market, compared to Australia, where 70% of all in-ground pools are fiberglass. We have a long runway ahead of us and are very confident that we can drive that number to 25% by 2023. Lastly, we are committed to maintaining and growing our strong dealer relationships. In fact, in the first quarter, we saw a significant increase in new exclusive Latham Grand dealers versus the same period last year, demonstrating our growing brand power. Additionally, we launched the Narellan franchising model in the U.S. in the first quarter, which has had a very nice start in the onboarding of many new franchisees. As we look ahead, there continue to be some headwinds in our supply chain as it relates to both material supply and inflation. This is due in large part to the deep freeze in Texas, which caused shortages in many resin-based products, ongoing challenges related to transportation, and the overall tightness in the supply of many commodities. To date, this has had a minimal impact on our ability to deliver on our strong sales and earnings growth. Our team has done a great job managing this, and it is something we will continue to monitor and offset with price and productivity. Like many other companies, we are also facing a very tight labor market, which we believe will be alleviated over time. Despite these headwinds, we are very optimistic about 2021, as reflected in the guidance that Mark will share with you. We have a very large addressable market, and the strong underlying secular trends are continuing. Outdoor living remains the fastest-growing repair and remodel segment, and we see that trend reflected in our business. As a result, our dealers are seeing strong future demand into 2022. We are also accelerating our CapEx investments in fiscal 2021 to continue our fiberglass expansion and to stay ahead of the demand curve. We also have multiple levers to drive further growth across our platform by continuing to leverage our brand and its digital assets, enhancing our leadership position across our products, accelerating the pace of fiberglass material conversion, and prioritizing strategic partnerships with exclusive dealers. With that, I will turn it over to Mark to take a deeper dive into our financials.

Thank you, Scott, and good morning, everyone. Today, I'll be reviewing our first quarter fiscal 2021 results and our outlook for the full fiscal year. Please note that all comparisons are on a year-over-year basis, compared to Q1 of fiscal 2020. Additionally, Q1 of 2020 results do not include the acquisition of GLI or our investment in Premier Pools and Spas, as both of those occurred in Q4 of 2020. Starting with our first quarter results, Q1 was a strong quarter as we continued to benefit from strong consumer demand and the execution of our growth strategy. Net sales were up by $97.6 million or 191% to $148.7 million, primarily attributable to continued strong consumer demand and order volumes across our product portfolio, expanded strategic partnerships with Latham exclusive dealers, our acquisition of GLI, and price increases. In addition, our year-over-year strength reflects lighter comps amid the initial headwinds from the pandemic last year. If we include GLI sales in the first quarter of last year, our Q1 sales growth would be 152%, reflecting very strong organic growth. Looking at net sales by product category, in-ground pools increased 218% to $93.6 million, covers increased 118% to $24 million, and liners increased 192% to $31.1 million, a real strong performance across the portfolio. Gross profit increased by $42.3 million to $52.4 million, driven primarily by the strong first quarter sales growth. Gross margin increased to 35.3% of sales compared to 19.8% to sales last year, driven by higher utilization of our fixed cost structure, price increases, and a mix shift towards in-ground pools, partially offset by inflation in the cost of our raw materials. Selling, general, and administrative expenses increased by $11.7 million or 76.1% to $27.2 million or 18.3% of net sales. Of the year-over-year increase, about half was related to IPO costs, stock-based compensation expense, and the acquisition of GLI. The balance was mainly driven by wage and headcount increases from the addition of customer-facing roles to support our expansion and by incentive plan accruals, reflecting our strong start to the year. Net income was $8.5 million or $0.08 per share as compared to a net loss of $15.5 million last year. Adjusted EBITDA increased by $35.4 million to $33.5 million in the quarter, and adjusted EBITDA margin expanded to 22.5% to sales. Now let's turn to the balance sheet. As of April 3, 2021, we had cash and cash equivalents of nearly $20 million, $14 million undrawn on our revolving credit line, and total debt of $406 million. Our net debt-to-leverage ratio was 3.3 times as of April 3, 2021. Please note that we define net debt as total debt less cash. The company typically uses cash to support operating activities in the first quarter, and it was no exception this year. With net cash used in operating activities of $41 million, primarily driven by higher receivable levels tied to our increased sales. Capital expenditures totaled $4.6 million compared to $2.8 million last year, primarily as the result of multiple projects to increase fiberglass manufacturing capacity. Subsequent to quarter end, we completed our initial public offering of 23 million shares of common stock, inclusive of 3 million shares sold pursuant to the full exercise of the underwriters' option to purchase additional shares. The aggregate net proceeds received by the company from the IPO were $400.1 million, after deducting underwriting discounts, commissions, and other offering costs. We used the net proceeds to pay down $152 million of our term debt and repay the $16 million outstanding on our revolving credit facility, which reduced our net debt leverage ratio to about 1.5 times. We also used the net proceeds to repurchase nearly 12.3 million shares of common stock from certain existing shareholders for $216.7 million, and we intend to use the remaining $14.7 million to fund general corporate requirements, including working capital. Now let's turn to our guidance. As noted in our earnings release, we have introduced guidance for the full year of fiscal 2021, including net sales in the range of $580 million to $620 million, representing annual growth of between 44% and 54%. If we were to include GLI results for all of 2020, net sales growth would be between 25% and 34%. Adjusted EBITDA of $126 million to $138 million, with adjusted EBITDA margins projected to increase 80 to 150 basis points from 2020 to a range of 21.7% to 22.3% of sales, and capital expenditures of $28 million to $36 million, driven primarily by fiberglass capacity expansion initiatives. While we won't be providing quarterly guidance today or going forward, historically, there is some seasonality in our business. We typically do more business during the warm summer months, Q2 and Q3, which are peak months of swimming pool use, installation, and remodeling and repair activities. This seasonality is being somewhat mitigated by our fiberglass growth, which allows for installation both earlier and later in the season. Now, 2020 was a bit of an anomaly to the typical year, as our economy shut down for a period in the first half of the year due to the global pandemic. This market event, combined with the early results of our unique direct-to-homeowner model, drove very strong second half growth in the business. As a result, our year-over-year comps will become more difficult as we move into the second half of the year and is reflected in our full-year guidance. We expect adjusted EBITDA margin expansion will be led by sales growth and a mix shift benefit towards our fast-growing fiberglass segment. We also anticipate facing continued headwinds related to supply chain constraints and labor pressures, which we will look to counter with price increases and productivity initiatives. We will continue to invest in resources to support the growth of the business and enhance the customer buying experience. In addition, we are accelerating our investments in fiberglass manufacturing capacity to stay ahead of the expected demand curve. Please note that significant non-cash stock-based compensation expenses, which will lead to a meaningful net income loss for the year, are an add-back in arriving at our adjusted EBITDA guidance as our one-time costs associated with our IPO and other select adjustments, which are not reflective of the ongoing underlying performance of the business. Our outlook for revenue growth and margin expansion reflects continued strong consumer demand as homeowners invest in the backyard and growth across our product portfolio, driven by the strategic pillars Scott shared with you earlier. Scott, I'll turn it back to you for closing remarks.

Thanks, Mark. Our amazing company is supported by an experienced team, and I am confident in our ability to continue disrupting the industry in our favor with the only consumer-centric business model in the pool industry. We have delivered 11 years of consecutive annual net sales growth in adjusted EBITDA margin expansion and have a clear path to continue this growth trajectory. Looking ahead longer term over the next 3 to 5 years, we expect to deliver the following: net sales growth of 10% to 12%, adjusted EBITDA growth of 12% to 15%, and adjusted EBITDA margin improvement of about 500 basis points. These compelling targets are driven by our consumer-driven strategy, the material conversion of fiberglass, our capacity investments, and our disciplined approach to price and cost management. I truly believe that we are only scratching the surface of making high-quality pools attainable, executing on our growth strategy and delivering value to our shareholders. The future for Latham is very bright. With that, operator, please open the line for questions.

And our first question today comes from Matthew Bouley from Barclays. Please go ahead with your question.

Good morning everyone. Congrats on the results and on the first quarter out of the gates here. So, first question on that note with the - I guess, IPO and deleveraging events sort of in the rearview mirror. Scott, you talked at the top about sort of having the resources now to - I guess, affect your goals around boosting fiberglass adoption. Can you speak a little - in light of all that, just about sort of your wish list here in terms of the next leg of investments? Is it more to come around digital efforts, your growth CapEx plans, and even how you're thinking about the M&A pipeline post the IPO? Thank you.

Yes. So, good morning Matt. Good to talk to you again here this morning. So I think it's going to be more of the same. We're going to continue to invest in growth CapEx, focused on fiberglass and staying ahead of the demand curve. We believe with the digital investments and our strategy we're making, educating the consumer on the benefits of fiberglass, we'll continue, and that will drive the demand. And to go along, let's say, the third pillar, it's all about the dealers, continuing to sign up premier dealers, our grand dealers, and making sure we've got the capacity with the installer base to meet all that demand we're driving to them.

Perfect. Much appreciated. Second one, actually a good segue. I wanted to ask about the strategic dealer partnerships. You made a comment at the top as well about, I think you said a significant acceleration there. Is there any numbers you could put around the recent trends with the Latham Grand program here into June? And maybe broader, if you could tie that in with where you think these installers are today from a labor perspective in terms of their ability to meet all the strong demand?

Yeah. So Matt, we're not going to discuss specific numbers on the number of dealers we're signing up, but I think we're pretty confident to say, we're outpacing prior year on the grand dealer conversion. It's going extremely well. We're seeing great growth out of that base of dealer. The Premier Pools & Spas relationship, we've done a strategic session with that team, again, outpacing expectations there with the number of dealers we're converting, and the pace of fiberglass conversion with that partnership. And let's not forget about the Narellan expansion in North America as well. We're standing that up simultaneously as that moves forward, and we're just seeing great progress on all three of those fronts. And then from the dealer standpoint with labor, that's the great benefit of fiberglass, right? They can use a lot less labor to get a fiberglass pool installed in the ground versus a comparable concrete pool. So it's actually a benefit for them to make that conversion to get more pools installed for consumers.

Great. Well, thank you for taking the questions, and congrats again guys.

Thanks Matt.

And our next question comes from Josh Pokrzywinski from Morgan Stanley. Please go ahead with your question.

Hey, good morning guys, and congrats on being live here.

Thanks Josh.

Thanks Josh.

Great. So maybe just a follow-up on the dealer question, I understand you don't want to get into maybe too many specifics here. But maybe just a progress report on all the folks that you've signed up over the last probably three to nine months, I would imagine, have been pretty solid given the market backdrop. How is that seasoning process gone with installs per dealer? Is that something that's ratcheting up to, or should we just pay attention more to dealer sign-ups? I'm just trying to get a feel for how many of these folks that are coming in are hitting the ground running versus dipping a toe in the water? Yeah, pun intended on that as well.

I like that one, Josh. We might use that in the future. Okay. Without giving the specific numbers, again, back to the strategy, right, It's signing up new dealers, but it's also working with the existing dealer base and getting them to grow, getting from, let's say, one install a week to two installs a week, eventually to five installs a week or that pool a day getting built in the ground. So our sales team and business consultants are working with that dealer partnership. We're holding more and more boot camps with the dealers to train them on what is the perfect process for installing a pool to maximize the number of installs they can get. So with both aspects of that, I would just say on all fronts, it's going extremely well for us.

Got it. That's helpful. And then just thinking about some of the various pinch points, whether it's inflation on the material side or labor or transportation, all the things we hear about across the universe here. How should we think about the phasing of margins or incremental margins as we move through the year? So when do those things, you kind of reach maximum pain points? And when do you see them sort of improving?

Yes. So Josh, I'll address the pinch points, and I'll let Mark kind of talk a little about the margin. And I think when you look at inflation, part of our model is our price increases stay ahead of inflation in the marketplace, and we teach that all the way through the supply chain with our dealers to the consumer. So I think we're in a really good position there to continue to expand margins like we have historically. Materials, as we mentioned, have been a struggle across the board for every industry, not just pools or let's say, Latham. And again, I think our supply chain team has done a very good job managing through that to ensure we have all the material we need. Labor continues to be a battle on many fronts, but we've hired over 350, almost 400 employees over the last several months. We will continue to add people into our facilities as we grow. It's not been a constraint for us at this point. And I think overall, when you look at where we're headed, I think we'll continue to see nice growth throughout the rest of the year. And it's all just managing the business, and that's – look, the Latham team is a great team. That's what they have paid to do every day. We manage those challenges, and we're not going to let it stop us. Mark, do you want to comment a little bit on Europe?

Hey, Josh, How are you? So thanks, Scott. Yes, we're very pleased with the first quarter results and the margin expansion that we saw in the quarter, Josh. And we did start seeing some of the impact of inflation, both on the raw material side as well as labor. We would expect that to continue throughout the year. It's reflected in our guidance. As Scott mentioned, we believe that through productivity and price, we can continue to find ways to offset that. And full-year guidance, we're talking about 80 to 150 basis points of margin expansion. So as we go through the year, we would expect to be able to manage our way through that and deliver to the guidance.

Great. Appreciate it, guys. Best of luck.

Thanks, Josh.

Thanks, Josh. See you.

Our next question comes from Susan Maklari from GS. Please go ahead with your question.

Thank you. Good morning. And let me add my congratulations to everyone.

Thanks, Susan.

Yes. My first question is just kind of building on the last question around inflation and pricing. Can you just kind of remind us of how we should be thinking about the timing in terms of some of these costs flowing through the P&L? Where you are in terms of the pricing? And how you're thinking about price versus cost as we move through the quarters that are coming up?

Yes. So Susan, again, back to what we've shown historically. We stay ahead of the inflation with price, which has allowed us to continue to expand margins historically and what you've seen here in the first quarter, and that trend will be reflected through the rest of 2021, the guidance we provided. We've announced three price increases throughout the year now. So I think you'll continue to see them phase in. And I think the safe path to say is that those price increases will continue to outperform the inflation where we will not get caught behind at any point in a quarter from a margin compression standpoint. Mark, any color you want to add there?

Yes. The only thing I would add – I think as well said, Scott. The only thing I would add is, Susan, as you might imagine, there might be some quarterly timing differences. But as we look at the full year, we certainly expect to be able to outperform any inflationary pressures and deliver more margin expansion.

Okay. That's helpful. And then, you obviously have some pretty interesting plans as you think about ramping your CapEx to meet this growth that's coming through. Can you give us an update on where you are in terms of adding some of that capacity? And how we should be thinking about that coming online over the next couple of quarters?

Yes. So we'll continue to accelerate those investments versus what we did in the first quarter. But again, like we've talked to all of you guys over time, it's about gating the expansions on the investments when we need them, bringing them on at the exact right time. There are a lot of small investments in molds and equipment, delivery equipment, increasing efficiency and capacity at the different facilities, expanding the footprint of existing facilities. And again, continuing to evaluate the footprint from a regional basis, so where we might need to expand over time. I think you'll see that continue to accelerate here through the next couple of quarters. When you look specifically at, let's say, the full-year guidance number for CapEx and what's been spent year-to-date. But again, we'll be very judicious in our approach with that as we have been historically.

Okay. Great. Thank you.

Thanks, Susan.

Thanks, Susan.

Our next question comes from David Bellinger from Wolfe Research. Please go ahead with your question.

Hey, guys. Congrats on a nice quarter here. I apologize if this was mentioned earlier, but you talked a lot about pricing here. You mentioned a few times today your ability to raise prices and offset pressures elsewhere. But can you just talk about what you've done historically? Have you raised prices across every category? Really how much pricing power do you see now in the marketplace? And is there any - or has there been any pushback to date?

So, again, if you go back historically on price, we've averaged around 3% a year historically. When we push price increases, we do look at it by product line based on where we're seeing the inflationary trends. So we can expand margins in every product line, not just on a total basis. And I'd say, as we push the second and third price increases throughout the year, it's varied by product line, and it's varied percentage-wise. In some cases, we've seen mid-single-digit increases and a little bit higher in particular product segments. And look, I think we've done a good job educating our dealers and given visibility to what's coming on the pipeline with price to their pricing projects to the consumer. And they're looking at a project that's three to six or nine months out, they can pass that price increase on to the consumer as well. And look, no one ever likes a price increase, but I think when you're open and disciplined with the approach, being the industry leader like we are, it flows through the entire supply chain.

Understood. For my follow-up on the full-year guidance, could you explain how much of that is based on the improved Q1 results? Additionally, has your outlook for the remaining quarters changed compared to your previous expectations based on what you've observed so far?

Yes. Hey, David, this is Mark, and thanks for the question on the guidance. The guidance is, our initial guidance that we put out the range of $580 to $620 million. That absolutely reflects what we saw in Q1. The guidance will generate somewhere between 40% and 50% year-on-year growth with margin expansion. We do expect to see tougher second half comps as we go through the year. The impact of the pandemic last year in the first half of the year and some of the early results that we're seeing from the four pillars of the business that Scott mentioned. So yes, our guidance is baked into what we saw in the first quarter.

Great. Thank you very much.

You’re welcome, David.

Our next question comes from Tim Wojs from Baird. Please go ahead with your question.

Hey gentlemen, good morning and let me add my congrats. Maybe just the first question I had, we're hearing that a lot of in-ground installers are out until '22 already in terms of pool building. And I'm just curious, have you seen any evidence that consumers are shifting to fiberglass as a result of those extended lead times already for presumable pool builders?

Yes, if you contact a dealer who is out of stock, give me a call later, and I can help you find a dealer if they still have availability. You can get your pool this year. We often hear about this situation. Recently, I worked with a customer in Maine who reached out to a dealer that was sold out, but I quickly found a dealer in New Hampshire willing to install the pool for them. There is a lot of flexibility available. It's different from one place to another. The advantage is that when a homeowner wants a pool, we can often provide a fiberglass pool much more quickly. Dealers are transitioning to install more fiberglass to fulfill consumer demand. When considering a swimming pool purchase, homeowners don’t typically decide to buy one overnight; they plan it over time. As we approach summer, many people are starting to warm up to the idea of purchasing a pool. Although many dealers are booked for the summer, I can share numerous instances where a dealer said they could accommodate a customer if they chose fiberglass, scheduling them on a Saturday or in four weeks. This is a key advantage of the shift to fiberglass: faster installation times, allowing a pool to be installed in one to five days compared to the longer timelines for steel, polymer vinyl pools, or the three to six months required for concrete pools. Additionally, the labor constraints associated with building concrete pools and the number of subcontractors required make it much harder for dealers. This is a significant factor in the success we’re seeing with Premier Pools and Spas, as Paul and his team are getting many franchisees to convert to fiberglass to increase the number of pools they can install.

Okay. Okay. Very good. And then I guess second question is just kind of big picture. But when you think of the new pool construction market and kind of where we are today versus, call it, 150,000 pools, that the industry has kind of averaged historically. What have been the constraints kind of getting back to those prior averages? And do you think there's consumer demand out there that gives you visibility to do so?

Yes. I'll focus on the demand side because I think that's the easier one. There's a ton of demand out back to those levels, probably more demand than installation capacity. And if you look at the stack, there's 90 million homes, existing homes in the U.S. that do not have a swimming pool today that have the backyard capability for one. When you then look at the interest in swimming pools, it's the number one highest consumer satisfaction purchase you can make about pretty much anything else that's out there: a kitchen remodel, landscaping redo, buying a car. So it's a very strong high consumer interest that investment in the backyard at 2.3 times, R&R spend in the backyard has been hot for a long time and has continued to accelerate. Migration from the urban areas to the suburbs will generate more demand in the housing market. And when you look through that 90 million homes and convert back to how many people are likely to buy a swimming pool in the next five years, and then heavily discount that by a significant fact like 80%, it would equate to over 1.5 million pools of demand a year over the next five years. We're building, what 96,000 pools last year. We'll target probably 105,000 to 110,000 pool installs this year. So it's not a demand issue, it’s a matter of educating the home around the benefits of the swimming pool, why fiberglass, why a Latham fiberglass pool, and then having the best dealer network out there with our grand dealers, Premier Pool & Spa dealers, and our Narellan dealers were standing up and just leading them down that path to make that purchase decision.

Okay. Okay, great. I hop back in queue. Good luck and congrats to you guys.

Great. Thank you.

Thank you.

Good morning, everybody.

I just want to go over a couple of different points here. So lots of conversations with clients, and I want us to use this forum to flesh out some of those quarterly questions as well as these broader ones that have come up. So your capacity, obviously, with this high growth, you have many different plants. So it's not just one answer. But focusing specifically on in-ground pools, can you talk to what your network looks like? I know you're adding capacity, but can you give us an example of what looks like a stressed-out plant, what you're doing there versus a more smooth running plan in the quarter where you had sales going up, basically doubling in in-ground pools? Just give us a little context for that, if you would, Scott.

Certainly. One straightforward example I can provide is related to a popular model, such as the Fiji pool, which I personally own. Consumers often request a Fiji, but due to high demand, the lead time can extend from the usual two weeks to around two months. When a homeowner calls and finds out it's sold out, we address this by investing in additional Fiji molds, which requires a significant financial commitment, typically several hundred thousand dollars. By adding another mold to the facility, we can reduce the lead time back to two weeks. This approach is very tactical and varies from model to model and plant to plant. Another instance we faced yesterday involved needing more trucks to deliver pools from certain facilities. This means adding a big rig, a trailer, and a pilot car to increase our shipping capacity by five additional pools per week from that location due to the high demand. We're actively working on these adjustments without facing major constraints, as we have ample permitting capacity across our fiberglass, vinyl, steel, and polymer plants. Additionally, our dealers have effectively guided homeowners toward alternatives like the Panama pool, which is similar to the Fiji and available sooner when time is of the essence.

Very good. Second, if we could talk about regional dynamics a little bit. Obviously, with the national footprint, which was built up from your acquisitions in the past. Can you talk about how regional trends, and perhaps, how - obviously, the second largest competitors added some capacity through a new plant purchase. But could you talk about how regional demand is occurring as opposed to or intertwined with competitors' own behavior because they don't have necessarily the capital that you do, which one would think is an advantage for you?

Yes. I think regionally, we're seeing strength across the board in every region and territory we play in. I can't highlight one area that's growing faster than another. And I think you could argue we're seeing great success in the Stand state, Florida, Texas, Arizona, Las Vegas, Nevada, California, with fiberglass. But again, that's all related to that material conversion story, right? Those are the heavy concrete states. That's where we're attacking the concrete dealers to convert from that to fiberglass. So I think we're seeing really nice growth there. But overall, when you look in general, we're growing pretty evenly across all territories. We're actually seeing really, really great success in the Canadian market as well as just not think the US. But I think the Narellan franchisees and the classic dealers up there, we're seeing phenomenal growth in conversion rates of fiberglass. And I think with a shorter pool season up there, the benefit for a Canadian homeowner is they can have that color glass pool in a week, and they can leverage their summer versus usually, they lose an entire summer building another type of pool. So broad-based strength across the board. And even if I look down in Australia, New Zealand, Canada, it's the same concept. I mean I think we're seeing strong growth in every territory region down there and really nice trends overall.

That's perfect. I like one of the other things, I know you guys talked about, right, US sales and international, but could you clarify international versus, let's say, just North America, which would include Canada, just to maybe get some context around what's North America versus Australia, New Zealand, et cetera, or do you feel comfortable doing that?

Yes. I mean, ballpark, Ken, I think this was in the S-1 as well. If you look at international as Canada, New Zealand, Australia, it's around 20% of our total revenue. And we can follow-up with the specific number for you later. It's around 20%. Think of it that way.

Great. And my last question is this. You touched on it with Canada, but the more northern markets not only can benefit from the quicker install, but because of temperature differentials, tiles cracking, et cetera, et cetera. Is there a higher – is there something about the weather that might create more propensity for those non-seasonal markets to use fiberglass, not only because of the construction time, but because of the weather impact on tiles cracking, et cetera?

Look, I would say, in general, that applies to any place, Ken. I want to make it specifically a cold weather climate. The performance of a fiberglass pool is better than any other pool type in any type of climate. It will outperform a vinyl line pool, it will outperform a fiberglass pool. I had that 28% total lower upfront cost, 43% total life cycle cost, lower than another type of a concrete pool, but the benefits across the board are great. Once you build that pool and it's in the ground, you don't have to do anything to it ever again. With a concrete pool, you're right. And I know you own a concrete one, your goals were refurbished. It's going to crack, you're going to have to refinish it, you're going to have to do that every 10 to 12 years, a vinyl liner pool, you're going to need an eight to 10-year replacement aligner. Fiberglass, I'd like to just say, set it and forget it, right? It's the easiest pool to own and maintain out there.

Thank you, gentlemen.

Thanks, Ken.

You’re welcome, Ken.

And ladies and gentlemen, our next question comes from Keith Hughes from Truist. Please go ahead with your question.

Sorry, I was on mute there. I guess my question gets back to pacing in the quarter and the price increases you announced. Do you think you'll get back to parity with the raw material inflation that's coming in the second quarter by the end of the quarter? Will that extend in the second half? Any sort of look on that would be helpful.

Hey, Keith, it’s Mark. How are you?

How are you?

Good to hear from you. So thanks for your question. What I can mention or share with you, Keith, is in the first quarter, where we started to see some of the impact from inflation, we were able to stay ahead of inflation through price and productivity in the first quarter. We would expect that to continue through the balance of the year, based on the pricing actions we've already taken. But look, we're monitoring the situation and managing the inflation both on raw material and labor very closely. And to the extent that we need to take more price during the year to continue to stay ahead of that, we will do that. And we have baked that expectation into our guidance as we look at the margin expansion we believe, we can deliver for the year.

Okay. Thank you.

You’re welcome.

And ladies and gentlemen, with that, we will conclude today's question-and-answer session. I'd like to turn the floor back over to Scott Rajeski for any closing remarks.

Yes. Thank you. So, hey, I would like to thank everyone for joining us this morning for Latham's first earnings call. As you just heard, we are delivering strong results, which is a testament to the team's hard work and dedication each and every day. We have a great business and growth strategy that will continue to deliver over time, as we drive the material conversion of fiberglass as the pool brand of choice for both homeowners and dealers. We look forward to providing another update on our Q2 earnings call. Again, thank you for your time today and have a great day.

Ladies and gentlemen, with that, we'll conclude today’s conference call. We do thank you for attending. You may now disconnect your lines.