Good day, and welcome to the Latham Group First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Please note, today's event is being recorded. I would now like to turn the conference over to Nicole Berge, the Company's Investor Relations Representative. Please go ahead.

Thank you and welcome to Latham’s Q1 Fiscal 2022 Earnings Call. Earlier this morning, we issued our 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's President and CEO, Scott Rajeski; and CFO Mark Borseth. Following their remarks, we will open the call up 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, some beliefs and information. These statements are subject to a number of risks that could cause actual events and results to differ materially. Such risks and other factors are set forth in the company's earnings release posted on its Investor Relations website and will be provided in our Form 10-Q for the first quarter of fiscal year 2022. The company expressly disclaims any obligation to update or review publicly any forward-looking statements whether as a result of new information, future events 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. It will be included in our Form 10-Q for Q1 2022. I'll now turn the call over to Scott Rajeski.

Thanks, Nicole. Good morning. Thank you for joining us for our first quarter 2022 earnings call. Just a few weeks ago, we celebrated the one-year anniversary of our IPO, and I am proud of all that we've accomplished in that time. We have consistently executed on our strategy, navigating the constantly changing environment and delivered strong growth. We have entered 2022 in a position of strength, and I want to thank our employees, dealers, partners, and investors for their ongoing support. The first quarter was a strong one for Latham, and we are encouraged by the early excitement and anticipation we're seeing from both consumers and dealers as we head into the peak pool building season. We've been on the road connecting with dealers and homeowners across the country, further educating the market on the value proposition of fiberglass. What we're seeing and hearing across the board is homeowner demand for pool ownership is strong, and awareness of the Latham brand and the benefits of fiberglass continues to grow. We continue to focus on dealer education and we are pleased that our new world-class training center in Florida is now open. The hands-on training that we can provide at this center is in high demand and our schedule is quickly filling up for the rest of this year. This is just one of the many measures we are taking to help our dealers increase installation capacity, and we are excited to welcome new dealers and quickly and successfully onboard them in a flexible, technologically advanced learning environment. The homeowner interest in pools is there. And during the quarter, we continued to enhance our ability to meet demand. Our fiberglass production continues to improve as we brought in our new material sources and expanded resin supply from our existing sources. As a result, North American fiberglass production increased about 50% sequentially in Q1 versus Q4 last year, and that came on top of a 35% sequential improvement in Q4 versus Q3 last year. We continue to make progress on our fiberglass order backlog, especially on pools that were ordered at a lower price than we are charging now. Lead times improved across many of our fiberglass plants and models. Continuing to improve lead times is a key focus for us across the business, and I'm proud to say that we are tracking back towards normalized competitive lead time in all of our other product categories. We also turbocharged our employee recruitment efforts during Q1 and meaningfully filled open direct labor positions. In turn, this enabled us to successfully navigate labor headwinds related to the Omicron variant in January and February. Our branding and digital initiatives continue to differentiate us from subscale regional manufacturers and remain an important driver of our ability to create demand and drive future growth. The work we have done with search engine optimization continues to strengthen our competitive leadership position in the market. Our website traffic remains strong with several hundred thousand sessions and 2.1 million page views year-to-date. This organic web traffic has also further improved our search rankings across all our product categories. In addition, we continue to develop tools that empower homeowners to build the pool of their dreams. We have made updates to key product areas, including fiberglass, enabling users to view different designs that fit their style. All our work to further our branding and digital initiatives coupled with our operational excellence efforts is helping to drive the awareness and adoption of fiberglass. As a result of all of these efforts, Q1 net sales grew approximately 29% year-over-year and adjusted EBITDA grew about 43% year-over-year, getting us off to a great start to the year. Q1 was a great demonstration of the team's ability to successfully execute tremendous growth while navigating the difficulties that come today to disrupt the global supply chain. Our business continues to face new short-term challenges each quarter, a few of which we expect to impact Q2. First, like many others, we continue to face an unprecedented supply chain environment and we are not immune to the short-term supply challenges. To that end, during Q2 we are experiencing a temporary shortage of material that goes into the production of our unique fiberglass for several of our fiberglass offerings. To address this, we are leveraging our vendor relationships to ramp up supply of this important material, and we expect to return to full availability of this material in early Q3. We have a proven ability to respond quickly to supply chain challenges as our team has done a tremendous job shoring up our resin supply for our fiberglass pools, both through productivity initiatives and supply diversification efforts. Just as we saw throughout 2020 and 2021, we believe the breadth of our offering and strong supplier and dealer relationships will enable us to navigate today's difficult supply chain environment. Second, unseasonable weather in April impacted dealers’ ability to install pools in the Northeast, Midwest, and Canada. As it gets warmer and we approach peak pool building months in Q2 and Q3, we expect installations to pick up quickly. Lastly, as many of you know, in April, we experienced a fire at one of our smallest fiberglass facilities in Odessa, Texas. Thankfully, none of our employees were on site at the time of the incident, and I am grateful to report there were no injuries. I'm proud of our team's efforts to quickly redeploy assets and resources to mitigate the impact of this lost capacity. We have shifted production from this facility to other fiberglass manufacturing sites, which have the capacity to accommodate the additional orders, thanks to our ongoing expansion investments across our manufacturing footprint. We are currently in the process of cleaning up the site and evaluating future uses for the location, and in the interim, we are using the Odessa facility for distribution purposes to service the region. Although this will impact Q2 net sales and gross margins, we anticipate the Odessa incident will have minimal impact for the full year as we quickly shifted production to our other fiberglass manufacturing facilities. Despite these near-term issues, we feel good about the actions we are taking to position ourselves for success as we enter the peak pool building season and the back half of the year. We continue to see growth across our product portfolio and our dealers continue to book orders through 2022 and even into 2023, where our dealers have additional capacity or are expanding their installation crews. Our digital marketing engine is ensuring a healthy supply of consumers to drive them to more pool installs. We will continue to ramp up fiberglass volume growth in the second half of the year as we realize the benefits of our resin supply actions in conjunction with a period of softer volumes due to the raw material availability challenges we experienced in the back half of 2021. Our pricing actions and surcharges have enabled us to counter the impacts of cost inflation on raw materials, freight, and labor. We continue to see cost inflation, although the rate of the increase does seem to be abating. We are comfortable with our current pricing levels and the value proposition of our product offerings remains intact. We will remain nimble in addressing inflation and are prepared to respond quickly to any future market changes. Thanks to our strong focus on operational excellence, continued execution of our growth strategy, and the health of our industry, we are pleased to reiterate our fiscal 2022 guidance which implies 35% to 40% year-over-year net sales growth and 32% to 46% year-over-year adjusted EBITDA growth. Looking further ahead, we continue to build our business for the long term, and as demand for our products grows, we continue to expand our manufacturing capacity. We are in the final stages of installing a new state-of-the-art highly automated line in Fort Wayne, Indiana, which will drive a more efficient manufacturing process for our steel panel package pools and add incremental capacity to support future growth. I'm also pleased to share that the construction of our new Kingston facility remains on track to begin production in 2023. We have also started hiring efforts at the new Kingston facility. The dynamics of the large outdoor repair and remodel market remain attractive as investments in the backyard continue. As the only pool company with a direct relationship with the homeowner and the market leader in every pool category in which we compete, we remain confident in our ability to deliver outsized growth. The confidence in our future is shared by our Board of Directors who have approved the share repurchase program with an authorization of up to $100 million of our common stock over the next three years. With that, I'll turn the call over to Mark to review our financial results, outlook, and capital allocation priorities in greater detail. Mark?

Thank you, Scott, and good morning, everyone. Today, I'll review our results for the first quarter of fiscal 2022 and discuss our outlook for the year. First, an overview of Q1 results. Please note that all comparisons are on a year-over-year basis compared to the first quarter of fiscal 2021. Net sales for the first quarter 2022 were up about $43 million or 29% year-over-year to $192 million. These results are on top of a very strong period of growth, as you recall, Q1 2021 sales grew 191% year-over-year. Pricing represented 24% of the 29% year-over-year net sales increase in Q1 as we continue to realize the benefits of our pricing actions. Volume grew 5% versus Q1 of 2021, which I just mentioned was a quarter of outsized growth and a tough comp. Net sales increased year-over-year in all three of our product lines in Q1. This growth was led by an $18 million increase for in-ground swimming pools, where we saw strong fiberglass sales growth that was somewhat offset by softer package pool sales, which were impacted in part by a relatively full distribution channel. Liners increased about $16 million and our business increased by about $9 million. Gross profit increased $18 million or 35% to approximately $71 million driven by an increase in net sales, which was partially offset by the addition of non-cash stock-based compensation expense of $1.2 million. Q1 gross margins, excluding non-cash stock-based compensation expense, expanded about 20 basis points versus last year to 37.5% of sales. Our pricing actions continue to offset inflation on raw materials, labor, and freight, which as Scott mentioned earlier, continues to increase, but at lower rates than we've been seeing in prior quarters. Our average selling prices are increasing particularly in our fiberglass business. Thanks to the improved supply and staffing levels, which led to increased production and sales as we work through our lower priced fiberglass order backlog. Q1 gross margins also benefited from the building of inventory from year-end to support the business, which aided Q1 gross margins by 230 basis points. We expect this benefit will reverse as inventory levels come down through the balance of the year. Gross margins were also impacted by negative fixed cost leverage as we ramped up our infrastructure to support future volume growth. In Q1, selling, general and administrative expenses increased to about $45 million or 23.6% of sales from about $27 million or 18.3% of sales in Q1 of 2021. This was primarily driven by a $14 million increase in non-cash stock-based compensation expense to $16 million. Excluding the increase in non-cash stock-based compensation expense, SG&A costs increased about $4 million or 13.9% versus the prior year, providing some nice leverage to the bottom line. Of the $4 million increase, about 30% was related to ongoing public company costs, with the balance related to supporting the ongoing growth of the business. Excluding non-cash stock-based compensation expense, SG&A for Q1 was about $30 million or 15.4% of sales. As a result, adjusted EBITDA increased by $14.4 million or 43% to $48 million, and our adjusted EBITDA margin increased 250 basis points to 25.0% of net sales. Turning to the balance sheet. As of April 2, 2022, we had cash and cash equivalents of $19 million, $65 million of availability on our revolver, and total debt of about $324 million. Net cash used in operating activities was a seasonally driven $57 million versus $41 million in the first quarter of last year. This was a result of higher receivables tied to increasing levels of sales and increased inventory. The increased inventory was driven in part by a strategic decision to minimize the impact of any supply chain interruptions, as well as by cost inflation. As a result, our net debt leverage ratio was 2.1 times at the end of Q1 2022. Capital expenditures totaled about $7 million in the first quarter of fiscal 2022 compared to less than $5 million in the same quarter last year. The increase in capital spending was primarily related to our fiberglass capacity expansion initiatives. In light of our share repurchase program announcement today, I'd like to take a minute to touch on our capital allocation priorities. As a growth business, our first and foremost priority is reinvesting in the business as we see this as a means to drive continued opportunities to generate significant returns and value creation. We've been increasing our CapEx spend over time as we have accelerated investments in our fiberglass manufacturing capacity. Second, we have a history of accretive acquisitions, and we will continue to be opportunistic on executing selective tuck-in M&A and business development investments. Third, pay down of debt. We have a strong balance sheet and a low net debt to adjusted EBITDA leverage. Lastly, we announced the approval of a share repurchase program which authorized us to purchase up to $100 million of our common stock over the next three years. Our strong cash flow generation and balance sheet position enables us to continue to prioritize organic growth investments in the business as well as strategic M&A, while also providing us the flexibility to further drive shareholder value through a share repurchase program. We would expect to opportunistically repurchase shares as windows of opportunity arise. Now, turning to our outlook. As you saw in the guidance provided in our earnings release this morning, we reiterated our outlook for 2022. Net sales of $850 million to $880 million representing 35% to 40% year-over-year growth. Adjusted EBITDA of $185 million to $205 million, representing 32% to 46% year-over-year growth. And capital expenditures in the range of $45 million to $60 million. In addition, at the midpoint of our net sales guidance range, we now expect first-half net sales to represent about 46% to 48% of full-year 2022 net sales. We delivered robust first-quarter growth on top of strong year-over-year comparisons. Despite a few short-term challenges in Q2, we remain confident in our team's continued execution of our growth strategy, positioning us well to deliver another strong year. Consumer demand for pools is strong and we are well positioned to capture that demand as we continue to advance our brand and digital strategy and drive the awareness and adoption of fiberglass. We believe we have taken necessary pricing actions to help counter inflationary pressures, and we've made significant progress in navigating resin supply challenges resulting in improving production levels and lead times across many of our fiberglass plants. As a result, we remain confident in our full-year guidance as well as our 3- to 5-year outlook. With that, I'll turn it back to Scott.

Thanks, Mark. I am so proud of all the progress we have made and grateful for our experienced team that works to make us better every day. Our conviction in the success of our fiberglass conversion strategy remains strong as we continue to drive education and spread awareness of the value proposition of fiberglass. Q1 was a great start to the year, and we look forward to seeing these continued positive impacts on our pool buying experience. We will now open the line for questions.

Thank you. We will now begin the question-and-answer session. Today's first question comes from Matthew Bouley with Barclays. Please go ahead.

Hi, this is Ashley Kim on for Matt today. Congrats on the strong quarter. Thank you for taking my questions. So, just with the Q1 margin coming in pretty strong, I think this implies a step down from these levels through the rest of the year looking at full-year guidance. Should we think of that as mostly loss of volume leverage in Q2 or anything else to kind of call out there with the cadence?

Good morning, Ashley. Nice to hear from you, and thanks for your question. Very pleased with our first quarter results, as you mentioned both top and bottom-line growth in a very nice margin. A lot of good things happened for us there in the quarter. We don't provide quarterly EBITDA guidance, but our full-year context is some EBITDA margin expansion. We have a few short-term challenges in Q2 that we're going to work our way through. We know as we go through the year and I think also as we look at our gross margin, which was very strong in Q1. We had a nice pickup from some inventory build that we don't see repeating, and we'll probably get some of that back as we go through the balance of the year working down our inventories, but we feel very good about the full-year guidance and our ability to deliver that.

All right. Understood. That's helpful, and then just my second question, how do you think about investing through downturns? Things like going after new dealers, new capacity additions, marketing dollars. Would you continue to invest in order to keep driving material conversion for what kind of control?

So, Ashley, good morning again. So I think if there was a downturn, we’ve had a very strong balance sheet and a healthy business. We generate a lot of cash flow. We will continue to invest, and one of the things with the magic of what we could do, driving that fiberglass penetration story with a lower upfront cost versus a concrete pool, with a total lower cost of ownership. We will continue to push the lead generation engine, drive the demands to our dealers. Make sure we believe all of our dealer partners are pretty full from a new construction standpoint, and just to remind everyone, we also have a pretty good recurring revenue business with the liner and cover segments of ours, which do generate a lot of demand as well. So, we would continue to invest; our long-term thesis is we want to stay out in front of the demand, the capacity. We believe the secular trends in this industry are phenomenal out there, and as consumers want to continue to hunker down and invest in their backyard, we will do what we need to do to stay in the forefront to be the leading pool brand out there.

Thanks, Scott. Thanks, Mark. I'll leave it there.

You’re welcome. Thanks, Ashley.

Thanks, Ashley.

And the next question comes from Susan Maklari with Goldman Sachs. Please go ahead.

Thank you, everyone. Good morning. My first question is...

Good morning.

Yes. Thank you. My first question is, can you give a little bit more context on the inflation side of things? I know that you mentioned that you are seeing those pressures somewhat abate. I guess, just any context on how we should be thinking about the magnitude of that and how to roll through the year.

Yes, hi, good morning, Susan, it’s Mark. Nice to hear from you. As we mentioned, inflation is not gone. We do see it continuing to increase. It seems to be increasing at rates than we've previously seen. I think the other side of that then we're expecting that to continue. Susan, I think the other side of that is we are continuing to see the benefits of our pricing actions and realizing some of those and some of that was reflected in our gross margin here in the first quarter. We feel really good about the pricing actions we've taken. We're staying ahead of the inflation curve as we sit here today, and we continue to monitor that situation very closely. It is very dynamic, and we will continue to monitor it and we'll be very nimble adjusting to it as we need to going forward.

Okay, that's helpful color. And then just following up a little bit. I guess, obviously, there has been a lot of concern about consumers and the overall sort of inflationary backdrop in a rising rate environment. All these sort of different macro crosswinds that are coming through. When you talk to your dealers on the ground, what are you hearing about the consumers' interest and willingness to spend on pools? What are dealers really concerned about today, and has their concern shifted any more recently as we've come into the year?

So, Susan, we've been chatting with quite a few dealers recently, and we have been back out there talking to folks, and I think the general view is for us — and I'll say the short and medium term, we've not really seen a slowdown in the demand at the consumer level with our dealers. A lot of our dealers are booked out through 2022 for new pool installs. Many are actually booking out into early 2023 as well. Now, there are also pockets of the country where we have dealers that have capacity, and they can still get pools in the ground this year. We have dealers who are continuing to add crews, based on the demand, and for our dealers who may see a slowdown. That's where we are cranking up our lead generation engine to ensure we keep belief that there's plenty of demand out there. I think we will feel strong with this conversion story, which can help drive it with the cost favorability project. But look, in general, I think we do need to be cautious of it and watch it as interest rates and everything increase. The pool buying decisions are ones that are made over many months if not years. We will continue to drive the demand and leads to our dealers. And we feel really good where we sit with the long-term projections of the industry. We're still well off that peak of where we were before, and I think there's still a lot of room to run here for us in general.

Yes. And just following up on that really quickly. You made the comment that you've got backlogs all the way through this year and then even into the early parts of '23. Are those people that have put deposits down on their pools, or how secure is that backlog? How should we think about exactly what that's indicating?

I think we’ve discussed this a couple of times in various forums. We really don't see cancellations in the industry to any extent; at least we've not seen any change in the trajectory of cancellations. There are some, but the power of it for us is right; if there was a cancellation, we can take that pool and just flip it the next year or to another homeowner who's waiting for it. But again, at the consumer level to the homeowner level, right, they're putting down a significant deposit for that pool buying decision. Look, it varies from 5% to 10%. I think the consumers are unlikely to walk away from that cash deposit once they've made that decision, and adding more importantly, once they have family and children, they're getting a pool. It's going to be tough to tell the kid not to walk away from it. So, we don't worry about it; we think it's pretty solid and strong across the board. And again, the ability to crank up the lead into that, I can't stress this enough, the power of that SEO in driving the demand. We've talked about how many homes are out there that don’t have a swimming pool. Homes in existence where folks are out there, replacing something else in the backyard, investing in their home, wanting that outdoor lifestyle space. We don't worry about it right now at all.

Okay, all right. That's very helpful color. Thank you. Good luck with everything.

Thank you.

And your next question today is from Josh Pokrzywinski with Morgan Stanley. Please go ahead.

Good morning, guys.

Good morning, Josh.

Yes, so just a couple of questions here. I guess first, could you just sort of refresh us on where we're at maybe versus the start of the pandemic on kind of where the all-in price to a consumer is for a fiberglass pool versus where you think a GLI pool might be coming in? Just trying to see what kind of the relative inflation looks like and what may that gap has looked like over time.

Yes. Good question, Josh, and I'll say high level without giving specific dollar amounts. Because I think it varies region to region, fiberglass versus concrete or gunite. Overall, I think we still maintain the same gap in pricing standpoint. I'm not sure it's exactly 28%, but let's just say in that 25% range from the data that I've seen. The average ticket price of this pool going to the consumer in the backyard has gone up over the last 2 to 3 years by you could call it, again, just an average number I'll throw out there 20% to 25%. But the gap advantage we have versus concrete still holds; that thesis is still strong, it still resonates at the consumer level for us. We continue to see the conversion being driven there. And look, I think this is one where the rating acquisition really plays well for us; where it may be a little bit more on the lower price entry-level pool, still a great tool, great product. We're seeing really nice success there. We're a homeowner who didn't want to pay the higher ticket price. We have that full product offering from the entry-level pool all the way up through the premium product with the fiberglass; but we still maintain that advantage, which is very powerful for us and where we sit today.

Got it. That's helpful. And then I know that one of the strategies around dealers has been getting your best dealers to be able to sell even more. But if you had to break down sort of the volume growth that you guys have seen here, how much of that would you sort of attribute to more sales per dealer versus bringing on more dealers over the past two years?

Yes. Over the past two years, it's probably 50-50, I'd say. If you remember, as we moved through some of the challenges we had last year, we wanted to really support our bigger and better dealers that were out there. We prioritized our best dealers to ensure they had the supply of product. So I think probably the majority of our revenue has come from driving incremental capacity with our existing dealer base. That doesn't mean we have stopped the slowdown of signing up new dealers. At our core, we are always focused on bringing on new dealers. And I would say, I think that's a big lever we're going to use to our advantage now. I think we talked about the new training center opened up down in Florida, and we were actually down there two weeks ago for our board meeting. It is an extremely impressive facility. The work that the entire team has done to set that up has proven successful; we're sold out for all our boot camps as we go through next year. Those boot camps are going to be new dealers coming into the pipeline for us to teach them how to install fiberglass, package pools, liners, and auto covers. We have also brought in some dealers who've been with us for the last 2 to 3 years that we brought on new who were not able to attend our previous hands-on training camps like we did in the past. We transitioned to virtual boot camp training. So the fact that we're sold out for the rest of the year with those boot camps tells you we're good with a healthy flow of new and existing dealers in the pipeline to continue to drive that capacity creation in the industry to get more pools in the ground for all.

Perfect. Appreciate it.

The next question comes from Ryan Merkel with William Blair. Please proceed.

Hey guys, thanks for taking the questions.

Good morning, Ryan.

So my first question is on the outlook. Can you help us quantify the impact to Q2, either for sales or EBITDA from the three headwinds that you called out? And then sort of related, do you see most of the recovery in Q3, or does some of that recovery from these issues also bleed into Q4?

Hey, Ryan. It's Mark, nice to hear from you. Thanks for the question. Coming on top of our really strong Q1, we're very pleased with posting up today. Scott did mention a couple of challenges that we face in Q2 that we believe are very short-term in nature. When you think about those three things, whether it's the fire, which was a very unfortunate incident, we are happy that nobody was injured there. That will have a minimal impact on the full year. We had really tough weather that we experienced in the month of April as we kicked off Q2 and then some of the supply chain challenges that we’re working our way through and will be through by the end of the second quarter. At the end of the day, you can probably split those a third, as we've looked at that about those things, and again, we think of those as short-term impacts in Q2. As a result of that, we combined our very strong Q1 with what we're going to see in Q2 here, and we're providing some color around that first half split. We think it's going to be in that 46% to 48% of the midpoint guidance for the full year. So, you put those two things together, and we think we're going to land there for the first half. For the balance of the year, I think the thing I would comment on there, Ryan, is as we talked in our Q4 call, when we think about volumes throughout the year. We didn't expect to see softer volume in the first half of this year, coming off the really strong performance we had last year in the first half. We think volumes will pick up pretty significantly in the second half of this year, unfortunately, we have the tough resin availability issues from the second half of last year. So, we are coming up on some softer comps in the second half. We'd expect to see volumes pick up in the second half of this year, which then gets us to the full-year outlook that we're very happy to stand by today.

That's really helpful, Mark. Thanks for that. For my second question, maybe over to Scott, back to all this worry about the consumer. Scott, I've been taking a lot of questions about how your business might perform in a downturn. So, I think it would be helpful if you could discuss how each of your three product segments might perform if we see a consumer downturn and then also, what could decremental margins look like if you see a sales decline? I'm not looking for anything specific, but maybe a range or even a way to think about it.

Yes, Brian. I’ll put a quick financial model together for you to answer this one. High-level, I think that the important thing for everyone to understand here is the business we've created is just so different from where we were three, four years ago or five years ago or ten years ago. So, I think we're much better positioned in terms of how we run the business overall and the variability of the cost structure that we've created, as well as the diversity of the product offering in the regional offering we have. We now also have the business down in Australia and New Zealand. So, we're positioned a lot better than we've ever been. If you think about the different product categories, that repair and replacement market for us is always a very healthy growing segment of the business. If you want a swimming pool and you need a new liner or a new cover, you really can't go without that for very long; you want your pool operational. So, that's business we typically don’t see any kind of downturn as it goes. If anything, you might see an uptick where people are making the decision, 'Hey, things are tough, I'm going to get my pool redone, so I'm going to be stuck at home.' Let's say the in-ground category, which is fiberglass and the other packaged pool segment. Again, I think the price point of those pools versus the competitive product, concrete pool, we have a cost advantage right out of the gate, upfront, and we have the lower total cost of ownership. So, I think what we would see is the switching power potentially from concrete to fiberglass and or a vinyl liner pool accelerate. And again, the auto cover category, the cover category is just such a critical component for safety, and the efficiency of operating a pool. I think we are in the early, early stages of really driving the penetration of that one, and we would continue to push that in our products. And even if pool starts, let’s say, slow down, flatten out, or face a slight pullback, the thesis of our long-term growth model is to drive penetration against that other product. We believe we can continue to grab market share and grow. That's why, as we've been talking over the last year or so since we became public, we have such confidence in that 10% to 12% top-line growth algorithm of ours. If it were to gap, arguably, Ryan, back to your point on the margins and all of that, I think we've got a lot of triggers we can pull from the variability of the breadth of our offering. All the programs we offer out there across the board from a cost containment standpoint, where we should be able to maintain pretty healthy margins across the board in pretty much any scenario that could be out there, other than let’s say the doomsday scenario of a really deep recession down. But I think, again, we would weather every single scenario that we could encounter, and that's what's great about this team. If you think about the last three years and how many challenges have been thrown at us and how the team has performed and the results this business has posted over that three-year period, that's a testament to the strength of our team, our dealers, and the brand we have here at Latham.

Really helpful. Thanks, Scott.

And the next question today comes from Tom Woods with Baird. Please, go ahead.

Hey guys, good morning.

Good morning.

Good morning.

Maybe just on the demand side. As you kind of think about incoming orders and the prospective buyer pool for pools that's out there, have you seen any change in kind of the income level cohort in there with the new orders? So for example, are you seeing more orders from higher-income households or less from lower-income households? Just kind of wondering what the mix on the income level cohort looks like with new orders.

Good question. We don't really see that detail of what the income level for the consumers who are buying the pools from our dealers. But I can share with you a couple of key data points that I picked up from some time I spent with some folks out there. The average price point of, let's say, the pool going into the backyard continues to increase. There are a couple of anecdotal points where a few dealers have said they've seen the average price point of the backyard pool install move up significantly by 20% to 25%, which could be an indicator that there is strength at the higher income level or the higher net worth equity level of homeowners willing to double down and invest in their yards. But again, as the price point has moved up in general, we've not really seen a slowdown in that demand, and our dealers have been sold out into 2023. But I think it is an interesting question, and it is one we are watching. But again, back to the breadth of our portfolio, we have a price point pool that starts and builds at the lower level, all the way up to the premium level. So, even if you did see a slowdown, we would just shift someone from maybe a fiberglass pool to a vinyl pool to one of the aluminum wall pools and still make sure we got to lay some pool in the backyard.

Okay. And then, just on the weather side, I guess how does a slower kind of start to April kind of filter in for the rest of the season? I guess is there any way just to think about how much of your business is in the Midwest, Northeastern Canada? Just for perspective.

Look, every year or season in the pool industry, you've got to fight through weather, and it's just part of the business we're in. There is always a slow start to the season; just back to 2019, which was the wettest spring on record in the U.S. Right? I've said that probably a couple of times over the months, and we are really just entering the peak pool building season. As you come into, let's say, the middle of May, folks are trying to get that first pool in for Memorial Day, the Memorial Day barbecue. Then there's the big push in June for the July 4 party, and then you got the whole August-September build season. There is a lot of runway to make up if you get off to a slow start, which seems to be happening here in many areas of the country. So we don't worry about it; I think that's the magic of our dealers. They might have to start working a Saturday and Sunday here and there to catch up, but they do that to get those pools and liners in for the homeowner. So, I don't think we really worry about it because just look at what happened 2019-2021, you keep pushing pools right up into Christmas. I think the fiberglass product can continue to be installed deeper into the winter months than the other two types of products that are out there, which gives us that confidence that a slow start won't hurt us long term for the season.

Okay, good. Thanks a lot, guys. Good luck on the rest of the year.

To you as well.

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

Yes, two questions. I guess first on backlog. What can you quote dealers in terms of delivery time for most of your fiberglass shells now versus what it was, say, six months ago?

Keith, I'll answer it two ways. One, it really is region-dependent where you sit, and what I'll say, there's parts of the country right now where we've worked through the backlog; we're in a really good position where if the consumer went to their local dealer and they wanted a pool and this dealer had the capacity, that's the key thing. If the dealer had capacity, had an open slot and had a crew, I could ship your pool tomorrow. In some locations, I would say in many places, we're kind of back to what I would call normal lead times where we used to sit. We used to quote it in a couple of weeks. Other places, again, if it's a particular model or a region we're still shoring through, it could be out still several months in particular regions where dealers have healthier backlogs, those that are sold out into 2023. So, it's really that dynamic, and for the rest of the business, again, back to the team, we've done a tremendous job getting back what I would call our world-class leading service levels across the industry — covers, liners, the in-ground vinyl business, we're in a really good position across the board there. It's not just us; I think it's been the higher channel. The distributors stocking their products, the dealers can walk in and get the components they need to quickly turn those pools around for the consumer. But fiberglass is a little extended out, still in many of the regions of the country.

Okay. And did acquisition play a role in the quarter?

Keith, it's Mark. So, as far as Radiant goes, we're very pleased with the way that business is performing. It's part of our in-ground pool product category, which I think is up to around $111 million to $112 million, and grew nicely in the quarter. We don't specifically break out Radiant – I'd just remind everybody, it's a relatively small business; I think we disclosed that last year, and total sales were somewhere in the $35 million range. As pleased as we are with that performance, they also have a pretty full order book right now. So, we're not really expecting any real significant growth synergies this year. It's probably going to be more into 2023 before we start seeing that.

Okay, thank you.

You're welcome, Keith.

And ladies and gentlemen, our next question comes from Ken Zener with KeyBanc. Please, go ahead.

Good morning, everybody.

Hello, Ken.

Hey, Ken.

I can see patience with all these questions around a relatively new market to most of us on the public side and its cyclical concerns. So, just within that vein, obviously holding the guidance for the year, that's good. And kind of at least in our world did better on the gross margin and called out Q2 headwinds. Just trying to understand the cadence here. You talked about an inventory lift in Q1. Mark, would you care to quantify the benefit of that?

Yes. In the first quarter, look, we had some nice things going on in the gross margin. We continue to realize the benefits of our pricing actions; we're seeing average selling prices increase; we continue to stay ahead of inflation. The inventory benefit that we mentioned was 230 basis points in the quarter. And look, we're going to give that back over a year as inventory levels come down.

Okay. And could you perhaps — I mean, generally speaking, I think about hard assets getting better, fixed cost absorption. Was that the largest component of that 230 basis point lift? Is that how we should think about it?

No, I think the way you want to think about that is as we've made some decisions to increase our inventory levels since the end of the year to help support the business, we see some of our overhead being absorbed into the inventory and sitting on the balance sheet. We do continue to invest in our manufacturing overhead capability, which gave us some negative fixed cost leverage because we do want to stay ahead of demand and make sure that we can address demand going forward. So, it's really two different things: one is the benefit of the inventory build; the other is the absolute size of our overhead going forward to provide a little bit of negative leverage in the quarter.

Interesting. And then given what you talked about, kind of headwinds in Q2, is it reasonable to assume that there might be a little more pressure in Q2 versus that adjusted baseline ex., the inventory build? Or is there some seasonality that we might expect? And just as last year, obviously, we saw increasing costs in Q2, Q3, and Q4. So, I'm not sure we have a clear sense of the operating cadence there.

Yes, I think as we look at the challenges that Scott mentioned. In Q2, we tend to think about those more as top line challenges and short-term in nature. The supply chain challenge has the potential to impact our revenue a bit in Q2 as we work through that issue and come out clean in Q3. The same thing with the weather, which was an April event. I think the one that maybe impacts cost a bit, Ken, is the fire. We'll have to see how that impacts; it will likely have some impact on the top line, and we will probably incur a few incremental dollars there as well in the second quarter. As we think about the guide for the second quarter as part of our first half color at 46%-48% of the timeline.

Ladies and gentlemen, this does conclude the question-and-answer session. I will hand the conference back over to Scott Rajeski for his closing remarks.

Hey, Ken, thanks. Thank you, everyone for joining us this morning. We're really excited for another great year, and I look forward to speaking to you all on the next call. Have a great day, all. Great day, everyone. Thanks a lot.

Thank you, sir. Well, thank you everyone for joining on today’s conference call. Thank you all for those presentations. You may disconnect your lines and have a wonderful day.