Latham Group, Inc. Q2 FY2022 Earnings Call

Good day, and welcome to the Latam Group, Inc. Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Nicole Edelman, Investor Relations Representative. Please go ahead.

Thank you, and welcome to Latham's Q2 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 Latam's President and CEO, Scott Rajeski; and CFO, Robert Masson. Following their remarks, we will 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 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 to its Investor Relations website and will be provided in our Form 10-Q for the second 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 and will be included in our Form 10-Q for Q2 2022. I'll now turn the call over to Scott Rajeski.

Thanks, Nicole. Good morning. Thank you for joining us for our second quarter 2022 earnings call. Before we get started, I would like to take the opportunity to introduce our new CFO, Rob Masson. As we recently announced, Rob officially joined late in the month on July 11 and has already hit the ground running. Rob is an accomplished finance and industrial manufacturing leader with nearly 20 years of experience in the aerospace and defense and industrial sectors. Please join me in welcoming Rob to the Latham team. I'd also like to take this opportunity to thank Mark Borse for his contributions to leading Latham through such a transformative moment in our company's history. We are grateful to have benefited from his leadership and for his current work as a strategic adviser to ensure a seamless transition. Additionally, I want to thank our employees and dealer partners for their hard work and dedication to Latham. We could not do it without you all. Q2 is another quarter of growth with net sales and adjusted EBITDA both increasing 14%. During the quarter, we continued to experience strong demand for fiberglass pools as well as our cover and liner products. Our previously announced price increases helped drive sales growth, more than offsetting the softening volume in our packaged pools category during the second quarter, which was primarily a result of inventory de-stocking in the distribution channels and weather-related delays on installations. We are pleased with our overall performance in the first half in which we posted net sales growth of 21% and adjusted EBITDA growth of 27%. Our year-to-date results reflect the strength of our fiberglass material conversion strategy, unique direct-to-consumer model, and digital strategies. In addition to investing in the long-term growth of the business, we also opportunistically executed a share buyback of $15 million in the second quarter. Let me update you a bit on the operational progress we made in the second quarter. Our North American fiberglass production again increased sequentially and versus prior year, with 14% growth quarter-over-quarter in Q2 and 30% growth in the first half compared to the prior year period. We continue to work through the robust fiberglass order backlog and improved lead times. We have taken significant steps to address the temporary flat shortage discussed on our Q1 earnings call, which had minimal impact on Q2 results. We anticipate this will be fully resolved by the end of Q3. In addition, we have continued to streamline the production of our non-fiberglass operations, which combined with increased inventory levels allowed us to get back to our historic lead times. We also wanted to provide a quick update on the player at our Odessa, Texas fiberglass manufacturing facility. By mid-May, all production has been successfully shifted to other facilities with a minimal impact on sales. These operational improvements reflect the capabilities of the team and the resilience of our business. We believe we are well positioned from a manufacturing and supply chain perspective as we move into the back half of the year. While we feel good about the results we delivered in the first half and the overall state of the business, we expect the softening of volume that we saw in the second quarter in our in-ground pool product category, which was driven primarily by packaged pools to continue through the balance of this year. In response to the recent macro uncertainty, coupled with some delayed installs from unusually wet weather in Q2, many of our wholesale distribution channel partners began to de-stock their elevated inventory levels in recent weeks. We do not expect the missed installs due to unfavorable weather to be recovered in the back half of 2022, given many of our dealers are completely booked into early 2023. On the positive side, we continue to expect robust growth in our fiberglass business, reflecting our efforts to drive fiberglass adoption and strong performance in our liner and cover products in the back half of the year. That said, we do not believe this performance will be enough to offset the impact of wholesale distributor de-stocking in our packaged pools and unfavorable first half weather. As a result, we are resetting our guidance for full-year fiscal 2022, which now indicates net sales growth of between 19% and 22% and adjusted EBITDA growth of between 18% and 25%. Rob will go into detail on this later. Our updated guidance continues to imply impressive year-over-year growth, and we are confident in our ability to continue to execute on our strategy and deliver growth in the near and long term. The work we have done to strengthen our supply chain has been paying off as the breadth of our offerings and strong supplier and dealer relationships enable us to respond quickly to demand increases. We are focused on keeping our manufacturing capacity ahead of demand with construction of our Kingston fiberglass manufacturing facility in full swing. We are excited to provide additional updates in the coming quarters. The underlying fundamentals of our growth strategy remain unchanged and position us well for continued success as we look to 2023 and beyond. First, the material conversion to fiberglass. As we have discussed before, this is a key part of our growth strategy. We continue to drive awareness and education with homeowners and dealers on the value proposition associated with fiberglass pools. The low level of penetration of fiberglass pools in the North American market and our ability to drive material conversion provides significant runway for future growth and helps bolster our performance in any economic downturn given the competitive advantages of the product. Fiberglass pools have significantly lower upfront and lifetime costs compared to concrete pools. Additionally, fiberglass pools can be installed in less than one week, and in some cases, one day compared to a three-month install for some concrete pools. This allows the homeowner to enjoy their swimming pool much more quickly and allows dealers to grow their business more rapidly by increasing the number of pool installations per year and extending the installation season. Latham's fiberglass pools are the most durable and attractive swimming pools in the market with premium quality and impressive strength that outperforms concrete pools. We are seeing our efforts play out in Google Trends data with homeowner searches for fiberglass pools far exceeding homeowner searches for concrete or granite pools, owning well for future demand. Second, we continue to build our exclusive network of dealers and work with our dealers to enhance their productivity and grow industry installation capacity. We are receiving positive feedback and results from our dealer boot camp training sessions, which have directly led to an increase in the pools installed by those participants. In 2022, so far, we have trained over 200 dealer installation teams, a sevenfold increase compared to 2021. Our dealers note that they are still booking orders into 2023 and seeing strong homeowner interest. On the Latham side, we continue to utilize our online lead generation engine to bolster the 2023 pipeline of qualified leads for our dealer partners. We continue to focus on our branding and digital initiatives, which are a key differentiator for us. Our direct engagement with homeowners is transforming the pool buying process and gives us the ability to generate purchase-ready leads for our dealer partners quickly and efficiently. Our lead generation engine continues to empower us to improve the quality and quantity of leads for our dealer partners and has generated both purchase-ready leads as well as those who need further qualification. In response to this opportunity, we have implemented a new lead qualification program, leveraging our MyLatham platform and leading market automation software to nurture leads as prospects until they are purchase-ready. National campaigns drove a majority of the volume of leads through May, and we have recently kicked off new regional campaigns in major markets where we have onboarded dealers with installation capacity and our manufacturing plants have the production capacity to respond quickly to spikes in demand. As we turned up the lead engine in these geographies, we saw an immediate impact. Leads increased 25% in the first week, which increased to 76% by the second week. In the first eight weeks, we produced approximately the same number of leads focusing on regional markets as we generated for the first 20 weeks of the year when using the broader national campaigns. New rounds are planned for the back half of the year with national campaigns, organic content, and search engine optimization in sync with these efforts. Before I hand the call over to Rob, I want to highlight that on July 6, 2022, we published our inaugural environmental, social, and governance report. This is just the first step in our efforts to set clear goals, measure progress and increase transparency of Latham's environmental impacts, social outcomes, and business practices. We are proud of the initial progress we have made with highlights including reducing wastewater from our plants to zero and recycling all vinyl and steel scrap to significantly reduce waste going to landfills. To close, the dynamics of the large outdoor repair and remodel market remain attractive, and we will continue to work as a team to navigate the current environment. We see continued demand for our products with a generational shift in spending from indoor to outdoor and a continued meaningful migration to suburban areas from urban areas as well as southern states where pool ownership is higher. Our large fiberglass order backlog remains robust, with many of our dealers booked out into 2023, and we continue to generate recurring revenue from our industry-leading covers and liners businesses. As the market leader with significant scale, we are confident that we are uniquely positioned for success as we move into the back half of the year as well as 2023 and beyond. With that, I'll turn it over to Rob.

Thank you, Scott, and good morning, everyone. Today, I'll review our second quarter and first half fiscal 2022 results and provide an update on our outlook for the full fiscal year. Before we dive in, I want to express how thrilled I am to be part of the Latham team. I believe we are in an excellent position to capitalize on our unique value proposition long-term. Turning now to our results. Net sales for the second quarter were $207 million, up $26 million or 14% year-over-year. By product line, this increase was primarily attributable to growth in pool covers, which increased 46% to $38 million and liners, which increased 21% to $56 million, while in-ground pools expanded 4% to $112 million in the quarter. In the in-ground pool category, we grew sales in fiberglass pools when we experienced a pullback in packaged pool sales. The $26 million increase in second quarter net sales was driven by a $34 million increase in pricing and an $8 million decrease in volume. The volume decrease was primarily attributable to packaged pools, which were impacted by our wholesale distribution customers who have begun to de-stock inventory levels as well as more days of unseasonable weather in certain regions that limited installation days. Switching now to gross profit. We generated $68 million of gross profit, up $9 million or 16% on the flow-through of net sales growth and a decrease in non-cash stock-based compensation expense. Gross margin improved in Q2 to 32.7% and was up 40 basis points compared to 32.3% last year. The year-over-year reduction in non-cash stock-based compensation expense drove the expansion. Excluding stock-based compensation expense, gross margin decreased 180 basis points due to the impact of inflation and negative fixed cost leverage, mostly associated with lower volumes in packaged pools and, in some cases, the investment in fiberglass capacity expansion. Selling, general and administrative expenses decreased to $42 million compared to $95 million in Q2 of 2021. This decrease was primarily driven by a $55 million decrease in non-cash stock-based compensation expense. Excluding non-cash stock-based compensation expense, SG&A increased $2 million or 7%, which is roughly half of our net sales growth rate. The increase was primarily due to investments in additional headcount to support growth. Adjusted EBITDA increased to $49 million, up $6 million or 14% and adjusted EBITDA margin decreased 20 basis points to 23.5%. Net sales for the first half of fiscal 2022 were $398 million, up $69 million or 21% year-over-year. We have seen net sales growth across our three product lines for the first six months of fiscal 2022. In-ground pools increased 11% to $224 million, covers increased 41% to $71 million and liners increased 33% to $104 million. Gross profit increased to $138 million, up 25% from $111 million in the prior year. Gross margin for the first six months of 2022 increased to 34.7%, inclusive of non-cash stock-based compensation expense compared to 33.6% for the prior year period. The $27 million increase in gross profit and the 110 basis point increase in gross margin were driven by the flow-through benefit of pricing actions to offset inflation and a $3 million year-over-year reduction in non-cash stock-based compensation expense, partially offset by negative fixed cost leverage. Excluding non-cash stock-based compensation expense, gross margin expanded 20 basis points in the first half of the year. Adjusted EBITDA was $97 million for the first six months of 2022, up 27% from the prior year period, and adjusted EBITDA margin increased 100 basis points to 24.2% from the prior year period. Now switching to the balance sheet. As of July 2, 2022, we had cash and cash equivalents of $25 million. Total debt of $314 million, and our net debt leverage ratio was 1.8X. Net cash generated by operating activities was $42 million for the second quarter of 2022 compared to $55 million in the prior year period, with the reduction primarily driven by investments in working capital, mainly inventory to return to normalized lead times and the embedded impact of inflation on inventory. For the first half of fiscal 2022, we used $15 million of cash in operating activities, whereas in the first half of fiscal 2021, we generated $14 million. The first half year-over-year change was also mostly due to the return to normalized lead times and the embedded impact of inflation on inventory. Capital expenditures totaled $10 million in the second quarter of fiscal 2022 compared to $8 million in Q2 last year, driven by increased investment in fiberglass capacity, most notably the Kingston manufacturing facility project. Capital expenditures totaled $17 million in the first six months ended July 2, 2022, compared to $13 million in the prior year period. Through our stock repurchase authorization, we used $15 million of cash to buy back a little over 2 million shares at an average price of $7.40. Before we switch to our updated guidance, let me take a moment to comment on capital allocation. Our capital allocation philosophy centers around maintaining the ability to execute on our strategic objectives through the cycle to maximize value for our shareholders. We do so by actively managing our capital structure through maintaining liquidity, paying down debt and returning cash to shareholders. Now switching to our revised 2022 guidance. Based on the factors Scott outlined previously, we have updated guidance for the full year of fiscal 2022. We expect to deliver net sales of $750 million to $770 million, representing 19% to 22% year-over-year growth. Adjusted EBITDA of $165 million to $175 million, representing 18% to 25% year-over-year growth. And now we expect our capital expenditures to be in the range of $40 million to $50 million. We remain committed to investing in fiberglass capacity and our digital transformation to drive long-term growth for the business. Our revised CapEx guidance is based on the prioritization of key initiatives focusing on delivering our strategic objectives. As we look to our three to five-year targets, it's important to remember that even as our macroeconomic environment shifts, the fundamental success factors of our business remain unchanged. Our outlook reflects our ability to continue to drive material conversion to fiberglass pools to leverage our unique direct-to-homeowner digital strategies to generate qualified leads for our dealer partners and to capitalize on the homeowners' continued investment in their backyard.

Thanks, Rob. I am very proud of all we have accomplished on an operational level and know we are rising to meet the challenges of this macro environment as a stronger and more efficient business. We are looking forward to closing out in the second half of the year and are on track to deliver our 13th year of net sales and adjusted EBITDA growth and adjusted EBITDA margin expansion as we begin to lay the groundwork for our 2023 plans. Thank you for your time today, and I hope you all enjoy what's left of summer.

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. At this time, we will pause for a moment to assemble our roster. Our first question comes from Rafe Jadrosich with Bank of America. Please go ahead.

Hi, good morning. It's Rafe. Thanks for taking my question. I just want to follow-up on the comments on the packaged pools, which I think is the final line pools. Can you talk about how the distribution varies for packaged pools compared to the fiberglass pools? And then where are we in that de-stocking process for the packaged pools? How much more do we have to go?

Yes. So Rafe, if you recall, and I'll start with fiberglass. Fiberglass is really a direct model where we're distributing the pool from one of our factories to the backyard of the consumer for the dealers, the installer. So that's more of a direct product. It's similar to liners and covers for the most part as well. I think of those as more direct. Some of the liners do go through distribution, but it's more of a quick pass-through. The packaged pool segment of the in-ground category is more of a stock component product sitting in the wholesale distributor branches where the dealer would then come in and pull that off the shelf. I would say we're probably about halfway through that de-stocking. I think we'll see that continue through 3Q and then stabilize, and that's what we reflected in our current guidance that Rob provided the update on here this morning.

Great. Very helpful. And then can you just talk about the sell-out trends that your dealers are seeing or the traffic trends? How has the traffic evolved over the last few months as we've seen the macro environment become more uncertain? What are you seeing for end-market demand? And what are you assuming in the second half of the year?

Yes. I'll highlight each of the categories. The liner business has continued to be strong. Again, that's mostly a replacement business. Some of these liners are going into new pools. So that's been a good strength for us throughout the entire season and continuing here into 3Q. The cover business is the same. We're seeing a really strong cover business, both for the automatic covers. As many of you recall, we're really just starting to enter the winter safety cover season that will be ramping up here later this month and through early 4Q. The early read on that is we're expecting a really good season from all indications of our dealers and the consumer level. Fiberglass continues to be strong. We expect to see a really strong second half for fiberglass sales. Again, we got a really good backlog. We're taking orders into '23. But more importantly, with supply chain challenges behind us, we've got the capacity in the ground. We have the material availability and our lead times are much improved, and we can quickly turn and get pulled out on a pretty quick basis for dealers. The packaged pool category, dealers are still booked through the end of the year and looking into '23. And again, that's the other piece being around the pool category. What we're not seeing is the pools kind of re-stocking orders at the distribution level as they adjust inventory positions where they've probably been a little higher than normal. We'll see that correct through the back half of the year, and then we should be good as we head out to 2023. Some dealers have just backed off on the consumer demand at the dealer level rate. A lot of dealers are still seeing good demand at the consumer level, but there are pockets of the country and regions. And I'll say dealers, and it's really balanced at the dealer region level where they are seeing a slowing of leads, which is why we've really increased the lead generation efforts for those dealers in many of those markets. Again, I'd say it's still elevated from where we were back in '18, '19 timeframe. They just got accustomed to much higher levels of backlog and a much heavier flow of demand and lead generation, and we're funneling those leads back to them.

Okay. That's helpful. Thank you.

Your next question comes from Matthew Bouley with Barclays. Please go ahead.

Hey, good morning, everyone. Thanks for taking the questions. I guess first one just on the pricing versus cost side. Number one, just what are you seeing on the cost inflation side? If some relief does manifest on that side of things, how do you guys think about pricing and promotions in an environment where you may start to see cost relief? Thank you.

Yes. Matt, I'll lead and then if there's any other call Rob wants to supply, he can. Look, we've not really seen a slowdown of the cost inflation on many of the front. There have been a few pullbacks in a few of the categories, but it's still very elevated from, let's say, where it was 12, 18, 24 months ago. So we're monitoring that. We'll continue to watch that one. At this point, we're not planning or thinking about any price reductions or promotions to try to move product, especially just coming into this cover season, strong fiberglass backlogs. So we think we're in a good position on the price cost inflation curve. But like we've done over the last 24 months, we'll keep this one clearly in front of us and adjust as we see fit going forward, but no plans to do anything from a pricing standpoint at this point where we sit right now. And that's reflected in guidance and kind of our expectations.

Got it. That's super helpful. Thank you for that, Scott. And then secondly, just on the margin guidance. I think you're implying an EBITDA basis, maybe margins declining 80 basis points year-on-year for the second half at the midpoint. And correct me if I'm wrong. But I'm just curious if you could outline the sort of components, gross margins versus SG&A within that? And kind of what you think you could flex more aggressively if you need to? Thank you.

Matthew, I think for the full year, we're expecting kind of flat adjusted EBITDA margins to slightly up. Certainly, you see in the second half with our guidance that there's a little bit of a headwind there on the margins. But that has to do with the underlying inflationary impacts we've talked about already and the expectation of that going forward. But we don't give specific guidance on either SG&A breakdown or gross margin.

All right. Thanks, Rob. Thanks, Scott.

Our next question comes from Josh Kureski with Morgan Stanley. Please go ahead.

Hey, good morning, guys. You actually have Gustavo Gonzalez on for Josh. Thanks for taking the question. Just quickly, and I think sort of realized price in the second quarter here was somewhere in the high teens range. How does sort of that compare to your second half price outlook? Should we expect moderation as we sort of start lapping some second half '21 pricing and then sort of talk about your expectations in the third quarter? And I guess, broadly just like second half, I think third quarter de-stocking is like mostly that, but that would be helpful.

Yes. Thanks, Gustavo. I think first half versus second half, we expect kind of the same run rate on price as we had in the first half.

Got it. That's helpful. Can you guys hear me?

Yes, go ahead, Gustavo. There was a little bit of a pause there.

And then I guess just on your sort of your second half volume expectations was the second half of that question?

Yes, sorry. Okay. We expect continued growth in fiberglass, although we don't break it out, the in-ground pool section. Package pools will be similar to the second quarter or the first half in terms of volume.

Got it. That's helpful. And then I guess, just sort of thinking about the current environment, and I know you guys have sort of targeted, I think, low to mid-20s on the fiberglass penetration rate. Just sort of have your expectations sort of changed in the near-term or just given what's going on?

Yes. So Gustavo, without quoting what we think the actual number will be because we really can't calculate that until early spring once we see where final pool starts from PK data shake out and run our analytics. But what I would say is we're continuing to drive that material conversion story, driving the acceleration. A great indicator is 200 new dealers trained in fiberglass here over the last, I guess, the first six, seven months of the year, we're bringing dealers back on. Demand is resonating at the consumer level. And I think the economics of the fiberglass pool versus the concrete pool, that lower upfront cost and total cost of ownership probably resonate even now more for a consumer as they're making that pool buying decision and maybe looking to save a few dollars and actually wind up with a much better finished product and experience in the backyard. I think what we're focused on is part of our long-term strategy is driving that 40% to 50% penetration number like we see in Europe and the 70-plus percent penetration number we see in Australia. So no change in our focus, our efforts, and that's also why we're continuing to push the capacity expansions in that category with moving on with the Kingston facility expansion.

Got it. That's helpful. Thanks, guys.

You're welcome, Gustavo.

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

Hey, good morning, guys.

Good morning.

Good morning.

Maybe just kind of starting on the digital initiatives. Could you just talk to kind of what you're doing on some of these regional campaigns that have kind of picked up and generated new leads? And I guess if you could maybe kind of break down what the cost of that is and how kind of replicable that is across the dealer base and other geographies?

Over the past 12 to 18 months, we've relied on organic SEO search for our campaigns. We actually paused our lead generation activities because dealers were overwhelmed with leads. Recently, some dealers have indicated a slowdown in lead generation. While leads have not stopped entirely, they have decreased from the levels seen over the past year and a half. In response, we have ramped up our regional programs and offerings. We have the capability to enhance lead generation in specific market areas through various marketing and digital platforms, channeling those leads to our key dealers. Historically, we've seen that this approach yields immediate results; for instance, after two weeks, we experienced a 76% increase in lead generation, and by the eighth week, we matched the number of leads generated in that week to what we had achieved in the first 20 weeks of the year with our broader national campaigns. This targeted strategy is cost-effective and offers a high return on investment on a per-lead basis, significantly under $100 per lead, giving you an idea of the scale of our operations. Going forward, we will continue to enhance this strategy for our dealers, which is expected to contribute positively to growth in the second half of the year and in 2023 in the fiberglass category.

Okay. Good. And I guess, of the lead generation that you've done regionally, is there a way to think about how many dealers that touches as a percentage of the dealer base? Or I'm just trying to think about how, over the next six to nine months, how much you can really lean into this to drive more volume next year?

Yes. There's a lot more leaning in we can do here on this front. That's kind of what Joel and the marketing team are looking at doing right now; we are running some regional programs. We can dial this thing up pretty rapidly here in the second half of the year. The way to think of it is think of it as a kind of ZIP code by zip color city by city. We have a grand dealer or a select dealer in a particular market. The leads will come in. There's a lead prioritization and lead disposition funnel that they have to go through. Literally, it will go to the biggest deal in the market first. They have a certain amount of time to disposition to lead or call the consumer back and convert it to an order. At that point, it would then go to other Latham dealers in the particular city or area. If you think about market territories, we're thinking of areas like the greater Charlotte area, North Carolina, and Northern California. We would target an area, so these campaigns go after pretty good territories and areas and just push leads with all those dealers with a quick funnel down. Like I said, it's boding pretty well. Clearly, something will be ramping up, and it's really the tightness of our sales team. When the dealers ask for it, we respond quickly to them.

Okay. Okay. Good. And then just one more. Can you give us an expectation for what you're thinking free cash flow should be this year?

Yes, we generally don't forecast free cash flow or give guidance. We forecast, of course, we give guidance.

Okay. Sounds good. Thanks, guys.

Hey, guys. I want to add on the second half.

Good morning, Ryan.

Good morning. I wanted to inquire about the revenue expectations for the second half. It seems there’s a $120 million difference between the previous guidance and the updated one. Is most of that due to the inventory reduction we expect in the packaged pools, with a little impact from weather, or have you also factored in a larger slowdown as a precaution?

Yes. So Ryan, I'll take the high-level view here. The majority is the de-stock in the packaged pools in-ground category. We're not going to disclose actual percentages or splits. So let's just say that's the headline statement. And then it's not all just driven by de-stocking. The tough 2Q weather that the dealers experienced is also part of that equation where they just weren't able to get pools in the ground, and that's kind of pushing some of that demand and installs into Q3. With many of the dealers sold out, back to the sold out term of how many pools they're going to put into the year, there's just not the sprint capacity in the back half for them to make up a lot of what they lost in 2Q. So it's a combination of those two, and I'll just come back again and restate, the liner category, the cover category, and even the fiberglass distinct as part of in-ground are all strong performers across the board for us. So we've not really seen a broad-based consumer slowdown impacting the dealers yet other than a higher level slowdown of lead generation in certain pockets of the country that we're addressing through the prior conversation.

Yes, it's helpful.

I was just going to add that we're still delivering 19% to 22% growth and the EBITDA growth, 18% to 25%. So positive year-over-year performance is our expectation, just to underline what Scott said.

Okay. And then following up, just to dig in on the packaged pools and why that might be weak, while the other categories are holding up well. Is that because the packaged pools are more aimed at lower-end consumers and the higher end? You're just not seeing it yet? Or is there a comp issue? I'm just trying to figure out the underlying driver, and then should we view the slowdown in packaged pools as a leading indicator for maybe your other categories? Or is that not the way to think about it?

No. I need to say, Ryan, it's probably not the way to think about it. I'll answer the back part of the question. I really say it comes down to with all of the supply chain challenges looking back over the last 18 to 24 months with material labor availability and lead times in these particular categories where we were out in some cases, 35, 45, 60 days. That required the wholesale distributors and any case, the bigger dealers to really start to stock up on products to start working through their backlogs. I think some of the backlogs are still out there for a lot of these dealers. As the weather hit, I'll say, the wholesale distribution began looking at inventory levels versus where they historically have been. They were in a position where they were probably over-stocked in many products. As they're looking at where they think the industry was heading, they began to slow down on what I would call the in-season re-orders, and that's really what didn't happen. We didn't see the peak in-season reorder points we typically would. They're drawing down stock instead of continuing to build. I said we start to see that kind of late in Q2. We expect that to continue in Q3, and we believe it will normalize in Q4 as they get to the right level that they feel comfortable with. I think the reason they're doing that is if you look at the capacity we've added and where we sit overall, our lead times are now back to probably the best they've ever been for the company in the packaged pool category. We're able to push product out in a three to five-day timeline on all those custom products, which we haven't been at since probably going back to '19 or early '20, and that's the other thing driving it. Just one more comment right back to the dealers for a second. They still see a healthy backlog of pools at the consumer level. You probably find it hard-pressed to find a dealer to put a pool in free right now this fall. They're booking orders out into many cases as far out as May or June of '23.

Okay. Makes sense. Thanks, guys.

You're welcome, Ryan.

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Rajeski for any closing remarks.

Thanks, Sarah. Hey, thanks, everyone, for your time on today's call. We really appreciate all of your continued interest and support of Latham, and we look forward to providing further updates on future calls with all of you. Have a great rest of your day. And again, thanks, everyone. Cheers.

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