Good morning, and welcome to the Latham Group, Inc. Fourth Quarter and Full Year Fiscal 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 Harlowe, Latham Investor Relations representative. Please, go ahead.

Thank you, and welcome to Latham's Q4 and Full Year 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, Rob 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-K for 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 historical adjusted EBITDA to net income, loss, and adjusted EBITDA margin to net income, loss, margin calculated under GAAP can be found in our earnings press release and will be included in our Form 10-K for fiscal 2022. Reconciliations of net debt and net debt leverage to the comparable GAAP measure can be found in the slide presentation that accompanies our prepared remarks, which can be found on our Investor Relations website. I'll now turn the call over to Scott Rajeski.

Good morning, everyone, and thank you for joining us for Latham's fourth quarter and full year fiscal 2022 earnings call. I'll begin today's call with a review of highlights from 2022 and a discussion of our strategic priorities and the innovation we're driving in 2023 and beyond. We delivered fourth quarter and full year 2022 performance in line with our expectations, marking the completion of our 13th consecutive year of net sales and adjusted EBITDA growth. Notably, we made progress in four areas in 2022. First, we delivered year-over-year net sales growth across all three of our product lines. Second, we made continued progress on our fiberglass pool conversion efforts from concrete. We grew fiberglass volume despite a year-over-year decline in the industry for US in-ground pool installations in 2022 as compared to 2021. We also advanced our capacity initiatives with significant progress in the construction of our state-of-the-art Kingston, Ontario fiberglass manufacturing facility, which will allow us to continue to expand into Eastern Canada and into the US Northeast and Upper Midwest. We also acquired fiberglass manufacturing assets in Oklahoma, positioning us well to tap into the Southwest market, which is ripe for conversion from concrete to fiberglass. Third, we strengthened our supply chain position, enabling us to enhance our North American fiberglass production and return to normal lead times across our entire product portfolio. And fourth, we drove operational efficiencies as we implemented lean initiatives aimed at driving continuous improvement in our operations. We also took deliberate actions to manage costs and respond to the market environment while still prioritizing our growth strategy. As anticipated, we saw a return to historical seasonality in the fourth quarter. Wholesale distributors continue to destock elevated levels of packaged pool inventory, and the macroeconomic environment impacted consumer spending and demand. We are seeing these dynamics continue into 2023. Our wholesale distribution partners continue to service dealers through existing packaged pool inventory, and we expect the normalization of wholesale distribution inventory levels to remain a headwind for at least the first half of 2023. We believe underlying interest in pool ownership is strong, as indicated by traffic to our website, continued flow of leads, and feedback we're hearing from our dealers. However, the impact of the uncertain macroeconomic environment is resulting in an anticipated decline in the industry for US new in-ground pool installations in 2023 versus 2022. We still have a couple of months before the pool season begins to ramp up, and we are confident in our ability to navigate through the current market and position ourselves for long-term growth as we execute on our four strategic priorities: one, continuing to drive the material conversion from concrete to fiberglass; two, leveraging our direct-to-homeowner strategy and digital innovation; three, enhancing and expanding our strategic partnerships with Latham Graham dealers; and four, executing on our continuous improvement initiatives and prudently managing costs. Fiberglass pools have come a long way, thanks to our team's efforts. We have designed and developed the most attractive swimming pool offering on the market. Our fiberglass pools offer premium quality and aesthetics and a wide selection of stunning colors and finishes that are proprietary to Latham, and we're not finished. We continue to innovate our product offerings and installation processes, which we believe will support the further adoption of fiberglass with homeowners and dealers alike. We are enhancing our well-established fiberglass model lineup in 2023 with the launch of two new fiberglass models, the Tuscan and the Enchantment, in the first half of this year. The Tuscan and Enchantment models are beautiful, unique fiberglass pool shapes that meet contemporary trends in geometric pool design and size. These two models have popular features, including swim-up seating and multiple points of entry and exit, and they will come in various sizes to fit a wide range of backyard design needs. As we've discussed, the speed of fiberglass installation is unparalleled compared to concrete pools. We are further simplifying and enhancing the installation experience by introducing backfill made easy. This patent-pending innovation is a new reinforcement build process designed to make the installation on select models easier and faster for dealers. It eliminates the extra effort of backfilling under the pool steps, which saves the builder time and materials and increases the speed of installation. Backfill made easy will be made available for our popular Corinthian model this year, and we will evaluate opportunities to roll it out across our fiberglass portfolio over time. Latham has been a leader in innovation in the pool industry, particularly as it relates to our digital tools. Earlier this year, we introduced measure by Latham, a new AI-powered digital measuring tool that will modernize and simplify the measuring experience for dealers and for safety covers and in-ground liners. Historically, dealers have had to manually take input data for measurements for covers. This is extremely labor-intensive and time-consuming, given the need to measure, remeasure, and correct errors throughout the process. Measure by Latham harnesses cutting-edge 3D technology and scanning techniques that allow dealers to measure the entire pool perimeter and capture interior renderings of the pool shape and unique features. Within minutes, dealers have precise specifications for safety covers. These measurements then seamlessly integrate with the Latham Measure App and Latham's Builder Management Portal. As a result, dealers can more quickly, easily, and cost-efficiently track measurements, receive quotes, submit orders for Latham safety cover products, and track those orders. We have introduced Measure across various trade shows over the last several months and are hearing very positive dealer feedback and excitement. We will begin the initial rollout of safety covers to select dealers this spring, with plans to expand into in-ground liners at a later date. Normalized lead times, improved supply chain, and enhanced manufacturing capacity have enabled us to reignite our efforts on new dealer recruitment. Key to our ability to attract and retain dealers are three key factors that set us apart as an attractive partner for dealers: one, our lead generation efforts; two, our hands-on training; and three, our value-added resources. An important competitive differentiation for Latham is the hands-on installation training we provide our dealers. We continue to see tremendous demand for our Latham University trainings. In 2022, we had over 250 dealers attend the Fiberglass or Package Pool Boot Camp, either in person or virtually. We continue to book out training at Latham University, our world-class training center in Florida. In 2023, we are further strengthening our competitive positioning by enhancing and expanding our value-added resources with the launch of ProEssentials and the Latham Pro Site Tool. In January, we launched Latham ProEssentials, our largest sales experience offering, aimed at creating a better buying experience for homeowners and supporting sales growth for our dealers. The Latham ProEssentials program is comprised of categories with an interconnected experience, including exterior essentials, interior essentials, field essentials, and digital essentials. Within each category is a comprehensive turnkey collection of tools to enhance marketing and business efforts for dealers in various selling contexts. This includes exterior signage, digital branded content, design, sales collateral, and product education resources. The Latham Pro Site Tool is a central online location for all the tools and resources we provide dealers. It simplifies how we engage and communicate with builders through a carefully designed online user experience. It also offers access to sales material, loyalty, incentive programs, leads, and orders. The launch of ProEssentials and the Latham Pro Site Tool enhances the ease of doing business with Latham. These resources elevate our co-branding opportunities, simplify the ordering process, and give Latham increased visibility into dealers' order pipeline, all while creating a better homeowner experience. I'll now touch on our forward strategic priority, executing on our continuous improvement and cost management initiatives. As discussed on our last earnings call, we took deliberate actions to reduce our costs in response to continued destocking in packaged pools and as we saw the macroeconomic environment delay homeowner pool purchase decisions. All those anticipated actions are complete, including the closure of our Bossier City liner and cover manufacturing facility earlier this year. As such, we remain on track to generate annual operating expense savings of about $12 million in fiscal 2023. We have renewed our focus on continuous improvement initiatives and investments. Our lean and value engineering work is ongoing as our operations team implements and identifies opportunities to continuously improve the efficiency of our manufacturing processes. This has resulted in lower labor costs and increased efficiency and capacity in our facilities. In addition, we are actively managing inventory levels to match our current demand outlook while maintaining our lead times and service levels. We remain disciplined in our capital investment strategy. In 2023, our CapEx spend is focused on completing ongoing projects, including our Kingston, Ontario and Oklahoma fiberglass manufacturing facilities. Production of our Latham fiberglass pools in Oklahoma began in Q1. We also expect to begin production in our new state-of-the-art Kingston fiberglass facility during Q2 of this year. Gearing up the Kingston and Oklahoma facilities for production will give us the opportunity to reduce freight costs, further reduce our lead times, and better serve large markets with strong fiberglass conversion opportunities. In summary, we have delivered strong full-year results. We have taken actions to navigate market challenges while continuing to make strategic investments to drive long-term growth. Delivering on this balanced approach as we move through 2023 will enable us to continue to enhance our industry-leading position and capture future demand. Before I pass it off to Rob to review our results for the fourth quarter and full year, I would like to thank him for his partnership, friendship, and contributions to the business. On behalf of all of us at Latham, Rob, we wish you the best. I'm also excited to welcome back Mark Borseth, who will serve as our Interim CFO as we recruit a permanent replacement. With that, I'll turn the call over to Rob to review our results in greater detail.

Thank you, Scott. Latham has a compelling long-term growth story, and it's been wonderful to be part of that journey and work alongside you, the rest of the executive leadership team, and the talented finance team that I now leave back in Mark's capable hands. Turning to our results for the fourth quarter and full fiscal year 2022. Please note that all comparisons are on a year-over-year basis, compared to the fourth quarter and full fiscal year 2021. In Q4 of 2022, as expected, net sales for the fourth quarter were down $31 million or 22% year-over-year to $108 million. In the fourth quarter of 2022, we saw a return to historical seasonality, resulting in year-over-year volume declines. As a reminder, in comparison, Q4 2021 sales were unseasonably elevated as we caught up on our fiberglass order backlog. Our fourth quarter net sales results, across our product lines, reflect historical seasonality trends. In-ground swimming pools declined 28% to $59 million, which were further impacted by continued inventory destocking in the wholesale distribution channel for packaged pools. Liners declined 28% to $13 million, and covers declined 6% to $36 million. Gross profit decreased by $23 million or 54% to $19 million. Excluding non-cash stock-based compensation expense, gross profit decreased by $24 million or 55% to $20 million. Gross margin decreased to 17.9% compared to 30.5% for the prior year period. Excluding non-cash stock-based compensation expense, gross margin declined by 1,330 basis points to 18.6%. Fourth quarter gross profit and gross margin declines were primarily driven by three factors: reduced sales and the impact of our fixed costs on lower seasonal volume, continued destocking of packaged pool inventory in the wholesale distribution channel, as well as the impact of inflation. Selling, general, and administrative expenses decreased to $33 million from $47 million in Q4 of 2021. This decrease was primarily driven by a $13 million decrease in non-cash stock-based compensation expense. SG&A, excluding non-cash stock-based compensation expense, decreased by $1 million. Adjusted EBITDA decreased by $23 million to $4 million, and adjusted EBITDA margin decreased to 4.1%, primarily as the result of the impact of our fixed costs on seasonally reduced sales volume and the impact of inflation. Turning to full fiscal year 2022 results. Net sales increased 10% to $696 million, reflecting growth across all three of our product lines. Net sales for in-ground swimming pools increased 5% to $386 million as growth in fiberglass was offset by declines in packaged pools. Liners increased 17% to $152 million, and covers increased 20% to $158 million. We were pleased to grow fiberglass volumes despite a year-over-year decline in the overall US market for new in-ground pool installations in 2022. We believe this is significant because it is the latest demonstration of our ability to outpace the market, thanks to our leadership position in fiberglass and progress converting the market from concrete to fiberglass pools. This successful fiberglass outperformance was muted by the previously discussed inventory destocking in the wholesale distribution channel for packaged pools. Gross profit for fiscal 2022 increased 6% to $216 million. Gross margin decreased to 31.1% compared to 32.4% for the prior year period. Excluding non-cash stock-based compensation expense, gross margin declined by 210 basis points to 31.7%. The decline was primarily attributable to the impact of inflation and negative fixed cost leverage as a result of volume declines, primarily in packaged pools due to continued destocking of the inventory in the wholesale distribution channel. As discussed on our third quarter 2022 earnings call, our pricing actions offset the impact of cost inflation, though not enough to hold gross margins year-over-year. SG&A decreased to $147 million from $218 million in the prior year, driven primarily by a $73 million decrease in non-cash stock-based compensation expense. Excluding non-cash stock-based compensation expense, SG&A increased just $2 million. SG&A, excluding non-cash stock-based compensation expense, as a percentage of net sales declined by 110 basis points to 14.4% from 15.5% for the prior year. Adjusted EBITDA was up 2% to $143 million, and adjusted EBITDA margin decreased to 20.6%. Turning to the balance sheet. As of December 31st, 2022, we had cash and cash equivalents of $33 million, total debt of $313 million, and $75 million of availability on our revolving credit facility. Net cash provided by operating activities was $32 million for the full fiscal year 2022 versus $34 million last year. In light of the return to historical seasonality we saw in the fourth quarter of 2022, our net debt leverage ratio at the end of the year was 2.0x. We remain confident and comfortable with our balance sheet health. The refinancing of our term loan and revolving credit facilities earlier in 2022 provides us with enhanced financial flexibility. Capital expenditures were $11 million in the fourth quarter of fiscal 2022 compared to $6 million in Q4 last year and $40 million for the full year 2022 compared to $25 million in 2021. The year-over-year increase in the fourth quarter and full year were primarily driven by investments in our Kingston, Ontario fiberglass manufacturing facility. Our capital allocation priorities remain unchanged, centered on enabling the execution of our strategic objectives and maximizing value for our shareholders. We are committed to reinvesting in the business with a focus on the opportunities that generate the strongest returns, primarily investments and fiberglass. I'll turn the call back to Scott to discuss our expectations for 2023.

Thanks, Rob. As we move through 2023, there are five key factors that we're seeing impact our business. One, the impact of macroeconomic uncertainty on consumer spending and demand resulted in anticipated declines in the industry for US new in-ground pool installations in 2023; two, we continue to see destocking of packaged pool inventory at the wholesale distribution level and expect normalization of inventory levels to remain a headwind through at least the first half of 2023. Three, we believe continued progress executing on our strategy to drive the material conversion from concrete pool to fiberglass will be a tailwind as we expand homeowner and dealer awareness and adoption. Four, we expect to realize the benefits from our previously announced cost reduction actions and ongoing continuous improvement initiatives. Lastly, we continue to take a disciplined approach to capital investment with 2023 CapEx spend focused on the completion of previously announced projects. This includes the completion of our Kingston, Ontario fiberglass facility as well as the ramp-up in fiberglass production in Oklahoma. All of this is reflected in our expectations for full-year 2023, including net sales of $565 million to $615 million, adjusted EBITDA of $90 million to $110 million, and capital expenditures of $35 million to $40 million, the majority of which we expect to incur in the first half of the year. Throughout today's call, we have discussed the return to historical seasonality that we are seeing in the business, the impact of macroeconomic uncertainty on consumers, and the continued destocking of packaged pools at the wholesale distributor level. Given these factors, we want to provide more clarity on our expectations for the first quarter and have provided an outlook for Q1 of 2023 with net sales of $120 million to $130 million and adjusted EBITDA of $6 million to $10 million. To close, I would like to touch on what gives us confidence in the long-term prospects for Latham. We continue to build Latham as a lifestyle brand that consumers aspire to own and to be the partner of choice for dealers. Our direct-to-homeowner strategy continues to generate results, demonstrating that there is still untapped potential demand. In 2022, we increased page views on our website, doubled the number of users for our Pool Cost Estimator, and more than tripled the number of My Latham profiles versus 2021. This resulted in continued lead flow to our network of exclusive dealers. We are the market leader across our entire product portfolio. We have strong recurring revenue opportunities with our liners and covers business and are launching new tools like Measure by Latham for safety covers and in-ground liners that will enable us to further capitalize on the growing installed pool base. Fiberglass has been key to our ability to drive net sales in a variety of market conditions. This is thanks to the breadth of our premium quality and beautifully designed portfolio pool models in our direct-to-homeowner strategy. As we continue to focus on driving the material conversion from concrete to fiberglass, we expect this to be a strong component of long-term growth. We are focused on deepening and expanding our relationships with dealers and believe that our efforts in enhancing our lead generation, hands-on training, and value-added resources will propel these efforts forward over time. While we recognize the challenges the pool industry faces in 2023, we have strong confidence and conviction in our strategy, which we believe positions us to capitalize on attractive underlying trends in our industry over time. We will now open the line to questions.

Good morning. You have Elizabeth Langan on for Matt this morning. So just to kick it off, would you mind touching on the volume and pricing expectations you've embedded in the guide for this year, specifically? And then if you could talk about your assumptions for new pool construction, maybe touching on the cadence through the year as well?

Sure, Elizabeth. I'd be happy to take that. So we haven't really broken out what we're doing with price or volume in our guidance. What I can tell you is we're being very selective in our pricing actions, looking out at the market, and as we consider the year and see how it lays out. But traditionally, other than the last number of years, we've had a very deliberate process of pricing, and we're more conservative than we've talked about before. So it's more we turn to that.

Yes, and Elizabeth, on the second part of your question about new pool construction outlook, as part of the 2023 guide, we really haven't, again, given distinct numbers of where we think 2023 will come in. But I think high level, we can probably expect something similar to what we all saw in 2022. As we know, we're all awaiting the P.K. Data report to come here in a few months. But it feels like it's going to be in line with 2022 on a volume standpoint.

Okay. Thank you. And would you mind touching a little bit on, relative to your other product categories, what you're seeing this year so far between fiberglass volumes and packaged pools?

Yes. Look, it's pretty early to see, two months in here into Q1. We gave the Q1 guidance of what we think we'll see. If we look back at 2022, with new pool starts being down in 2022, we did see fiberglass volume up on a unit basis year-over-year, what was a down full market. We saw that destocking impact with the wholesale distributors. I think if we roll that forward to 2023 and the guidance issued, we expect to see fiberglass outperform the market overall. And we expect to continue to see the destocking in the packaged pool category for at least the first half of the year. And I think that's probably the best view we can give at this point, so we really get into the peak building months of Q2 and Q3.

Okay. Thank you very much.

Yes, hi, guys. Good morning. Maybe just to follow up on the prior question. Just what were pools down in 2022 from a starts basis? And I think it's a pretty basic question for us to kind of understand what you think the new pool install market is going to be down in 2023?

Yes. Look, we haven't quoted a specific number. But I think if we look at what others in the industry have been saying and what's out there, Tim, it's probably fair to say new pool starts in 2022, when PK issues the number, will be down 15% to 20%. Again, I hate to call an exact number because it's hard. But I think down 15% to 20% feels right. And again, I think the key thing for us, right, is we grew revenue 10% in that market. But more importantly, we actually grew fiberglass unit volumes in that market, which is a demonstration of our ability to try to outperform driving that fiberglass material conversion for concrete.

Yes. No, that's good. That's good to hear, kind of that gap and that conversion, yes. Sure. I guess I have one other question just on the in-ground pool segment. I mean, is there a way just to give us a flavor for what the packaged pool part of that business declined in 2022? And then what you're, kind of, embedding for a decline in 2023 in that business specifically?

Tim, so I can talk about it generally, which is we don't break out in-ground, but we did see volume growth in the fiberglass year-over-year. So if you think about the overall decline we've shown in that segment, fiberglass was positive, and the decline was mostly attributable to packaged pools for us.

Okay. And then can I just throw one more in, just on the front end of your business? When you think about web traffic downloads and leads, could you just add some color around any sort of metrics that you're seeing there? And then has there been any sort of increase in lead breakage or decrease in overall conversion over the past two to three years?

Yes, Tim. I think Joel and the marketing team have continued to do a really nice job building out the front end and the engine. All the metrics we look at, time on website, nurturing of the leads, average time spent, number of mileage and pool accounts, people doing a pool estimate, I think all trending well. And I think overall leads are picking up. They're not at the levels we might have seen in 2021 when they went through the roof, but we're tracking ahead of last year. We're tracking ahead let's say 2019 or 2020 type levels. We feel pretty good there. We have turned the lead generation engine back on for dealers. I think we've talked about 250-plus fiberglass dealers who went through the boot camps last year for both fiberglass and packaged pools. Our commercial team is back out there proactively engaging new dealer acquisition. We're seeing really good progress in signing up new dealers to join the fiberglass family with Latham. So I think early indications are a lot of good looks on all of those fronts, really trying to nurture the leads on the website to turn into that white-hot lead and hand that off to the dealer. I think conversion remains consistent. We don't really report the conversion type metrics, but I don't think we've seen a significant drop-off on the ability to convert better leads we have out there.

Okay, okay. Good. Thanks, guys. Good luck this year.

Hi guys. Thank you for taking my questions. Just first, can you quantify or give us an estimate of the impact of the destocking in 2022, and what you expect it to be in 2023?

Well, I'll just go back to our overall year on a price-volume mix basis. We had 10% growth overall. Price was up 17%, and volume down - I think we've disclosed what happened in each segment over the years. And then again, I'll just reemphasize that fiberglass volume actually grew year-over-year. So you had a fairly significant headwind from the destocking included in 2022.

And do you have an estimate for 2023, whether it could be worse or better?

Sorry, would you repeat that?

Yeah. Just your forecast for the impact of the destocking in 2023 relative to 2022?

Yeah, I'll take that one, Sean. I think in the guidance we issued, there's the overall assumption of the macroeconomic uncertainty that's out there at the consumer level, which will continue to lead that destocking with the wholesale distributors through the first half of the year. I think until we see how the demand was going to play out at the consumer level with the wholesale distributors, we're being cautious with the guide that we issued for, let's say, Q1 most importantly, when you would typically see that restocking to be occurring. So that's the guide for Q1 to help give you guys a view there. And then I think fiberglass has always shown the ability to outperform the market. We've not given an indication of what we think fiberglass unit volumes will do for 2023, where all of our efforts and initiatives with new dealers signing up, driving the ability to have our dealers get more pools in the ground, the lead generation, and more importantly, I think just the favorable economics of a fiberglass pool with lower upfront costs and total lower cost of ownership versus the concrete pool will benefit consumers as maybe they look to say a concrete pool just got too expensive and fiberglass is really a great option for us.

Okay, got it. And then can you just kind of walk us through what you're assuming for gross margin in 2023, and kind of that cadence with the expectations for de-stocking to be mainly a first half of the year impact?

Yeah. I can take that. I think the important thing for us is, we gave you Q1 and the full year. Obviously, there's a much different gross margin there. That's primarily the result of seasonality and the impact of just the lower sales and our cost base. Of course, our cost base is set at or the peak seasons on the fixed side. We are primarily variable cost base, but we do have our fixed costs that we leverage, obviously, for benefit in Q2 and Q3. So you will see a degradation of gross margin in Q1 and Q4 because of that. But there's no specific guidance on it. It's just, I think it's important to really understand the seasonality and the profile of our gross margin, and know that we manage very diligently our costs. We announced last year some actions we took in Q4 that are going to deliver $12 million of full-year savings in 2023. We're on track for that. We continue to manage our shifts even in those Q1 and Q4 lower season periods. We really look at our production levels and other factors that are more on the variable side to manage that part of the business. So we remain very diligent in our cost control.

Got it. Thank you.

Good morning everyone. This is Charles Perron on for Susan. Thanks for taking my question. I guess, first I would love to get an update on what you see in terms of cost inflation through your business and the ability to offset that with pricing in 2023, considering obviously the environment for volume this year?

Yeah. I think on the inflation front, we've not really seen the cost side of the equation drop off rapidly yet. Again, they allow to go back to the specialty resins that we're buying, particularly in the fiberglass world. I do think it does stop accelerating to many extents. We have seen some breaks in freight expenses, but labor continues to trend up. So I think we'll continue to watch the inflation views. We've got inventory we need to work through a little bit as well. On the balance sheet that was purchased at higher prices. But I think the key thing we need to remember is that prices they're still extremely elevated from where they were back in the 2020 or 2021 timeframe. We feel pretty good with where our pricing levels are right now that we've pushed out and announced and continue to execute on. I think as Rob mentioned earlier, we'll remain nimble on what we do with pricing. But I think the headline statement is right now, we don't believe we'll need to roll any pricing back to the market. But again, if inflation starts to wane and we start to see massive deflation, we would reevaluate that as we go forward.

That's good color there. And then, just to go back in terms of the cadence of revenue into 2023, understanding the impact of the channel de-stocking happening in the first half, but obviously, the last three years have been unprecedented in terms of the demand for pools. Obviously, it's hard for us to get a good sense of the historical seasonality this business had prior to the pandemic. So I don't know if you can help us maybe frame the first half versus half in terms of maybe revenue or EBITDA, just for us to better understand the cadence of how revenues will flow through this year and, obviously, overlaying the channel destocking impact on top of that.

Yes, Charles. We're not giving any guidance on first half or second half like we have before. I think because we are entering a new dynamic from what we've all experienced over, let's say, the last three years, 2020 through 2022. Right now, I've been in the business 10-plus years and I'd say it does feel like we are back to what we would call normal seasonality. I'll also caveat that by there's never been a normal season in the business when you think about the weather impact and late spring or early spring and the same thing with the winters in the fall months. But what I can say is, if we rewind the 4Q last year, let's set that as an anchor point where that felt like a normal Q4 for the business going back pre-2020 timeframe. 1Q and what we've laid out for guidance, again kind of when you think about revenue on a percentage basis of the full year, where we're sitting for 1Q with the guide, taking into account seasonality, but more importantly, does that continued destocking of the packaged pool piece of the business, 1Q would kind of frame back up to a normal quarter for us. So if you use those two anchor points, both peak building season for us in Q2, Q3, with Q2 typically being a little better than Q3, first half-second half dynamics have swung by 4 to 6 points over the year. That's why we don't want to quote it. I think we want to just really get through the first quarter here and see how the macro environment plays out, how the demand pull-through for our dealers and consumers happens, and then when do we start to see restocking orders in the packaged pool world. And, look, we're going to continue to drive fiberglass far; we get a lot of new dealers we signed up last year and this year, and that will be a big focus for us to try to deliver what we've put out there for 2023. And just quickly touch on the EBITDA aspect of that seasonality from the revenue. If you think about the cost basis of this business on the fixed side and the variable side, we do carry higher costs in Q1 than Q4 on those much lower volumes, which is kind of knocking down the EBITDA level that we saw last year in Q4 and what we're indicating here in Q1. And then, clearly, there's a strong bounce back in Q2 and Q3 when the volume picks back up running through the plants for us.

Hi. Good morning, guys.

Good morning, Josh.

Scott, just on the packaged pools business, we've talked about it a little bit. Maybe this is something I should already know, but can you just level set us on the size of the business in 2022, and then sort of a rough kind of inventory out in the field check, maybe days on hand or something like that, that your dealers and distributors kind of have right now maybe versus normal? Just some context for order of magnitude and what sort of the destock opportunity is relative to a normal environment?

Yes, Josh. So I think, as we've said, we've not given splits of the in-ground category between the packaged pool and the fiberglass piece. But I would tell you the packaged pool piece of the business is still a very healthy, strong segment of the business for us in the steel and polymer world with that vinyl liner pool. I'd say the business is stronger than where it had been back in the 2019-plus time frame as we've continued to grow that. It has trended down the last couple of years, I think, as we've seen the destocking in 2022 and the continued indication of that '23, so we really haven't disclosed those split, but it's still a big piece of that in-ground segment for us. On the inventory front, we have visibility of what's out there. In terms of stocking levels, I'd say they're in a better position than they were in Q4 as the destocking continued, but I'd say it's still a little bit elevated, and that's why we've got this cautious approach in the Q1 guide and the full year. I think the comment probably Rob and I both made earlier today, that we expect that destocking to continue through at least the first half of the year and then kind of get back to more normalized inventory levels in the channel.

I don't know if this helps, but if we just talk about year-end inventory where we planted in the year-over-year increase, looking back to '21 on a total company basis, we're up about $55 million. And part of that was we had extended lead times and very low inventory exiting 2021. So you have that impact, the impact of inflation on our inventory just generally that we've seen and talked about. And then the third piece was elevated packaged pools that we will work down, so I don't want you to associate that whole inventory change with that, if that's helpful.

Got it. That is helpful. And then, just a follow-up, maybe a higher-level question on how we should think about some of the drivers of the pool markets this year. I guess on one hand, you have pretty high home equity levels, maybe not as much turnover because folks don't necessarily want to refinance or re-up at today's interest rates. By the same token, I would imagine that a lot of folks are borrowing or maybe having home equity when they make a pool purchase. So, how do you think about this balance of, hey, my home is worth a lot, and I might be here a little bit longer versus my borrowing costs are high? Is one of those more important to you guys as you think about the health of the industry as a whole?

Yes, I believe all of those factors are significant. When we consider the overall demand for swimming pools, it's important to note that interest remains very high. We've seen that there are about 90 million homes with pools, and many homeowners are eager to invest in one in the next five years, which could lead to approximately $7.5 billion in potential pool sales. Even when we examine the pool start numbers for 2022, we are still around 40% below the peak levels from 2005, indicating considerable growth potential to return to the historical averages of pool starts, which would still be above the current level. Additionally, trends such as household formation delays, migration from cities to suburbs, and investments in outdoor spaces contribute to the rising popularity of backyard living, which is a rapidly growing segment of home remodels. Recently, I came across an interesting statistic showing that 40% of homes with a mortgage in the US were secured before the pandemic and are benefiting from interest rates below 4%. This suggests that many homeowners are sitting on significant equity, which influences their decision to remain in their current homes rather than move in a housing market where supply is limited and mortgage rates are higher. Homeowners with cash and equity are likely to stay put longer, as you mentioned, and reinvest in their properties, particularly in their backyards. We are encouraged by the fact that 50% of our buyers are cash buyers, while 25% are utilizing home equity for their purchases, which is advantageous for us. We tend to cater to the higher end of the market, which has remained stable. Individuals who want a pool are making considered decisions rather than impulse buys; they typically think about this for a year or two. We focus on nurturing these leads, and when we engage with interested consumers, there's a high chance they will make a purchase. The lower end of the market poses some risks, but we have limited exposure there. Moreover, it's important to highlight the replacement business for our liners and covers, which is a healthy segment of our offerings. Pool owners will continue to reinvest in maintenance, replacing liners and covers or even completely renovating their pools, which contributes to the steady growth of our installed base. This area of our business remains a reliable growth driver.

Perfect. Excellent color, and yeah, best of luck this year.

Hey, thank you. Good morning. So I guess I wanted to frame kind of the risk out there around, you mentioned the input costs that, and I think, if I calculated it right, you're 120 days of inventory. So you're sitting on some pretty high costs. Any idea of what your competitors are sitting on that would have been able to take as long a lead time? And how you're thinking about the potential out there to stay competitive on pricing for fiberglass, also kind of a key tool for continuing to maintain and recruit dealers? Thanks.

Yeah. In terms of inventory, as competitors, what they're sitting on, I don't know – we don't have visibility to that. I can't even comment on it. I think back to, take it back to Latham-centric, the inventory that we're sitting on is really more packaged pool. It's really just one product category for us. Everything else turns pretty quickly for us based on storage capacity, shelf life for the resin and fiberglass. So you could argue a good chunk of our business, we're buying real-time at market pricing that's out there, which gives us the ability to react quicker and price up and down to offset inflation and watch deflationary trends. So I think we feel pretty good on all of those fronts, Andrew.

Second question I would ask is kind of getting into, if I had your seasonality right, in the fourth quarter, 16%, we know what the first quarter is, that means you're suggesting kind of a revenue decline of minus 10% to minus 2% in the peak season of this year. Can you give us any color, I guess, number one, kind of the new construction outlook out there, negative 15% to negative 25 million, so I'm guessing you're expecting fiberglass to meaningfully outperform that. What about vinyl? And then kind of getting to the point of you have a lot of confidence you're not in the lower end, final at the lowest price pool. Do you have kind of what's the data telling you about the homeowners that buy a fiberglass pool, their income levels relative to normal households and if you have it relative to other pool owners? Thanks.

Andrew, there was a lot there. I'll do my best to try to hit them. I think we're looking at the guidance for 2023 on a full year basis. Because of trend, the seasonality of the destocking through the first half of the packaged pool, and I think you hit on two of the key points: our expectation of fiberglass outperforming the market, which we've demonstrated time and time again, and the resiliency of that replacement business on liners. Folks, in a rising interest rate market, they're not taking vacations, they're thinking about where they have to spend their dollar. They're going to repair their pool and replace their liner and not put that off so they can use that asset that they sunk in. I'd say we don't really see a big difference between a fiberglass purchaser and an in-ground vinyl liner purchaser. I think it comes down to preference, shape and size of the pool the homeowner wants, the design on the market they sit in. Our view is to continue to drive the awareness of fiberglass and all the benefits, because even we talk a lot about fiberglass versus concrete and the cost advantages, the same thing applies in the vinyl space, where the fiberglass pool may be a little bit more expensive upfront. But you go 10 years out with a liner replacement and the cost of chemicals to operate that pool, you quickly get to a breakeven. So we try to market fiberglass for all solutions and levels. But I do think overall, the Latham customer does tend to be on the mid to higher side from equity network and value of home that they're putting into a pool. Alright, great. Thank you, Andrew. Yes. Hey, look everyone, thanks for joining us for today's call. We really appreciate all your continued interest and support of Latham. We look forward to providing further updates on our next earnings calls in May. I hope you guys all have a great rest of the day. Take care.

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