Good afternoon and welcome to Latham Group's second quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star keys followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchstone phone. To withdraw your questions, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Casey Cotry, Investor Relations representative. Please go ahead.

Thank you. This afternoon, we issued our second quarter 2025 earnings press release, which is available on the Investor Relations portion of our website. On today's call are Latham's President and CEO, Scott Rajewski, and CFO, Oliver Glow. Following their remarks, we will open the call to questions. During this call, the company may make certain statements that constitute forward-looking statements, which reflect the company's views with respect to future events and financial performance as of today or the date specified. Actual events and results may differ materially from those contemplated by such forward-looking statements due to risks and other factors that are set forth in the company's annual report on Form 10-K and subsequent reports filed or furnished with the SEC, as well as today's earnings release. The company expressly disclaims any obligation to update any forward-looking statements except as required by applicable law. In addition, during today's call, the company will discuss certain non-GAAP financial measures. Reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that is available on our Investor Relations website. I'll now turn the call over to Scott Rojeski.

Thank you, Casey, and thank you all for participating in today's call to review our second quarter results and discuss our business outlook. The Latham team executed very well in the second quarter, driving year-on-year revenue growth of 7.8% and adjusted EBITDA growth of twice that at 15.7%. Our ability to achieve this level of organic and acquisition-related sales growth, along with increased operating profitability despite ongoing trough industry conditions is supported by several key factors. First, we have a diversified product portfolio and have the number one share in every subcategory in which we compete. Second, we have been successful in driving the awareness and adoption of fiberglass pools and auto covers, two product categories with substantial growth runways. Third, we recently completed accretive acquisitions of three of our auto cover dealers, contributing to sales growth and strengthening our margin profile. And lastly, our lean manufacturing and value engineering initiatives continue to drive production efficiencies that scaled further with higher second quarter volumes. These factors were the major contributors to our strong second quarter and year-to-date performance, and they continue to underpin our confidence in Latham's ability to drive accelerated revenue and adjusted EBITDA growth as industry conditions improve. Taking a closer look at second quarter business trends, adverse weather conditions in many parts of the country, delayed pool building activity, resulted in a slight decline in our in-ground pool sales. This had a greater impact on our package pool sales than on fiberglass pools, and fiberglass pools are tracking to account for approximately 75% of our in-ground pool sales for the full And based on our current projections, we continue to expect fiberglass pools to gain another 1% of market penetration in the in-ground pool category in 2025. Our investments in targeted marketing programs to drive the adoption and awareness of fiberglass pools are yielding positive results. Year-to-date, we have delivered an 18% increase in leads to our dealers, while consumer sessions on our website have increased 34%. We are also seeing strong signals of pool purchase interest and intent, with consumers spending more time on our website, viewing more pages, and increasingly engaging with our digital tools. All these metrics were up year-over-year in the second quarter and year-to-date compared to the same periods in 2024. In particular, the cost benefits and fast and easy installation of fiberglass pools are resonating with consumers. Given widespread labor shortages across many U.S. markets, we continue to believe the significantly lower labor requirements for installing a fiberglass pool will be a tailwind for fiberglass over concrete pools. According to recent research, 46% of pool builders cited limited access to qualified labor as having a substantial impact on their ability to build new pools. Auto covers were a standout performer in the second quarter. Through a combination of organic and acquisition-related growth, this product category was a key contributor to our second-quarter sales growth and is gaining momentum with consumers. Our marketing programs have been effective in driving home the benefits of auto covers, highlighting their unparalleled safety and significant cost savings from reduced water, energy, and chemical use. These savings enable auto covers to effectively pay for themselves within four to five years of installation. Additionally, 16 states, in addition to a number of municipalities across the country, have now expanded their pool safety regulations to allow for auto covers to be used in place of traditional fencing around the pool, which results in additional savings for the homeowner. Also, their compatibility with all types of in-ground pools significantly expands our addressable market. Our replacement liner business also showed solid growth in the second quarter, which we attribute to our industry-leading lead times and the continued adoption of Measure by Latham, our proprietary pool liner and cover measuring AI tool. This is the only solution in the marketplace that streamlines the measurement and quoting process for installers, ensuring a high degree of accuracy and enabling a smooth and efficient installation. This tool is fully integrated with our order entry system, allowing dealers to generate real-time quotes, seamlessly submit orders, and track their status. In the first half of this year, 25% of the dealers who purchased this tool were new to Latham, supporting our expectation that Measure by Latham will not only improve the efficiency of our dealer network, but will also help expand our market share on liners and covers, and we're already seeing early signs of those gains. Our consumer-facing marketing programs are centered around building awareness for Latham's fiberglass pools, auto covers, and plunge pools, with emphasis on the sand state markets, which represent a substantial growth opportunity for us. Our initial targets in the sand states are Florida and Texas, which together with Arizona and California account for approximately two-thirds of annual new pool starts in the United States. Latham, as the largest in-ground pool manufacturer, is currently underrepresented in the sand states, which provides us with a substantial growth opportunity. We launched our sand state strategy in late 2024, and we've made considerable progress in the first half of 2025 on the pillars that formed the foundation of this strategy. Specifically, we have increased our pool dealer base in both Florida and Texas, adding additional dealers in the second quarter. We expanded our plunge pool collection and launched new fiberglass pool models to align our product offerings with market preferences in the sand states, and we ramped up our marketing efforts, drawing strong interest from both current and prospective homeowners, including in key target markets such as Florida and Texas. Our national marketing efforts have resulted in over a 20% increase in dealer leads year to date, and Latham continues to be the most searched for fiberglass pool brand among major competitors. And we continue to actively partner with some of our top performing pool dealers across the country to expand their operations into the sand states by establishing a presence in key master plan communities, or MPCs, that we have identified in Florida and Texas. At the same time, we're evaluating additional complementary strategies to further accelerate our growth in these MPCs, where we are already driving awareness of the Latham brand and our product lineup. more on that in the next quarter or two in summary our second quarter results were in line with our expectations and demonstrated the continued execution of our strategy to drive the awareness and adoption of fiberglass pools and auto covers expand our presence in the sand state markets and improve margin through a creative acquisitions lean manufacturing and value engineering initiatives our lean manufacturing and value engineering initiatives have structurally changed our business model and are an important factor enabling us to achieve significant leverage as industry conditions improve. We issued a release today and filed an 8K, noting that Jeff Jackson, who currently serves as Chief Executive Officer at Cabinet Works Group, has joined our Board of Directors. Many of you may know Jeff as the former President and CEO of PGT Innovations before it was acquired in 2024. We are pleased to have Jeff on our board and look forward to benefiting from his valuable operational and strategic experience. I will now turn the call over to our CFO, Oliver Glow, for a financial review of our second quarter and first half results.

Oliver. Thank you, Scott, and good afternoon, everyone. I am pleased to report on our second quarter financial performance, which represented Latham's continued market outperformance. Please note that all comparisons that I will discuss today on a year-over-year basis compared to the second quarter and first half of fiscal 2024, unless otherwise noted. Net sales for the second quarter were $173 million compared to $160 million, up $13 million or 7.8%, reflecting both organic and acquisition-related growth, primarily driven by an increase in volumes for auto covers, as well as an increase in volume for pool liners. Our strong sales performance underscores our successful execution and continued commitment to delivering on our growth strategies, both organic and through opportunistic acquisitions. Across our product categories, in-ground pool sales were 79 million, down 2.9% in the second quarter, reflecting a flat market as well as adverse weather conditions and delayed pool building activity across several important regions, primarily in the Northeast. Cover sales were $37 million, an increase of 46%, reflecting both contributions from our recent acquisitions of CoverStar Central, New York, and Tennessee, and importantly, organic growth driven by the increasing awareness and adoption of auto covers. We are very pleased to see the benefits of our auto cover growth strategy materialize in such an impactful way. Liner sales of 57 million grew 5.8%, driven by the continued adoption of Measure by Latham, our proprietary AI-powered measuring tool. We have a meaningful number of measure devices in the market, contributing to increased sales of liners and covers across North America. We delivered gross margin of 37.1% in the second quarter, 400 basis points above last year. This material improvement was primarily driven by volume leverage in our covers and liners product lines, the continued benefits of our lean manufacturing and value engineering initiatives, and the margin benefit from our recent cover-star acquisitions. SG&A expenses increased to $31.9 million, up $5.3 million, primarily due to increased investments in marketing and new personnel to support our SEND state growth strategy, including expanding the awareness and adoption of fiberglass pools and auto covers. Investments in our new ERP infrastructure and the inclusion of CoverStar Central-related overhead also contributed to the increase. Net income was $16 million or $0.13 per diluted share, an increase from $13.3 million or $0.11 per diluted share for the prior year's second quarter. Adjusted EBITDA of $39.9 million increased $5.4 million or 15.7 percent from last year's year's $34.5 million and adjusted EBITDA margin expanded to 23.1%, a 160 basis point improvement over 21.5% in the prior year period. This increase was primarily due to higher sales and gross profit that more than offset increased SG&A spending. Now turning to our first half year-over-year result comparisons. Net sales were $284 million compared to $271 million, reflecting the benefit of both organic and acquisition growth. Net income was $10 million compared to $5.4 million in the prior year period. Adjusted EBITDA increased by 9.1% to $51 million from $46.8 million. and adjusted EBITDA margin increased by 70 basis points to 18% from 17.3%. This performance reflects higher revenue and improved gross margins, which more than offset our ongoing investments to increase the awareness and adoption of fiberglass pools and auto covers. Turning to our balance sheet and cash flow statement, we continue to maintain a strong financial position with cash of $27 million at the end of the quarter. Net cash provided by operating activities was $36 million in the second quarter and in the first half, net cash used in operating activities was $10.9 million. Total debt for the period was $281 million with a net debt leverage ratio of 3.0 and our capital expenditures worth $7 million for the second quarter of 2025. As we have previously noted, we expect 2025 CAPEX to range between $27 to $33 million, with the increase from last year due to the development of new fiberglass pool models tailored to the sand state markets, as well as the addition of usable space at our fiberglass pool manufacturing facilities in Florida and Oklahoma. Our substantial financial flexibility allows Latham to pursue strategic growth opportunities, both organic and through acquisitions. As we enter the second half of 2025, we are pleased with our financial progress to date. Despite the pool market being in a trough period, we remain focused on executing on our strategic growth initiatives. Our cover star acquisitions have been fully integrated into the business, and we are seeing the anticipated benefits materialize in both incremental sales and margins. As Scott mentioned, we remain focused on increasing awareness and adoption of fiberglass pools, particularly in the sand state markets. We have seen encouraging progress to date, which will position the business for accelerated profitable growth as the pool market rebounds. Moving on to our outlooks. We are reconfirming our 2025 guidance of 8% net sales growth and 19% adjusted EBITDA growth at the midpoints. While market conditions remain challenging, we are cautiously optimistic heading into the second half of the year, and our guidance is based on our current market visibility and supported by our recent strategic acquisitions. Ongoing efforts to grow our share in the SEND states and continued benefits from our lean manufacturing and value engineering initiatives. With that, I will turn the call back to Scott for his closing remarks.

Thanks, Oliver. A word on market conditions. We expect approximately 60,000 U.S. pool starts in 2025, consistent with our original estimates and slightly down from the 62,000 that PK data reported for 2024. This softness aligns with our analysis that today's pool buyer is primarily a cash purchaser, representing only a portion of the long-term average of approximately 100,000 pool starts annually. Within this challenging industry environment, we are pleased to be able to reconfirm our full-year 2025 guidance, which anticipates another year of significant market outperformance for Latham. Additionally, we have outlined a clear path for advancing our growth strategy, including the specific financial results we expect to achieve in the future. When new U.S. pool starts return to $78,000 per year, meaning when they return to their 2019 level, our new structurally changed business model should enable us to achieve about $750 million in net sales and $160 million in adjusted EBITDA. This would represent more than double our 2019 revenue and two and a half times our adjusted EBITDA at the same volume of new U.S. pool starts. And when the U.S. pool starts, we turn to the long-term average of 100,000 pools per year. We project meaningful increases beyond the aforementioned financial results. With that operator, I would like to open the call to questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. As a reminder, please restrict yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Greg Baum with Greg Halum Capital Group. Please go ahead.

yeah thanks uh congrats on the execution and sort of the continued uh outperformance and what we all know is a pretty difficult operating environment out there thank you thanks greg um i i'm maybe starting with with kind of the the investments around the marketing campaigns that you're you're making i mean how how are you measuring success right now the return on investment, it's obviously not a robust environment, but you seem to be building interest. You're signing up dealers. You know, is the initial thought, you know, hey, let's, you know, get the awareness up. Let's sign up a bunch of dealers. Maybe this materializes into, you know, orders, activity, you know, next year. Maybe you're already seeing a little bit of that this year. I'd just love to get your sort of thoughts on kind of the return on that investment so far and what your expectations are sort of for the balance of the year.

Yeah, so Greg, I think it's a little bit of everything you mentioned, right? It's clearly focused on driving the awareness of the brand and the awareness of fiberglass tools out there, making sure we've got the dealers in the dealer capacity in the areas where we're generating the demands and the lead. And then we talked a lot about our GUSA campaign. Hopefully many of you have just seen the direct TV campaign we've been running over the last couple of months. The interest generated from that was substantial in terms of, you know, we were able to measure it distinctly with the codes, the phone numbers, massive uptick in activity on the website, time on the website, leaks generated from that. A lot of great activity in both Florida and Texas. The sand states as part of that strategy. You know, significant numbers increasing there. You know, it's not going to translate to an immediate pool sale. You know, we all know that that buying decision is delayed with kind of, let's say, the, you know, where the consumer confidence sits today. But we view it as building the pipeline of future demand for us. You know, some of those pools of interest may translate to a sale this fall. More likely, it will translate to, you know, hopefully nice tailwinds for us as we move into 2026.

Yep. Okay. That makes sense. and just on the sand state strategy just would love to get kind of an update on you know a how you know florida's going and then b you know in terms of you know what you're targeting in terms of you know communities that you want to you know be in either by your end or over the next you know six or 12 months just curious what the the ramp up of that looks like as well

yeah so again i think we'll continue to you know accelerate the ramp up there i'd say right now we're tracking ahead in terms of the number of new dealers we've recruited, and also the number of MPCs or other communities that we've entered into to get the pool installs going. I'd say good progress. We'd all like it to be a lot faster from a pace acceleration. I think what's maybe caused a little bit of a slowdown has really been just the general markets in Florida and Texas. You know, a lot of folks have seen permit activities bend down. You know, again, we've seen some nice upticks recently. We've seen really good increase in lead generation. The numbers have greatly turned positive for us significantly in Florida with lead generation there and interest. Texas has finally turned over the last two to three weeks as well in terms of incremental lead generation in a market that's been really tough from a weather standpoint. So we like where we're headed. We like where we're going. We had a really good meeting here in the Albany area back about a month or so ago with a lot of our top dealers, many, many from the Sand States. I think, you know, the marketing that we're doing, the models that we're creating that resonate in the Sand States with all the different features, all going very, very well. And, you know, we'll be talking, you know, as we move forward more about the metrics of what we're doing. And I think for now, what we've been saying is, you know, percentage of full revenue in the sand stage, kind of on that 17% number. You know, hopefully we'll see that uptick here, you know, as we work through the rest of the year, you know, towards a 19-20% number.

Appreciate the color.

All right. Thanks, Greg.

Thank you. Next question comes from the line of Andrew Carter. Steve will please go ahead.

Hey, thank you. I don't think I've ever heard you guys call out weather before in terms of, like, but you did say it did hit the package pools. If you look at the in-ground pools business in general, were fiberglass pool sales, have those returned to growth, and it's just the weather slash package pools that's declining?

No, I think, you know, the in-ground pool category in the second quarter was around about 3% down, right? And both were affected by that, probably, you know, package pools. You know, the impact was larger than fiberglass. You know, we usually don't talk about weather, but I think we had an unusually wet spring. It rained in New England all the way up until June. And once the season turned on us and we had good weather, we actually saw, you know, a nice trajectory in June and July returning for fiberglass back to year-over-year growth. But it was a measurable impact, I would say, somewhere between $3 million and $5 million that we would attribute to weather here.

That's helpful. And I guess the second question is really strong gross margin performance in the quarter. That brings your trailing 12% to 32%, which most of the acquisitions are in. Is that the right structural level, or were there any one-time Adams flattering this quarter? What should we think about structurally as a level? Of course, you'll be building upon that.

I think we are very pleased where we are from a gross margin perspective. 400 basis points is the increase year over year. And, you know, the main buckets of that list comes, again, from the acquisition. Lean value engineering is a really good contributor and a stable contributor from a sequential perspective. And then nice to see volume kicking in, and that helps utilization. and cost leverage, right? Not really, you know, a one-timer that I'd call out, probably a slight favorability and absorption. You know, we had a couple of days of planned shutdowns in the first quarter. They were also weather-related that we caught up on early in the second quarter. But I want to say outside of this, a fairly normal quarter. And again, very pleased with our year-over-year improvement.

Thanks, Al-Passaron.

Thank you. Next question comes from the line of Ryan Merkel with William Blair. Please go ahead.

Hey, everyone. Thanks for taking the question. My first question is just on the current orders. I think you mentioned it's tracking well. I'm curious, did you see a lift in June and July after the rainy May, or would you say it's just been kind of steady as the year has progressed here?

Yeah, you know, look, I think we did see some uptick in several of the categories, You know, as we kind of got post-Memorial Day and really saw the weather turn and kind of, I'd say, now here in the heat of the summer, you know, early August. You know, again, you know, good strength in auto covers, you know, really good performance in liner categories. You know, we've seen fiberglass turn nicely around. I'd say package pools kind of continues to stay flat, which is a little bit maybe more that lower end of the market entry level. I really haven't seen much movement there, but that's, you know, I don't attribute that to weather. I think that's just the consumer confidence, you know, lack of financing out there for a lower end of the market. So, you know, I think, you know, looking good as we go forward, I think the key thing we've got to start watching out for now is we kind of start to exit, you know, the pool building season is right. We'll be entering into the fall pool closing season and the safety cover season for us. So that's the next thing we want to continue to watch. And I think the early trend there has shown some positive movement over the last several weeks as well as, you know, many folks start thinking about back to school and closing pools, you know, in the next, you know, 30 to 45 days.

Got it. Okay, that's helpful. And then on fiberglass, you mentioned in the release substantial year-over-year growth and leads. And I'm just sort of curious, how is your backlog looking right now? Would you say it's normal for this time of year or is a little depressed? And, you know, the second part of that question, do you expect fiberglass to return to growth in the second half of the year, just given some of the sales and marketing seems to be working?

Yeah, you know, I say fiberglass or fiberglass backlog in general, Ryan, has held up pretty well for us. You know, I think it's hard to judge backlog levels with our lead times and service levels right now. I think we're out there, you know, three to five days in the majority of the business. Fiberglass pools, you know, sit independent on, you know, region, two to four weeks on average. So we're turning orders pretty quickly for dealers out there. But I'd say backlogs have held up well. We like where we sit, you know, as we're coming into 3Q. You know, I think fiberglass will definitely start to turn as we think about, you know, the back half of the year here. You know, we've seen that, you know, last things Oliver said, you know, four, five, six weeks. So, you know, like I said, I think we like where we're sitting. Still a tough market out there, right? I mean, tough for the consumer, consumer confidence, what's happening. But, again, the higher-end consumer is doing well, and I think that's why we're really focused on trying to generate a lot of leads for dealers, keeping that funnel full, keeping the interest there, and, you know, hoping some of those leads, you know, will convert to a sale here for a fall install for us.

Okay. That's encouraging. Nice job. I'll pass it on.

Thank you.

Thank you. Next question comes from the line of Timothy Woodges with Baird. Please go by it.

Hey, guys. Good afternoon. Nice job. I guess on the revenue guidance, I know you're reiterating it, but are there any kind of changes to the underlying components at all, whether it's just kind of driverless growth or liners or covers or pricing? Is everything kind of similar to what you expected on the top line, or is there anything kind of changed under the surface?

I don't think that there's any change to the usual seasonal profile, right? As Scott just mentioned, you know, the safety cover season is now starting. And, you know, I think with the measure by Latham, we are set up well for that. You know, we are very pleased with the organic growth in auto covers, obviously in addition to the impact of the acquisitions, we expect that to continue to benefit. And then, as we said, fiberglass returning to a year-over-year growth. I don't want to say that the second half of the year is anything unusual to what you've seen from a sales profile. I think one thing is, from a year-over-year perspective, the acquisition of cover star central um that happened in august so you'll see some dynamics um you know the changing changing comps here but from a sequential perspective as we navigate the season i don't think there's anything overly extraordinary in our season in 24 versus 20 years okay okay that

sounds good and then just i guess a couple of kind of cleanup modeling things just is there any way to to kind of talk about how much price contributed in the second quarter and and how much the

the acquisition sales were? Yeah, sure. So as you think of price, so we did price for some tariff impacts in June, just as a reminder, and nothing really has changed to what we said about tariffs last quarter, about 20 million is the headwind, more than half is remediated and mitigated on the supply chain side with a little bit less than half on the pricing side. So that went into effect in June. So I think about one month of that. So, you know, give it probably a rounded million. And then you asked about the contribution of the cover service in the quarter. There was probably about $7 million that all three acquisitions combined.

And then can you just remind us on the tariff side, does that have some, just the way you've approach it, does it have some margin implications or just because you're taking, you know, the cost out and a little bit of price that the margin implication from offsetting tariffs is generally

neutral? Yeah, I would put it broadly as neutral. You know, I want to, you know, compliment our supply chain team for having, you know, worked through a very dynamic tariff environment that keeps on changing. Since we met last time, China came down. Some other countries went up. But I want to say at this point in time, we are fairly balanced when it comes to the impact and the mitigation. And that comment is a run rate comment as well as a 2025 comment.

Great. Sounds good. Good look on the back half of the year.

Thank you. Next question comes on the line of Matthew Bully with Barclays. Please go

Good afternoon, everyone. Thanks for taking the questions. I guess first one, I just wanted to ask around labor availability, you know, between both, I guess, installation of fiberglass, but then also, I don't know, I guess, a competitive product. And the reason I ask is because obviously you guys highlight the sort of forever advantage that it's always going to be quicker and more cost effective to install fiberglass. But just in a market where, you know, pool starts are down so much, I mean, presumably there's more labor availability. So I just wanted to kind of get a sense of what you're hearing out there and just how does that impact, I guess, the value prop of fiberglass versus, you know, installing the sort of traditional materials.

Yeah. So, Matt, I mean, I'll start maybe first for us internally, right? No issues, no challenges getting labor. I think we've been pretty stable throughout the entire season year, seeing extremely low turnover numbers, great retention across the board. So we feel really good with the talent we have on the team to support and run the business in all of our factories as we, you know, balance the different seasonality aspects. You know, when we talk to our dealers, I think our dealers don't appear to be having any issues with labor. Again, I think they've got, you know, really great crews. You know, they've had longevity with some of their core teams. But, again, it takes a lot less people to install a fiberglass pool. We're talking, you know, three guys in the backyard for a couple of days to get that pool in the ground and set. You know, we have heard and seen some stats on the concrete side that, you know, trying to get subs and have the subs out there for three, four, five months at a time, there has been labor challenges. And that's why I think going back to one of the questions earlier in the call about dealer acquisition and dealer ramp-up, I think we have seen a lot of good success now of concrete builders making that change to Latham and Latham Fiberglass because of the labor availability challenge. And I think that's going to be a big help for us and a nice tailwind as we go forward. You know, one of the things we've talked about is, you know, how do we target some good concrete builders for a conversion? I think we've kind of teased this one over the last quarter or two, but Shasta Pools, right, based out of Phoenix, Arizona, probably one of the largest concrete builders out there in the country, now installing Latham Fiberglass Pools. They just opened a really nice, beautiful new design center featuring fiberglass pools. They just did their big kickoff then, I think, about a week or so ago. So getting them to come on board and support and install fiberglass, I think, is a testament to, you know, one, what we've been able to do with demand lead generation. But I think also a great pool installer, pool builder out there realizing that, you know, that's going to help fight through labor challenges and issues. So I think that's going to be another one that we're going to see a lot of great success as we move forward.

Got it. OK, no, that's that's super helpful color. um secondly um kind of drilling down into the gross margin um obviously up something like you know over 400 basis points year over year i think you called out uh some good volume leverage um in the you know where you had the growth in covers and liners and then you know obviously this continued success with lean manufacturing and i think some uh accretion from coverstar as well specifically um i don't know i mean is it possible to kind of bucket that out between you know, what drove that increase, you know, amongst those or if there was any other drivers and then kind of any other help, I guess, when we think about those pieces, kind of how those may play into the margin in the second half. Thank you. Yeah, I want to say, so let me start

off by CoverStar, which accounts for probably half of the contribution in line with expectations, in line with, you know, how we described the CoverStar business at the time of the acquisition. So that margin profile continues in Q3, Q4. Now I remind you again that some of the benefits, the anniversary audits, we did the Kamastar Central acquisition last year in August. And then the remaining difference, the remaining balance to our 400 basis points cross-margin improvement is pretty evenly split between the contribution of lean value engineering as well as the cost leverage through volume. maybe the slight edge and the majority on the lean and value edge.

All right. Got it. Well, thanks, guys. Good luck.

Thank you. Thank you. The next question comes from the line of Susan McLary with Goldman Sachs. Please go ahead.

Good afternoon, everyone. This is Charles Perron and for Susan. Thanks for taking my question. First, I just want to talk about... Hi. I just want to go back to your prepared comments about the liners. I think, look, the measures by Latham is driving share gains relative to the underlying market. Can you maybe help us quantify, you know, the share gains and how you're outperforming the market? And also when you think about the change in regulation to accept pool safety coverage instead of fences in some states, how is this part of your growth algorithm going forward and the opportunity that you said that it can provide for the business?

Yeah, I would say we are very pleased from, you know, with the performance of the Linus business. You know, it was 6% up year over year. I think a key contributor is our proprietary liners measurement tool. We don't specifically break out the contribution of that, but again, very, very pleased with the number of devices in the market, the feedback from our dealers, and as a result, the year-over-year stats when it comes to volume and sales.

And any commentary on the pool safety cover and changes in regulation for fences?

Yeah, so that's kind of more on the auto cover side of the equation versus the winter safety cover. And, you know, look, I think when you just look at the underlying performance we've been seeing, as Oliver has been talking about, growth in auto covers organically from the acquisitions are focused there. You know, it's clearly part of the algorithm of how to outperform in the market, right? That auto cover goes on all pool types. It goes on competitor pools. It has a really nice ROI and payback for the homeowner with the lower chemical usage, you know, less water evaporation, keeping your pool cleaner than just the ultimate safety aspect of it. You know, again, we've talked a lot about, right, we've done a lot of marketing with Bodie Miller and his foundation, you know, in the swim promoting it. And I think in the territories where auto cover can be used in lieu of a fence, we see a very high take rate and uptick in terms of the number of pools getting auto covers. And I think that's going to be part of that, you know, future growth algorithm of late to be able to outperform the market overall, even in a flat or slower growth pool start environment. So we're pleased with the progress we're making there. Again, we believe penetration of auto covers on new pools is in the low 20s. So definitely a huge opportunity to really move the needle, very similar to what we've talked about in the fiberglass arena.

Got it. That's a good caller. And then second, talking about capital allocation, obviously your balance sheet remains strong. But when you think about the capital allocation priorities going forward between the leveraging, you know, opportunities to buy maybe more dealers and just the general M&A pipeline out there, how do you see the most important priorities going forward?

I want to say, you know, our capital allocation priorities remain unchanged. You know, let me run down those priorities in order of priority here. We're starting with the most important one first. It's investing in the business, right? That is over the last three, three and a half years. More than 40% of our capital has gone into. We've built a plan. You know, you see us ramping up our investment in the sand stage to prepare for that growth. I think the second priority is M&A. About 30% of our funds have been allocated to M&A. We've been buying about a company here over the last one and a half decades with the three coverster businesses being the last examples here. And then debt repayment is a key pillar as well with about 15% of allocated capital. So we've repaid $30, $35 million over the last two, two and a half years and will certainly continue to pursue that as one of our uses for capital. Thank you, Oliver. That's good color. Thank you.

Thank you. Next question comes from the line of Sean Kalman with Bank of America. Please go ahead.

Hi, guys. Thank you for taking my question. First one, just a follow-up on the earlier revenue guidance question. So at the midpoint, it would imply second half revenue growth of double digits versus mid-single digits in the first half, and it seems like you're getting less of a contribution from M&A in the second half. So can you talk about what's driving that growth and your confidence that you can hit those numbers?

I think a couple of points, right? So we did see a little bit of weather delays, which should at a minimum not impact the second half of the year, and maybe there will be a little bit of uptick, and that's something we certainly saw in June and July, the fiberglass business returning to an old year-over-year growth. Please don't forget also, at one point in time, the acquisitions run rate, they were bought kind of mid to end of 3Q last year, so there'll be still a contribution from cover is essentially the very important kind of third quarter season. And then lastly, as we've talked about, you know, safety cover, we expect a strong season and a season supported, again, by measure by Latham. These are the three main building blocks, obviously next to a little bit of pricing that we announced and implemented in engineering.

Okay, got it. And then on the delayed pool builds, is that something that you guys have already realized the benefits of in the last month or so? Or do people typically delay them until after the summer if they can't get it built in time?

Yeah, look, I think it's going to be a continued push right up until, let's say, winter sets in. You know, folks that made that decision for the pool, call it in the April, May, June timeframe, that couldn't get it, they're still going to get their pool this summer right so builders will continue to build here in the slower month of august and september um you know we'll see the fall installs continue into early october end of october um so you know those pools will hopefully still get in the ground i think that's where the advantage of fiberglass and let's say even our in-ground vinyl liner package pool for us it's a much faster build right so the ability for our dealers to catch up and get those pools in the ground is much better than, let's say, someone who's hoping to get a concrete pool in, let's say, a wet market like Texas or something. So I know our guys are busy. They're working really hard. And I think that's what also will help some of the second half revenue guide versus the first half of the year as we see stronger numbers.

Great. Thank you.

Thanks, Sean.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Scott Rajewski for Closing Remarks.

Yeah, thank you all for your time this afternoon. Look, we really appreciate all of your continued support of Latham. You know, I hope all you guys have a great end to the summer season as we head into the upcoming Labor Day holiday here in the U.S. And I'm looking forward to connecting with many of you at upcoming conferences and meetings. I hope you all have a great evening.

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