Latham Group, Inc.

Good day and welcome to the Latham Group first quarter fiscal 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Nicole Harlow, Investor Relations Representative. Please go ahead and begin.

Thank you. Earlier this morning, we issued our first quarter fiscal 2023 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 Rogeski, and interim CFO, Mark Borseth. 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 annual report on Form 10-K and subsequent reports filed or furnished with the SEC, as well as the earnings released for this quarter posted to its investor relations website. 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 loss and adjusted EBITDA margin to net loss margin calculated under GAAP can be found in our earnings press release. and will be included in our Form 10-Q for Q1 of 2023. Reconciliations of net debt and net debt leverage to the comparable gap measure can be found in the slide presentation that accompanies our prepared remarks, which can also be found on the Investor Relations website. I'll now turn the call over to Scott Rogeski.

Thanks, Nicole. Good morning, everyone. Thank you for joining us for our first quarter fiscal 2023 earnings call. I'll begin today's call with a review of highlights from Q1 and a discussion of the momentum we're seeing in our dealer training and onboarding, direct-to-homeowner marketing, fiberglass material conversion, and auto cover awareness strategies. I will then turn it to Mark to review our financial results and outlook for 2023. We delivered net sales of $138 million and adjusted EBITDA of $11 million in the first quarter. As we discussed on our last earnings call, the pool market has returned the pre-2020 seasonality versus the demand patterns of the preceding three years. In fact, Q1 2022 set a particularly high record for Q1 net sales for our business as we benefited from elevated backlogs, and increased production levels following a period of supply chain issues and challenges. Despite this difficult year-over-year comparison, due to our strong operational execution, we delivered stronger than expected sales performance across all three product lines, in-ground swimming pools, covers, and liners. We recognize that 2023 will be another tough year for the pool market and have taken deliberate actions to adjust our cost structure. In November, we announced several cost reduction initiatives that we expect to yield annualized savings of about $12 million in fiscal 2023. This is further supported by our ongoing lean and value engineering work aimed at continuous improvement of our manufacturing processes. We have also right-sized our inventory to align with current demand while still ensuring excellent delivery lead times across our product portfolios. All these efforts supported Q1 adjusted EBITDA of $11 million and adjusted EBITDA margin of 8%, exceeding our expectations on both an absolute dollar and margin basis. Turning to an update on our strategic initiatives. Late last year, we set an ambitious goal to recruit new dealers ahead of the selling season in 2023, and I am pleased to say that we have achieved that milestone. We are also actively continuing to recruit new dealers throughout 2023, and we'll continue to train and ramp them up. While most of these new dealers are small for now, they will, we believe, set us up well for future growth. Our dealers continue to recognize the value proposition of fiberglass, and more specifically, of working with Latham as we invest in our lead generation efforts, dealer education, and training. We continue to see strong demand for Latham University, where we've hosted numerous fiberglass boot camps year to date. Concerns of an economic slowdown in the interest rate environment continue to weigh on consumer spending, which is reflected in our Q1 results and fiscal 2023 guidance. However, our lead generation engine and digital tools continue to point the strong underlying consumer interest in pool ownership, giving us confidence in a long-term outlook of our business and industry. In light of our strong lead times and enhanced manufacturing capacity, we have been able to ramp up our lead generation efforts, which is translating into momentum in website activity and leads to dealers. We saw strength across our website and digital tools and apps in Q1. The number of sessions, page views, and average session duration across our website all increased year over year. We grew users on our MyLetham platform by 100% versus Q1 of 2022. and the number of submissions to our pool cost estimator and downloads for our augmented reality app both grew over 40% year over year in the first quarter. This supports our ability to drive leads and orders. In fact, the number of leads we sent to dealers in Q1 of 2023 was actually greater than Q1 of 2022 levels. As we expand our dealer base and deepen our existing partnerships, enhance our manufacturing capabilities, and continue to execute our direct-to-homeowner strategy, we feel well-positioned to drive consumer demand in a difficult macro environment. We remain confident in the ability of fiberglass pools to outperform the total U.S. new pool installation market, as we again demonstrated in 2022. Fiberglass pools are vastly underpenetrated in the U.S., compared to more mature markets like Australia, where fiberglass represents 70% of in-ground swimming pools. In 2019, we acquired the largest pool manufacturer in Australia, New Zealand, Norellon, because we admired how they drove the conversion from concrete pools to fiberglass in Australia. Our North American market growth strategy is led by a similar focus on marketing the benefits of fiberglass pools versus concrete pools directly to both homeowners and dealers. We are still early in our journey of driving the conversion from concrete to fiberglass in the U.S., but we are seeing strong momentum driven by labor. We are pleased to report that fiberglass penetration grew to 21% share of U.S. in-ground pool installations in 2022. This was a gain of three points of share versus the prior year, despite U.S. in-ground pool installations being down 16%. We see this as a testament to the momentum we are building for fiberglass and reinforces our confidence in our strategy. Since we launched our rebrand and B2B2C strategy in 2019, we have now driven five points of share gain for fiberglass in three years. Another product line I'd like to highlight is covers. We've told you before about winter safety covers, which go on pools after the swimming season is over, help protect pools from winter weather, and provide Latham with a steady revenue stream for both new installations and replacements. Winter safety covers need to be replaced every 8 to 10 years across all types of in-ground pools, whether they are latham pools or not. Today, I'd like to also talk to you about automatic safety covers. Automatic safety covers help keep children and pets safe when the pool is not in use, they help keep pools clean, and they lower homeowners' cost of maintenance in energy, water, and chemicals. In Q1, we grew automatic safety covers net sales even when compared to strong net sales levels of the prior year's first quarter. In fact, we doubled net sales for our automatic safety covers in fiscal 2022 versus fiscal 2019. We take pride in our auto covers. Each one of Latham's automatic safety covers is made to order to precisely fit a homeowner's exact full dimensions. Separately, we are excited about the launch of Measure by Latham. a new AI-powered digital measuring tool that will modernize and simplify the measuring experience for dealers for winter safety covers and for in-ground liners. This technological breakthrough allows dealers to measure the entire pool perimeter and to capture interior renderings of the pool shape and unique features. With Measure, dealers have precise specifications for winter safety covers and in-ground liners within minutes, saving them time and labor. We have launched the initial rollout of Measure by Latham for winter safety covers to select dealers. While we're now in the early innings, we believe Measure will be a growth opportunity for winter safety covers and in-ground liners as we look into 2024 and beyond. Before I hand the call off to Mark, I'd like to touch on what gives us the confidence to reiterate our fiscal 2023 outlook today. First, we delivered Q1 performance that beat expectations in spite of a continued challenging macro environment and a difficult year-over-year comparison. Second, based on what we're seeing in the market, much of the softness in overall US pool starts this year is in the concrete pool market, driven by weakness for newly constructed houses, especially in many states where we are under-penetrated. We view this as an exciting opportunity to convert what would otherwise be a concrete pool to fiberglass pools in those markets down the road as we target these homeowners build their awareness of Fireglass, and support their pool purchase journey. Third, and most importantly, we're seeing momentum in our website activity and lead generation tools. Given the results that we are driving, we will continue to focus our efforts in lead generation to try to increase demand in the second half of the year and into 2024 as dealers start to plan for next year. With that, I'll turn the call over to Mark to review our first quarter 2023 results in greater detail. Mark?