Latham Group, Inc.

Good morning and welcome to the Latham Group second 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 on your telephone keypad. 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 like now to turn the conference over to Nicole Harlow, Investor Relations Representative. Please go ahead.

Thank you. Earlier this morning, we issued our second 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, our Latham's President and CEO, Scott Rojeski, and interim CFO, Mark Borsa. 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, which reflects 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 of 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 gap measures to the non-gap measures 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 Rodewski.

Thanks, Nicole. Good morning, everyone. Thank you for joining us for our second quarter fiscal 2023 earnings call. I'll begin today's call with a review of highlights from Q2 and a discussion of our strategic priorities. I will then turn it over to Mark to review our second quarter and first half financial results and outlook for 2023. As we've worked our way through the first seven months of the year, we're pleased with where we sit today given the tough macro environment and our continued confidence in our long-term growth opportunity. With our leadership position across our product categories and our unique direct-to-home order and dealer strategies, we continue to work towards driving the material conversion from concrete pool to fiberglass. At the same time, in the near term, we are remaining nimble across operations, including focusing on reducing costs and inventory and enhancing operating efficiencies. As a result, we have tightened our fiscal 2023 guidance for net sales and adjusted EVVA within the initial range we initiated at the beginning of the year. In 2Q, we deliver sequential improvement in net sales from Q1 2023 to Q2 2023. This was expected as we entered our peak pool building season. Despite year-over-year declines in Q2, we were pleased to deliver quarterly sequential improvements in gross margin and adjusted EBITDA margin in Q2 from Q1. As our fixed cost leverage improved significantly, we benefited from our cost reduction actions. Our second quarter results reflect our active management of costs and alignment of production levels and inventory with demand while still maintaining best-in-class lead times. Our digital tools and marketing efforts continue to drive increased website activity and lead to dealers in Q2. This demonstrates that underlying interest in pool ownership remains robust, even as the consumer purchasing decision is continuing to stretch out from what we've seen over the last several years. With a strong supply chain and enhanced manufacturing capacity, we have continued to increase our focus on dealer recruitment, which will support the conversion of fiberglass over time. These efforts are bearing fruit with continued new dealer science in Q2 in line with our expectations for the year. As expected, we enhanced our liquidity in Q2, positioning us well for the second half of 2023. As we've now cleared the first half of the year, we have better visibility in how we think 2023 will shake out. Therefore, as we think about our strategic priorities for the remainder of the year, we are focused on driving operational efficiency and through our continuous improvement initiatives and prudent cost management. Our lead generation efforts continue to show strength in underlying consumer demand, giving us confidence in continued execution of our top-line growth priorities, which places us in a strong position for long-term growth. We have continued to focus on expanding the awareness and adoption of fiberglass to support the material conversion from concrete pools to fiberglass. Our strategy of targeting both homeowners and dealers has continued to yield results, and we have continued to receive positive feedback from dealers about Latham's value proposition. We are also excited about our new digital innovation that will strengthen our direct-to-consumer strategy. As we saw robust pool industry growth over the last several years, while simultaneously facing supply chain and raw material-related challenges and shortages, we focused on best positioning our business to meet increased demand. When we saw market conditions turn late last year, we took immediate actions in Q4 of 2022 to reduce our costs, which are on track to yield $12 million in cost savings in 2023. As anticipated, market conditions have remained challenging throughout 2023. We have continued to monitor this closely and respond by matching our production, staffing, and inventory levels to demand. During Q2 and into early Q3, we took further actions to enhance our operating efficiency, including the continued streamline of our manufacturing footprint, further headcount reductions, and restricting discretionary spending. We expect to realize $12 million in annualized cost savings, with $6 million expected to be realized in fiscal 2023 from these actions. In tandem, we are gaining traction on our lean value engineering efforts, which have allowed us to improve the efficiency of our manufacturing processes, We have made good progress in redesigning several of our products with a focus on reducing material costs and improving productivity. Our lean initiatives continue to free up capacity and floor space in our facilities and drive lower inventory levels. We expect to see an increasing benefit of these actions reflected in adjusted EBITDA margins in the second half of fiscal 2023. We firmly believe the material conversion from concrete pools to fiberglass continues to present attractive long-term growth opportunities for the business. As you'll recall, we drove fiberglass share expansion of three percentage points to 21% of U.S. in-ground residential pool installations in 2022, despite the U.S. in-ground residential pool installation being down 16% versus 2021. During Q2, we celebrated the grand opening of our two new fiberglass manufacturing facilities in Kingston, Ontario, in Oklahoma. These two facilities will allow us to better serve large markets with strong fiberglass conversion opportunities, as well as to drive improved lead times and reduce freight costs as we rebalance our manufacturing across our footprint. As we discussed on our last call, we are ramping up these facilities to match the demand we are seeing in these markets. Our lead generation efforts continue to drive year-over-year growth in website activity and leads in Q2. And we're seeing homeowners continue to use Latham's digital tools, such as the Pool Cost Estimator and MyLatham. As we've advanced to our direct-to-homeowner strategies, we have focused on deeper analytics and opportunities to further support homeowners through the pool purchase journey. Notably, a number of leads in 2023 that started as prospects were nurtured by us and became highly qualified leads as a result. Roughly half of our leads in 2023 have an existing MyLatham account, allowing us to better understand their preferences and budget before sending them to dealers. This helps homeowners make more informed purchase decisions and allows dealers to focus less on selling and more on installation. Beyond driving homeowner awareness and adoption of fiberglass, Adding new and deepening existing dealer relationships is an important component of our strategy to drive material conversion from concrete to fiberglass. With faster installation times and smaller crew needs compared to concrete, fiberglass pools provide dealers with the opportunity to rapidly expand their business. Our boot camps, combined with our business excellence coaching, are aimed at enhancing dealer productivity. Heading into peak pool building season, We had strong demand for our boot camps held at our training facility in Zephyr Hills, Florida, and we're excited to resume training again this fall. Continuing to enhance our value-added resources will enable us to attract and retain dealer partnerships. As such, we are excited to launch our new Latham Pro website later this year. This online hub will help all of our comprehensive turnkey marketing tools, including exterior signage, digital branding content, design and sales agent collateral, and product education resources. We believe this will be a game changer for dealers, allowing them to run their businesses more efficiently. Lastly, we are on track to meet the internal targets for new dealers with year-over-year growth and new dealer sign-ups in the first half of 2023. It takes time to ramp up new dealers, and many start small, but we believe expanding our dealer network will set us up for future growth. In closing, we are excited about the progress we've made on our strategic pillars. While the macroeconomic environment remains challenging, we are maneuvering our way through, positioning us well for the future. This has also enabled us to tighten our fiscal 2023 net sales and adjusted EPA guidance within the initial range we initiated at the beginning of the year. Looking out to the rest of the year, we will remain nimble in responding to evolving market dynamics and balancing our production capabilities and capacity to ensure we are well-positioned for future growth. At the same time, we will continue driving the conversion from concrete to fiberglass tools, expanding our direct-to-homeowner strategy, and delivering value to our dealers. With that, I'll turn the call over to Mark to review our second quarter and first half 2023 results in greater detail. Mark.