Good day, and welcome to the Latham Group, Inc. Q2 2022 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 touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Nicole Edelman, Investor Relations Representative. Please go ahead. Thank you, and welcome to Latham's Q2 Fiscal 2022 Earnings Call. Earlier this morning, we issued our earnings press release, which is available on the investor relations portion of our website, where you can also find the slide presentation that accompanies our prepared remarks. On today's call are Latham's President and CEO, Scott Rajeski, and CFO, Robert Masson. Following the remarks, we will open up the call to questions. During this call, the company may make certain statements that constitute forward-looking statements. Such statements reflect the company's views with respect to future events as of today and are based on our management's current expectations, estimates, forecasts, projections, assumptions, beliefs, and information. These statements are subject to a number of risks that could cause actual events and results to differ materially. Such risks and other factors are set forth in the company's earnings release posted to its investor relations website and will be provided in our Form 10-Q for the Q2 of fiscal year 2022. The company expressly disclaims any obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. In addition, during today's call, the company will discuss non-GAAP financial measures, which we believe could be useful in evaluating our performance. Reconciliations of adjusted EBITDA to net income calculated under GAAP can be found in our earnings press release and will be included in our Form 10-Q for Q2 2022. I'll now turn the call over to Scott Rajeski. Thanks, Nicole. Good morning. Thank you for joining us for our Q2 2022 earnings call. Before we get started, I would like to take the opportunity to introduce our new CFO, Rob Masson. As we recently announced, Rob officially joined Latham on July 11 and has already hit the ground running. Rob is an accomplished finance and industrial manufacturing leader with nearly 20 years of experience in the aerospace and defense and industrial sectors. Please join me in welcoming Rob to the Latham team. I'd also like to take this opportunity to thank Mark Borseth for his contributions to leading Latham through such a transformative moment in our company's history. We are grateful to have benefited from his leadership and for his current work as a strategic advisor to ensure a seamless transition. Additionally, I also want to take this opportunity to thank our employees and dealer partners for their hard work and dedication to Latham. We could not do it without you all. Q2 was another quarter of growth, with net sales and adjusted EBITDA both increasing 14%. During the quarter, we continued to experience strong demand for fiberglass pools as well as our cover and liner products. Our previously announced price increases helped drive sales growth more than offsetting the softening volume in our packaged pools category during the Q2, which was primarily a result of inventory destocking in the distribution channels and weather-related delays on installations. We are pleased with our overall performance in the H1 in which we posted net sales growth of 21% and adjusted EBITDA growth of 27%. Our year-to-date results reflect the strength of our fiberglass vinyl conversion strategy, unique direct-to-consumer model, and digital strategies. In addition to investing in the long-term growth of the business, we also opportunistically executed a share buyback of $15 million in the Q2. Let me update you a bit on the operational progress we made in the Q2. Our North American fiberglass production again increased sequentially and versus prior year, with 14% growth quarter-over-quarter in Q2 and 30% growth in the H1 compared to the prior year period. We continue to work through the robust fiberglass order backlog and improve lead times. We have taken significant steps to address the temporary flake shortage discussed on our Q1 earnings call, which had minimal impact on Q2 results. We anticipate this will be fully resolved by the end of Q3. In addition, we have continued to streamline the production of our non-fiberglass operations, which combined with increased inventory levels allowed us to get back to our historic lead times. We also wanted to provide a quick update on the fire at our Odessa, Texas, fiberglass manufacturing facility. By mid-May, all production had been successfully shifted to other facilities with a minimal impact on sales. These operational improvements reflect the capabilities of the team and the resilience of our business. We believe we are well positioned from a manufacturing and supply chain perspective as we move into the back half of the year. While we feel good about the results we delivered in the H1 and the overall state of the business, we expect the softening of volume that we saw in the Q2 in our in-ground pool product category, which was driven primarily by packaged pools, to continue through the balance of this year. In response to the recent macro uncertainty, coupled with some delayed installs from unseasonably wet weather in Q2, many of our wholesale distribution channel partners began to destock their elevated inventory levels in recent weeks. We do not expect the missed installs due to the unfavorable weather to be recovered in the back half of 2022, given many of our dealers are completely booked into early 2023. On the positive side, we continue to expect robust growth in our fiberglass business, reflecting our efforts to drive fiberglass adoption and strong performance in our liner and cover products in the back half of the year. That said, we do not believe this performance will be enough to offset the impact of wholesale distributor destocking in our packaged pools and unfavorable H1 weather. As a result, we are resetting our guidance for full year fiscal 2022, which now indicates net sales growth of between 19% and 22% and adjusted EBITDA growth of between 18% and 25%. Rob will go into detail on this later. Our updated guidance continues to imply impressive year-over-year growth, and we are confident in our ability to continue to execute on our strategy and deliver growth in the near and long term. The work we have done to strengthen our supply chain has been paying off as the breadth of our offerings and strong supplier and dealer relationships enable us to respond quickly to demand increases. We are focused on keeping our manufacturing capacity ahead of demand with construction of our Kingston fiberglass manufacturing facility in full swing. We are excited to provide additional updates in the coming quarters. The underlying fundamentals of our growth strategy remain unchanged and position us well for continued success as we look to 2023 and beyond. First, the material conversion to fiberglass. As we have discussed before, this is a key part of our growth strategy. We continue to drive awareness and education with homeowners and dealers on the value proposition associated with fiberglass pools. The low level of penetration of fiberglass pools in the North American market and our ability to drive material conversion provides significant runway for future growth and helps bolster our performance in any economic downturn, given the competitive advantages of the product. Fiberglass pools have significantly lower upfront and lifetime costs compared to concrete pools. Additionally, fiberglass pools can be installed in less than one week, and in some cases, one day, compared to a three-month install for some concrete pools. This allows the homeowner to enjoy their swimming pool much more quickly and allows dealers to grow their business more rapidly by increasing the number of pool installations per year and extending the installation season. Latham's fiberglass pools are the most durable and attractive swimming pools in the market, with premium quality and impressive strength that outperforms concrete pools. We are seeing our efforts play out in Google Trends data, with homeowner searches for fiberglass pools far exceeding homeowner searches for concrete or gunite pools, boding well for future demand. Second, we continue to build our exclusive network of dealers and work with our dealers to enhance their productivity and grow industry installation capacity. We are receiving positive feedback and results from our dealer boot camp training sessions, which have directly led to an increase in the pools installed by those participants. In 2022 so far, we have trained over 200 dealer installation teams, a seven-fold increase compared to 2021. Our dealers note that they are still booking orders into 2023 and seeing strong homeowner interest. On the Latham side, we continue to utilize our online lead generation engine to bolster the 2023 pipeline of qualified leads for our dealer partners. We continue to focus on our branding and digital initiatives, which are a key differentiator for us. Our direct engagement with homeowners is transforming the pool buying process and gives us the ability to generate purchase-ready leads for our dealer partners quickly and efficiently. Our lead generation engine continues to empower us to improve the quality and quantity of leads for our dealer partners and has generated both purchase-ready leads as well as those who need further qualification. In response to this opportunity, we have implemented a new lead qualification program leveraging our My Latham platform and leading market automation software to nurture leads as prospects until they are purchase ready. National campaigns drove a majority of the volume of leads through May, and we have recently kicked off new regional campaigns in major markets where we have onboarded dealers with installation capacity, and our manufacturing plants have the production capacity to respond quickly to spikes in demand. As we turned up the lead engine in these geographies, we saw an immediate impact. Leads increased 25% in the first week, which increased to 76% by the second week. In the first 8 weeks, we produced approximately the same number of leads focusing on regional markets as we generated for the first 20 weeks of the year when using the broader national campaigns. New rounds are planned for the back half of the year with national campaigns, organic content, and search engine optimization in sync with these efforts. Before I hand the call over to Rob, I want to highlight that on July 6, 2022, we published our inaugural environmental, social, and governance report. This is just the first step in our efforts to set clear goals, measure progress, and increase transparency of Latham's environmental impacts, social outcomes, and business practices. We are proud of the initial progress we have made with highlights including reducing wastewater from our plants to zero and recycling all vinyl and steel scrap to significantly reduce waste going to landfills. To close, the dynamics of the large outdoor repair and remodel market remain attractive, and we will continue to work as a team to navigate the current environment. We see continued demand for our products with a generational shift in spending from indoor to outdoor and continued meaningful migration to suburban areas from urban areas, as well as southern states where pool ownership is higher. Our large fiberglass order backlog remains robust, with many of our dealers booked out into 2023, and we continue to generate recurring revenue from our industry-leading covers and liners businesses. As the market leader with significant scale, we are confident that we are uniquely positioned for success as we move into the back half of the year, as well as 2023 and beyond. With that, I'll turn it over to Rob. Thank you, Scott, and good morning, everyone. Today, I'll review our Q2 and H1 fiscal 2022 results and provide an update on our outlook for the full fiscal year. Before we dive in, I want to express how thrilled I am to be part of the Latham team. I believe we're in an excellent position to capitalize on our unique value proposition long term. Turning now to our results. Net sales for the Q2 were $207 million, up $26 million or 14% year-over-year. By product line, this increase was primarily attributable to growth in pool covers, which increased 46% to $38 million, and liners, which increased 21% to $56 million. While in-ground pools expanded 4% to $112 million in the quarter. In the in-ground pool category, we grew sales in fiberglass pools, while we experienced a pullback in packaged pool sales. The $26 million increase in Q2 net sales was driven by a $34 million increase in pricing and an $8 million decrease in volume. The volume decrease was primarily attributable to packaged pools, which were impacted by our wholesale distribution customers who have begun to destock inventory levels, as well as more days of unseasonable weather in certain regions that limited installation days. Switching now to gross profit. We generated $68 million of gross profit, up $9 million or 16% on the flow-through of net sales growth and a decrease in non-cash stock-based compensation expense. Gross margin improved in Q2 to 32.7% and was up 40 basis points compared to 32.3% last year. The year-over-year reduction in non-cash stock-based compensation expense drove the expansion. Excluding stock-based compensation expense, gross margin decreased 180 basis points due to the impact of inflation and negative fixed cost leverage, mostly associated with lower volumes in packaged pools and in some case, the investment in fiberglass capacity expansion. Selling, general, and administrative expense decreased to $42 million, compared to $95 million in Q2 of 2021. This decrease was primarily driven by a $55 million decrease in non-cash stock-based compensation expense. Excluding non-cash stock-based compensation expense, SG&A increased $2 million or 7%, which is roughly half of our net sales growth rate. The increase was primarily due to investments in additional headcount to support growth. Adjusted EBITDA increased to $49 million, up $6 million or 14%, and adjusted EBITDA margin decreased 20 basis points to 23.5%. Net sales for the H1 of fiscal 2022 were $398 million, up $69 million or 21% year-over-year. We have seen net sales growth across our three product lines for the first six months of fiscal 2022. In-ground pools increased 11% to $224 million, covers increased 41% to $71 million, and liners increased 33% to $104 million. Gross profit increased to $138 million, up 25% from $111 million in the prior year. Gross margin for the first six months of 2022 increased to 34.7%, inclusive of non-cash stock-based compensation expense, compared to 33.6% for the prior year period. The $27 million increase in gross profit and the 110 basis point increase in gross margin were driven by the flow-through benefit of pricing actions to offset inflation and the $3 million year-over-year reduction in non-cash stock-based compensation expense, partially offset by negative fixed cost leverage. Excluding non-cash stock-based compensation expense, gross margin expanded 20 basis points in the H1 of the year. Adjusted EBITDA was $97 million for the first six months of 2022, up 27% from the prior year period, and adjusted EBITDA margin increased 100 basis points to 24.2% from the prior year period. Now switching to the balance sheet. As of July 2, 2022, we had cash and cash equivalents of $25 million, total debt of $314 million, and our net debt leverage ratio was 1.8x. Net cash generated by operating activities was $42 million for the Q2 of 2022, compared to $55 million in the prior year period, with the reduction primarily driven by investments in working capital, mainly inventory to return to normalized lead times and the embedded impact of inflation on inventory. For the H1 of fiscal 2022, we used $15 million of cash in operating activities, whereas in the H1 of fiscal 2021, we generated $14 million. The H1 year-over-year change was also mostly due to the return to normalized lead times and the embedded impact of inflation on inventory. Capital expenditures totaled $10 million in the Q2 of fiscal 2022, compared to $8 million in Q2 last year, driven by the increased investment in fiberglass capacity, most notably the Kingston manufacturing facility project. Capital expenditures totaled $17 million in the first six months ended July 2, 2022, compared to $13 million in the prior year period. Through our stock repurchase authorization, we used $15 million of cash to buy back a little over 2 million shares at an average price of $7.40. Before we switch to our updated guidance, let me take a moment to comment on capital allocation. Our capital allocation philosophy centers around maintaining the ability to execute on our strategic objectives through the cycle to maximize value for our shareholders. We do so by actively managing our capital structure through maintaining liquidity, paying down debt, and on returning cash to shareholders. Now, switching to our revised 2022 guidance. Based on the factors Scott outlined previously, we have updated guidance for the Full Year fiscal 2022. We expect to deliver net sales of $750 million-$770 million, representing 19%-22% year-over-year growth. Adjusted EBITDA of $165 million-$175 million, representing 18%-25% year-over-year growth. Now we expect our capital expenditures to be in the range of $40 million-$50 million. We remain committed to investing in fiberglass capacity and our digital transformation to drive long-term growth for the business. Our revised CapEx guidance is based on the prioritization of key initiatives focusing on delivering our strategic objectives. As we look to our 3-5 year targets, it's important to remember that even as our macroeconomic environment shifts, the fundamental success factors of our business remain unchanged. Our outlook reflects our ability to continue to drive material conversion to fiberglass pools, to leverage our unique direct-to-homeowner digital strategies, to generate qualified leads for our dealer partners, and to capitalize on homeowners' continued investment in their backyard. Scott, I'll turn it back to you for closing remarks. Thanks, Rob. I am very proud of all we have accomplished on an operational level and know we are rising to meet the challenges of this macro environment as a stronger and more efficient business. We are looking forward to closing out the H2 of the year and are on track to deliver our thirteenth year of net sales and adjusted EBITDA growth and adjusted EBITDA margin expansion as we begin to lay the groundwork for our 2023 plans. Thank you for your time today, and I hope you all enjoy what's left of summer. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Rafe Jadrosich with Bank of America. Please go ahead. Hi, good morning. It's Rafe. Thanks for taking my question. Good morning, Rafe. How are you doing? I just wanted to follow up on the comments on the packaged pools, which I think are the vinyl liner pools. Can you talk about how the distribution varies for packaged pools compared to the fiberglass pools? Where are we in that destocking process for the packaged pools? How much more do we have to go? Rafe, you know, if you guys recall, and I'll start with fiberglass. Fiberglass is really a direct model, right? Where we're distributing the pool from one of our factories right to the backyard of the consumer for the dealers, the installer. That's more of a direct product, and it's similar to liners and covers for the most part as well. Think of those as more direct. Some of the liners do go through distribution, but it's more of a quick pass-through. The packaged pool segment of the in-ground category is more of a stocked component product sitting in the wholesale distributor branches, where the dealer would then come in and pull that off the shelf. You know, I would say we're probably about halfway through that destocking. I think we'll see that continue through Q3 and then stabilize. That's what we reflected in our current guidance that Rob provided the update on here this morning. Great. Sure. Very helpful. Then, can you just talk about the sellout trends that your dealers are seeing or the traffic trends? How, you know, over the last few months as we've seen the macro environment become more uncertain, how has the traffic evolved? What are you seeing for end market demand, and what are you assuming in the H2 of the year? Yeah. It's, you know, I'll highlight in each of the categories. The liner business has continued to be strong, and again, that's mostly a replacement business. Some of those liners are going into new pools, so that's been a good strength for us through the entire season and continuing here into Q3. The cover business is the same. We're seeing a really strong cover business both for the automatic covers, and as many of you recall, we're really just starting to enter the winter safety cover season that will be ramping up here, you know, later this month and through early Q4. The early read on that is we're expecting a real good season there from all indications of our dealers and the consumer level. Fiberglass continues to be strong. We expect to see a really strong H2 for fiberglass sales. We got a really good backlog. We're taking orders, you know, off into 2023. M ore importantly, with supply chain challenges behind us, we've got the capacity in the ground. We've got the material availability, and our lead times are much improved, but we can quickly turn and get pools out on a pretty quick basis for dealers. You know, the packaged pool category, dealers are still booked through the end of the year and booking into 2023. Again, that's the other piece of the in-ground pool category. What we're not seeing is the pools restocking orders at the distribution level as they adjust inventory positions, where they've probably been a little higher than normal. You know, we'll see that correct through here the back half of the year. Then, you know, we should be good as we head out into 2023. Some dealers just back on the consumer demand at the dealer level, Rafe. You know, a lot of dealers are still seeing good demand at the consumer level, but there are pockets of the country and regions. I'll say dealers, and it's really down to the dealer region level where they have seen a slowing of leads. That's why we've really increased the lead generation efforts for those dealers in many of those markets. Again, I'd say it's still elevated from, you know, where we were back in 2018-2019 timeframe. They just got accustomed to a much higher level of backlog and a much heavier flow of demand and lead generation, and we're funneling those new leads back to them. Okay. That, that's helpful. Thank you. You're welcome. Your next question comes from Matthew Bouley with Barclays. Please go ahead. Hey, good morning, everyone. Thanks for taking the questions. I guess first one just on the pricing versus cost side. You know, I guess number one, just what are you seeing in, on, you know, on the cost inflation side? You know, if some relief does, you know, manifest on that side of things, how do you guys think about, you know, pricing and promotions, you know, in an environment where you may start to see cost relief? Thank you. Yeah. Good morning, Matt. I'll lead, and then if there's any other color Rob wants to provide, he can. You know, look, you know, we've not really seen a slowdown of the cost inflation on many of the fronts. There has been a few pullbacks in a few of the categories, but it's still, you know, very elevated from, let's say, where it was, you know, 12, 18, 24 months ago. So we're monitoring that. We'll continue to watch that one. T hen, you know, at this point, we're not planning or thinking about, you know, any price reductions or promotions out there to try to move product, especially just coming into this cover season, strong fiberglass backlogs. You know, so we think we're in a good position on the price cost inflation curve. Like we've done over the last now probably 24 months, we'll keep this one clearly in front of us and adjust as we see fit going forward. No plans to do anything from a pricing standpoint at this point where we sit right now. That's reflected in guidance and in our expectations. Got it. That's super helpful. Thank you for that, Scott. Secondly, just on the margin guidance, I think you're implying, you know, on an EBITDA basis, maybe margins declining 80 basis points year-on-year for the H2 at the midpoint, and correct me if I'm wrong. I'm just curious if you outline the components, gross margins versus SG&A within that and what, you know, what you think you could flex more aggressively if you need to. Thank you. Yeah, Matt, I think for the Full Year, we're expecting flat adjusted EBITDA margins to slightly up. Certainly you see in the H2 with our guidance that there's a little bit of a headwind there on the margins. That has to do with the underlying inflationary impacts we've talked about already and the expectation of that going forward. We don't give specific guidance on either SG&A breakdown or gross margin. All right. Thanks, Rob. Thanks, Scott. All right. Thanks, Matt. Our next question comes from Josh Pokrzywinski with Morgan Stanley. Please go ahead. Hey, good morning, guys. You actually have Gustavo Gonzalez on for Josh taking the questions. Just quickly, I think realized price in Q2 here was somewhere in the high teens range. How does that compare to your H2 price outlook? Should we expect moderation as we start lapping some H2 2021 pricing? T alk about your expectations in the Q3 and I guess broadly just like H2. I think Q3 destocking is like mostly where that's for, but just color there would be helpful. Yeah. Thanks, Gustavo. I think, you know, H1 versus H2, we expect the same run rate on price as we had in the H1. Got it. That's helpful. Can you guys hear me? Yeah, go ahead, Gustavo. There was a little bit of a pause there. Yep. I guess just on your H2 volume expectations was the H2 of that question. You know, we expect continued growth in the fiberglass, although we don't break it out, you know, the in-ground pool section. Packaged pools will be similar to the Q2 or the H1 in terms of volume. Got it. That's helpful. I guess just thinking about the current environment, and I know you guys have targeted, I think, you know, low to mid-20s on the fiberglass penetration rate, just has your expectations changed in the near term or just given what's going on? Yeah. Gustavo, you know, without quoting what we think the actual number will be because we really can't calculate that until early spring once we see where final pool starts from PK Data shakeout and, you know, run our analytics. What I would say is, right, we're continuing to drive that material conversion story, driving the acceleration. You know, a great indicator is 200 new dealers trained in fiberglass here over the last, or I guess, the first 6, 7 months of the year. You know, we're bringing dealers back on. Demand is resonating at the consumer level. I think the economics of the fiberglass pool versus the concrete pool, that lower upfront cost and total cost of ownership probably resonate even now more for a consumer as they're making that pool buying decision and maybe looking to save a few dollars and actually wind up with a much better finished product and experience in their backyard. You know, I think what we're focused on as part of our long-term strategy is driving that, you know, 40%-50% penetration number like we see in Europe and, you know, the 70+% penetration number we see in Australia. No change in our focus, our efforts, and that's also why we're continuing to push the capacity expansions in that category with moving on with the Kingston facility expansion. Got it. That's helpful. Thanks, guys. You're welcome, Josh. The next question comes from Timothy Wojs with Baird. Please go ahead. Hey, good morning, guys. Morning. Maybe just starting on the digital initiatives. Could you just talk about what you're doing on some of these regional campaigns that have picked up and generated new leads? I guess, you know, if you could maybe break down what the cost of that is and how replicable that is across the dealer base and other geographies. Yeah. There's you know several pieces within that, Tim, of how we run these campaigns. I'll start with right the last 12-18 months, we've really just had normal organic SEO search really carry us the last 18-24 months, where we've talked about we actually turned off our lead generation engine because dealers were flooded. You know we started to hear some dealers in pockets of the country say they've seen a slowing of leads. It's not like the lead has stopped or turned down. It's just slowed from what they've experienced over the last 12-18 months. We started turning up some of the regional programs and offerings. Again, we, you know, without disclosing exactly how we do it, we've got the ability to go into certain market territories, boost the lead generation engine, through many different marketing and digital platforms that we use, funnel those leads to our grand dealers in those markets. You know, if you go back and look at the metrics I quoted up front, the success of that is pretty immediate. You know, where after the second week, 76% uptake in lead gens. You know, by the eighth week of the campaign, we generated as many leads in that week as we did the first 20 of the year. It's a very select approach. I'm not going to disclose the cost, but I would say it's not that expensive to run programs like this with our engine. You know, it's got a very high ROI on that investment on a dollar per lead basis. I’ll say it’s less than $100 per lead without giving the exact number to just give you a feel for the magnitude of what we’re doing here. As we go forward, you know, we’ll continue to just press as hard as we can on that front for our dealers, and they’re seeing it, and that will really help us drive what we see as nice real growth here in the H2 and into 2023 in the fiberglass category. Okay. I guess, like, of the lead generation that you've done regionally, I mean, is there a way to think about how many dealers that touches as a percentage of the dealer base? Or I'm just trying to think about how, you know, over the next 6-9 months, how much you can really lean into this to drive more volume next year. Yeah. Look, there's a lot more leaning in we can do here on this front, you know, and that's what Joel and the marketing team are looking at doing right now. You know, we are running some regional programs, you know, and look, we can dial this thing up pretty rapidly here in the H2 of the year. The way to think of it is, think of it as ZIP code by ZIP code or city by city, right? We have a grand dealer or a select dealer in a particular market. You know, the leads will come in. There's a lead prioritization and lead disposition funnel that they have to go through. Literally, it will go to the first, the biggest dealer in the market first. They have a certain amount of time to disposition the lead or call the consumer back and convert it to an order. At that point, it would then go to other Latham dealers in the particular city or area. If you think about market territories, right, we're thinking of, you know, I'll pick one the Charlotte area, North Carolina, right? All those dealers in that greater Charlotte area. You know, if you think about Northern California, we would target an area. These campaigns go after pretty good, you know, territories and areas and just pushing leads to all those dealers with a quick funnel down. It's, like I said, it's been dialed in pretty well. Clearly something we'll be ramping up, and it's really the tightness of our sales team with the dealers when they ask for it. We respond quickly to them. Okay. Good. Just one more. Can you give us an expectation for what you're thinking free cash flow should be this year? Yeah. We generally don't forecast free cash flow or give guidance on it. We forecast, of course, but we don't give guidance. Okay, sounds good. Thanks, guys. All right, thank you. The next question comes from Ryan Merkel with William Blair. Please go ahead. Hey, guys. I wanted to ask about the H2. Good morning. Wanted to ask about the H2 revenue assumptions. It looks like about $120 million is the delta between the old guide and the new guide. Is the majority the destock that we're going to see in the packaged pools and maybe a bit for weather? Or did you also include a slowdown, you know, a bigger slowdown to be conservative? Yeah. Ryan, I'll take the high level view here. You know, the majority is the destock in the packaged pool in-ground category. We're not going to disclose actual percentages or splits or anything. Let's just say that's the headline statement. T hen it's not all just driven by a destocking, right? The tough Q2 weather that the dealers experienced, you know, was also part of that equation where they just weren't able to get pools in the ground, right? That's pushing some of that demand and install into Q3. With many of the dealers, I'll say, sold out, and again back to the sold out term of how many pools they're willing to put in of the year, there's just not the sprint capacity in the back half for them to make up a lot of what they lost in Q2. The combination of those two, and I'll just come back again and restate, right? The liner category, the cover category, and even the fiberglass distinct as part of in-ground are all strong performers across the board for us. We've not really seen a broad-based consumer slowdown impacting the dealers yet, other than a higher level slowdown of lead generation in certain pockets of the country that we're addressing through the prior conversation. Got it. That's helpful. Yeah. I was going to add that we're still delivering, you know, 19%-22% growth and the EBITDA growth, you know, 18%-25%. You know, positive year-over-year performance is our expectation, just to underline what Scott said. Okay. Following up, just to dig in on the packaged pools and why that might be weak, why the other categories are holding up well. Is that because the packaged pools are more to a lower end consumer? In the higher end, you're just not seeing it yet? Or is there a comp issue? I'm just trying to figure out like what the underlying driver is, and then should we view the slowdown in packaged pools as like a leading indicator for maybe your other categories, or is that not the way to think about it? No, I hate to say, Ryan, it's probably not the way to think about it. I'll answer the back part of the question. You know, I really think it comes down to, with all of the supply chain challenges, looking back over the last 18-24 months with material labor availability and lead times in these particular categories where we were out, in some cases, 35, 45, 60 days, right? That required the wholesale distributors and in many cases the bigger dealers to really start to stock up on product to start working through their backlogs. I think some of the backlogs are still out there for a lot of these dealers. You know, as the weather hit and I'll say the WDs began looking at inventory levels versus where they historically had been, they were in a position where they were probably overstocked in many products. As they're looking at where they think, you know, the industry was heading, they began to slow down on what I would call the in-season reorders, and that's really what didn't happen. We didn't see the peak in-season reorder quite as it typically would. They're drawing down stock instead of continuing to build. Like I said, we started to see that late Q2. We expect that to continue into Q3, and we're believing it will normalize at Q4, as they get to the right level that they feel comfortable with. I think the reason they're doing that is, if you look at the capacity we've added and where we sit overall, you know, our lead times are now back to probably the best they've ever been for the company in the packaged pool category. You know, we're able to push product out in a 3-5-day timeline on all those custom products, which we haven't been at in probably going back to, you know, 2019 or early 2020, and that's the other thing driving it. Just one more comment right back to the dealers for a second. They still see a healthy backlog of pools at the consumer level. Yo u know, you'd probably find it hard-pressed to find a dealer to put a pool in for you right now this fall. They're booking orders out into, you know, many cases May or June of 2023 right now. Okay. Makes sense. Thanks, Scott. You're welcome, Ryan. Again, if you'd like to ask a question, please press star then one at this time. Our next question comes from Susan Maklari with Goldman Sachs. Please go ahead. Thank you. Good morning, everyone, and thanks for taking the questions. Go ahead, Susan. Good morning. My first question is, can you talk a little bit about capital allocation? You know, you mentioned that you did narrow and reduce that CapEx guide. You also mentioned the share buyback plan in the quarter. Can you just talk a little bit about, you know, what that lower CapEx is really reflecting? What are some of those things that you're perhaps delaying, and then just how you're thinking about allocating the dollars overall? Hey, Susan, I'll start maybe just with the CapEx side and turn it back to Rob on overall capital allocation. You know, as you recall, right, if you exclude Kingston for a second, which is a big investment for us and a big increase year-over-year in the CapEx guide we provided, you know, most of the other projects are, you know, smaller one-off capacity just additions where it's a mold, a truck, you know, a piece of machinery. You know, let's say sub-$100,000 type investments across the board. You know, as we've worked through the H1 of the year, you know, couple things we've stayed focused on from a CapEx standpoint is fiberglass expansion. We're staying the course there to stay ahead of the demand, which is the story we've been talking about for a while here. You know, Kingston is, what I'll say, full steam ahead. We need that capacity in the Canadian and Northeastern market to help us balance production levels in some of our other facilities. You know, the digital transformation project is ongoing, which is important for long-term success of the company as we look out, you know, 3-5+ years. What I would say is that, you know, we did the big investment in steel with the Salvagnini. That project's nearing completion. Everything else at that point are small one-off. That we've evaluated where we sit on an overall capacity standpoint, utilization of those levels, looking at where we are in terms of current lead times and demand. We felt that there was some projects that we just can put on pause right now, you know, thus the reduction in the guidance. I think the core thesis of investing in fiberglass to stay ahead of the demand is something we will continue to do, which is a testament of this conversion story, the strength of it, and it resonating both with dealers and consumers, and what we're seeing in the marketplace. With that, I'll turn over to Robert Masson to come in and talk the overall capital allocation story. Yeah. Thanks, Scott. You know, in capital allocation overall, we see those four levers more as an equation, and the top two are really, as a growth company, our focus. Both organic growth, and then if there's an opportunistic M&A tuck-in, we would do that as well. That's the primary focus for us. On the debt side, you know, our leverage ratio is quite low. We're very healthy, so we're happy with that. I don't see allocating a lot there in the short term. On the stock buyback, that's more of an opportunistic, you know, if we see the right opportunity, and it's against really the top side. Our focus, although we have that authorization, we've only spent $15 of the $85. We have that for the next 3 years. We see that more as just another tool in the toolkit of our capital allocation, with the primary focus being on driving growth and long-term value in the company. Okay. That's helpful color. As a follow-up, you know, obviously you're newer to the public markets, and we don't have perhaps as much history on the business through cycles. Can you talk to your macro playbook? What are some of the things that you are watching to determine changes that you may need to make to the business? What are some of those changes that you can do to protect the revenue as well as the margins in a weaker macro? Yeah. Susan, you know, high level, you know, I'll start off saying public or private, right? We've been around, you know, 65+ years, and I think over the history of the business, they've seen pretty much every cycle. You know, I've been with the company now 10+ years, and I've probably seen, you know, 3 or 4 different cycles over that period as well. We've got a really good playbook. The things we're looking at high level clearly is, you know, incoming order rate, interactions with our dealers, what they're hearing and seeing, and really staying close to them from a lead generation demand standpoint. You know, we don't disclose or talk about backlogs, but that's another good indicator of what we see out there on the consumer and dealer front as we work through those. I think overall, look, we do stay close to what we think is happening with new pool starts. You know, we've got some really great wholesale distribution partners that we work with to see what they're seeing from a pull-through with all their communications with dealers. We look at all signals there. What I would say is what separates us from the rest of the pack a little bit is this digital strategy we have where we can dial up the demand on a moment's notice for the dealers. You know, 90 million homes out there that want a swimming pool, and I've used this stat several times, and I love it, right? There's about 1.5 million of potential pool demand out there per year that we can go market to, right? Those are the homeowners who have an interest in a pool, high likelihood of buying one in the next 5 years. Pool starts are still well off the peak. First of all, we don't see a big pullback coming overall in pool starts. Let's say it did pull back some. We've had a history of outperforming the overall market with fiberglass. We've got a strong recurring revenue base with our liner and cover categories. You know, Rob and the finance team, I'll say the entire business, we have a good recession playbook that we can pull. You know, multiple levers of how we could quickly pull back to reduce costs. High variabilization of the cost structure of the business. We look at those things. We have that sitting in the desk drawer, and I'll say there's probably three tiers of how we pull those programs. More importantly, we've brought some new folks into the organization that are kicking off a whole new lean and productivity initiative for us. Not to say we haven't done it, but I'd say it's a real new focus under our new chief operating officer, Sanjeev, and the team he's standing up there, building up a nice pipeline of projects going forward that we'll probably be talking about on future calls. It's probably all of those. I think more importantly, if you step back, right, 12 consecutive years of top line, bottom line and margin expansion, the guidance that we issued here this morning, the revised guidance would indicate a 13th consecutive year in what's, let's all be truthful with ourselves, a pretty difficult and challenging environment overall with everything that's happened in 2022 on a global basis. We're happy with the results. We feel we're well positioned to maneuver through H2 of the year and into 2023, and this team knows how to overcome challenges, as we've proven to you guys over the last, you know, 24-36 months. Yeah, that's great, Scott. Thanks for the color, and good luck with everything. You're welcome, Susan. Have a good day. Our next question comes from Keith Hughes with Truist. Please go ahead. Thank you. Question on what you said earlier about 4% growth in pools in the quarter. Can you talk about fiberglass pools, what the units and what the dollars were just for that category? Yeah, Keith, I'll hand that one off. You know, we don't disclose, you know, distinct fiberglass or packaged pool unit volume numbers in that in-ground pool category. What I will say is, you know, we are expecting very strong double-digit growth in the H2 in the fiberglass segment. You know, that's the result of strong backlogs that we see, you know, where dealers are currently positioned and all the work we're doing to drive that conversion story. If you hit the double digit, is that going to be all price, or will there be some unit growth in there if you're successful? Yeah, both. Sorry, both. Okay. We've talked a lot about the inventory situation on the packaged pools. Is there going to be a scenario in the future where when the inventory levels adjust to the level that the dealers want, then you'll see a little bit of a bounce back as demand goes back to where sell out is? Is that something that could happen as something foreseeable for this calendar year? Yeah, what I would say is it's a potential, Keith. I think what we have to determine is, you know, how far does the destocking go through the back half of the year, before we would expect to see, you know, a rebuilding to a reset level. I think we've got our guidance set based on the information we have out there from our business partners. You know, if I was to call, you know, I probably wouldn't see that until probably early next year. I think everyone's going to take a cautious approach here through the next, you know, six months. That's something we're really watching closely as well of, you know, how much that could potentially rebuild, based on that correction that's happening currently. Okay. Thank you. You're welcome, Keith. Our next question comes from Ken Zener with KeyBank. Please go ahead. Good morning, gentlemen. Morning, Ken. Morning. You know, obviously we've seen inventory impact H2 guidance for you. You know, we saw it in tools, we saw it in decking. You know, and it's about a 23% revenue, you know, in the back half reduction. Obviously with price, it seems like there's quite a bit more volume. There's two questions, Scott, that I'd like to follow up on. First, you talked about the H1 of next year, let's say. First, you know, somewhere in the H1, things normalizing. What gives you that conviction? Is it really? I mean, you did talk about your lead times improving. Is that what it is? Or was? You know, 'cause people are trying to discern, right, the supply level from the demand. You had Angie's List talking about, you know, contractors going more to paying more for leads and stuff, so people are trying to discern that. Where exactly is your comfort? Then my next question is going to be tied to your gross margin, 'cause you had about a 25% incrementals, you know, in the back half negative. Is the gross margin story changing from where it was when you guys initially came out in terms of that mix towards higher gross margins on the fiberglass, or did the cost inflation really eat that story away? Thank you very much. Yeah. Ken, I'll hit the high level first question, we're not going to talk H1 2023 from a guidance or expectation standpoint. I think that was part of what was woven in your question. I think the conviction of, you know, why we feel good about everything is, you know, I'll start that the liner and cover categories, right, are a strong recurring revenue business of that replacement product for the consumer, right? Large installed base of pools out there. If you own a pool, you're going to replace your liner and more importantly, you have to replace your winter safety cover from the safety aspect of that. That's a nice growing business for us. We've seen really good strength there, and particularly, you know, I've gotta mention the auto cover category that's similar to the fiberglass story, a product that a lot of folks aren't aware of, we're seeing a bigger and bigger adoption of that product on our pools as well as all pools that are installed out there, including concrete. That business is performing exceptionally well. I think as we continue to drive the story on those categories, that's a big, good base of business for us that's ongoing. The fiberglass conversion story and everything we're doing there with capacity, the conversion, standing up new dedicated dealers, 200 new fiberglass dealers onboarded so far for this year. We haven't talked supply chain at all today, which was actually great, because that's solved for us at this point in time. Where we sit no longer being on hard allocations, good raw material supply across the board, lead times greatly improved in fiberglass. Our ability to start being aggressive in that space. We're onboarding new dealers, working with them to quickly and rapidly grow and double their business. I think it's just more of the same of what we've been doing over the last decade or so in running the business. Packaged pool, right, does have this slight component of the stock product. Everything else is custom, right? We're producing it to an order to go out the back door to the consumer. That product does have a little bit of an inventory stocking, but we don't really see a slowdown of consumer demand for that segment of the in-ground pool category. So hopefully that answers your question, Ken. With that, maybe I'll turn over to Rob on the gross margin question you had. Yeah, Ken. On gross margin, you know, we don't give guidance on that going forward or the SG&A breakdown. What I can say is, you know, if you look at the H2, we're down a bit on volume. It's very similar to Q2. We do have inflation built in there. We talked about a little bit of that embedded in our inventory. We feel pretty comfortable with where our prices are today and the value proposition we have. We continue to watch inflation, but you know, that profile over the year is what we're looking at, maybe just a lower volume. Again, the Thank you very much. Yeah. Just to say EBITDA margin overall, as we're forecasting, is flat to up. As Scott said, that would be the thirteenth year of consecutive growth. Overall, we feel good about the year and where we're ending up, even with those pressures. Thank you. Welcome, Ken. This concludes our question and answer session. I would like to turn the conference back over to Scott Rajeski for any closing remarks. All right. Thanks, Sarah. You know, hey, thanks, everyone, you know, for your time on today's call. You know, we really appreciate all of your continued interest and support of Latham, and we look forward to providing further updates in future calls with all of you. Have a great rest of your day. Again, thanks, everyone. Cheers. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.