SWIM

Latham is the largest in-ground residential pool manufacturer in North America (plus Australia/New Zealand), leading every product category it competes in with a 70-year operating history and 15-year average dealer tenure — genuine franchise quality. FY2025 marks an inflection: revenue grew 7.4% to $546M and net income swung to +$11.1M from a -$17.9M loss, a $29.0M improvement. Gross profit rose 18.4% and gross margin reached 33.4%, while management-cited Adjusted EBITDA climbed to $99.8M (18.3% margin, up from 15.8%). Cash generation is the real story the GAAP figures understate: operating cash flow of $63.4M against $25.4M capex leaves ~$38M free cash flow, and D&A of $51.4M dwarfs net income — so the headline 68x P/E overstates how expensive the equity is. On enterprise value (~$717M cap + $280M debt - $71M cash ≈ $926M) the business trades near 9x EBITDA with a ~5% FCF yield, which is a fair, not cheap, price for a cyclical leader.

The caution is that this recovery is still incomplete and richly priced on earnings. FY2025 revenue of $546M remains ~22% below the FY2022 peak of $696M, and management explicitly expects the U.S. in-ground pool market to 'remain flat in 2026' — so growth must come from self-help: fiberglass and autocover conversion, Sand State expansion, and the just-closed Freedom Pools acquisition (Feb 26, 2026). Margins are thin (2.0% net, 2.7% ROE), and the MD&A flags a 'substantial risk that demand for our products may continue to soften as we continue to increase the prices of our products to offset the inflationary pressure' — a direct warning that pricing power to offset wage inflation may throttle volumes. The balance sheet carries $277M long-term debt against $406M equity (1.03x liabilities/equity) and a $63.7M accumulated deficit; leverage is manageable but not trivial in a discretionary, housing-linked business. A fresh CEO (Sean Gadd, effective Jan 5, 2026, replacing the retired Scott Rajeski) adds execution/transition uncertainty right as strategy is being pressed.