Good day and welcome to the Latham Group Inc. Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note, today's event is being recorded. I'd like to turn the conference call over to Nicole Briguet. Please go ahead..

Thank you, operator. Good morning, everyone. Welcome to Latham’s Q2 fiscal 2021 earnings call. Earlier this morning, we issued our 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 Rajeski; and CFO, Mark Borseth.

Following their remarks, we'll 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 associated on its investor relations website and will be provided our Form 10-Q for our second quarter fiscal year 2021.

The company expressly disclaims any obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments 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, 2021.

I'll now turn the call over to Scott Rajeski..

Thank you, Nicole. Good morning and welcome everyone to Latham's second earnings call. I would be remiss if I did not kick-off today's call by first thanking our employees for their unwavering dedication to our mission of making high-quality swimming pools and attainable luxury for every homeowner's backyard.

I'd also like to thank each and every one of our dealers and channel partners across our robust network for their continued partnership. Together, we continue to execute on our unique growth strategy and deliver strong results. And our second quarter performance exemplifies this.

Our strong second quarter results are a continuation of the trends we outlined in our first quarter call only two months ago.

We continue to see robust consumer demand for our products and our delivering growth, as a result of our efforts to drive material conversion of fiberglass, our unique direct-to-consumer and digital strategies, as well as the positive industry trends in outdoor living.

As a result, second quarter net sales grew 60.3% to $180.9 million and adjusted EBITDA grew 29.5% to $42.8 million compared to the second quarter last year. Our growth is being recognized by the market. In fact, we were recently added to the U.S. small-cap Russell 2000 Index on June 28.

Our inclusion represents an opportunity to increase our visibility within the investment community and expand our shareholder base. A key driver of our success is the continued execution of our growth strategy. So, I would like to take a moment to highlight our progress against our strategic pillars. Starting with our digital and brand initiatives.

We have a content rich platform that provides homeowners with education and engagement tools to navigate and simplify the pool buying journey and connects them directly with our dealers.

This strategy continues to drive leads and convert in particular, our SEO and content creation efforts have proven cost-effective ways to build consumer awareness of our products, positioning us well to capitalize on homeowner demand. In fact, thanks to the success of these initiatives and significant continued interest in pools.

We've been able to drive down our cost per lead in 2021 year-to-date as compared to 2020, while still delivering impressive revenue growth. Since the relaunch of our website in January, 2020, we have been focused on developing engaging content that speaks to every step of the pool buying journey.

Homeowners relate to this content, because it not only answers their product questions, but also addresses topics like maintenance and care, as well as safety. We constantly monitor search trends using real-time data analysis to uncover opportunities for new relevant content.

As consumers educate themselves on pool ownership, we are viewed as a go-to resource for them. And our efforts to expand and enhance our digital tools, earlier in Q2, we launched our new Plan Your Pool section on our website.

This pool planning section offers a new immersive experience for homeowners to personalize, prepare in budget ahead of make any purchase decision. Plan Your Pool, includes the pool cost estimator, which allows homeowners to compare and contrast different pricing options that fit their budget.

Another interactive piece of this new tool is My Latham, which enables consumers to create an account and save their preferences for their dream backyard. This allows us to gather helpful data and intelligence on consumer preferences, which is guiding our product and brand positioning, as well as content development efforts.

Although, we are still in the early days of Plan Your Pool section, we are seeing good conversion into purchase-ready leads. Turning to our product portfolio. We have three market-leading product lines and are investing across all three areas of our business. Today, I'm excited to share an update on our investments in fiberglass.

In today's release, we announced the plan construction of a new 170,000 square foot fiberglass manufacturing facility on a 148-acre site in Kingston, Ontario, which will be the largest fiberglass facility in our history.

We will be building the factory of the future, which will allow us to offer our world-class Latham and Narellan fiberglass products to the Eastern half of Canada, as well as the Northeast and Upper Midwest of the U.S.

Adding this new manufacturing facility will help us scale our operations in North America and create new job opportunities for the Kingston community. Construction will begin in late fall 2021, and we expect production to commence in 2023. The facility should be fully operational by 2024. This is a very exciting development for Latham.

We are seeing tremendous success in driving the material conversion of fiberglass, which has caused us to accelerate the investments in capacity. With this new facility, we'll be well-positioned to continue to stay ahead of the demand curve, as we march to driving fiberglass' penetration of all U.S. residential in-ground swimming pools to 25% by 2023.

Also our relationships with dealer/partners are a critical element to our long-term success. Our dealers continue to see robust demand across the board, further reinforcing our confidence and the long-term viability of the growth we're seeing across the pool industry.

As homeowners continue to invest in the backyard, we are deepening our relationships with existing dealers and adding new ones in under-penetrated markets. Notably, the rollout of our Narellan franchisee model and the Premier Pools & Spas partnership are outpacing our expectations and have been key in our efforts to drive the adoption of fiberglass.

While we are always looking to grow our dealer base, our primary focus is on enhancing our existing dealers' productivity. We have several initiatives in place to help them grow their businesses.

Our Latham University program like dealers with tools to support their education on the benefits of fiberglass, as well as hands-on installation training, and we're seeing strong dealer interest in these training sessions. In fact, we have held nearly twice as many boot camps in 2021 year-to-date compared to a typical year.

Our Latham business excellence coaches are helping our dealers learn how to better scale their business and add new crews, enabling them to expand the average number of pools they install per year. Expanded on these efforts, we're also planning to open a world-class training center with a soft opening plan for the fourth quarter.

We're driving solid growth despite facing a challenging macro backdrop, including material inflation and intermittent raw material shortages, which has continued into the third quarter.

We understand the challenges our suppliers are facing, and we appreciate their close partnership, as we navigate intermittent shortages to meet consumer demand for our products. Additionally, our teams are doing a tremendous job countering these headwinds through price increases and productivity initiatives.

Thanks to our pricing strategy and the breadth of value adding products we offer, we have been able to pass-through price increases through our value chain to help counter the inflation we're seeing on raw materials.

As we enter the back half of the year, we will continue to work as a team to navigate these macro pressures and feel well-positioned to capitalize on the continued consumer demand for pools. The strong underlying secular trends of our industry remain intact, and we continue to see our growth strategy take hold. With that, I'll turn it over Mark..

Thank you, Scott and good morning, everyone. Today, I'll review our second quarter and first half fiscal 2021 results and provide an update on our outlook for the full fiscal year. All comparisons I'll be sharing are on a year-over-year basis compared to second quarter and first half of fiscal 2020.

Please note 2020 results do not include the acquisition of GLI or our investment in Premier Pools & Spas, both of which occurred in the fourth quarter last year. Sales for the second quarter were up by $68.1 million or 60.3% year-over-year to $180.9 million.

This increase was primarily attributable to strong consumer demand and order volume, expanded strategic partnerships with our exclusive dealers, the acquisition of GLI and price increases. If we include GLI sales in the second quarter of last year, our sales growth would be 35%.

By product category net sales for in-ground pools increased 73.8% to $108 million. Covers increased 55.9% to $26.2 million and liners increased 37.8% to $46.7 million. Gross profit increased by $14 million or 31.5% to $58.4 million, mainly due to an increase in net sales, partially offset by the addition of non-cash stock-based compensation.

Gross margin decreased to 32.3% compared to 39.3% last year. Our 2020 second quarter gross margin benefited from a number of pandemic induced actions and outcomes. With the uncertainty of the economic environment last year, we implemented a number of temporary cost-saving initiatives, including wage decreases and hiring freezes.

We also saw lower rebate and incentive accruals, reflecting the modest volume expectations for 2020 at the time. This year's gross margin has been impacted by the inclusion of non-cash stock-based compensation expenses of $4.9 million. Excluding this stock-based expense, Q2 gross margin would have been 270 basis points higher or 35% to sales.

The balance of the year-over-year gross margin decline in Q2, 2021 was driven by higher rebates from our strong sales growth, as well as temporary manufacturing inefficiencies on our plants from the interruptions in raw material availability and the inflationary impact of the timing of cost increases versus our price increases.

Market supply and demand imbalances continue to drive costs of raw materials higher, with some key commodities experiencing unprecedented price inflation in the quarter. We have responded to this with a series of price increases of which we will see a more meaningful impact in the second half of the year.

Selling, general and administrative expenses increased to $95.3 million from $15.4 million in the second quarter of 2020.

This increase was primarily driven by non-cash stock-based compensation expense of $70.6 million, as well as the acquisition of GLI, wage and headcount increases from the addition of customer facing roles, ongoing public company costs and incentive plan accruals, reflecting our strong sales performance.

This translated into higher SG&A as a percent of sales to 52.7% from 13.6% of sales in the second quarter of last year. Excluding stock-based compensation expense and the ongoing cost associated with being a public company, SG&A in the quarter was $22.9 million or 12.7% of sales compared to 13.4% of sales last year.

Adjusted EBITDA increased by $9.7 million or 29.5% to $42.8 million, while the adjusted EBITDA margin decreased to 23.7% of sales as a result of the gross margin compression, which we just discussed.

Net loss was $53.6 million or a $0.49 loss per share as compared to a net income of $16.4 million or $0.17 per share for the second quarter of fiscal 2020, largely driven by the non-cash stock comp expense of $75.5 million.

For the first half of fiscal 2021, net sales increased 101.1% to $329.6 million from $164 million for the first six months of 2020. Looking at a net sales performance in our three product segments for the first six months of fiscal 2021, we have seen robust growth across our product lines. In-ground pools increased 120.2% to $201.6 million.

Covers increased 80.5% to $50.2 million, and liners increased 74.6% to $77.8 million. Gross profit increased 103.4% to $110.8 million from $54.5 million for the prior year period, inclusive of a non-cash stock-based compensation expense of $4.9 million.

Gross margin for the first six months of 2021 increased to 33.6%, inclusive of stock-based comp compared to 33.2% for the prior year period.

Margin expansion was driven by price increases, higher utilization of our fixed cost structure and a mix shift towards in-ground pools and was partially offset by challenges in our supply chain, including intermittent raw material shortages and cost inflation, higher rebates driven by strong sales growth and stock-based comp.

Adjusted EBITDA was up 144.7% to $76.4 million for the six months of 2021 and adjusted EBITDA margin increased to 23.2% from 19.0% for the prior year period. Turning to the balance sheet. As of July 3rd, 2021, we had cash and cash equivalents of $76.5 million and total debt of $237.3 million. Our net debt leverage ratio was 1.3 times.

This compares to cash and cash equivalent of $59.3 million, total debt of $221.5 million and a net debt leverage ratio of 2.0 times as of December 31st, 2020. As of July 3rd, our liquidity, which we define as net cash plus availability under our revolver, increased to $106.5 million compared to $89.3 million as of December 31st, 2020.

Net cash provided by operating activities was $14.2 million for the six months ended July 3rd, 2021 versus $10.2 million in the prior year period, primarily driven by the increased level of adjusted EBITDA and partially offset by our increased investment in working capital to support our strong growth, mainly in accounts receivable.

Capital expenditures totaled $8.4 million in the second quarter of fiscal 2021 compared to $3.4 million in the second quarter of fiscal 2020. The increase in capital spending was primarily related to our fiberglass capacity expansion initiatives.

Capital expenditures totaled $13 million in the six months ended July 3rd, 2021 compared to $6.2 million in the prior year period. I'll now share an update on our guidance for fiscal 2021.

Our outlook for the year reflects our strong first half financial results and our optimism in our ability to continue to drive the material conversion to fiberglass, leverage our unique direct to homeowner digital strategies to generate leads for our dealer/partners, capitalize on the positive trends in outdoor living, and manage any supply chain and inflationary related headwinds in these very unique.

Additionally, as we discussed on our last call, our outlook reflects tougher second half comparisons as the result of the pandemic and the early success of our unique direct to homeowner model, which drove very strong growth in the last six months of fiscal 2020.

For the full year, we are raising the lower end of our prior net sales guidance, and now expect full year 2021 revenue to be in the range of $600 million to $620 million, representing annual growth of between 49% and 54%. If we were to include GLI results for all of 2020, net sales growth would be between 30% and 34%.

We are also raising the lower end of our prior adjusted EBITDA guidance, and now expect full year adjusted EBITDA in the range of $130 million to $138 million. Our capital expenditure guidance for the full fiscal year remains unchanged at $28 million to $36 million, which would include any 2021 spend related to our Kingston investments.

As Scott mentioned earlier, the supply chain dynamics we experienced in Q2 are continuing into the third quarter. Although, we don't provide quarterly guidance, given the unique operating environment, we find ourselves in. We felt it was helpful to provide color on our expectations for profitability in the third quarter.

We have taken quick action to increase prices in response to the supply chain pressures that we have been discussing today. And we will start seeing more of an impact from these as we go through the second half of the year. In the meantime, this will place pressure on our bottom line in Q3.

Taking all of this into consideration, we expect to deliver adjusted EBITDA in Q3 in the range of $36 million to $42 million. Scott, I'll turn it back to you for closing remarks..

Thanks Mark. I am very proud of all we have accomplished so far in just a few months as a public company.

The last 18 months have been unlike anything we've ever seen and through it all, whether it be the pandemic or the ongoing supply chain challenges over whatever might come next, our team members continue to show up every day to drive our business forward.

We are seeing great traction on our efforts to reimagine the pool buying experience for customers. And we are excited about our opportunities to drive future growth. Operator, please open the line for questions..

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Matthew Bouley with Barclays. Please go ahead..

Good morning. This is actually Ashley Kim on for Matt today. So, you've talked about a normalized 50/50 split between the first and second half revenues, but the full year guidance implied second half a little less than that 50%.

So, should we just be thinking there's some conservatism baked into the revenue outlook? Or is that just a function of a really strong first half?.

Yeah. So, good morning, Ashley. Good to talk to you again this morning.

So, I think, we've talked through times about the seasonality of the business and where we've been, let's say, the dynamics of the wet 2019, the pandemic of 2020, and eventually reverting back to the mean, 50-50 is probably not the exact split we're talking about there as we go back to the normalization of the quarters.

I think what we're faced against in the second half is really strong comps in the second half of the year that we've talked about a few times. And as we move through that and then looking at the supply chain challenges we're fighting through I think, we'll still post up phenomenal results on a full year basis.

And that's what I think we want to keep coming back to. So, when you look at full year results, there'll be pretty good year-over-year comps, and we'll keep working through the second half of the year..

All right. That's helpful.

And then, how are you thinking about material deflation? If we ever see the other side of this? Have you historically had to give price back to customers?.

And if I look at my crystal ball, right now, I don't see material deflation in the future at any point. And how I think through that one is, the spikes we've seen have been phenomenal across the board, that all folks are fighting through.

I don't think we'll see material prices revert back to prior lows or go below where they were, let's say, three or six months ago, the peaks will be knocked down some, but we'll still be in an inflationary environment when you compare back to six, nine or 12 months ago..

All right. Thanks for the color..

Thanks, Ashley..

Our next question comes from Josh Pokrzywinski with Morgan Stanley. Please go ahead..

Hi. Good morning, guys..

Good morning, Josh..

Good morning..

So, just a question on kind of your own capacity and backlog situation.

Just wondering if you guys are essentially sold out for the rest of the year and how that kind of plays into price increases for folks who already have product on order? And then how much visibility into 2022 do you have at this point?.

Yeah. So, Josh, we we've talked, we don't specifically disclose capacity or backlog numbers. But I can tell you, we are not sold out at this point in time for 2021.

We have plenty of capacity, which is part of our strategy, staying well ahead of that capacity and thus, the reason for accelerating the investment with the announcement of the Kingston facility. We want to keep staying out 12, 18, 24 months ahead of the curve with the demand that we're seeing in driving with that fiberglass material conversion.

The other thing to think about is we're really just entering into the winter safety cover season here in the next few months, which will really be a whole new wave of business coming at us as that season kicks off. We can still take orders, manufacturer products, ship it out to dealers at want pools.

And again, it's that balance of dealer capacity versus ours, but we have plenty of capacity. It just comes down to the ability to get all the raw material we need to make the pools and get them out on time..

Got it.

But there's no like, sort of locked in price for folks who do have orders that are maybe date dated a few months out where you're not, I guess, hedged or locked in on the purchases to support that?.

Yeah. When we -- we've recently announced some additional price increases here in the last 30 to 45 days. The decision we made was to protect the backlog of the orders on the books for the existing customers in the year. But all new orders that will be coming in will be at those higher prices as we worked through the back half of 2021 and into 2022..

Got it. That's helpful. Appreciate the color..

Thanks, Josh..

Thank you, Josh..

Our next question comes from Susan Maklari with Goldman Sachs. Please go ahead..

Thank you. Good morning, everyone. My first question is following up on the price cost discussion.

Can you give us some color on when you expect to be priced cost neutral? Will that come in the fourth quarter, or is that something that you're aiming for in 2022? Does any color and how we should be thinking about that dynamic?.

Yeah. So good morning, Susan. I'd say high level, when we say price cost neutral. I think, we always try to have price exceed the cost and the inflation we're seeing across the board. That's been our strategy and the key driver to our margin expansion over time. And that's what we're kind of trying to stay in front of.

And I think that's why we also chose to give some guidance on the EBITDA numbers for the third quarter. As looking at that dynamic, the recent spike, not repricing the backlog and making sure we continue to expand and grow the margins as we move forward..

Okay. Thank you. My next question is, you discussed the new facility up in Canada that you're starting to work on.

Can you give us some sense of what the revenue or the volume that facility will be able to handle as it starts to come online and fully ramps up over time?.

Yeah. So, Susan, we're not going to disclose distinct capacity or volume projections out of a particular facility. What we will say about that plant, it will be by far the largest and biggest out of all the fiberglass facilities we have. It will be the state-of-the-art facility.

We'll be deploying several new concepts and technologies there to maximize output from that facility, the ability to stage and grow it rapidly over time with minimal additional investments.

And I think when you look at the model, in general, in our three to five-year projections of where we see fiberglass growth going to eventually get into, let's say, 25% of the market in 2023, as we marched to the 50% number we've discussed, that plant will be a key enabler to help us accelerate and hit those numbers and projections..

Okay. Gotcha. Good luck..

Thank you, Susan..

Our next question comes from David Bellinger with Wolfe Research. Please go ahead..

Hey, good morning. Thanks for taking the questions.

First one on the intermittent raw materials shortages, has that led you to miss out on some level of sales near-term, or is that more of a delayed effect where we could see some impact to the top line over the next few quarters?.

Yeah. David, it’s -- look, it's kind of been intermit and enrolling shortages in different commodities, and sometimes it's just a particular delivery may not show up at a facility as expected on that day. I think, high level, have we missed some revenue as a result of that? Yeah, I think that's a fair answer to say.

We've probably missed some revenue out the door. Really difficult to quantify because it then gets into the fact of what the dealer have been able to take delivery of that pool, get it into the ground. So, I'd say it has impacted some.

It's minimal and that's what we continue to just monitor as we move through the supply chain challenges that are out there..

Understood. And then, follow-up here, just on the gross margin decline somewhere in a range of 700 basis points here in Q2. Can you help us bucket the key drivers there? How much of that is transitory based on the actions you took last year? And two, we see margins rebound into the back half..

Yeah. Hey, David. It’s Mark. You're right. 700 basis point gross margin decline in the quarter versus last year. And I think, like you said, there's a little of unpacking to do there. I think, first, the addition of the non-cash stock-based comp expense accounts for 270 of the 700 basis points.

Secondly, the actions that we took last year, David, probably account for about another hundred of that basis point year-over-year reduction, which leaves you with, let's call it, 330 basis points, that I would call more operational.

And that's really a combination of the inflation that we're seeing in our raw materials -- long as well as, I think some of the manufacturing inefficiencies that are a result of these intermittent raw material shortages. As I mentioned, we've taken significant price actions.

But as we protect the backlog is going to take us a little bit longer to see the benefit of those flow through to the bottom line. But hopefully that helps unpack it a little bit..

Yeah. That's very helpful. So, I could just squeeze one -- quick one in here. Clearly, there's a lot of labor concerns out there. So, what are you seeing in terms of labor pressures, maybe talk about the limited amount of labor required to install a fiberglass pool versus legacy materials.

And just given that dynamic, you're seeing your share gains accelerate in the near-term..

Yeah. So, David, I'll take it into two pieces. One, let's say our factories, we've continued to ramp and hire folks over time, over a hundred folks year-to-date so far. I think, it's close to 400, if we look back over the last year or so. The market continues to be challenging out there to hire and recruit talent in.

I think we've done a really good job of getting folks there. We've continued to increase wages for all of our factory workers to meet market levels and competition. And that's been received very well. And we've seen a lot of -- great progress on a regional basis where we we've done that, which has really helped boost output in several facilities.

I think, when you look at the conversion on piece of that equation against concrete, I think that's been a big benefit to us as well.

The fact that you can use less people to get a fiberglass pool on the ground faster than a concrete pool or even a vinyl liner pool has really helped drive the acceleration of that conversion, which again goes back to why we have such a strong belief that the demand and acceleration in that conversion story is going to continue to resonate over the next three to five years for us.

And again, I'll just bring it right back. It's also why we're making this big investment in the Kingston facility earlier than we had planned or scheduled, because we're seeing that take hold. And I think that trend's going to continue.

Labor shortages are not going away any time soon in our economy, and that will continue to force those concrete guys to have to switch. And that's been the success we've seen with, let's say, the new Narellan dealers coming online, as well as the success we've had with Premier Pools & Spas, which is specifically targeting concrete conversion..

Thanks so much. I appreciate all the detail here..

Welcome, David..

Our next question comes from Ryan Merkel with William Blair. Please go ahead..

Hey, guys. Thanks for taking the question..

Hey, Ryan..

So, back to gross margins, how should we think about gross margins sequentially into the third quarter? Should we expect some improvement from price capture and improve gross?.

I think, for the third quarter, Ryan, as you know, we don't provide guidance on a quarterly basis. We feel good about the color that we've provided for the $36 million to $42 million of EBITDA for the quarter, and then we feel very good about the update to the guidance that we've provided.

I would say that the raw material -- intermittent raw material shortages that we've experienced in the Q2, we would expect those to continue somewhat into Q3. The pricing actions that we've taken, and historically we've forced enough price to offset inflationary pressures. We expect to do that again for the full year.

So, we feel good about the full year outlook and what we see for Q3..

Okay. That's helpful.

And then, to the full year outlook, what's sort of the biggest variable that gets you to the high-end and should we assume that you're baking in some conservatism, just given the challenging supply chain environment?.

I think, a couple of things. We continue to see, as Scott mentioned, really robust demand. Demand continues very strong. We feel good about the B2C transformation, that we're driving in the business. So, we feel good about that. We do have these intermittent supply challenges.

And I think, having those work their way clear, probably drives us closer to the higher end of the range than the bottom..

And Ryan, one other thing I'll add is, the other variable -- we've got to continue to watch and manage is just dealer installation capacity in the back half of the year.

We're hearing more and more -- and it's a good story to write -- more and more dealers are talked about, they're sold out, they're booking into 2022, some cases dealers booking into 2023. So, what we're doing with those dealers and our partners is working with them to show them the demand outlook for next year.

What we're doing with our new digital strategies to drive leads to them, convincing them to add a second or a third crew in many cases. So, they can double the number of pools they're putting in the ground.

That will be -- that's another big thing we're really pressing hard is getting new franchisees and under-penetrated market stood up, getting those who have an existing crew to add another crew. That's what will enable us to get more revenue out the door in the second half and give us the success for great growth in 2022 and beyond..

Got it. Thanks for the color..

Welcome..

Thanks Ryan..

Our next question comes from Tim Wojs with Baird. Please go ahead..

Hey, gentlemen. Good morning..

Good morning, Tim..

Maybe just, Scott, on that last question, I mean, are there any incentives that you can provide your dealer partners to add crews versus just telling them, how good demand is and they should add more?.

So, I think, there's a lot of things we do there, Tim, day-in and day-out with our dealer partners. The first one I think really is the demand and leads, right? Proven to them that we can give them more leads than they can currently handle and get pools in the ground is really the first part of what we do there and just showing them we can deliver.

The second one then is the training that we provide with our business excellence coaches specifically in the fiberglass world, getting them to train their crews up, spend time in the field. We will be in the backyard of the consumer for the first, second and third install with those new dealers and new crews to help them through that scenario.

And then, I think there's -- the rebate program that we also offer and the rewards and incentive programs where, as they grow, they can earn more rebates. They earn their way to our dealer conference, where they can sit in on all the classroom training we provide. So, it's kind of the whole package we provide.

I don't think there's any incremental incentives we need to give on a dollar basis for doing that. It's more of the coaching and just how we partner with all of our dealers as we move forward.

And look, we have offered from time-to-time to buy a truck, a trailer and incremental excavator because the ROI and some of those smaller investments are phenomenal. If a dealer was strapped from a working capital standpoint, we just -- we bring everything to the arsenal we can..

Okay. Okay. Good. And then when you think about the midpoint of the guide, I think it's gone up about $10 million.

Is the way to think about that, that's all price and basically your volume assumptions for the year are essentially unchanged?.

Hey, Tim. Yeah. I think a fair portion of that would be the incremental prices that we've pushed along. But as I mentioned, orders, demand for the product remains very strong. We like what we're seeing there. But certainly, the incremental price went a long way towards moving the bottom end up..

Okay. Okay. Good. Well, good luck on the second half guys. Thank you..

Thank you..

Thanks, Tim..

Our next question comes from Judy Merrick with Truist. Please go ahead..

Thank you. This is Judy in for Keith Hughes. You noted and with the new Kingston facility in Canada, but it also served the Northeast and the Midwest U.S. Have you made any other investments in capacity, existing capacities such as the Southeast or Southwest U.S.? Thank you..

Yeah. So, good morning, Judy, gets to talk to you again. Yeah. Look, we've continued to add significant amounts of CapEx from a growth standpoint across the entire footprint of our business. And again, most of the existing plants in fiberglass do sit in kind of Virginia, the Southeast, the Southwest, the Midwest.

The Northeast and Canada, I think we've talked a few times kind of was one of those spots where it was the next place to go put a bigger facility. We have an existing facility in Kingston. I think we've just outgrown that site and what we can do there. So the new facility will really enable us to cost efficiently and effective serve that market.

We discussed Eastern Canada, Northeast, upper Midwest, access to those markets where we're seeing tremendous growth, um, and conversion of fiberglass there. But we're continuing to add capacity across the entire footprint..

Okay. That's helpful. Thank you..

Our next question comes from Ken Zener with KeyBanc. Please go ahead..

Morning, everybody..

Good morning, Ken..

So, lots of demand there, interested in kind of the dynamics about how you're handling the raw material out of it. If there's a way for you to kind of quantify the dollar headwind, how much you're recovering. I suspect you're going to pass on that.

But can we talk about the processes you have in place here? Because I understand you're protecting backlog, right? So, you've taken, right, there was a certain price out there, that's flowing through into the third quarter.

You've been very proactive about recapturing that cost inflation, thus, right, the guidance EBITDA, midpoint that moved up a little bit.

But can you explain to us a little more how those higher costs got stuck in the business versus the pricing? Is that just a function of -- what, you had outstanding orders that used to lock in price for 45 days, or you had -- you didn't have price sheets that were as dynamic.

Can you just walk us through that a little bit? How that slipped on the third quarter?.

Yeah. So, Ken, there's a lot in there and we really can't and don't want to get into each of the specific and dynamics. But what I would say the strategy has always been to stay out in front of the cost increases, looking out for the next quarter or two, and as demand continues to be strong.

And let's say more and more orders are getting put on the books and we're managing our inventory levels and let's say needing to now go execute incremental buys above and beyond what we had been planning to match that incremental demand out there, with -- let's just say the unfortunate timing of this huge spike we're seeing in raw materials, in some cases, very strong, double-digit increases that happen almost overnight as we're buying and replenishing to rebuild and ship pools out, I think that spike kind of -- I know a lot of folks say, hey, it's a temporary spike.

But look, it's significant and prices continue to remain elevated on the cost standpoint. And then you combine that with, let's say, rolling shortages whereas you try to go to your second and third sources, you may have to pay a few dollars more from those second and third sources to get material in.

We just got to continue to work through that challenge, but we still believe the prices that we've pushed and more importantly, all of the productivity and the cost initiatives that we're driving in the business to help offset that. There's no way you can push everything through all at once.

You don't want to reprice the backlog for contracts that consumer -- dealers have with consumers. The absolute price versus inflation number, the price continues to stay ahead of all of the inflation we're seeing in the business across the board. And that's why we felt comfortable to take the lower end of the guidance off.

And look, I'd say it's not being conservative, it's being cautious of where things will continue in the back half of the year. There's still a lot of uncertainty out there. We've made it through most of the call without talking about COVID and the Delta variant. It's getting a little scary out there with that.

Again, we've just got -- we just want to continue to be cautious. And at the end of the day, deliver the full year guidance we've provided to you guys, which has been the history of our company to perform and grow top line and earnings year-over-year..

Right. No, I understand the details. Now, let me -- can I approach it another way? There's a variety of companies out there, larger companies in the building product space that talk about generally a one to two quarter lag in price to cost, industry structure enables that to happen.

As I look at how -- the back half kind of unfolds given your guidance, it seems to me that your time for your price cost recovery is closer to that one verse two quarter, and I assume that's related to kind of order cycles, and your inventory.

Would that be an accurate description of your price cost relationship as we get to know your industry?.

Yeah. Ken, I'd say it's probably fair. I think the thing that's maybe a little different for us than most is we are a custom, very short cycle business that typically does not have large backlogs.

And I think with the demand that we're seeing and really what we're trying to do is get better visibility with our dealer partners on what the projections look like. Then, we can manage our supply chain and delivery cycles better for them and better for the consumer.

So, as we ask for more orders, better visibility, that backlog upticks a little bit and as lead time stretch out because of some of the materials shortages, it will stretch some, but every product line is really different within our segment, whether it's the in-ground pool, the cover business, or the vinyl liner business, each one of those, those cycles are so different.

It's hard to just generalize kind of the response to your question, but I'd say we're probably on the shorter side versus the longer side..

Thank you very much..

You're welcome..

Welcome, Tim..

This concludes the question-and-answer section. I would like to turn the conference back over to Scott Rajeski for any closing remarks..

Great. Thanks. So, hey, first of all, I really want to thank everyone for joining us on the call here this morning. We do step back at times and say, look, it's two months since we've been public. We've done our second earnings call. That may be a record on potentially in terms of the gap between the first and the second.

But the key themes of our business continued to resonate very well across the board. Overall that demand outlook remains very strong. We're starting to get really good visibility as we'll look out into 2022, and I think many dealers are also very bullish about 2023, as they look forward.

The reason for that is, look, we've got great dealer partners across the entire globe, no matter where you look, they're working with us to figure out how we can get them to double their installation capacity and get more pools in the ground per dealer. And as we expand and grow the dealer base, that's going to help continue to drive that growth.

Our consumer and digital strategy investments continue to resonate. We continue to be very creative with what we're pushing out there, and we've got a lot more coming down the pipeline as we stand up all of those tools to convince the consumer why fiberglass.

And I think all of that really comes back down to the most important part of our strategy, that material conversion story of converting to a fiberglass pool for all of the benefits that provides lower costs, faster install, the lifetime warranties we offer, just an overall better ownership and swimming experience for the consumer, that continues to accelerate.

I think we're very, very pleased with all of our efforts with all of our channel partners through everything we're doing here, that we really want to come back and step away from this call and say, guys, the march to that 25% of the total market being fiberglass in 2023, we will get there if not exceed it.

And really what we're starting to get our eyes focused on is what do we need to do to continue to drive that to get that 50% or 60% number that we've talked about, which starts to get as close to where the Australian market is today. So, we couldn't be more than pleased with the overall efforts of the business.

And I think when you just step back and look at the first half results that we posted up year-to-date, pretty impressive growth numbers across the board. And I know we could not be happy with what we've been able to deliver for everyone. So, with that, I'll conclude, and again, just thank you for your time.

And I hope all you guys have a great day and just be safe out there because the world's still a scary place as we know with the Delta variant raging. So, thank you..

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