Q4 2023 Latham Group Inc Earnings Call
Participants
Casey Kotary; IR; Latham Group, Inc.
Scott Rajeski; CEO, President & Director; Latham Group, Inc.
Oliver Gloe; CFO; Latham Group, Inc.
Robert Schultz; Analyst; Robert W. Baird & Co. Incorporated
Shaun Calnan; Analyst; BofA Securities
Scott Stringer; Analyst; Wolfe Research, LLC
Jonathan Nelson; Analyst; Truist Securities, Inc.
Mathew Bouley; Analyst; Barclays Bank PLC
Andrew Karter; Analyst; Stifel, Nicolaus & Company, Incorporated
Michael Francis; Analyst; William Blair & Company L.L.C.
Susan Maklari; Analyst; Goldman Sachs Group, Inc.
Presentation
Operator
Good afternoon and welcome to the Latham Group Fourth Quarter and Full Year 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question. You may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Casey Kotary, Investor Relations representative. Please go ahead.
Casey Kotary
Thank you. This afternoon, we issued our fourth quarter and full year 2023 earnings press release, which is available on the Investor Relations portion of our website where you can also find the slide presentation that accompanies our prepared remarks on today's call are Latham President and CEO. Scott Rajeski and CFO. Oliver Gloe. Following their remarks, we will open the call to questions.
During this call, the Company may make certain statements that constitute forward-looking statements, which reflects the Company's views with respect to the future events and financial performance as of today or the date specified. Actual events and results may differ materially from those contemplated by such forward-looking statements due to risks and other factors that are set forth in the Company's annual report on Form 10 K and subsequent reports filed or furnished with the SEC as well as today's earnings release.
The Company expressly disclaims any obligation to update any forward-looking statements except as required by applicable law.
And in addition, during today's call, the company will discuss certain non-GAAP financial measures. Reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that accompanies our prepared remarks, which can be found on our Investor Relations website.
I'll now turn the call over to Scott Rajeski.
Scott Rajeski
Thank you, Casey. Good afternoon, and thank you all for joining us to review our fourth quarter and full year 2023 results and discuss our outlook for 2024. We were pleased that our fourth quarter results came in slightly ahead of our guidance range, capping a year in which we focused on several structural cost savings initiatives to mitigate the impact of another year of lower pools. It also was another year that showed the resilience of our business and Lincoln's ability to both outperform the overall market decline and to generate substantial cash flow from operations.
There are several key takeaways worth noting that helped us navigate the challenging business environment in 2023 and have set us up to emerge an even stronger company and competitor as business conditions improve.
First, we continue to drive the convergence of fiberglass mold over concrete pool as a result of Lincoln's leadership in this category, we were able to report sales for the year that outperformed the decline in new pool starts in the US by approximately 10-percentage-points Secondly, we ended 2023 in a strong competitive position with leading market share in all product categories in which we compete an energized dealer network in greater consumer engagement, all supporting Lincoln's ability to capture additional market share as industry conditions improve.
Third, we took decisive actions early in the year that have fundamentally improved our cost structure by closing facilities, streamlining operations and accelerating our Value Engineering and Lean manufacturing initiatives. We have structurally reduced our costs and increased our capacity, giving us the ability to considerably increase our profit margins once volumes recover.
Lastly, we strengthened our financial position in 2023, ending the year with a record cash position of just over $100 billion, providing substantial financial flexibility and demonstrating our ability to efficiently manage through difficult market conditions.
In summary, Latham exited a year, which saw significant decline in new in-ground pool starts and have entered 2024, which strengthened market positioning in the resources to quickly take advantage of the eventual rebound. Specifically, we continue to see progress in fiberglass and penetration of the new in-ground pool market expected fiberglass now accounts for approximately 22% of pool starts in the US. This compares with 21% and 18% in 2022 and 2021, respectively. A clear indication of our leadership position in fiberglass driving this ongoing conversion progress.
Latham's fiberglass product sales accounted for approximately 73% of Latham's full year 2023 in-ground pool sales since 2019, we have grown our fiberglass product sales at a compounded annual rate of about 15%. And we have several strategic initiatives in process to leverage the share gains. We've achieved to date in states like Texas and the Carolinas to further penetrate the sand states, notably, California and Florida, Arizona and Nevada were country pools continued to dominate the value proposition is compelling. Fiberglass pools have an average 25% to 30% lower upfront cost versus concrete and a total overall lower cost of ownership of 35% to 40% over time, they can be installed as fast as one day by some of the best dealers and approximately three days on average for the majority of our dealers compared to three to six months for most concrete pools. Also fiberglass will there more ecofriendly than concrete pools using 30% less chlorine, eliminating the dilution created by the production of concrete and not requiring the ongoing maintenance repair and refinishing generally needed for concrete poles.
In 2023, we had approximately 300 fiber last ran dealers who sold at least five pools, which is about 100 more than we had in 2019 and speaks to the positive momentum for both fiberglass pools and correlate of expansive dealer network. While dealer recruitment is important to our growth strategy, increasing dealer productivity is an even greater priority. And we moved ahead with several initiatives in 2023 that have done just that these include the leaf and design center, which enables our dealers to easily create branded content and customize collateral materials, our fiber, less boot camp training sessions and of course, our lead generation programs, which result from the direct consumer engagement that we continue to build in 2023, our marketing spend continues to yield very positive results. Recent data show that late the ranks number one in fiberglass pools in 2023, our website traffic increased substantially over 2022 levels, pointing to pent-up consumer demand for pools, which we believe is substantial. Our integrated marketing programs that inform and educate the consumer and feature regional builders have been successful in driving traffic, along with our robust tools that give homeowners the ability to design plan and actually visualize how a new pool will look in their outdoor space. Through this direct engagement with consumers, we are able to provide our dealers with an increasing number of highly qualified leads in the respective markets. While fiberglass conversion represents Lincoln's largest growth potential, approximately 47% of our total 2023 sales came from our covers and liners product lines. The majority of which represent replacement products that are not as tied to new pool starts and are therefore more resilient during cyclical downturns. We also continue to prioritize new product introductions within these categories to drive sales. In particular, our automatic safety covers, which can be used on any type of in-ground pool experienced increased consumer adoption and demand in 2023. In addition, to their safety features. These covers provide the homeowner with significant energy, water and maintenance savings and measure, by least on our proprietary AI-powered measurement tool for pool covers and liners has been met with very positive dealer response and should continue to help drive demand for these product lines as we continue to roll it out through 2024.
To sum up there were many bright spots relate them in what was a very difficult industry environment. In 2023. We have entered the new year cautiously mindful that lower interest rates and improved consumer confidence levels are not likely to occur in time to benefit the 2024 pool buying season. We do expect that there will be a tailwind as we exit 2024 and heading into the 2025 season. Our conversations with channel partners and colleagues in the field and at recent trade shows, as well as our own data indicate a high level of consumer interest in pool ownership. Both buying decisions are being delayed, particularly by those who plan to finance the purchases. We do not expect the projected declines in interest rates to occur quickly enough to impact our peak pool building season in 2024. And therefore, we are managing through an approximate 15% decline in new pool starts in 2024. Within that context, you can expect lasers to continue to reduce structural costs while maintaining investments in future growth and capability so that we are positioned to rapidly capture share as pool starts increase, which we anticipate will occur in 2025.
Let me now turn over the call to our CFO, Oliver Gloe, who will provide a review of Linktone's fourth quarter and full year financial results. Oliver.
Oliver Gloe
Thank you, Scott, and good afternoon, everyone. Please note that all comparisons we discuss today on a year-over-year basis compared to the fourth quarter of fiscal 2022 and full fiscal year 2022, unless otherwise noted.
Net sales for the fourth quarter of fiscaṇl 2023 were $91 million compared to $108 million in Q4 of 2022, reflecting lower volumes. Softness in demand was the key factor in the 23% decline in in-ground pool sales. Our other product lines were more resilient and helped to mitigate the quarter sales declines. Collectives only declined 10% during the quarter to $32 million as we saw continued success in all winter coats and continued adoption of automatic safety covers liner sales of $13 million were essentially flat from the previous year, driven by strong replacement activity despite the decline in sales. Our fourth quarter gross margin reached 23.3%, increasing 540 basis points compared to the 17.9% reported in the fourth quarter of 2022. The strong showing resulted from the benefits of our cost reduction programs, lean manufacturing initiatives and site consolidation that more than offset lower absorption due to reduced production volumes at our plants.
Sg&a expenses decreased to $24 million or 26% of sales from $33 million or 31% of sales during Q4 of 2022, reflecting ongoing cost containment programs and a significant decrease in noncash stock-based compensation expense.
Fourth quarter adjusted EBITDA was $10 million, more than double the $4.4 million reported in last year's fourth quarter, driving a 680 basis point expansion in adjusted EBITDA margin to 10.9%.
Turning to our full-year results, net sales were $566 million compared to $696 million in the prior year period. By product line masons, in-ground swimming pool sales for the full year were $298 million, down 23% year-over-year. As Scott mentioned, in-ground pools has performed outpaced the US new in-ground pool installation market for 2023, which we estimate to have declined by 30% in 2023 compared to 2022. This is a strong indication of the positive momentum we have demonstrated in driving conversion to fiberglass pools?
Well, a year-over-year sales decline 20% or about 10-percentage-points less than the overall market line losses of $128 million were down 16%, while copper sales of $141 million declined 11%, reflecting softer homeowner demand in the current economic environment, partially offset by a pickup in demand for automatic safety covers. Gross margin was 27% compared to 31.1% in the prior year. Fixed cost leverage improved throughout the year and actually was a slight tailwind in Q4, but was lower for the full year. Margin headwinds continue to be partially offset by benefits from cost reduction programs as well as our lean driven site consolidation initiatives where we have reduced the number of production sites while maintaining capacity.
Sg&a expenses decreased to $110 million from $147 million in fiscal 2022, reflecting a $28 million reduction in noncash stock-based compensation expense as well as the benefits from our various cost reduction actions. Excluding noncash stock-based compensation, SG&A was $92 million, a decrease of $8 million or 8%. Adjusted EBITDA was $88 million compared to $143 million in the prior year, resulting in an adjusted EBITDA margin of 15.5% compared to 20.6% in 2022.
Turning to the balance sheet. We ended the year with a very strong financial position. Net cash provided by operating activities more than tripled to $116 million for full year 2023, which reflected the cash generation capability of laser business augmented by the benefit from inventory reduction. This strong cash flow performance yielded a net cash position of $102.8 million at year end, giving less than substantial financial flexibility to navigate a range of economic scenarios. We also repaid $13 million of our term debt in 2023, ending the year with a total debt of $301 million and a net debt leverage ratio at 2.25, well below our debt covenant of 5.5. Capital expenditures were $33 million for full year 2023 compared to $40 million in the prior year. Now that we have completed investments in our new Kingston facility and integrated our acquired fiberglass manufacturing assets and Seminole, Oklahoma, we expect to return to a more normalized CapEx run rate for the business.
Turning to our outlook for fiscal 2024. As Scott noted, while we anticipate increased consumer interest in pool buying from rising interest rates in 2024. Meaningfully lower rates are not expected to occur in time to benefit our 2024 full building season, which peaks in Q2 and early Q3. Also, we are managing to a down year in 2024. We are optimistic that we are reaching the bottom of the cycle and are planning for a recovery in US food starts to be realized in 2025. Against this backdrop, we are providing 2024 guidance of net sales of $490 million to $520 million. That reflects our expectation that our sales will outpace new U.S. food starts due to continued fiberglass conversions. Adjusted EBITDA is anticipated between $60 million and $70 million and assumes stable pricing, continued investment in sales, marketing and engineering and R&D to accelerate the conversion to fiberglass ongoing digital transformation programs and normalized performance-based compensation. Capital expenditures are projected to range from $18 million to $22 million and include continued investments in new cost reduction and lean initiatives. New fiberglass models, manufacturing facility improvements, digital transformation and ongoing safety initiatives. As we enter 2024, we are seeing a return to a normalized seasonal sales cadence, reflecting historical backlog levels and distributors taking a cautious position early in the season. We expect total Q1 sales of between $98 million and $104 million and adjusted EBITDA of between $6 million and $8 million as Scott noted earlier in today's call, we have responded to difficult market dynamics with cost reduction actions that have reduced our manufacturing overhead headcount and spend, resulting in $20 million of reduced spending in 2023 with an additional $4 million carryover benefit to be realized in 2024. We continue to focus on enhancing our productivity and executing on value engineering and lean initiatives. Our balance sheet remains in excellent condition. In addition to repaying $13 million of debt in 2023, we paid down another $18 million in debt earlier this month, and we anticipate generating positive operating cash flow in 2024. Given the economic outlook, we continue to be thoughtful and disciplined in our capital allocation strategy.
With that, I will turn back the call to Scott for his closing remarks.
Scott Rajeski
Thank you, Oliver. As you have heard lately, has entered 2024 in a very strong financial position. Our priorities are clear, continue to drive the adoption awareness of both fiberglass and automatic safety covers, which will lead to increased conversion of fiberglass pools in growth in auto covers as more consumers purchase them for peace of mind, continue to gain additional operating efficiencies through our ongoing value engineering and lean manufacturing initiatives and maintain a strong balance sheet. The long-term fundamentals of our industry are very compelling. Outdoor Living remains one of the fastest growing categories in the repair and remodel sector. Pool ownership is a natural addition for consumers who are spending more time interval and want to fully enjoy their outdoor spaces by building the value of their homes. Additionally, the value proposition of fiberglass products provides an excellent opportunity for consumers to become pool owners and gives them an excellent platform to drive accelerated growth.
The actions we took in 2023 and our priorities for this year should enable us to outperform the market again in 2024 and to achieve meaningful share gains and expanded margins and profitability as the pool industry conditions improve.
Operator, I would like to open the call to questions.
Question and Answer Session
Operator
We will now begin the question and answer session. To ask a question. You may press star then one on your telephone keypad. If you're using a speakerphone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two at this time, we will pause momentarily to assemble our roster.
The first question comes from Tim Wojs with Baird. Please go ahead.
Robert Schultz
Hey guys. This is Robert [Schults] for Tim this afternoon. On first, just want to say thanks for providing the incremental data on the fiberglass sales for '23. That's a really helpful color to have to appreciate that. And then moving on to the balance sheet. It's nice to see leverage moved a little bit lower sequentially. Could you provide some additional color maybe on how you're trying to manage the balance sheet for '24? And then related to that, kind of what are the puts and takes to cash flow for 2024?
Scott Rajeski
So let me start to get off and let me start with your second question, thoughts on the cash flow in 24. We traditionally haven't given guidance for cash flow specifically, but I can help your modeling there on is to start with our EBITDA midpoint guidance at $65 million, you did come in at about $27 million as interest rate and $21 million, which is the midpoint of our CapEx range. That is a good proxy for cash flow. And as you heard me saying in my prepared remarks, we do expect that 2024 is another year where we say we are cash flow positive.
In terms of your question on how do we manage the balance sheet, we are quite pleased on where we are. Again, that is due to say, 2023 with solid cash flow generation. So augmented by a significant reduction in net working capital, especially inventory from. And all of that gave us the luxury to have paid on a cash position of $102.8 million at the end of the year on the as a result of that, net debt stood at $200 million. And as a result of this, our net debt leverage ratio was at 2.25. So all in all, quite comfortable on the where the balance sheet stands right now.
Robert Schultz
Great, thanks. And then as I think about the 2024 EBITDA guidance, what would you say are the key bridge items to consider to get to the $65 million at the midpoint?
Scott Rajeski
Well, let me take that one as well, Tom, as you think of our 2024 EBITDA guidance, so there are really four or five positions to consider here the most impactful one that is driving the entire EBITDA margin from GAAP here is the impact from lower volume and lower fixed cost leverage, right? That is offset by a modest small level of deflation. Nothing in comparison to the inflation we've seen over the last few years from there's another tailwind coming from our cost containment initiatives that is the carryover of about $4 million from the previously announced and all implemented cost saving programs that we have discussed in prior calls, as well as our increasing focus on lean and value engineering going forward. So the combination of those two, we do expect not only in 2024, but also in the years thereafter to more than offset cost inflation so again, tailwind from that. What you have also seen us talking about is that we are protecting some investments. These investments help us to fare better than the overall market as we look backwards a couple of years in the market designed to drive better margins and which help us once the market returns to outperform the market. And these are the investments in the network lead generation, fiberglass conversion and so forth.
I think the last point I would add here, Robert, is some the accruals for performance-based compensation. We are in the beginning of the year and accruing towards full achievement of our goals, which are the basis for our guidance today. And as that didn't build in prior year, that is a year over year.
Robert Schultz
Got it.
Thanks for the color.
I'll leave it there.
Scott Rajeski
Thank you.
Operator
The next question comes from Shaun Calnan with Bank of America. Please go ahead.
Shaun Calnan
Hi, guys. Thank you. For taking my question. Just first, your assumption on new pool construction is a bit lower than most of your peers. What do you think is driving the difference there? Is it conservatism, is it regional exposure or is that just kind of better insight from what you're hearing and hearing from the dealers?
Scott Rajeski
Hey, guys, good afternoon, Sean. Good to catch up here. Again, I think when we step back, you know, if we look at ourselves really as the leader in the in-ground pool industry, when you think about new pools going in the ground. We probably have some of the best insights into what's happening in the market out there versus maybe some of the other equipment guys in that. And look, we're managing the business to what we believe to be a decline of about 15% on average and over here in the US. And I think really what we've done kind of back to Oliver's point of view, investments we've made in the business, we've really positioned ourselves that we can quickly ramp up production if that number turns out to be a little too conservative and I think incrementally, no, we're continuing to drive increased website activity, trying to drive the lead generation all and the goal will really be for us to outperform the overall market as we look at '24 and I think similar to what we've done over the last couple of years here.
Shaun Calnan
Okay, thanks. And then the midpoint of the guidance is down 11% year over year. Does that assume you're taking share on the new pool side? And then can you give us any insight into your expectations for the other buckets, meaning covers and liners?
Scott Rajeski
Yes. So Shaun, I'll take that on the midpoint down at 11. Again, I think I think back to the fiberglass world and driving fiberglass penetration, taking a higher percentage of volume share from concrete and in some cases vinyl, no, we'll continue to drive that on, which will help some. And then if you look at the recurring revenue portion of our business with the liners and covers that replacement and repair and remodel piece of the business, you know, performs a lot better for us from a stability standpoint. I think when you think of that, as you know, may be down in the low low to mid single digits. I think that's what's helping the blend to the 11% number at the midpoint.
Shaun Calnan
Okay. Thank you.
Operator
The next question comes from Scott Stringer with Wolfe Research. Please go ahead.
Scott Stringer
Hi, guys.
Thanks for taking my question. I was wondering if you could provide some outlook for gross margins for the year in terms of cadence, how are commodity costs trending and is like we have higher cost inventories and impact?
Scott Rajeski
Yes, let me take that again.
We haven't traditionally provided a guidance specifically around gross margin, but I give you the key key building blocks here, right? And obviously, like with my prior answer to EBITDA margins of the gross margins will be primarily impacted by the fact that we are planning for a year with lower volumes, some that there will be some slightly this will be offset by on cost deflation of commodity cost deflation. And again, it's small versus the inflation we've seen over the past year. That's some some commodities and oil bucket move down some up some. But on balance, the bucket of the basket has to come back a little bit close to the highest we've seen some over the past few years that is also on the slight tailwind from our continuing cost containment actions. So overall, I would say gross margin down roughly in line with where we were at 2023
Scott Stringer
Okay, got it.
And then on the CapEx for 2024, is there any way you can parse out like maintenance CapEx, VERSUS investment CapEx? Are you feeling about investing in capacity today for the current environment.
Oliver Gloe
So I think on some with regard to CapEx, we certainly come from a couple of years investing in capacity with the Kingston, which is now fully completed as we've indicated in our last earnings call. So that $5 million quarterly or $20 million annual run rate of what we think of them being the normal year, Tom, specifically with regards to 2024, there's a lot of maintenance investment in there, Tom, but also then complemented by investments in our new and value engineering projects or investments into efficiency of our assets. And then there's a little bit of digital transformation in there as well.
Scott Rajeski
And the one thing I would throw in there incrementally, Scott, is we are continuing to invest in new fiberglass models as we roll out and refresh the lineup there. So there is a little bit of growth CapEx on the fiberglass side, but more model related and incremental bowls and certain facilities to build out the network.
Scott Stringer
Great.
That's helpful. That's all I had.
Thanks.
Scott Rajeski
Thank you.
Operator
The next question comes from Jonathan Nelson with Truist Securities.
Please go ahead.
Jonathan Nelson
I'm on for Keith Hughes this evening and thanks for taking my question. I was wondering if you could give us some more color on your current capacity utilization rates and kind of how you're planning on taking your production levels going into this.
Scott Rajeski
Yes. So Jonathan did a Celliance afternoon. We've not distinctly disclosed on capacity utilization in some time. But if you can go back to the '21, '22 time frame, we talked about ramping Kingston and get that fully ramped. We're in a really good position, capacity-wise for our entire network on just kind of go back and look at the numbers we run in the 21 time frame. We've got a lot of zones strained from a positioning standpoint in all of the facilities.
Now Oliver mentioned a couple of times some of the lean activities we've done in the rest of the business to give us some better capacity. We sit in a really good lead time delivery position on throughout the entire network. In terms of time, I'd say back to probably some of the best lead time delivery service levels since I've been in the business going back 12 years now. So I feel good position. We don't need to put more plants in the ground or anything like that phone, but we will we'll evaluate all opportunistic things that could be out there from an M&A standpoint.
And just kind of just cycle back to 2023 in a lot of the activities we did did enable us to do some rooftop consolidation, close some facilities, which drove some of that cost savings in '23 and the carryover into '24
Jonathan Nelson
That's helpful, thanks. And was there any price impact on the fourth quarter?
Oliver Gloe
Sales price was roughly flattish with most of our price anniversaring out. So think of Q4 price, again, roughly flattish.
Jonathan Nelson
Okay. Appreciate it.
Operator
Again, if you have a question, please press star then one.
The next question comes from Matthew Bouley with Barclays. Please go ahead, payout.
Mathew Bouley
Good afternoon, everyone. Thanks for taking the questions commentary around the planning for that for the eventual recovery and I guess 2025, from your perspective, Scott, what do you think it would take?
I guess for new pool builds to recover? Is it simply an interest rate issue, kind of looking at more home turnover, kind of general consumer sentiment from your perspective and history in the industry, what do you think it would take to kind of reinvigorate the market? Thank you.
Scott Rajeski
I think, Matt, good afternoon. I think you've kind of hit several of the key points there now with if you look back in, you'll say ballpark 50% of all pools are financed. And you can kind of say most of the financing has dried up. That's not to say that's gone to zero. But I think a movement in interest rates seems to be the common denominator that we're hearing from consumers and our dealers that's keeping people on the sideline. If you look at if you look at the activity on our website on the lead generation on folks, you know, established in their my late the Macau, the interest in the pools is definitely there, and we continue to hear more and more. The homeowner is just awaiting a move in interest rates to get them back into the game. And I think the million-dollar question is how much of a move we'll start to get them off the sidelines. I think in some of our prepared remarks and the data we've published is probably not going to be enough two to greatly impact the second half of this year. But I think it's definitely will start to create a tailwind as we move into and through 2025 on. So the good news is interested, their wants their the number of homes that don't have a swimming pool that we've thought about is there. It's really just getting getting rates down 100, 200 basis points to get people off now back into the buying decision for pools.
Mathew Bouley
Got it. Okay.
That's helpful. And then I guess secondly, just on your kind of dealer conversion efforts and you have this kind of slower pool market, how are dealers, I guess, approaching willingness to look to migrate to fiberglass given that given the market. So is it the type of thing where people don't really really want to rock the boat when the market is slow like this or on the other hand, is it a situation where when you have this kind of sluggish slower trends in the market, maybe it's actually easier to kind of convert your business from a dealer's perspective. So kind of how is that playing out in this market?
Scott Rajeski
Yes.
There's still a lot of lot of pieces in there, Matt. And that question, I think if you go back to some of the data, you know, if you think about where we stood in '23 with over 300 grand dealers who did at least buy pools, right, 100 more than 2019. And you think about the fact that we've had two consecutive down years, but we've been able to buy more productivity at the dealer level, right? We've talked many times. This isn't about how many more dealers we need to add. It's about how do we make our existing dealers more efficient with the build and get them going I think our dealers are seeing the acceptance and adoption of fiberglass grow more and more know, Daniel, 600 basis point improvement on the fiberglass penetration number since '19, right for our fiberglass sales have grown at about a 15% kegger since 19, while the markets declined about 3% on average per year. If you look '19 to 2023 we've not had issues recruiting dealers and bringing them on board for fiberglass at some.
I think it's been easier.
And with the slowdown, it's allowed our team, our marketing team to develop more tools, getting them on the build a portal out there from providing really great visibility to the dealers now with the lead generation where we can now monitor and watch on how the lead is moving through the system with them and follow ups and getting leads close. So again, it's about continuing to give them the tools to make their life easier. And look, I think we've even bridge a little bit further and helping them.
And how do you actually estimate a full project in the backyard for a consumer understanding their profit profile at a install level of profitability and how they should properly price the pool.
And I think bigger picture, Matt, when you think about the cost advantage of fiberglass versus concrete and as consumers are looking at how much the cost report has gone up, I think some dealers are trying to say, look, I struggle selling a country toward $105,000, $125,000, $150,000, kind of where you are fiberglass value proposition at the consumer level is very appealing for them to go and market and sell that phone to others.
Mathew Bouley
Yes.
Got it.
Well, thanks, Scott.
Good luck guys.
Scott Rajeski
Thanks Matt.
Operator
The next question comes from Andrew Carter with Stifel. Please go ahead.
Andrew Karter
Thank you.
Good evening.
I'm just kind of go into your guidance here and just wanted to understand what actually first clarifying question.
The 4 million in cost savings, is that all in the first quarter,
Scott Rajeski
the increment from them will be Robin relative go neutral for growth and for the quarter.
Andrew Karter
Okay.
I will say okay, to assume too. So I guess my question is then I'm looking at your decremental in 1Q and I'm getting like something in the mid 10s. And then for the final nine months of the year, I'm getting a decremental of somewhere at the midpoint of 80%. So and I'm getting that off of a $37 million to $13 million revenue decline with EBITDA down 23 to 15, what's going on there? Is there stepped-up investment in SG&A? Do you expect a lot of gross margin pressure? And do you expect to finish even you just had some gross margin momentum, if you can help us out that with there?
Yes.
I think when it comes to, you know, our first quarter, this is where you typically see a lot of marketing investments in our business where our dealer conferences and so forth are you in terms of SG&A, it's not a perfect seasonality between the quarters some, but I think what you'll also see again this year, the ability of the team to contain costs, and you'll see that in our documents, especially in Q1, finding I'm asking about the nine final nine months of the year, the decrementals, I'm getting a 90% decremental. It's Tom Flynn.
Scott Rajeski
All right.
Andrew Karter
let's take it offline. I guess the second question I had is you've pretty much baked in, I don't know, almost like the season's gone. How quickly can things turn? And I guess importantly, how quickly could you flip had a quick quick turn demand maybe give a surprise on interest rates, something something of that sort. Is there any fear in that of not being invested for a quick turn versus your turn in 25 that you're expecting?
Scott Rajeski
Yes.
So Andrew, I'll take that one. You know, a couple of pieces in there. One, I think was I mentioned earlier, you know, we've we've actually probably you know not cut as much cost as we could have. We continue to stay invested in the business, maybe held onto a little bit more labor with the expectation that this thing is going to turn at some point and we want to be prepare. We have plenty of the capacity we need to quickly ramp up. And if you just go back to 21 and look at how quickly the business ramps in that 21, 22 timeframe, we have more capacity and capability inefficiency than we had then. So the ability to ramp faster is a lot better on. We've not talk supply chain on issues in a long time, and that's a good thing because all of that's behind us. We've got a much stronger vendor base and supply chain setup, both know where and how we store materials and diversity of the base, which will enable us to turn quickly if things pivot and look, it's back to the expected 15% decline in the market. And I think it's fair to say that we're probably taking a little bit more conservative approach on it's early it's early in the year, right? We're not melanin saying the year is over and we're starting to see that the season ramp here nicely now. And we've got we've got to work with our wholesale distribution partners, the other continuing to run lean with their inventory levels until they see how the season is going to play out. And if it if it does move in pop, we will be able to take advantage of it on pretty pretty easily.
Andrew Karter
Thanks.
I'll pass it on.
Thanks, Andrew.
Operator
The next question comes from Michael Francis with William Blair. Please go ahead, guys.
Michael Francis
I'm on for Ryan Merkel today. I'm I have one clarifying question and a follow-up to that. Could you say that liners and covers are going to be down low single digit to mid-single digits and under that under that on a volume basis, so to say from an economic standpoint, you know, probably in that down 3% to 5% range and the price on that?
Scott Rajeski
I think probably probably say price flattish.
Okay. And then on my follow-up is and this might be why not new languages, Michael, just if I could step back and clarify, we talk that covers, we need to remember there is that recurring revenue portion of the winter safety cover in there. Then there is the automatic cover portion of the business end of I think in total, Oliver, probably the total covered product category.
Oliver Gloe
So it's a blended rate between what we've assumed for the replacement piece, which is significantly, it is a significant portion for both safety rather than buying line as kind of down mid-single digits. But then there's also the share, which is some of which are issuing them in accordance with Youku starts and our assumption is minus 15%.
Michael Francis
Okay.
So I'm just making sure I get this straight because if I take both liners and covers down by about 4%. That has in-ground pools in my model down about 15. Am I thinking about that wrong or right?
Because it's down 15% share gain there,
Scott Rajeski
you probably end up in the in-ground food category at 15, maybe slightly better driven by fiberglass conversion.
Michael Francis
Yes.
Got it. Thank you time.
Operator
The next question comes from Susan Maklari with Goldman Sachs. Please go ahead.
Susan Maklari
Thank you. Good afternoon, everyone.
That's my first question, Scott, is around thinking about the pricing on the pools. If we start to see costs definitely, and especially if we start to get bigger moves down on the cost side of things, there is an opportunity to on to adjust your net pricing to help alleviate some of that affordability constraint that you talked about that's happening on the ground generally. How do you think about that balance between price versus volume given the conditions today?
Scott Rajeski
Yes, Susan, I think in all, not as good as a good question. I think as we've thought about it, this is part of what we like about our business and where we sit in the categories on a wheel or a small percentage of that total backyard project, right? So our view is to them to change our pricing, a few hundred dollars on aligner cover or $1,000 or $2,000 a fiberglass pool is probably not going to get pushed all the way out to the end consumer and be enough to stimulate demand at the consumer level two on made that buying decision on a project that could be [$4,000], [$5,000] for replacement line or recover or call it [$75,000], [$80,000] for a fiberglass pool installed. As we as we work with our dealers, there are different regional competitive dynamics at play that we need to think about there's more than just what the list prices or beyond how we would change our pricing at the list. There's rebates. There's other marketing programs we won with. We run with them, but we think we can we can hold our price fairly well, and we've not really seen a significant movement yet on the direct material cost side, labor continues to trend up freight continuing to go up in rates or I should say material costs are still, in many cases, fairly elevated from where we were back in the 2019 2020 timeframe when we took on 100 plus of the benign inflation in the business and really never passed full pricing on to maintain margin levels, which has driven some of the compression we've seen.
But look, it's different in every product category.
I think that's where we need to maintain flexibility as we go forward. And look, if we get a massive tailwind from deflation and it could be a different story as we look out in time. But right now, it's kind of flat pricing for the year is the assumption in the approach.
Susan Maklari
Okay. That's very helpful. Color on, in particular about the productivity and the efficiencies that you can realize. I know you talked about that $4 million of carryover benefit that you'll get in the first half of the year, but further improvements that you can make on the cost side as we go through this year and other opportunities that perhaps can come through over time.
Scott Rajeski
Yes. So Susan, we've we've continued to ramp up our value engineering efforts and initiatives on all fronts. You know, we've talked a lot about the lean and a lot of that was was that we had been doing it, but I think we've continued to accelerate that and continue to add on more engineering resources to the team and part of the incremental decremental margin we're seeing as we move through the year as we ramp and bring more engineers on to start to build that pipeline of productivity and efficiency projects on the materials side in fiberglass in the other product areas, increased the number of lean events we're doing in the factories. You know, it's going to take a little while for that our while to kick in. But what we've seen from the initial waves There clearly is more to come from all of those initiatives. We got some really, really nice things in the hopper and on. I think as we as we move through time, that pipeline will build. And yes, we're trying to get onto a ongoing, you know, 3% to 5% productivity gain every year on the material front from those efforts and initiatives.
Susan Maklari
That's great. Thank you and good luck with everything I think.
Scott Rajeski
Thank you.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Scott Rajeski for any closing remarks.
Scott Rajeski
Yes, things. Hey, thank you for your to remind everyone on the call here this afternoon and your ongoing interest in Lee from now, as we think about laid the right, we're extremely well positioned to continue to outperform the overall market and drive that continued acceleration in fiberglass penetration. As a total, the new in-ground pool starts like we discussed earlier today. We also remain very confident in the long-term growth opportunities. We see not only in our business, but in the industry overall. And we look forward to catching up with all of you at upcoming investor events of upcoming investor events.
And thanks for your time, and have a good evening.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
