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Latham CEO on IPO: It’s the ‘first key step’ to expand the U.S. fiberglass pool market

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Scott Rajeski, President & CEO Latham Group Inc., joins Yahoo Finance’s Alexis Christoforous to discuss Latham going public on the Nasdaq and outlook on innovations for the pool industry.

Video Transcript

ALEXIS CHRISTOFOROUS: The swimming pool company Latham is making a splash in its Wall Street debut. The stock is up more than 30% in its first day of trading on the NASDAQ after selling 20 million shares to the public valuing the in ground pool seller at about $2.3 billion. The stock is trading under the aptly named ticker SWIM. And joining me now is Latham's president and CEO, Scott Rajeski. Scott, congratulations. Your IPO is being very well received. I understand that Latham is not new to the market. It's 65 years old. Why go public now? And why is now the right time?

SCOTT RAJESKI: Yeah, Thanks Alexis. We're really excited today. It's been a great day here at the NASDAQ, the business partner we chose to list with. It's been a phenomenal experience here this afternoon. And look, just a big thanks and congratulations to all of the Latham employees, all of our business partners. And we're really excited about where we're trading at today.

But we're really focused on the long term. Our mission is to educate the homeowner on why a Latham fiberglass pool is the best pool of choice out there. And I think the results of the stock today is really the focus of the investors, the story resonated with the investors. We got a great material conversion story at play here. The fiberglass pool market is only penetrated about 18% of new pool installs in the US market.

The Australian market, 70% of pool starts are fiberglass. So we still have a long ways to go to get the story out there. And becoming public today was the first key step to get that message out there for investors and the community at large.

ALEXIS CHRISTOFOROUS: It certainly sounds like you do have a long runway. And speaking of these fiberglass pools, it's my understanding you installed nearly 9,000 of them in the US. I know there's a lot of us invested in our backyards rather than taking trips last year. I'm curious if that demand is sustaining this year so far in 2021.

SCOTT RAJESKI: Yeah. The trend towards fiberglass has been ongoing for several years. And we expect that to continue because of that long runway. And as we've changed our business model to be a B2C focused company, educating the home owner on fiberglass, why a fiberglass pool is great, the interest and the excitement around pool ownership continues to grow. One of the key benefits about fiberglass, it's a lower upfront cost for the purchase by about 28% versus other pool types. And the total cost of ownership over the lifetime of that pool is 43% versus the other pool types.

And one of the most exciting things about a fiberglass pool is it can be installed in one day by our great dealer partners.

ALEXIS CHRISTOFOROUS: So when you're saying the other types, I know that's concrete or gunite. You also have vinyl pools. You're competing with them. But talk to me a little bit about the supply chain right now in this environment and higher material costs, which I think are impacting pool manufacturers of all shapes and sizes right now. How is that impacting the business? And how do you see it impacting revenue this year?

SCOTT RAJESKI: Yeah, we don't expect any impact as a result of the tightness in the supply market or the prices we're seeing out there. We've got a great supply chain organization globally. We source from around the world all of our materials. And we got out in front of the supply constraints very early as a company. We made sure we had ample supply. We continued to do that. We've not run into any supply disruptions, nor do we foresee any.

So we're in a really good position to continue to meet the demand that we're generating at the homeowner level and feeding those purchased ready leads to our dealers.

ALEXIS CHRISTOFOROUS: The pool industry saw record growth last year during the pandemic for all the obvious reasons, up 24%. I'm curious what you are seeing, though, there at Latham in terms of demand. And are you able to keep up with all of the demand that's out there?

SCOTT RAJESKI: Yeah. Alexis, when you look at the number of homes that do not have a swimming pool today, there's almost 90 million homes without a swimming pool. 12% of homeowners have a high likelihood of an interest of buying a swimming pool the next five years. So there's plenty of demand in the marketplace for us to tap into, educate those homeowners, and then bring them along on that buying journey. We've created some really great digital assets now. We actually have an augmented reality app for fiberglass pools where you can download that app, walk into your backyard, download the model and color you want, and see that swimming pool in your backyard.

It's really incredible the technology we've deployed. And it's, again, just education, awareness, and convincing the consumer that the Latham fiberglass pool is the best pool of choice.

ALEXIS CHRISTOFOROUS: That's a very cool use of technology. Because for some people, they really need to be able to see it. It's hard to have that vision to see the pool in the backyard. I know today, you raised nearly 400-- I think $380 million in today's stock sale. Tell us how you're going to use that money, Scott.

SCOTT RAJESKI: Yeah. So there's a couple things we plan to do with the proceeds. First of all is we're going to pay down debt on our balance sheet. And we want to get into our target leverage range. We'll be sub two with our leverage out of the gate here. We're going to deploy cash to the balance sheet to continue to invest in our growth story, invest in our dealers, the consumers, our plants, and our capacity as we move forward to stay ahead of the demand. And then some of the cash will be used as a return of capital to two of our private equity holders.

ALEXIS CHRISTOFOROUS: Are you looking at entering any new markets? I mean, I know you've got a pretty good presence here in North America. You mentioned Australia. And I believe you're also in New Zealand. Are you looking at any other markets?

SCOTT RAJESKI: Yeah. Right now, we made the Narellan acquisition in Australia a few years ago. And that's been a great asset to bring to the company, an iconic Australian brand. We're actually launching that brand here in North America as we speak. We've had a lot of great success with that launch in Canada. We're continuing the rollout here in the US market. And what we want to do is stay core to the North American market. There's just such a huge opportunity to convert people from concrete pools to fiberglass pools and do what Narellan did an Australia and drive that number from 18% to where it sits in the European market at 50, or that 70% number in Australia.

ALEXIS CHRISTOFOROUS: Talk to me about innovation in the pool industry. I mean, how do you take a concept that's been around forever and sort of update it, make it new, give people a new reason to want one? Because they're not cheap. They're definitely an investment.

SCOTT RAJESKI: Yeah. The culture of Latham has been innovation since day one. When Merrill Laven founded the company in 1956, he was one of the first inventors of the pools that we build today. They invented the polymer panel, they invented the wedding cake walk in step, it's just embedded in what we do each and every day, Alexis. And the mindset is just to continue to take the product, get the best looking product that's out there. We have 90 different models in our offering for fiberglass. We have some of the most stunning finishes and most beautiful colors, with our new G2 and G3 finish which is brand new that we can bring to the consumer.

And the level of customization you can have with our products is just world class. You can add on tanning ledges, spillover spas, water jets, bubblers, LED lighting, you can let your pool up at night where the pool actually just sparkles. It's one of the most beautiful things to see. And then when you look at the custom in ground pool segment for us where, again, that's a custom in ground pool made out of a polymer or steel wall panel, what we like to say is, whatever pool design you can dream of or want in your backyard, our designers have the ability to design that pool for you.

Could be a heart shaped pool, could be a maple leaf, it could be a guitar shaped pool. And we've actually done several of those. And our dealers will then build that pool for you. And it's a one of a kind pool built just for you and your dream and vision.

ALEXIS CHRISTOFOROUS: Wow. That's pretty cool. So definitely customization is on the table. But what's the starting price? I mean, I'm sure it could go as high as the sky. But what's the starting price for a fiberglass pool?

SCOTT RAJESKI: Yeah. So for a fiberglass pool, and again, I'd say an average size pool in North America-- it depends by the region a little bit. There's some regional differences. But you could assume somewhere in the $50,000 to $60,000 range for a fiberglass pool installed in the backyard. And one of the other neat things about Latham is with our regional footprint, we're actually controlling what we like to call that last mile delivery service. We're delivering that fiberglass pool right to the homeowner's backyard as a service for our dealer partners so it arrives at the perfect time to coordinate that one day install that I mentioned for you.

ALEXIS CHRISTOFOROUS: And lastly, how would you just guide investors now as a publicly traded company? What kind of clarity do you have on the rest of the year in terms of earnings and revenue?

SCOTT RAJESKI: Yeah. So at this point, we're in our quiet period. We'll be doing our first quarter earnings release coming up here in the next month or so. We've got to lock that date down. For right now today, it's a great day for us to be celebrating the launch of Latham, the IPO here with the NASDAQ, and hopefully here in 30 to 45 days, we'll have our first quarter earnings release. And everyone will see how we did for the first quarter.

ALEXIS CHRISTOFOROUS: All right. We look forward to getting the update from you then. Scott Rajeski, president and CEO of Latham. Congratulations again on the IPO.