Good day, and welcome to the Latam Group, Inc. Second Quarter 2022 Earnings Conference Call. All participants will be on listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Nicole Edelman, Investor Relations Representative. Please go ahead.

Thank you, and welcome to Latham's Q2 Fiscal 2022 Earnings Call. Earlier this morning, we issued our earnings press release, which is available on the Investor Relations portion of our website, where you can also find the slide presentation that accompanies our prepared remarks. On today's call are Latam's President and CEO, Scott Rajeski; and CFO, Robert Masson. Following their remarks, we will open up the call to questions. During this call, the company may make certain statements that constitute forward-looking statements. Such statements reflect the company's views with respect to future events as of today and are based on our management's current expectations, estimates, forecasts, projections, assumptions, beliefs and information. These statements are subject to a number of risks that could cause actual events and results to differ materially. Such risks and other factors are set forth in the company's earnings release posted to its Investor Relations website and will be provided in our Form 10-Q for the second quarter of fiscal year 2022. The company expressly disclaims any obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. In addition, during today's call, the company will discuss non-GAAP financial measures, which we believe could be useful in evaluating our performance. Reconciliations of adjusted EBITDA to net income calculated under GAAP can be found in our earnings press release and will be included in our Form 10-Q for Q2 2022. I'll now turn the call over to Scott Rajeski.

Thanks, Nicole. Good morning. Thank you for joining us for our second quarter 2022 earnings call. Before we get started, I would like to take the opportunity to introduce our new CFO, Rob Masson. As we recently announced, Rob officially joined late the month on July 11 and has already hit the ground running. Rob has an accomplished finance and industrial manufacturing leader with nearly 20 years of experience in the aerospace and defense and industrial sectors. Please join me in welcoming Rob to the Latham team. I'd also like to take this opportunity to thank Mark Borse for his contributions to leading Latham through such a transformative moment in our company's history. We are grateful to have benefited from his leadership and for his current work as a strategic adviser to ensure a seamless transition. Additionally, I also want to take this opportunity to thank our employees and dealer partners for their hard work and dedication to Latham. We could not do it without you all. Q2 is another quarter of growth with net sales and adjusted EBITDA both increasing 14%. During the quarter, we continued to experience strong demand for fiberglass pools as well as our cover and liner products. Our previously announced price increases helped drive sales growth, more than offsetting the softening volume in our packaged pools category during the second quarter, which was primarily a result of inventory de-stocking in the distribution channels and weather-related delays on installations. We are pleased with our overall performance in the first half in which we posted net sales growth of 21% and adjusted EBITDA growth of 27%. Our year-to-date results reflect the strength of our fiberglass material conversion strategy, unique direct-to-consumer model and digital strategies. In addition to investing in the long-term growth of the business, we also…

Thank you, Scott, and good morning, everyone. Today, I'll review our second quarter and first half fiscal 2022 results and provide an update on our outlook for the full fiscal year. Before we dive in, I want to express how thrilled I am to be part of the Latham team. I believe we are in an excellent position to capitalize on our unique value proposition long-term. Turning now to our results. Net sales for the second quarter were $207 million, up $26 million or 14% year-over-year. By product line, this increase was primarily attributable to growth in pool covers, which increased 46% to $38 million and liners, which increased 21% to $56 million, while in-ground pools expanded 4% to $112 million in the quarter. In the in-ground pool category, we grew sales in fiberglass tools when we experienced a pullback in packaged pool sales. The $26 million increase in second quarter net sales was driven by a $34 million increase in pricing and an $8 million decrease in volume. The volume decrease was primarily attributable to packaged pools, which were impacted by our wholesale distribution customers who have begun to destock inventory levels as well as more days of unseasonable weather in certain regions at limited installation days. Switching now to gross profit. We generated $68 million of gross profit, up $9 million or 16% on the flow-through of net sales growth and a decrease in non-cash stock-based compensation expense. Gross margin improved in Q2 to 32.7% and was up 40 basis points compared to 32.3% last year. The year-over-year reduction in non-cash stock-based compensation expense drove the expansion. Excluding stock-based compensation expense, gross margin decreased 180 basis points due to the impact of inflation and negative fixed cost leverage, mostly associated with lower volumes in packaged pools and in…

Thanks, Rob. I am very proud of all we have accomplished on an operational level and know we are rising to meet the challenges of this macro environment as a stronger and more efficient business. We are looking forward to closing out in the second half of the year and are on track to deliver our 13th year of net sales and adjusted EBITDA growth and adjusted EBITDA margin expansion as we begin to lay the groundwork for our 2023 plans. Thank you for your time today. And I hope you all enjoy what's left of summer.

We will now begin the question-and-answer session. [Operator Instructions]. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Rafe Jadrosich with Bank of America. Please go ahead.

Hi, good morning. It's Rafe. Thanks for taking my question. I just want to follow-up on the comments on the packaged pools, which I think is the final line poles. Can you talk about how the distribution varies for package pools compared to the fiberglass pools? And then where are we in that de-stocking process for the packaged pools? How much more do we have to go?

Yes. So Rafe, if you guys recall, and I'll start with fiberglass. Fiberglass is really a direct model where we're distributing the pool from one of our factories like to the backyard of the consumer for the dealers, the installer. So that's more of a direct product. And it's similar to liners and covers for the most part as well. I think of those as more direct. Some of the liners do go through distribution, but it's more of a quick pass-through. The packaged pool segment of the in-ground category is more of a stock component product sitting in the wholesale distributor branches where the dealer would then come in and pull that off the shelf. I would say we're probably about halfway through that de-stocking. I think we'll see that continue through 3Q and then stabilize, and that's what we reflected in our current guidance that Rob provided the update on here this morning.

Great. Very helpful. And then can you just talk about the sell-out trends that your dealers are seeing are the traffic trends? How over the last few months as we've seen the macro environment become more uncertain. How has the traffic evolved? What are you seeing for end market demand? And what are you assuming in the second half of the year?

Yes. And I'll kind of highlight in each of the categories. The Liner business has continued to be strong. And again, that's mostly a replacement business. Some of these liners are going into new pools. So that's been a good strength for us through the entire season and continuing here into 3Q. The cover business is the same. We're seeing a really strong cover business, both for the automatic covers. And as many of you recall, we're really just starting to enter the winter safety cover season that will be ramping up here later this month and through early 4Q. And the early read on that is we're expecting a real good season there from all indications of our dealers and the consumer level. And then fiberglass continues to be strong. We expect to see a really strong second half for fiberglass sales. Again, we got a really good backlog. We're taking orders off into '23. But more importantly, with supply chain challenges behind us, we've got the capacity in the ground. We've got the material availability and our lead times are much improved, but we can quickly turn and get pulled out on a pretty quick basis for dealers. The packaged pool category, dealers are still booked through the end of the year and looking into '23. And again, that's the other piece being around pool category. What we're not seeing is the pools kind of re-stocking orders at the distribution level as they adjust inventory positions where they've probably been a little higher than normal, we'll see that correct through the back half of the year, and then we should be good as we head out to 2023. Some dealers just back on the consumer demand at the dealer level rate. A lot of dealers are still seeing good demand at the consumer level, but there are pockets of the country and regions. And I'll say dealers, and it's really balanced at the dealer region level where they have seen a slowing of leads and that's why we've really increased the lead generation efforts for those dealers in many of those markets. Again, I'd say it's still elevated from where we were back in '18, '19 time frame. They just got accustomed to a much higher level of backlog and a much heavier flow of demand and lead generation, and we're funneling those leads back to them.

Okay. That's helpful. Thank you.

You're welcome.

Your next question comes from Matthew Bouley with Barclays. Please go ahead.

Hey, good morning, everyone. Thanks for taking the questions. I guess first one just on the pricing versus cost side. I guess, number one, just what are you seeing on the cost inflation side? And if some relief does manifest on that side of things. How do you guys think about pricing and promotions in an environment where you may start to see cost relief? Thank you.

Yes. Matt, I'll lead and then if there's any other call Rob wants to supply he can. Look, we've not really seen a slowdown of the cost inflation on many of the front. There has been a few pullbacks in a few of the categories, but it's still very elevated from, let's say, where it was 12, 18, 24 months ago. So we're monitoring that. We'll continue to watch that one. And then at this point, we're not planning or thinking about any price reductions or promotions out there to try to move product, especially just coming into this cover season, strong fiber glass backlogs. So we think we're in a good position on the price cost inflation curve. But like we've done over the last now probably 24 months, we'll keep this one clearly in front of us and adjust as we see fit going forward, but no plans to do anything from a pricing standpoint at this point where we sit right now. And that's reflected in guidance and kind of our expectations.

Got it. That's super helpful. Thank you for that, Scott. And then secondly, just on the margin guidance. I think you're implying on an EBITDA basis, maybe margins declining 80 basis points year-on-year for the second half at the midpoint. And correct me if I'm wrong. But I'm just curious if you kind of outline the sort of components, gross margins versus SG&A within that? And kind of what you think you could flex more aggressively if you need to? Thank you.

Matthew, I think for the full-year, we're expecting kind of flat adjusted EBITDA margins to slightly up. Certainly, you see in the second half with our guidance that there's a little bit of a headwind there on the margins. But that has to do with the underlying inflationary impacts we've talked about already and the expectation of that going forward. But we don't give specific guidance on either SG&A breakdown or gross margin.

All right. Thanks, Rob. Thanks Scott.

All right. Thanks, Matt.

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

Hey, good morning, guys. You actually have Gustavo Gonzalez on for Josh. Thanks for taking the question. Just quickly, and I think sort of realized price in second quarter here was somewhere in the high teens range. How does sort of that compare to your second half price outlook? Should we expect moderation as we sort of start lapping some second half '21 pricing and then sort of talk about your expectations in the third quarter? And I guess, broadly just like second half, I think third quarter de-stocking is like mostly that, but that would be helpful.

Yes. Thanks, Gustavo. I think first half versus second half, we expect kind of the same run rate on price as we had in the first half.

Got it. That's helpful. Can you guys hear me?

Yes, go ahead, Gustavo. There was a little bit of a pause there.

And then I guess just on your sort of your second half volume expectations was the second half of that question?

Yes, sorry. Okay. We expect continued growth in the fiber glass, although we don't break it out, the in-ground pool section. Package pools will be similar to the second quarter or the first half in terms of volume.

Got it. That's helpful. And then I guess, just sort of thinking about the current environment, and I know you guys have sort of targeted, I think, low to mid-20s on the fiber glass penton rate. Just sort of has your expectations sort of changed in the near-term or just given what's going on?

Yes. So Gustavo, without quoting what we think the actual number will be because we really can't calculate that until early spring once we see where final pool starts from PK data shake out and run our analytics. But what I would say is we're continuing to drive that material conversion story, driving the acceleration. A great indicator is 200 new dealers trained in fiberglass here over the last, I guess, the first six, seven months of the year, we're bringing dealers back on. Demand is resonating at the consumer level. And I think the economics of the fiberglass pool versus the concrete pool, that lower upfront cost and total cost of ownership probably resonate even now more for a consumer as they're making that pool buying decision and maybe looking to save a few dollars and actually wind up with a much better finished product and experience in the backyard. I think what we're focused on is part of our long-term strategy is driving that 40% to 50% penetration number like we see in Europe and the 70-plus percent penetration number we see in Australia. So no change in our focus, our efforts, and that's also why we're continuing to push the capacity expansions in that category with moving on with the Kingston facility expansion.

Got it. That's helpful. Thanks guys.

You're welcome, Gustavo.

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

Hey, good morning, guys.

Good morning.

Good morning.

Maybe just kind of starting on the digital initiatives. Could you just talk to kind of what you're doing on some of these regional campaigns that have kind of picked up and generated new leads? And I guess if you could maybe kind of break down what the cost of that is and how kind of replicable that is across the dealer base and other geographies?

Yes. So there's several pieces within that, Tim, of how we run these campaigns. And I'll start with, the last 12 to 18 months, we've really just had normal organic SEO search really carry us the last 18 to 24 months, where we've talked about -- we actually turned off our lead generation engine because dealers were flooded. We started to hear some dealers and pockets of the country say they've seen a slowing of leads. It's not like the lead has stopped or turn down, it's just slowed from what they've experienced over the last 12 to 18 months. So we started turning up some of the regional programs and offerings. And again, we -- without disclosing exactly how we do it, we've got the ability to go into certain market territories, boost the lead generation engine through many different marketing and digital platforms that we use, funnel those leads to our grand dealers in those markets. And if you go back and look at the metrics I quoted up front, the success of that is pretty immediate where after the second week, 76% uptake in lead gens and by the eighth week of the campaign, we generated as many leads in that week as we did the first 20 of the year. So it's a very select approach. I'm not going to disclose the cost, but I would say it's not that expensive to run programs like this with our engine, and it's got a very high ROI on that investment on a dollar per lead basis. And I'll say it's less than $100 per lead without giving the exact number to just kind of give you a feel for the magnitude of what we're doing here. And as we go forward, we'll continue to just press as far as we can on that front for our dealers, and they're seeing it, and that will really help us drive what we see is nice really growth in the second half and in the '23 in the fiber glass category.

Okay. Okay. And I guess, like of the lead generation that you've kind of done regionally, I mean, is there a way to think about how much of -- how many dealers that touches as a percentage of the dealer base? Or I'm just trying to think about how, over the next six to nine months, how much you can really lean into this to drive more volume next year?

Yes. So look, there's a lot more leaning in we can do here on this front. And that's kind of what Joel and the marketing team are looking at doing right now, we are running some regional programs. And look, we can dial this thing up pretty rapidly here in the second half of the year. And the way to think of it is think of it as a kind of ZIP code by zip color city by city. We have a grand dealer or a select dealer in a particular market. The leads will come in. There's a lead prioritization and lead disposition funnel that they have to go through. And literally, it will go to the first -- the biggest deal in the market first. They have a certain amount of time to disposition to lead or call the consumer back and convert it to an order. At that point, it would then go to other Latham dealers in the particular city or area. So if you think about market territories, we're thinking of I'll pick on the Charlotte area, North Carolina, so all those dealers in that greater Charlotte area. If you think about Northern California, we would target an area. So these campaigns go after pretty good territories and areas and just pushing leads with all those dealers with a quick funnel down. So it's -- like I said, it's boding pretty well. Clearly, something will be ramping up, and it's really the tightness of our sales team with the dealers when they ask for it, we respond quickly to them.

Okay. Okay. Good. And then just one more. Can you give us an expectation for what you're thinking free cash flow should be this year?

Yes, we generally don't forecast free cash flow or give guidance on -- we forecast, of course, we give guidance.

Okay. Sounds good. Thanks, guys.

Thank you, Tim.

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

Hey, guys. I want to add on the second-half.

Good morning, Ryan.

Good morning. I wanted to ask about the second half revenue assumptions. So it looks like about $120 million is the delta between the old guy and the new guide. Is the majority the de-stock that we're going to see in the above ground -- I'm sorry, in the package pools and maybe a bit for weather? Or did you also include a slowdown -- a bigger slowdown to be conservative?

Yes. So Ryan, I'll kind of take the high-level view here. The majority is the de-stock in the packaged pool in ground category. We're not going to disclose actual percentages or splits or anything. So let's just say that's the headline statement. And then it's not all just driven by a de-stocking. The tough 2Q weather that the dealers experience is also part of that equation where they just weren't able to get pools in the ground and that's kind of pushing some of that demand and install into 3Q. And with many of the dealers, I'll say, sold out, and again, back to the sold out term of how many pools they're going to put into the year. There's just not the sprint capacity in the back half for them to make up a lot of what they lost in 2Q. So it's a combination of those two and I'll just come back again and restate, the liner category, the cover category and even the fiber glass distinct as part of in-ground are all strong performers across the board for us. So we've not really seen a broad-based consumer slowdown impacting the dealers yet other than a higher level slowdown of lead generation in certain pockets of the country that we're addressing through the prior conversation.

Yes, it's helpful.

I was just going to add that we're still delivering 19% to 22% growth and the EBITDA growth, 18% to 25%. So positive year-over-year performance is our expectation, just to underline what Scott said.

Okay. And then following-up, just to dig in on the packaged pools and why that might be weak, while the other categories are holding up well. Is that because the package pools are more to a lower end consumer and the higher end, you're just not seeing it yet? Or is there a comp issue? I'm just trying to figure out like what the underlying driver is. And then should we view the slowdown in package pools as like a leading indicator for maybe your other categories? Or is that not the way to think about it?

No. I need to say, Ryan, it's probably not the way to think about it. I'll answer the back part of the question. I really say it comes down to with all of the supply chain challenges looking back over the last 18 to 24 months with material labor availability and lead times in these particular categories where we were out in some cases, 35, 45, 60 days. That required the wholesale distributors and in any case, the bigger dealers to really start to stock up on product to start working through their backlogs. And I think some of the backlogs are still out there for a lot of these dealers. And as the weather hit and I'll say the WD began looking at inventory level versus where they historically have been. They were in a position where they were probably over-stocked in many products. And as they're looking at where they think the industry was heading, they began to kind of slow down on what I would call the in-season re-orders, and that's really what didn't happen. We didn't see the peak in season reorder points we typically would. They're drawing down stock instead of continuing to build. And like I said, we start to see that kind of late 2Q. We expect that to continue in the 3Q, and we're believing it will normalize at 4Q as they get to the right level that they feel comfortable with. And I think the reason they're doing that is if you look at the capacity we've added and where we sit overall, our lead times are now back to probably the best they've ever been for the company in the packaged pool category. We're able to push product out in a three to five day time line on all those custom products, which we haven't been at and probably going back to '19 or early '20, and that's the other thing driving it. And just one more comment right back to the dealers for a second. They still see a healthy backlog of pools at the consumer level. And you probably find a hard press to find a deal to put a pool in free right now this fall. So the booking orders out into many cases, May or June of '23 right now.

Okay. Makes sense. Thanks guys.

You're welcome, Ryan.

[Operator Instructions]. Our next question comes from Susan Maklari with Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone. And thanks for taking the questions.

Hi, Susan. Good morning.

My first question is, can you talk a little bit about capital allocation. You mentioned that you did narrow and reduce that CapEx guide. You also mentioned the share buyback plan in the quarter. So can you just talk a little bit about what that lower CapEx is really reflecting? What are some of those things that you're perhaps delaying? And then just how you're thinking about allocating the dollars overall.

So Susan, I'll start maybe just with kind of the CapEx side and then turn it back to Rob on overall capital allocation. As you recall, if you exclude Kingston for a second, which is a big investment for us and a big increase year-over-year and the CapEx guide we provided. Most of the other projects are smaller one-off capacity additions where it's a mold, a truck, a piece of machinery, let's say, sub-100,000 type investments across the board. As we work through the first half of the year, a couple of things we've stayed focused on from a CapEx standpoint is fiberglass expansion. We're staying the course there to stay ahead of the demand, which is the story we've been talking about for a while here. Kingston is what I'll say, full steam ahead. We need that capacity in the Canadian and North-eastern market to help us balance production levels in some of our other facilities. The digital transformation project is ongoing, which is important for long-term success of the company as we look out three to five plus years. And then what I would say is that we did the big investment in steel with the Salvagnini that project is nearing completion. Everything else at that point are small one-off. We've evaluated where we sit on an overall capacity standpoint, utilization of those levels, looking at where we are in terms of current lead times and demand. And we felt that there were some projects that we just can kind of put on pause right now, thus the reduction in the guidance. But I think the core thesis of investing in fiberglass to stay ahead of the demand is something we will continue to do, which is a testament of this conversion story, the strength of it and resonating both with dealers and consumers and what we're seeing in the marketplace. And with that, I'll turn it over to Rob to kind of maybe talk to the overall capital allocation story.

Yes. Thanks, Scott. So in capital allocation, overall, we see those four levers more as an equation and the top two are really as a growth company, our focus. So both organic growth. And then if there's an opportunistic M&A tuck-in, we would do that as well. So that's the primary focus for us. On the debt side, our leverage ratio is quite low. We're very healthy. So we're happy with that. I don't see allocating a lot there in the short-term. And then on the stock buyback, that's more of an opportunistic if we see the right opportunity and it's against really the top side. So our focus -- although we have that authorization, we've only spent $15 million of the $85 million. We have that for the next three years. We see that more as just another tool, the toolkit of our capital allocation, with the primary focus being on driving growth and long-term value in the company.

Okay. That's helpful color. As a follow-up, obviously, you're newer to the public markets, and we don't have perhaps as much history on the business through cycles. Can you talk to your macro playbook? What are some of the things that you are watching to determine changes that you may need to make to the business? And what are some of those changes that you can do to protect the revenue as well as the margins in a weaker macro?

Yes. So Susan, high level, I'll start off saying public or private, right. We've been around 65-plus years. And I think over the history of the business, they've seen pretty much every cycle. I've been with the company now ten-plus years and I've probably seen four different cycles over that period as well. So we've got a really good playbook. The things we're looking at high level, clearly is incoming order rate interactions with our dealers, what they're hearing in CN and really staying close to them from a lead generation demand standpoint, we don't disclose or talk about backlogs, but that's another good indicator of what we see out there on the consumer and dealer front as we work through those. And I think overall, look, we do stay close to what we think is happening with new pool starts. We've got some really great wholesale distribution partners that we work with to see what they're seeing from a pull-through with all their communications with dealers. So we kind of look at all signals there. And what I would say is what separates us from the rest of the pack a little bit is this digital strategy we have where we can dial up the demand kind of at a moment's notice for the dealers 90 million homes out there that want a swimming pool, and I've used this stat several times, and I love it. There's about $1.5 million of potential pool demand out there per year that we can go market to. Those are the homeowners who have an interest in a pool, high likelihood of buy one in the next five years. Pool stats are still well off the peak. So we don't -- first of all, we don't see a big pullback coming overall in…

Yes, that's great, Scott. Thanks for the color and good luck with everything.

You're welcome, Susan. Have a good day.

Our next question comes from Keith Hughes with Truist. Please go ahead.

Thank you. A question on the -- what you said earlier about 4% growth in pools in the quarter. Can you talk about fiber glass pools, what the units and what the dollars were just for that category?

Yes, Keith, I'll hand that one off. We don't disclose distinct fiberglass or packaged pool unit volume numbers in that income pool category. But what I will say is we are expecting a very strong double-digit growth in the second half in the fiber glass segment. That's the result of strong backlogs that we see where dealers are currently positioned and all the work we're doing to drive that conversion story.

So if you hit the double-digit, is that going to be all price? Or will there be some unit growth in there is your success.

Both. Sorry for those.

Okay. And then we've talked a lot about the inventory situation on the package pools. Is there going to be a scenario in the future where when the inventory levels adjust to the level that the dealers want them, you'll see a little bit of a bounce back as demand kind of goes back to where sell-out is. Is that something that could happen is something foreseeable for this calendar year?

What I would say is it's a potential, Keith. I think what we've got to -- what we have to determine is how far does the de-stocking go through the back half of the year before we would expect to see a rebuilding through a reset level. And I think we've got our guidance set based on the information we have out there from our business partners. If I was to call, I probably wouldn't see that until probably early next year. I think everyone is going to take a cautious approach here in the next six months, but that's something we're really watching closely as well of how much that could potentially rebuild based on that correction that's happening currently.

Okay. Thank you.

You're welcome, Keith.

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

Good morning, gentlemen.

Good morning, Ken.

Good morning.

So obviously, we've seen inventory impact second half guidance for you. We saw it in tools, we saw it in decking. And it's about a 23% revenue in the back half reduction. Obviously, with price, it seems like there's quite a bit more volume. So there's two questions, Scott, that I'd like to follow up on. First, you talked about the first half of '20 -- first half of next year, let's say, somewhere in the first half, things normalizing. What gives you that conviction? Is it really -- I mean, you did talk about your lead times improving. Is that what it is? Or was because people are trying to discern the supply level from the demand. You had Angie's List talking about contractors going more to pay more for leads and stuff. So people are trying to discern that. Where exactly is your comfort? And then my next question is going to be tied to your gross margin because you had about a 25% incrementals in the back half negative. So is the gross margin story changing from where it was when you guys initially came out in terms of that mix towards higher gross margins on the fiber glass? Or did the cost inflation really eat that story away? Thank you very much.

Yes. So Ken, I'll hit kind of the high level first question. And look, we're not going to talk first half '23 from a guidance or expectation standpoint. I think that was part of what was what were in your question. But I think the conviction of why we feel good about everything is -- I'll start that the liner and cover categories are a strong recurring revenue business of that replacement product for the consumer. Large installed base of pools out there. If you own a pool, you're going to replace your line or and more importantly, you have to replace your winter safety cover from the safety aspect of that. So that's a nice growing business for us. We've seen really good strength there. And particularly, I've got to mention the auto cover category that's similar to the fiberglass story, a product that a lot of folks aren't aware of. We're seeing a bigger and bigger adoption of that product on our pools as well as all tools that are installed out there, including concrete. -- on that business is performing exceptionally well. So I think as we continue to drive the story on those categories, that's a big, good base of business for us that's ongoing. The fiberglass conversion story and everything we're doing there with capacity, the conversion, standing up new dedicated dealers, 200 new fiberglass dealers onboarded so far for this year. We haven't taught supply chain at all today, which was actually great because that's solved for us at this point in time. And where we sit, no longer being on hard allocations, good raw material supply across the board. Lead times greatly improved in fiberglass, our ability to start being aggressive in that space with bringing onboarding new dealers, working with them to quickly and rapidly grow and double the business. I think it's just more of the same of what we've been doing over the last decade or so in running the business. And in packaged pool does have the slight component of the stock product -- everything else is custom. We're producing it to in order to go out the back door of the consumer. That product does have a little bit of inventory stocking, but we don't really see a slowdown of consumer demand for that segment of the in ground pool category. So hopefully that answer your question, Ken, I'll turn it over to Rob on the gross margin question you had.

Yes, Ken. On gross margin, we don't give guidance on that going forward or the SG&A breakdown. But what I can say is, if you look at the second half, we're down a bit on volume, it's very similar to second quarter. We do have inflation built in there. We talked about a little bit of that embedded in our inventory. So we feel pretty comfortable with where our prices are today and the value proposition. We have -- we continue to watch inflation, but that profile over the year is what we're looking at just the lower volume. Again, the -- yes so EBITDA margin overall, as we're forecasting is flat up, it's got and that would be the 13th year of consecutive growth. So overall, we feel good about the year and where we're in even with those pressures.

Thank you.

Welcome, Ken.

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

All right. Thanks, Sarah. Hey, thanks, everyone, for your time on today's call. We really appreciate all of your continued interest and support of Latham and we look forward to providing further updates on future calls with all of you. Have a great rest of your day. And again, thanks, everyone. Cheers.

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