Latham Group Q3 2026 Earnings Call Transcript

Latham Group (NASDAQ:SWIM) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Latham Group reported a 12.5% increase in Q3 2026 sales to $182.2 million, with organic growth of 8.4% and notable 21% sales growth in the Sand States, driven by in-ground pool sales, especially fiberglass pools.

Adjusted EBITDA grew by 18.1% in Q3, reflecting strong financial performance and strategic investments in marketing and sales initiatives, with the company reaffirming its 2026 guidance for net sales of $605 to $615 million.

Strategic initiatives include expanding fiberglass pool adoption in the Sand States, launching new pool models, enhancing direct-to-consumer marketing, and forming partnerships with home builders, while also announcing a $100 million share repurchase program.

Operational highlights include resolving manufacturing constraints, increasing inventory for 2027, and strengthening the commercial organization with new leadership.

Management expressed confidence in offsetting cost inflation through pricing strategies and maintaining margin expansion while expecting continued market share gains in fiberglass pools.

Full Transcript

OPERATOR

Good afternoon everyone and welcome to the Latham Group third quarter 2026 earnings conference call. All participants will be in a 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 and then one on your telephone keypads. To withdraw your questions, you may press star and two. Please also note today’s event is being recorded.

At this time, I’d like to turn the conference call over to Casey Codery, Investor Relations Representative. Please go ahead.

Casey Codery (Investor Relations Representative)

Thank you. This afternoon we issued our third quarter 2026 earnings press release, which is available on the investor relations portion of our website. On today’s call are Latham Group President and CEO Sean Gadd and CFO Oliver Glow. 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 reflect the Company’s views with respect to 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. 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 is available on our investor relations website. I’ll now turn the call over to Sean Gadd.

Sean Gadd (Chief Executive Officer & President)

Thank you, Casey, and thank you all for participating in today’s call to review our third quarter results and discuss our business outlook. This was another strong quarter for Latham in which we effectively executed our strategic priorities and delivered substantial growth in sales and profitability. The key takeaway from both our third quarter and year-to-date performance is that Latham is not waiting for the market to rebound. We are driving growth in our established markets through high-impact marketing campaigns and sales execution, taking advantage of our market development approach to accelerate material conversion in the Sand States, and strengthening our market leadership across all our product categories. And the successful execution of our strategy is demonstrated in our financial results as well as in the substantial operating progress we’re making that sets us up for continued growth in 2027 and beyond.

Looking at our Q3 and year-to-date financial highlights, third quarter sales increased 12.5% to $182.2 million, thereby organic growth of 8.4%, bringing our year-to-date sales growth to 11.4%, with organic growth at 7.9%. Sales in the Sand States increased by 21%, led by accelerated growth in Florida and Texas. For the first nine months, Sand State sales were up 16.6%. And adjusted EBITDA increased 18.1% in the third quarter and 14.2% year to date, significantly outpacing sales growth while we continue to invest in growth initiatives.

Taking a closer look at the main contributors to our third quarter and year-to-date sales growth, you can see the operating progress that underpins our confidence in Latham’s ability to continue to outperform the market. We are very pleased with our year-to-date net sales growth of 11.4%, including 7.9% organic growth. This performance was driven primarily by in-ground pool sales, which were up 22.6% in the third quarter, including 13.9% organically from the same period last year.

This increase in in-ground pools was driven almost entirely by fiberglass pools, which are on track to account for about 80% of our total in-ground pool sales this year. Based on our internal data, we expect fiberglass to gain at least one additional percentage point of total market share in 2026 to represent 25% of total U.S. in-ground pool sales. This makes us the market leader in a growing category within the pool industry and supports our conviction that Latham is gaining share within trough market conditions. We also are a leader in the growing auto covers category, with strong sales momentum that led to 8.7% growth in cover sales in the third quarter and 8.4% growth for the first nine months.

Auto covers, which provide critical safety benefits and are compatible with all types of in-ground pools, have also been supported by the revenue synergies from our past acquisitions of several of our Coverstar dealers. Last quarter I spoke about concentrating our efforts on four strategic priorities to drive growth, namely to continue to grow our core business in established markets, to drive material conversion to fiberglass from concrete in the Sand States, to increase the attachment rate of our auto covers, and to continue to complete accretive acquisitions to support these growth drivers. I spoke about the need to achieve sales excellence across all our markets, follow a disciplined market development approach, market directly to the consumer, and own their path to purchase.

I’m pleased to report that not only are all these initiatives currently underway, but we already see important positive results from these efforts which support our confidence heading into 2027. A disciplined and direct-to-consumer marketing approach is working, and nowhere are results more apparent than in the Sand States. Success in these markets has the potential to drive a step change in company-wide sales over time. Sales in the Sand States accelerated to 21% in the third quarter, demonstrating the contributions of our strategic growth initiatives.

Several initial successes are worth noting. First, as part of our new market development framework, we hosted three community pool events in targeted Florida neighborhoods celebrating the installations of three fiberglass pools. These events resulted in 15 additional pools sold in these neighborhoods. Second, we’re taking our market development framework to additional neighborhoods in Florida and Texas with more events planned before year end. We are also adding field resources in Florida and plan further expansion in Texas and Arizona as we head into 2027.

Third, advertising and marketing campaigns are resonating with consumers in the Sand States. Year to date, overall national leads were up 25% versus prior year, and Florida and Texas have seen dramatic increases in lead volume, up 89% and 115% respectively. Our website traffic increased substantially, and Latham remained the number one brand searched among fiberglass competitors, taking advantage of the softer market to accelerate growth. Latham is the only fiberglass pool manufacturer investing with this type of scale in advertising and marketing campaigns in today’s market, helping strengthen our competitive position among pool builders and increasing brand recognition among consumers. Fourth, we are launching three new pool models ahead of the 2027 season that are purpose-built for the Sand States. All three are rectangular shaped with spacious swim areas and built-in bench seating that offer a resort-inspired backyard experience perfect for these year-round markets.

Lastly, we are leveraging my home builder experience to establish a foothold in this market and unlock a new growth opportunity for Latham. In the third quarter, we partnered with a national home builder to offer Latham fiberglass pools as an option in new home construction in Florida. One Latham pool is already installed in a model home. We look forward to expanding this relationship. More to come on this as it develops. Beyond the Sand States, I’m pleased to report that we have advanced the build-out of our commercial organization with the appointment of our new Chief Commercial Officer, Todd Antonelli, and the addition of key leadership across sales strategy and sales operations, establishing the foundation for a world-class commercial organization that will drive Latham’s growth across our product lines and geographic footprint. As we strengthen and accelerate our commercial execution, we continue to gain efficiencies through lean manufacturing and value engineering while also reinforcing our commitment to safety across all of Latham’s facilities.

To sum up, I would like to thank the entire Latham organization for their commitment and hard work in achieving our results. We are pleased with our sales performance to date and the way Latham is effectively navigating challenging market conditions while delivering substantial growth and profitability. Our Board of Directors approved a three-year $100 million stock repurchase program, reflecting the growth opportunities we see ahead and demonstrating our confidence in Latham’s long-term outlook.

A strong financial position is a key element supporting our current and future success, and I will now turn over the call to our CFO, Oliver Glow, for a financial review. Oliver.

Oliver Glow (Chief Financial Officer)

Thank you, Sean, and good afternoon, everyone. I’m pleased to report on our strong third-quarter financial performance, which highlighted Latham’s progress on our growth initiatives and continued ability to outperform the market. Please note that all comparisons that I will discuss today are on a year-over-year basis compared to the third quarter and first nine months of fiscal 2025, unless otherwise noted. Net sales for the third quarter were 182 million, 12.5% above 162 million in the prior year, which represented 8.4% organic growth and 4.1% acquisition-related growth contributed by Freedom Pools across our product categories. In-ground pool sales were 92 million, up 22.6% in the third quarter, or 13.9% organically. Organic growth was driven almost entirely by fiberglass pools, reflecting our progress in executing on our strategy to continue to grow in our established markets while accelerating our sales in the important sand states.

Through our branding and marketing initiatives, we are highlighting the speed and efficiency of fiberglass installation compared with concrete, while educating consumers on the durability, attractive finishes, and long-term cost savings of Latham fiberglass pools. With fiberglass representing approximately 70% of the pool market in Australia, which has the highest rate of residential pool ownership in the world, and accounting for approximately 40% to 50% of the European market, we see significant opportunity to increase penetration across the U.S. as awareness of the quality and value of our product continues to grow.

Cover sales were 60 million, an increase of 8.7%, led by auto covers, which represent approximately two-thirds of our cover sales and which continue to benefit from revenue synergies from our three Coverstar acquisitions. Liner sales were 30 million, a decrease of 4.9%, primarily related to a difficult comparison to last year when liner sales were up 13% from the prior year’s third quarter. Gross profit increased 16.6% to 67 million. Gross margin was 36.7% in the third quarter, a 130 basis point expansion primarily due to greater plant absorption on higher volumes as we resolved the manufacturing capacity constraints that we faced in the second quarter, along with the continued benefits from our lean manufacturing and value engineering initiatives. SG&A expenses increased to 36 million, up 7 million, similar to last quarter.

This is primarily due to investments in our growth strategies, the timing of sales and marketing initiatives related to our fiberglass conversion strategy, acquisition and integration-related costs, which included 3.2 million of performance-based compensatory earnout expenses related to our Coverstar Central acquisition in 2024, and costs related to our digital transformation program. Net income was 12 million, or $0.10 per diluted share, an increase of 4 million, or 48.5%, compared to 8 million, or $0.07 per diluted share, in the prior-year period. Third-quarter net income included a one-time loss on extinguishment and modification of debt of 5 million related to our debt refinancing. Net income margin was 6.6% compared to 5% for the prior year’s third quarter.

Adjusted EBITDA of 45 million increased by 7 million, or 18.1%, from last year’s 38 million, and our adjusted EBITDA margin was 24.8%, a 110 basis point increase from 23.7% in the prior-year period, reflecting higher gross margin that more than offset higher sales and marketing initiatives designed to drive share gains for fiberglass pools and auto covers. Now turning to our year-to-date results comparisons, net sales were 497 million, up 11.4% compared to 446 million. Gross profit increased by 12.9% to 174 million from 154 million, and gross margin increased by 40 basis points to 35%. Net income was 16 million compared to 18 million in the prior-year period. Net income margin was 3.3% compared to 4.1% and included the one-time loss on modification and extinguishment of debt of 5 million related to our debt refinancing that I previously mentioned.

Adjusted EBITDA was 102 million, up 14.2% compared to 89 million in the prior year. Adjusted EBITDA margin increased by 50 basis points to 20.5% from 20%. Turning to our balance sheet and cash flow statement, we continue to maintain a strong financial position with cash of 95 million at the end of the quarter. Net cash provided by operating activities was 49 million in the third quarter and 55 million for the first nine months. During the third quarter, we refinanced our existing credit agreement to extend maturities and enhance financial flexibility in support of our strategic priorities. The new financing includes a 300 million term loan facility maturing in 2033 and a 75 million revolving credit facility maturing in 2031.

Providing long-term financing stability at similar conditions to our prior facilities strengthens the balance sheet, supports organic investment and strategic M&A, while maintaining disciplined leverage. Our refinancing was well received, with Moody’s and S&P affirming their ratings. Total debt as of the end of the period was 293 million, with a net debt leverage ratio of 1.8, ahead of our year-end target of 2.0. Our capital expenditures were 6 million for the third quarter and 34 million for the first nine months of 2026, which includes the purchase of four key previously leased fiberglass production facilities.

I would like to emphasize our capital allocation priorities: reinvesting in the business to capture organic growth opportunities, selectively pursuing strategic acquisitions, and returning capital to shareholders while maintaining a strong balance sheet. As Sean mentioned, given our strong cash flow and in light of our confidence in Latham’s current and future prospects, our Board of Directors authorized a three-year $100 million share buyback program.

Moving on to our outlook, with peak pool-building season now behind us and based on our current visibility through year-end, we have reaffirmed and narrowed our 2026 guidance ranges for net sales and adjusted EBITDA, while continuing to expect growth across all product categories. Our net sales guidance range is now 605 to 615 million, representing 11.7% year-over-year growth at the midpoint, and our adjusted EBITDA range is now 112 to 118 million, representing 15.2% year-over-year growth at the midpoint.

Our narrowed guidance reflects our assessment of the fourth-quarter impact of the ongoing conflict in the Middle East. We have increased the previously implemented freight surcharge to offset higher transportation costs, and we’ve also announced price increases on pool liners and auto covers to mitigate commodity cost pressures. With respect to the recently announced Canadian tariffs and counter-tariffs, we proactively positioned the balance of our 2026 seasonal inventory within the appropriate jurisdictions and, as a result, we currently expect an immaterial impact on our 2026 financial results.

As we plan for 2027, we are leveraging our U.S. fiberglass manufacturing footprint to support markets previously served from Canada and are pursuing additional localization initiatives across other product categories. These actions are designed to mitigate tariff exposure while maintaining service levels and operational flexibility. With that, I will turn the call back to Sean for his closing remarks.

Sean Gadd (Chief Executive Officer & President)

Thanks, Oliver. At Latham, we are creating spaces where lifelong memories are made, and this is an important and exciting time for our organization. We’re experiencing solid growth in our established markets and are gaining meaningful traction in the important sand state markets, which account for approximately two-thirds of the annual new pool starts in the U.S. and where Latham has been underrepresented historically. We’re working on developing relationships with national home builders that, if successful, would open another large market to us.

And we are doing all this while continuing to drive margin expansion. The longer I am at Latham, the more potential I see to expand our share across the markets we serve and throughout our product portfolio. We are grateful for the dedication and engagement of our employees and the continued loyalty and trust of our dealers and customers. We remain committed to delivering the high-quality products that make us all proud. With that, operator, please open the call for questions.

OPERATOR

At this time we’ll begin the question-and-answer session. Once again, to ask a question, please press star and then 1 using a touch-tone telephone. To withdraw your questions, you may press star and 2. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Again, that is star and then 1 to join the question queue. Our first question today comes from Robert Schultz from Baird.

Please go ahead with your question.

Robert Schultz (Analyst at Baird)

Hey guys. Good afternoon. I know it’s early, but just curious: any initial thoughts on how you’re thinking about ’27 pool starts? It sounds like there’s confidence there to drive continued outperformance in the market, but just curious, any feedback you’ve gotten early from dealers, now builders, in terms of what they’re seeing?

Sean Gadd (Chief Executive Officer & President)

Yeah, I’ll start. I think from my perspective, Robert, there’s no big macro news that’s changing. Obviously, if anything, it might be getting a little bit worse. We are thinking, and based on what I’ve heard in the marketplace—that’s from dealers, that’s from our distributors, that’s from builders—is pretty much another flat year for 2027. So we’ll be planning for a flat year, and then obviously we’re not waiting for the market to rebound. We’re certainly taking share.

We continue to think we can do that. So we’re going to continue to grow through ’27, but we’re not thinking we’re going to get a lot of help from the market.

Robert Schultz (Analyst at Baird)

Got it. And then with the hiring of Todd, the new Chief Commercial Officer, where do you see the biggest opportunity to really sharpen the commercial execution? Is it getting more productivity from your existing dealers, adding distrib, or improving lead conversion? Just curious your thoughts there?

Sean Gadd (Chief Executive Officer & President)

Yeah, it’s a little bit of everything. I think I’ll start with—Todd brings in, obviously comes with, experience. He comes from Marvin, and Marvin’s got a good structure in which to go and attack the market. I think he’s also got Cabinetworks, which is about really getting down and dirty, getting with builders, and trying to figure out how to win. So I think he brings in the right experience. Him and I share the same view of how sales organizations should run, and that really is getting some disciplines around sales process, getting disciplines around sales efficiency, sales effectiveness, and continuously driving improvements through your sales team. We’ll get more time with our customers, which should drive better performance.

And then generally, my market development experience that Todd experienced as well with Marvin allows us to accelerate some of the work in the sand states, I believe. And then, quite honestly, as we get better with our sales process, part of that is account management. And I do think we have great opportunity with our distribution partners to continuously lean in. And when I say lean in, it’s really from the top, CEO to CEO, all the way back down to the branches, and getting a disproportionate amount of time of our distribution partners because we can drive more growth than any one of their suppliers.

So I just see us really getting gains in all of those areas.

Robert Schultz (Analyst at Baird)

Awesome, thanks. I’ll leave it there.

OPERATOR

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

Ryan Merkel (Analyst at William Blair)

Hey everyone, nice job this quarter. First question is on the topic of price/cost. You mentioned freight surcharges and I think some price increases. So my question is, do you expect to be price/cost neutral in 4Q and then also entering 2027?

Oliver Glow (Chief Financial Officer)

Yeah, I think it’s fair to say. First of all, thanks, Ryan, for the question. Let me start with Q3 first because I think it’s very important to understand the sequential impact in Q3 for the first time. You have now, coming from the Middle East conflict, both the transportation headwinds as well as the commodity headwinds, and what we saw in Q3. Remember, in Q2 we had oil price spiking all the way up to 113, so we saw elevated oil prices all the way through Q3.

So we probably in Q3 had more headwinds than tailwinds as we throughout Q3 both increased the surcharge as well as implemented pricing for liners and auto covers. But to answer your question going forward, at current oil prices, at current commodity prices, and the current transportation rate, I think we are well positioned to fully offset the headwinds as they present themselves today.

Ryan Merkel (Analyst at William Blair)

Got it. Okay, great. And then my other question. Package pools and liners. It looked like the growth slowed a little bit this quarter. Anything to call out?

Sean Gadd (Chief Executive Officer & President)

Nothing to call out. I think from our perspective, obviously coming towards the end of the season, that’s the first thing. We also had a weird comp last year. Had significant growth in the same quarter last year with one of our competitors having some issues that didn’t repeat. So we don’t see any lack of share or any share loss. Sorry. I would say definitely as you talk through to our customers, think about a K-type economy. That pool segment certainly has been impacted by the macros more than our fiberglass pools.

But in general we’re still taking share in all of our product lines.

Ryan Merkel (Analyst at William Blair)

All right, sounds good. Thanks. Best of luck.

Sean Gadd (Chief Executive Officer & President)

Thank you.

OPERATOR

Our next question comes from Andrew Carter from Stifel. Please go ahead with your question.

Andrew Carter (Analyst at Stifel)

Thank you. Good evening. Just kind of backing into what you said on the fiberglass. Taking out the M&A from in-ground pools. I think you said all the growth was primarily fiberglass. Then making kind of an assumption in that 77% range for last year would imply like a high-teens growth rate for the fiberglass pools business in the quarter. So I wonder if you could just kind of break that down a little bit. How much pricing is in there? Low single digits but want to know, and how much sand states are contributing, just to kind of give the magnitude of the performance of your fiberglass business relative to the market.

Thank you.

Oliver Glow (Chief Financial Officer)

Andrew, let me take that one. So overall, year over year, we had a 12.5% growth in Q3, 8.4% of that was organic freedom, and that’s entirely a fiberglass business. Adding the remaining 4.1% out of the 8.4. Think of price being 200, maybe a little bit more, basis points. That is pretty much equally across the product lines, leaving the majority of the organic growth really in that volume-driven basket. And that’s primarily, as we said in the prepared remarks, between auto covers and fiberglass.

The other categories, with the exception of liner, they’re adding as well, but it’s overproportionally in fiberglass and auto covers. And you’re right with calculation on fiberglass organic growth being in the upper teens here. Honestly, while we are very, very pleased with the growth in the sand states being 21% in the quarter, it’s still a relatively small number. But as we grow in the sand state, ultimately that becomes bigger and will be more of a driver of total company performance going forward.

Andrew Carter (Analyst at Stifel)

Second question I want to ask about the— You did say sand state, yes, small, but you are getting some momentum on that. So the first thing I want to ask is, as you’ve assessed that, number one, do you think you can continue to go to the market, or maybe you are changing it, I don’t know, with kind of the same price point on shelves to kind of address some of the cost numbers there? As you’re getting into it, do you feel like there’s a lack of awareness, a lot of misperception out there, things you need to do with marketing investment?

And then just one more, you did mention the home builder relationship. I wanted to ask kind of what’s your kind of target price you’re going after with the new homes? And then also can that business, as you’re working through it—you might not know this yet—be as profitable as the rest of your business, given the home builder demands? Thanks.

Sean Gadd (Chief Executive Officer & President)

Okay, thank you. I think the first thing I’ll start with, fiberglass growth in the sand state is a good sign for us. While it is small relative to the total size of the business, it’s growing. And obviously we decided to talk about it, I guess more transparently this quarter because we’ve hit some milestones. So I think that’s an important piece for that. In terms of the misconceptions, end of the day, whenever you’re sitting against the standard, and the standard being gunite, everyone’s very familiar with gunite. Everybody understands how to install it, everybody knows what it is. There’s nothing to explain. So people may have a view of it, it may even not be accurate, but they believe, because they see it everywhere, that their view is accurate. The misconceptions aren’t a problem. I mean, they’re a fact.

Obviously, people who are learning new products, anytime you take on a new technology, a new product, you have to overcome the fact that there’s barriers. And some of those barriers are real and some of them are perceived. Most of the barriers, as we’ve seen, are perceived, and the value proposition of our fiberglass pools—easy install, low maintenance. We’ve got some data now from both Texas and Florida that says a homeowner who buys fiberglass has less regrets than those who do cement.

So we feel like that’s just an awareness thing. We’ve got to continue to drive that message. The more dealers we’ve got at the kitchen table giving our message and giving the story of Latham and fiberglass, the more we’re going to win. We don’t need to win everywhere yet because obviously we’re just breaking in, which is why we’re doing segmentation, targeting, and positioning. And while we’ve got a neighborhood approach, what I can say is where we’re targeting, we’re winning.

And so I don’t worry too much about the misconceptions because we can attack them. That comes through marketing, that comes through our sales team, that comes through our dealer network. And so I feel good about where we’re at. In terms of the home builder, we’re early on in the game. We’ve got a model now that would suggest we can participate with the home builders in an affordable way for them and in a profitable way for us. I’m not going to get into price points of home. What I can tell you is in Florida, for example, we believe 50% of the homes that go in go with a pool. Those are homes anywhere from sort of move-up all the way through to custom. We’ll be able to participate in all of those price points based on the models that we have and the future path that we have for that builder.

Andrew Carter (Analyst at Stifel)

Thanks. Pass it on.

Sean Gadd (Chief Executive Officer & President)

Thank you.

OPERATOR

Our next question comes from Greg Palm from Craig-Hallum Capital Group. Please go ahead with your question.

Greg Palm (Analyst at Craig-Hallum Capital Group)

Yeah, thanks. I’m a little surprised that you’re still only assuming one point of fiberglass penetration this year. I mean, you’re seeing some really nice growth this year. Our work suggests you’re not the only manufacturer that’s growing volumes this year. So would love to just get a little bit more color on what you’re seeing from a structural driver standpoint and then how you’re thinking about that, and then your own company-specific strategy that maybe translates into additional increased penetration rates going forward.

Sean Gadd (Chief Executive Officer & President)

Yeah, I mean, I think we’re being conservative with 1%. I truly believe we are taking—I know we are taking—share. We’re waiting to see it get confirmed pretty much with PK. It’s good for us to say, but it’s better if someone else tells us. I believe it’s more like one and a half to two. And so again, a good year, solid year. We’re doing what we need to do. It’s white space for us in terms of where we’re marketing. We have a strong sales team. We’ve got a clear strategy on how to go to market. We’re following the strategy and we’re delivering results. I’m not here to debate one or two. What I can tell you—and I keep thinking about this—as we build into future years, we should be taking at least one point of share every year, and we would have achieved that this year.

Greg Palm (Analyst at Craig-Hallum Capital Group)

Yeah. Okay. And then just following up on a previous question, just to be clear, your confidence in the ability to pass through these inflationary costs, whether that’s freight or material, some of the commodity material stuff you mentioned, so that you’re continuing to expand margins in fiscal 27?

Oliver Glow (Chief Financial Officer)

Greg, at the current implemented surcharges and price increases, it’s pretty much a full pass-through. Now, obviously the environment continues to be dynamic. But at least in the current zip code of oil prices, gasoline prices, diesel prices, and then commodity prices, we are covered.

Sean Gadd (Chief Executive Officer & President)

And I’ll just add, the homeowners that are buying are predominantly cash buyers. So this isn’t a game-changer for us. I mean, we don’t like the fact that we have to put in place pricing through, but it’s not going to change the equation for a homeowner.

Greg Palm (Analyst at Craig-Hallum Capital Group)

Yep. Understood. Okay. Thanks for the color.

Sean Gadd (Chief Executive Officer & President)

Thank you.

OPERATOR

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

Elizabeth (Analyst at Barclays)

Hi. You have Elizabeth laying in for Matt tonight. Thank you for taking the questions. I was wondering—you know, you talked about how you were able to kind of remove some of the manufacturing constraints that you had last quarter—and I was wondering if you could talk about how your inventory positions are tracking and how you’re thinking about that through the end of the year.

Oliver Glow (Chief Financial Officer)

Yeah. Thanks for the question. So you summarized the position that we incorrectly last quarter. We obviously reported on the manufacturing performance being constrained. We’ve resolved those constraints in Q3. We are now fully back to where the inventory needs to sit at the end of the third quarter, actually slightly ahead even. And that represents our intention to get into the 2027 season with higher levels of inventory to make sure that we supply on customer demand within the appropriate lead times.

Elizabeth (Analyst at Barclays)

Okay, thank you. And I guess, touching further on the demand point you made, I was wondering if you could offer anything around the timeline for your sand state strategy—how you’re thinking about that, moving into Arizona and further into Texas next year.

Sean Gadd (Chief Executive Officer & President)

Yeah. We are all but manned up now in Florida. We are currently hiring and filling roles in Texas. We’ll have those completed by year-end, and then obviously getting people trained is key. And then start of next year, pretty much January, we’ll start moving into Arizona.

Elizabeth (Analyst at Barclays)

All right, great. Thank you very much.

Sean Gadd (Chief Executive Officer & President)

Thank you. Thank you.

OPERATOR

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

Charles Perron (Analyst at Goldman Sachs)

Good afternoon, this is Charles Perron in for Susan. Thanks for taking my question. Yes, first I want to recognize the strength that you saw in orders, sales, and traffic throughout the quarter, but given the macro uncertainty, I was wondering if you can help us parse out the trends in the quarter in the sand state, and through October, you’ve seen on web traffic and on conversion and sales as rising financing rates have come through.

Sean Gadd (Chief Executive Officer & President)

Yeah, from our perspective, web traffic is pretty good. It’s obviously up. Over last year we talked about 25% nationally where we really focus, which is the same states; we’re seeing tremendous, tremendous traffic to our website and lead generation is up 89% and above. So in general, the desire for homeowners to own a pool hasn’t really changed, and that I don’t envisage will change in time. In fact, I think it might grow. And the reason I say that is, one, we’re getting our brand more out there.

People are starting to recognize who we are. And also reality is when you get to Florida, I mean, the temperature of Florida is so high, I mean, you need a pool. I mean, that’s the reality. Everybody gets a pool — now, whether they get it when they buy the house in the first year or in the fourth year, they’re going to end up with a pool. What’s important for us is we have a path to purchase plan that allows a homeowner from when they dream about getting a pool to the time they actually install a pool, that we hold their hand all along the way, and we’re building that out as we speak and we’ll be rolling that out early next year. Very excited about that because that allows us to hold a consumer’s hand all the way through, which should get us better conversion of our leads. And then you add the fact that we’re being very targeted with our approach and, while the macro is not great, it’s not all that different from what it was a quarter ago or a quarter before that.

I think reality is it is what it is. And with the K-shaped economy, mainly cash buyers, I think we’re not seeing a dip as of right now.

Oliver Glow (Chief Financial Officer)

I think, continuing there, addressing the raising financing rates that you asked about, we believe that today the share of pools being financed is minimal. Right. So I think you do have the upside, once financing normalizes and decreases, a little bit of that part of the market coming back in. But I think there’s limited downside just because the pools being financed is just a minimum quantity right now.

Charles Perron (Analyst at Goldman Sachs)

Got it. No, that makes sense. That’s very good color. And shifting to capital allocation, how do you see the M&A pipeline today now that your leverage is below 2x? And how do you approach this opportunity versus the $100 million of share buyback program you’ve announced today?

Sean Gadd (Chief Executive Officer & President)

Yeah, you know, from our perspective, obviously we’re looking to ensure we want to put money back into this business. First we want to invest in ourselves — first on growth, second on capital and M&A. We’ve got some targets we continue to look at. We’ve always said we’re looking for targets that will open up new markets for us and/or adjacencies and that are accretive. I think we’ve got a couple, but in the scheme of things, we don’t have any one large target.

It’s more a handful of medium-sized targets. So we’re continuing to progress on those avenues and obviously that will continue. And when they fall in place, they fall in place. But we’re not — we’re definitely focused there, but it starts with our internal growth as number one.

Charles Perron (Analyst at Goldman Sachs)

Got it. Thank you for the color, guys, and good luck with the quarter.

Sean Gadd (Chief Executive Officer & President)

Thank you. Thank you.

OPERATOR

And our next question comes from Sean Coleman from Bank of America. Please go ahead with your question.

Sean Coleman (Analyst at Bank of America)

Hi, guys. Thank you for taking my questions. On your last call you talked about Florida being the main driver of the sand state growth and Texas might take a little longer, but it seems like Texas was also really strong this quarter. So can you talk about what drove the strength there, and if you’ve accelerated the push into Texas faster than you previously expected?

Sean Gadd (Chief Executive Officer & President)

Yeah, good question. I think Texas is up. I know it’s up. It’s definitely a result of, in my mind, less about us driving leads, but more about us — the sales organization in place — working with our dealers and getting our dealers in the right place to be ready for the season. I think we’ve been very diligent around that. The dealers we have in our network are very, very strong dealers and they are certainly fulfilling the demand that’s coming their way, so that’s good.

We definitely have had focus in Texas. It’s not like we haven’t. We’ve sort of pulled back from Texas. There’s focus on Florida, but we did. Most of the stuff we’re learning in Florida is transferring into Texas, and that sales organization is doing a lot of the same things as we were doing in Florida. What I can say is we’re doing it with too few people, and now we’re adding the resources in Texas to sort of accelerate that even faster.

Sean Coleman (Analyst at Bank of America)

Okay, great. And you guys talk a lot about the fuel inflation and surcharges. Can you talk about what you’re seeing in terms of resin inflation at this point? And do you expect to have to raise price on fiberglass pools to offset some of that in 2027?

Oliver Glow (Chief Financial Officer)

Yeah, I think as part of the overall raw material basket, our resins are increasing. I think, you know, as I said in the prior answer, in combination, the combination of the fuel surcharges as well as the price increases cover us going forward. And that is true for all of our product categories.

Sean Coleman (Analyst at Bank of America)

Okay, great. Thank you.

Sean Gadd (Chief Executive Officer & President)

Thank you.

OPERATOR

And with that, ladies and gentlemen, we’ll be concluding today’s question and answer session. I’d like to turn the floor back over to management for any closing remarks.

Sean Gadd (Chief Executive Officer & President)

I just want to say thank you for joining the call. I’m proud of what the team has done and what our organization has delivered this quarter. I’m most proud of the fact that we are sticking to our strategies. We’re driving results, we’re taking share, which is essentially what it’s all about. We have the best product on the marketplace. I believe we have the best team in the marketplace. We have great manufacturing capability, value engineering, and lean.

And I think it’s all starting to show up in a nice way. So thank you very much.

OPERATOR

And with that, we’ll conclude today’s conference call and presentation. We thank you for joining. You may now disconnect your lines.

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