Q1 2024 Latham Group Inc Earnings Call

Participants

Casey Kotary; IR; Latham Group Inc

Scott Rajeski; President, Chief Executive Officer, Director; Latham Group Inc

Oliver Gloe; Chief Financial Officer; Latham Group Inc

Jonathan Bettenhausen; Analyst; Truist Securities, Inc.

Tim Wojs; Analyst; Robert W. Baird & Co. Incorporated.

Andrew Carter; Analyst; Stifel, Nicolaus & Company, Incorporated

Shaun Calnan; Analyst; Bank of America Corporation

Anika Dholakia; Analyst; Barclays Bank PLC

Susan Maklari; Analyst; Goldman Sachs Group, Inc.

Presentation

Operator

Good afternoon and welcome to the Latham Group First Quarter 2024 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 remarks, there will be an opportunity to ask questions to ask a question. You may press star, then one on your touchtone phone. 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 first quarter 2024 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's 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 reflect the Company's views with respect to future events and financial performance. As of today are 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 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, everyone, and thank you all for joining today's call to review our first quarter 2024 results and discuss our latest business trends in terms of key takeaways. First, we were pleased with our first quarter results represented a solid start to the year and exceeded the guidance we provided at the time of our fourth quarter conference call in March.
Second, our performance demonstrated our ability to execute effectively during periods of uneven order flows and reflects the benefits of our reduced cost structure and actions we have taken to accelerate our value engineering efforts and lean manufacturing initiatives. These actions continue to drive ongoing production efficiencies and incremental capacity in our plants, providing us with more flexibility to serve customers with our industry-leading lead times and third, we continue to maintain a substantial cash position even after the usual seasonal outlay for working capital in an $18.8 million debt repayment. This cash provides lead them to significant resilience to manage through soft business conditions for the pool industry and the resources to take advantage of opportunities to drive future growth.
Taking a closer look at Q1 after a slow start to the quarter. We saw a significant pickup in orders starting in mid-March. Our operations team was able to do a great job on execution, achieving lead times of three to five days fiberglass pool sales, while down year on year showed relative strength and continued to represent the majority of our in-ground pool sales.
At our last earnings conference call we cited Leighton's priorities for 2024. The first was to continue to drive the adoption and awareness of both fiberglass and automatic safety covers in the first quarter. We made considerable progress in the areas of new and refreshed product introductions as well as new dealer wins. During the quarter, we launched the Champion plunge pool series for our California plants, which serve the important California, Arizona and Nevada markets plus tools are becoming increasingly popular as they provide a whole bar, which space-saving lower-cost options that are ideal for aquatic exercises and rehabilitation in the first quarter. We also relaunched the Provident and Tuscany series in North America, which is a very trendy rectangular pool with attractive site entry feature. Additionally, we put the finishing touches on a new fiberglass pool model that has a broad array of features, including Swindle seating and a built-in spot that is currently available to our largest dealers. We are also in the early stages of rolling out a line of plunge pools in our vinyl liner in-ground pool category, more on that in the coming months.
With respect to automatic safety covers which are another key priority for us. We continue to work with our full cover distribution network as well as many of our competitors, dealers, including concrete pool builders to advance awareness and adoption of these products. In addition to providing unparalleled protection, these auto covers offer significant resource savings, resulting in up to a 70% reduction in both pool heating costs and chemical usage. We are continuing to drive operational improvements at our auto cover plants to reduce lead times and gain incremental capacity. Our operations team is also working on changes to our product lineup that will expand price points and capabilities. And we're making the key focus to ensure that all of our newly launched pool models are in Grand category. Our auto cover right. We also continued the successful rollout of measure by late on the first tool. That's kind of simplified the full measurement and quoting process for liner and cover installers. This either use a power device, providing dealers with high-performance measurement accuracy with precise specifications for swimming pool covers and vinyl liners all within minutes and all integrated with our project management portal, which enables dealers to quickly and easily receive quotes and submit and track orders. As you can imagine, this tool has been met with a very positive response from our dealers and contractors we will continue its rollout to make sure all of our dealers have it and all the functionalities in place ahead of the 2025 pool building season later extensive and appealing product lineup, together with our industry-leading service levels and best-in-class lead times are strengthening our ability to attract new dealers. In the first quarter, we were able to convert several new dealers in the US and Canada that we believe will enable us to continue to drive penetration and growth in several key markets for some of these dealers. While they are established pool builders. This will be their first experience with fiberglass products. They are motivated by the much shorter installation time, which, of course, very attractive to their end consumers as well as the ease of installation and the aesthetics of the product, both of which often result in additional leads for them from neighboring homeowners in working with late on even the most experienced new dealers go through our boot camp to be trained in fiberglass installation to maximize their success.
Second priority for 2024 that we mentioned on our last earnings call is our programs to continue to gain additional operating efficiencies through value engineering and lean manufacturing initiatives. These structural cost benefits will have a long-term positive impact on late those margin profile and will be an important factor for us in 2025 when we expect improved market conditions to drive increased volumes. For example, the initial benefits from these programs in our largest liner and cover manufacturing plant include an 8% improvement in labor efficiency, a 20% increase in throughput and an overall improvement in employee health and safety. All of this contributed to our first quarter margin performance.
Lastly, we prioritized maintaining a strong balance sheet to both retain our resilience in today's soft market environment and retain the resources to support future growth Oliver will provide details on that in a moment, but I can say that we've been very disciplined in our spending and have the operational and financial flexibility to flex up and down in response to market conditions as well as take advantage of opportunities to drive future growth.
With that, I will turn over the call to our CFO, Oliver Gloe, for a first quarter financial review. Oliver?

Oliver Gloe

Thank you, Scott, and good afternoon, everyone. Please note that all comparisons that I will discuss today on a year-over-year basis compared to the first quarter of fiscal 2023 unless otherwise noted, all first-quarter results exceeded our expectations, reflecting strong execution, cost savings and our lean and value engineering. As we anticipated first quarter comparisons, reflecting the challenging macroeconomic conditions that have reduced Foodstar net sales were $110.6 million compared to $137.7 million in Q1 of 2023, down $27.1 million or 19.7%. The 23.9% decline in ground pool sales was primarily due to lower packaged pool demand. While fiberglass pool products continue to show relative strength and continue to account for the large majority of these items in ground pool sales line, U.S. remained more resilient, declining 9.2% due to the replacement cycle of these products and covers were down 17.9%. We were pleased to see our gross margin increase 350 basis points to 27.7% despite lower sales. This increase was driven by carryover benefits from the cost reduction actions we took in 2023 as well as lower raw material costs and lean manufacturing initiatives. Year-on-year comparisons also benefited from two meaningful headwinds impacting Q1 2023, consuming the remainder of our high cost inventory and inventory reduction programs, which resulted in under-absorption at all plants. These factors more than offset the impact of lower utilization from lower volumes and wage increases.
Sg&a expenses decreased to $26.3 million, down $6.8 million, primarily due to our ongoing cost reduction efforts and a $5.1 million decrease in non-cash stock-based compensation expense for 2020 for noncash stock-based compensation is expected to amount to approximately $8 million. Net loss was $7.9 million, or $0.07 per share compared to a net loss of $14.4 million or $0.13 per share for the prior year's first quarter. The adjusted EBITDA of $12.3 million was up from the prior year period by $1.3 million or 11.4% compared to $11 million in Q1 2023. This strong performance is the result of solid execution in a difficult market, primarily due to cost savings and progress made with our lean and value engineering initiatives. Adjusted EBITDA margin was 11.1%, a considerable improvement compared to 8% in the prior-year period. As you know, our full year 2024 guidance implies decremental EBITDA margins for the remainder of 2024, primarily reflecting our planned investments in future growth. Notably, this involves continued investments in sales and marketing, engineering and R&D to accelerate conversion to fiberglass pool products, ongoing digital transformation programs and normalized performance-based compensation.
Turning to our balance sheet, we continue to maintain a strong financial position with cash of $43.8 million at the end of the quarter after the repayment of $18.8 million in debt in Q1, net cash used in operating activities was $34.5 million, reflecting a seasonal increase in net working capital of $41 million as the Company enters peak full selling season. Total debt for the period was $282.8 million with a net debt leverage ratio of 2.7 and our capital expenditures were $5.3 million for the first quarter in 2024, considerably lower than the $9.9 million in the prior year. We expect a comparable run rate in quarterly CapEx throughout 2024 our cash position and capital expenditures are in line with our expectations and reflect seasonality as well as our conservative capital allocation strategy given the uncertain economic outlook.
That said, we will continue to deploy our capital opportunistically to best position us for accelerated profitable growth as market conditions improve Q1 results, together with our current visibility, underpin the guidance metrics we provided at the time of our Q4 2023 earnings release.
With that, I will turn the call back to Scott for closing remarks.

Scott Rajeski

Thank you, Oliver. While the first quarter represents a small percentage of our annual revenues and adjusted EBITDA. We are very pleased with how well our teams executed amid a choppy start to the season late from strong execution cost savings and lean and value engineering initiatives all contributed to quarterly performance that exceeded our guidance and demonstrated our ability to execute efficiently. We appreciate the commitment and engagement of late those team members throughout our organization made this possible. We also want to thank all of our customers and suppliers who continue to be strong supporters of late, though our first quarter results support our full year guidance expectations for 2024 and underpin our confidence in Linktone's ability to effectively navigate the current market environment and emerge as an even stronger company.
Operator, I would like to open the call to questions.

Question and Answer Session

Operator

Thank you. We will now begin the question and answer session. To ask a question. You may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. In the interest of time, please limit yourself to one question and one follow-up. At this time, we'll pause momentarily, assemble our roster. Our first question comes from Jonathan Bettenhausen, Truist. Please go ahead.

Jonathan Bettenhausen

I'm on for Katy. This evening. Thanks for taking my question. So on the 2024 cost savings realization, I think last quarter you indicated targeting maybe about $4 million in incremental savings. How is that progressing? Looks like Is most of that has already been realized here in 1Q? Or am I looking at that right?

Oliver Gloe

Yes, you're absolutely right. So we had about a $4 million spillover from our cost savings initiatives that all the initiatives are fully implemented of that $4 million, about $2.7 million in our Q1, with the remainder being the positive.

Jonathan Bettenhausen

Okay.
Got it. And were there any surprises in the sales momentum heading into the second quarter? Was the demand ramp kind of about what you expected in March?

Scott Rajeski

Yes, so I think if you look at how Q1 played out for us, and I think we've heard this from others a little bit slower start in January and February, right around the time we were on our Q4 earnings call, and I think we saw a really nice pickup in the seasonality and maybe a few weeks a jumpstart there as the season took off as we move through the back part of March. And I think as we look kind of moving through April here as well, I'd say the season is kind of ramping as expected and on track with the guidance that we reconfirmed out there today.

Jonathan Bettenhausen

Okay, got it. Appreciate it.

Scott Rajeski

Yes.

Operator

The next question comes from Tim Wojs from Baird. Please go ahead.

Tim Wojs

Hey, everybody, good afternoon.
Tom, maybe just start first question, Scott, just some in the in the prepared remarks, you talked about on seem to make a lot of traction on dealer adds and I'm just kind of, I guess wondering if the investments that you've made and then just with the slower kind of pool environment, if you are seeing kind of an incremental propensity from dealers to kind of consider fiberglass and then also kind of consider being part of excuse me, the the weight of network?

Scott Rajeski

Yes. Look, I think, Tim, as we've talked over the years. Bright part of what we've always done is constantly recruit and attract new dealers to lay down on all aspects of all product lines are really a big focus, fiberglass and I think when you when you come back and just look at the value proposition of fiberglass on, right, the speed of the install and then the lower cost compared to let's say, concrete pools. And I think that continues to resonate at both the dealer and the homeowner level, giving them a lower cost option, especially as we've seen the cost of the pool drastically increase at the consumer level, then you combine that with no cost of financing, I think it's just giving them an opportunity to quote unquote jump in and establish themselves as a dealer get trained up, right? It's all nice incremental volume for those dealers. And again, I think we show them look, this is a long-term play for us, right when the market rebounds on, you know, they'll be well positioned fill. These trains will have gone through their boot camps and only ready to kind of rapidly increase their productivity and efficiency on for fiberglass pools.

Tim Wojs

Okay. Given that you say it's kind of more of a kind of what you've seen over time, it's not that, hey, there's a slower environment and there's any sort of kind of increased kind of knew it for fiberglass is just kind of the constant share that you're kind of seeing.

Scott Rajeski

Yes. We I think maybe one clarification there, Tim, it's a good point. You know what, we've become a little bit more aggressive out there. So you could say that the number of dealers and the quality dealers we've been adding is on much better than you know, maybe in the last two, three, four years during the difficult supply chain challenge issues. And I think why they're choosing because look if you if you if you look at our footprint one, right, we got a great footprint throughout the entire country. So we bring a lower cost to serve for all dealers throughout the country. And if you look at the quality of our pools and then where we stand from a lead time and service standpoint, we're in a really good position and that's kind of back to on Jonathan's question. You are right out of the gate here as we came through 1Q, our ability to quickly respond to incremental demand signals in March is really what enabled us to kind of post up some really good results in 1Q there.

Tim Wojs

Okay.
Okay, good. And then lastly, I guess from a seasonality perspective, I mean, should should from a sequencing perspective, I mean, should revenue kind of be the highest in Q2 and then kind of lower a little bit in Q3 and then kind of see a drop-off in Q4? And would that kind of be how profitability were also kind of phase through the year?
Just trying to think about how to think about the seasonality impact just we haven't seen what I guess normal seasonality is in three or four years?

Scott Rajeski

Yes. So Tim, third question, when I was driving in this morning, I was thinking about you have been in the business for 14 years.
I don't think I've seen a normal season of 14 years at all levels, and I'm not really sure what a normal season is anymore with everything out there, Bob, I say we're kind of returning to what does a return that would have been more typical of the seasonality we've seen we've talked over the years know you could probably argue think a 50 50 split, right? 1q came in just a little over 20%. Clearly 2Q and 3Q is the bulk of the season. So I think, you know, if we just said, you know, around 30% ish in 2Q and 3Q ballpark, give or take a few rounds now than the balance covenant for Q2 and then?
Yes, I'll let Oliver address it, but you could probably argue that the EBITDA profile would be similar to that. But again, you know, we we had the decremental conversation on the last call. Obviously, he's got to watch that as we move through the rest of the year. But again, we're kind of happy with how the season ramping. I think it's lining up really nice to our guidance and overall market expectations out of us talking about the profitability profile of that flows through.

Oliver Gloe

From an EBITDA gains. If you take our midpoint guidance sitting right now at $65 million, deduct a first quarter contribution to that from the U.S., you're left with about $52.7 million right now. Think of this you know, being being by majority contributed by Q. two Q. three. These are by far our most most of those quarters with most fish and sales activity and therefore EBITDA contribution was a small sum with a small share, but in Q4.

Tim Wojs

Okay. Okay. That's helpful.
Thanks everybody.

Scott Rajeski

Welcome.

Operator

The next question comes from Andrew Carter from Stifel.
Please go ahead.

Andrew Carter

Thanks, for to ask kind of late in the quarter led to the outperformance and you said shipments picked up. I know you hate to talk about it, but poker called out weather obviously hit the South, the Northeast where you're strong. In addition, again, I know something you hate to talk about, but kind of the channel inventory. Did you see anything like difference between your shipments and what you think went out of the channel, particularly, I guess, for the packaged pools as well as the the covers?
Thanks.

Scott Rajeski

Yes, so Hey, Andrew, good question. There. I think as we looked at it, you know, in-ground liners right, was really a key point for us in Q1 of that season started the ramp in the south slowly moving up to the north. But again, if we go to the regional differences, you're right, the Northeast, a little bit tougher weather a little bit colder start to the season, but in the warmer climates where it really started to take off for us for certain, you know, in some cases in a few of the plants. But, you know, one two day lead times for liners. As that those orders started to flow, we were able to convert those in a two or three-day cycle and really take advantage of the push we saw there.
I think the other really strong point for us was fiberglass, right? Fiberglass performed extremely well. We had inventory on the ground and the common models in a lot of territories those orders were rolling in. And let's say where the weather was more favorable, we were able to get pushed out the dealers, get them in the ground. So good, good execution across the board by both from the operations team and our customers. There is no fiber less still making up the majority of the chunk of the in-ground category. I think that thus far has continued a little bit slow for us. And we've really not seen the restocking or pull through more orders from the distribution branches, whether it's full core for any of our the big distribution partners, heritage, et cetera, out there. And I think that's what we'll start to see as we move through 2Q and product really starts to move off the shelf as we hit the peak on pool building season here in a May, June and July.

Andrew Carter

And then the second question, looking kind of at your SG&A and granted, but who knows when that could be wrong, but it looks like so for the final nine months of the year, I've got SG&A up $31 million to $33 million. That's excluding charges also excluding SBC, you were flat. Could you dimensionalize that 30, that kind of increase over the five nines? I know there's some incentive comp restoration in there that you can avoid there's not really any cost savings in there, but there is some also variable investment, as you say, get ready when starts accelerate and how much is that truly variable and could you quickly pull that pull that back and we would you know whether you wanted to pull that back or not at what point in the season? Thanks.

Scott Rajeski

Yes, I'll take the first, the last part, Andrew, first, you know, the what When would you be able to pull back anything on the variable portion of the spend there?
Look, we typically kind of wait until we get into late May or mid mid June, which will really give us a read for how the season is playing out in terms of full starts is in line with our expectations or anything. So, you know, we're in that waiting game of peak on build where we don't want to start doing anything too drastic too early, but we've also talked about, we have made incremental investments. We are trying to reach retain folks. We are trying to push leads out their dealers with our sales and marketing efforts. So we don't want to pull the trigger too quickly. But again, there's a piece that's variable in there that we have to toggle if the market worsened more than what our expectations were and I think that's the key point, right? Our outlook for the market was probably further down than others in the industry, and we think we're tracking to that roughly 15% down in new pool starts versus last year's number. So you know, we've got many levers we can play and pull there in our addressed DRAM first part of the question.

Oliver Gloe

Yes, absolutely.
So two drivers that the increase SG&A year over year, we talked about the snapback of performance based compensation for those $7 million to $8 million. And then Scott just mentioned the investments into future into future growth to overproportionately participating once the market comes back. So those are either the the two drivers there for SG&A.
Thanks.
I'll pass it on.

Scott Rajeski

Thanks, Andrew.

Oliver Gloe

Thank you.

Operator

And our next question comes from Shaun Calnan from Bank of America.
Please go ahead.

Shaun Calnan

Hey, guys. Thank you for taking my question. I've just given the sales fee in the quarter and talking about the pickup as we kind of went through the quarter and through March, is there any reason you guys chose not to raise the guidance?
I'm just curious if there was maybe a pull-forward in demand or you're sort of it doesn't sound like it, but if you are starting to see orders slow in April versus your original expectation?

Scott Rajeski

Yes, I think you know, you could chalk it up, Sean, probably partly that just timing and all we had the quarters profiled out. We had an expectation of what total market was going to do. I think as we tried to work back through the what is a normal season look like, we probably took a little bit more of a conservative approach in Q1, a similar of a slower start. And again, we had the luxury at that point in time. We'll see how January and February was playing out when we did the quarter. And on look, we did see a nice ramp up of orders in March. I don't I don't believe any of it was pulled forward demand. I think it was just weather. Weather was good in some markets that helped us. We were in a good position from a lead time ability to quickly turn on short cycle orders. And I think when we look out there and talk to dealers and others in the industry, you know, I still believe our view of market being down 15% overall still feels about right on it. Look, we've only completed roughly little over 20% of the year for us. We really had to move through this big quarter here. 2q, see how the season ramps on the fight to the weather. And as I mentioned, a top five weeks into the quarter so far, I'd say things are tracking extremely well on tracking towards what our guide and projections are. And I think we had we had to get through 2Q year. And when we chat in August, that's when I think we'll take a full assessment of what do we think the full year is going to look like.

Shaun Calnan

Okay, got it. And then do you have any early metrics on the measure tool in terms of adoption by dealers or revenue points?

Scott Rajeski

Yes. Look, it's just rolling out there for covers, right?
And if you if you think about it, right, that cover season really kicks in for us in the fall. So it's a mass push of getting all the units out there deployed into the field with the dealers with the view and they're out there opening pools for the season, right, though, that are evaluating the covers on the pools or encourage them to measure that covers inspect them, do they need a replacement, take those measurements now are out there get trained up, you get geared up look, and this is a big deploy for us in terms of units out there and the training on. We're still in the beta testing of what we're doing aligners. Again, early good success on that home. So we're also teaching them how they can be measuring for liners from as we get rate or do that launch in the fall for the early 2025 season played out. We're not at a point where it's of any significance that we want to be talking about ThreatMetrix units number of units in dealers' hands, number of units. We're processing.
We are taking orders. We are processing orders through our plants, shipping them back out to dealers. And I think the key thing here is response rate acceptance has been phenomenal, and I think we'll eventually be able to talk about, you know, market share gains. We're going to be able to achieve again by attracting dealers who may have been on buying from other manufacturers out there coming to lead them because this is a huge productivity and time saving device for them. And also ensuring the accuracy of those measurements that they're taking on almost full improving on the quality of the liner and cover they are going to get because they will know the measurements are dead on on based on the RAI. and Intel and the device on as it moves through the system.
So look, we're really excited about it.
And I think this will be a game breaking for us. And as we move through the next couple of quarters, we'll start disclosing more more information on units, deploy number of dealers and unit volumes and stuff from processing through just float a little too early to get out there with that, that data?

Shaun Calnan

Yes.
Great. Thank you.

Scott Rajeski

Welcome, Shaun.

Operator

If you have a question please press star then one next question comes from Matthew Bouley from Barclays.
Please go ahead.

Anika Dholakia

Good evening. You have Anika Dholakia on for Matt. Thanks for taking my questions. So first question is on kind of your customer base. So we've seen some industry peers have spoken to more challenged demand for their lower end pools. And I'm just curious if you're seeing similar mix effect? And maybe how you think this could trend into the second half given the current macro? Thanks.

Scott Rajeski

Yes.
Yes. And also similar similar views. And again, there's there's two sides to this coin that one that would really I guess I'd say two didn't really help us and one that's a little bit of a drag. But again, this was all contemplated in the guide we issued at the reconfirm right for fiberglass, we're seeing really good performance because it's a lower cost option versus concrete pools. So as consumers are trading down from the fact that the concrete price points they're stepping in the fiberglass pools, which are working really well for us in a [75,000] to [100,000] on the consumer price point, the packaged pool or the other piece of the in-ground vinyl business again is doing okay, but that's kind of more of the middle America. That's where a lot of the pool financing occurs that's out there. I think we're trending to the numbers we had expected in our guide overall on oil. But what's happening is we're seeing good traction with our Radiant panels and Radiant pools because that's a lower price on in-ground vinyl liner option for those consumers.
The I hate to say step down to because the ruthenium panel and pool, they really really nice pool compared to other options out there at that, let's say, maybe a little bit more entry level or second level tool you'd be stepping into versus your typical arm on ground or above-ground pool, you would see So little bit of a mixed bag. But when we look at the fiberglass, that's what we like to see, we'd like to see the traction we're getting with the radio pool out there and the acceptance as well.

Anika Dholakia

That's really helpful. Thanks. And then on second, just curious, you know, how are you guys thinking about current capacity levels today, should we assume that there's going to be additional capacity investment in the near term or maybe given your Kingston investment and some other cost initiatives maybe are holding up? Thanks.

Scott Rajeski

Yes. So on the on the capacity side, we really like where we simply capacity today from all the investments getting Kingston brought online a little bit and just thinking about Kingston, right, it gives us the opportunity to attract new dealers on to those locations, right? They now have capacity in their backyard with fiberglass much more capacity than we had before on. They're looking at late them is as a manufacturer of choice, it gives them a lower cost model to pass on to their consumers. The more demand. So we had a really, really nice customer wins pickup up there. I think we might have briefly touched on that in the last call on similar similar in other other areas of the market. You know, we've got good capacity and that leads to great service levels and lead times where we will continue to invest is in on product launches, product lineup, new models, new feature-rich, fiberglass pools. We talked a lot about plunge pool series and, you know, some of the new models we're getting out there where consumers are looking for particular features, whether it's a site entry, bigger tanning ledge is or some of the smaller cocktails last one one fools. So I think it's those types of investments. But look, the operations team continues to drive a lot of really, really good Value Engineering and Lean events in the facilities, which is actually creating more capacity and not to sound like a broken record, but you go back to the big cost reduction initiatives we're able to do last year taking five, five facilities and locations offline on this because of all those efforts of the operations team freeing up capacity. So we're in a good, good, good position, although as of right now, it's not like we need to go do chunky type of capacity. It's tweaks in each of the small facilities to make sure we're positioned. I'm looking out to the '25, '26, '27 Martino market and where NuTool starts will be.

Anika Dholakia

Great, thank you guys. Good luck.

Scott Rajeski

Welcome.

Casey Kotary

Thank you.

Operator

Next question comes from Susan Maklari from Goldman Sachs.
Please go ahead.

Susan Maklari

Thank you. Good afternoon, everyone. My first question is on thinking just a little bit about the input cost environment, how that came together through the quarter. Any changes that you're seeing as you think about the balance of the year or perhaps any chemicals that are coming up for those types of things? And then just any thoughts on price cost, how that trended through the quarter and the outlook there?

Scott Rajeski

Yes.
Let me, let me take the Susan. Phone.
So let me start with our annual guidance, and then I'll go back and take that back to Q1 from.
So we guided on non-price flattish.
And on deflation, we added some modest inflation to our guide on. And in Q1, we have seen deflation in several parts of all baskets, primarily resins, the PVC film, aluminum quite in line with our guide and our expectation, maybe a little bit better, more favorable. But we're also seeing some increases more most recently driven by styrene and benzene. So so I would say overall, our guidance of being a modest deflation for the year is quite intact and confirmed by our Q1 performance. I'll give you a similar comment on the on the pricing side, we generally see prices sticking some in our last earnings call, we said you know that some of our product categories were down a little bit. Some we took up a little bit. But overall, we guide towards a flattish price. And you know that again, the same is true for for Q1. We saw some flattish pricing in Q1.

Susan Maklari

Okay. All right. That's helpful. And then you don't want to look across our coverage. I think there are some companies that have talked about seeing in a perhaps a moderation in activity as rates have moved higher in the last couple of weeks or so. It does sound like you are seeing that as we get into the kind of core of the pool season.
I guess, Scott, can you just talk a bit to what you are hearing on the ground from some of your dealers? Has there been any response to the move-in rates and just how you're thinking about that as we do get into the spring and the summer.

Scott Rajeski

Yes. So Susan, Yelp, again, if we go back to kind of our guide for the year, right?
We were expecting pool starts to be down further than others and probably the rest of the entire industry. And I think some of the commentary we've seen out there as I think people are experiencing closer to our number now for, call it around 15% down for new pool starts. You know, there's really not a lot of financing activity out there right now. So as rates continue to be no trend off trend down balance where they are at this point?
No, I don't really think that's impacting on our dealers, our consumer base, we typically have the higher end of the market. More of the cash buyers. We're actually seeing the 75 hundred, 100 plus thousand plate pullback yards holding up extremely well on as those individuals don't have the capital that they can deploy to make the pool purchase. So I think all all helpful to us as we go forward here, you know. So I think we're in a good position there, Susan. So look, we're all looking forward to when when the Fed starts to see the rates go down so I think that will really start to allow others to come back into the market. We got some on new Intel from one of our third party financing companies. And I think they've just they've tightened up the credit limits. And I think what they're doing now is, again, a little bit creative. One of our partners has now introduced the 20-year loan again, they have pulled that back on over the last year or two. So the fact that now you can go out there and finance a pool project for 20 years helps lower the overall monthly payment for a consumer, which is keeping keeping folks out there. And I think dealers are also getting very creative of scaling back the overall dream of the hallmark for the backyard, right? Haulers are coming in there. They've got, you know, their pool, their huge patios or outdoor kitchen, the fire fit [$1 billion], all the lighting, landscaping and I think dealers are saying, hey, look, we'll quote out the full backyard project for you will, but we're going to do it in segments if you can only afford X, let's get the pool in and let's get your three feet of concrete in and we can fit you into your budget and payment that way. And then we will come back in a year or so and finish up your dream of what you want your whole backyard to look like with, you know, a bigger patio, getting that fire put in there and the outdoor kitchen. So I think it's people being creative. In some cases, dealers we now have had to lower their price to the consumer as they readjust their pricing model and a lower demand and lower Nukhul started environment. So you know, it's really, I'd say, accumulation of several different factors. They're working on out there. Susan tried to keep Keno business flow and keep their employees on Engage out there. We'll have we'll gate say we're looking forward to getting them the '25, no, we still think '24 will be the trough of new pool starts. You know, I don't see how they can be any worse next year than they are this year. They should go up barring any unforeseen incident, but that's where we want to be conservative in our actions as a company here, making sure we've got the capacity, we've got the investments in plants and personnel. We keep invested in new model and new product launches, we're looking at sort of '25 and '26 when the market rebounds.

Susan Maklari

Okay. That's very helpful color, Scott, thanks for that, and good luck with everything to welcome.

Operator

There are no more questions in the queue. This concludes our question and answer session. I'd like to turn the conference back over to Scott Rajeski for any closing remarks.

Scott Rajeski

Yes. Look, thanks, everyone, for participating on this afternoon's call. Look forward to seeing you all at upcoming conferences and meetings. And I hope everyone has a good evening and everyone have a safe summer until the next time we talk. Take care.

Operator

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