Q1 2021 Hayward Holdings Inc Earnings Call
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Okay.
Welcome to Hayward earnings Holdings first quarter 2021 earnings call. My name is Alicia and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
During the question and answer session. If you would have a question. Please press Star then the number one on your Touchtone phone.
Please note that this conference is being recorded I would now turn the call over to Stewart Baker, Vice President Global strategic planning and business development. Mr. Baker you may begin.
Thank you and good morning, everyone. We issued our earnings press release. This morning to the Investor Relations portion of the website Investor Hayward Dot Com, where you can also find an earnings slide presentation that we'll reference during this call.
Before we begin I would like to remind everyone that during this call. The company may make certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These include remarks about future expectations anticipation beliefs estimates forecast plans and prospects.
Such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements.
Such risks and other factors are set forth in the company's earnings release posted on the website and will be provided in our form 10-Q for our first quarter of fiscal year 2021 as filed with the Securities and Exchange Commission the.
The company does not undertake any duty to update such forward looking statements. Additionally, during today's call. The company will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
<unk> of adjusted EBITDA to net income calculated under GAAP as well as reconciliations for other non-GAAP measures discussed on this call can be found on our earnings release and will be included on our form 10-Q for our first quarter of fiscal year 2021.
I'd now like to turn the call over to Kevin Holleran.
Thank you Stuart and good morning, everyone. It's my pleasure to welcome all of you to Hayward first quarterly earnings call as a public company following the successful completion.
Of our initial public offering in March.
Like to thank all of those involved in the process from a great outcome, we look forward to partnering with our new shareholders as we focus on continuing to grow the business and creating value in the years to come.
I will start on slide four of our earnings presentation with some highlights from our first quarter results. We delivered record net sales growth, which nearly doubled from a year ago and profitability, which tripled on an adjusted EBITDA basis, resulting from tremendous demand for our pool equipment.
We were able to generate these exceptional results by leveraging our agile manufacturing capabilities to accelerate production, particularly in the U S are in market supply chain advantages and being very well positioned with our competitive lineup of innovative products.
The first quarter also included a very important milestone for Hayward as we completed our successful IPO on March 12, we used the proceeds to strengthen our balance sheet and increase our financial flexibility as we pursue growth opportunities.
We paid down debt, which reduced our leverage ratio to three three times at the end of the first quarter compared to five two times at year end 2020.
Our IPO record first quarter results and favorable outlook, which I'll touch on net has truly energized our company as we look ahead at the significant value creation opportunity going forward.
Now moving to our outlook on slide five.
I'll summarize some recent trends that are consistent with commentary from other industry participants and highlight why the industry outlook is even stronger now than it was earlier this year.
Builders ended 2020 with a sizable backlog leads and new pool quoting activity.
This backlog alone should extend demand through 2021 and into 2022.
Our industry is supported by favorable housing dynamics, including the work from home trend migration to the suburbs in the Sun belt and a strong construction market.
We believe that years of Underinvestment in the U S housing stock will provide a sustainable tailwind as we look ahead.
We're seeing strong evidence that people are extending the pool season, using their pools earlier and more often we saw these trends in 2020 and they've continued into 2021.
These factors have created an environment in which demand is outstripping supply due to labor constraints and supply chain limitations, resulting in higher inflation, which we've been able to pass through the channel.
In addition to these positive industry trends there are a number of Hayward specific drivers given our unique position in the value chain.
First we have a very strong competitive position in key upgrade oriented products like <unk> coronation variable speed pumps heaters led lights and automation and controls second our operating capabilities are allowing us to ramp production faster to meet industry demand, including a.
<unk> and source of increase of more than 75% year over year and third we led an approximate 5% price increase in order to offset inflation. This new pricing was announced in late Q1 with an effective date in Q2. This pricing increase was not in our original plan for the year.
Given these above trends and our performance to date, we're providing guidance for the full year 2021 of net sales growth in the range of 40% to 45% year over year and adjusted EBITDA of 360 to 390 million, reflecting 55% to 68% year on.
Over year growth.
We anticipate continued broad based strength across our product portfolio and overall market demand to remain healthy through 2021 and beyond.
As we look specifically at Q2, we expect another quarter of favorable results and believe the Q2 performance will largely be in line with Q1.
Now I'd like to turn to slide six and take a moment to talk more about what makes hayward different.
First is our focus on operational excellence.
Our global end market manufacturing capabilities, which includes significant capacity in the U S. Our vertical integration and our dedicated global supply chain resources helped to set us apart from our competitors.
This together with creative recruitment and Onboarding of associates has allowed us to ramp up our production capacity despite challenging labor availability.
These early actions have allowed us to respond to the rapid increase in demand during the quarter by increasing our combined production and sourcing by more than 75%.
I wanted to take a moment to personally thank our entire team for their resilience commitment to a safe operating workplace and teamwork in achieving these extraordinary results.
Second Hayward is a market pioneer and leader in connected pool products and developed highly engineered outdoor living products, which allows us to grow the market as well as our share of it.
Our market leading brand has helped establish industry standards for generations like leading the shift to plastic constructed flow control products and energy efficient heaters.
We continue that innovation through health conscious energy efficient and connected pool products, our top rated proprietary Hayward omni mobile app and automation platform provides numerous ways to manage every essential pool function the.
The mobile App manages everything from the scheduling of standardization controlling water temperature filtration and running of automatic cleaners to pool light shows with water features that create the ultimate backyard experience.
Omni provides great value to our customers and further strengthens the relationship and level of engagement with Hayward.
Third we have a long and storied reputation in the market with key relationships that go back decades, and we go to market across all key channels, including distribution retail builders and E Commerce, we provide.
Incremental value through our deep and talented sales and technical service teams and offer our customers the leading loyalty partner program called total Hayward <unk>.
Collectively these capabilities have historically been and continue to be important competitive advantages in this COVID-19 impacted environment.
I'd like to spend a little time talking more about our organization and strategy beginning on slide seven.
Hayward as the leading pure play pool equipment provider focused primarily on the global residential pool market.
Hayward provides the industry's most recognized and trusted brand, bringing innovative and environmentally sustainable products and technology to the outdoor experience I won't walk through all the stats on this page, but as you can see we have a global platform, a broad and diversified product portfolio and an attractive weighting of app.
Market and new construction, which I'll touch on more shortly.
We have a very strong position in North America, which represents more than 80 percentage of our sales.
We're really excited about the market we play in our long term opportunity.
The demand for outdoor living products has increased over the past decade as retiring baby boomers are investing in their homes and millennials are showing increased interest in outdoor spaces consumer spending has been directed towards outdoor home improvements as consumers continue migrating to the suburbs and increased time spent at home.
And in their backyard.
Outdoor living repair replacement and remodeling has grown faster than traditional home repair replacement and remodeling projects as homeowners choose to make larger outdoor investments.
The trend towards healthy outdoor living has helped underpin continued pool industry growth.
Pool equipment industry, specifically has attractive market characteristics, including a growing installed base with a long tail of aftermarket recurring revenue opportunities and an expanding technologically advanced base of environmentally sustainable products, which are increasingly important to our customers.
While new pool builds are important as they grow the base the larger opportunity is the aftermarket which represents 75% of our sales and provides an annuity of recurring sales.
Over the past year, we have seen homeowners prioritize investment in the outdoor living experience.
Further increasing the installed base of pools globally, which we estimate is over $25 million as of 2020.
Our growing installed base leads to reliable aftermarket spending.
Our aftermarket opportunities are primarily driven by the increasing range of new pool products, a shift to more energy efficient and more environmentally sustainable products and higher value Internet of things enabled technology to increase connectivity and automation on <unk>.
Move ahead to slide eight and touch on the key pillars that drive our market.
Our industry has historically grown in the 6% to 8% range as we look forward, we see the growth opportunity underpinned by compelling long term secular trends and a reset in the pool space as pent up demand for home investment should provide a tailwind in the years ahead.
With strong outdoor living trends the pool is truly the centerpiece of the backyard and important part of the home and healthy lifestyle.
Demographic changes such as movement to the suburbs in the Sunbelt have helped drive demand while the trend of pool owners extending the season creates more usage and the need for new equipment and upgrades.
There are four components to the growth.
We have one of the world's largest installed base of the pool equipment and benefit from annuity like repair and replacement of this equipment over time.
New and innovative products provide a tailwind as customers desire upgrades and enhancements, including a connected pool experience and more sustainable environmentally friendly products.
<unk> pool construction and remodeling provide big ticket projects and strong order files in the industry, which support continued growth in construction activity given favorable home investment and outdoor living trends and lastly, the industry has a long track record of inflation management through annual price increases as I.
And earlier the industry is experiencing inflationary pressure and our team continues to focus on inflation management.
Hayward to market position product offering and focus on operational excellence drive our attractive financial profile, consisting of long term revenue growth and earnings potential supported by structural trends and recent industry tailwind as we look ahead, we believe the strong order file for new pool builds.
Our growing installed base increased usage.
<unk> prices and product upgrades will support our continued growth with that I'd like to turn the call over to IV and Jones, who will discuss our financial results in more detail.
Thank you, Kevin and good morning, I'll start on slide nine.
All comparisons I make will be made on a year over year basis. As mentioned earlier, we are very pleased with our first quarter results and our ability to accelerate shipments and expand our production capacity to capitalize on the surge in demand environment, while delivering significant margin expansion on <unk>.
Record earnings performance.
Net sales for our first quarter 2021 increased $164 2 million.
On 96% to $334 4 million for the three months ended April <unk> 2021, the increase in net sales was primarily the result of higher volumes, mainly in residential pool equipment sales from.
<unk> from continued strong demand for pool equipment upgrades and an increase in new pool constructions.
An acceleration of outdoor living trends on a two 5% gross price increase along with reduced special deal rebates, resulting in a net 3% price impact as well as favorable foreign currency effects compared to the same period of the prior year.
Gross profit increased to $159 9 billion, an increase of $84 3 million a 111, 5%.
Gross profit margin was 47, 8% an increase of 340 basis points, resulting from the net price increase discussed above manufacturing leverage net cost savings and favorable mix of higher margin North American sales, partially offset by.
<unk> increases in raw materials and logistics expenses.
Selling general and administrative expenses increased $23 2 million or 54% to $66 5 million driven by stock based compensation that bested as a result of the IPO along with other IPO related expenses in addition to volume.
Related expenses.
As a percentage of net sales ex GMA decreased to 19, 9% an improvement of 550 basis points.
Research development and engineering expenses of $4 $8 million were essentially flat from $4 7 million in the prior year period.
Operating income increased by $67 2 million or 533% to 79 8 million. The increase in operating income was driven by higher net sales and gross profit margin expansion, partially offset by the higher SG&A expenses.
Net interest expense decreased by $1 3 million or 7% to $18 3 million due to reduced interest rates on our floating rate debt and a reduction in the use of our ABL facility.
During the first quarter, we incurred $5 8 million of debt extinguishment losses, which were associated with our debt repayments after our IPO.
During the quarter, we incurred an income tax expense of $15 2 million compared to a tax benefit of $3 million for the <unk>.
Higher year period.
This was primarily due to increased income from operations.
Our effective income tax rate increased to 29, 2%.
Net income increased 47, 3 million to $36 9 million compared to a net loss of $10 4 million in the prior year period.
Adjusted EBITDA increased to $107 3 million, representing an increase of $71 5 million or 200% adjusted EBITDA margin increased to 32, 1% compared to 21% from the prior year peer.
Should.
Now turning to our segment results beginning on slide 10.
Hey, what's operational and management structure is aligned to its key geographies and go to market strategy, resulting in two reportable segments, North America, and Europe, and rest of world and low.
North America net sales increased 105% to $271 5 million for the first quarter. The increase was driven by higher sales of residential pool equipment and increased pricing.
Gross profit increased 121% to $134 7 million.
Gross margin expanded by 350 basis points to 49, 6%.
Gross margin expansion was driven by net price increases.
On your fracturing leverage and cost savings, partially offset by inflationary increases related to raw materials and freight and higher import duties.
North America segment income increased 280% to 85.
$8 million adjusted segment income increased 220% to $95 8 million.
<unk> increased mainly from higher sales, partially offset by higher volume driven SG&A expense.
Turning to slide 11 for Europe, and rest of World net sales increased 66%.
$262 9 million.
The increase was primarily driven by continued strong demand for <unk> products and a favorable impact from foreign currency exchange gross profit increased by 75% to $25 2 million gross margin expanded by 200 basis points to 41%.
From 38, 1% from the prior year period, primarily driven by price increases and volume leverage partially offset by the inflationary impact.
From a high raw material costs, as well as inbound and outbound shipping costs.
Europe and rest of World segment income increased 166% to $14 9 million adjusted segment income increased by $9 4 million to $15 8 million from $6 $4 million per the prior year period. The increase in segment income was due to higher volume.
A favorable mix on the tailwind from currency.
Turning to on balance sheet, we continued to strengthen our position with deleveraging from five two times at the end of fiscal year 2020. So three three times at the end of the first quarter 'twenty one facilitated by the proceeds from the IPO to pay down debt as well as growth.
Our LTM adjusted EBITDA.
During the first quarter of the calendar year, we typically have a cash.
Use resulting from an increase in on accounts receivable position due to the grants have extended credit terms to our channel customers as they build their inventories in anticipation of the pool season.
These receivable positions have substantially collected over the second quarter.
Consequently cash flow from operations in the first quarter was a use of $131 7 million a decrease of $33 8 million on 35%.
From $97 9 million cash use in the prior year period.
Cash used in investing activities was $4 6 million compared to a cash use of $3 9 million in the prior year period.
Business continues to prioritize equipment investments on expand capacity.
Total liquidity at the end of the first quarter was 196 8 million comprising 13.
$8 million of cash on hand, and $183 million available for future borrowings under our ABL revolving credit facility.
As Kevin mentioned, we now issue guidance for the full year 2021 of our net sales growth in the range of 40% to 45% year over year, and an adjusted EBITDA of $360 million to $390 million, reflecting 55% to 68%.
Year over year growth.
The outlook for free cash flow ranges between 190 to 200 on $20 million.
And with that I'll now turn the call back to Kevin.
Thanks, Ivy I'll pick back up on slide 12.
<unk> core values drive our commitment to ESG.
Hear us talk a lot about the environmental benefits of our products as well as on manufacturing capabilities, we have a strong culture and focus on creating an attractive and safe work environment for all employees and finally, we have built a leadership team with unique talents and diverse backgrounds that is committed to leading by example, with ethics and integrity.
And ensuring compliance with our strong policies throughout the organization.
On slide 13, we remain focused on being at the forefront of product innovation and as we continually expand our product offerings, we are committed to providing more environmentally friendly and sustainable solutions.
We design our products to be energy efficient conserve water and avoid harsh chemical usage to highlight a few examples over the past three years, our variable speed pumps have helped to generate approximately $1 1 billion kilowatt of energy savings, which is a 90% reduction in energy used compared to the previous generation.
Pump products, we've reduced chlorine usage by approximately 81 million pounds through the installation of Salt Korean generators. Additionally, following the installation of the UV ozone system. The pool will require up to 50% less chlorine to properly treat the water finally, we've saved.
Approximately 2 billion gallons of chemically treated heated water with the transition to cartridge filters I'll wrap up on slide 14, and highlight hayward's market, leading position as a pure play in the outdoor living space are innovative and technologically driven product offerings strong brand and.
Competitive positioning and our focus on operational excellence, we continue to see robust demand in structural trends supporting long term growth opportunities. We're excited to begin our journey as a public company and look forward to getting to know our new shareholders and educating them on our company and our progress.
With that operator, we are now ready to open the line for questions.
Thank you at this time, if you wish to ask a question. Please press Star then the number one on your telephone keypad at this time once again Thats star one to ask a question.
Pause for just a moment to compile the Q&A roster.
Your first question comes from the line of John Lovallo of Bank of America.
Hey, guys. Thank you for taking my questions. This morning. The first one is can you just remind us of what your key material inputs are taken resins and motors on the components side and the degree of inflation that you're expecting in your forecast and along those lines is the recent 5% price increase enough and whats your ability.
On the to go back to the market with additional increases if needed.
Hey, John.
I'll turn to IBM to give some of those.
Percentages, but in terms of our key inputs you hit on some of them on a lot of electronics.
Obviously resins, we believe we've looked out.
With some good Intel.
Before deciding on the size of that price increase that we announced back back a month on a half ago or so we believe it's enough, but it is a it's a fluid situation.
We also as you I believe now we have an opportunity around more normal time of year for price increases which takes effect there.
They are on that October one timeframe. So we.
We believe that there's opportunities to make some additional decisions. If the inflation continues to hit us in the face, but we believe at this point that what we announced on there a month on a half ago.
Efficient for the inflationary headwinds that we're feeling.
Yes, good morning, John it's on IBM.
As Kevin mentioned on pricing action really informs how we think about inflation from the balance of the EBITDA globally. We're at a 5% out of cycle price increase that we initiatives initiated in March.
Chuck how those are expected inflation across the basket of raw materials.
As Kevin mentioned, primarily on the commodity side resins copper steel.
The main contributors.
When I think about the actions we've taken in addition to pricing we've communicated previously at the beginning of the call season, we typically establishment inflation mitigation programs.
We're substantially.
Okay with us through the end of Q2, and then <unk>.
On the price increase that will become effective into Q3 to protect the margin.
Got it that's helpful and then as a follow up can you just help us with the monthly progression of financial results. I'm curious was each month in the quarter stronger than the prior and what I'm trying to get at it maybe you can help us bucket some of the key drivers that drove the delta between what you reported and what you had been forecasting in mid February.
Yes.
We came into the year with some.
Cautious optimism.
We have seen a very strong first quarter, 96% growth year on year as we had communicated that already.
First on a 19% full year on year growth, assuming the balance of the year would be flat, which we do not project at this time as you can see from our 40% to 45% full year guidance. We do expect Q2 to be along with Q on the topline growth.
Great visibility through a very strong.
Paul exits in Q1, Q3 is seasonally low sales into the channel, but we still expect to have a good comp.
In Q3 on a year over year.
Q4 is obviously the other day by period.
Turning up with the 'twenty, one 'twenty two seasonal year, but again, we expect that to be a good comp period year over year.
It's a little bit too early to indicate beyond that.
But as Kevin mentioned in his.
Ali on remarks, you know.
Sentiment remains strong industry sentiment remained strong.
On the living continues to focus that migration Sunbelt continues millennial investments all of these themes continue to inform us of a day of flattening demand profile in the industry.
Okay. Thanks, very much okay, I would just add a demand is strong I think inside that market growth the demand for Hayward products continues to escalate.
Right now the order file is very is very strong we continue.
To increase our production capacity.
Quarter on quarter and.
Ivy and just said is really with a view to what continues to happen with the order in flow and how we can best match, our production capacity and labor and material to be able to capitalize on that market demand.
Thanks, guys.
Thanks, Joe.
Your next question comes from the line of Nigel Coe of Wolfe Research.
Hey, good morning, everybody. This is Brian on for Nigel.
Neil from congrats on a great quarter I, just wanted to dive in a little bit more on the capacity expansions can you just walk through how you were able to do that without extending the shifts.
Or was there idle square footage Ramsey utilize reworking some of the product lines and then how much capacity expansion opportunity do you have left.
Demand continues to remain robust.
Good question Bryan good morning.
I would say.
It's really about bringing bringing more labor into our company and our expanding some shifts as you mentioned.
Obviously, ensuring that the material on the component tree can match our desires. So it's really working in lockstep there.
R.
Our six centers of excellence around the around the globe.
We have additional capacity opportunities before we need to contemplate big capital investments so on.
Opportunistically, we can continue increasing our production to satisfy this market demand going going forward.
Yes.
Brian Good morning, just to build upon that as Kevin mentioned six large facilities globally three.
In North America, which we think is an advantage to be placed with inside a primary market that give us way speaking speedy service.
Proposition from the channel, but as Kevin mentioned, we have expanded shifts we have tremendous remaining capacity left within our manufacturing footprint we have.
Additionally in this last.
Six months expanded our distribution network we've added.
The West Coast.
<unk> facility in Phoenix, Arizona, which is increase our distribution footprint by 30% on which again.
Other non enabled us to service the marketplace in a timely way.
But we are continuing to expand on production through our prior utilization model as we continue to utilize the existing machinery through additional share.
Great. Thanks, and then a quick follow up have you seen any shift in kind of competitive dynamics since the IPO on the announcement.
On the IPO and how how our competitors respond and whether it be in the marketplace or M&A or anything along those lines.
I wouldn't say I've seen.
Any anything really change I mean, I think this is a this is up.
Well structured industry I think we're all are.
Interested in growing the pie and we understand that service and new product introductions is really what's going on in channel partnerships is really what's going to drive.
Share share gains individually inside of there so.
<unk>.
We have an interest you mentioned on the acquisition side we.
A pretty active on that front right now and seeing how we can continue to grow top line.
Both organically as well as Inorganically so no.
No I Wouldnt say on the two months or so since we've been public there has been much competitive shift.
In the aftermath of debt.
Great. Thanks, Pat.
Thanks, Brian.
Your next question comes from the line of Brian Lee of Goldman Sachs.
Hey, guys good morning.
On a kudos on a.
Great quarter here out of the gate.
Maybe going back to the earlier question about sort of growth and visibility.
2021 on.
It sounds like it's dialed in pretty well just as we think about medium term visibility.
You guys had said at the time of the IPO mid single to low to high single digit organic growth.
That is right for the industry and Thats right for Hayward.
Yes, I'm not going to ask you if that's still the right view heading into 2022, I guess just trying to think from.
On the revenue algorithm perspective, a lot of other things you talked about like two percentage points of price two percentage points of volume and mix.
At least for this year Theyre moving really far out of bounds. So is that still the right revenue algorithm. As you think about just medium term 2022 or should we be sort of out of bounds for some period of time, whether it's on price whether it's on volume growth were.
You can continue to kind of track at these.
Strong growth rates.
Yes, Theres a lot there it's a great question and I understand how it's on your mind, because frankly, it's on our mind too Brian.
40 to 45 that we have given here on the short term.
As on all of those components that I mentioned previously from new construction, we think that could be up 20% and no reason to think that can continue into 2022 based upon what we hear from our from our builder.
And other dealers out there the remodel market is there as well.
Pricing.
This industry.
On the has done a great job of being able to absorb that and pass that along which really then leads to the size of this on this aftermarket which is frankly, what is driving our our current year outlook disproportionately just based upon usage and the overall reflection that this industry.
<unk> is seeing rate right now from upgrades repair and.
And replace I.
I think we'd like to hold off on on really giving clear guidance on this mid mid term obviously the comps are going to guess.
On larger as we play through 2021 here and look to comp off of 'twenty 'twenty, two but I think for now we would still like to leave.
The group with with that with that kind of high single digit expectation is where we believe 2022 and beyond will be and we'll stay in touch as the year plays out and if we see something different in Nash, we will absolutely pass that pass that through.
Okay Fair enough and then.
Just kind of another question around thinking about how to dial in the model a bit.
When we look at the adjusted EBITDA margins of 33% level here pretty impressive I think.
On.
The simple question is going to be just how sustainable is it I mean, we've seen you sort of peak out in the high twenties, historically, obviously youre running at revenue levels that are much above prior peaks, but what's kind of sort of the target level for the balance of the year in terms of margin should we see.
Leveling out or moderation as we move through the year or is this kind of 30%.
Level four on an annualized basis, the right level and so we're moving above the high twenty's like you've seen in the past.
Yeah, Thanks, Bryan again.
Good question.
We've been very pleased with the development of the March on both of the gross margin level, which was up.
40 bps year over year on 280 bps quarter over quarter on that really reflects the tremendous operating leverage that we are.
Sure.
Being able to achieve as we ramp production on more globalized model basis. So we believe that that now is a structural shift in our business as we continue to operate at those high levels on the learnings that we've achieved.
And non bulk structure.
We continue to leverage our SG&A base.
We have a strong management program to Gabon on cost.
Investments within that area.
So bottom line when we think about the balance of the year that will be a slight moderation from 32%.
In Q1, but we still expect good growth towards that 30% per the full year.
Okay. Thanks, so much I'll pass it on I appreciate it.
Thanks, Brian.
Your next question comes from the line of Ryan Merkel of William Blair.
Hey, Thanks first question from me just thinking about <unk> EBITDA I think you said it would be similar to the first quarter.
Typically second quarter EBITDA lift quite a bit from the first quarter. So just clarify is this a typical seasonality just simply the strong <unk>. So you don't want to get ahead yourselves or could there be a little upside to second quarter guidance.
Yes.
Well.
I think that there is a slight shift in the seasonality because it's such a strong Q1, Brian the way that's played out.
I know you are very close with the industry. So I know you're aware of it but Q4 of last year.
Let us manufacturers really started looking at the early buying starting to ship that we were really still fulfilling sort of in season 2020 orders. So we were able to.
Two to.
To start Q1 with a very strong backlog of early bonds, which we were able to to kind of harvest and build and deliver here. So.
Inventories are frankly, there's not enough of it out there with the rates debt, it's selling through so.
We are guiding at this point to say kind of similar.
Q1, but the demand is certainly there and if we're able to work through whatever headwinds.
<unk>.
We will see what on what.
What could play out here in Q2, but again really underscore the demand is there.
The interest.
Two in the usage of these pools in the backyard is.
<unk> is extremely strong.
Okay makes sense and then secondly can you comment on Texas and how much of a lift did you see in the quarter from the repair work and might there be more of that in the second quarter.
Yes, I think you've heard in some in some earlier earnings calls I think we would echo what's been put out there.
It's a terrible event there is a lot of triaging going on frankly, none of us have been able to get as much product into the region given the strong demand on <unk>.
Elsewhere as we.
As we would hope I think it's going to continue to play out into Q2 cash more material finds its way into the region to be able to.
Create more of a permanent fix I think that theres been a lot of.
If a heater Kathy.
Can't be found yet I think people are kind of taken the heater offline just to get a water flowing and.
And what are treated so it's going to continue it had some impact in Q1, but I don't think its large enough for me to really put a number out there at answering your question Ryan It had an impact, but but but not a huge impact on our on our Q1 results.
Alright, great ill pass it on.
Your next question comes from the line of Mike Halloran of Baird.
Hey, good morning, everyone.
Just some comments or question here first on on.
Channel any variance you're seeing between those kind of four major channels, whether the retail side ecommerce distribution or through the builders.
No I don't.
I don't think so I mean, I think that the.
There is there is there is really growth through all of those channels right now as you know our primary means to the market is through distribution.
Our strong partnerships there are supporting retail.
The builders on the Servicers I think.
<unk> debt.
On a place like Texas to pick up on on Ryan's question I do think that for folks in in the affected region. There they were turning to the internet.
See if they could find some inventory too to triage equipment quicker, so maybe a slight pickup there but.
It's been pretty broad based.
Across all of the all the channels.
That makes sense and then.
Hi.
Maybe a tough question here, but how are you guys thinking about when that backlog starts normalizing or where maybe when you can start catching up to that backlog.
Whether thats youre on production capacity or maybe commentary from the channel what the builders are saying.
From your major distributors are talking about things, but.
Any kind of thoughts on the timeframe on which that can start normalizing out a little bit.
Yes.
The goodwill on this is amit great flow through again.
Expectations will continue to build production capacity through Q2 into Q3.
To address to address the current strong order from backlog.
Expect as we move into the back end of Q3 into Q4, the backlog profile will start to normalize normalize.
Interesting.
This business continues to inflect and we believe the absolute value of the order Hall will change but in terms of.
Good day sales within the backlog, we expect a normalization exits in Q3 to Q4.
Thanks for that appreciate it.
Your next question comes from the line of Rob Wertheimer of Melius research.
Hi, good morning, everyone.
So.
The results obviously were quite good the industry is booming you outperformed the industry and I Wonder if you have any comment on just.
Seems like your operations basically allowed you to gain a little bit of share. It doesn't seem like channel inventories have risen as much much of sales by a long shot. So do you think youre on a better position with your distribution.
Order to optical fulfilling stuff over the course of the year, maybe gain a little bit of share in on the industry that doesn't.
Usually see share shift or maybe there is still focused on somewhere else.
I'm, just curious about characterizing that growth where they are.
Can you restart distribution better than others and anything else from a point out that allowed you debt. Thanks.
Thanks.
Yeah, Great question, Mike Rob sorry.
Yes.
I think I appreciate you highlighting the operations.
First in your question there because I do believe that that our team.
Around operational execution deserves.
Our high praise for what was accomplished not just this past quarter, but frankly, it's been it's been several quarters running working closely with our supply chain to be able to ramp up production and I think that as we've been able to satisfy some of that demand. It kind of builds on itself I do think that because of our production.
Our amps that dash B gets some additional orders, which I think ultimately could lead to some market share gains for the Hayward brand out there. So it as you said.
On channel inventories or not necessarily.
Where any of us want them the sell through is very brisk right now so.
Everyone's looking for more of our production folks are looking to build more on our channel partners.
Our net trade partners are looking for us.
Just close by saying I do think that.
We've had a nice nice response to some recent product launches out there.
Blood.
We believe that we're bringing on some great connected.
Environmentally sustainable products to the marketplace, that's showing strong pull through in great initial reactions. So that's kind of how I see it.
Thanks, so much.
And your final question comes from the line of Jeff Hammond of Keybanc capital markets.
Hey, good morning, guys.
Good morning.
Just wanted to touch on.
Obviously, you guys are doing a great job on sell through and outperforming but just where are you seeing constraints.
From a from a component standpoint.
Just what's kind of the governor on growth around just kind of the contractor base they've got to be obviously very very busy.
Yeah. Good question I think one on the differentiation that we have as Hayward is.
As we are on a vertically integrated manufacturer.
Sets us apart from potentially other than the industry.
Take basic commodity raw materials, when we convert those into our components on an upwards assembly into finished goods. So we are less relying on component manufacturers, which I think gives us on edge and our supply chain capabilities clearly, we see and we communicated that there is some tightness in the <unk>.
Commodity resins copper steel.
At some specialists muscles.
We've continued to stay close to our suppliers based on strategic investments into our supplies to secure volume of those commodities will continue to work to make sure those supply lines.
Remain open but.
Again, I think one of the big large differentiators for Hayward is we are vertically integrated.
On that provides us with agility in the marketplace more so than others.
Okay, Great and then just on the inventories.
I mean, what does the guide kind of contemplate.
<unk> inventory rebuild or your success to kind of rebuild inventories into year end.
How might that kind of impact the out years.
Yes.
I'll start by saying three years ago.
When we started to think about the balance sheet on how we can improve that inventory management was a <unk>.
Focal area and we have.
Addressed.
Over on investment into inventory progressively over the last three years, we feel comfortable right now with our inventory positions at Hayward.
You will see from the end of 2020 to the end of Q1 absolute inventory values have gone up and Thats really centric around raw material investments again too.
Actual.
Supply is therefore for production, we don't expect that this particular point to build our inventory positions by the end of day, it will continue to manufacture and sell.
The market place with production.
As we step into the future years, I think that does that.
That discipline on the balance sheet will remain.
On the channel.
As expected.
The revised.
Service model that we're introducing which is much more real time to their needs and Jeff If you are asking.
Specifically about.
Our channel in the inland or in the sorry inventory on the channel.
I think it's going to we're not going to have the months months of sales of inventory really through this season based upon anticipated demand so weather dependent.
It's probably out into later this year before were able to really get the inventory positions back to two.
Two historic.
Alrighty anticipated levels.
Okay, great color guys. Thanks.
Thanks, Joe.
And your next question comes from the line of <unk>.
<unk> of Jefferies.
Thanks for fitting me you talked about additional price increases obviously going into effect did you see a pre buy ahead of this price increase is there a lag between when you put on pricing actually runs through the P&L just given your large backlog.
Good morning.
We announced the two segments.
Announced.
Slightly different effective date, so here in North America, We announced late March with an effective date of May one.
We didn't really see much of a much of a pre buy.
Before that took effect, but it probably will be Q3 before we see much of that impacting the P&L over in Europe and rest of world It took effect.
In April so it could be slightly sooner in that segment than what I just indicated four for North America.
I'll just add.
<unk>.
Inflation mitigation programs that we have with our suppliers.
Typically six to eight months in China, and but those will.
And the fact through Q2, so the price increase became effective on new orders.
In Q2.
As you mentioned sorry, the pricing on the invoice will really be reflected in Q3, but mitigation will cover inflationary pressures through Q2.
Got it. Thank you and then you talked about the benefit from new products. It looks like some of your products help reduce clearing use just given the choices. There are you seeing increased and Anthony Hicks equipment that benefit the quarter.
Yes.
Most of US Oems are actually seeing a nice pickup there frankly, we work very closely with some channel partners.
And some is from trade partners in the immediate aftermath.
The loss of that capacity.
With Hurricane Laura So we moved pretty aggressively towards.
Increasing from assembly capabilities and production capabilities to get some of the salt coring generators.
In production and out in the channel So we believe that.
From an ESG standpoint, salt is a great alternative.
And.
We are seeing a pickup there and it's a nice nice alternative to the chemical usage, but I think commodity just touched on our hydro pure product, which was introduced late last year, which is a combo of using an ozone when that's per.
Third with any form of fluoridation, whether it's salt or or tablets or the use of the hydro pure can actually cut or will actually cut chlorine usage by up to 50%. So that's a good alternative regardless of whether you have a salt system on your pad.
Or not.
Great. Thanks for taking my questions and congratulations on the quarter.
Alright, Thank you Eric.
That concludes the Q&A session I would now like to turn the call back over to Kevin Holleran for closing remarks.
Alicia in closing I'd, just like to thank everyone for their interest in Hayward.
You can see our business is producing phenomenal operational and financial results and we're very well positioned to continue to generate value for all stakeholders in the years ahead.
<unk> reached out to our team if you have any follow up questions and we look forward to talking to you again soon thanks again.
This concludes today's conference call you may now disconnect.