Q2 2021 Hayward Holdings Inc Earnings Call

Welcome to Hayward Holdings. Second quarter, 2021 Arnie's, call. My name is Ashley, and I'll 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 have a question, please press star, then 1 on your touch-tone phone, please note. That this conference is being recorded, I will now turn the call over to Stewart Baker vice president, global.

Will strategic planning and Business Development, mr. Baker, you may begin. Thank you. Where you can also find an ending slide presentation that we were referenced during this call. And I'm joined today by Kevin Harlan, President Chief Executive Officer and - Jones senior vice president and Chief Financial Officer. Before we begin, I'd like to remind

The during this call that 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 and uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by Sir.

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 second quarter of fiscal year..2021 as far as with the Securities and Exchange Commission. 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

In isolation, or as a substitute for results, prepared in accordance with gaap.

Conciliations of net income to adjusted ibadah calculated under gaap as well as reconciliations for other non-gaap measures. Discussed on this. Call can be found in our earnings release, and we'll be including in our form 10-q, for our second quarter of fiscal year 2021, I would now like to turn the call over to Kevin hollering.

Thank you, Stewart and good morning everyone. It's my pleasure to welcome all of you to Hayward second quarter earnings call. I'll start on slide 4 of our earnings presentation with some highlights from our second quarter results. During the quarter, we delivered record, net sales of 3 hundred and sixty-four million, and increase of 66 percent year-over-year, significant profitability growth with adjusted ibadah of a hundred and 10 million and increase of 81 percent year over year. Despite

And supply chain headwinds, this result continue to enhance our financial flexibility, through Rapid deleveraging, our results build upon the solid growth. We were reported during the same period last year in which net sales grew 14% and adjusted ibadah grew 21%.

Aunt are exceptional performance. This quarter is proof of hayward's product adoption across the channel, sustainable, secular industry, Tailwinds operational excellence and an expansion of totally Hayward dealers. The demand for pools and pool equipment remains strong, and we believe our Innovative technology and products will continue to deliver growth. Especially in the aftermarket we are increasingly confident in our ability to continue to benefit from Market expansion. Given our competitive

Is around product range, and Technology, operational platform and partner relationships. Now, moving to our guidance on slide 5, I'll summarize some recent Trends and why the industry's Outlook continues to remain strong, not only in 2021. But as we look into 2022 and Beyond in the near term, the market backdrop is driving demand and excessive labor, and Global Supply Chain capabilities resulting in higher inflation which we are

Cecily passing through the channel Builder, backlogs greatly expanded in 2020 and 2021, and we expect this trend to continue in 2022. Driven by new pool construction with upgrades to smartpad products along with repair and remodel project activity. Our industry is supported by favorable housing Dynamics, including increased levels of prospective home ownership, particularly the millennial buyer, migration to suburbs and the Sun Belt, and a strong repair.

Market driven by an overall aging housing stock. We're also seeing evidence that pool usage levels, continue to rise due to Extended seasons and more upgrades with Innovative capabilities with the pool as the focal point of the backyard, while these Trends were magnified during the pandemic. Through stay-at-home conditions, we believe these are secular Trends with significant Runway. Well, beyond 20.21,

1. Now turning to our full year, 2021 Financial guidance, which is influenced by a number of factors, including our financial results to date as the year progresses, we have greater visibility through our Channel partners and insight into Builder activity levels and backlogs, which have continued to show, considerable strength and sustainability, given the strong performance in the first 6 months of the year visibility into the order file and increased confidence in our ability to execute. We are raising our guy.

Thanks for the full year.

20:21. We now expect net sales for the year to grow 54 to 58 percent year-over-year and adjusted ibadah of 405 million to 425 million. A growth of seventy-five to eighty 4 percent year-over-year. This compares to previous guidance for net sales, growth of 40 to 45 percent year-over-year and adjusted ibadah of 360 million.

Aout 390 million or a growth range of 55 to 68 percent year over year.

Turning to slide 6 as a reminder at Hayward, we segment our business in the North America and Europe, and rest of World. North America is Approximately 80% of total sales, which is advantageous. Given this region has the best pricing and margin profile in the industry. We are also a pool, Pure Play equipment manufacturer with the vast majority of our sales, tied to the residential backyard. We offer a complete line of innovative environmentally sustainable

Animal products, providing the pool owner, everything needed to safely operate. Any type of pool. Hayward is the leading innovator with the most known and trusted brand in our growing industry. The industry is supported by sustainable. Secular Trends such as D, urbanization migration to warmer climates and increased investment in outdoor, living new construction is a key pillar of growth driving the overall installed base of pools that we serve. However, 75%

of our Revenue profile stems from a resilient non-discretionary pool aftermarket which includes equipment replacement upgrades and remodels turning to slide 7. Hayward has several key competitive advantages creating customer stickiness and delivering growth for our stakeholders. The first layer is an incredibly strong and trusted brand decades in the making supported by a very large and growing installed base resulting from having a complete product line.

Across all pool types. Secondly, we have an extensive network and very strong relationship with our partners from totally Hayward dealers comprised of Builders and servicers that stake their reputation on our products. Each day to Distributors retailers e Sellers, and authorized service centers that help us sell and support Hayward products in the backyard through June, I am pleased to say. We have already seen a double-digit growth in the number of new build.

Ders and servicers joining are totally Hayward reward program this year. We believe this is clear evidence of the stickiness of our share gain as trade professionals. See, the benefits of our products and the support and relationships. They are building with a word. We continue to demonstrate our operational excellence and ability to leverage volume at attractive. Margins, we manufacture in Market with roughly 70% of our product built in the US and we are vertically integrated as such

You have a more simplified.

Dynamic supply chain than our competitors. We are highly automated and have capacity available to build more product. While deploying very manageable levels of capital. These factors were on display during Q2 as we increased our production. By over 80 percent year over year. The final key Hayward Advantage is our Innovative and product design capabilities. Products are our lifeblood and we spend in excess of 20 million per year, in engineering to ensure that our

Products are at the Forefront of Technology with leading functionality. We have extensive IP that we protect with active and pending patents. We also have top product performers in many key categories, like Omni controls variable speed pumps, and salt chlorine generators, which are fueling our growth as the industry has made significant shifts towards digital and energy-efficient capabilities, and Pool owners, increasingly seek out these smart pad and environmentally

Hannibal Technologies turning to slide Aid. There are a number of key secular Trends, we are seeing centered around home building and the increased focus on Smart Homes that we believe will continue to enhance the awareness and demand for Hayward products. There is a significant percentage of new home buyers coming to the market which is heavily concentrated in the Sunbelt States confidence levels in Home. Remodeling industry continue to increase driving demand towards repairing.

They are Remodel and upgrade activity as previously. Highlighted Hayward is at the Forefront of product and Technology Innovation, which is driving conversion to pools with smart pads. This coincides with the projected penetration levels of smart home systems growing from approximately 40 percent. Today, to approximately 60% in 2025 with that, I'd like to turn the call over to Ivy and Jones who will discuss our financial results in more detail.

Thank you, Kevin and good morning. I'll start on. Slide 9 all comparisons will be made on a year-over-year basis. As mentioned earlier, we're very pleased with our second quarter results and the successful product adoption, we continue to see throughout the channel, along with, our operational excellence in a demanding environment. Net sales were all second quarter, fiscal 2021 increased 140, 4.4 million or 66% to 360.4.4 million.

The 3 months ended July the 3rd 2021, the increase in net sales was primarily the result of higher volumes. Mainly in residential pool equipment sales, from continued, strong demand for pool equipment, driven by upgrades, and an increase in new pool constructions as well as an acceleration of outdoor living Trends and 4.1 that price increase as well as favorable foreign currency effects, compared to the same period of the prior year. Gross profit. Increase the

And 68 million, an increase of 70 point, 1 million or 72 percent. Gross profit margin was 46.1% an increase of 160 basis points. Resulting from the net price increased discussed earlier manufacturing. Leverage, net cost savings partially offset by inflationary increases in war materials and logistic expenses. Selling General and administrative expenses, increased twenty, 7 point, 6 million or so.

Sea 2% to 7%.

En e, 1.8 million primarily driven by volume related expenses. The increase in SGA was also a result of non-recurring costs. Associated with IPO related, stock-based compensation predominately, non-cash and sit, right and cost related to the fire about Jung KO, Spain, facility. And refinancing John is consequential to the amendment about first lien some facility. In the second quarter in aggregate, these one-time cost represented a drag of

Emily 300 basis points or eleven point 6 million dollars who are operating leverage during the quarter. Despite these items is a percentage of net sales sgna decreased to 20% and Improvement of thirty 5 basis points, research development and Engineering expenses, or 5 million or 1.4 percent of net sales as compared to formally and a 1.8 percent in the prior year period, as we continue to invest in Innovative new products. And

Peaches.

Operating income increased 46.1 million or 1 hundred and thirty 2 percent 281 million. This increase in operating income was driven by higher net sales and a gross profit expansion partially offset by the higher sgna expenses. I mentioned

Net interest expense decreased, by 4.6 million, or 26 percent to 13 million. As a result of pay down the debt. With proceeds, from the IPO reduced, interest rates following the Amendments of our first lien term facility completed in the quarter and a comparative reduction, in the use of our abl facility during the quarter. Additionally, we encode 3.6 million a debt extinguishment costs during the second quarter of fiscal 2021 associated with the amendment,

During the call to we incurred an income tax expense of twelve point..6 million compared to 5.4 million for the prior year period. This is primarily due to increased income from operations, are effective income. Tax rate was 19.4 percent compared to 22.4% for the prior year period. Net income increased thirty 4 point 1 million or a hundred and eighty 2 point 3 percent to fifty 2 point 8 million adjusted ibadah in the quarter increased.

Just to 110 point 4 million representing an increase of forty, 9 point, 4 million or 81% adjust. The abdominal region increased 259 basis points to 30.3%. Now turning to our segment results. Beginning on, slide 10 as a reminder, hey was operational and management structure is aligned to its key geographies and the go-to-market strategy resulting in to reportable segments North

America and Europe, and rest of the world in North America, net sales increased 66% to 290.3.6 million for the second quarter. The increase was driven by higher sales of residential pool equipment and increased pricing.

Gross.

Increased 70% to 140 point 4 million, gross margin expanded 128, basis points to 47.8% gross profit. Margin expansion was driven by net price increases manufacturing, leverage and cost savings partially offset by inflationary increases related to raw material and Freight as well as higher import tariffs.

North America segment, income increased, 96 percent to eighty, 9 point, 3 million adjusted segment income increased 89 percent to ninety 9 point 2 million segment. Income increased mainly from the higher sales partially offset by higher volume driven sgna expense.

Turning to slide 11 for Europe and rest of the world and that sales increased 66%..270 point 8 million. The increase was due to sustained market demand and strong odor entry in all territories increased 81 percent to twenty 7 point 6, million gross margin expanded 315, the basis points to 38.9%. This was primarily driven by price increases volume level.

Partially offset by inflationary impact, from high raw material costs as well as high as shipping costs Europe and rest the world segment income increased 51% to twelve point 4 million adjusted segment income increased by 9 point, 2 million to 17.7 million from 8.5 million for the prior year period. The increase in segment income was due to higher volume favorable, mix and a tail wind from foreign currency exchange.

Rates.

Turning to our balance sheet, we continue to strengthen our financial position as we deal ever 22.1 times. As of July, the 3rd, 2021 compared to 5 point 2 times as of December 31st 2020. This was facilitated by the proceeds from the IPO to pay down debt as well as robust growth in our LTM, adjust the diva doll we are well, positioned to fund our organic growth initiatives, pursue Ma and consider future return of

It'll for the 6 months, ended July, the 3rd 2021 cash. Flow from operations was 120.3.2 million compared to 70.2.8 million during the prior year period cash used in investing activities, was 9.7 million compared to 9 point 5 million in the prior year period. Total liquidity. At the end of the second quarter was 445 million inclusive, a 250 to me.

Ian of cash on hand and with that, I'll now turn the call back to Kevin

Thanks Ivan. I'll pick back up on slide..12, hayward's core values Drive our commitment to ESG. You hear us, talk a lot about the environmental benefits of our products as well as our manufacturing capabilities. We have a strong culture and focus on creating an attractive and safe work environment for all employees. And finally, we built a leadership team with unique talents and diverse backgrounds. That is committed to Leading by example, with ethics integrity and ensuring compliance with our strong policy.

throughout the

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 3 years. Our variable speed pumps have helped to generate approximately 1.1 billion, kilowatt hours of energy.

G savings, which is a 90% reduction in energy, use compared to the previous generation of pumps. We've reduce chlorine usage by approximately 81 million pounds through the installation of salt chlorine, generators additionally, following the installation of a UV ozone system, the pool will require up to 50% less chlorine to properly, treat the water. Finally, we've saved over 2 billion gallons of chemically treated heated water with the

Mission 2, cartridge filters. I'll wrap up on slide, 14 and highlight hayward's Market leading position as a pure play in the growing outdoor living space. Hayward's competitive mode has helped us to grow share and our Innovative and environmentally conscious technology products are driving smartpad conversions. And expanding our addressable Market, finally, our Superior Financial results are backed by an attractive, large and recurring.

Aftermarket business with that operator. We're now ready to open the line for questions.

This time, if you have a question, please press star then 1 and your touch-tone phone. We ask that you please limit yourself to 1 main question and 1 follow-up question will pause for just a moment to compile the Q and A roster.

ER and your first question comes from Brian Lee with Goldman Sachs and Company.

Any congrats on the maybe just to start off quite robust. Imagine you guys are tracking better than typical at this point in the year. But wondering, if you can kind of give us some quantification of, you know, whether its backlog or other

Metric D track with kind of guiding and medium term, growth outlook for the business and whether or not you know, you're sort of on track for that set longer term growth of mid to high single digits. But I think you guys outlined at the time of the IPO and then I had a few follow-up. Yeah, sure.

As we move from June into July, that's the final quarter of the seasonal year that our industry defines. You know, in this is the time where you know inventories I know you didn't ask about that but inventories, you know, start to get reduced but in terms of order activity it's very strong still. You know, we exited Q2

And we exited 90 days previous. Again, that's that's exceptional this time of year. So, you know, I think it reflects, you know, the general secular enthusiasm. So sorry, secular Trends and the general enthusiasm that exists out there with the trade and in the channel and, you know, really pleased with the market reception to some recent product launches

Which is really put some wind in our sails as we've unveiled those products over the last, you know, 6 to 9 months or so. So we feel we feel good about where the order file is. And then generally what the attitude in the channel is right now with our trade partners, and with our Channel partners,

Yeah that's great. In terms of the order file maybe just to drill in a little bit more. Maybe it is there a sort of a delineation between aftermarket and maybe upgrade type of activity or seeing in that order book relative to new pool bills? It sounds like you know, the back long there continues to stretch out, you know, more, so in 2022. So can you do any ate a little bit between go to what trends you're seeing?

Costco in both segments and upgrade or a conversion to a digital pad or Smart Pad as we've coined it. You know what, I think we're seeing you just indicated there that the new builds are actually pushed out into 2022 at this point. That's what we're hearing from all regions, you know that it's out in the 2022 and even Beyond

In some. But when you look at the products that are populating the order file, I think it highlights a couple, a couple things on new construction. You're starting to see a richer content go in on day 1. You know, when you look at some product categories, like, like salt, for example, or controls what the installed base is in the population, is a much lower percentage, than what the take rate is on a new construction project right now.

In the products that were really seeing industry growth and our own performance in really do point to this, to this smartpad conversion that's happening out there. You know, with the control of the army controls being that, being that Gateway. If you will, you know, with that frequently comes LED lights, heaters water features variable speed pumps, salt, chlorine generation and when you look,

By-product in the in the order file. You know, it really does reinforce what we've been talking about and what the industry's been seeing now on this, on this up, take to a more digital pad that that synchronized together and gives the homeowner the control of their backyard in the palm of their hat, a hand through our Omni app. So you know the long and short of it is we're seeing

strong demand out of

New construction. But really what's driving our numbers and the industry number is this is this aftermarket upgrading that's that continues to occur at a very heightened level.

That makes a lot of sense. Maybe watch 1 for me and I'll pass it on, just be the pricing outlook for the year. I think, you know, 1 of your peers recently said they've implemented something for the second half so wondering, you know what, what you're planning for Price this year. Maybe, you know, what's baked into the pricing views, for the 2021 Outlook as except dated year, what's been realize your today, maybe what's left to be realized and then just lastly I'm price cost where you are on that Dynamic, if your net

Still trying to catch back up to neutral and then under, you know, over what time frame potential. Thanks, guys.

This time, you know, last last quarter, we had announced at the end of March, a price increase, call it 5 percent that would take effect on new orders, written starting May 1st. As we indicated at that point, it would be really out.

In to call it later. Q3, before we started to realize that because that we had to work through the order file before new orders. I had that had that price attached to it more recently. The first of July, we actually made an announcement on a range of say 5 to 7 percent. And this would really be considered by the channel, are more typical kind of early by. But with 1 important,

Distinction. We announced it. First of July, any orders that were written or received by us in the third quarter, that are not shipped by September 27th will actually be priced at the new increase, rather than waiting to, to, to extinguish, or to, or to, or to invoice the entire order file. We frankly couldn't wait that long, so call it an Effectiveness change on the, on the morning.

Price increase that it's going to be realized you know the start of the fourth quarter as opposed to waiting into the new year before that applied to new orders. So hopefully that helps now I'll turn it over to IV in to address some of the other parts of the question. Yeah, the price cost Dynamic. I think we'll start to normalize at the very back, end of Q3 and then as Kevin mentioned, the full implication of the price increases, he mentioned will will

will come in in Q4 and normalize the price cost. Dynamic with a margin that will will be able to deliver in Q4 similar to 2 coupons tight margins.

Thanks. I appreciate all the color.

Thank you.

Your next question comes from Michael O'Halloran with bared. Hey, good morning everyone. So you know can we just talk a little bit then about how you're looking at lead times how those are stretching out how far your backlog stretching out in any kind of commentary on what the spread is between where demand is currently and how quickly you guys can that? That demand

Well, I don't think we're going to quote specifics on the size. You know, again, I I was prepared today to discuss the fact that he's starting the third quarter. We have a larger order file than we had this time 90 days ago. We continue in our operations to do phenomenal, work of pairing up supply, chain material arrival with ramping up

Getting more increased Staffing into our facilities, implementing some additional shifts in our in our facilities. We announced during the quarter that to complement. Our West Coast Distribution Center downtown Phoenix. We're going to do the same in a neighboring town to Clemens North Carolina, which then freeze up additional square footage for production to move into. So you know, the order flow continues to be

Very, very strong and you know, we obviously are doing everything possible to marry Staffing material and production capacity increases to grow that that capacity as quickly as we can. Maybe I'll ask it a little differently. When you think about all of those factors how far out does that give you visibility and and what would visibility of normally look like it?

About this time of year.

Yeah, this this time of year, I mean we have a much traditionally have a much reduced order file than what we have now. I mean, it's multiples higher than where it would ordinarily be at this point point in time, you know, frankly the second half is, is as much about building and monetizing the order file to hit to hit guidance, as it really is, you know, needing

Massive influx of additional orders to deliver on the on the second half guidance. So, you know, we're obviously not halting any product launches or or efforts with the channel and was totally Hayward dealers, but we have a, we have a very meaningful order file that that allows our operations team to plan the factories as well as possible because we have a full full file.

At this point.

And then the follow-up, when you, when you think about leverage levels near to times, how does that change? Your thought process is that pay Down Still prioritized, or are you starting to think a little bit more offensively with with capital usage?

In see what else we can do to to automate and expand capacity. So we are beginning to initiate those organic investment plans, at a quicker rate than maybe as we dented the year. Secondly, on say, MMA is clearly in our line of focus. We have several opportunities that are meaningful that we continue to look at, you know, that's both of those initiatives, you know, remain a priority for the business. If we remain

In the sustained, 2 to 3 times, range closer to the bottom end of that 2 times range. As we've always said will consider return to shareholder policy but not before we execute Upon Our growth ambitions.

Thank you, appreciate it.

Your next question comes from Ryan Merkle with William Blair.

R. Thanks. Good morning everyone. My first question is on the sales Outlook or actually keep it that Outlook. So you raised guidance for the second half and my question is, is it is it primarily the higher sales Outlook? That is the driver there or it also sounds like there's some benefit from Price cost and maybe less overdrive costs.

Yeah. So you know, lucky we will continue to see top lung contribution to bottom line. So sales growth will be a meaningful contributor to bottom line, structurally inside the income statement. We expect margins to improve towards the very back, end of Q3, and then obviously fully the price-cost. Equilibrium will be established in Q4 and we'll see margins a rise in Q4. We do expect to continue to get Leverage.

The sg&a base throughout the balance of the year. But when you look at the midpoint of the guidance, at just over, 30.3%, adjusted either, Dharma, as you know, the midpoint it's well, we were in in Q2 so that should give you an indication of, you know, how we feel about the balance of the year in terms of what that does for the full year. You know we you know it's been a very meaningful Step Up year over year in terms of the

Actual income statement when I look back at to 2020 gross margins or 45.3% would definitely get that. See a very significant improved step up as we have through the first half and then, in terms of the structural just to be. But our margin we closed last year at 26 and a half percent. And again, the midpoint that's A380 bit Improvement year over year in March,

Got it, that's helpful. And then for my follow-up, what was capacity utilization in the quarter and then what is the outlook for the second half? And really my question is would sales be stronger if you had more capacity?

Of capacity utilization on the current shift model. And I want to be clear clarifying that we have further opportunity, to expand our shift models, to go into a more of a continuous operational mode, across the the 6 manufacturing facilities that we have, that will take

Management time investment to to fully realize that but that's the the next phase of capacity utilization that we're looking at and it will contribute partially to the second half growth and into 2022.

Perfect. Thanks for passing on.

Thanks.

Your next question comes from Jeff Hammond with keybanc capital markets. Hey good morning to 1 kind of the the second half just Clarity on you know, seasonality you know 3Q I think normally you have some dip and and then what you've baked in you know in terms of kind of what you're thinking is for early by and how that kind of shifts between for Q and 1q

Yeah, I've even can quote what our normal quarterly percentages. I think that's just like last year. I think it'll be a different profile this year Jeff as you indicated there. So without giving specifics on you know on individual quarters. I would say you know, in terms of early by a we are doing a program early by that's the price increase that I mentioned earlier was actually in concerts

It's meant of the early by program. We would largely assumed that the orders that come in on the early by program would really be a 2022, fulfillment, you know, there might be some, you know, individual lines or skews that that get out mid to late Q4. But I think, you know, we're looking at it as really a q1 of fulfillment timeframe on.

The early by orders, that will come in over the next. Call it month or so month and a half. Yeah, I just follow up that by saying it's been the last 2 years of being somewhat unusual but typically speaking the first half represents about 48% of ourselves the second half 52% q1 Q2 q1 and Q3 tends to be the lower time periods Q through in particular. Tends to be the softer quarter out of the the 4 quarters as we finish up the pool seasonal year

This year is going.

Going to be the reverse, we expect to have weak know we've significantly leaned into the audible click relation in the first half. So, I think first half cells will be 52 percent. Second half 48 percent. So a slight slight modification to the normal seasonality, that we see as an oem

Okay, so it sounds like though, second half seasonality may be a little more balanced 3Q to 4q than you normally have.

Yes, okay. And then just on, you know, share gains clearly you're outperforming, you know, your pool equipment peers, you know, both in results and guidance. And you know, I think you've spoken to, you know, new products as well as availability. And I'm just wondering, you know how you feel about sustainability particularly around, you know, kind of being able to ship product as some of your competitors, ketchup. And if you've seen any change of behavior, you know, from your

Bass around you. No stickiness of these share gains. Thanks.

Thanks.

The result of Builders and servicers pulling through distribution. And I feel, you know, as we mentioned in the prepared remarks, I think the ramp up that we've enjoyed this year, with the number of new totally Hayward dealers coming into our rewards and loyalty program is huge. I think it's highlighting the fact.

That not only that, we are may be producing year-to-date better than others, or better than some others. I think it really speaks to the fact that some of the new product launches and The Innovation that we are bringing to the market place as something they want to, they want, they want to associate with and want to align with. So when you look at the success of the new product, launches to an already competitive and complete,

Decline. And now additional Builders and servicers aligning with us. We feel very good about the stickiness of our of our more recent market. Share gains. Okay, thanks so much.

Inspection, your next question comes from Rob wertheimer with Milius research.

Church. Good morning.

Great. Thank you. Yeah sure. I mean I

First of all, we have we have a we have a great sales team out there who understands you know our product line through and through and are well trained on our, you know, on the technology that we're now bringing add to that a great technical service team. You know, kind of the copilot out there with our, with our sales team, with our mobile training units, that are in Marcus helping to do training on the ground.

In the environment where the products used I think are just, you know, as you say, it's a great ground game and and and we're seeing the conversion as we brought some new technology, helping with this digital conversion that's happening on the pool pad. You know, we feel very, very good about about the recruitment efforts and folks that are coming in Under the Tent, and some of them,

Aout early feedback after they've installed product on new pads and Replacements in an existing pads. And you know again that's that's really what's reinforcing. Our enthusiasm that these are sticky, share, gains going going forward.

Okay, thank you.

Your next question comes from Surrey border to ski with Jeffries.

He's hi thanks for taking my questions. So you mentioned having several meaningful Acquisitions in the pipeline that you're looking at? Could you just expand on the size of the deals or the technology Focus that you're most interested in?

Focus as an industry and as Heyward Burly, those Acquisitions that are reporting to US expand our position in the backyard in and around the pool as well, as looking at expanding our Geographic footprint. Well, we're we're presently underrepresented. So those are the metrics that drive? I am in a investment, the sizing of the deals when I say meaningful, typically the businesses has done.

That's a more smaller talking type. Acquisitions will continue to look at those but, you know, there are several out there which are a step ahead of that and more to come as we as we focus on those those growth areas.

Maybe just a little bit more about the positive demand looking into 2022. Obviously, you're going to be facing some challenging comparables, could you just talk a little bit more about what you're seeing the channel, That gives you confidence on the growth outlook for 2022. Thanks.

Aftermarket.

To replacement to Remodeling and really across all 3 of those levers. I think those there's all plenty of enthusiasm and there's good trends that I think do not do not end in 2021 and will carry over into 2022. We've already touched on some of the pricing that's already been announced.

Folks who want new new pools. Built this year will not get them all built their, we're quoting out into out into 2022, the average age of the existing pools continues to get to get older needing that remodeling activity. But what I'm saving for last is really what is driving, you know, 2021 and I don't see it ending in 2022 is turning, you know, a lower functioning

pool pad into something that's more connected, more environmentally, sustainable, higher functioning and that's that that is really this digital conversion is when you look at the industry volumes out there, the products that line up with that upgrade are the ones that are that are growing most year-over-year in 2021 and there's no

in to believe that that that's going to be completely satisfied. When you look at what the what the percentage of those products are in the installed base, I'm talking things like heaters controls salt, lights, variable, speed pumps. All of those things can be synchronized and give and give the homeowner the, the ability to control their backyard through a smart Omni app that gives us

You know, enthusiasm as we look out into 2022 and beyond that, there will have a strong growth profile out in the next year.

I appreciate the color, the sky.

Again to ask a question, please press star. Then the number 1 on your telephone keypad. And your next question comes from Josh, talk residents key with Morgan Stanley.

Hi, good morning, guys.

I'm just too to dig in a little bit here on on mix. I think you sort of touched on it and in your last answer, you know, mixes a few different things inside of your portfolio. If you had the breakdown, maybe, you know, I guess, first 2 components of, you know, price volume mix, if you can just give us any color there. And then within I guess replacement markets, what you would think of as sort of

fix versus, you know, kind of a

Baird. So yeah. Maybe in the case of automation, that's not replacing something that's broken or a heater going in where the previously wasn't heater, just trying to get a sense for, you know, what? On this is kind of on the upgrade side versus, you know, how much strength you are seeing on traditional replacement.

You know, there are, you know, are definitely more part of the upgrade. So as I've said, the controls is really the Gateway of it. You know, the controls is, you know, call it, call it, you know, low 20% or so.

Population. The field today where it's a much higher percentage going in on new construction. So once once a mechanical pad becomes a digital pad, you know what you're starting to see our, maybe white incandescent lights being upgraded to LED more energy efficient obviously with the D OE regulation change, which is only, you know, a couple weeks in the rearview mirror. You know, you're going to start to see much more

Or of the multi speed pumps which is our new XE line or or up to the variable speed pump, you know this year with some of the shortage on chlorine. I think that as people were looking for other Alternatives you know a lot of Builders and servicers who maybe were resistant to Salt, historically have have have opened their minds to it and just the swimming experience is so much preferred over over more harsh. Chemical chlorine

That I think that's that's a very obvious quit. I guess I would I would finish where, you know, cartridge filters. We don't talk about filtration, a great deal. But you know, folks upgrading from a sand to a cartridge filter is happening in the replacement cycle also, which, which has some obvious maintenance improvements as well as environmental improvements without having to lose as much?

Chemically treated water down the drain. As you as you do your your back wash Cycles. So you know, those are some of the products that we see that are better going in on a higher percentage on new construction. And when someone is remodeling or upgrading an existing pool, those are some of the categories that are that are most in demand, got it. And I guess if you had a breakdown, you know, Kennedy where the majority

Of this lamp up in growth is is it you know higher mix on someone something that is being replaced? Or is it these newer categories?

Yeah, I mean what we're seeing right now is is, you know, a a continuous shift towards the technology side of the product line. And so we refer to as the Smart Pad bundle of products. And when you look at the third party data that we subscribe to was seeing a much richer mix of those type of products, controls variable, speed pumps, smart, heaters, Etc. And that's where we're seeing the investment from the consumer.

The channel and it just coming back to the module inside of the question. You know, we continue to to see that element at richer margins. Then the more Legacy side of the product line, we've purposefully invested in Q2 into the wage rates in our us facilities to make sure that we could get sustain production output where the majority of those Rich products are manufactured and we'll get price caustic, deliberate.

Action in Q4 as those prices. Start to cover that investor cost, we put into Q2 to get those type of products out.

Got it. Thanks for calling you.

At this time, there are no further questions. I will now hand the call back to management for closing remarks.

Thank you.

That concludes today's conference. Thank you for your participation. You may now disconnect