Q4 2021 Hayward Holdings Inc Earnings Call
[music].
Good day, Thank you for standing by and walk into the Hayward Holdings, Inc. Fourth quarter and full year 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer.
To ask a question. During this session you will need to press star one on your telephone.
Be advised that today's conference is being recorded in addition, if you require any further assistance you May press Star zero.
I would now like to hand, the conference over to your Speaker today, Mr. Kevin Holleran, Chief Executive Officer of Hayward Holdings, Inc. Sir. Please go ahead.
Thank you and good morning, everyone.
We issued our fourth quarter full year 2021 earnings press release. This morning, the Investor Relations portion of our website at Investor <unk> Com, where you can also find an earnings slide presentation that we will reference during this call.
I'm joined today by Kevin Collins, President Chief Executive Officer, and I've seen Jones, Senior Vice President and Chief Financial Officer.
Before we begin I'd 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 as much you're 95. These include remarks about future expectations anticipation beliefs estimates forecasts 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-K for a full 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 also discuss non-GAAP measures, which we believe can be useful in the body weight you outperformance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Reconciliations of net income calculated under GAAP to adjusted EBITDA as well as reconciliations for other non-GAAP measures discussed on this call can be found in our earnings release and will be included in our Form 10-K for fiscal year 2021.
I would 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 fourth quarter and full year earnings call I'll start on slide four of our earnings presentation with some highlights from our fourth quarter results. We had another very strong quarter of growth as we delivered net sales of $352 million, an increase of 35% year over year.
And adjusted EBITDA of $106 million, an increase of 43% year over year, we achieved nearly 170 basis points of margin expansion returning to greater than 30% adjusted EBITDA margin, despite continuation of inflation and supply chain headwinds during the quarter. We were also able to further strengthen.
The balance sheet in the quarter deleveraging to one seven times.
Support current and future growth investments as part of our balanced capital allocation strategy.
The strong fourth quarter results capped an incredible full year for Hayward and its first as a public company.
I would like to take this time to acknowledge the entire Hayward team for their tireless efforts to meet market demands. Despite many challenges I'd also like to thank our suppliers and trade partners for their support and dedication, which allowed us to achieve incredible growth and strengthened our market position in the very attractive pool industry.
Turning to slide five for the full year, we achieved net sales growth of 60% to close to the full year at just over $1 4 billion as we executed on a number of growth levers such as smart pad conversion increased market adoption of new products and expansion of our customer base all of which were.
We're supported by Hayward's investment in capacity and distribution, resulting in higher output levels and driven by strong secular trends in outdoor living.
Record adjusted EBITDA of $422 million was an increase of 82% year over year.
Hayward strategic manufacturing footprint operational capabilities and vertically integrated systems are key differentiators, allowing us to successfully operate in periods of high demand and disruption as seen over the course of this past year.
In addition to these key Differentiators, we were able to navigate effectively through the inflationary environment by successfully implementing pricing initiatives to soften the impact of rising prices across our cost base. All of this combined together has allowed us to not only increase output, but achieved significant margin expansion.
With our adjusted EBITDA margin expanding by more than 360 basis points for the full year to 31%.
Turning to slide six I would like to highlight in more detail the drivers of our growth in 2021 and beyond as we expect these drivers to continue supporting sustainable growth across the pool industry. In 2021, we saw our proprietary omni control App drive accelerated demand for higher value Iot products, especially.
In the aftermarket upgrades and replacement markets, which represents roughly 80% of our sales as demand for Iot products and technologies grow. So does the omni apps user base as the pool is the centerpiece of the backyard.
In the year, we saw omni users increased by almost 50% compared to the prior year, we focused our commercial team on channel development and new customer acquisition. This resulted in our totally Hayward partners base growing by more than 20% compared to prior year.
The growth comes as we introduced field based business development roles focused on increasing our dealer base and market adoption of Hayward products and broadening our omnichannel capabilities with expansion of our E Commerce platforms Hayward's innovation and technology played a major role in the recent growth as a market leader.
Our engineered products achieved significant growth in the key segments of controls standardization as well as energy efficient pumps and OLED color lights, delivering simple to use environmentally sustainable solutions in Q4, we enhanced our offerings and capabilities with the acquisition of three technology companies.
All of which will join our omni control ecosystem. Thanks to its modern architecture on.
On slide seven ill discuss the powerful smart pad conversion taking place in our industry led by omni automation systems Omni is at the heart of the smart pad, creating the polls for Iot enabled devices the power and simplicity of use has driven connectivity of a broad array of.
Technologies with the top five growth categories in the industry being led colored lights controls variable speed pumps heaters and standardization.
Hayward's growth in these categories has outperformed the industry.
A quick comment on heaters, which has received a lot of attention as you can see heaters have grown but theyre not tops on the list, but we do appreciate the role they play in extending the swim season for pool owners by up to 50% in some geographic markets and thereby the increase use of all equipment on the pool pad, which accelerates the repair.
Replacement and upgrade cycle on those tools. These high growth products are transforming the way people enjoy their pool and backyard living and Hayward is leading the way with progressive launches of new products or upgrades to this connected ecosystem.
Moving now to slide eight we focus on a number of key aftermarket conversion upgrade opportunities for each of the three categories shown controls salt chlorination and variable speed pumps, we compare the take rate at time of new pool construction to the current level of aftermarket penetration, we believe in the premise that existing.
Pool owners get educated as to the merits of these compelling technologies would desire the same benefits. Our sales teams are working with trade professional to promote these exciting new technologies as aftermarket upgrades occur moving to the aftermarket to new construction penetration in these three categories alone.
It's a market opportunity of nearly 6 billion.
On slide nine we built upon the previous slide which highlights key new technology adoption at the point of new construction or a full scale remodel.
These new smart pad pools of course at many other technology choices, including water features led colored lights multiple pumps and heater solutions. The difference between a smart pad and our legacy lower technology non automated pool is typically around $7000 for the equipment manufacturer.
Given a typical pool has a lifetime of around 30 years and in equipment replacement cycle. Every 10 years. There is compelling annuity stream associated with the conversion one which we feel is very positive for our industry, providing future growth. This.
This opportunity is a key focus for our sales and marketing teams as we work with trade professionals to execute the vision. Finally on slide 10, I'd like to briefly discuss our M&A strategy, which focuses on core pool products or technology tuck ins as well as backyard Adjacencies. We recently closed on three businesses.
Which complement each other and further leverage our hayward's, leading omni controls technology to increase the ambiance pool spa and backyard with a variety of novel water features all of which benefit from our led lighting technologies with that I'd like to turn the call over to IV and Jones will discuss our financial results in more detail.
Thank you Kevin and good morning, I'll start on slide 11, all comparisons will be made on a year over year basis as Kevin mentioned earlier, we are pleased with our fourth quarter results and the continued demand and ongoing adoption for all food products.
We are seeing throughout the channel, particularly our increasing suite of connected smart pad and lifestyle products supported by continued strong operational performance in a very challenging environment net.
Net sales for one full quarter of fiscal 2021 increased $91 7 million, a 35% to $352 4 million. The increase in net sales was primarily the result of 22% higher volumes, mainly in residential pool equipment enabled by our ability to.
Increased production capacity to keep up with demand globally.
Global capacity constraints.
Daily net sales in the quarter with $5 9 million was elected weight behavior.
Net sales in the quarter further benefited from a 14% net points impact over the prior year period with foreign currency effects of approximately flat over the comparable period.
Gross profit in the fourth quarter increased to $165 million, an increase of $48 million.
41% year on year gross profit margin was 46, 9% an increase of 188 basis points.
The increase in gross margin as a result of manufacturing leverage on the increased output. The initial effects of pricing actions announced in 2021, which were necessary to offset the inflationary pressures in raw materials freight and higher import duties.
And reduced inventory reserve expense.
Adjusted EBITDA increased to $105 $7 million in the fourth quarter, representing an increase of $31 $9 million of 43%.
And adjusted EBITDA margin expansion of 169 basis points to 30% as a result of the higher volumes and improved operating leverage across both on manufacturing base on operating expenses.
We are particularly pleased with the improved strength of our balance sheet at the end of the quarter with net leverage reduced to one seven times from five two times at the end of the prior fiscal year.
Now turning to slide 12, I'll discuss our full year results.
For the full fiscal year 2021, net sales increased 60% to 1 billion 401 $8 million driven primarily by a 50% increase in volume, mostly due to higher sales of residential pool equipment, an 8% favorable pricing.
And a 2% favorable foreign currency effects.
The increase in our lifestyle product categories grew 84% year on year and core operating equipment grew 48%.
For the full fiscal year 2021, gross profit increased 65% to $655 $8 million and our gross profit margin increased to 46, 8% represented an increase of 143 basis points compared to the prior year, primarily driven by.
Net sales manufacturing leverage favorable mix the stronger growth of higher margin North American sales, partially offset by the inflationary increases from raw materials.
Hi, <unk>.
We took proactive measures throughout 2021 to address these inflationary pressures not only through managing price, but by leveraging our manufacturing footprint and disciplined cost management.
Also these initiatives as being not only the protection of our structural gross profit margin, but the expansion in this margin and one of the most challenging inflation in periods over the last 40 years.
For the full fiscal year 2021, adjusted EBITDA increased to 82% to a record $421 $7 million and adjusted EBITDA margin of 31% represented an increase of 363 basis points compared to the prior year.
This is a full year structural margin milestone in our history and it reflects the tremendous amount of work to improve our sales mix manage inflationary pressures achieve operating leverage across our installed manufacturing base as well as operating expense leverage and servicing the increasing in recurring aftermarket.
<unk>, which represents approximately 80% of all sales in 2021.
I will now discuss our reported segment results for the quarter and for the full year.
As a reminder, he was operational and management structure is aligned with key geographies and go to market strategy resulted in two reportable segments, North America, and Europe and rest of world.
Okay, Let's turn to slide 13 in North America net sales for the fourth quarter increased approximately 40% to 297 6 million. The increase was driven by 24% higher sales volumes, 15% favorable price impact and 1% favorable currency effect.
Gross profit for the fourth quarter increased 42% to $142 1 million.
Gross margin expanded 73 basis points to 47, 8% driven by the net price increase.
Improved manufacturing leverage and additional cost savings, partially offset by supply chain conditions.
Segment income in the fourth quarter increased 70% to $92 9 million follows adjusted segment income increased 53% to $103 $2 million and adjusted segment income margin increased 300 basis points to 34, 7%.
Turning to slide 14 for the full fiscal year, North American net sales increased 64%.
So $1 billion $169 million, resulting from 55% higher sales volumes, 8% favorable price impact and 1% favorable currency effect gross profit increased 67% to $559 million and gross margin expand.
With 79 basis points to 48, 2% segment income increased 110% to $359 9 million with adjusted segment income increased 92% to $396 4 million, yielding an adjusted segment income margin of <unk>.
34, 1%.
Let's go to Europe , and rest of World turning to slide 15 for Europe and rest of World net sales for the fourth quarter increased 14% to $54 8 million. The increase was due to 11% higher sales volumes, 7% favorable price impact, partially offset by negative currency effects.
4%.
Gross profit in the quarter increased 34% to $23 $3 million gross margin expanded 630 basis points to 42, 5%, primarily driven by favorable product mix and volume leverage segment income increased 114% too.
$21 $4 million.
Adjusted segment income increased $4 $6 million to $16 4 million.
Yielding an adjusted segment income margins of 29, 9% an increase of 540 basis points.
Turning to slide 16 for the full fiscal year, Europe and rest of World net sales increased 43% to $249 million comprised of a 33% increase in sales volume, 4% favorable price impact and 6% favorable currency effects.
Gross profit increased 55% to $96 8 million and gross margin improved 323 basis points to 42%.
For the full fiscal year segment income increased 92% to $59 $2 million with an adjusted segment income increased 79% to $61 1 million, yielding an adjusted segment income margin of 25, 4% an expansion of 510 basis.
Once.
I'd now like to make a few additional remarks regarding hayward's financial performance below the gross profit level, which are not covered in the presentation.
Selling general and administrative expenses during the fourth quarter increased $1 $8 million or 3% to $60 1 million.
Primarily driven by increased expenses in distribution and variable compensation as a result of the higher volumes, partially offset by insurance claim proceeds related to the fire incident of a younger Spain facility earlier in the year.
As a percentage of sales SG&A decreased to 17, 1% a decrease of 532 basis points driven by improved operating leverage for.
For the full fiscal year, 2021, SG&A increased 37% to $267 $3 million compared to the prior year period.
As a percentage of sales SG&A decreased to 19, 1% an improvement of 323 basis points compared to the prior year, primarily due to the increased productivity and operating leverage experienced business.
Research development and engineering expenses during the quarter increased $5 million of 9% to $6 $7 million, reflecting continued investment into new product programs for all of 2022 launch period.
As a percentage of net sales on D&A decreased to one 9% from two 4% in the prior year period for the full fiscal year 2021 on D&A increased to $22 9 million, a 14% increase compared to the prior year period as a percentage of net sales audience.
<unk> decreased one 6% compared to two 3% in the prior year.
Operating income increased by $37 $7 million on 90% to $79.
$5 million in the fourth quarter. This increase in operating income was driven by higher net sales and operating leverage partially offset by increased cost of materials and shipping costs.
And for the full fiscal year 2021, operating income increased by $193 4 million to $318 million or 155% increase compared to the prior year.
Net interest expense decreased by 56% to $8 6 million for the fourth quarter 2021, and by 18% to $63 million, which includes debt extinguishment expenses for the full year 2021.
Primarily due to debt repayments in the first quarter of 2021 and lower interest rates as a result, the second quarter 2021 amendment to our credit facilities.
During the quarter, we incurred an income tax expense of $14 $3 million compared to $6 6 million for the prior year period and.
For the full fiscal year 2021, when we incurred an expense of $56.
$4 million, an increase of $41 $9 million compared to the prior year, our effective income tax rate decreased to 21, 7% for fiscal year, 2020 one from 'twenty five 1% for fiscal year 2020, the lower effective tax rate benefited from previously that you had foreign net operating losses.
Yes.
Our benefit realized by the exercise of stock options and the tax benefit associated with the exit from early stage product business all of which are considered discreet items.
For the fourth quarter of 2021, net income increased $43 $9 million or 222% to $63 7 million and for the full fiscal year 2021, net income increased 371% $203 $7 million.
As mentioned earlier net leverage as of December 31, 2021 was one seven times compared to five two times as of December 31, 2020. This was facilitated by strong cash flow generation to pay down debt as well as robust growth in our full year adjusted EBITDA.
For the full year ended December 31, 2021 cash flow from operations was $187 million compared to $213 8 million during the prior year period.
There was a cash use of $98 3 million for.
Our working capital compared to a cash source from working capital in the prior year period of 98 8 million investing activities for the full year were $48 8 million.
Primarily comprised $26 2 million in capital expenditures and $21 $5 million to fund acquisitions.
In the prior year investing activities was $13 million, primarily comprised of capital expenditures.
Total liquidity at the end of the year was $394 $7 million inclusive of $265 $8 million of unrestricted cash on hand, and $128 $9 million available on our revolving credit facilities.
Given our strong cash flow profile available liquidity.
When shall reduction in net leverage below our target range of two to three times, we have the flexibility to fund organic growth initiatives.
M&A and return capital to shareholders and with that I'll now turn the call back to Kevin.
Thanks, Ivy I'll pick back up on slide 17, we remain committed to the importance of ESG to our stakeholders in our business and are driven by our core values. We've continued to focus on the energy consumption throughout our operations as well as making sustainable products a key focus of our new product development roadmap, we are committed to.
Boating, a diverse and inclusive workplace and we pride ourselves in our strong company culture and recently completed our global employee engagement review I am excited to announce later this year Hayward will published its inaugural ESG report outlining our priorities and commitments with associated metrics for the business.
Lastly, our commitment to community remains a priority.
And we recently became a platinum sponsor of the step into swim charity organized by the pool and Hot Tub Association. The association use its resources to provide swimming lessons and access to pools to underprivileged children, who wouldn't normally have these opportunities. The charities mission is to create 1 million more swimmers and at Hayward works.
<unk> to be part of realizing that goal.
On slide 18, we transition to our outlook for 2022, we continue to be very positive about the health of the overall pool industry strong secular trends have significantly raised the appreciation for the backyard of which pool as the centerpiece. In addition, we continue to see favorable economic data that supports health.
<unk> levels of new residential construction and remodeling activity. These positive economic factors are accelerating growth in both new pool construction and the aftermarket early indications suggest new construction grew approximately 25% year over year with 120000 in ground pools are.
<unk> remained bullish about 2022 as they carry strong order files into the new year and.
And aging pool stock supports future aftermarket sales, which made up approximately 80% of total sales in 2021 as repair replace and upgrade makes up 65% of the sales mix. The chart on the lower rate reflects the 2021 growth of lifestyle products incorporated onto a smart.
Pad, which outpaced other core products as referenced in my earlier prepared remarks, we expect this trend to continue into 2022 as a key source of growth.
Wrap up on slide 19, and discuss our outlook for the full fiscal year 2022.
We expect to grow net sales in the range of 9% to 12% compared to 2021 comprised of a combined price and volume growth range of 11% to 14%, including the impact of two fewer trading days in 2022, partially offset by unfavorable FX impact year on year.
This guidance reflects strong carryover demand conversion of current order file pricing benefits and ongoing product adoption, we expect to deliver adjusted EBITDA in the range of $460 million to $475 million for the full fiscal year 2022, a growth range of 9% to 13%.
Year over year in summary, we continue to be confident about the underlying demand trends in the market hayward's position within the market and the opportunity for Hayward to expand upon its achievements in 2022 and the years to come.
With that we're now ready to open the line for questions.
Thank you and as a reminder to ask a question you will need to process timeline on your telephone do we draw. Your question you May press the pound key.
When you start to limit your questions to one primary and one follow up one moment. Please for our first question.
Yes.
And your first question comes from the line of Jeff Hammond from Keybanc capital markets. Your line is open.
Hey, good morning, guys good.
Morning, Jeff Good morning, Jeff.
So just on the sequential margin improvement.
Maybe just talk about.
What were the big drivers and then just on supply chain, what Youre seeing there in terms of what's getting better what's still really challenging.
Yeah, I'll take that initially Jeff as you saw in the fourth quarter, we had good volume growth of 22% and we started to see.
Operating leverage come through the business at a higher rate I would say Furthermore, the price realization in fourth quarter, which we had communicated would come did come.
We realized a collective price impact of 14% from the initiated price increases we've announced earlier on in the year.
There was a little bit of FX.
Headwind developing in the business, but no major concerns for the fourth quarter results I would say in terms of the.
The supply chain John take that.
Kevin.
Peter almost Ken.
Supply chain I would say, we've seen some improvement Jeff around steel some commodity resins packaging and we're starting to see a bit of relief on the freight side.
Pressure is still pretty high on the broad base of electronic components, some of the specialty metals, which go into some.
Salt products for US and then there are still some resins that are better bottlenecking. So that's kind of the the landscape from a commodity standpoint on where we're seeing some improvement.
And still are still fighting the good fight on some of the others.
Okay, Great and then just.
Maybe maybe on the 11% to 14 kind of volume and price growth kind of unpack, how youre thinking about kind of market growth price and outgrowth.
And that number thanks.
Yeah, I mean, you've heard others in the industry talk about where they see the market growth.
We believe our 11% to 14%.
I'll now on our base business represents good growth against the piece that we clearly demonstrated we have outgrown the PSM in 2021, and we believe in 'twenty two.
It's going to be.
A continuation of a theme here in terms of overall price.
Yes.
The majority of the guidance, we've given is price year over year. There is some mid single digit volume growth at the high end of the guidance range that we gave but just to be clear the price diamond start we're giving here today does not include the surcharge that we instituted at the beginning of this this year.
If that surcharge continues to be necessary in 2022.
Then we will update the markets on the inclusion of that surcharge, but at this current time there is no full year impacts of the surcharge in our price guidance.
Yes.
Okay. Thanks, a lot.
Thank you. Your next question comes from the line of Nigel Coe from Wolfe Research. Your line is open.
Thanks.
Good morning, everyone I'll kind of kick off with the price volume mix question as well, but I just wanted to so it looks like.
Certainly at the at the low end, you Bacon and no phoneme mix I'm just wondering.
I don't know if that if you get specific here, but would it be downplaying with unit volumes up mix.
And any kind of them.
The market because you had pretty strong dealer conversion in 2021, and I'm thinking that you'd probably get some benefit from that in 'twenty. Two so it seems like share gains have reasonable, but just wondering how you think about that.
Yeah.
Let's talk about that I would say firstly in the 11% to 14% combined price volume, even though at the low end there is positive volume growth year over year.
And as I just mentioned at the upper end of the range. The volume growth is close to mid single digits.
So we are expecting another growth year volume metrically in 'twenty to over 21, recognizing we just completed a historical step up in our business, increasing our volume in 2021 by 50%.
And so coming out into 'twenty, two still indicating a good volume growth coupled with <unk>.
Sound price on the topline that say.
That's a reflection of how this industry's inflected.
And double digit growth at the midpoint of our guidance coming off the year. We did last year I think is a very encouraging initial view of 2002.
Yeah No question about it.
Terms of thinking about.
How we entered the year.
I'm guessing, it's going to be EBIT, the symmetrical to override a mirror image of Av.
Of last year, just wondering how you're done and impact some of the Texas storm last year when your competitors talked about that and the fact that I was wondering what impact you're seeing from that.
Yes, I mean, Texas, certainly benefited us in the broader industry Nigel.
We haven't really quantified that publicly but it really wasn't just a one year thing I think that it will continue to play out as as those markets continue to you know I think the triage, but they may not have necessarily done the complete upgrade.
<unk> pads, so I don't necessarily think its just a one year phenomena.
Our volume guidance has lots of pluses and minuses.
We've accounted for the for the Texas situation.
To whatever extent, we will step over that and continue to post volume growth.
In 2022, and as you say the year's starting out pretty similar to 2021 with some elevated backlogs.
Starting the year and we're working hard to to converse that that backlog.
Into product in the channel and for our dealer networks.
Okay I'll leave it there.
Thanks, Doug.
And your next question comes from the line of Brian Lee from Goldman Sachs. Your line is open.
Hey, guys. Good morning, Thanks for taking the questions.
Maybe just shifting gears, a little bit to that to the margin side of things.
Europe and rest of world margins I might have missed this but.
Quite a bit higher than you've been tracking at historically and through the balance of 'twenty. One I know there was maybe a reversal of an insurance settlement that helped but even if you strip that out it seems like.
Segment income margins were quite a bit higher than normal and sort of in the same range of the Americas. How should we think about that kind of what were the drivers in <unk> and then as you think about.
2022 guidance sort of what's what's embedded in that in terms of margins for that particular segment.
Yes, it's good I mean, we're very pleased with the way that the European and rest of world margins are beginning to develop recognizing that in Europe and rest of world. There is a bit of a mix of business you have continental Europe , Australia, and our export business out to the middle East and the Mediterranean region.
Lots of business that Mediterranean business that really has a good strong margin profile attachment to it and we started to see activity improve throughout.
The latter half of last year as those markets began to open up and so that contributed to a mixed positive effect in the margin, but generally speaking there are some other structural benefits of the European market.
Our European team are doing.
They have institute to price management, the more appropriately leveraging our local manufacturing base and they've obviously got cost control coming through the income statement.
<unk> always said that the aim here is to close the margin in our Europe and rest of world closer to the North American and we were very pleased with the way they step forward in the quarter to post up close to 30% adjusted segment income margin in the quarter and for the year now trailing up into the mid Twenty's, which is good.
<unk>.
In terms of how they look.
For 2022 again.
Another progressive step in margin development in 2002.
That price actions price management policies will continue and we expect them to take another step up.
In 'twenty, two, albeit it will be more moderate than we saw in 'twenty one.
Okay Fair enough I appreciate all that color and then maybe just kind of a bigger picture question.
We are hearing.
Pockets of labor availability availability issues, what are you kind of hearing on the ground with respect to dealers in.
If that is going to be any.
Incremental headwind as you kind of move into into this year.
It's a great question.
I think I'd, just look backwards first Brian to say that I think the.
The industry did a great job of expanding capacity in 2021 for us as an industry to have.
Grown 25% give or take in.
In new pool construction clearly.
It was more labor operating in the backyard.
We know that our dealers are continuing to look at capacity expansion to be able to meet this this homeowner demand for for new pools, as well as Remodels, which we haven't really touched on in the call here, but it's really much the same contractor doing both of those projects. So we know that there.
Pushing.
And we are we are optimistic based upon what they're what they're reporting back that theyre going to be able to find labor.
Is it that long ago that we were building a lot more pools I think those contractors found their way into other professions and and our dealers are are trying to bring them back to be able to meet this surge in demand. So.
We know the efforts being put in and we as an industry.
Our confidence that they'll be able to continue meeting this demand.
Alright, Thanks, guys I appreciate it thank.
Thank you thanks, Brian .
And your next question comes from the line of Mike Halloran from Baird. Your line is open.
Hey, good morning, everyone.
Good morning.
First first just on the cadence through the year, how are you thinking about front half versus the back half how that compares to normal seasonality and any kind of volume or price discrepancies.
Growth in the first half from such growth in the second half.
Yes, we are beginning to see a somewhat of a return to normal seasonality as we step into 'twenty. Two I mean, typically Q1 and Q2 in Q3 of the low season volume periods for the channel.
We then to 'twenty two with a very strong order fall were concentrated in Q1 and.
In our production units to fill out some of the the hold on certain product lines that the channel is demanding right now.
We do see unexpected.
<unk> volumetric period in Q2, and then we'll see how the balance of the year develops as we get into that time period, but.
Sentiment remains strong as.
And as we've started the year here.
And second question, you know inventory levels in the channel or at least a little closer to normal backlogs to record levels. Maybe just reconcile those two what do you think it means the risk from a cancellation perspective or do you look at this more as just really good visibility as you work through the year.
And it says more about underlying demand.
I think it's more of a latter Mike I think it's a very incredible order file.
There's been plenty of price increases that we've had to announce into the into the industry. We ran kind of a modest early buy last year.
If the channel was feeling as if they had too much or unhappy with their inventory turns I think there was opportunity for them to just slow the bookings or even cancel and we've seen negligible cancellations through those through those time periods. So we feel very good.
About the credibility of that order file as for inventory levels. They are getting back to more normal levels.
Good turns on it we don't think it's elevated.
But what I will acknowledge is I think that theres. Some theres some shortages of some particular skus.
We'd like to be able to solve and were working hard here at the beginning part of 2022 to try and rectify.
That whether it's whether it's some salt or other products, we know that it's not a perfectly balanced.
Inventory from a SKU standpoint, but we're working hard to solve that.
I appreciate it thank you.
Sure.
And your next question comes from the line of Ryan Merkel from William Blair. Your line is open.
Hey, guys just wanted to follow up on a couple of things. So first you mentioned the surcharge that you put through in early January that's not in the guide.
If you did get that how much would price be up in 2002 for the full year.
Well, we talked about the surcharge, we instituted an 8% price increase on core Skus and.
Slightly higher on specialty Skus about 8% bifurcation between price list increase of 4%.
An additional 4% to us John So the majority of that lack of 4% is not included within the guidance.
Got it okay.
Sort of sounds like if you like if you get that price could be up somewhere in the 10% range for full year is that the right ballpark.
Yes, if you look at the combined guidance W Gibson, 11% to 14%.
Sure.
With that additional price, yes, it would be at that level or slightly above.
Okay.
And then.
At the low end volume up low single digits feels pretty conservative to me how do we square that up just with the order file mix being positive share gains.
Yeah that was good.
I think you're right Ryan I mean look we've got a level of conservatism built into our forecast that we feel very positive about the soft but yet to your point, that's still a very strong waterfall that we have on the business right now.
As we step into the the primary.
<unk> period of Q2, we'll get a better read on how the balance of the year as is building, but it's fair to say that the guidance were giving right. Now does have an element of conservatism and we don't want to get ahead of ourselves right out of the gate here, but.
We will update you guys as we get throughout Q1 and into Q2 visibility.
Got it.
Get it to weather is always a wildcard so until we get there but last one just quick are you assuming any channel load in the 'twenty two guide.
We are not over over the exiting of 2021 is that the basis of your question Ryan.
Yeah.
Yes.
We're really not calling for.
At this point additional inventory in the channel at year end 2022.
We will see how the year plays out if if retail demand and pull through.
Continue on the robust pace, we've seen in the last two years in absolute terms there could be some increase to support the forward looking days on hand, but at this point, we're not assuming additional channel loading.
Yeah.
Thank you and your next question comes from the line of Josh Steve.
<unk> from Morgan Stanley Your line is open.
Hey, good morning, guys.
Hey, gentlemen.
Just on the slide eight I think it was.
At the aftermarket installed base penetration.
I guess, so it's still pretty low on maybe what's out there in the field, but how does that look in terms of the penetration or the mix on current sales like are we.
We're already at a decent run rate on what's going through today.
Or does that have a lot more room to move higher as well.
I think that salt has has additional growth opportunity to it to Josh.
Kind of thinking up slide seven <unk>, So certainly grew.
The fifth largest growing category last year.
Which were which was great for the industry, it's a great experience for the pool owner.
But I do think that that.
At that particular product has some additional convergence opportunities for it too.
To start inching closer to this take rate.
At time of new construction.
I would further add that I would further add that we're continuing to invest in our audio need progress specifically around standardization.
And we're introducing a new low salt product.
That will continue to.
To fuel our growth in that particular category.
That's good.
Any sort of way you could dimension how that.
That mix has evolved here over the past call it year or two.
Maybe relative to those kind of.
<unk>, 30%, 35% installed base penetration numbers again, I'm talking about where your own kind of sales run rates are on that mix like is the double or has it gone up by 10 points sort of order of magnitude would be helpful.
Youre talking our specific growth in that and Thats all category more about like the product mix.
Kind of the higher spec stuff across the various categories was 30%.
And in 2019 or 2020 is at 50% today is at 80% today.
Looking at it from that perspective, but.
However, you want to phrase it is it would be helpful. Yes, I would say in general that we're seeing.
Kind of a mix up when it comes to these more lifestyle products people are with the with the introduction of the omni system that is absolutely pulling along some of these higher feature.
<unk> sustainable products, along with it onto the pads. So I would say over the last couple of years, we've absolutely seen.
Kind of a mix up.
The higher performing higher priced skus.
Being installed on the pads.
Got it and then.
Just as it pertains to kind of the some of this off season activity early by channel or however, you want to look at it.
So I guess what distinguishes that from.
In your mind, just sort of like a normal sale.
I think we normally associate in early buy with something a bit more kind of promotional on the pricing front, which clearly isn't happening so.
Is this just folks wanting to add inventory to make sure. They are not scrambling in April or was there some other sort of distinction whether it was on price.
Payable terms or something else that would kind of make this early buy specifically yes.
Yes, I would say early buy in general this year was really.
Targeted by Us for two for two things the seasonal markets, we have strong market position in the seasonal markets. So we wanted to make sure that those markets had sufficient product on the shelf for when spring broke this year secondly.
We wanted to make sure we had as good a market visibility on some new products that we didn't have much history on yes.
So we had their input and could build our forecast on our production schedules.
Accordingly, so that we were prepared for what the market acceptance was going to be early in these new products evolution. So those were really the two things that we targeted it was a much reduced SKU counts this year, Josh and from off from a terms and a pricing discount also.
So very much curtailed from a historical standpoint, because of the order file that already existed in our possession.
Got it that's helpful. Thanks, I'll leave it there.
And your next.
Your next question comes from the line of Joseph <unk> from CLSA Securities. Your line is open.
Hi, good morning, Thanks for taking my questions.
Right Okay.
Can you update us on your.
Your mix of R&R compared to new construction, where it is today compared to historical periods and then within R&R how.
Much as major renovation compared to break and fix.
And then how would you expect that to trend in 2022.
Yes, I would reference back to slide 18 race in the lower left corner we.
We tried to preemptively.
Address that new construction based upon the growth in the aftermarket while it grew 25% and we had a nice share in that growth it actually reduced in the overall mix from more of a 25% historically to more of a low 20%.
Of our mix so high Seventy's were rounding off to call it 80%.
Is the aftermarket and we really do break that into a couple of different categories first would be remodel which.
I'm not going to say, it's been ignored, but it certainly has not gotten the amount of attention in the last couple of years as it has historically as contractors have been more focused on the new construction, so thats call it $13, 15% or so and then the balance is really all around this broader.
Repair replace upgrade and we're starting to see.
Much more upgrades are adding some new products that never existed on the pool pad before whether that salt, whether that's a U V ozone product a heater for example, where they were operating the pool for years, but they've added that what we're also seeing is when it's time for replacement.
Most of the time people are actually going for a more current generation, which will be a higher priced higher performing a higher feature product which is beneficial.
Two to us and to the industry. So that's really how we look at the various revenue streams in our business between new kind of low 20% and the balance of it all being around the around the aftermarket.
And then just following up on the point you just made.
I think the contractor backlog for new pool construction.
Like it stretches out maybe even into 2023, how do you think about that.
For a major remodel.
As well.
Yeah I think.
The remodel I don't know when we're going to tap into that but I think the industry has.
That's an opportunity for future growth I don't think homeowners really want to shut the pool down and lose access to it. So it's as much the homeowner holding back on that as that as that pool stock is now at a historic high in that 'twenty, two 'twenty three year range as well as I think.
Most contractors are turning their attention to new construction, because frankly, it's a little bit of an easier project for them to start with.
With a pristine.
Our lawn in the backyard and put a new pool in as opposed to tearing something down and rebuilding it so.
Think that this will be.
An opportunity that the contractors in the industry will be able to mine in the in the out years.
And then R. One.
And final quick one on price.
He started a 14% price increase in <unk> and it sounds like.
Maybe in the 10% range for 2022 can you talk about the.
What's embedded for like for like price increases compare it to the mixed benefit of shifting to some of these higher priced categories.
I would say still the majority of the price increase is associated with real price index enhancement.
There is obviously.
Favorable price mix effect built in.
A quick reference point or an easy example, there is a variable speed pumps year.
Year over year, we're going to take the full 12 months benefit of the variable speed pumps inclusion.
Whereas we only put half of the year in 'twenty, one with variable speed pumps, which is a higher priced pumping comparison to its predecessor single speed pumps.
But still right. The short answer is the majority of the price increase that we've indicated is that price index.
Okay great.
Thank you and your next question comes from the line of <unk> call from Wolfe Research. Your line is open.
Thanks for the follow up actually my question was actually around beverage comp just wondering where the mix is the way you see that mix and trying to this is the 21 and then just curious if any intel on what the mix of the installed bases of single speed business Aerospace.
So yes, so clearly when you think about the pump category as a whole for us in 'twenty one.
Pumps represented about 12% of our overall product line.
Still as you as you know about a half a year's worth of single speed Noncompliant business in that prior to the legislation change or the regulation change in mid year.
Like for like a pump as a pump, but the quality of the pump sale in 'twenty two will be higher so we do expect.
A mix up of pump activity will actually take it up to about 13% of our overall sales volume.
In 2022, just based on natural growth that we've indicated in terms of value.
We expect the business to to also grow.
So 1% in overall mix impact from the higher value variable speed pumps.
And musical base.
So I actually don't know the assets the installed base of variable speed pumps across the group had today.
Kevin.
I think it's about 30, it's about one in three I would say Nigel.
Okay.
That's very much speed. So yeah, we we've enjoyed a long history of singles.
Single speed success, and we're very excited that the industry is is.
Is converting to a higher price more efficient a variable speed option.
Great. Thanks.
Sure.
Thank you and we have reached the end of our Q&A session I would like to hand, the conference back to Mr. Kevin Halloran for any closing remarks.
Great. Thanks, Ludy in closing I'd like to thank everyone for their interest in Hayward as you can see our business is producing phenomenal operational and financial results and we're very well positioned to continue to generate growth for all stakeholders in 2022 and the years ahead.
Reach out to our team if you have any follow on questions and we look forward to talking to you again about our Q1 performance during the week commencing April 25th.
Yes.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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