Q1 2022 Hayward Holdings Inc Earnings Call
Okay.
[music].
Yeah.
Okay.
Good morning, and welcome to Hayward and Holdings first quarter 2022 earnings call.
My name is Austin and I'll be the moderator 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 question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
Please note that this conference is being recorded.
Now ill 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 first quarter 2022 earnings press release. This morning, which has been posted to the Investor relations portion of our website at investors Hey, with Dot Com, where you can also find an earnings slide presentation that we'll reference during this call.
I'm joined today by Kevin Holleran, President and Chief Executive Officer, and <unk> Chang Senior Vice President and Chief Financial Officer.
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 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 for the company's earnings release posted on the website will be provided in our Form 10-Q for our first quarter of 2022 as filed 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 considered in isolation or as a substitute for results prepared in accordance with GAAP rec.
Reconciliations of net income calculated under U S GAAP to adjusted EBITDA as well as reconciliations for the non-GAAP measures discussed on this call can be found in our earnings release and will be included in our Form 10-Q .
I'd now like to turn the call over to Kevin Hogan.
Thank you Stuart and good morning, everyone. It's my pleasure to welcome all of you to Hayward's first quarter earnings call here at the end of the quarter, we celebrated our one year anniversary as a public company I'd like to personally thank our employees dealers channel and vendor partners for making its inaugural year a great success as they look.
Look back over the last 12 months, we have many accomplishments to be proud of we have executed on key strategic initiatives and made investments in our product portfolio, both organically and through M&A that have advanced our reputation as the innovative market leader.
Knowledge with.
We significantly strengthened hayward's position in the market by leveraging our supply chain advantages and vertically integrated production model. This has proved especially beneficial in the current environment, resulting in share gains the hard work of our teammates across our global organization have led to consistently strong financial and operational performance.
We look forward to many years of success as a public company as we continue to build the track record of performance and strive to create meaningful value for all our stakeholders.
I'll start on slide four of our earnings presentation with some highlights from the first quarter. We delivered another very strong quarter marked by net sales growth of 23% year over year to a record $410 million net sales, which was on top of an exceptional growth of 96% in Q1 of 2020.
One over Q1 of 2020.
Adjusted EBITDA grew 18% year over year to a record 126 million, yielding a 31% margin.
As outlined on slide five our performance continues to be driven by our ability to execute on the core drivers of growth digital leadership.
But conversions new products operational excellence broad channel access and environmental sustainability.
Importantly, we have a wide range of factors supporting our growth and this diversification gives me confidence as we look to expand our business in the years to come I will provide more detail on some of these items as we move through the presentation, but first let me address a key pillar of our success that being our operational excellence R V.
Vertically integrated operations and our procurement expertise have provided greater supply chain flexibility, giving us the ability to increase output while maintaining the recent improvements to our structural margin profile.
Our focus on operational excellence allows us to ensure product quality and availability despite the operational and logistical challenges most companies are experiencing.
We're also pleased to report the opening of a new facility in Europe focused on automation and standardization technologies that will help us to expand our sales in region through the more than doubling the production capacity in these product lines.
On slide six I'll focus on our Iot digital leadership, driven by the powerful smart pad conversion taking place in our industry led by our omni automation systems as well as highlight the breadth of our product offering.
<unk> is at the heart of the smart pad, creating the pull for Iot enabled devices. Our adoption rate continues to improve with the user base increase of 45%.
The power and simplicity of use has driven connectivity of a broad array of technologies with a top five growth categories in the industry being led colored lights controls variable speed pumps heaters and standardization.
<unk> growth in these categories continues to outperform the industry supported by recent new product launches, including color logic led lights, omni TL controls exceed variable speed pumps small footprint universal gas heater and Aqua rate S. Three clearing salt generator all of which are.
<unk>, our new product vitality index by 37% year over year, our complete offering provides diversification, allowing us to fully participate across our key end markets of aftermarket upgrade repair and replace the modeling and new pool construction.
Moving to slide seven I'd like to highlight that an important part of our growth strategy is the aftermarket conversion upgrade opportunities for digital chemical and energy.
There is a significantly higher take rate in new pool construction compared to the current level of aftermarket penetration for key products, such as controls salt chlorination and variable speed pumps.
Our sales teams are working with trade professionals to promote these exciting new technologies as aftermarket upgrades, we have seen greater dealer acceptance as evidenced by a greater than 20% growth in our totally Hayward loyalty program participation.
We see this as a $6 billion incremental market opportunity by simply increasing the aftermarket penetration in these three categories to the new construction levels.
On slide eight we highlight the initial spend for new key technology adoption at the point of construction or a full scale remodel and the aftermarket lifetime revenue stream.
The difference between the smart pad pool in our legacy lower technology non automated pool is typically around $7000 for the equipment manufacturer and the technology feature rich smart pad provides compelling sustainability and energy efficiency benefits to the end user.
Given a typical pool has a lifetime of around 30 years and in equipment replacement. Every 10 years. There is compelling lifetime value stream associated with this conversion one which we feel provides a long runway for growth.
This opportunity is a key focus for our sales and marketing teams as we work with trade professionals to execute the vision on.
On slide nine I will briefly discuss our M&A strategy, which focuses on core pool product or technology tuck ins as well as backyard Adjacencies Youll recall that we announced at the beginning of the quarter. The closing of three strategic tuck in acquisitions, which have compelling technologies and further leveraging hayward's.
Leading omni control solutions to increase the ambiance of the pool Spa and backyard with a variety of novel water features all of which benefit from our leading led lighting technology.
We are making good progress integrating these businesses into the Hayward family and are excited about the contribution they will make to help increasingly differentiate our leading lifestyle product portfolio.
We would expect these products to be fully launched across Hayward channel partners in second quarter with further product releases in time for the 2023 pool season as we look forward, we have a strong pipeline of opportunities that we're pursuing and acquisitions will continue to be an important component of our capital allocation.
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 10, all comparisons will be made on a year over year basis.
As Kevin mentioned earlier, we are pleased to report record results in the first quarter of 2022, driven by the continued adoption of our pool products that we are seeing throughout the channel, particularly an increasing suite of omni connected smart pad and lifestyle products supported by healthy aftermarket adoption and improved.
Operational capabilities with excellent production results in the quarter.
Net sales for the first quarter increased 23% to 410 falling from William Wallace with growth during the quarter was driven by 17% price realization, 7% positive volume growth and mix, partially offset by a 1% unfavorable impact from.
Foreign currency devaluation.
The net price impact over the prior year period reflected the accumulative impact of our previously announced price increases to mitigate the escalation inflationary cost pressures sales volume growth continues to be driven by demand for pool equipment, both in new construction and more importantly in the aftermarket.
Volume growth was achieved in North America, with Europe , and rest of world muted on the geopolitical circumstances in the region.
Gross profit in the first quarter increased to $194 million, an increase of 19% year on year gross profit margin was 46, 4% a decrease of 144 basis points.
Merrily, resulting from inflation pressure in certain commodities and freight costs as well as unfavorable foreign currency impact.
Our pricing initiatives and supply chain capabilities have been successful in maintaining the structural margin profile of our business.
But we are navigating a challenging inflationary cycle.
Main confident in our ability to operate in this environment and have implemented a price challenge at the beginning of the year to help mitigate the impact of inflation and we are evaluating the need for the surcharge to remain in place and further price increases as inflation persists.
Selling general and administrative expenses during the first quarter increased 4% to $68 $9 million, primarily driven by increased expenses in distribution.
<unk> marketing as well as increased regulatory costs as a public traded company and bad debt expense, which included Whitehorse for Washington customers. This was partially offset by lower incentive compensation compared to the prior year period, which also includes stock based compensation expenses in the <unk>.
Prior period related to the IPO.
As a percentage of net sales SG&A decreased to 16, 8% a decrease of 312 basis points, reflecting the leverage we have achieved the business has grown.
Research development and engineering expenses during the quarter increased 8% to $5 2 million.
<unk> continued investment to support business growth and product development as a percentage of net sales on DNA was one 3% compared to one 4% in the prior year period.
Operating income increased 34% to $106 4 million in the <unk>.
First quarter. This increase in operating income was driven by higher net sales and conversion to profitability.
Net interest expense decreased 48% to $9 $6 million for the first quarter compared to the prior year, primarily due to debt repayment and low interest rates as a result of the second quarter 2021 amendment to the credit facilities.
During the quarter, we incurred an income tax expense of $23 3 million compared to $15 2 million for the prior year period.
Net income increased 101% to $74 million.
Adjusted EBITDA increased to $126 2 million in the first quarter, representing an increase of 18% as a result of the higher net sales and operating income.
Adjusted EBITDA margin decreased to 38% or 134 basis points compared to the prior year period.
The decline in margin is primarily due to the inflationary impact from raw materials freight and labor as a result of higher demand and the supply chain constraints.
Now I'll discuss our reportable segment results for the quarter.
Reminder, he was 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 the globe.
Beginning on Slide 11, North America net sales for the first quarter increased approximately 28% since $346 3 million. The increase was primarily driven by a 19% favorable price impact and the 8% sales volumes gross.
<unk> for the quarter increased 21% to $163 1 million.
Gross margin decreased 252 basis points from 47, 1% due to the stubborn inflation in raw materials and freight.
Segment income increased 27% to $108 $6 million adjusted segment income increased 19% to $114 2 million, while adjusted segment income margin decreased 231 basis points to 33%.
<unk>.
Turning to Europe , and rest of World on Slide 12, net sales for the first quarter increased 2% to $64 $2 million.
Net sales benefited from approximately 8% net price increase but were partially offset by a negative 6% unfavorable foreign currency impact volume was muted due to the geopolitical circumstances in Europe at this time.
Gross property in the quarter increased 8% to $27 3 million gross margin expanded 246 basis points to 42, 6%, primarily driven by favorable price increases and favorable product and customer mix.
Segment income increased 14% to $17 million adjusted segment income increased by 16% to $18 4 million, yielding an adjusted segment income margin of 28, 7% an impressive increase of 354 basis points.
For the first quarter cash flow from operations was a use of $56 $9 million compared to a cash use of $131 6 million during the prior year period.
Also seasonal cash use of $145 $7 million for working capital compared to a cash use of working capital in the prior year period with $201 2 million.
Despite the higher sales in the quarter the seasonal cash use for working capital was reduced from the prior period due to our limited early buy program for the 'twenty one 'twenty two season in comparison to the prior to early buying programs.
Investing activities for the first quarter was $7 $5 million, primarily comprised of capital expenditures in the prior period investing activities were $4 6 million Similarly, primarily comprised of capital expenditures.
Net debt to adjusted EBITDA for the last 12 months was two times compared to one seven times as of December 31, 2021, the increase in leverage reflects the cash use to support the seasonal working capital requirement and the share repurchase which was completed in the first quarter.
By $81 million total liquidity at the end of the first quarter was $443 million inclusive of $118 million unrestricted cash on hand, and $325 million of availability on our revolving credit facility.
With that I'll now turn the call back to Kevin.
Thanks Ivy.
I'll pick back up on slide 13 at Hayward, environmental social and governance or ESG has always been important to us and we know that it's important to our shareholders as well we continue 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 strive.
To promote a diverse safe and inclusive workplace and we pride ourselves in our strong company culture.
As a recent public company, we have partnered with a third party expert to conduct a materiality assessment and identify where we have the most impact across key ESG themes there.
The results of this materiality assessment have shaped the framework to guide our strategy focused on four key pillars products planet people and principles.
Under the oversight of our nominating and corporate governance Committee of the board, we will be working to make a difference in these areas as we continue on our journey.
More recently, we initiated a global ERP conversion project to standardize systems worldwide.
We are also pleased to report continued progress on the governance side with the nomination of Ed Ward as an independent director to the board of directors subject to stockholder approval at the 2022 annual meeting of stockholders next month at.
As president of the client product group of Dell technologies and brings deep expertise in technology and leadership and we look forward to adding his skills and expertise to the board and nominating and corporate governance Committee.
We look forward to sharing our progress and local stakeholder feedback on our overall approach on slide 14, we transitioned to the sustainable trends supporting our outlook for 2022, we're very positive about the long term health of the pool industry strong secular trends has significantly raised the appreciation.
In the backyard of which the pool as the centerpiece. In addition, we see favorable economic data that not only supports healthy levels of new construction, but even stronger aftermarket activity. While we are closely tracking macroeconomic trends such as elevated inflation rising interest rates along with geopolitical developments are.
Business continues to expand we remain focused on the aftermarket opportunity and aging installed base presents which made up 80% of our total sales in 2021 as upgrade repair and replace made up 65% of the sales mix.
Growth of lifestyle products incorporated onto an omni smart pad has outpaced other core products and we expect this trend to continue as a key source of growth and finally, new pool construction growth was healthy in 2021, but remains well below historical median levels.
Wrap up on slide 15, and discuss our outlook for the full fiscal year 2022.
We are off to a good start to the year with strong performance in sales and profitability during the first quarter. Despite some broader macroeconomic uncertainty in the second half of the year, including ongoing supply chain and inflationary pressures. We are pleased to affirm our guidance for net sales growth in the range of 9% to 12% compared to 2000.
21. This is comprised of the combined price and volume growth range of 12% to 15%, partially offset by FX and one less trading day. In 2022, we also expect adjusted EBITDA to be in the range of $460 million to 475 billion for 'twenty.
22, representing growth of 9% to 13% year over year.
As I look at the longer term health of the market, we see positive demographic trends increased focus on the outdoor living space and agent pool stock and the ongoing conversion towards Iot smart pad pools.
The current dynamics of the macro environment are evolving we see home price appreciation and new demographics entering the housing market, particularly in year round markets.
With approximately 80% of sales tied to an aging existing pool base the growth in new construction over the last two years provides a visible runway of growth.
Finally, our ability to develop technologically advanced and environmentally sustainable products driving pool owners to upgrade their existing pool pad to omni smart pad further strengthens growth opportunities in the aftermarket.
In summary, we continue to be confident about hayward's position within the market and the opportunity to expand upon our achievements in 2022 and the years to come with that operator, we're now ready to open the line for questions.
Sure.
Thank you as a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
And the reason you'd like to remove that question. Please press star followed by two.
Again to ask a question it is star one.
As a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question.
We will pause here briefly ask questions are registered.
Our first question is from Jeff Hammond of Keybanc capital markets, Jeff Your line is open.
Hey, good morning, guys.
Giovanni.
So just on the guidance.
I wanted to just clarify like how youre thinking about the surcharges because I think you didn't have that 4% am I don't know, if youre, including that and just on that topic.
Is the thought that kind of change those two price increases.
Just an update there.
I would say.
As for the second part of the question, Jeff the longer these surcharges stay in place based upon the inflationary pressures that we.
Hoped or more a transitory when we implemented the long did we.
We have the need for him the greater the likelihood is that we'll roll that into the structural price lists.
Haven't yet done that we still are doing it on a month to month basis, plus the inflationary pressures are not abating. In fact, we felt more inflationary pressure through Q1 than prior price increases it necessarily contemplated yes.
Yes, Jeff in terms of the first part of your question no. The guidance does not consider the balance of the year.
<unk> of the surcharge, but again as Kevin just mentioned it is evaluated month to month.
Okay. So.
So I guess with the strong start of the year.
I mean, I guess, the view that theres, probably more pricing in there.
Is the offset here.
Youre lowering your volume assumptions within the guide.
Sure.
What are the what are the moving pieces.
Thanks.
Sure I mean in terms of the guide we're still looking for high single digit growth year on year for price and the balance of the yes. The FX is a headwind.
Also against the Euro and the other currency the Australian dollar Canadian dollar, but FX is certainly more of a headwind than we initially thought coming into the year.
In terms of volume, we're still looking for.
Good volume growth in the balance of the year. It is as we've mentioned previously for the full year mid single digits, and I think a little bit lower for the balance of the year. The math given the good start to the year.
Sure.
Okay, and then just if I could sneak one in just any change better or worse in supply chain and freight dynamics.
We were.
It's a complex question because there is a lot less moving parts as you know I would say we were we were really.
Seeing some nice improvement in material flow are also critical components, we were seeing some improvement to some specialty metals that go into our standardization product and even some <unk>.
<unk> that go into our variable speed pumps, they continue to be at elevated levels, but I would say as the quarter progressed and even as we turned into Q2 the shutdowns the quarantines in China, the port congestion in Shanghai and other ports have certainly.
Increased pressure on material flow.
And some of the pricing dynamics, so I'd say overall it feels like we're incrementally better than we were in second half of last year.
But this feels like it's like it's a week to week or a month to month.
Our process right now Jeff.
Okay. Thanks, guys.
Thank you.
Sure.
Our next question is from Rob Wertheimer from <unk> research.
Rob Your line is open.
Rob Your line is open you May proceed.
So why don't we try the next one in line, maybe Rob can come back.
Okay.
Our next question is from Ryan Merkel of William Blair.
Ryan Your line is open.
Hey, guys. Thanks for taking the question.
Hey, Ron.
First off just high level are you seeing any signs of consumer spending slowing down or are any cancellations in the orders to bottom end of guidance here.
We really haven't seen.
So were in pretty close contact with both channel partners and our.
And our dealers and worked on the books and.
New lead generation of both remain strong despite plenty of our price increases.
And obviously the channel inventory position has gotten has gotten better we're in a much better position.
We're still seeing robust demand and the order file.
On the books is still.
Paul.
Very strong and seems to be.
Pressure tested and product is going to be installed in the backyard.
Got it.
Great to hear and then my second question is on gross margin. It sounds like inflation is running a little bit hotter. As you mentioned so are you still going to see year over year gross margin expansion in the second quarter.
Yes.
Ryan It's time, and we would expect that I mean, we've as we've mentioned before our pricing actions three of them accumulating up to over 20% coming into the year, we did make some concessions on price with certain fixed price arrangements those roll off.
I pretty much at the beginning of Q2, so we will get.
Hi products contribution in Q2 than we did in Q1 and that should be margin accretive.
Perfect. Thanks, guys I'll pass it on.
Okay.
Our next question is from Brian Lee from Goldman Sachs.
Ryan Your line is open.
Hey, guys. Good morning, Thanks for taking the questions.
Maybe first one just a follow up to the prior question.
Gross margins up into Q pricing actions reading out I understand all that but if I back into.
The midpoint of EBITDA guidance and the midpoint of revenue guidance.
And incorporating the strong start to the year here in Q1 it implies.
EBIT margins kind of Flatlined two are down 50 to 100 bps for the rest of the year. So.
One else happening.
Below the gross margin line, where youre not reading out some better.
EBITDA margin expansion metrics later into the year or is that something we just see.
Into the second half per se on ebay.
EBITDA.
Yeah.
Good question I mean, what would change.
Pleased with the start to the year a great margin.
In Q1 higher than the full year last year.
Fair to say that the macroeconomic climate, both in the U S and maybe a bit more particular in Europe and rest of the world is a bit more difficult.
We had started the year its something you have to deal with.
We remain cautious about the second half of the year, we want to see the 'twenty two season complete out strong and every indication is it is strong.
So we'll get a view that on the starting of the new 'twenty three season, as we get to the end of Q2.
This year and into Q3, I'd say the underlying growth drivers remained a strong secular trends remained strong as Kevin mentioned in.
Everything is pointing to.
Strength in the industry and strength.
Full haywood and.
In terms of our guidance really reflects just a cautionary view.
On how the second half may develop.
As I said before prices still in the high single digit growth year on year before.
The continued implementation of the surcharge FX is a headwind.
But in terms of the structural margin and the EBITDA line in the second half to date represent a little bit of view of caution to.
Given the given the current climate.
Yes.
We feel good about where we're at and we'll update you guys as we come out of Q2.
Okay, great Yeah that makes a lot of sense.
And then just one more question from me and I'll pass it on I might have missed this I hopped on late but.
Can you kind of speak to where you are seeing.
Full build there.
Backlog trends, maybe on I think in the past you've quantified those and are you seeing.
Any sort of shifts.
This environment.
Mortgage rates going up and maybe some additional pressure showing up in the new home part of the market just any.
A high level commentary around.
Bill there, though the trend thank you.
I'd say, what we're hearing is still a really strong book for 2022 most builders are quoting out into 2023.
A recent report published by PK data have you had a lot of it.
An interesting statistic Senate Bill one that I really focused on was this increase in time between a homeowner signing and until the job starts of the shovel is as put in the ground that has increased appreciably I think that speaks to.
Certainly the labor constraints that we're still dealing with that said the industry has grown kind of 20 plus percent and new construction each of the last two years and based upon what we're hearing Brian the interest is still there the demand is still there.
But theres a lot of things may be out of our control that <unk>.
After into that not least of which is labor weather.
And.
Some of this some of this interest rates and inflationary pressures.
Most of the World is feeling right now.
But we feel that there is still wind.
At the industry back from a new construction standpoint.
I'll, just pivot for a moment and say.
We've touched on this and others in the industry and if there is any kind of a slowing new construction, we feel very confident in saying that the full scale remodels have really been pent up there may have been pushed to the right over the last couple of years as labor and contractors have really focused on.
New construction. So I think there is a strong potential offset.
For the industry, if new was to start slowing down, but we continue to look for the aftermarket that fuels. Our growth 80, approximately 80% is after market driven and frankly, that's going to determine our success in the industry success more than new construction.
Yes, absolutely. Thanks, a lot guys I appreciate it.
Thanks. Thanks.
Our next question is from Rob Wertheimer from <unk> research.
Rob Your line is open.
Hi, good morning, everyone, sorry about the confusion earlier Michael.
No problem.
Living room, so you've touched on this a couple of times, but I just wanted to go back to it. There's obviously a lot of consternation out there about rising interest rates et cetera.
Have your thoughts on what you just mentioned Kevin on the 80% of the business.
It's not a newbuild thats more study any sensitivity to.
Refis or or.
Home equity loans, or maybe a consumer's higher end and you haven't seen historically that kind of sensitivity I don't know if you have any guideposts for us to think about that core of the business.
Hum.
Yes, I would say that what we're seeing on the really on that aftermarket pull through is it's a different it's a different decision for someone who has a flaw in the backyard already that's looking to do add a piece of equipment that maybe didn't exist or to upgrade an existing piece.
Greater functionality or sustainability or enjoyment in the backyard. So again with that driving 80, 80% and thats not a full new pad necessarily we feel very comfortable that even in the environment.
Increased interest rates that that incremental piece or a couple of pieces will continue to be installed here in 2022 and beyond despite different economic circumstances are inflationary circumstances. So.
That's how we look at it Thats certainly been validated by our by our service.
Totally Hayward.
Network in and even some of the Rebuilders in Remodelers.
That are that are out there are network.
Yes, I'd just add to that Rob I mean, what we're seeing right now is as Kevin mentioned only continued new construction permitting.
Into 2003, we've continued to see builders talk about strong backlogs, but when it comes to the aftermarket I'd say it is.
The majority of the decisions they say it's a non.
It is not a discretionary capital decision you have to maintain your pool.
And most of the parties that we're bringing to market today have a qualitative attribute which increases the <unk>.
The enrollment of your pool or a cost saving fuel and the terms of the energy efficient products, we're bringing so what we're seeing when we look at where <unk> is gaining strength in the market. It's in those qualitative product categories and it's in those energy saving categories than we think.
As we've talked about before this three loss conversion stories, taking place in the industry, which is.
Monetization.
Energy efficiency and controls and all of those suffer he would come at higher price points and higher margin attachment. So we don't believe the aftermarket is going to suffer from the interest rate environment, We don't believe that.
Even in new construction it will setup.
Perfect. Thank you.
Our next question is from Mike Halloran from Baird Mike.
Your line is open.
Hey, Thanks, good morning, everyone.
So how do you think I'm thinking about are you guys thinking about balance sheet usage at this point, obviously the buyback in the first quarter leverage plus minus 3%.
If the right transaction comes along would you guys be in a position to be actual I know you said over 400 million of liquidity, but just trying to gauge your willingness to put that to work in the short term.
We absolutely are Mike we have a pretty robust pipeline right now.
So we are where we're actively engaged on the M&A side that continues to be one of three.
Legs in our capital.
Appointment strategy continuing to fund organically, that's our top priority we have some we have some projects on the books.
For you soon that we'll use some of the cash there and then as you mentioned we've been.
Involved both both Q1 with.
With the directed repurchase and then also here in early Q2.
But some with some share repurchase as well so we're really.
We're really paying close attention to all three avenues of balance sheet usage.
And then on the inventory side, maybe just talk about how you guys are looking at channel inventory.
Obviously, we can here some chatter public markets on.
How some of your channel partners are thinking about inventory and restocking and just would like to get your sense for what your view of the channel partners in terms of their inventory expectations and how they expect to build or not build that they worked through the year.
Yes.
We do keep close tabs on it with our with our channel partners to make sure that we all feel comfortable with the amount of inventory staged closer closer to point of sale.
They are largely replenished and at a much better position starting in 2022 season than they were either of the last key here is that it's not a perfect balance. There are there are skus and product categories based upon a material availability of gas we need more of they need more of for sale, namely some.
Saul <unk> from sand filters variable speed pumps some controls.
Much improved over the prior year in absolute dollars or as I said it is higher at the end of Q1 2022 than same period, but I think there are a few things to keep in mind that as we look at it from a days on hand standpoint, obviously that inventory value has a lot of price or embed.
And as.
The industry has also grown so there needs to be additional inventory.
In there to support the overall industry growth, which has been.
30, plus percent over the last few years and then from specifically the Hayward some of our share gains that would require some incremental.
Inventory positions for the Hayward product in the channel. So all that said, we feel comfortable with our inventory position from a days on hand standpoint here at the start of the season our guidance assumes.
There will be greater sell out then sell into the channel during the 2022 season and these are the things that we're going to keep close tabs on as we work through the year and start.
Continue with our with our guidance updates and.
We look at into 2023.
Great I appreciate it thanks.
Yeah.
Yes.
Our next question is from Nigel Coe of Wolfe Nigel Your line is open.
Good morning, everyone.
Okay.
So maybe either on could you just give us a quick allocation again and normal.
Normal seasonality I mean, there's nothing normal about kind of environment, but.
In a normal year <unk> would typically be weakest quarter correct in terms of revenues and margins.
Normal seasonality as Q1 and Q3 at similar levels, 22% to 23% of the full year sales in Q2.
Q4.
A more elevated I would say coming into the year.
Q1, this year was slightly higher than.
Then.
We would have experienced a normal year, we do see some seasonality reappearing.
Into 'twenty, two but certainly Q1 was a higher quarter than we think normally from a seasonal perspective, and thats really consequential to the fact that we are still working through and still continuing to work through the large backlog, we want to make sure that the channel is appropriately stocked because we mentioned in the previous call. We have we have to get after some.
Some specific SK used to build out the full complement of what the channel needed to satisfy customer orders and we were very very pleased with the ability of the production level.
<unk> manufacturing footprint to get after those.
Products still more to do as Kevin mentioned, but.
Yes, normally Q1 is a weak period it was a little bit higher this year than normal.
Yeah, Okay. Thanks, and then so given that sort of normal seasonality reappearing.
And when you think today would you expect Q2 to be.
Higher than normal than Q1.
Based on what you see today with Q2.
Be higher in Q1.
Yes, so we're not giving specific guidance around each quarter, but what I would say is Q Q2.
Is likely to be.
A higher period for us as we continue to fill out the requirements for the channel to service the season.
And then when you think about the second half of the <unk>.
A very considered back half assumption.
And your guidance what is your biggest concern right now Kevin is it really is it supply chain inflation.
Does it help the consumer with rates rising.
Is it labor availability I mean, what would you say is your biggest concern right now.
Yes, I mean from a labor standpoint, we actually you know where that was.
Our key focus through the middle of last year, we feel pretty good from a labor availability standpoint, there's still too much turnover that I think all companies are feeling but I think we're able to get folks trained up and building product I think with what we're seeing around some of the global movement of product and some of the quarantine.
<unk> that are happening.
And in manufacturing concentrated regions I think it's wise to be cautionary right now as we look into the second half.
While consumer demand and what's on the books is still incredibly strong in and gives us strong optimism as a company and an industry.
There is a lot of there's a lot of hikes that are being in interest rate hikes that are being talked about right now and I think it's just wise for us as we work through the early part of the season.
Sure.
Just be cautious.
Before getting out ahead of ourselves at this point Nigel.
Great and then just one more if I can.
The dealer conversions from last year, you, obviously had an extraordinary number of dealer dealer adds.
In North America, maybe could you just talk about it.
Is that continuing are you still managing to convert.
Leaders.
And to what degree are they sort of adding to your growth rates in North America.
Yes, we can.
Continue to see our sales and marketing team is doing a great job of continuing to.
To sell the Hayward story.
And.
In a display some of the new products that we've brought to the marketplace and expand the size of the Hayward family.
Working in the backyard that is absolutely contributed to.
Some of our share gains over the last couple of years and we fully expect it to continue into the future.
Think about it I think it's one of really three contributors.
That has delivered on some of the greater than market growth and share gains that we've been able to enjoy the last few years operationally.
Obviously in the capacity expansions some of the new product launches that have great early adoption into the marketplace and then thirdly, just more folks placing their confidence in the Hayward brand and advocating for us in the backyard. So I really think its kind of integration of all three of those Nigel.
That's that's paid dividends for us over the last few years and we expect it to in the future.
Okay, that's great. Thanks, Brian .
Our next question is from Ralph <unk> from Bank of America.
Perhaps your line is open.
Good morning, Ralph.
Okay.
Thanks for taking my questions.
First I wanted to it looks like you've been taking some market share.
Over the last.
Q2 quarters.
Wonder if you could talk about your as the supply chain improves.
Would you expect those market share gains to be sticky.
And then how do we make sure that that kind of conversion.
<unk> longer term.
Hi, guys good morning.
We believe our share gains are sticky and is not predicated on just the.
Very clear ability for us to service the market with our production capabilities. It comes back to the products that we're introducing into the marketplace. We're very proud of the fact that our new product vitality index now is growing quite substantially year over year.
Well over 20% in terms of new products coming into the market as a percentage of our overall sales results and these are really informative products that are addressing the needs of the consumer.
Both in terms of controls energy efficiency and the qualitative experience within the pool of spending quite a bit of time investing into those categories. Both in terms of.
Research development and engineering costs running through the income statement, but also in terms of Capex.
The balance sheet, we are investing in the necessary lines to build out those product capabilities. So we believe.
Though our ability to supply has outpaced the competition. It really comes back to what we showed in terms of that.
<unk> technology platform that we're leveraging we now are gaining share.
And some core categories.
In the industry. So yes family we believe.
It is sticky and is heavily predicated upon a product portfolio that we have.
Great that's really helpful and then.
Second question.
You commented on channel inventories, but like.
Your own inventory has been growing faster than sales.
But by quite a bit the last few quarters I'm just curious what's the inflation component of that like if we were to look at your inventory in terms of units what's that growth rate.
Compared to the 60% sales growth.
<unk> dollar growth.
Yes, so when you think about the Cogs index Q1 in 'twenty two versus the comparable period last year is about 20% so 20% of our.
Inventory declines has really come from that Cogs index increase the inflation thats relevant.
But outside of the inflation, we have taken two strategic positions in the balance sheet. One is onset in finished goods.
That well, we can get the.
The raw materials, knowing the demand curve that we see out in the future. We are manufacturing some products in terms of finished goods to get them into inventory to be a an important position to be able to service the market and then I'd say the second strategic position, we've taken as it will materials.
And again, while we can secure a positioning in raw materials, particularly in as hard to get areas.
We have taken that position.
Okay, great very helpful. Thank you.
There are no further questions at this time so as a reminder, it is star one on your telephone keypad.
There are no further questions registered so I would like to turn the conference back to Kevin Hollering for any closing remarks.
Thanks Austin.
I'd just like to thank everyone for their interest in Hayward as you can see our business is producing excellent operational and financial results and we're very well positioned to continue to generate growth for all stakeholders in 2022 in the years ahead. This would not be possible without the hard work dedication and resilience of our employees.
And partners around the World. Please contact our team if you have any follow up questions and we look forward to talking to you again on our future Q2 earnings call. During the week commencing July 25. Thank you.
That concludes.
The Haywards holding first quarter 2022 earnings call. Thank you for your participation you may now disconnect your line.