Q4 2023 Hayward Holdings Inc Earnings Call

Operator: Greetings and welcome to the Hayward Holdings fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Greetings and welcome to the Hayward Holdings fourth quarter 2023 earnings Conference call.

At this time all participants are in a listen only mode.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin Maczka, Vice President of Investor Relations. Thank you, sir. You may begin.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Kevin Masco, Vice President of Investor Relations. Thank you Sir you may begin.

Kevin Richard Maczka: Thank you and good morning everyone. We issued our fourth quarter 2023 earnings press release this morning, which has been posted to the investor relations section of our website at investor.hayward.com. There you can also find an earnings slide presentation that we will reference during this call. I'm joined today by Kevin Holleran, President and Chief Executive Officer, and Eifion Jones, 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 are considered forward-looking in nature, including management's outlook for 2024 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission that could cause actual results to differ materially. The company does not undertake any duty to update such forward-looking statements.

Thank you and good morning, everyone. We issued our fourth quarter 2023 earnings press release. This morning, which has been posted to the Investor Relations section of our website at Investor day at Hayward Dot Com. There you can also find an earnings slide presentation that we will reference during this call I'm joined today by Kevin Holleran, President and Chief.

Officer, and IV, and Jones, 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 are considered forward looking in nature, including management's outlook for 2024 in future periods, such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Form 10-K and Form 10-Q.

Filings with the Securities and Exchange Commission that could cause actual results to differ materially.

The company does not undertake any duty to update such forward looking statements.

Kevin Richard Maczka: Additionally, during today's call, the company will discuss non-GAAP measures. Reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation. I would now like to turn the call over to Kevin Holler. Thank you, Kevin. Good morning, everyone.

Additionally, during today's call the company will discuss non-GAAP measures reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation I would now like to turn the call over to Kevin our.

Can you Kevin and good morning, everyone. It's my pleasure to welcome all of you know it was fourth quarter earnings call I'll start on slide four of our earnings presentation with today's key messages I'm pleased to report fourth quarter results in line with expectations, we executed well during the quarter and delivered net sales and earnings growth record gross margins and solid cash flow net sales increased.

Kevin P. Holleran: It's my pleasure to welcome all of you to Hayward's fourth-quarter earnings call. I'll start on slide four of our earnings presentation with today's key messages. I'm pleased to report fourth-quarter results in line with expectations. We executed well during the quarter and delivered net sales and earnings growth, record gross margins, and solid cash. Net sales increased 8% year over year through positive contributions from both volume and price, with gross profit margins expanding 690 basis points for the quarter and 270 basis points for the full year. We also generated better than expected cash flow during a seasonally soft period for cash collections, with full year free cash flow increasing 78% and exceeding our guidance range. These are tremendous accomplishments, and I'm extremely proud of the entire Hayward team.

8% year over year through positive contributions from both volume and price with gross profit margins, expanding 690 basis points for the quarter and 270 basis points for the full year. We also generated better than expected cash flow during a seasonally soft period for cash collections with full year free cash flow increasing 78%.

And exceeding our guidance range. These are tremendous accomplishments and I'm extremely proud of the entire Hayward team 2023 was characterized by a normalization of supply chains channel inventory Destocking and a return to establish seasonal buying patterns. We are encouraged to enter 'twenty 'twenty four with more normalized channel inventory position.

Kevin P. Holleran: 2023 was characterized by a normalization of supply chains, channel inventory destocking, and a return to established seasonal buying patterns. We are encouraged to enter 2024 with more normalized channel inventory positions, as reported by our primary distribution partners in the U.S. The channel continuously recalibrates the level of inventory on hand to align with various inputs like near-term outlook for end demand and cost of capital, but the post-pandemic reset is largely behind us, we executed many important strategic initiatives throughout the year to strengthen our business and drive profitable growth. This included advancing our technology leadership position with innovative connected pool solutions, leveraging our culture of continuous improvement and operational excellence, and expanding commercial relationships across sales channels. I will make additional comments on our strategic accomplishments in a moment. We enter 2024 expecting a return to sales and earnings growth on a full-year basis. For the full year 2024, we expect net sales to increase approximately 2 to 7%.

As reported by our primary distribution partners in the U S channel continuously recalibrates the level of inventory on hand to align with various inputs like near term outlook for end demand and cost of capital, but the post pandemic reset is largely behind us we executed many important strategic initiatives throughout the year to strengthen.

Our business and drive profitable growth. This included advancing our technology leadership position with innovative connected pool solutions, leveraging our culture of continuous improvement and operational excellence and expanding commercial relationships across sales channels I will make additional comments on our strategic accomplishments in a moment we enter.

'twenty 'twenty four expecting a return to sales and earnings growth on a full year basis for the full year 'twenty 'twenty four we expect net sales to increase approximately two 7% now turning to slide five highlighting the results for the fourth quarter and full year I am pleased to report solid execution and growth in the quarter net sales in the fourth quarter.

Kevin P. Holleran: Now turning to slide 5, highlighting the results of the fourth quarter and full year. I'm pleased to report solid execution and growth in the quarter. Net sales in the fourth quarter increased 8% year-over-year to $278 million, driven by positive volume and price. By segment, net sales in North America increased 10%, with our largest market, the United States, increasing 12%. Europe and the rest of the world declined 4%, with Europe approximately flat.

<unk> increased 8% year over year to 278 million driven by positive volume and price by segment net sales in North America increased 10% with our largest market the United States, increasing 12% Europe and rest of world declined 4% with Europe, approximately flat I'm encouraged by the sales trends in <unk>.

Kevin P. Holleran: I'm encouraged by the sales trends in both the U.S. and Europe. We're focused on driving growth in the commercial segment of the market, and commercial pool sales increased double digits for the quarter and the year. As I mentioned, we achieved a record gross margin in the fourth quarter. Gross profit margins expanded 690 basis points year over year and 140 basis points sequentially to 49.2 percent. Adjusted EBITDA margin in the fourth quarter was 27.2 percent, and adjusted EPS was 20 cents.

Both the U S and Europe.

We're focused on driving growth in the commercial segment of the market and commercial pool sales increased double digits for the quarter and the year as I mentioned, we achieved a record gross margin in the fourth quarter gross profit margins expanded 690 basis points year over year at 140 basis points sequentially to 49, 2%.

Adjusted EBITDA margin in the fourth quarter was 27, 2% and adjusted EPS was <unk> 20.

Kevin P. Holleran: For the full year of 2023, net sales were 24% to $992 million, with adjusted EBITDA of $247 million, each consistent with our most recent guidance. We delivered strong profitability despite reduced sales volume, and I'm particularly pleased to see gross margin expansion of 270 basis points to 48.1%. Adjusted EBITDA margins for the full year were a healthy 24.9%, and adjusted EPS was $0.56.

For the full year 2023, net sales reduced 24% to 992 million with adjusted EBITDA of 247 million each consistent with our most recent guidance, we delivered strong profitability. Despite reduced sales volume and I'm, particularly pleased to see gross margin expansion of 270 basis points to.

48, 1%.

Adjusted EBITDA margins for the full year was a healthy 24, 9% and adjusted EPS was <unk> 56.

Kevin P. Holleran: Turning now to slide six for a business update, end demand for Hayward products was consistent with our expectations in the quarter, with the U.S. performing solidly, but the overall near-term demand environment remains uncertain. The non-discretionary aftermarket is resilient, but demand for discretionary new construction, upgrade, and remodel has been impacted by current economic conditions and rising interest rates. Our channel partners have been rebalancing the level of inventory relative to the current economic outlook, normalized OEM lead times, and higher cost of capital. While inventory levels have largely normalized at this point, the channel remains cautious and continuously recalibrates the level of inventory on hand to be appropriately positioned to support its customers. Turning to price versus cost. We implemented annual price increases to maintain price cost neutrality.

Turning now to slide six for a business update and demand for Hayward products was consistent with our expectations in the quarter with the U S performing solidly, but the overall near term demand environment remains uncertain non discretionary aftermarket is resilient, but demand for discretionary new construction upgrade and remodel has been.

<unk> by current economic conditions, and rising interest rates, our channel partners have been rebalancing the level of inventory relative to the current economic outlook normalized OEM lead times and higher cost of capital while inventory levels have largely normalized at this point the channel remains cautious and continuously recalibrates the level.

[noise] of inventory on hand to be appropriately positioned to support their customers turning to price versus cost we implemented annual price increases to maintain price cost neutrality. The pool industry has been very disciplined on price historically, and we expect to realize net price increase of approximately 2% in 'twenty 'twenty four.

Kevin P. Holleran: The pool industry has been very disciplined on price historically, and we expect to realize a net price increase of approximately 2% in 2024. We demonstrated our operational excellence capabilities again in 2023, contributing to strong gross margin expansion on reduced sales volumes. We also completed footprint consolidations during the year in both North America and Europe.

We demonstrated our operational excellence capabilities again in 2023 contributing to strong gross margin expansion on reduced sales volumes. We also completed footprint consolidations during the year in both North America and Europe. As a reminder, we initiated a plan during the third quarter to consolidate facilities in Spain to get closer to key customers.

Kevin P. Holleran: As a reminder, we initiated a plan during the third quarter to consolidate facilities in Spain to get closer to key customers, better leverage a modern facility, and support margin. We continue to prioritize working capital management and inventory reductions. Total inventory declined 24 percent in 2023, contributing to positive cash flow performance and 31 percent since the peak in 2022. Finally, during the fourth quarter, John Collins was promoted to chief commercial officer.

<unk> better leverage a modern facility and support margins, we continue to prioritize working capital management and inventory reductions total inventory declined 24% in 2023 contributing to positive cash flow performance and 31% since the peak in 'twenty 'twenty. Two finally during the fourth quarter, John Collins was promoted chief.

Commercial officer, John No lead sales marketing product management and customer service in North America, and global industrial flow control I am confident in my senior leadership team and our ability to deliver on our commitments to shareholders. In addition, we continue to invest in technology leadership with the establishment of the business intelligence team in the fourth quarter.

Kevin P. Holleran: John now leads sales, marketing, product management, customer service, and in North America and global industrial flow control. I'm confident in my senior leadership team and our ability to deliver on our commitments. In addition, we continue to invest in technology leadership with the establishment of a business intelligence team in the fourth quarter, focused on progressively leveraging data analytics and scaling intelligent process capability. Turning now to slide seven.

<unk> focused on progressively leveraging data analytics and scaling intelligent process capabilities, turning now to slide seven I'd like to share some perspective on the year as expected we faced challenging economic conditions in 2023, I'm proud of the performance of the Hayward team as we accomplished many important strategic initiatives to strengthen our position.

Kevin P. Holleran: I'd like to share some perspective on the year ahead. As expected, we will face challenging economic conditions in 2023. I'm proud of the performance of the Hayward team as we accomplish many important strategic initiatives to strengthen our position as a premier company in the attractive pool industry. As a technology leader, one of our biggest differentiators is our ability to innovate, and I'll discuss some of our upcoming product introductions in a moment. We also demonstrated our long-standing commitment to operational excellence and continuous improvement. This included right-sizing our production levels and cost structure, further consolidating our agile and vertically-integrated manufacturing footprint, and progressive investments in automation and other productivity initiatives. The individuals who build and serve as pools are the backbone of our industry.

And as a premier company, an attractive pool industry.

As a technology leader one of our biggest differentiators is our ability to innovate and I'll discuss some of our upcoming product introductions in a moment.

We also demonstrated our long standing commitment to operational excellence and continuous improvement. This included right sizing our production levels and cost structure further consolidating our agile and vertically integrated manufacturing footprint and progressive investments in automation and other productivity initiatives, the individuals', who build and service pools.

Are the backbone of our industry. The voice of these customers is critical to the development of our product and commercial strategies at Hayward, We believe in supporting our loyal dealers and investing to build strong partnerships with market leading programs and events. This includes our totally Hayward loyalty program customer rewards trips and partner summit seller.

Kevin P. Holleran: The voice of these customers is critical to the development of our product and commercial strategies. At Hayward, we believe in supporting our loyal dealers and investing to build strong partnerships with market-leading programs and events. This includes our Totally Hayward loyalty program, customer rewards trips, and partner summits to celebrate and reflect on our collective accomplishments and help dealers grow their business and thrive in the years ahead. Hayward is committed to delivering impressive operational and financial results in the most responsible way, and we continue to make great progress on our sustainability journey. During the year, Hayward received a regional top-rated award by Morningstar Sustainalytics and an MSCI Upgrade to A rating.

Great and reflect on our collective accomplishments and help dealers grow their business and thrive in the years ahead.

Hayward is committed to delivering impressive operational and financial results in the most responsible way and we continue to make great progress on our sustainability journey.

During the year Hayward received a regional top rated award by Morningstar Sustain Olympics and an M. S. C I upgrade to a rating.

Just one example of our success the Hayward team embraced the challenge and achieved meaningful reductions in water and energy consumption in our facilities in 2023.

These achievements contributed to strong profitability and cash flow during the year, allowing us to reinvest in the business to provide superior products and services for our customers and value creation for our shareholders turning to slide eight I'd like to highlight some key new product technologies being introduced in early 2024.

Kevin P. Holleran: As just one example of our success, the Hayward team embraced the challenge and achieved meaningful reductions in water and energy consumption in our facilities in 2023. These achievements contributed to strong profitability and cash flow during the year, allowing us to reinvest in the business to provide superior products and services for our customers and value creation for our shareholders. Turning to slide eight, I'd like to highlight some key new product technologies being introduced in early 2024. First, the new microchannel temperature control unit for pools and spas. This is the first deployment of microchannel temperature exchange technology in the pool industry. This unit provides more efficient temperature transfer, reduced weight, and improved corrosion resistance for coastal installations. Three models are available, heat only, heat and cool, and cool only. The ability to cool to 40 degrees is important for installations in hot and humid environments where pool water temperatures can be uncomfortably high.

First is a new micro channel temperature control unit for pools and spas. This is the first deployment of micro channel temperature exchange technology in the pool industry. This unit provides more efficient temperature transfer reduced weight and improved corrosion resistance for coastal installations. Three models are available he'd only heat cool.

And cool only the ability to cool to 40 degrees is important for installations and hot and humid environments, where pool water temperature can be uncomfortable hi. This also opens a new market opportunity for chiller only installations to satisfy the increasingly popular wellness trend of cold plunge pools.

Next is our new all new omni pro App designed for authorized trade professions. This exciting evolution of our leading omni app enables these professionals to have remote access to all on the connected home owners they service.

This new platform has two key benefits real time proactive monitoring of the operational pool and remote expert configuration of equipment via the cloud importantly, the omni pro App provides significant value to these professionals, giving them the opportunity to promote other sales and service initiatives through a direct connection to the homeowner.

Kevin P. Holleran: This also opens a new market opportunity for chiller-only installations to satisfy the increasingly popular wellness trend of cold plunge pools. Next is our all new OmniPro app designed for authorized trade professionals. This exciting evolution in our leading Omni app enables these professionals to have remote access to all Omni connected homeowners they serve.

Creating greater stickiness for Hayward finally, the color logic 2.0 platform embodies the next generation of color led lighting homeowners are increasingly requesting additional whites to be added to their pools spas water features and landscapes to create dramatic night time effects and attractive entertainment spaces color.

Kevin P. Holleran: This new platform has two key benefits, real-time proactive monitoring of the operation of the pool and remote expert configuration of equipment via the cloud. Importantly, the OmniPro app provides significant value to these professionals, giving them the opportunity to promote other sales and service initiatives through a direct connection to the homeowner, creating greater stickiness for Hayward. Finally, the ColorLogic 2.0 platform embodies the next generation of color LED lighting. Homeowners are increasingly requesting additional lights to be added to their pools, spas, water features, and landscapes to create dramatic nighttime effects and attractive entertainment spaces. ColorLogic 2.0 offers the flexibility designers want with directional optics to ensure full light saturation of the water and a quick disconnect plug for ease of maintenance.

2.0 offers the flexibility designers want with directional optics to ensure full white saturation of the water and a quick disconnect plug for ease of maintenance.

And our future earnings calls I look forward to introducing even more great product technologies designed to delight homeowners as well as increase the competitive edge Hayward enjoys in the market with that I'd like to turn the call over to Ian who will discuss our financial results in more detail.

Thank you Kevin and good morning, I'll start on slide nine all comparisons will be made on a year over year basis. As Kevin stated. We are pleased about fourth quarter financial performance net sales increased in line with expectations for the quarter, we delivered outstanding gross margin expansion and generate some better than expected free cash flow looking at the <unk>.

See more detail net sales for the fourth quarter increased 8% to $278 million. This was consistent with our expectations and driven by a 6% increase in volume and a 2% positive net price realization gross property in the fourth quarter was $137 million gross profit margin increased 619.

Kevin P. Holleran: In our future earnings calls, I look forward to introducing even more great product technologies designed to delight homeowners as well as increase the competitive edge Hayward enjoys in the market. With that, I'd like to turn the call over to Eifion, who will discuss our financial results in more detail.

Basis points year over year, and 140 basis points sequentially to a record 49, 2% adjusted EBITDA was 76 million in the fourth quarter and adjusted EBITDA margin increased 660 basis points to 27.2% our effective tax rate was 26% in the fourth quarter.

Eifion S. Jones: Thank you, Kevin. And good morning. I'll start on slide nine. All comparisons will be made on a year-over-year basis. As Kevin stated, we are pleased with our fourth quarter financial performance. Net sales increased in line with expectations for the quarter. We delivered outstanding gross margin expansion and generated better-than-expected free cash flow. Looking at the results in more detail, net sales for the fourth quarter increased 8% to $278 million. This was consistent with our expectations and driven by a 6% increase in volume and a 2% positive net price realization. Gross profit in the fourth quarter was $137 million.

Also compared to 32% in the prior year period. The change was primarily due to the timing of discrete items adjusted EPS in the quarter was 20 cents turning now to slide 10 for <unk>.

A review of our full year results net sales for fiscal year 2023 decreased 24% to 992 million. This was in line with our most recent dominance and primarily driven by a 28% reduction in volume, partially offset by a 3% positive price realization and a 1% contribution from.

Eifion S. Jones: Gross profit margin increased 690 basis points year-over-year and 140 basis points sequentially to a record 49.2%. Adjusted EBITDA was $76 million in the fourth quarter, and adjusted EBITDA margin increased 660 basis points to 27.2%. Our effective tax rate was 20.6% in the fourth quarter compared to 30.2% in the prior year period.

<unk> gross profit for the full year was $477 million gross profit margin increased 270 basis points to 48, 1% a very strong performance of mid 28%, although volumes strong margins that enable us to reinvest in the business in 2023, we increased research and development.

Engineering investment by 10% to $25 million to support our commitment to growth and innovation SG&A expenses for the full year declined 6% to $234 million driven by lower discretionary and volume based expenses, we delivered a full year expected annualized savings of approximately.

Eifion S. Jones: Adjusted ETF in the quarter increased 20 cents. Turning now to slide 10 for a review of our full-year results, net sales for fiscal year 2023 decreased 24% to $992 million.

$28 million under our private.

Price cost reduction program on a full year basis SG&A as a percentage of net sales was 23, 5% adjusted EBITDA was $247 million with an adjusted EBITDA margin of 24, 9% our effective tax rate was 22% in 2023 compared to 23, 4% in 2002.

Eifion S. Jones: This was in line with our most recent guidance and primarily driven by a 28% reduction in volume, partially offset by a 3% positive price realization and a 1% contribution from acquisitions. Gross profit for the full year was $477 million. Gross profit margin increased 270 basis points to 48.1%, a very strong performance amid 28% lower volumes. Strong margins enable us to reinvest in the business. In 2023, we increased research, development, and engineering investment by 10% to $25 million to support our commitment to growth and innovation. SG&A expenses for the full year declined 6% to $234 million, driven by lower discretionary and volume-based expenses.

Adjusted EPS was <unk> 56 cents for full year 2023, now I'll discuss our reportable segment results in more detail.

Beginning on Slide 11, North America net sales for the fourth quarter increased 10% to 238 million driven by 8% higher volumes, a 2% favorable impact sales in the U S increased 12% in the quarter and Canada declined 11%.

The Canadian market has been more significantly impacted by economic conditions and the sharp increase in financing cost.

Profit margin increased 810 basis points to a robust 51, 1% and adjusted segment income margin was 31, 7% turning to Europe and rest of World net sales for the fourth quarter decreased 4% to $40 million net sales benefited from a 2% favorable net pricing and to pursue.

Eifion S. Jones: We delivered the full year expected annualized savings of approximately $28 million under our enterprise cost reduction program. On a full year basis, SG&A's percentage of net sales was 23.5%. Adjusted EBITDA was $247 million with an adjusted EBITDA margin of 24.9%. Our effective tax rate was 20.2% in 2023 compared to 23.4% in 2022. Adjusted EPDF was $0.56 for the full year 2023

Foreign currency translation.

Mostly impacted by a 9% decline in volumes net sales in Europe were approximately flat with the rest of the world declining 7%.

Gross profit margin was 38, 2% and adjusted segment income was 22% turning to slide 12 for a review of our reportable segment results for the full year.

Eifion S. Jones: Now I'll discuss our reportable segment results in more detail. Beginning on slide 11, North American net sales for the fourth quarter increased 10% to $238 million, driven by 8% higher volumes and 2% favorable net pricing. Sales in the US increased 12% in the quarter, and Canada declined 11%. The Canadian market has been more significantly impacted by economic conditions and the sharp increase in finance. Gross profit margin increased 810 basis points to a robust 51.1%, and adjusted segment income margin was 31.7%. Turning to Europe and the rest of the world, net sales for the fourth quarter decreased 4% to 40 million. Net sales benefited from a 2% favorable net pricing and 2% from foreign currency translation, but were adversely impacted by a 9% decline in volumes. Net sales in Europe were approximately flat, with the rest of the world declining by 7%.

With American net sales declined 26% to $823 million driven by 29% lower volumes, partially offset by a 2% favorable price impact of 1% contribution from acquisitions sales in the U S declined, 23% and Canada reduced 48%.

Profit margin was 49, 9% and adjusted segment income margin was 28, 9% in Europe and rest of World net sales for the full year declined 18% to 169 million benefiting from a net pricing increase of approximately 4% offset by 22% lower volumes sales in Europe decline.

24% and rest of world reduced 10% gross profit margin was 39, 2% and adjusted segment income margin was 24% turning to slide 13 for a review.

You have on balance sheet and cash flow highlights net debt to adjusted EBITDA was three seven times at the end of the year, we continue to prioritize deleveraging. So our targeted range of two to three times total liquidity at the end of the year was $460 million, including $203 million in cash and cash equivalents and short term.

Eifion S. Jones: Gross Profit Margin was 38.2%, and Adjusted Segment Income was 20.2%. Turning to slide 12, for a review of our reportable segment results for the full year. North American net sales declined 26% to $823 million, driven by 29% lower volumes, partially offset by 2% payable price impact and 1% contribution from acquisition. Sales in the US declined 23% and Canada declined 48%. Gross profit margin was 49.9%, and adjusted segment income margin was 28.9%. In Europe and the rest of the world, net sales for the full year declined 18% to 169 million, benefiting from a net pricing increase of approximately 4%, offset by 22% lower volume; sales in Europe declined 24%, and the rest of the world declined 10%.

<unk> plus availability under our credit facilities of $256 million, we have no near term maturities on our debt our interest rate swap agreements some debt of $1 1 billion matures in 2028, and the Undrawn ABL in 2026.

And maturity schedule provides financial flexibility as we execute our strategic plans our borrowing rate continues to benefit from the $600 million of that currently tied to fixed interest rate swap agreements maturing in 2025 through 2027, limiting our cash interest rate on the 10 facilities in 2023 to six.

All right.

Our average interest rate and on global cash deposits for the quarter was four 9% overall, we are pleased with the quality of our balance sheet.

The business has strong free cash flow generation characteristics, driven by high quality earnings, which support our growth investments.

Cash flow from operations for the full year increased 59% to 185 million due to effective working capital management, primarily reduced inventory levels total inventories declined by $69 million or 24% in 2023 and declined nearly $100 million from the peak in the third quarter of 2022.

Eifion S. Jones: Gross profit margin was 39.2%, and adjusted segment income margin was 20.4%. Turning to slide 13 for a review of our balance sheet and cash flow highlights, net debt to adjusted EBITDA was 3.7 times at the end of the year.

Eifion S. Jones: We continued to prioritize deleveraging to our targeted range of two to three times. Total liquidity at the end of the year was $460 million, including $203 million in cash equivalents and short-term investments, plus availability under our credit facilities of $256 million. We have no near-term maturities on our debt or interest rate swap agreements.

Full year 2023, Capex of $31 million was consistent with the prior year free cash flow increased 78% to $154 million in 2023, turning now to capital allocation on slide 14, as we've highlighted before we maintain a disciplined financial policy and take a balanced approach emphasizing.

Strategic growth investments and shareholder returns, while maintaining prudent financial leverage in the near term, we are prioritizing capex growth investments and reducing net leverage within our targeted range of two to three times. We also continue to consider tuck in acquisition opportunities to complement our product offering.

Eifion S. Jones: Term debt of $1.1 billion matures in 2028, and the undrawn ABR matures in 2026. This attractive maturity schedule provides financial flexibility as we execute our strategic plans. Our borrowing rate continues to benefit from the $600 million of debt currently tied to fixed interest rate swap agreements maturing in 2025 through 2027, limiting our cash interest rate on term facilities in 2023 to 6.5%. Our average interest rate earned on global cash deposits for the quarter was 4.9%.

[noise] footprint and commercial relationships in addition to opportunistic share repurchases.

Turning now to slide 15 for our outlook. We are introducing 2020 full guidance that reflects a return to sales and earnings growth driven by solid execution across the organization positive price realization and continued technology adoption. The guidance range also contemplates continued uncertainty.

Eifion S. Jones: Overall, we are pleased with the quality of our ballots. The business has strong free cash flow generation characteristics driven by high quality earnings that support a growth investment. Cash flow from operations for the full year increased 59% to 185 million due to effective work in capital management, primarily reduced inventory levels. Total inventories declined by 69 million, or 24%, in 2023 and declined nearly 100 million from the peak in the third quarter of 2022. Full year 2023 capex of 31 million was consistent with the prior year. However, free cash flow increased 78% to 154 million in 2023. Turning now to capital allocation on slide 14. As we've highlighted before, we maintain a disciplined financial policy and take a balanced approach, emphasizing strategic growth investments and shareholder returns while maintaining prudent financial leverage. In the near term, we are prioritizing capex growth investments and reducing net leverage within our targeted range of two to three times. We also continue to consider tuck-in acquisition opportunities to complement our product offering, geographic footprint, and commercial relationships, in addition to opportunistic share repurchases.

Global macro conditions consumer spending coupled with our current expectations, but down in channel inventory levels for the full year fiscal 2024, Haywood expects net sales to increase approximately 2%, 7% or $1.0 billion to $1.06 billion.

This outlook reflects continued resilience in the North America, non discretionary aftermarket with a more discretionary elements of the market, new construction and remodel and upgrade impacted by the economic and interest rate environment, particularly in non U S markets. We expect a positive net price contribution of approximately 2%.

Is seasonal and we expect normal seasonal strength in the second and fourth quarters with the first quarter, representing the lowest sales quarter of the year, we anticipate full year 2024, and adjusted EBITDA of $255 million to $275 million. We also expect solid cash flow generation again in 2020.

Paul This should result in free cash flow conversion of greater than 100% of net income with free cash flow of approximately $160 million. We are confident in our ability to successfully execute in this dynamic environment remained very positive about the long term growth outlook pool industry, particularly the strength of the app.

Eifion S. Jones: Turning now to slide 15, we're introducing 2024 guidance that reflects a return to sales and earnings growth driven by solid execution across the organization, positive price realization, and continued technology adoption. The guidance range also contemplates continued uncertainty around global macro conditions, consumer spending, coupled with our current expectations regarding channel inventory levels. For the full year, fiscal 2024, Hayward expects net sales to increase approximately 2% to 7%, or $1.01 to $1.06 billion.

Market.

With that I'll now turn it back to Kevin.

Thanks, Todd I'll pick back up on slide 16, before we close let me reiterate the key takeaways from today's presentation consistent with our expectations. We closed out 2023 with a return to sales and earnings growth in the fourth quarter, we demonstrated strong execution throughout the year delivering impressive gross margins and cash flow growth despite lower sales.

Volumes, allowing us to fund our growth strategies, we're bringing innovative new solutions to the market better supporting our customers and improving the pool ownership experience.

With channel inventories largely normalized we are well positioned for growth I am excited about the prospects for the pool industry and our performance momentum is building and Hayward is leading them.

Eifion S. Jones: This outlook reflects continued resiliency in the North American non-discretionary aftermarket, with the more discretionary elements of the market, new construction, remodel, and upgrade, impacted by the economic and interest rate environment, particularly in non-US markets. We expect a positive net price contribution of approximately 2%. Our business is seasonal, and we expect normal seasonal strength in the second and fourth quarters, with the first representing the lowest sales quarter of the year. We anticipate a full-year 2024 adjusted EBITDA of $255 million to $275 million. We also expect solid cash flow generation again in 2024. This should result in a free cash flow conversion of greater than 100% of net income, with free cash flow of approximately $160 million. We are confident in our ability to successfully execute in this dynamic environment and remain very positive about the long-term growth outlook for the pool industry, particularly the strength of the aftermarket. Thanks, Eifion.

I'm confident that we have the right strategy and talent in place to drive compelling financial results and shareholder value creation with that we're now ready to open the line for questions.

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One moment, please while we poll for questions.

Thank you. Our first question comes from the line of Ryan Merkel with William Blair. Please proceed with your question.

Hey, guys I'd love to start with the guide right off the bat can you tell us what you're expecting for gross margins for the year. How much do you expect that to be up and then can you confirm that first quarter should we be thinking about sales at about 20% for the full year.

Good morning, Ryan.

In terms of the gross margin.

Calling for gross margins in 2020.

Kevin P. Holleran: I'll pick back up on slide 16. Before we close, let me reiterate the key takeaways from today's presentation. Consistent with our expectations, we closed out 2023 with a return to sales and earnings growth in the fourth quarter. We demonstrated strong execution throughout the year, delivering impressive gross margins and cash flow growth despite lower sales volumes, allowing us to fund our growth strategy. We're bringing innovative new solutions to the market, better supporting our customers, and improving the pool ownership experience. With channel inventories largely normalized, we are well-positioned for growth. I'm excited about the prospects for the pool industry and our performance. Momentum is building, and Hayward is leading.

For it to be $49 six for the full year, which is an increase of just over 150 basis points. We will see good growth in North America will actually continue the great trend that we exited out of Q4 over 50% full year, we're expecting over 50% in the North American business, which.

Is it is a good outcome in terms of Europe, and rest of world a little bit more challenge that we're looking at a whole margins fundamentally.

At the same level that we exited out of 2023.

And then for the first quarter just want to make sure that we have it right about 20% of the full year. So looking at sales roughly flattish year over year.

Yeah, I mean, as we talked about previously we're coming back to a normal seasonal trend in Q1 is typically around 20% to 22%.

Operator: I'm confident that we have the right strategy and talent in place to drive compelling financial results and shareholder value creation. With that, we're now ready to open the line for questions. Thank you.

The full year are you similar to Q3 this year, we're expecting around that 20%.

Hum.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

For Q1, Q2, Q4, being the largest seasonal periods for us one seasonal sell in to Q in terms of Q4 early buy salad.

Got it Okay and then for my second question what are you assuming for a sell through at retail in the guide you know just given the destock last year it'd be helpful to sort of think about underlying demand.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Ryan Merkel with William Blair. Please proceed with your question.

Yes, I mean the guidance.

As contemplated it assumes approximately about a 5% macro contractions in North America.

Ryan James Merkel: Can you tell us what you're expecting for gross margins for the year? How much you expect that to be up? And then can you confirm for the first quarter? Should we be thinking about sales at about 20% for the full year? Good morning, Ryan.

And a little bit more in the Europe.

Europe and rest of world market. So we are expecting contraction really rad.

Discretionary spot market with the aftermarket remaining a very resilient.

Yes, so the discretionary aspects Ryan do you upgrade the remodel.

Eifion S. Jones: In terms of gross margin, we're calling for gross margins of in 2020 for the full year, which is an increase of just over 150 basis points. We will see good growth in North America. We'll actually continue the great trend that we exited out of Q4, over 50%. For the full year, we're expecting over 50% in the North American business, which is a good outcome. In terms of Europe and the rest of the world, a little bit more challenge there, but we're looking to whole margins fundamentally at the same level that we exited out of 2023. And then for the first quarter, you just want to make sure that we have it right for about 20% of the full year.

U S we'd be seeing that potentially.

At 10% off which would flow through for the U S region at about 5% volume overall pivoting to international which would include Canada.

As I'm, describing it here the discretionary there again, new remodel upgrade we could see that upwards of of.

20% off which would flow through the <unk>.

Our national volume down about 10% overall and the difference between those obviously is our expectation to remain flat for the more resilience.

Aftermarket brake fix aspects.

The global market.

No you heard it in the prepared remarks other.

Aside from volume.

Eifion S. Jones: So looking at sales roughly flat-ish year over year. Yeah, I mean, as we talked previously, we're coming back to a normal seasonal trend. Q1 is typically around 20 to 22% of the full year, very similar to Q3. This year, we're expecting around that 20% mark for Q1. Q2, Q4 being the largest seasonal periods for us. One, seasonal selling. Two, in terms of Q4, early buy selling. Got it, okay.

We're expecting a positive price contribution in the 2% range.

And then potentially some modest maybe a 1% FX headwinds.

As we as we work through 2024.

Got it very helpful Best of luck.

Thank you Ron.

Our next question comes from the line of three broad scheme with Jefferies. Please proceed with your question.

Hi, good morning.

Ryan James Merkel: And then for my second question, what are you assuming for a sell-through at retail in the guide? Given that the stock last year, it would be helpful to sort of think about, you know, underlying. Yeah, I mean, the guidance that is contemplated assumes approximately a 5% macro contraction in North America and a little bit more in Europe and the rest of the world market. So we are expecting contraction really around the discretionary side of the market, with the aftermarket remaining very resilient. Yeah, so sort of discretionary aspects, Ryan, the new, the upgrade, the remodel in the US, we'd be seeing that potentially at 10% off, which would flow through for the US region at about 5% volume overall, pivoting to international, which would include Canada, as I'm describing it here.

And so you talked about inventory levels normalized.

Distributors remain cautious we did hear from one that theyre looking at chemo or inventory levels. This year, David just quantify how youre thinking about destocking tailwind this year, given potentially maybe a little bit more inventory reactions to call.

Yes, good morning.

Yeah, so from a destock standpoint, the way we look.

At the start up till this point was kind of getting back to historical days on hand, and as we work through really the third quarter of this year, we believe that that we got to that to that level back to historical days on hand in the channel.

Now as we look at the 2024 guide we are aware, we work closely with our channel partners.

Around their desires to be more efficient with inventory management, obviously, none of us want stock outs, but theres also a desire for continuous improvement and efficiency gains given the higher interest rate environment. So we our guide contemplates what we.

Ryan James Merkel: The discretionary there, again, new remodel upgrade, we could see that upwards of 20% off, which would flow through at the international volume down about 10% overall. And, you know, the difference between those obviously is our expectation to remain flat for the more resilient aftermarket break fix aspects of the global market. I know you heard it in the prepared remarks and other, you know, aside from volume, price, we're expecting a positive price contribution in the 2% range and then potentially, you know, some modest, maybe a 1% FX headwind as we work through 2024. Got it.

Believe is achievable and incremental reductions in 2024 with our channel partners and we will continue to work closely with them to ensure we've got the right inventory in the right places at the right time.

Okay.

I appreciate the color. So one thing we've heard about is that the pull forward impact on discretionary items such as heaters that we saw during the pandemic could you just talk about when we should think about demand for this type of products being normalized.

Ryan James Merkel: Very helpful. Best of luck. Thank you all.

Saree Emily Boroditsky: Our next question comes from the line of Saree Boroditsky with Jeffreys. Please proceed with your question. Hi, good morning.

Yeah, I mean, we certainly are some product categories that are more discretionary in nature and I would say we saw.

Kevin P. Holleran: So you talked about inventory levels being normalized. Distributors remain cautious. We did hear from one that they're looking to lower inventory levels this year. So maybe just quantify how you're thinking about destacking this year, given potentially maybe a little bit more inventory reductions to go. Yeah, good morning, sir.

Increased demand early on in the pandemic and then maybe some some slowing.

Those heaters have been mentioned I think cleaners would be another category. There I think you can probably put above ground product in the same category. So we believe that we're getting to much healthier inventory.

Kevin P. Holleran: Yeah, so from a DSTOX standpoint, you know, the way we look at these thoughts, you know, up till this point, we were kind of getting back to historical days on hand. And as we work through the third quarter of this year, we believe that we have got to that level of historical days on hand in the channel. Now, as we look at the 2024 guide, you know, we are aware that we work closely with our channel partners around their desires to be more efficient with inventory management. Obviously, none of us want stockouts, but there's also a desire for some continuous improvement and efficiency gains given the higher interest rate environment.

Positions with those products.

The overarching statement is we believe that that that are destock is complete but you know there might be some product categories in some geographies, even where there is still a little bit of work to do but were also light in some areas, where we're seeing good sell through into the marketplace.

Whites or or even controls come to mind as a few that are that are doing well. So we think as we work through the early part of 2024.

Kevin P. Holleran: So we are contemplating what we believe is achievable in incremental reductions in 2024 with our channel partners, and we'll continue to work closely with them to ensure we've got the right inventory in the right places at the right time. Appreciate the color.

Any any excess in a particular product category, we're going to be able to to address that as the season opens across all markets.

You know here into a into Q2 of 2024.

Great. Thanks for taking my questions.

Yeah.

Our next question comes from the line of Jeff Hammond with Keybanc. Please proceed with your question.

Saree Emily Boroditsky: So one thing we've heard about is the pull forward impact on discretionary items such as heaters that we saw during the pandemic. Could you just talk about when we should think about demand for those types of products being normalized? Yeah, I mean, there are certainly some product categories that are more discretionary in nature.

Hey, good morning, guys.

Good morning, just on just on I guess, just to wrap up inventory destock. It sounds like the destock played out as you thought but you know maybe the customers are being a little more cautious.

Kevin P. Holleran: And I would say, you know, we saw, you know, some increased demand early on in the pandemic, and then maybe some, some slowing of that, heaters have been mentioned, I think cleaners would be another category there, I think you could probably put above ground product in the same category. So, you know, we believe that we're getting to much healthier inventory positions with those products. The overarching statement is that we believe that our D-stock is complete, but there might be some product categories and some geographies even where there's still a little bit of work to do. But we're also light in some areas where we're seeing good sell-through into the marketplace. LED lights or even controls come to mind as a few that are doing well. So, you know, we think as we work through the early part of 2024, any excess in a particular product category, we're going to be able to address that as the season opens across all markets, you know, here into Q2 of 2024. Great, thanks for taking my questions.

To bring levels back up but just.

Just with respect to the early buy what.

What did you learn from that around their confidence levels or inventory levels et cetera, just trying to.

Tighten that up a little bit.

Yes so.

You know as we look at maybe the second half of the year early by really gets published as you know late Q3. So we start getting a read on that as we mentioned in prior earnings calls I would say and exiting Q3 from a low order standpoint, which the in season orders maybe you saw that.

That slow a little bit in anticipation of early buy.

I know we mentioned this on our on our last earnings call early by really Matt.

Our our expectations it increased year over year.

And we saw that as a as a positive sign both from an inventory destock working that down also with some expectation amongst the channel was very close with the end market around some opportunities or for sell through into 2024. So as we were.

Saree Emily Boroditsky: Our next question comes from the line of Jeff Hammond with KeyBank. Please proceed with your question. Hey, good morning, guys. Good morning. I'm just done.

Jeffrey David Hammond: I guess just to wrap up, you know, inventory destock. It sounds like the destock played out as you thought. You know, maybe the customers are being a little more cautious to bring levels back up. But, you know, just with respect to the early days, what did you learn from that around, you know, their confidence levels or inventory levels, you know, etc. Just just trying to, you know, tie that up a little bit. Yes, so.

Look on the on the early buy that's.

Thats just concluded.

We were pleased it came in to our expectations and we saw increase year over year Jeff.

Okay and then.

Just around market share shifts. So obviously you guys want a lot of share during Covid and then we're expecting some normalization I'm just wondering.

If that normalization has played out or if there is kind of more to go around.

Kevin P. Holleran: You know, as we look at maybe the second half of the year, you know, early buy really gets published, as you know, late Q3. So we start getting a read on that, as we mentioned in prior earnings calls, I would say, kind of exiting Q3 from a flow order standpoint, which the in-season orders maybe saw that slow a little bit in anticipation of early buy. You know, I know we mentioned this on our last earnings call, early buy really met our expectations. It increased year over year, and we saw that as a positive sign, both from an inventory destock, working that down, also with some expectation amongst the channel, who's very close to the end market around some opportunities for sell through into 2024. So, you know, as we look at the early buy that's just concluded, we were pleased.

That market share settling.

You know here at Hayward.

We believe that as the curtains closed on 2023.

Thats, the COVID-19 experience and some of the pickups and the or the challenges that occurred through that the dust has settled on that we know it was an extraordinary period.

It created some opportunity for some opportunistic share pick up based upon.

Availability or supply chain challenges.

As you've heard we've been very upfront first of all there is imperfect data, but we do work with our channel partners on sell through Theres also some wholesale shipment data that would.

They'd indicated share gains for us and we were always very upfront in saying that as supply chain has normalized we would expect some of that habitual buying to maybe go back to who the who the supplier was we believe that as the dust settled from hereon in.

Kevin P. Holleran: It came in at our expectations, and we saw an increase year over year, Jeff. Okay, and then just around market share shifts, obviously, you guys want a lot of share during COVID. And then we're expecting some normalization.

<unk> market share is kind of back to maybe where we were expecting to be and from here, it's going to be customer service relationships.

Jeffrey David Hammond: I'm just wondering if that normalization has played out, or if there's kind of more to go around, you know, that market share settling. Here at Hayward, we believe that, as the curtain closes on 2023, that, you know, the COVID experience and some of the pickups and the challenges that occurred through that, you know, the dust is settled on that. We know it was an extraordinary period.

Supply chain capabilities and product introductions is really what's going to drive future future share gains for us and that's what we're focused on and committed to.

Heyward.

Okay I appreciate the color Kevin.

Our next question comes from the line of Rob Wertheimer with Melius Research. Please proceed with your question.

Yeah, Hi, Thanks, good morning, everybody.

My question is a little bit.

Kevin P. Holleran: It created some opportunity for some opportunistic share pickup based upon, you know, availability or supply chain challenges. As you've heard, we've been very upfront. First of all, there isn't perfect data, but we do work with our channel partners on sell through. There's also some wholesale, shipment data that would, you know, indicate share gains for us. And we were always very upfront in saying that as supply chains normalized, we would expect some of that habitual buying to maybe go back to who the supplier was. We believe that as the dust settles from here on in, market share is kind of back to maybe where we, where we expect it to be. And from here, it's going to be customer service, relationships, supply chain capabilities, and product introductions that are really what's going to drive future, future share gains for us. And that's what we're focused on and committed to at Hayward. Okay, I appreciate the call.

How the year progresses from your view and when you kind of see what real.

And market real salt fell out through consumer demand is on upgrades on remodels and our new pools. I mean do you get to June in the U S kind of baked in that <unk> number looking forward or.

Talk about how you will see where that real demand. This when do you see it.

Yes, good morning, all of you.

We were calling for the issue to be to be a very normalized seasonal year, which as you know.

Right to get back to.

We normally see most channel sell out in Q2.

And then to a lesser extent in Q3 as the season comes to a close Q1 and Q4 tend to be the slowest sell out periods.

In the year, but.

We expect that regular cadence to occur this year.

And as I just mentioned earlier.

Get back to a normal sell in type of cadence with Q1 Q3 being the reduced causes for us in Q2 Q4 will be in the higher causes.

Jeffrey David Hammond: Our next question comes from the line of Rob Wertheimer with Melius Research. Please proceed with your question. Yeah, hi, thanks for the money, everybody. Um, my question is a little bit about how the year progresses from your point of view. And when you kind of see what the real, you know, end market real self-sellouts, real consumer demand is for upgrades, remodels, and new pools. I mean, you get to June, and the year's kind of baked in that front, and then we're, forward, or you just talk about how you see where. Yes, good morning, Robert. It's an honor to be here.

So.

After three years of.

The similar actions to where this business used to be historically, we very much see the sell out looking as it did historically with Q2 being the largest sell out period.

Okay Thats helpful.

I kind of understand it I'm just thinking about a lot of cross currents to consumer where the economy is kind of healthy you're baking in a reasonably.

Robert Cameron Wertheimer: You know, we were calling for this year to be a very normalized seasonal year because, you know, great to get back to, we normally see the most channels sell out in Q2, and then to a lesser extent in Q3, as as the season comes to a close. Q1 and Q4 tend to be the slowest sellout periods in the year, but we expect that regular cadence to occur this year. And as I just mentioned earlier, you know, we're going to get back to a normal sell-in type of cadence, with Q1, Q3 being the reduced quarters for us, and Q2, Q4 being the higher quarters. So, you know, after three years of dissimilar patterns to where this business used to be historically, we very much see the sellout looking as it did historically, with Q2 being the largest sellout period. That's helpful. I can. I kind of understand it.

I don't know conservative, but reasonably measured view on <unk>.

<unk> spend.

I don't know if we had may and people are actually spending and thats. When you kind of noted it.

I'm not trying to predict the direction, that's what I was just as important.

Yeah, Okay, I understand I mean look the guidance the guidance considers where the macro economy is today.

It considers that we have this compression on the new construction side remodel and upgrade upgrade defined as the equipment additions to the pool pad.

We want to see how the season develops as we step into Q2, and then how the how the consequential permitting takes place in the second half of this year, which sets us up crawl view on 2020 by but.

Kevin P. Holleran: I'm just thinking about a lot of cross currents for consumers when the economy is kind of healthy. You're baking in a reasonably, you know, conservative, but you know, reasonably measured view on discretionary spend. And I don't know if we hit, you know, the million people are actually spending, and that's when you kind of know if it or not. I'm not trying to predict the direction. That's what I was just, Yeah, okay, I understand. I mean, look, you know, the guidance considers where the macroeconomy is today. It considers that, you know, we have this compression on the new construction side, remodel, and upgrade, upgrade defined as equipment additions to the pool pad.

While the economy remains in this let's call the uncertain macro condition, we're gonna say that discretionary is going to be more impacted here.

In the front half given it's the seasonal period of 24.

Got it that's clear okay. Thank you.

Our next.

<unk> comes from the line of Mike Halloran with Baird. Please proceed with your question.

Good morning, everyone.

So just a couple here first could you just talk through the the sell out trends that you've seen from your distribution base North America over the last I don't know pick a number 678 months here I mean, when you look at the cadence and the trend there.

Are you seeing relative stability within the sequential or.

Kevin P. Holleran: You know, we want to see how the season develops as we step into Q2, and then how the consequent permitting takes place in the second half of this year, which sets us up for our view on 2025. But, you know, while the economy remains in this, let's call it, uncertain macro condition, we're going to say that discretion is going to be more impacted here in the front half, given it's the seasonal period of 24. Got it, that's clear.

Yeah, basically I know that we see year over year pressure on a lot of the remodel large scale remodel of the new build type work, but are we at the point, where that's a little bit more stable as you think back over the last few months here or has there been more volatility in there than normal.

I would actually say as we look at Q4 like that overall sell out was reduction year over year was.

Call. It a high single digit reduction year on year, but if you look at the more recent data point around Q4, we actually saw improvement against that.

Robert Cameron Wertheimer: Okay, thank you. Our next question comes from the line of Mike Halloran with Baird. Please proceed with your question. Good morning, everyone.

Year.

That full year number so Q4 on a on a year over year comps standpoint, we saw you know while we're certainly not done.

Michael Patrick Halloran: So just a couple here. First, could you just talk through the sellout trend that you've seen from your distribution base, North America, over the last, I don't know, pick a number, six, seven, eight months here. I mean, when you look at the cadencing and the trend there, are you seeing relative stability within the sequentials? Or you know, basically, I know that we see you under pressure on a lot of the remodel, large-scale remodel, and new build type work, but are we at the point where that's a little bit more stable, as you think back over the last few months here? Or has there been more volatility in the, I would actually say, as we look at Q4, Mike, that, you know, overall sellout was a reduction year over year, I call it a high single-digit reduction year on year.

Celebrate because it still has a long way to go but we saw it as a positive indication in Q4 on a year over year standpoint. So most recent data point, we were encouraged by actually with some of the sell out activity in Q4 versus prior year.

And sequentially, though it was a pretty normal seasonally.

Yeah, I mean, what we're seeing throughout 'twenty three is this reversion almost seasonality again with.

Sellout beings reduced in Q1, higher Q2 little bit low Q3, and low Q4, so we're seeing that normal curve.

Michael Patrick Halloran: But if you look at the more recent data point around Q4, we actually saw improvement against that year, that full year number. So Q4 on a year over year comp standpoint, we saw it, you know, while we're certainly not celebrating because it still has a long way to go, but we saw it as a positive indication in Q4 on a year over year basis. So the most recent data point we were encouraged by actually some of the sellout activity in Q4 versus the first prior year. And sequentially, though, is it pretty normal seasonally?

And develop.

In the business right now to be seen.

When we look at the regions, we've seen really strong performance.

In in the.

Sunbelt regions.

Particularly in markets like Florida, which seem to.

Done Super well here most recently.

Thanks for that and then could you put the the commentary that your distribution partners are being very cautious about bringing inventory in a historical context, meaning how does what they're doing today compared to you know.

Kevin P. Holleran: Yeah, I mean, what we're seeing throughout 23 is this reversion to normal seasonality again, with sellout being reduced in Q1, higher in Q2, a little bit lower in Q3 and lower in Q4. So we're seeing that normal curve, that pattern develop in the business right now. And we've seen, when we look at the regions, we've seen really strong performance in the Sunbelt regions, particularly in markets like Florida, which seem to have done super well here most recently. Yeah, I mean, if you go back pre-pandemic, the channel held, depending on what time of year you're dealing with, all the way up to five, five and a half months of inventory at times, particularly as they entered into the So that, I think, given the current cost of capital, given progressive improvements in data analytics and system management. And I'll come back to that in a second.

Pre COVID-19 I know.

Kind of there's some years when there were weather was a factor, but just thinking about what their normal inventory levels look like and what they are comfortable holding how would you compare what they're doing today versus maybe a more normalized period.

Yeah, I mean, if you go back pre pandemic channel health, depending on what time of year, you're dealing with all the way up to two.

Five five and half months of inventory at times, particularly as they entered into the peak seasonal periods.

So that that I think given the current cost of capital.

Given progressive.

Improvements in.

In data analytics.

System management.

I'll come back on the second there's been a lot of a lot of meat to reduce working capital.

Kevin P. Holleran: There's been a lot of movement to reduce working capital. And, you know, we define D-Stock as getting back to the historical days on hand. That happened largely through the end of Q3, and certainly it was the end of 2024 on a global basis. We're largely back at those historical days on hand.

And we define destocking is getting back to the historical days on hand, that's happened.

A lot of fees through the end of Q3 in southern Louisiana to 2024 on a global basis will largely back to those historical days on hand, but we have.

Kevin P. Holleran: But we have heard from channel partners that they would like to, you know, initiate continuous working capital focus that will lead to further reduction of inventory days on hand. And we believe our guidance accommodates that. But, you know, what does that mean?

From channel partners.

We'd like to.

Initiate a continuous working capital focus.

It will lead to further reduction of inventory days on hand, and we believe our guidance accommodates that what does that mean that means when you think about thousands of distribution points, both at the distributor level and at the retail level.

Kevin P. Holleran: That means when you think about thousands of distribution points, both at the distributor level and at the retail level, and, as Kevin said, make sure that you have the right SKU at the right time in the right location, those working capital improvements will take some time to realize. And we've got to be very thoughtful about that as we go over the next several years. I think we're all, as an industry, investing in data analytics, you know, improving our capabilities to get visibility as to how product moves in relation to end demand. And we are all investing to reduce our tech debt in that particular area. But it's clear that across the industrial sector, everybody's looking to reduce working capital.

And as Kevin said, making sure that you have the right SKU at the right time, the right location those working capital improvements will take some time to realize that we are going to be very thoughtful about that as we step over the next several years.

As an industry investing in data analytics.

Improving our capabilities to get visibility as to help on the news in relation to end demand and.

We are all investing to reduce our debt in that particular area.

It's clear.

That.

Across the industrial sector, everybody is looking to reduce working capital we see that over the course of several years.

Michael Patrick Halloran: We see that over the course of several years as a great outcome. You know, it's much healthier for the entire supply chain to be in a tighter inventory position. Great. That was very helpful. Thanks, guys. Appreciate it. Our next question comes from the line of Andrew Carter with Stievel.

Rate outcome.

It's much healthier.

On the supply chain to be in a tight inventory position.

Great that was very helpful. Thanks, guys I appreciate it.

Our next question comes from the line of Andrew Carter with Stifel. Please proceed with your question.

William Andrew Carter: Please proceed with your question. Hey, thanks. Good morning.

Hey, Thanks. Good morning first question I wanted to ask you is about the net price realization you have for the year plus 2% I wanted to kind of understand.

William Andrew Carter: The first question I wanted to ask you is about the net price utilization you have for the year plus 2%. I want to kind of understand what exactly is factored in there. I'm assuming a higher price increase that went into effect in North America that you're assuming versus Europe. Is there any kind of return to a more normal promotional cadence, perhaps pre-pandemic, in there this year that wasn't accomplished last year? Is an increase contemplated for October 1st in that guidance? I think you took one on October 1st this year, or are you hoping to go back to 25?

What exactly is factored in there I'm, assuming a higher price increase went into effect in North America that you're assuming versus Europe is there any kind of return to a more normal promotional cadence packaged pre pandemic.

In there this year that wasn't accomplished last year is a is a an increase contemplated in October 1st in that guidance. I think you said you took one in October 1st this year or are you hoping to go back to 25 and then the last one is kind of the vendor rebates issue that happened last quarter.

Kevin P. Holleran: And then the last one is kind of the vendor rebates issue that happened last quarter. Is that anomaly kind of already done, or does it still have to catch up? And also, I'm assuming with the vendor rebates you lowered the incentive levels. Have you kept the incentive levels for vendor rebates the same this year as last year? Thanks, in Let's see, we'll we'll tag team that I didn't get all that down, but we'll get through the questions and redirect us if we don't uh if we get to it all so in terms of, Last quarter, the vendor rebates, as we indicated at that point, we saw that as a one-quarter phenomenon. We indicated that would not repeat itself with the net price performance in Q4. I think that showed through in the results there. Uh, well, what I should say about that is.

Is that anomaly kind of already done or does it still have a catch up and also I'm, assuming with the vendor rebates you lowered the incentive levels have you kept incentive levels for vendor rebates. The same this year as last year.

Okay.

And let's see we'll tag team that I didn't get all of that down, but we will get through.

Questions redirect us if we don't.

Get to it so.

So in terms of.

Last quarter.

The vendor rebates as we indicated at that point, we saw that as a one quarter phenomena.

We indicated that would not repeat itself with the with the net price performance in Q4, I think that showed through.

In the results there in terms of.

Well, what I should say on that is we then transitioned.

Kevin P. Holleran: We then transitioned channel partner rebates from the end of the seasonal year, which is September 30th, to more of the calendar. So, you know, Q4 in 2024 will be the year where there might be some catch-up, either good or bad, you know, depending upon what the financial results against targets indicate. In terms of programs offered, I would say they're consistent with what they've been in the past, obviously based upon some volume expectations that we set alongside our channel partners. So I wouldn't really look for anything meaningfully to change year on year there.

Channel partner rebates from the end of the seasonal year, which is September 30th to more of the calendar. So Q4, and 2024 will be the year weather, where there might be some catch up either good or bad depending upon what the financial results against targets indicate.

In terms of our programs offered I would say they are they are consistent with what they've been in the past obviously based upon some up some volume expectations that we set alongside with our with our channel partners. So I wouldn't really look for anything meaningfully.

Need to change our year on year, there in terms of promotional activities as I indicate otherwise I forget it was question I was answering.

Eifion S. Jones: In terms of promotional activities, as I indicated, I forget whose question I was answering on the share, you know, I would really, I would really say, again, we're back into, I'd say, a more normal post-pandemic or pre-pandemic period where the industry had some expectation of some promotional activity. And that's what we're expecting through our commercial team, working with the channel and the end market, that there'll be a more normalized promotional environment that we experienced pre-2020 when the, when the pandemic really dismissed the need for that since there was such demand creation through the, through the pandemic. I know I missed some things in there, Andrew, so I'm looking at Eifion here to see if you have anything to pick up there? Yeah, let me just quickly go through a few points, Andrew, just to close it off.

Sure I would really I would really say again, we're back into I would say more normal post pandemic pre pandemic.

Period, where the industry had some XP.

Expectation of some.

Some promotional activity and that's what we're expecting through our commercial team working with the channel and the end market that there'll be more normalized promotional environment that we experienced pre 2020, when the when the pandemic.

Really.

Dismissed the need for that since there was such demand creation through the through the pandemic I know I missed some things in there Andrew I'm looking at Ibs C.

If you have anything to pick up the yeah. Let me just quickly go through a few points Andrew I think just to close it all.

Eifion S. Jones: Yes, the 2% net price does assume slightly higher net price realization in North America than in Europe and the rest of the world. However, the rebate anomaly that was apparent in Q3 of 2023 is behind us. We returned to positive price contribution in Q4 of the fourth year; we're at approximately 3% for 2023. So that anomaly is, is, is behind us in terms of the two, the overall 2% that we're guiding on for 2024, it matches up against our inflation expectations for the year. And we haven't in our guide contemplated yet any further price increase for Q4 next year. We'll make that determination as we get closer, or as we get better visibility of inflation going forward into 2025. Thank you. You got every single point. And I apologize. I have a bad habit of that that, asking too many questions with one.

The 2% net price doesn't assume.

Slightly higher net price realization in North America, and Europe rest of World.

The rebate anomaly that.

It was apparent in Q3 2023 is behind US we returned to positive price contribution in Q4, the full year were approximately 3% for 2023, so that anomaly.

It's behind us in terms of.

The overall, 2% that we're guiding on 2024, it matches up against our inflation expectations for the year.

And we have them in our guide contemplates yet any further price increase for Q4 next year, we'll make that determination as we get closer to when we get better visibility of inflation going forward into 'twenty one.

Thank you you've got every single point and I apologize I had a bad habit of that asking too many questions with one so I'll just ask it real simple I've got on the second one I've got your Cogs outlook.

William Andrew Carter: So I'll just ask it real simple. I've got on the second one, I've got your COGS outlook, kind of down 1.3 to down 3.6, kind of matching what your underlying implied volume outlook is of minus 1.2 to 3.8. That's with FX at 1%. I guess, in that outlook, are you assuming inflation on the materials or anything in there? Because that just, that, I guess that implies material costs are essentially neutral year over year. Thanks.

Down one three down three six kind of matching what's your underlying kind of implied volume outlook is minus one two to three eight that's with FX at 1%.

I guess in that outlook are you assuming inflation on the materials or anything in there because that just that that I guess that implies material costs are essentially neutral year over year.

William Andrew Carter: Yeah, sure. I mean, we haven't assumed underlying inflation to be 2%, but we're going to continue to drive efficiencies through our manufacturing locations. You know, we've got a great legacy of doing a number of things in manufacturing. The manufacturing principles have come back before over the last 18 months, and we've done a really good job there across the manufacturing footprint.

Yeah sure I mean, we haven't assumed underlying inflation to be 2%, but we're going to continue to drive efficiencies through our manufacturing locations. We've got a great legacy.

A number of things in manufacturing lean manufacturing principles of come back before.

Over the last 18 months, we've done a really good job there across manufacturing footprint. Additionally, we've gone through a consolidation program in Europe and consolidated two of our manufacturing facilities in Spain into one and that will yield some benefit once we fully commission that facility. So we're doing a lot.

Eifion S. Jones: Additionally, we've gone through a consolidation program in Europe. We consolidated two of our manufacturing facilities in Spain into one, and that will yield some benefit once we fully commission that facility. So we're doing a lot to continue to realize positive gross margin development despite maintaining price-cost neutrality. Thanks; I'll pass it on.

Two to continue to realize positive gross margin development, despite maintaining price cost neutrality.

Thanks, I'll pass it on.

Nigel Edward Coe: Our next question comes from the line of Nigel Coe with Wolf Research. Please proceed with your question. Thanks. Good morning.

Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.

Thanks, Good morning, just a just a couple.

Nigel Edward Coe: Just a couple of clarifications here. So, Kevin, based on your comments about expectations between the U.S. and international, so mid-single digit down in terms of units down, Unknown Speaker 1. So, I'm going to talk about this discretionary here. It seems like we're looking at sell-through down in the sort of mid-single digit zone with a net worth of guided bet of maybe eight to nine points of benefit from prior year inventory drawdown. I just want to make sure that the math there is consistent.

You know kind of complications here so Kevin based on your comments about expectations between U S and international so mid single digit down in terms of units down in Oh, Yeah, sorry, yeah.

Can you just talk about the discretionary here it seems like we're looking at.

Sell through down and that sort of a mid single digit zone.

With that but with the guidance, maybe eight to nine points of benefit from prior year inventory draw down just to make sure that the math there.

Is is correct, but.

Kevin P. Holleran: I think that's correct, but my first question is really about cost control. You mentioned cost control throughout the slides. Just wondering, you know, as we think about recovery, do we need to think about investment spending ramping up, or executive comp, or any other kind of discretionary costs coming back in that might crimp? Nigel, I'll take the first part of the question, then I'll hand it off to Ivan for the second half.

My first question is really about the.

You mentioned cost control.

Throughout the slides and in your prepared remarks, just wondering you know as we think about recovery.

Do we need to think about.

Investment spending ramping up or exact comp pool.

Any other kind of discretionary costs come back in but my crimping quite of margins from here.

Nigel I'll take the first part of the question then I'll hand, it off to Todd.

Second half, but yes, I think the math that you're doing.

Eifion S. Jones: Yeah, I think the math that you're doing is spot on. You know, again, I'll just walk through, I guess the first time I answered this, I didn't specifically address what we think was a headwind in 2023 and how it may become a bit of a tailwind in our guide. So again, two points of price. Overall, when you look at the global volume decline, we see that in the six to seven percent negative range or down range, we could see a high single digit, maybe 10 percent tailwind from the Deedstock reversing in 2024, and then again, potentially a percent on the FX. So I think that should all tie out to what you were backing into when you asked the question. Yeah, sorry, can you repeat the second after you're fading in and out, Nigel?

It is.

Is is spot on.

I'll just walk through.

The first time, I guess I didn't specifically address what we think what was a headwind in 2023, how it may become a bit of a tailwind.

In our guide so again two two points of price overall when you when you look at the global volume.

Decline, we see that in the 6% to 7% negative range or down range.

We could see at a high single digit maybe 10% tailwind.

From the destock reversing in 2024, and then again.

Actually a percent.

On the on the asset so I think that should all tie out to what you were backing into when you asked the question Nigel.

So and then yes.

Sorry can you repeat the second half to you're fading in and out Nigel.

Nigel Edward Coe: Yeah, so it's about discretionary cost control. You mentioned cost control, which is obviously very natural when you have volume spending as much as you are, but just thinking about recovery. Are there things we need to consider in terms of investment spending, executive compensation, etc., anything discretionary that might crimp incremental margins along the way? Yeah, so, the guidance that we've given for the year at the Justin Trudeau level of 255 to 275 fully contemplates all the costs that we're planning to put in there, including compensation. It also includes the continuing theme of investing in research, development, and engineering.

Yeah. So it's about the discretionary cost control you mentioned cost control, which is obviously way natural when you have when it was down as much as you are but just thinking about the recovery.

The things we need to consider in terms of investment spending.

Exact comp et cetera, anything discretionary that might crimping or incremental margins on the way back up.

Yeah. So I mean, the guidance that we've given for the year. The adjusted EBITDA level of $2 55 to $2 75 fully contemplates.

All the costs.

That will put in the <unk>.

Good day.

Compensation. It also includes the continuous domestic investments in research development and engineering in.

Eifion S. Jones: You know, in 2023, we invested greater than, I think it was around about a 10% increase in RD&E expenditures year over year, and we will continue to do that to drive the technology platform across the product line. We're not at the point yet where we need to reinvest in G&A. We do have some plans to invest in sales personnel, and that also has been contemplated within the guidance that we've given, but we're going to be very methodical as we go forward over here over the next two years to make sure that the cost base is kept in line with the growth on top. Great, and then a quick follow-on. The free cash flow 160, I'm assuming, you know, the priority is debt reduction in 2024. So does the guide embed the 160 deployed into debt reduction? Is that embedded in your interest expense guide? So, free cash flow generation, you know, contemplates cash flow from operations, which obviously considers an aggressive reduction in the net debt position in the business.

2023, we invested greater than I think it was around about a 10% increase in our G&A expenditures hero.

We'll continue to do that.

Two to drive the technology platform across the product line.

We're not at the point, yet where we need to reinvest in.

In G&A we.

We do have some plans to invest in and sales personnel and that also has been contemplated within the guidance that we gave them, but we're going to be very methodical as we go forward over here over the next.

Two years to make sure that.

Cost basis kept in line with the growth on the topline.

Great and then a quick final one.

The free cash flow of 160, I'm, assuming you know the priority is debt reduction in 2024.

Does the guide Embeds.

The 160 <unk> debt reduction is that embedded in your interest expense guidance.

So the the free cash flow generation.

Contemplates our cash flow from operations, which obviously considers.

Aggressive reduction in the net debt position in the business.

Nigel Edward Coe: We, you know, will make a determination on how we tackle the gross debt. But certainly, the accumulated cash earnings in the business will continue to be invested and earned at a very good rate, as we demonstrated before. But at the end of the day, the $160 million reflects the conversion of EBITDA to pre-cash flow once you take out the capex interest and tax and also considered as a modest working capital improvement primarily in inventory over the course of 2024. Okay, very helpful.

We will.

We'll make a determination on on.

On how we tackle the gross debt.

But certainly the accumulated cash earnings and the business will continue to be invested.

And.

It's a very good grade has demonstrated before.

But at the end of the day.

$160 million Bucks.

Conversion of EBITDA to free cash flow once you take out capex interest and tax.

And also consider this a modest working capital improvement primarily in inventory over the course of 2024.

Okay very helpful. Thanks.

Rafe Jason Jadrosich: Our next question comes from the line of Rafe Jadrosich with Bank of America. Please proceed with your question. Hi, good morning. Thanks for taking my question. Morning Road.

Our next question comes from the line of Ralph <unk> with Bank of America. Please proceed with your question.

Hi, good morning, Thanks for taking my question.

Road.

First of all just following up on.

Nigel was questioned.

Rafe Jason Jadrosich: First, just following up on Nigel's question, the decrements have been really impressive over the last year. You know, how do we think going forward here if volume growth does kind of improve in the second half of the year and then into the fourth quarter? How do we think about incrementals longer term, either from a gross margin or keep it out for? Yeah, I mean, historically, the incrementals in the business used to be in the high 30s. You know, we've, we've, we've done better than that.

The decrementals have been.

Really impressive over the last year and.

How do we think going forward here, if volume growth does kind of improve in the second half of the year and then into 'twenty five how do we think about incrementals longer term either from a gross margin or EBITDA.

EBITDAR perspective.

Yes.

Okay. The incrementals in the business he has been the high thirties.

Beef.

<unk> done better than that.

Eifion S. Jones: Most recently, as we've moved through both incrementals and decrements, what I would say is, you know, we strive to achieve at least what we have historically, if not better on the incremental side, and it all comes back to manufacturing cost discipline and SG, SG&A purposeful investments. And so I'm a bit hesitant to give you a firm figure, but we certainly look to beat the historical average. Um, and then just on the, can you talk about what the full-year sellout was for 2023 versus the sell in? I think last quarter, you'd given a sort of estimated D stock number, I think of 160. Did that come in about what you were initially expecting?

Most recently as we've moved through both Incrementals Decrementals, what I would say it's.

We strive to achieve.

At least what we have historically if felt better on the Incrementals following and it all comes back to manufacturing cost discipline.

The S gene SG&A purposeful investments in so.

And to give you a folks they get but we certainly look to beat the historical lows.

Right.

And then just on the.

Can you talk about what the full year sell out was for 2023 versus the sell in.

Last quarter you had given.

Sort of estimated destock number I think of 160 <unk> did that come in about what you were initially expecting.

Rafe Jason Jadrosich: Yeah, so we don't get perfect sellout information across the globe. So we have to kind of triangulate that number based upon those in the US that do report that type of information to us. And what we do know is, across the entirety of the globe, there was meaningful destock over the 2023 time period. Again, what we've put into our guidance is approximately 100 million or 10% of that, not repeating in 2024, which Kevin and I have just walked through. You know, that's what we feel comfortable with right now, given some of the macro uncertainty that we've got in the business. You know, what we'd say is we are largely de-stuck now back to historical days on hand, and that was really achieved coming out of 2023.

Yes, so we don't get perfect set out information across the globe.

We have to kind of triangulate that number based upon those in the U S that to report that type of information to us and while we do know is across the entirety of the globe that whilst destock meaningful destock over the 2023 time period.

Again, what we put into our guidance is approximately 100 million or 10% of that not repeating in 2024.

Which Kevin and kind of just go through.

That's what we feel comfortable with right now given some of the macro uncertainty that we've got.

In the business.

But.

What we'd say is we are largely destock back to historical days on hand, and that was really achieved coming out of 2023.

Eifion S. Jones: The last one just very quickly on the it looks like this SG&A are you getting for being the slight de-leverage or flattish year over year? Can you just sort of bridge us to what you know where you're getting leverage? Like what are the puts and takes?

The last one very quickly on the it looks like.

SG&A.

Are you getting for maybe slight deleverage or flattish year over year can you just sort of bridge us to what where you are getting leverage reported they put puts and takes on a sure.

Rafe Jason Jadrosich: Yeah, so we have, you know, progressively built our G&A team, our general and administrative team, up over the last three years, and so we'll continue to leverage on that. We have made some discrete investments in G&A, specifically around our business intelligence capabilities. We've recently built up a team in that regard, and we look for great leverage on that investment over the next couple of years. But we really do have an opportunity to hold that G&A base now, given where we exited at at 23, and maybe just slightly over inflation. And so that will be a great opportunity for margin leverage as we go forward. And then, obviously, in the manufacturing cost base, we have a good amount of latent capacity that we can continue to tap into, as well as continuing to execute on lean manufacturing strategies to reduce costs.

Yes, so we have progressively built G&A team of general and administrative team up over the last three years.

And so we'll continue to leverage on that.

We have made some disk.

Discrete investments into G&A, specifically around our business intelligence capabilities. We've built out recently you had seen in that regards.

Look for great leverage on that investment over the next couple of years, but we really do have an opportunity to to hold that G&A base now given what we exited out of 'twenty, three but maybe just slightly over and inflation and so that will be a great opportunity for margin leverage as we go forward and that obviously in the manufacture.

The cost base.

Have a good amount of latent capacity that we can continue to tap into as well as continuing to execute on lean manufacturing strategies.

To reduce cost.

Rafe Jason Jadrosich: Great, thank you. Thank you. Mr. Holleran, we have no further questions at this time. I would like to turn the floor back over to you for closing comments. Thank you, Christine. In closing, I'd just like to thank everyone for their interest in Hayward. Our business is very well positioned to navigate the near-term challenges and deliver value for our stakeholders in the years ahead. This wouldn't be possible without the hard work, dedication, and resilience of our employees and our partners around the world.

Great. Thank you.

Thank you Mr. Holland, we have no further questions at this time I would like to turn the floor back over to you for closing comments.

Christine in closing I'd, just like to thank everyone for their interest in Hayward, our business is very well positioned to navigate the near term challenges and deliver value for our stakeholders in the years ahead. This wouldn't be possible without the hard work dedication and resilience of our employees and our partners around the world. Please contact our team if you have any follow up.

Kevin P. Holleran: Please contact our team if you have any follow-up questions, and we look forward to talking to you again on the first quarter earnings call. Thanks, Christine. You may now end the call. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

And we look forward to talking to you again on our first quarter earnings call. Thanks, Christine you may know on the call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.