Q1 2024 Hayward Holdings Inc Earnings Call

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Operator: Good morning, ladies and gentlemen, and welcome to Hayward Holdings' first quarter 2024 earnings call. My name is Lesser, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star, then the number one on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President of Investor Relations. Excuse me, Mr. Maczka, you may...

Good morning, ladies and gentlemen, and welcome to <unk> Holdings first quarter 2024 earnings call. My name is lesser and I will be your operator for today.

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

Operator: Later, we will conduct a question and answer session.

Operator: During the question and answer session. If you have a question. Please press Star then the number one on your Touchtone phone.

Operator: Please note that this conference is being recorded.

Operator: I will now turn the call over to Kevin Baxter, Vice President of Investor Relations. Mr. <unk> you may begin.

Operator: Yeah.

Operator: Okay.

Operator: Okay.

Operator: Yes.

Operator: Excuse me Mr. Maxa you may begin.

Operator: Okay.

Kevin Richard Maczka: Thank you and good morning everyone. We issued our first quarter 2024 earnings press release this morning, which has been posted to the investor relations section of our website at investor.hayward.com. Here 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.

Kevin Richard Maczka: Thank you and good morning, everyone. We issued our first quarter 2024 earnings press release. This morning, which has been posted to the Investor Relations section of our website at Investor day at Hayward Dot Com era. You can also find an earnings slide presentation that we will reference during this call I'm joined today by Kevin Holleran President.

Kevin Richard Maczka: The Chief Executive Officer, and IV, and Jones, Senior Vice President and Chief Financial Officer.

Kevin Richard Maczka: 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 filing 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: 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.

Kevin Richard Maczka: Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Form 10-K filing with the Securities and Exchange Commission that could cause actual results to differ materially.

Kevin Richard Maczka: Company does not undertake any duty to update such forward looking statements. Additionally.

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 Holleran.

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.

Kevin P. Holleran: Thanks, Kevin. Good morning, everyone.

Kevin Richard Maczka: I would now like to turn the call over to Kevin Howard Thanks, Kevin and good morning, everyone. It's my pleasure to welcome all of you to <unk> first quarter earnings call I will start on slide four of our earnings presentation with today's key messages I'm pleased to report first quarter results in line with expectations, we executed well during the quarter delivering robust profitability and improved cash flow net.

Kevin P. Holleran: It's my pleasure to welcome all of you to Hayward's first quarter earnings call. I'll start on slide four of our earnings presentation with today's key messages. I'm pleased to report first quarter results in line with expectations. We executed well during the quarter, delivering robust profitability and improved cash flow. Net sales increased 1% year-over-year through modest contributions from both price and volume. Gross margins expanded 260 basis points to 49.2%. This matches the record we achieved in the fourth quarter last year at lower sequential sales volumes and represents the fifth consecutive quarter of year-over-year gross margin expansion. Cash flow also improved year-over-year during a seasonally soft period. I'm proud of the performance of the entire Hayward team during the quarter.

Kevin P. Holleran: Sales increased 1% year over year through modest contributions from both price and volume.

Kevin P. Holleran: Gross margins expanded 260 basis points to 49, 2%. This matches the record we achieved in the fourth quarter last year at lower sequential sales volumes and represents the fifth consecutive quarter of year over year gross margin expansion cash flow also improved year over year during a seasonally soft period I'm proud of the performer.

Kevin P. Holleran: Of the entire <unk> team during the quarter strong profitability and cash flow enable us to reinvest in the business to drive growth and productivity as an innovation leader in the industry. We are introducing a number of exciting new products. This year I will share details on another launch in a moment subsequent to quarter end, we completed a voluntary early debt repayment, reflecting confidence in our outlook.

Kevin P. Holleran: Strong profitability and cash flow enable us to reinvest in the business to drive growth and productivity. As an innovation leader in the industry, we are introducing a number of exciting new products this year. I'll share details on another launch in a moment. Subsequent to quarter end, we completed a voluntary early debt repayment, reflecting confidence in our outlook for business performance and cash flow generation. Eifion will provide details later in the presentation.

Kevin P. Holleran: For business performance and cash flow generation Biogen will provide details later in the presentation. Finally, we are maintaining our full year guidance for full year 2024, we continue to expect a return to sales and earnings growth with net sales, increasing approximately 2% to 7% and adjusted EBITDA, increasing approximately three to 11 <unk>.

Kevin P. Holleran: Finally, we are maintaining our full-year guidance. For full year 2024, we continue to expect a return to sales and earnings growth, with net sales increasing approximately 2% to 7% and adjusted EBITDA increasing approximately 3% to 11%. Turning now to slide 5, highlighting the results of the quarter. Net sales in the first quarter increased 1% year-over-year to $213 million, consistent with expectations. By segment, net sales increased 7% in North America and declined 17% in Europe and the rest of the world.

Kevin P. Holleran: Turning now to slide five highlighting the results for the quarter net sales in the first quarter increased 1% year over year to $213 million consistent with expectations by segment net sales increased 7% in North America and declined 17% in Europe and rest of world incoming orders were healthy in Europe during the quarter, but volumes were impacted.

Kevin P. Holleran: Incoming orders were healthy in Europe during the quarter, but volumes were impacted in part by delays related to consolidating our manufacturing operations in Europe. The footprint actions are complete, and production is ramped up to expected levels in the second quarter. We're focused on driving growth in the commercial segment of the market, and commercial pool sales in North America increased double digits for the quarter, continuing the multi-year trend. As I mentioned, gross profit margins expanded 260 basis points year-over-year to 49.2% in the first quarter, matching a quarterly record. Adjusted EBITDA margin in the first quarter was 21.2%, and adjusted EPS was 8.2%.

Kevin P. Holleran: In part by delays related to consolidating our manufacturing operations in Europe. The footprint actions are complete and production has ramped up to expected levels in the second quarter, we're focused on driving growth in the commercial segment of the market and commercial pool sales in North America increased double digits for the quarter, continuing the multiyear trend as I mentioned.

Kevin P. Holleran: Gross profit margins expanded 260 basis points year over year to 49, 2% in the first quarter matching matching the quarterly record.

Kevin P. Holleran: Adjusted EBITDA margin of the first quarter was 21, 2% and adjusted EPS was <unk> <unk>.

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 our largest market, 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 higher interest rates.

Kevin P. Holleran: Turning now to slide six for a business update and demand for Hayward products was consistent with our expectations for the quarter with our largest market. 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 impacted by current.

Kevin P. Holleran: The conditions and higher interest rates as we approach the peak pool season, we expect more normal seasonal demand trends with improvements sequentially in the second quarter and recent quarters are channel partners. We're rebalancing the level of inventory relative to the current economic outlook normalized OEM lead times and higher cost of cash.

Kevin P. Holleran: As we approach the peak pool season, we expect more normal seasonal demand trends with sequential improvements in the second quarter. In recent quarters, our channel partners were rebalancing the level of inventory relative to the current economic outlook, normalized OEM lead times, and higher costs of capital. As we commented previously, inventory levels have normalized, and the post-pandemic reset is largely behind us.

Kevin P. Holleran: Capital.

Kevin P. Holleran: As we commented previously inventory levels have normalized and the post pandemic reset is largely behind us, but the channel is taking a prudent approach continuously recalibrating the level of inventory on hand to be appropriately positioned to support their expected customer demand historically the pool industry has been very disciplined on price.

Kevin P. Holleran: But the channel is taking a prudent approach, continuously recalibrating the level of inventory on hand to be appropriately positioned to support their expected customer demand. Historically, the pool industry has been very disciplined on price, and we previously implemented annual price increases for 2024 to maintain price-cost neutrality. We continue to expect positive net price realization of approximately 2% for the year, with the actual contribution modestly below this level in the first quarter, as expected due to the mix of customer early buy sales on discounted terms.

Kevin P. Holleran: And we previously implemented annual price increase for 2024 to maintain price cost neutrality. We continue to expect positive net price realization of approximately 2% for the year with the actual contribution modestly below this level in the first quarter as expected due to the mix of customer early buy sales on <unk>.

Kevin P. Holleran: Discounted terms, we initiated a plan last year to consolidate facilities in Europe to get closer to key customers better leverage a modern facility in Spain and support margins as I mentioned in this project is now complete and we are achieving full production rates in the second quarter in April we announced the appointment of Eric <unk> as Chief Global Operation.

Kevin P. Holleran: We initiated a plan last year to consolidate facilities in Europe to get closer to key customers, better leverage a modern facility in Spain, and support margins. As I mentioned, this project is now complete, and we are achieving full production rates in the second quarter. In April, we announced the appointment of Eric Cezrenet as Chief Global Operations Officer, succeeding John Collins, who was appointed Chief Commercial Officer.

Kevin P. Holleran: Officer, succeeding John Collins, who was appointed Chief commercial officer operational Excellence has historically been a competitive advantage for Hayward and Eric brings more than 30 years of experience in global operations lean manufacturing and supply chain leadership to advance Hayward strategies for a world class end to end supply chain. Finally, we were honored to receive the 2020.

Kevin P. Holleran: Operational excellence has historically been a competitive advantage for Hayward, and Eric brings more than 30 years of experience in global operations, lean manufacturing, and supply chain leadership to advance Hayward's strategies for a world-class end-to-end supply chain. Finally, we were honored to receive the 2024 Energy Star Partner of the Year Award from the U.S. Environmental Protection Agency, our fourth consecutive year of Energy Star recognition. This is a testament to our commitment to innovation and sustainability as we strive to produce the most energy efficient solutions for our customers. Turning now to slide seven.

Kevin P. Holleran: For energy Star partner of the year Award from the U S. Environmental Protection Agency, our fourth consecutive year of energy Star recognition. This is a testament to our commitment to innovation and sustainability as we strive to produce the most energy efficient solutions for our customers turning now to slide seven for the fourth quarter call. We highlighted some key new product.

Kevin P. Holleran: On the fourth quarter call, we highlighted some key new product technologies being introduced in early 2024. Building on that momentum today, I'll share more exciting news as we showcase two new robotic cleaners in our automatic cleaner line. The PoolCleaner R110 and R130 robot models target the in-ground residential market, complementing our Tiger Shark series of robots. With advanced features such as smart navigation, interchangeable filters, and, on the R-130 model, active scrubbing of all pool surfaces, these units represent the best in both quality and speed of cleaning for the whole pool.

Kevin P. Holleran: <unk> is being introduced in early 2024 building on that momentum today I'll share more exciting news as we showcased two new robotic cleaners to our automatic cleaner line the pool cleaner or 110, and our 130 robot models target the in ground residential market complementing our Tiger shark series of robots with advanced features.

Kevin P. Holleran: <unk>, such as smart navigation interchangeable filters and on the <unk> hundred 30 model active scrubbing of all pool surfaces. These units represent the best of both quality and speed of cleaning for the whole pool, both units feature and easy to use programming programmable user interface for convenience and simplicity over the past seven years the U S.

Kevin P. Holleran: Both units feature an easy-to-use, programmable user interface for convenience and simplicity. Over the past seven years, the U.S. robotic cleaner market has grown at a double-digit rate, outpacing other automatic cleaner technologies such as suction and pressure. These pool cleaner models represent an initial step in a longer roadmap for robotic cleaners. We look forward to sharing more information about our plans for this important product category and other new product technologies later this year. With that, I'd like to turn the call over to Eifion, who will discuss our financial results in more detail.

Eifion: Robotic cleaner market has grown at a double digit CAGR outpacing other automatic cleaner technologies, such as suction and pressure. These pool cleaner models represent an initial step in a longer roadmap for robotic cleaners, we look forward to sharing more information about our plans for this important product category and other new product technologies later this year with that.

Eifion: I'd like to turn the call over to <unk>, who will discuss our financial results in more detail. Thank you Kevin and good morning, I'll start on slide eight all comparisons will be made on a year over year basis. As Kevin stated we are pleased with our first quarter financial performance net sales were in line with expectations for the quarter and we delivered outstanding gross margin expansion.

Eifion S. Jones: Thank you, Kevin, and good morning. I'll start on slide 8. All comparisons will be made on a year-over-year basis. As Kevin stated, we are pleased with our first quarter financial performance. Net sales were in line with expectations for the quarter, and we delivered outstanding gross margin expansion. The year-over-year increase in our cash balance at the end of the first quarter and strong collections expected in the second quarter have given us the confidence and flexibility to deploy cash for early debt repayment.

Eifion S. Jones: Year over year increase in our cash balance at the end of the first quarter and strong collections expected in the second quarter of giving us the confidence and flexibility to deploy cash for early debt repayments looking at the results in more detail net sales for the first quarter increased 1% to $213 million driven by modest increases in both net.

Eifion S. Jones: Looking at the results in more detail, net sales for the first quarter increased 1% to $213 million, driven by modest increases in both net price and volume. Gross profit in the first quarter was $105 million, and gross profit margin increased 260 basis points to 49.2%. This is a strong result primarily driven by continuous improvement and efficiency gains in our manufacturing operations. Adjusted EBITDA was $45 million in the first quarter, and the adjusted EBITDA margin was 21.2%. Our effective tax rate was 24% in the first quarter, compared to 9% in the prior year period. The change was primarily due to the timing of discrete items.

Eifion S. Jones: Rice in volume gross profit in the first quarter of $105 million in gross profit margin increased 260 basis points to 49, 2%. This is a strong result, primarily driven by continuous improvement and efficiency gains in our manufacturing operations.

Eifion S. Jones: Adjusted EBITDA was $45 million in the first quarter and adjusted EBITDA margin was 21, 2% our effective tax rate was 24% in the first quarter compared to 9% in the prior year period. The change was primarily due to the timing of discrete items adjusted EPS in the quarter was eight.

Eifion S. Jones: Now I'll discuss our reportable segment results beginning on slide nine North America net sales for the first quarter increased 7% to $173 million driven by largely higher volumes net sales increased 5% in the U S and 21% in Canada, the Canadian market has been significantly <unk>.

Eifion S. Jones: Adjusted EPS in the quarter was $0.08. Now I'll discuss our reportable segment results. Beginning on slide 9, North American net sales for the first quarter increased 7% to $173 million, driven by largely higher volumes. Net sales increased 5% in the U.S. and 21% in Canada.

Eifion S. Jones: The Canadian market has been significantly impacted by economic conditions and higher financing costs, with increased sales in the quarter due to the timing of deliveries. Gross profit margin increased 320 basis points year-over-year and 70 basis points sequentially to a robust 51.8%, representing the fifth consecutive quarter of year-over-year margin expansion. The adjusted segment income margin was 26.1%. Turning to Europe and the rest of the world, net sales for the first quarter decreased 17% to $39 million due to lower volumes. Net sales declined 12% in Europe and 27% in the rest of the world.

Eifion S. Jones: <unk> by economic conditions, and higher financing costs with increased sales in the quarter due to timing of deliveries gross profit margin increased 320 basis points year over year, and 70 basis points sequentially to a robust 51, 8% representing the fifth consecutive quarter.

Eifion S. Jones: Our year over year margin expansion adjusted segment income margin was 26, 1%.

Eifion S. Jones: Going to Europe, and rest of World net sales for the first quarter decreased 17% to $39 million due to lower volumes net sales declined 12% in Europe, and 27% and rest of world as Kevin noted our footprint consolidation program in Europe resulted in the delay of certain customer deliveries gross.

Eifion S. Jones: As Kevin noted, our footprint consolidation program in Europe resulted in a delay of certain customer deliveries. Gross profit margin was 37.6%, and adjusted segment income margin was 16.1%. Turning to slide 10, for a review of our balance sheet and cash flow highlights, net debt to adjusted EBITDA was four times at the end of the first quarter.

Eifion S. Jones: Margin was 37, 6% and adjusted.

Eifion S. Jones: Segment income margin was 16, 1%.

Eifion S. Jones: Turning to slide 10 for a review of our balance sheet and cash flow highlights net debt to adjusted EBITDA was four times at the end of the first quarter, we continue to prioritize deleveraging.

Eifion S. Jones: And expect to be back within our targeted range of two to three times. This year total liquidity at the end of the quarter was $463 million, including cash and equivalents of $116 million plus availability under our credit facilities of $347 million, we have no near term maturities on our debt the debt matures in 2020.

Eifion S. Jones: We continue to prioritize deleveraging and expect to be back within our targeted range of two to three times this year. Total liquidity at the end of the quarter was $463 million, including cash and equivalents of $116 million, plus availability under our credit facilities of $347 million. We have no near-term maturities on our debt. The debt matures in 2028, and the undrawn ABL matures in 2026. This attractive maturity schedule provides financial flexibility as we execute our strategic plans.

Eifion S. Jones: On the Undrawn ABL matures in 2026, this attractive maturity schedule provides financial flexibility as we execute our strategic plans our borrowing rate benefits from the $600 million of debt currently tied to fixed interest rate swap agreements maturing in 2025 through 2027.

Eifion S. Jones: Our borrowing rate benefits 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 to 6.7% in the first quarter. Our average interest rate earned on global cash deposits for the quarter was 5.1%.

Eifion S. Jones: Limiting our cash interest rate on term facilities of six 7% in the first quarter. Our average interest rates earned on global cash deposits for the quarter was five 1% overall, we're pleased with the quality of our balance sheet. The business has strong free cash flow generation attributes driven by high quality.

Eifion S. Jones: Overall, we are pleased with the quality of our balance sheet. The business has strong free cash flow generation attributes driven by high quality earnings. As a reminder, cash flows are seasonal, and the company typically uses cash in the first quarter and has strong cash generation in the second quarter related to payment collection of early buy receivables. Cash flow used in operations was $77 million in the first quarter compared to $91 million in the year-ago period. This improvement reflects continuous improvement in working capital management, primarily reduced inventory levels. Total inventories declined by $54 million, or 20% year-over-year.

Eifion S. Jones: Earnings as a reminder, cash flows are seasonal and the company typically uses cash in the first quarter and has strong cash generation in the second quarter related to payment collection of early buy receivables cash flow used in operations was $77 million in the first quarter compared to $91 million in the year.

Eifion S. Jones: [noise] ago period. This improvement reflects continuous improvement and working capital management, primarily reduced inventory levels total inventories declined by $54 million or 20% year over year Capex was $6 million in the first quarter and consequently free cash flow was a use of $83 million, we continue to explore.

Eifion S. Jones: <unk> free cash flow conversion of greater than 100% of net income with full year 2020 for free cash flow of approximately $160 million given the year over year increase in our cash balance and our confidence in strong seasonal cash collections in the second quarter, we completed our voluntary early debt repayments.

Eifion S. Jones: CapEx was $6 million in the first quarter, and consequently, free cash flow was a use of $83 million. We continue to expect free cash flow conversion of greater than 100% of net income, with full year 2024 free cash flow of approximately $160 million. Given the year-over-year increase in our cash balance and our confidence in strong seasonal cash collections in the second quarter, we completed a voluntary early debt repayment subsequent to the quarter end.

Eifion S. Jones: Subsequent to quarter end, specifically, we used cash on hand to repay the full outstanding balance on our incremental term loan b all of approximately $123 million. We expect this to result in annualized interest expense savings of approximately $10 million of $4 million that's over.

Eifion S. Jones: Specifically, we used cash on hand to repay the full outstanding balance on our incremental term loan, B, of approximately $123 million. We expect this to result in annualized interest expense savings of approximately $10 million or $4 million net of interest income. Estimated next savings for fiscal year 2024 are approximately $3 million, reflecting the partial year impact.

Eifion S. Jones: Interest income expected net savings for fiscal year, 2024, or approximately $3 million, reflecting the partial year impact turning now to capital allocation on slide 11, as we've highlighted before we maintain a disciplined financial policy and take a balanced approach emphasizing strategic growth investments.

Eifion S. Jones: Turning now to capital allocation on slide 11. 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 growth capex, investments, and debt repayment. We also continue to consider strategic acquisition opportunities to complement our product offering, the geographic footprint in which we serve, and commercial relationships, in addition to opportunistic share purchases.

Eifion S. Jones: And shareholder returns, while maintaining prudent financial leverage in the near term we are prioritizing growth capex.

Eifion S. Jones: Investments and debt repayments. We also continue to consider strategic acquisition opportunities to complement our product offering the geographic footprints in which we serve and commercial relationships. In addition to opportunistic share repurchases turning now to slide 12 for our outlook our outlook for 2020.

Eifion S. Jones: Turning now to slide 12 for our outlook. Our outlook for 2024 is unchanged. We continue to anticipate a return to sales and earnings growth for the full year, driven by solid execution across the organization, positive price realization, and increased technology adoption. Our guidance range contemplates uncertainty in global macro conditions and consumer spending trends, coupled with our current expectation regarding channel inventory levels. For the full fiscal year 2024, Hayward continues to expect net sales to increase approximately 2% to 7%, equivalent to a range of $1.01 to $1.06 billion, with adjusted EBITDA of $255 to $275 million. We anticipate full-year free cash flow of approximately $160 million. Our interest expense expectation is reduced by $3 million to $67 million as a result of the early debt repayment.

Eifion S. Jones: <unk> is unchanged, we continue to anticipate a return to sales and earnings growth for the full year driven by solid execution across the organization positive price realization and increased technology adoption, our guidance range contemplates uncertainty and global macro conditions and consumer spending trends.

Eifion S. Jones: With our current expectation regarding channel inventory levels for the full fiscal year 2020 for Hayward continues to expect net sales to increase approximately 2% to 7% equivalent to a range of 1.0 to one to 1.06 billion with adjusted EBITDA of 250.

Eifion S. Jones: $55 million to $275 million, we anticipate full year free cash flow of approximately $160 million.

Eifion S. Jones: Our interest expense expectation has reduced by $3 million to $67 million as a result of the early debt repayment. The effective tax rate forecast remains approximately 25% for the remainder of the year and our Capex spending forecast is also unchanged at approximately $35 million looking out beyond 2024, we.

Eifion S. Jones: The effective tax rate forecast remains approximately 25% for the remainder of the year, and our capex spending forecast is also unchanged at approximately $35 million. Looking out beyond 2024, we remain very positive about the long-term health and growth profile of the pool industry, particularly the strength of the aftermarket. We are confident in our ability to successfully execute our strategic growth plans. And with that, I'll now turn the call back to Kevin. Thanks, Ivan. I'll pick back up on slide 13.

Eifion S. Jones: <unk> very positive about the long term health and growth profile of the pool industry, particularly the strength of the aftermarket we are confident in our ability to successfully execute our strategic growth plans and with that I'll now turn the call back to Kevin and then I'll pick back up on Slide 13, before we close let me reiterate the key.

Kevin P. Holleran: Before we close, let me reiterate the key takeaways from today's presentation. We delivered first quarter results consistent with expectations and reaffirmed our outlook for the year. Our team continues to execute, delivering strong gross margin expansion and improved cash flow, allowing us to fund our growth strategies and fully repay our incremental term loan early. We're leading in innovation, bringing new solutions to market to improve the pool ownership experience. 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.

Kevin P. Holleran: Thanks, Ivan. I'll pick back up on slide 13.

Kevin: Takeaways from today's presentation.

Kevin P. Holleran: We delivered first quarter results consistent with expectations and reaffirmed our outlook for the year our team continues to execute delivering.

Kevin P. Holleran: Delivering strong gross margin expansion and improved cash flow, allowing us to fund our growth strategies and fully repay our incremental term loan early.

Kevin P. Holleran: We're leading in innovation, bringing new solutions to market to improve the pool ownership experience 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.

Kevin P. Holleran: Okay.

Speaker Change: Thank you, ladies and gentlemen, we will now conduct a question and session.

Operator: Thank you, ladies and gentlemen. We will now conduct the questions. Thank you for attending, John. If you wish to ask a question, please press star followed by the question mark, and if you wish to cancel, you are. Your first question: Andrew Carter from Stiple. Your line is now open. Excuse me, your first question comes from Andrew Carter from Stifel. Your line is not open.

William Andrew Carter: Yeah, sorry about that. I can't figure out the mute function on my phone.

Ivan: You bet.

Operator: If you wish to vote. If you wish to ask a question. Please press star followed by the number one on your telephone keypad.

William Andrew Carter: If you wish to cancel your request please press star two.

William Andrew Carter: Your first question comes from Andrew Carter from Stifel. Your line is now open.

William Andrew Carter: Excuse me. Your first question comes from Andrew Carter from Stifel. Your line is now.

Ivan: So we're going to have to dig in a little bit about gross margin here. You were up 260 basis points in the quarter. Your guidance maintained implies that slows to 125 basis points. I guess as you look at the four-year gross margin, is there upside? And then kind of focus on the bifurcated performance. Europe was down quite a bit in the quarter. I know you called out some one-time issues. Could you call out the margin headwind there and just kind of the puts and takes for the remainder of the year? Thanks.

William Andrew Carter: Yes, sorry about that I cant figure out to meet function on my phone.

William Andrew Carter: So wanted to dig in a little bit about the gross margin here you were up 260 basis points in the quarter. Your guidance maintained implies that slows to a 125 basis points I guess as you look at the full year gross margin is there upside and then kind of focus on the bifurcated performance Europe.

Ivan: Was down quite a bit in the quarter I know you called out some onetime issues could you call out tomorrow margin headwind, there and just kind of the puts and takes for the remainder of the year. Thanks.

Ivan: Hi Andrew, it's Ivan. Yeah, thanks for the question. Look, you know, we're very pleased with the gross margin. We achieved 49.2% in Q4, and we've matched that record now as we've stepped into the first quarter of 2024. You know, we've talked about this before. We have four main pillars of margin expansion. One is operating leverage, and we continue to maximize output across our manufacturing footprint. We've done a lot of work over the last four years to progressively collapse certain facilities and convert that production volume into the remaining four walls of our global manufacturing footprint.

Organ: Hi, Andrew its organ.

Speaker Change: Yes, thanks for the question.

Speaker Change: We're very pleased with the gross margin we achieved 49, 2% in Q4, we've matched that record that was we've stepped into the first quarter of <unk>.

Ivan: 2024.

Ivan: The.

Ivan: We've talked about this before we have four main pillars of margin expansion. One is operating leverage and we continue to maximize the output across our manufacturing footprint. We've got a lot of work over the last four years to progressively collapse.

Ivan: Certain facilities in and convert that our production volume into the remaining four walls of our global manufacturing footprint.

Ivan: We're obviously seeing now the full benefit in 2020 for all the.

Ivan: We're obviously seeing now the full benefits in 2024 of the Price-Cost Neutrality Program that we achieved in 2023. We're back to basics in our lean manufacturing practices. We have, as Hayward has said, a hallmark of practicing lean over many, many decades. We're back to seeing that.

Ivan: Price cost neutrality program that we achieved in 2003.

Ivan: Back to basics and our lean manufacturing practices.

Speaker Change: We have.

Ivan: Okay with a whole market practicing lean over many many decades.

Ivan: We are back to seeing that price cost management.

Ivan: Price-Cost Management is, as I mentioned, a strong attribute of this organization. And, you know, the industry has a very disciplined and sticky pricing mechanism. Pricing was initiated on October 1st.

Ivan: As I mentioned.

Ivan: A strong attribute of this organization.

Ivan: The industry has a very disciplined and sticky pricing mechanism.

Ivan: Pricing was initiated October 1st obviously.

Ivan: Obviously, there's a higher blend of early buys in Q4 and Q1. But we should see price continue to develop as we step through the balance of the year. And as Kevin mentioned, we continue to introduce really informative new products, which typically come with higher pricing and higher margin attributes on a value-based pricing model. As it relates to the European situation, look, I mean, we recognize there's a delta between North America and the European market. Obviously, there is a lack of scale in Europe in comparison to North America.

Ivan: Higher blend of early buy in Q4, and Q1, but we should see price continue to develop as we step through the balance of the year and as Kevin mentioned, we continue to introduce really informative new products, which typically come with a higher pricing and higher margin attributes on the value based pricing model as it relates to the Europe.

Ivan: Situation.

Ivan: Look I mean, we recognized as adults between North America, and the European market. Obviously, there is a lack of scale.

Ivan: In Europe in comparison to North America, we continue to.

Ivan: We continue to tackle that issue. We have consolidated our manufacturing footprint in Spain, and we have growth plans which will ultimately yield, we believe, leverage across that manufacturing cost installed base. It remains a fragmented market. It's a different competitive landscape and a different type of technology adoption across the European spectrum.

Ivan: Tackle that issue we.

Ivan: <unk> consolidated our manufacturing footprint in Spain, and we have growth plans, which will ultimately yield we believe our leverage across that manufacturing cost.

Ivan: Installed base it remains a fragmented market, it's a different competitive landscape.

Ivan: And a different type of technology adoption across the European spectrum. So there.

Ivan: There are some reasons why we see the differences, or we believe they are capable of being improved over the course of time. And we're tackling that. As it relates to the balance of the year, we believe there's upside to the margin. We talked about this in the four-year call earlier this year. We do believe that we'll achieve approximately 150 basis points of improvement year over year. We took a nice step forward in Q1 of this year. And we do expect, as leverage returns across the business, that we will see margin expansion. So, we feel very good about our margin opportunities in the business.

Ivan: There are some.

Ivan: Reasons, why we see the differentials are all we believe.

Ivan: Are capable of being improved over the course of assignment.

Ivan: Tackling that as it relates to the balance of the year to we believe there is upsides of the margin we talked about this.

Ivan: And the full year call earlier. This year, we do believe that we will achieve approximately 150 basis points improvement year over year, we've done a nice step forward in Q1.

Ivan: Of this year and we do expect as leverage returns across the business that we will gas.

Ivan: Margin expansion, so we'll see.

Ivan: We feel very very good about our margin opportunities in the business.

Speaker Change: Thank you and second question just wanted to drill in on readout in the quarter, how that trended and I know that there was a lot of other was a weather impact Paul called out in the first quarter kind of the south how does that kind of how does that kind of trended into April and kind of remind us what your kind of full year expectations are for <unk>.

Ivan: Thank you. And second question, just wanted to drill in on readout in the quarter, how that trended. And I know that there was a lot of there was a weather impact pool called out in the first quarter, kind of the South. How did that kind of how's that kind of trended into April and kind of remind us what your kind of full year expectations are for readout, particularly North America? Yeah, Andrew, our

Ivan: Particularly in North America.

Ivan: Yes, Andrew our our guidance, which remains unchanged obviously.

Ivan: Yeah, Andrew, our guidance, which remains unchanged, obviously, you know, was really built around a 2% pricing increase. I'll start there. But from a market standpoint, we're really calling, in both the US and the rest of the world, the aftermarket, you know, to remain flat, but really the more discretionary aspects, whether that's new build, upgrade, or remodel, that to feel some pressure this year from a discretionary standpoint. In the US, we're calling down 10% from a volume standpoint, and more than that, in all international markets closer to down 20%.

Ivan: It was really built around.

Ivan: 2% pricing increase I'll start there, but from a market standpoint.

Ivan: We're really calling in both.

Ivan: U S and rest of world the aftermarket to remain flat.

Ivan: The more discretionary aspects, whether thats, new build upgrade or remodel that too.

Ivan: To feel some pressure this year from a discretionary standpoint.

Ivan: We're calling downturn from a volume standpoint and more than that.

Ivan: And in all international markets closer to down 20%, so as that flows through from a volume standpoint.

Ivan: So as that flows through from a volume standpoint, you know, that'd be down six to seven or so after the 2% price. Obviously, the channel D stock experience last year should now reverse for us. And we feel that is about a 10% tailwind here in 2024, with a modest FX headwind. That kind of adding that up gets you to midpoint guidance, you know, they're between that 2 and 7%.

Ivan: That'd be down six to seven or so after the 2% price obviously the channel destock experienced last year I should now reverse for us and we feel that is about a 10%.

Ivan: Tailwind here in 2024 with a modest FX headwind.

Ivan: Adding that up gets you to the midpoint guidance.

Ivan: We're between that two and 7%.

Ivan: As for the start of Q2.

Ivan: You know, as for the start of Q2, you know, obviously, that's the start of the season. As spring rolls in all markets, you know, there was some weather that impacted Q1, very, very warm nationally, but some rain, which obviously prohibits or inhibits the use of the pool in the year-round markets and also hurts construction. But the weather seems to be improving here in April, and order flow, as expected, is picking up for us as we're in the season.

Ivan: Obviously, that's the start of the season as spring.

Ivan: Rolls in all markets.

Ivan: There was some weather and all.

Ivan: That impacted Q1, very very warm nationally, but some rain, which obviously prohibits or inhibits using of the pool in the in the year round markets and also hurts construction, but whether it seems to be improving here in April and an order flow as expected.

Ivan: Is picking up for us as we're in the season. So we've said this on prior calls with the destock nearly behind US we're now back to that more historic.

Ivan: So, you know, we've said this on prior calls, with the D stock really behind us, we're now back to that more historic, you know, matching our shipments into the channel with what their sales are. And that's a much healthier position to be in. And we see that playing out through Q2 and through the pool season here in 2024.

Ivan: Matching our shipments into the channel with what their sales out is and that's a much healthier position to be in and we see that playing out through Q2 and through the pool season here in 2024.

Speaker Change: Thanks ill pass on.

Ivan: Your next question comes from Ryan Merkel from William Blair. Your line is now open.

Operator: Your next question comes from Ryan Merkel of William Blair. Your line is now open.

Ryan James Merkel: Hey, good morning, everyone and congrats on a good start to the year.

Ryan James Merkel: Hey, good morning, everyone. And congrats on the good start to the year.

Ryan James Merkel: Had a question on sales and I guess, one on pricing I think following up sort of that last question. Kevin how are you thinking about the outlook for new pools and renovation in 'twenty for any new thoughts as we enter the season here.

Kevin P. Holleran: I had a question on sales, and I guess when I'm pricing, I think following up to sort of that last question, Kevin, how are you thinking about the outlook for new pools and renovation in 24? Any new thoughts as we enter the season here?

Ryan James Merkel: No there really isn't new thoughts Ryan.

Kevin P. Holleran: No, there really isn't. New thoughts, Ryan. I think from what we're seeing, we're sticking to that original guide or the assumption in the original guide around that down 10, down closer to 20 in the international markets. We track permits very closely. You may as well, covering the industry. We saw, frankly, something a little worse than that in Q1, but based on input that we're hearing from some of our dealers, we think that may, you know, improve as the year plays out.

Ryan James Merkel: And I think we're from what we're seeing and we're we're sticking to that to that.

Kevin P. Holleran: Our original guides are the assumption in the original guide.

Kevin P. Holleran: Around that down downturn down.

Kevin P. Holleran: Down closer to 20 in the international markets, we track permits very closely.

Kevin P. Holleran: May as well covering the industry.

Kevin P. Holleran: We saw frankly, something a little worse than that in Q1, but based upon input that we're hearing from some of our dealers. We think that that may improve as the year plays out so were again in the U S where we have the best permit data.

Kevin P. Holleran: So we're, again, in the U.S. where we have the best permit data, you know, we're holding up to that down 10%. There is some, discussion that some of the remodel which has largely been pushed to the right over the last several years as builders prioritized new construction folks weren't able to get the work done you can't defer that forever you know so there does seem to be some some some pickup in interest and activity around the remodel but not enough so for us to alter what our original assumption was in the guide so we're we're holding to that Brian

Kevin P. Holleran: We're we're we're holding to that down 10% there is some.

Kevin P. Holleran: Discussion that some of the remodel which has largely been pushed to the right over the last several years as builders prioritized new construction folks weren't able to get the work done you can't defer that forever.

Kevin P. Holleran: So there does seem to be some some some pickup in interest and activity around the remodel, but not enough. So for us to alter what our original assumption was in the guide. So we're we're holding.

Kevin P. Holleran: To that Brian.

Brian: Got it okay. So it sounds like you believe in the pent up demand story as it relates to renovation, but still a little early to not we're not ready to see it yet got it okay and then great to hear that your price will be 2% for the year I'm. Just curious how would you describe the promotional environment and any change.

Kevin P. Holleran: Got it. Okay. So yeah, it sounds like you believe in the pent up demand story as it relates to renovation, but still a little early. We're not ready to see it yet. Got it. Okay. And then, yeah, great to hear that your price will be 2% for the year. I'm just curious, how would you describe the promotional environment? Any changes there?

Kevin P. Holleran: There.

Kevin P. Holleran:

Kevin P. Holleran: Um, you know, I guess I would say we're back to pre-pandemic levels of more normal, you know, promotional activity. There wasn't need for that during the pandemic, obviously, with the demand that the industry experienced, but you know it feels that we're back to something more normal. So nothing that's causing us to alarm, there's, there's, you know, standard promotional activity, obviously, the early buy, some may view that as a promotional activity, that's obviously not end market driven.

Kevin P. Holleran: Yes, I would say we are back to pre pandemic more normal.

Kevin P. Holleran: Promotional activity it wasn't need for that in the pandemic, obviously with the with the demand that the industry experienced.

Kevin P. Holleran: But.

Kevin P. Holleran: It feels that we're back to something more normal.

Kevin P. Holleran: So nothing nothing thats, causing us.

Kevin P. Holleran: Are there is there is.

Kevin P. Holleran: Standard promotional activity.

Kevin P. Holleran: Obviously, the early buy some may view that as a promotional activity thats, obviously on our end market driven but this was much more of a.

Kevin P. Holleran: But, you know, this was much more of a normal standard early buy program offered and what we experienced in terms of order flow and delivery rates. So, you know, it feels like we're getting back to an environment that we all expected or grew to expect from the pre-pandemic period. And that's really what it feels like is playing out here at the start of the 2024 pool season right now.

Kevin P. Holleran: Of a normal standard early buy program.

Kevin P. Holleran: Offered and what we.

Kevin P. Holleran: <unk> experienced in terms of order flow and the delivery rates. So.

Kevin P. Holleran: It feels like we're getting back to an environment that we all are.

Kevin P. Holleran: Expected or grew two ought to expect from the pre pandemic period, and that's that's really what it feels like it's playing out here in the in the start of 2020 for a pool season right.

Speaker Change: Perfect. Thanks pass it on.

Kevin P. Holleran: Perfect. Thanks. Pass it on. Thanks, Ryan.

Speaker Change: Thanks, Ron.

Operator: Your next question comes from Jess Hammond from KeyBank.

Kevin P. Holleran: Your next question comes from Jeff Hammond from Keybanc.

Speaker Change: Your line is now open.

Jeffrey David Hammond: We can't hear you, Jeff if youre if youre talking.

Jeffrey David Hammond: We can't hear you, Jeff, if you're if you're talking.

Jeffrey David Hammond: Yeah, can you hear me now? We got you now, Jeff.

Jeffrey David Hammond: Yeah can you hear me now we.

Jeffrey David Hammond: We got you now Jeff Yeah, Okay awesome great.

Jeffrey David Hammond: Yeah. Okay, awesome. Great. Um, so I just want to go back to the rest of the world.

Jeffrey David Hammond: So I just want to go back to the rest of World can you quantify kind of the disruption impact on sales and income basis from us.

Kevin P. Holleran: Can you quantify the kind of disruption impact on sales and income basis from this? Consolidation. And then is this kind of just lost sales, or do you pick that up in 2Q or sometime later in the year?

Kevin P. Holleran: Consolidation and then is this kind of just lost sales or do you pick that up in <unk> or sometime later in the year.

Kevin P. Holleran: It's so overall, Europe, the rest of the world was down 17, as we said, to Europe it was a little bit less than that. As we look at the waiting there, the order flow in Europe was actually to our expectation in Q1. So, you know, there was nothing necessarily about the order inflow that concerned us.

Kevin P. Holleran: So overall Europe rest of World was down 17, as we said.

Kevin P. Holleran: So Europe was a little bit less than that as we as we look at the waiting there the order flow in Europe was actually to our expectation in Q1. So there was nothing necessarily about the order inflow that concerned us. This this really was about.

Kevin P. Holleran: This was really about, you know, an aggressive schedule on consolidating from two locations, both in Spain, into a singular location outside of Barcelona. We commissioned the new facility there about two years ago, really with the view that this would be the end state. And that occurred kind of late in the fourth quarter into Q1. And there were just some, you know, there were some fits and starts through the first quarter, and we're running it right now.

Kevin P. Holleran: And aggressive schedule on consolidating from two locations, both in Spain and to a singular location outside of Barcelona, We commissioned a new facility. There about two years ago really with with a view that this would be the <unk> state and that occurred kind of <unk>.

Kevin P. Holleran: <unk> fourth quarter into Q1, and there were just some there were some some fits and starts through the first quarter and we're running at right now our team has done a fantastic job of getting us.

Kevin P. Holleran: The team's done a fantastic job of getting us, you know, to where we expected to be, but we weren't hitting those original rates earlier in the first quarter. So, you know, in terms of, you know, the order flow continues to be good in early Q2 for the European market. So, you know, we're, you know, by virtue of holding our full year guide, we're expecting to be able to make up for and close that gap that we created for ourselves in the first quarter of this year.

Kevin P. Holleran: To where we are expected to be but we weren't hitting those those original rates earlier earlier in first quarter. So in terms of the order flow continues to be good in the early Q Q2.

Kevin P. Holleran: For the European market. So we are we are by virtue of holding our full year guide, we're expecting to be able to.

Kevin P. Holleran: To make up for and close that gap that we created for ourselves in the first quarter of this year.

Kevin P. Holleran: Yes.

Kevin P. Holleran: Okay, and then I think you said Canada is still weak, but it had good numbers because of timing. Is that, you know, is that material enough to impact? You know, anything into 2Q where you saw some pull forward, or is that just, you know, noise?

Kevin P. Holleran: Okay and then.

Kevin P. Holleran: I think you said, Canada is still weak, but had good numbers because of timing does that is.

Kevin P. Holleran: Is that material enough to impact.

Kevin P. Holleran: Anything into <unk>, where you saw some pull forward or is that just noise.

Kevin P. Holleran: Now, the Canadian performance in Q1, frankly, is a pickup from a large shipment that slipped out of Q4. So if you really look at the Canadian performance over a two-quarter period, Jeff, it would be on expectation. So this was product that is built offshore, and it just wasn't received in the fourth quarter. So we're not ready to call Canada, that we have tailwind up there, it continues to be a market we keep close tabs on, and obviously some of the mortgage concerns and interest rate concerns linger up there. So I don't want to give the impression that a strong Q1 is necessarily wind turning to our backs. But, you know, things seem to be stabilizing up there, which is solid, you know, starting.

Kevin P. Holleran: No.

Speaker Change: The Canadian performance in Q1, frankly is a is a pickup from a large shipments that slipped out of Q4. So if you really look at it at the Canadian performance over a two quarter period, Jeff It would be our expectation. So this was product that is built on.

Kevin P. Holleran: Offshore and it just wasn't received in fourth quarter. So we're not ready to talk.

Kevin P. Holleran: Call a Canada, we have tailwind up there continues to be a market. We can keep close tabs on and obviously some of the mortgage.

Kevin P. Holleran: Concerns and interest rate concerns linger up there. So I don't want to I don't want to give the impression that a strong Q1 is necessarily wind turning to our back.

Kevin P. Holleran: But things seem to be stabilizing up there, which is which is which is solid.

Kevin P. Holleran: Yes.

Kevin P. Holleran: Starting starting point.

Kevin P. Holleran: Okay, then just last one on this cleaner market. Can you set us up on, you know, how big of a business that is for you and then, you know, is this more, you know, upgrade changes? Or is this kind of a brand new product, and just, you know, any kind of early feedback from customers?

Speaker Change: Okay, and then just last one on the cleaner market.

Jeff: Can you level set us on how big of a business that is for you and then.

Kevin P. Holleran: This is this more upgrade changes or is this kind of a brand new product and just any kind of early feedback from customers.

Kevin P. Holleran: Yes.

Kevin P. Holleran: Yeah, it's, you know, as I said, it has, it is, it has been over the last, you know, seven year period, it's been a double digit kegger, and it has grown. Actually, the whole category. So the TAM has actually increased as we've seen people really go from hand cleaning or cleaning to something more, more automated. It certainly had a bit of an effect on the older technology, both suction and pressure.

Kevin P. Holleran: As I said it is it is it has been over the last you know.

Kevin P. Holleran: Seven year period, it's been a double digit CAGR and it.

Kevin P. Holleran: It has grown.

Kevin P. Holleran: The whole category. So the Tam is actually increased as we've seen people really go from hand cleaning or cleaning the rooms.

Kevin P. Holleran: To something more more automated it certainly had a bit of an effect on the older technology, both suction and pressure.

Kevin P. Holleran: So it's grown into a large market; we have a very solid line in the tiger shark. But frankly, we're a bit underrepresented in the category there. So we're really excited to bring these products with great automation, great features, and performance, you know, to really start playing into the higher end of the ground segments. And we have, we have, we have strong aspirations and expectations with us moving more aggressively into the robotic market. More to come on this great initial introduction here with a few key models to help build out our product.

Kevin P. Holleran: So it's grown into a large market we have a very solid lineup in the tiger shark, but frankly, where we are a bit underrepresented in the category. There. So we're really excited to bring these products with great automation, great feature and performance.

Kevin P. Holleran: To really start playing into more of the higher end in ground segments.

Kevin P. Holleran: And we have we have we have strong aspirations and expectations are with us moving more aggressively into the into the robotic market Jeff.

Kevin P. Holleran: More to come on this.

Kevin P. Holleran: Great initial introduction here with a few key models to help building out our our product line.

Kevin P. Holleran: Okay, thanks so much, guys.

Speaker Change: Okay. Thanks, so much guys.

Operator: Your next question comes from Saree Boroditsky from Jeffrey's. Your line is now open.

Kevin P. Holleran: Your next question comes from Savi <unk> from Jefferies. Your line is now open.

Saree Emily Boroditsky: Good morning. This is Samsung for theory, thanks for taking questions.

James Sun: Good morning, this is James Sun from Saree. Thanks for taking questions. So I kind of wanted to go back on gross margin. So looking at North America specifically, you posted a higher gross margin compared to the last quarter, despite having much lower sales when the last quarter also had volume in pricing growth. So how should we think about the margin cadence in North America going forward in 2024? Thanks.

Saree Emily Boroditsky: So I kind of wanted to go back on the gross margin so looking at North America specifically.

James Sun: You posted a higher gross margin compared to last quarter, despite having much lower sales when last quarter also had a volume and pricing growth.

James Sun: Should we think about the margin cadence in North America going forward for us in 2024. Thanks.

Ivan: Hi James. Good morning.

Speaker Change: Hi, James Good morning, Yes look we're very pleased with what we've been able to achieve in North America. It's why we have the majority of our manufacturing base.

Ivan: Yeah, look, we're very pleased with what we've been able to achieve in North America. It's where we have the majority of our manufacturing base, and it's where we see the greatest technological adoption.

Speaker Change: It's why we've seen the greatest technology adoption.

Speaker Change: So those are two of our largest underpinning pillows to margin expansion, we do expect to see.

Ivan: And so, you know, those are two of our largest underpinning pillars for margin expansion. We do expect to see margins develop as we get operating leverage across our manufacturing cost base in the peak seasonal Q2 period. So there is some expectation that there'll be modest margin development there. I don't want to get into too many specifics, but obviously, with that leverage, you'd expect some margin expansion. Plus, as the mix of early buy discounted terms blends out of our top sales line and we move more to in-season pricing, that will also be a tailwind to margin. But, I think what's really important to understand is what I mentioned earlier.

Ivan: Margins develop as we get operating leverage across our manufacturing cost base and the peak seasonal Q2 period. So there is some expectation that there'll be modest.

Ivan: Margin development.

Ivan: Want to get into too specifics, but obviously with that leverage you would expect some margin expansion pluses the mix of early buy discounted terms plans out of our top sales line.

Ivan: Multi <unk> zone pricing that will also be a tailwind to margin.

Ivan: I think what.

Ivan: What's really important to understand is what I mentioned earlier.

Ivan: We have done a significant amount of work over the last five years to improve the manufacturing cost base within our business. Our teams are very agile in the management of this cost base, and we've done a lot to consolidate and collapse, really starting back in 2019-2020 with the exit from the West Coast Pomona facility. And then progressively, as we've acquired businesses, we've collapsed those manufacturing locations into the remaining facilities of Hayward. And that's been a significant contributor to margin expansion over the course of time.

Ivan: Have done a significant amount of work over the last five years to improve the manufacturing cost base within our business.

Ivan: Our teams are very agile and the management of our cost base and we've done a lot to consolidate and collapse.

Ivan: Starting back in two.

Ivan: 2019, 2020 with the exit from the West Coast.

Ivan: <unk> facility and then progressively as we've acquired businesses, we've collapsed those manufacturing locations into the remaining facilities of Hayward and that's been a significant contributor to margin expansion over the course of time, a little bit mass over the pandemic due to the <unk>.

Ivan: A little bit less over the pandemic period due to the price-cost challenges we had. And now that that's been neutralized, you see the full benefit of that hard work coming through the margin. So we've got good expectations, or I say good ambitions, to continue to grow over the course of time. Don't want to get into specifics, but we're highly encouraged with where we're at right now.

Ivan: Price cost challenges, we have but now that that's been neutralized.

Ivan: See the full benefit of that hard work coming through the market. So we've got good expectations.

Ivan: Hey, good ambitions to continue to grow.

Ivan: Over the course of time to want to get into specifics, but we're highly encouraged with where we're at right now.

James Sun: Great. Thanks for the caller.

Speaker Change: Great. Thanks for the color and I kind of wanted to go back on the channel.

Ivan: Channel inventory, so I think Paul kind of noted by continued normalization in inventory during the quarter. So can you kind of comment on what youre seeing from the customer inventory perspective.

Ivan: And I kind of wanted to go back to channel inventory. So I think Paul kind of noted a continued normalization in inventory during the quarter. So can you kind of comment on what you're seeing from the customer inventory perspective? Yes.

Ivan: Yes, so as we look at channel inventory, we obviously work very closely with our channel partners, and we would say as we exit 2023 that the D stock, you know, through the COVID experience, is really behind it. You know, now, as we match in a more normal environment, match our shipments into their pull through into the end market, there is some desire on the channel for them to see if they can be more judicious with their own inventory levels while preventing stockouts. So we're working closely with them. You know, there's obviously an additional expense to the carrying costs.

Speaker Change: Yes, so as we look at channel inventory, we obviously work very closely with our channel partners and we would say as we exited 2023 that destock.

Ivan: Through the Covid experience is really behind US now as we match.

Ivan: In a more normal environment match, our ship in center.

Ivan: They are pulled through into the end market. There is some some desire.

Ivan: With the channel for them to see if they can be more judicious with their with their own inventory levels, while preventing stock outs. So we're working closely with them.

Ivan: Theres, obviously additional expense to the carrying costs. So there is incentive to see if we can serve the market together without necessarily needing as much inventory as was there historically so it as you've heard with some other public comments that desire, we're fully aware of that work.

Ivan: So there's an incentive to see if we can serve the market together, you know, without necessarily needing as much inventory as there was historically. So, as you've heard with some other public comments, that desire, we're fully aware of that and working closely with our channel partners to try and be as efficient in the levels of working capital as possible. So that place is, you know, a high priority internally here for us to be able to identify, through forecasting, the right skews to build at the right time so that our service levels are as good and reactive as possible to what's getting pulled through the channel.

Ivan: And closely with our channel partners to try and be as efficient.

Ivan: In the in the levels of working capital.

Ivan: As as possible so that places <unk>.

Ivan: High priority internally here for us to be able to identify identified through forecasting.

Ivan: <unk> skus to build at the right time, so that our service levels are as are as good and reactive.

Ivan: As possible two to whats getting pulled through the channel and I think that Thats something were very good. So so we continue to work closely with them and.

Ivan: And I think that that's something we're very good at. So, you know, we continue to work closely with them and better match sales in with their sales out of the channel. And our guidance, I should just close by saying our guidance did contemplate some incrementally lower levels of inventory in the channels. So, you know, again, that just highlights the fact that we're working closely with the channel and we're fully aware of what some of the actions are.

Ivan: No better match sales in with their sales out of the channel.

Ivan: I don't think in our guide I should Chuck I should just close by saying, our our guidance did contemplate some incrementally lower levels of inventory.

Ivan: In the channels so again.

Ivan: And that just highlights the fact that we're working closely with the channel and we're fully aware of what some of the actions are there.

Speaker Change: Got it thanks.

Operator: Your next question comes from Mike Halloran from Bayer. Your line is now open.

Ivan: Your next question comes from Mike Halloran from Baird. Your line is now open.

Pezan: Hey, good morning, everybody. This is Pezan for Mike.

Operator: Hey, good morning, everybody. This is Pat on for Mike.

Pezan: So I wanted to take a different look at kind of the splits and how growth is going. Can you maybe talk about which products are most impacted, given the mix of business skewing heavily towards aftermarket? And what that impact on margins might be?

Michael Patrick Halloran: I wanted to take a take a different look at kind of the split of how growth is going can you maybe talk about which products are most impacted given the mix of business skewing heavily towards aftermarket.

Pezan: And what that impact the margins might be.

Ivan: Yeah, I mean, what we see in the aftermarket, obviously, at the end of life. That occurs for installed core equipment items, those get replaced almost immediately to protect the pool environment, which is a fantastic attribute for this business. You have this very strong aftermarket that has an urgent need for replacement when the need arises.

Pezan: Yes.

Pezan: <unk> seen the aftermarket obviously.

Pezan: At the end of life occurs for installed core equipment items. Those GAAP replaced almost immediately to protect a pool environment, which is <unk>.

Ivan: The contribute.

Ivan: For this business you have this very strong aftermarket that has an urgent need for replacement when when the need arises, but we're also seeing in the in the aftermarket is adoption of what we've previously calling to continue to coin lifestyle products.

Ivan: But what we're also seeing in the aftermarket is adoption of what we've previously coined and continue to coin, lifestyle products, heating category, automation category, lighting, and controls. Those product categories continue to see good adoption as we continue our journey here. And those items tend to have higher price attributes, higher margin attributes. They create a great value proposition for the consumer, and we see high take-on rates for those products.

Ivan: <unk>.

Ivan: <unk> category automation category lighting and controls.

Ivan: Those product categories continue to see good adoption.

Ivan: As we as we continue our journey here and those items tend to have higher price attributes higher margin attributes.

Ivan: They create a great value proposition to the consumer and we see high take rates for those for those products.

Ivan: Understandable. So maybe just a clarification, just on definition, if I have an existing pool and I add some, some lighting as part of, you know, maybe I had something break, but I want to increase the amount of lighting I have, is that considered part of the aftermarket? Or would that be considered part of the upgrade bucket?

Speaker Change: Understood. So maybe just a clarification just on definition, if I have an existing pool.

Ivan: I add some.

Ivan: Some lighting as part of you know.

Ivan: Maybe I had something break.

Ivan: Want to increase the amount of lighting I have is that considered part of the aftermarket or would that be considered part of the upgrade bucket.

Ivan: So we define our business in four categories. New construction is, I think, clearly understood as new construction.

Ivan: So we define redefine our business into four categories, New construction is I've been clearly understood as new construction. The aftermarket represents three categories remodel because the pool has to be remodeled periodically typically every seven to 10 years upgrade which is the <unk>.

Ivan: The aftermarket represents three categories: Remodel because a pool has to be remodeled periodically, typically every seven to 10 years. Upgrade, which is the item you just mentioned. If you're expanding the attributes that you have in your pool, we would classify that as upgrading your experience. And then we have the third element of our pinwheel in the aftermarket, which is maintenance. Aftermarket maintenance represents about 50% of the entirety of our business base. And that maintenance is defined as replacement at the end of life or, where needed, repair.

Pezan: Got it. Thank you. That's helpful.

Pezan: Item you just mentioned if you're expanding the attributes that you have on your pool, we would classify that as upgrading your experience and then we have the third pin third element of our and will in the aftermarket which is maintenance and aftermarket maintenance represents about 50% of athene.

Pezan: <unk> of our business base in that maintenance is defined as replacement of.

Pezan: Our end of life.

Pezan: When needed repair.

Ivan: And then one quick one on the addition of the COO and some of the changing roles. Where is, I believe it was Eric, where is Eric going to be initially spending his time? Are there any projects that he's going to be going after to begin with, or is this more of, you know, picking up the torch and kind of just carrying on implementation of operational excellence?

Speaker Change: Got it. Thank you that's helpful. And then one quick one on the addition of the CLO.

Ivan: Some of the changing roles.

Ivan: Or is that.

Ivan: I believe it was Eric where theyre going to be initially spending his time are there any projects that.

Ivan: He is going to be going after to begin with or is this more of.

Ivan: Picking up the torch and kind of just carrying on implementation of operational excellence.

Ivan: Certainly that latter part, I mean it's a competitive advantage, and he brings a very compelling argument.

Ivan: Certainly that that latter part I mean, it's it's a competitive advantage and he brings a very compelling.

Unknown Speaker: Unknown Speaker 17-17-14 How have you been? Unknown Speaker 17-17-14 Do you have any questions? Unknown Speaker 17-17-14 We are getting closer and closer to the end of the year.

Ivan: <unk>.

Ivan: Set of experiences and skills to it but.

Ivan: It's been a very fun, exciting set of experiences and skills to do it. But, you know, there are several things. We've got new product launches that we want to make sure are done seamlessly. You know, obviously, there's a ramp in volumes here in Q2. So there's greater demand placed on our facilities. We are in the midst of an ERP implementation. You know, there's a schedule there. Later this year and then it will go live in 2025.

Unknown Speaker: There are several things, we got new product launches that we want to make sure our done seamlessly obviously theres a ramp in volumes here in Q2. So there is greater demand placed on our on our on our facilities.

Ivan: We are in the midst of of ERP.

Ivan: Implementation, there's a schedule. There later this year and then and then.

Ivan: Go live in 2025, so obviously that places a lot of a lot of work on the entire organization, but obviously the operations team is a big is a big part of that.

Ivan: So obviously, that places a lot of work on the entire organization. But obviously, the operations team is a big part of that. You know, and then obviously working to maintain price cost neutrality, which we achieved last year, and continuing to drive through on these gross margin improvement activities that Ivan has touched on a few times here this morning during the call. So a lot of work to be done, and high expectations on him and that entire group to continue performing and showing results through the organization.

Ivan: And then obviously working to maintain price cost neutrality, which we achieved last year and continuing to drive through on.

Ivan: These gross margin improvement activities that IBM has touched on a few times here. This morning during the call. So.

Ivan: A lot of work to be done high expectations on here that entire group to continue performing and.

Ivan: Im showing results through the organization.

Ivan: Very helpful. Thank you. I'll pass it on.

Speaker Change: Very helpful. Thank you I'll pass it on.

Ivan: Yes.

Operator: Your last question comes from Rafe Jadrosich from Bank of America. Your line is now open.

Speaker Change: Your last question comes from rapid <unk>.

Speaker Change: <unk> from Bank of America. Your line is now open.

Rafe Jason Jadrosich: Hi, good morning. Thanks for taking my question. Um, the first one I wanted to ask is just, can you talk a little bit about the trends you're seeing in China? I know you're primarily a wholesale and distributor, but are there any differences between distribution, retail, or e-commerce you're seeing out there? And then related to that, Do you have a lot of home center exposure today, and then can you talk about the potential opportunities or impacts from Home Depot buying SRS and Heritage?

Rafe Jason Jadrosich: Hi, good morning, Thanks for taking my question.

Rafe Jason Jadrosich: The first one I wanted to ask just high.

Rafe Jason Jadrosich: Can you talk a little bit about the trends youre seeing bye bye Chad.

Rafe Jason Jadrosich: Primarily.

Rafe Jason Jadrosich: Wholesale and distributor, but are there any differences between distribution retail or e-commerce, you're seeing out there and then.

Rafe Jason Jadrosich: And related to that.

Rafe Jason Jadrosich: Do you have a lot of home center exposure today.

Rafe Jason Jadrosich: And then can you talk about the potential opportunities are or impacts from from home depot.

Rafe Jason Jadrosich: Buying Srs and heritage.

Kevin P. Holleran: The first thing I would say is that we have seen any kind of mixed shift across kind of channels to market rate. Distribution continues to be the primary channel to market, and we're committed to the distribution channel to serve the professional trade. There is, obviously, some product that is transacted through e-commerce channels, and we have participated in that historically. But no, we don't see any kind of a shift playing out there.

Rafe Jason Jadrosich: The first I wouldn't say that we have seen any kind of a mix shift across channels to market rate.

Kevin P. Holleran: Distribution continues to be the primary.

Kevin P. Holleran: Channel to market and we're committed to.

Kevin P. Holleran: To the distribution channel to serve the professional trade.

Kevin P. Holleran: There is obviously there is some product that is transacted through e-commerce channels and we have participated in that.

Kevin P. Holleran: Historically.

Kevin P. Holleran: But no we don't see any kind of shifts playing out there.

Kevin P. Holleran: In terms of the announcement last month between Home Depot and SRS, we all know the deal is not closed yet, so certainly more to learn as this progresses. But we've spoken with the Heritage and the SRS team. They're telling us that they expect business to remain as usual and that they're going to continue to be run really independently with the same management team in place, which we view as great, that Home Depot has interest in their growth strategies across all three verticals, of which Pool is one, obviously, and that Home Depot certainly brings plenty of resources and capabilities with them, and we see this as, we're hopeful that with that brand behind the SRS team that that can help expand the TAM and have a very positive growth impact on the overall Pool industry.

Kevin P. Holleran: In terms of the announcement last month between home depot and Srs. We all know the deal is not closed yet so certainly more to learn.

Kevin P. Holleran: As this as this progresses, but we've spoken with the heritage and the Srs team.

Kevin P. Holleran: They are telling us that they expect business to remain.

Kevin P. Holleran: As usual.

Kevin P. Holleran: And that Theyre going to continue to be run really independently with the same management team in place, which which we view as as great that home depot has has interest in there.

Kevin P. Holleran: The growth strategies across all three verticals of which pool is one obviously.

Kevin P. Holleran: Home depot, certainly brings plenty of resources and capabilities with them and we see this as we're hopeful that with that brand behind the.

Kevin P. Holleran: Srs team that that can help expand the Tam and and have a very positive.

Kevin P. Holleran: Our growth.

Kevin P. Holleran: Impact on the overall pool will industries. So to date, we don't have much exposure there rates I think that was part of your question. We don't have a great deal of.

Kevin P. Holleran: So today, we don't have much exposure there, Rafe. I think that was part of your question. We don't have a great deal of home center exposure, and as this thing plays out over the next year or so, as the acquisition and the integration occur, we're anxious to work closely with them and see how we can be the partner that they expect.

Kevin P. Holleran: Of home Center.

Kevin P. Holleran: Exposure and as this thing plays out over the next year or so.

Kevin P. Holleran: As the acquisition and the integration occurs we're anxious to work closely with them and see how we can be.

Kevin P. Holleran: The partner that they expect.

Rafe Jason Jadrosich: It could be an interesting opportunity. And then I wanted to ask you about input costs. What are you expecting on the raw material side for this year? And there's, there's, can you just remind us of what the key exposure is there? Like, there's been some copper inflation recently. For example, when would you expect that to start to have an impact on your P&L?

Rafe: It could be interesting opportunity and then I wanted to ask on what are you seeing in terms of input costs what are you expecting.

Rafe Jason Jadrosich: On the raw material side for this year and there is there can you just remind us of what the key exposure is there like there's been some copper inflation recently.

Rafe Jason Jadrosich: For example, like when would you would expect that to start to have an impact to your to your P&L.

Ivan: Yes, so we

Ivan: Yeah, so we high-rated timings, I think we appropriately called the inflation environment coming into this year. Obviously, copper is a little bit more elevated, but there are others that are compensating in our basket of goods. We've got some specialty metals, which have decreased in cost year over year. So on balance, I think we've got just over 2% baked into our inflation forecast. And that's kind of playing out in the aggregate basket, as we'd expected.

Rafe Jason Jadrosich: Yes.

Rafe Jason Jadrosich: I think we believe we appropriately called the inflation environment coming into this year.

Ivan: Obviously comp is a little bit more elevated but there are others that are compensating in our basket of goods.

Ivan: We've got some specialty metals, which have decreased in costs year over year. So on balance I think we've got just over 2% baked into our inflation forecast and that's kind of playing out in the in the aggregate basket as we'd expected.

Ivan: We also have, and we've talked about this before, protection mechanisms either through contractual fixed pricing or through hedging in in procurement processes. And we feel adequately protected against the current elevation of copper, at least through the primary season here. We'll have to take another look as we get into the second half of the year, but we feel comfortable with where we are right now. I think what the last four years have allowed us to demonstrate is that we have great price cost agility.

Ivan: We also have and we've talked about this before.

Ivan: <unk> mechanisms either through contractual.

Ivan: Fixed pricing all through hedging.

Ivan: <unk>.

Ivan: Our procurement processes, we feel adequately protected.

Ivan: The current elevation of copper at least through the primary season here, we'll have to take another look as we get into the second half of the year, but so we feel comfortable with where we're at right now I think over the last four years has allowed us to demonstrate as we have great price cost agility and if for any reason that we need to go back to market.

Ivan: And if for any reason we need to go back to market with a price consideration to combat, you know, a notable elevation in inflation, we're prepared to do that every year we have a pricing opportunity on October 1. And we'll start to think about what that needs to be as we move into the later summer period. But for right now, we're expecting that to be normal, and we think we've got inflation managed correctly in our current pricing structure.

Ivan: With a with a with a price consideration to to come back.

Ivan: Notable that elevation and inflation, we're prepared to do that every year, we have a pricing opportunity on October 1st I will start to think about what that needs to be as we moving to the late summer period.

Ivan: Right now, we're expecting that to be normal.

Ivan: <unk> inflation.

Ivan: Managed correctly and our current pricing structures.

Rafe Jason Jadrosich: Thanks for all the color. I appreciate it.

Speaker Change: Great. Thanks for all the color I appreciate it.

Kevin P. Holleran: There are no further questions at this time. Kevin, please proceed with your closing remarks.

Speaker Change: There are no further questions at this time Kevin. Please proceed with your closing remarks.

Kevin P. Holleran: Thanks, Lester. I'd 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 all stakeholders in the years ahead. This wouldn't be possible without the hard work, dedication, and resilience of our employees and partners around the world.

Speaker Change: Thanks, lesser I'd 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 all stakeholders. In the years ahead. This wouldn't be possible with the hard work dedication and resilience of our employers and partners around the world. Please contact our IR team. If you have any follow up questions and.

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 second quarter earnings call. Thanks, Lester. You can now end the call.

Speaker Change: We look forward to talking to you again on our second quarter earnings call. Thanks, Lessor you can now end the call.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for joining us. You may now disconnect.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for joining you may now disconnect.

Operator: Okay.