Q2 2024 Hayward Holdings Inc Earnings Call

Greetings, and welcome to the Hayward Holdings Second Quarter 2024 Earnings Call. My name is Melissa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star, then the 1 on your touch-tone phone.

Melissa: My name is Melissa, and I will be your operator for today's call.

Operator: 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 one on your touch tone phone.

Operator: During the question and answer session, if you have a question, please press star, then the number on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Investor Relations. Thank you, sir.

Operator: Please note that this conference is being recorded.

Kevin Maczka: I will now turn the call over to Kevin Maczka, Vice President and Investor Relations.

Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Invest Relations. Thank you, sir. You may begin.

Kevin Maczka: Thank you, sir.

Kevin Maczka: You may begin. Thank you, and good morning, everyone. We issued our second quarter of 2024 earnings press release this morning, which has been posted to the Investor Relations section of our website at investor.ayward.com. There you can also find an earning slide presentation that we will reference during this call.

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

Kevin Richard Maczka: 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.

Kevin Maczka: I'm joined today by Kevin Holleran, President and Chief Executive Officer, and I'm Ian 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 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 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.

Operator: You may begin. 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 10-Q filings with the Securities and Exchange Commission that could cause actual results to differ materially. Additionally, during today's call, the company will discuss non-GAAP measures. I would now like to turn the call over to Kevin Holleran. Thank you, Kevin.

Speaker Change: 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.

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

Speaker Change: The company does not undertake any duty to update such forward-looking statements.

Kevin Maczka: Additionally, during today's call, the company will discuss non-GAAP measures. Reconciliation 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.

Speaker Change: 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 Maczka: I would now like to turn the call over to Kevin Holleran.

Kevin Holleran: Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's second quarter earnings call. I'll start on slide four of our earnings presentation with today's key messages. I'm pleased to report second quarter results consistent with expectations. We executed well again in this quarter in a challenging industry environment, delivering strong profitability, increased cash flow, and improved balance sheet. We continue to advance our growth strategy, centered around technology leadership, brand and multi-channel strength, and operational excellence, and expect this to result in above-market growth and shareholder value creation. I'm proud of the performance of the entire Hayward team during the quarter.

Kevin P. Holleran: It's my pleasure to welcome all of you to Hayward's second quarter earnings call. I'll start on slide four of our earnings presentation with today's key messages. I'm pleased to report second quarter results consistent with expectations. We executed well again this quarter in a challenging industry environment, delivering strong profitability, increased cash flow, and an improved balance sheet. We continue to advance our growth strategy centered around technology leadership, branded multi-channel strength, and operational excellence, and expect this to result in above-market growth and shareholder value creation. I'm proud of the performance of the entire Hayward team during the quarter.

Speaker Change: I would now like to turn the call over to Kevin Holleran.

Kevin P. Holleran: Thank you, Kevin. Good morning, everyone. It's my pleasure to welcome all of you to Hayward's second quarter earnings call. I'll start on slide four of our earnings presentation with today's key messages. I'm pleased to report second quarter results consistent with expectations.

Speaker Change: We executed well again this quarter in a challenging industry environment, delivering strong profitability, increased cash flow, and an improved balance sheet. We continue to advance our growth strategy, centered around technology leadership, brand and multi-channel strength, and operational excellence.

Kevin P. Holleran: and expect this to result in above-market growth and shareholder value creation. I'm proud of the performance of the entire Hayward team during the quarter. Net sales increased modestly year over year as positive net price realization was offset by lower volumes.

Kevin P. Holleran: Net sales increased modestly year-over-year as positive net price realization was offset by lower volumes. Gross profit margins expanded 290 basis points to a record 51 percent. This represents the sixth consecutive quarter of year-over-year gross margin expansion. Strong profitability and cash flow have enabled us to further strengthen the balance sheet and fund our growth initiatives. During the quarter, we reduced net leverage by more than a full turn sequentially on an organic basis from four times to 2.8 times, excluding the use of cash to acquire Corking at the end of the quarter and paid down our entire incremental term loan fee on a voluntary basis. ClorKing, a leader in commercial pool water sanitization, is a great strategic fit with a strong financial profile, advancing our position in the commercial pool

Kevin Holleran: Net sales increased modestly year-over-year as positive net price realization was offset by lower volumes. Gross profit margins expanded 290 basis points to a record 51 percent. This represents the sixth consecutive quarter of year-over-year growth margin expansion. Cash flow generation was also solid during the seasonally strong period for collections, with cash from operations increasing 26 percent year-over-year in the first half. Strong profitability and cash flow enabled us to further strengthen the balance sheet and fund our growth initiatives. During the quarter, we reduced net leverage by more than a full turn sequentially on an organic basis from four times to 2.8 times, excluding the use of cash to acquire Core King at the end of the quarter, and paid down our entire incremental term loan B on a voluntary basis.

Kevin P. Holleran: Gross profit margins expanded 290 basis points to a record 51%. This represents the sixth consecutive quarter of year-over-year gross margin expansion.

Kevin P. Holleran: Cash flow generation was also solid during the seasonally strong period for collections with cash from operations increasing 26% year-over-year in the first half.

Kevin P. Holleran: Strong profitability and cash flow enabled us to further strengthen the balance sheet and fund our growth initiatives.

Kevin P. Holleran: During the quarter, we reduced net leverage by more than a full turn sequentially on an organic basis from four times to 2.8 times, excluding the use of cash to acquire Corking at the end of the quarter and paid down our entire incremental term loan fee on a voluntary basis.

Kevin Holleran: Core King, a leader in commercial pool water sanitization, is a great strategic fit with a strong financial profile advancing our position in the commercial pool market. We're very excited to welcome the Core King team to Hayward, and I'll share additional details on the business later in the presentation.

Clark King: Clark King, a leader in commercial pool water sanitization, is a great strategic fit with a strong financial profile, advancing our position in the commercial pool market.

Kevin P. Holleran: We're very excited to welcome the ClorKing team to Hayward, and I'll share additional details on the business later in the presentation. Finally, as we enter the second half of the year, we are narrowing our full-year guidance, reflecting better-than-expected margins, offset by a more challenging demand environment, particularly in new construction and remodels and certain international markets. For the full year of 2024, we now expect net sales to increase approximately 2 to 5 percent and adjusted EBITDA to increase approximately 3 to 9 percent.

Clark King: We're very excited to welcome the Clorox King team to Hayward, and I'll share additional details on the business later in the presentation.

Kevin Holleran: Finally, as we enter the second half of the year, we are narrowing our full-year guidance, reflecting better-than-expected margins offset by a more challenging demand environment, particularly in new construction and remodels and certain international markets. For the full year of 2024, we now expect net sales to increase approximately 2-5% and adjusted EBITDA to increase approximately 3-9%. Turning now to slide 5, highlighting the results of the quarter. Net sales in the second quarter increased modestly year over year to 284 million, consistent with expectations. By segment, net sales increased 2% in North America and declined 6% in Europe and Rest of World.

Clark King: Finally, as we enter the second half of the year, we are narrowing our full-year guidance, reflecting better-than-expected margins offset by a more challenging demand environment, particularly in new construction and remodels and certain international markets.

Clark King: For the full year 2024, we now expect net sales to increase approximately 2 to 5 percent and adjusted EBITDA to increase approximately 3 to 9 percent.

Kevin P. Holleran: Turning now to slide 5, highlighting the results of the quarter. Net sales in the second quarter increased modestly year over year to $284 million, consistent with expectations. By segment, net sales increased 2% in North America and declined 6% in Europe and Rest of the World. Europe outperformed with 7% sales growth in the quarter, whereas Rest of the World sales declined 21%.

Clark King: Turning now to slide five, highlighting the results of the quarter.

Clark King: Net sales in the second quarter increased modestly year over year to $284 million, consistent with expectations.

Clark King: By segment, net sales increased 2% in North America and declined 6% in Europe and rest of world. Europe outperformed with 7% sales growth in the quarter, whereas rest of world sales declined 21%.

Kevin Holleran: Europe outperformed with 7% sales growth in the quarter, whereas Rest of World sales declined 21%. We are focused on driving growth in the commercial segment of the market, both organically and inorganically, through acquisitions like Chlor King. Commercial pool sales in North America continue to increase on an organic basis following a multi-year trend of robust growth. As I mentioned, gross profit margins expanded 290 basis points year over year to a record 51% in the second quarter. Adjusted EBIDA margin in the second quarter increased 100 basis points year over year to 29%, and adjusted EPS increased 11% to 21 cents.

Clark King: We are focused on driving growth in the commercial segment of the market, both organically and inorganically, through acquisitions like ClorKing. Commercial pool sales in North America continue to increase on an organic basis following a multi-year trend of robust growth.

Clark King: As I mentioned, gross profit margins expanded 290 basis points year-over-year to a record 51% in the second quarter. Adjusted EBITDA margin in the second quarter increased 100 basis points year-over-year to 29% and adjusted EPS increased 11% to 21 cents.

Kevin Holleran: Turning now to slide 6 for a business update. In season demand for Hayward product was consistent with our expectation in the quarter, with North America and Europe outperforming the rest of world. Aftermarket repair and replace remains resilient, but demand for the majority of new construction and remodel continues to be impacted by current economic conditions and higher interest rates. While we see the number of U.S. Permits down in the mid to high teens, the value of permits also remains resilient, indicative of relative strength and a high end new construction and remodel segments of the market. We expect similar trends in the second half of 2024.

Clark King: Turning now to slide six for a business update.

Clark King: In-season demand for Hayward product was consistent with our expectation in the quarter, with North America and Europe outperforming the rest of the world.

Clark King: Aftermarket repair and replace remains resilient but demand for the majority of new construction and remodel continues to be impacted by current economic conditions and higher interest rates.

Clark King: While we see the number of U.S. permits down in the mid to high teens, the value of permits also remains resilient, indicative of relative strength in the high-end new construction and remodel segments of the market. We expect similar trends in the second half of 2024.

Kevin Holleran: We continue to execute many important strategic initiatives to strengthen our business and drive profitable growth. This includes introducing innovative new products to advance our technology leadership position, furthering developing our go-to-market capabilities, and improving channel and dealer support. On the fourth quarter earnings call, we introduced the new microchannel temperature control unit, a first-of-its-kind product providing the ability to both heat pool water and cool to 40 degrees with a single unit. Customer response has been extremely positive, with pool owners excited about the ability to utilize the spa for a cold plunge. Differentiated innovative products like this add value to our customers and drive engagement with target accounts.

Kevin P. Holleran: This includes introducing innovative new products to advance our technology leadership position, further developing our go-to-market capabilities, and improving channel and dealer support. On the fourth quarter earnings call, we introduced the new Micro Channel Temperature Control Unit, a first-of-its-kind product providing the ability to both heat pool water and cool it to 40 degrees with a single unit. Customer response has been extremely positive, with pool owners excited about the ability to utilize the spa for a cold plunge.

Clark King: We continue to execute many important strategic initiatives to strengthen our business and drive profitable growth. This includes introducing innovative new products to advance our technology leadership position, furthering developing our go-to-market capabilities, and improving channel and dealer support.

Clark King: On the fourth quarter earnings call, we introduced the new micro-channel temperature control unit, a first-of-its-kind product providing the ability to both heat pool water and cool to 40 degrees with a single unit.

Clark King: Customer response has been extremely positive, with pool owners excited about the ability to utilize the spa for a cold plunge. Differentiated, innovative products like this add value to our customers and drive engagement with target accounts.

Kevin P. Holleran: Differentiated, innovative products like this add value to our customers and drive engagement with target accounts. We continue to expand in key U.S. markets like the West and South Central through investments and focused teams working under common leadership to both support existing customers and target successful dealer conversion. These teams comprise business development managers working side-by-side with sales and technical service.

Kevin Holleran: We continue to expand in TUS markets like the West and South Central through investments and focus teams working under common leadership to both support existing customers and target successful dealer conversions. These teams comprise business development managers working side by side with sales and technical service. This structure is key in managing the life cycle for newly acquired accounts from engagement to education, conversion, and ongoing long-term support.

Clark King: We continue to expand in key U.S. markets like the West and South Central through investments in focused teams working under common leadership to both support existing customers and target successful dealer conversions.

Clark King: These teams comprise business development managers working side-by-side with sales and technical service.

Kevin P. Holleran: This structure is key in managing the life cycle for newly acquired accounts from engagement to education, conversion, and ongoing long-term support. One specific initiative of note is the launch of the Hayward Hub DFW in Texas. This first-of-its-kind Hayward facility will serve as a training, service, and support center for dealers and trade professionals in this important growth market, driving customer intimacy and loyalty to Hayward. Since the opening in mid-Q2, nearly 200 individuals from more than 30 companies have already attended training sessions on the latest Hayward technology at the Hub.

Clark King: This structure is key in managing the life cycle for newly acquired accounts from engagement to education, conversion, and ongoing long-term support. One specific initiative of note is the launch of the Hayward Hub DFW in Texas.

Kevin Holleran: One specific initiative of note is the launch of the Hayward Hub DFW in Texas. This first of its kind Hayward facility will serve as a training service and support center for dealers and trade professionals in this important growth market, driving customer intimacy and loyalty to Hayward. Since the opening in mid Q2, nearly 200 individuals from more than 30 companies have already attended training sessions on the latest Hayward technology at the hub. We believe this will be a winning formula as we grow in this key market. The further support our existing dealers, we introduced the new OmniPro app earlier this year, providing significant value to trade professionals in the form of real-time remote monitoring of a homeowner's pool and equipment configuration via the cloud.

Clark King: This first-of-its-kind Hayward facility will serve as a training, service, and support center for dealers and trade professionals in this important growth market, driving customer intimacy and loyalty to Hayward.

Clark King: Since the opening in mid-Q2, nearly 200 individuals from more than 30 companies have already attended training sessions on the latest Hayward technology at the hub. We believe this will be a winning formula as we grow in this key market.

Kevin P. Holleran: We believe this will be a winning formula as we grow in this key market. We are pleased with the progress of these initiatives and well-positioned to drive future growth. Moving on to the channel, our partners are pursuing leaner inventory positions as they work to achieve increased efficiency goals. We continue to work with them to optimize the level of Hayward inventory on hand and the SKU mix by facility to reduce the occurrence of inventory stockouts. The pool industry has always been very disciplined on price, and we previously implemented an annual price increase for 2024 to maintain price-cost neutrality.

Clark King: To further support our existing dealers, we introduced the new OmniPro app earlier this year, providing significant value to trade professionals in the form of real-time remote monitoring of a homeowner's pool and equipment configuration via the cloud.

Kevin Holleran: Builders see the value of proactive remote monitoring of pools, particularly through the construction completion and warranty period of their installations. Similarly, large professional service organizations benefit from this business efficiency tool, allowing them to prioritize and respond to service needs. We are pleased with the progress of these initiatives and well positioned to drive future growth.

Clark King: Builders see the value of proactive, remote monitoring of pools, particularly through the construction completion and warranty period of their installations. Similarly, large professional service organizations benefit from this business efficiency tool, allowing them to prioritize and respond to service needs.

Clark King: We are pleased with the progress of these initiatives and well-positioned to drive future growth.

Kevin Holleran: Moving on to the channel, our partners are pursuing leaner inventory positions as they work to achieve increased efficiency goals. We continue to work with them to optimize the level of Hayward inventory on hand and the skew mix by facility to reduce the occurrence of inventory stockouts. The pool industry has always been very disciplined on price, and we previously implemented an annual price increase for 2024 to maintain price cost neutrality. We continue to expect positive net price realization of approximately 2 percent for the full year, consistent with the contribution in the first half. We are implementing value-based pricing strategies and skew rationalization to optimize pricing and ensure our products are priced appropriately relative to the exceptional value provided to pool owners.

Clark King: Moving on to the channel, our partners are pursuing leaner inventory positions as they work to achieve increased efficiency goals. We continue to work with them to optimize the level of Hayward inventory on hand and the SKU mix by facility to reduce the occurrence of inventory stockouts.

Clark King: The pool industry has always been very disciplined on price, and we previously implemented an annual price increase for 2024 to maintain price-cost neutrality.

Kevin P. Holleran: We continue to expect positive net price realization of approximately 2% for the full year, consistent with the contribution in the first half. We are implementing value-based pricing strategies and SKU rationalization to optimize pricing and ensure our products are priced appropriately relative to the exceptional value provided to pool owners. We expect to realize incremental benefits from these initiatives going forward. And a key building block is the addition of ClorKing, nearly doubling our sales in the commercial market.

Clark King: We continue to expect positive net price realization of approximately 2% for the full year, consistent with the contribution in the first half.

Clark King: We are implementing value-based pricing strategies and skew rationalization to optimize pricing and ensure our products are priced appropriately relative to the exceptional value provided to pool owners.

Kevin Holleran: We expect to realize incremental benefits from these initiatives going forward.

Kevin Holleran: In May, we further strengthen our senior leadership team by filling three key roles. This included the appointment of Ray Lewis as Chief Human Resource Officer, Kevin Gallagher as Chief Engineer and Officer, and Dario Vicario as General Manager of Europe and Rest of World. We were delighted to welcome these accomplished leaders to keep positions within the organization. Our company is already benefiting from their diverse backgrounds and proven track record of success.

Clark King: We expect to realize incremental benefits from these initiatives going forward.

Clark King: In May, we further strengthen our senior leadership team by filling three key roles.

Ray Lewis: This included the appointment of Ray Lewis as Chief Human Resource Officer.

Speaker Change: Kevin Gallagher as Chief Engineering Officer, and Dario Vicario as General Manager of Europe and Rest of World. We were delighted to welcome these accomplished leaders to key positions within the organization. Our company is already benefiting from their diverse backgrounds and proven track record of success.

Kevin Holleran: Finally, we were honored that Green Builder Magazine recognized the Hayward TriStar XL Variable Speed Pump as a Sustainable Product of the Year. This underscores our commitment to sustainability and environmental responsibility as we strive to produce the most energy efficient solutions for our customers.

Speaker Change: Finally, we were honored that Green Builder Magazine recognized the Hayward TriStar XL variable speed pump as a sustainable product of the year. This underscores our commitment to sustainability and environmental responsibility as we strive to produce the most energy efficient solutions for our customers.

Kevin Holleran: Turning now to slide 7, as I mentioned previously, we are excited about the opportunities to develop our commercial pool business. And the key building block is the addition of Core King, nearly doubling our sales and the commercial market. Operating in Atlanta, Georgia, Core King has grown into the leading natural water sanitization technology company in the commercial pool and recreational water space. This business, led by co-founder and CEO Steve Pierce and his team, brings a wealth of industry knowledge and experience, as well as relationships with pool designers, trade professionals, specialty distributors, and operators. Innovative technologies are patented with products specified into projects all over the world.

Speaker Change: Turning now to slide 7. As I mentioned previously, we are excited about the opportunities to develop our commercial pool business.

Speaker Change: And a key building block is the addition of chloroquine, nearly doubling our sales in the commercial market.

Kevin P. Holleran: Operating in Atlanta, Georgia, ClorKing has grown into the leading natural water sanitization technology company in the commercial pool and recreational water space. This business, led by co-founder and CEO Steve Pearce and his team, brings a wealth of industry knowledge and experience, as well as relationships with pool designers, trade professionals, specialty distributors, and operators. Innovative technologies are patented, with products specified in projects all over the world. Key products include high-capacity salt chlorine generators and ultraviolet disinfection systems.

Speaker Change: Operating in Atlanta, Georgia, Clark King has grown into the leading natural water sanitization technology company in the commercial pool and recreational water space. This business, led by co-founder and CEO Steve Pierce and his team, brings a wealth of industry knowledge and experience, as well as relationships with pool designers, trade professionals,

Speaker Change: specialty distributors, and operators.

Speaker Change: Innovative technologies are patented with products specified in the projects all over the world. Key products include high-capacity salt chlorine generators and ultraviolet disinfection systems.

Kevin Holleran: Key products include high capacity salt chlorine generators and ultraviolet disinfection systems. These technologies help lower annual operating costs and are environmentally sustainable, avoiding the need to handle and store large volumes of chlorine while enhancing water quality for our customers. These products are complementary to Hayward's existing commercial product range and technologies. Importantly, core king sales organization and trade relationships expand the size of the addressable market for other Hayward products. Similarly, Hayward's domestic and international scale afford core king product growth opportunities. Other operational synergies related to our manufacturing base, global supply chain, and distribution network present compelling financial opportunities.

Kevin P. Holleran: These technologies help lower annual operating costs and are environmentally sustainable, avoiding the need to handle and store large volumes of chlorine while enhancing water quality for our customers. These products are complementary to Hayward's existing commercial product range and technologies. Importantly, ClorKing's sales organization and trade relationships expand the size of the addressable market for other Hayward products. Similarly, Hayward's domestic and international scale afford ClorKing product growth opportunities. Other operational synergies related to our manufacturing base, global supply chain, and distribution network present compelling financial opportunities. Clark King and Hayward's existing commercial pool business will integrate and operate out of Atlanta under Steve Pearce's leadership.

Speaker Change: These technologies help lower annual operating costs and are environmentally sustainable, avoiding the need to handle and store large volumes of chlorine while enhancing water quality for our customers.

Speaker Change: These products are complementary to Hayward's existing commercial product range and technologies. Importantly, ClorKing's sales organization and trade relationships expand the size of the addressable market for other Hayward products.

Speaker Change: Similarly, Hayward's domestic and international scale afford Cora King product growth opportunities. Other operational synergies related to our manufacturing base, global supply chain, and distribution network present compelling financial opportunities.

Kevin Holleran: Core King and Hayward's existing commercial pool business will integrate and operate out of Atlanta under Steve Pierce's leadership. We look forward to future reporting of our growth in this important vertical.

Eifion S. Jones: Clork King and Hayward's existing commercial pool business will integrate and operate out of Atlanta under Steve Pearce's leadership. We look forward to future reporting of our growth in this important vertical. With that, I'd like to turn the call over to Eifion, who will discuss our financial results in more detail.

Eifion S. Jones: We look forward to future reporting of our growth in this important vertical. With that, I'd like to turn the call over to Eifion, who will discuss our financial results in more detail. Growth profit margin increased 300 basis points year-over-year and 110 basis points sequentially to a robust 52.9%, representing the sixth consecutive quarter of year-over-year margin expansion. Adjusted segment income margin was 33.7%. Turning to Europe and the rest of the world, net sales for the second quarter decreased 6% to 43 million due to lower volumes.

Ian Jones: With that, I'd like to turn the call over to who will discuss our financial results in more detail.

Ian Jones: Thank you, Kevin, and good morning.

Ian Jones: I'll start on slide day. All comparisons will be made on a year-over-year basis. As Kevin stated, we are pleased with our second quarter financial performance. Net sales were in line with expectations for the quarter, and we delivered outstanding profitability. Cashflow generation was robust, enabling early-depth repayment and the strategic acquisition of cloaking. Net leverage reduced meaningfully in the quarter. Looking at the results in more detail, net sales for the second quarter increased modestly to 284 million. Net price realization of positive 2% was offset by 2% lower volumes. The change was primarily due to timing of discrete tax items. Adjusted EPS in the quarter increased 11% to 21%.

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 second quarter financial performance. Net sales were in line with expectations for the quarter, and we delivered outstanding profitability.

Eifion S. Jones: Cash flow generation was robust, enabling early debt repayment and the strategic acquisition of caulking.

Eifion S. Jones: Net leverage reduced meaningfully in the quarter. Looking at the results in more detail, net sales for the second quarter increased modestly to $284 million. Net price realization of positive 2% was offset by 2% lower volumes.

Eifion S. Jones: Gross profit in the second quarter increased 6% to $145 million, and gross profit margin increased 290 basis points year-over-year, and 180 basis points sequentially to a record 51%.

Speaker Change: This is a strong result, primarily driven by continuous improvement and efficiency gains in our manufacturing operations.

Speaker Change: Adjusted EBITDA increased 4% to 83 million in the second quarter and adjusted EBITDA margin increased 100 basis points year-over-year and 780 basis points sequentially to 29%.

Speaker Change: Our effective tax rate was 20% in the second quarter compared to 32% in the prior year period. The change was primarily due to the timing of discrete tax items. Adjusted EPS in the quarter increased 11% to $0.21.

Ian Jones: Now I'll discuss our report for segment results beginning on slide 9. North American net sales for the second quarter increased 2% to 241 million, driven by favorable pricing. Net sales increased 1% in the US and 5% in Canada. We were pleased to see increased orders and sales in the quarter in Canada despite the significant impact in that market due to economic conditions and higher financing costs. Gross profit margin increased 300 basis points year-over-year and 110 basis points sequentially to a robust 52.9%. Representing the 6th consecutive quarter of year-over-year margin expansion, adjusted segment income margin was 33.7%.

Speaker Change: Now I'll discuss our reportable segment results. Beginning on slide 9, North American net sales for the second quarter increased 2% to $241 million, driven by favorable pricing. Net sales increased 1% in the U.S. and 5% in Canada. We were pleased to see increased orders and sales in the quarter in Canada, despite the significant impact in that market due to economic conditions and higher financing costs.

Speaker Change: Gross profit margin increased 300 basis points year-over-year, and 110 basis points sequentially to a robust 52.9%, representing the sixth consecutive quarter of year-over-year margin expansion. Adjusted segment income margin was 33.7%.

Speaker Change: Turning to Europe and the rest of the world, net sales for the second quarter decreased 6% to 43 million due to lower volumes. Net sales increased 7% in Europe and declined 21% in the rest of the world.

Eifion S. Jones: Net sales increased 7% in Europe and declined 21% in the rest of the world. The increased sales in Europe are encouraging, but certain Middle East and Asian markets continue to feel the impact of current macroeconomic and geopolitical conditions. Gross profit margin increased 170 basis points year-over-year and 320 basis points sequentially to 40.8 percent. Adjusted segment income margin was 19.8 percent.

Speaker Change: Gross profit margin increased 170 basis points year-over-year, and 320 basis points sequentially to 40.8%. Adjusted segment income margin was 19.8%.

Ian Jones: Turning to slide 10 for a review of the balance sheets and the cash flow highlights. We are very pleased with the balance sheet improvements and strong cash flow performance in the quarter. Net debt to adjusted EBITDA improves significantly on a sequential basis from 4 times at the end of the first quarter to 2.8 times at the end of the second quarter, excluding the impact of the cloaking acquisition. The business has attracted free cash flow generation attributes with seasonal strength in the second quarter related to payment collection of early buy receivables. Here today, cash flow from operations was 210 million, at 26% increase compared to prior period. This improvement reflects continuous improvement in working capital management.

Eifion S. Jones: Turning to slide 10 for a review of the balance sheet and the cash flow highlights, we are very pleased with the balance sheet improvement and the strong cash flow performance in the quarter. Net debt to adjusted EBITDA improved significantly on a sequential basis, from four times at the end of the first quarter to 2.8 times at the end of the second quarter, excluding the impact of the cloaking acquisition. Including the cash outlay for the acquisition, net leverage was 3.1 times.

Speaker Change: Turning to slide 10 for a review of the balance sheet and the cash flow highlights. We are very pleased with the balance sheet improvement and the strong cash flow performance in the quarter. Net debt to adjusted EBITDA improved significantly on a sequential basis, from four times at the end of the first quarter to 2.8 times at the end of the second quarter, excluding the impact of the cloaking acquisition. Including the cash outlay for the acquisition, net leverage was 3.1 times.

Eifion S. Jones: Total liquidity at the end of the quarter was $448 million, including cash and equivalents of $215 million, plus availability under our credit facilities of $233 million. We have no near-term maturities on our debt. The term debt matures in 2028, and 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, limiting our cash interest rate on our term facilities to 6.5 percent in the second quarter. Our average interest rate earned on global cash deposits for the quarter was 4.8 percent.

Speaker Change: Total liquidity at the end of the quarter was $448 million, including cash and equivalents of $215 million, plus availability under our credit facilities of $233 million. We have no near-term maturities on our debt.

Eifion S. Jones: The business has attractive free cash flow generation attributes with seasonal strength in the second quarter related to payment collection of early buy receivables. Year-to-date cash flow from operations was $210 million, a 26 percent increase compared to the prior year period. This improvement reflects continuous improvement in working capital management, primarily a 12 percent year-over-year reduction in inventory levels, excluding acquired inventory. CapEx of $11 million in the first half was below the prior year period due to project timing, resulting in a year-to-day increase in free cash flow of 32% to $199 million.

Speaker Change: The business has attractive free cash flow generation attributes with seasonal strength in the second quarter related to payment collection of early buy receivables. Year-to-date cash flow from operations was 210 million, a 26% increase

Speaker Change: compared to the prior year period. This improvement reflects continuous improvement in working capital management, primarily a 12% year-over-year reduction in inventory levels, excluding acquired inventories.

Ian Jones: Cappax will be 11 million in the first half, was below the prior year period due to project timing, resulting in the year today increase in free cashflow with 32% to 199 million. We continue to expect free cashflow generation of greater than 100% of net income, with full year 2024 free cashflow of approximately 160 million. As previously discussed, we completed a voluntary early debt repayment in the second quarter, given our increasing cash balance. 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 expected their savings for fiscal year 2024, or approximately 3 million reflected in the partial year impact.

Speaker Change: CapEx of $11 million in the first half was below the prior year period due to project timing, resulting in the year-to-date increase in free cash flow of 32% to $199 million.

Eifion S. Jones: We continue to expect free cash flow generation of greater than 100% of net income, with full year 2024 free cash flow of approximately $160 million. As previously discussed, we completed a voluntary early debt repayment in the second quarter given our increase in cash balance. Specifically, we used cash on hand to repay the full outstanding balance on our incremental term loan B of approximately $123 million.

Speaker Change: We continue to expect free cash flow generation of greater than 100% of net income, with full year 2024 free cash flow of approximately $160 million.

Speaker Change: As previously discussed, we completed a voluntary early debt repayment in the second quarter given our increase in cash balance. Specifically, we used cash on hand to repay the full outstanding balance on our incremental term loan B of approximately $123 million.

Speaker Change: We expect this to result in annualized interest expense savings of approximately $10 million or $4 million net of interest income. Expected net savings for fiscal year 2024 are approximately $3 million reflecting the partial year impact.

Eifion S. Jones: We expect this to result in annualized interest expense savings of approximately $10 million, or $4 million net of interest income. Turning now to capital allocation on slide 11, as we have 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 organic and inorganic growth investments and debt repayment. We continue to consider other strategic acquisition opportunities to complement our product offering, geographic footprint, and commercial relationships, in addition to opportunistic share repurchase.

Ian Jones: Turning now to capital allocation on slightly level, as we have 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 organic and inorganic growth investments and debt repayment. We continue to consider other strategic acquisition opportunities to complement our product offering, geographic footprint, and commercial relationships, in addition to opportunistic share repurchases.

Speaker Change: 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.

Speaker Change: In the near term, we are prioritizing organic and inorganic growth investments and debt repayment. We continue to consider other strategic acquisition opportunities to complement our product offering, geographic footprint, and commercial relationships, in addition to opportunistic share repurchases.

Ian Jones: Turning now to slide 12 for the outlook entering the second half of the year, we are narrowing our full year guidance, reflecting better than expected margins offset by a more challenging demand environment, particularly in new construction and remodels and certain international markets. The guidance range contemplates uncertainty in global macro conditions and consumer spending trends, coupled with our expectations regarding channel inventory levels. We continue to anticipate solid execution across the organization, positive price realization, and increased technology adoption. The full fiscal year 2024, we now expect net sales to increase approximately 2 to 5% to a range of 1.01 to 1.04 billion, including a contribution from the Talking acquisition of approximately 1%.

Eifion S. Jones: Entering the second half of the year, we are narrowing our four-year guidance, reflecting better-than-expected margins offset by a more challenging demand environment, particularly in new construction and remodels and certain international markets. We continue to anticipate solid execution across the organization, positive price realization, and increased technology adoption. For the full fiscal year 2024, we now expect net sales to increase approximately 2% to 5% to a range of $1.01 to $1.04 billion, including a contribution from the Corking acquisition of approximately 1%.

Speaker Change: Turning now to slide 12 for the Outlook, entering the second half of the year, we are narrowing our four-year guidance, reflecting better than expected margins, offset by a more challenging demand environment, particularly in new construction and remodels and certain international markets.

Speaker Change: The Guinness range contemplates uncertainty in global macro conditions and consumer spending trends, coupled with our expectations regarding channel inventory levels.

Speaker Change: We continue to anticipate solid execution across the organization, positive price realization and increased technology adoption.

Speaker Change: In the full fiscal year 2024, we now expect net sales to increase approximately 2 to 5 percent to a range of 1.01 to 1.04 billion, including a contribution from the Clorking acquisition of approximately 1 percent. We now expect adjusted EBITDA of $255 million to $270 million, or an increase of approximately 3 to 9 percent.

Eifion S. Jones: We now expect adjusted EBITDA of $255 million to $270 million, or an increase of approximately 3% to 9%. We anticipate full-year free cash flow of approximately $160 million. Our net interest expense expectation of $63 million reflects the early debt repayment.

Ian Jones: We now expect to adjust the bidar of 255,270 million or an increase of approximately 3 to 90%. We anticipate full year free cash flow of approximately 160 million. On that interest expense expectation of 63 million refracts the early debt repayment, the effective tax rate forecast remains approximately 25% through remainder of the year, and our cap expending forecast is approximately 30 million.

Speaker Change: We anticipate full-year free cash flow of approximately $160 million. Our net interest expense expectation of $63 million refracts the early debt repayment. The effective tax rate forecast remains approximately 25% for the remainder of the year, and our CapEx spending forecast is approximately $30 million.

Eifion S. Jones: The effective tax rate forecast remains approximately 25% for the remainder of the year, and our capex spending forecast is approximately $30 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. Finally, I would like to note that the recent crash for iGanttage had no material impact on the company. And with that, I'll now turn the call back to Kevin. Thanks, Eifion. I'll pick back up on slide 13.

Ian Jones: 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. Finally, I'd like to note that the recent crash I counted had no material impacts on the company.

Speaker Change: 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.

Speaker Change: Finally, I'd like to note that the recent crash strike outage had no material impact on the company. And with that, I'll now turn the call back to Kevin.

Ian Jones: And with that, I'll turn the call back together.

Kevin Holleran: Thanks, I've been picked back up on slide 13.

Kevin P. Holleran: Before we close, let me reiterate the key takeaways from today's call. We delivered second-quarter results consistent with expectations in a challenging environment. Our team continues to execute, delivering record gross margins and robust cash flow, allowing us to fund our growth strategies and fully repay our incremental term loan early. We are excited about the addition of Clorox King's innovative technologies and the many opportunities we see to leverage a broader commercial portfolio, better serve this growing market, and drive profitable growth.

Kevin Holleran: Before we close, let me reiterate the key takeaways from today's call. We delivered second quarter results consistent with expectations and a challenging environment. Our team continues to execute, delivering record gross margins and robust cash flow, allowing us to fund our growth strategies and fully repay our incremental term loan early.

Kevin: Thanks, Eifion. I'll pick back up on slide 13.

Kevin: Before we close, let me reiterate the key takeaways from today's call. We delivered second quarter results consistent with expectations in a challenging environment.

Speaker Change: Our team continues to execute.

Speaker Change: delivering record gross margins and robust cash flow allowing us to fund our growth strategies and fully repay our incremental term loan early.

Kevin Holleran: We are excited about the addition of core things, innovative technologies, and the many opportunities we see to leverage a broader commercial portfolio, better serve this growing market, and drive profitable growth.

Speaker Change: We are excited about the addition of chlorokines, innovative technologies, and the many opportunities we see to leverage a broader commercial portfolio, better serve this growing market, and drive profitable growth.

Kevin P. Holleran: We've added proven talent to the senior leadership team, and I'm confident that we have the right strategy 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. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question... You may press star 2 if you'd like to remove your question from the... For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Our first question comes from the line of Ryan Merkel with William Blair.

Kevin Holleran: We had a proven talent to the senior leadership team, and I'm confident that we have the right strategy in place to drive compelling financial results and shareholder value creation.

Speaker Change: We added proven talent to the senior leadership team, and I'm confident that we have the right strategy in place to drive compelling financial results and shareholder value creation. With that, we're now ready to open the line for questions.

Operator: With that, we're now ready to open the line for questions. Thank you. At this time, we'll be conducting a question and an answer session.

Operator: If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Kevin Richard Maczka: and Kevin Maczka.

Speaker Change: Thank you. At this time, we'll be conducting a question and answer session. If you'd 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.

Speaker Change: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

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

Speaker Change: Our first question comes from the line of Ryan Merkel with William Blair. Please proceed with your question.

Ryan Merkel: Hey, everyone. Thanks for taking the questions.

Kevin Holleran: I wanted to start off with the acquisition of Chlor King. Sounds like a really nice business. What are the one or two bigger opportunities, Kevin, that you see there? Yeah, good morning, Ryan. Yeah, this is a really, it's a great company, and we're really excited to welcome them to Hayward. It positions us really well in the commercial market. Commercial has performed extremely well. Aside from 2020, when so many of the commercial pools were not allowed to open, we've seen great double-digit growth in the years since then. What I think the strength, there's plenty, when it comes to Chlor King, but when you look at their leadership and the commercial sanitization category, they experienced a nice growth trajectory over the recent past, great margins.

Ryan James Merkel: I wanted to start off with the acquisition of Clork King. Sounds like a really nice business. What are the one or two bigger opportunities, Kevin, that you see there? Yeah, good morning, Brian.

Ryan James Merkel: Hey everyone, thanks for taking the questions.

Ryan James Merkel: I wanted to start off with the acquisition of Clork King, sounds like a really nice business. What are one of the, what are the one or two bigger opportunities Kevin that you see there?

Kevin P. Holleran: Yeah, this is a really great company, and we're really excited to welcome them to Hayward. It positions us really well in the commercial market. Commercial has performed extremely well, aside from 2020, when so many of the commercial pools were not allowed to open, but we've seen great double-digit growth in the years since then. You know, what I think the strength is there's many when it comes to Clark King, but, you know, when you look at their leadership in the commercial sanitization category, they've experienced a nice growth trajectory over the recent past, with great margins.

Kevin: Yeah, good morning, Ryan. Yeah, this is a really, it's a great company, and we're really excited to welcome them to to Hayward. You know, it positions us

Kevin: really well in the commercial market. You know, commercial has performed extremely well aside from 2020 when...

Speaker Change: You know, so many of the commercial pools were not allowed to open, but we've seen great double-digit growth in the years since then.

Speaker Change: I think the strength, there's many when it comes to Clark King, but when you look at their leadership in the commercial sanitization category, they've experienced a nice growth trajectory over the recent past, great margins.

Kevin P. Holleran: But what they really bring to the company is a real stronghold in the Class A segment of the commercial market. A commercial is really defined by two categories, class A and class B. Class A is really defined as more of those larger bodies of water, greater than 100,000 gallons, competition pools, water parks, et cetera.

Kevin Holleran: But what they really bring to the company is a real stronghold in the Class A segment of the commercial market. Commercial is really defined by two categories: Class A and Class B. Class A is really defined as more of those larger bodies of water, greater than 100,000 gallons, competition pools, water parks, et cetera. That's really where their sweet spot is. Hayward really participates in the class B, which is the mix is about 15% class A, 85% of the market class B, and we really refer to that by the acronym of HMAC, which is Hotel Motel Apartment Condos.

Speaker Change: But what they really bring to the company is a real stronghold in the Class A segment of the commercial market.

Speaker Change: A commercial is really defined by two categories, class A and class B. Class A is really defined as more of those larger bodies of water, greater than 100,000.

Kevin P. Holleran: That's really where their sweet spot is. Hayward really participates in class B, which is, the mix is about 15% class A, 85% of the market, class B, and we really refer to that by the acronym of HMAC, which is for hotel, motel, apartment, and condos. We have a nice product line that speaks and plays well in class B, but ClorKing really gives us some added exposure and a product line to be able to leverage more broadly in class A.

Speaker Change: gowns, competition pools, water parks, etc. That's really where their sweet spot is. Hayward, you know, really participates in the Class B, which is, you know, the mix is about 15% Class A, 85% of the market.

Speaker Change: Class B, and we really refer to that by the acronym of HMAC, which is Hotel, Motel, Apartment, Condos. We have a nice product line that speaks and plays well in the Class B, but ClorKing really gives us some added exposure and a product line to be able to leverage more broadly in the Class A.

Kevin Holleran: We have a nice product line that speaks and plays well in the class B. But Chlor King really gives us some added exposure and a product line to be able to leverage more broadly in the Class A. There's all kinds of cross-selling opportunities for some of Chlor King's products to be introduced more so into the class B, where we're already participating. And likewise, some of the Hayward product into the Class A segment. So lots of great, as I mentioned in my prepared remarks, great relationships that, frankly, we don't have today around the pool: architects and designers, builders, operator, specialty distribution.

Kevin P. Holleran: There are all kinds of cross-selling opportunities for some of ClorKing's products to be introduced more so into class B, where we're already participating, and likewise, some of the Hayward products into the class A segment. So lots of great, as I mentioned in my prepared remarks, great relationships that, frankly, we don't have today around the pool architects and designers, builders, operators, and specialty distribution. So Steve, we've actually had a relationship with Steve and the ClorKing team for several years. We actually private label and have for many years a water sanitization product that we sell into class B.

Speaker Change: There's all kinds of cross-selling opportunities for some of Clark King's products.

Speaker Change: to be introduced more so into the Class B, where we're already participating, and likewise, some of the Hayward product.

Speaker Change: into the Class A segment. So lots of great, as I mentioned in my prepared remarks.

Speaker Change: great relationships that frankly we don't we don't have today around.

Speaker Change: the pool architects and designers, builders.

Kevin Holleran: So Steve, we've actually had a relationship with Steve and the Chlor King team for several years. We actually private label and have for many years a water sanitization that we sell into the Class B. So we know each other have a lot, have a high level of intimacy with each other and really look forward to integrating and continuing our growth trajectory in the commercial space.

Speaker Change: Operator Specialty Distributions, so...

Steve: You know, Steve, we've actually had a relationship with Steve and the Clore King team for several years. We actually private label and have for many years a water sanitization that we sell into the Class B. So we know each other.

Kevin P. Holleran: So we know each other, have a high level of intimacy with each other, and are really looking forward to integrating and continuing our growth trajectory in the commercial space. That's great. Thanks for that. And then for my follow-up, I was curious about the longer-term outlook for new pools. Obviously, this year is going to be pretty weak.

Steve: have a high level of intimacy with each other and really looking forward to integrating and continuing our growth trajectory in the commercial space.

Ryan Merkel: That's great.

Ryan Merkel: Thanks for that.

Kevin Holleran: And then from my follow-up, I was curious on the longer-term outlook for new pools. Obviously, this year is going to be pretty weak. Do you still think that we can do 90,000, 100,000 pools once interest rates come down? Are you hearing from contractors that it's really just a function of rates? Why the market is so weak? Yeah, you know, I mean you're familiar with the long-term new construction process. And you know, this year, you know, most of us in the industry are sort of coalescing around this, you know, 60,000 or so, which would be another 15% decline off of last year's 25% decline.

Speaker Change: That's great. Thanks for that.

Speaker Change: And then for my follow-up, I was curious on the longer-term outlook for new pools. Obviously, this year is going to be pretty weak. Do you still think that we can do 90,000, 100,000 pools once interest rates come down? Are you hearing from contractors that it's really just a function of rates, why the market is so weak?

Kevin P. Holleran: Do you still think that we can do 90,000, 100,000 pools once interest rates come down? Are you hearing from contractors that it's really just a function of rates why the market is so weak? Yeah, you know, I mean, you're familiar with the long-term new construction profile. And, you know, this year, most of us in the industry are sort of coalescing around this, you know, 60,000 or so, which would be another 15% decline off of last year's 25% decline. You know, there is heavy reliance upon interest rates. I do think, though, that, while I'm not sure I can, I can predict 90,000 there.

Speaker Change: Yeah, you know, I mean, you're familiar with the long-term new construction profile and, you know, this year, you know, most of us in the industry are sort of coalescing

Speaker Change: around this, you know, 60,000 or so, which would be another 15% decline off of last year's 25% decline. You know, there is heavy reliance upon interest rates. I do think, though, that, you know, while I'm not sure I can

Kevin Holleran: You know, there is heavy reliance upon interest rates. I do think, though, that, you know, while I'm not sure I can predict 90,000, I do think that this is absolutely a low in water as we do get some relief around interest rates. That the long-term viability and the desire to have a pool in the backyard is still highly desirable. You know, our single-family home starts have not really kept up with the family formation over the last several years; you can really say dating back to the GFC. So that's going to be addressed at some point, which is a strong correlation point for new pool constructions.

Kevin P. Holleran: I do think that this is absolutely a low watermark, and as we do get some relief around interest rates, the long-term viability and the desire to have a pool in the backyard are still highly desirable. You know, our single-family home starts have not really kept up with family formation over the last several years, you can really say dating back to the GFC. So that's going to be addressed at some point, which is a strong correlation point for new pool construction.

Speaker Change: I can predict 90,000 there. I do think that this is absolutely a low watermark, and as we do get some relief...

Speaker Change: around interest rates, that the long-term viability and the desire to have a pool in the backyard is still highly desirable.

Speaker Change: [inaudible]

Speaker Change: to the GFC. So that's going to be addressed at some point, which is a strong correlation point.

Kevin Holleran: So, you know, those secular trends around migration, as well as time at home, are interested in having a healthy outdoor lifestyle. I think this is all tailwind or when interest rates, you know, finally start to a base.

Kevin P. Holleran: So you know, those secular trends around migration, as well as time at home, interest in having a healthy outdoor lifestyle, I think this is all tailwind for when interest rates, you know, finally start to abate. And we're looking forward to hopefully 2024 being a low watermark, and we can get back to new pool construction in the near future. Got it. Thanks. I'll pass it on.

Speaker Change: for new pool construction. So, you know, those secular trends around migration, as well as time at home, interest in having a healthy outdoor lifestyle. I think this is all tailwind.

Ryan Merkel: And we're looking forward to hopefully 2020 for being a low watermark, and we can get back to new pool construction in the near future. Got it. Thanks for passing on. Thank you.

Speaker Change: for when interest rates, you know, finally start to abate and we're looking forward to hopefully 2020 for being a low watermark and we can get back to new pool construction in the near future.

Nigel Edward Coe: Our next question comes from the line of Nigel Coe with Wolf Research. Oh, thanks. Good morning, everyone.

Speaker Change: Got it. Thanks. I'll pass it on.

Nigel Coe: Our next question comes from the line of Nigel Coe with Wolf Research.

Nigel Coe: Please proceed with your question. Oh, thanks.

Speaker Change: Thank you. Our next question comes from the line of Nigel Coe with Wolf Research. Please proceed with your question.

Ian Jones: Good morning, everyone. Good morning.

Kevin P. Holleran: Good morning. Just looking at the full year outlook, I think we're now at sort of 1 to 4, excluding the impact of the acquisition. So maybe just unpack the adjustment you're making to sell through versus maybe a bit more pressure from inventories. That would be helpful. And obviously, we saw from Poolcorp that equipment was down 2% in their numbers, and you obviously had plus 2% in North America.

Ian Jones: Just so, look at the full year outlook. I think we're now sort of wonderful, or, excuse me, the impact of the acquisition.

Nigel Edward Coe: Thanks, good morning everyone.

Speaker Change: Thanks for the questions. Good morning. Just so, looking at the full year outlook, I think we're now sort of 1 to 4.

Ian Jones: So maybe just, if you just maybe just unpack the kind of, you know, the sort of the adjustment you're making to sell through versus maybe a bit more pressure from inventories, but that would be, that would be helpful. And, you know, obviously we saw from Pool Group that equipment was down 2% in their numbers. You, you obviously had 12% of America.

Speaker Change: [inaudible]

Nigel Edward Coe: That would be helpful. And, you know, obviously we saw from Pool Corp that equipment was down 2% in their numbers. You obviously had plus 2% in North America. Just wondering what you saw on sell-through in the second quarter as well.

Ian Jones: Just wondering what you saw on the cell through in the second quarter as well. Yeah, sure. Let me, let me, let me start that one.

Ian Jones: Let me first address the narrowing or what contributed to the narrowing of the guidance, Nigel. Let me start with what is unchanged from our original bridge that we talked through earlier in the year. We continue to expect price to flow through at a couple percent for the year. We continue to do some a little bit of headwind, a percent or so on that.

Speaker Change: Yeah, sure. Let me start that one. Let me first address the narrowing.

Speaker Change: What contributed to the narrowing of the guidance, Nigel? Let me start with what is unchanged from our original bridge that we talked through earlier in the year. We continue to expect price.

Speaker Change: to flow through at a couple percent for the year. We continue to assume a little bit of headwind, a percent or so, on FX.

Ian Jones: and really our overall expectation for the absence of the inventory destock felt in 2023, not to repeat in 2024. We would assume that to still be kind of in the plus 10% range overall.

Speaker Change: and really our overall expectation for the absence of the inventory de-stock.

Kevin P. Holleran: Just wondering what you saw on sell through in the second quarter as well, and really our overall expectation for the absence of the inventory de-stock felt in 2023 not to repeat in 2024. We would assume that to still be kind of in the plus 10 percent range overall. Originally, we laid out in North America that the discretionary aspects of the market were going to be down 10 percent.

Speaker Change: felt in 2023 not to repeat in 2024. We would assume that to still be kind of in the plus 10% range overall. What has changed is what we'll call just market volume. Originally we laid out

Ian Jones: What has changed is what we'll call just market volume. Originally, we laid out in North America the discretionary aspects of the market to be down 10%. We're now increasing that to down 15% based upon what we're seeing through permits is one data point, but also interactions with the channel and with our dealer partners. Then pivoting to Europe rest of the world where that assumption on the discretionary aspect was at the negative 20%. Similarly, we're increasing an extra 5% to a down 25%.

Kevin P. Holleran: We're now increasing that to down 15 percent based upon what we're seeing through permits, one data point, but also interactions with the channel and with our dealer partners. And then pivoting to Europe and the rest of the world, where that assumption on the discretionary aspect was at a negative 20 percent.

Speaker Change: In North America, the discretionary aspects of the market to be down 10%

Speaker Change: We're now increasing that to down 15% based upon what we're seeing through permits is one data point, but also interactions with the channel and with our dealer partners.

Speaker Change: and then pivoting to Europe , rest of the world, where that assumption...

Kevin P. Holleran: Similarly we're increasing that an extra five percent to a down 25. So if you flow that through as a percent of our business that would really take market volume from an original expectation of down call at six and a half percent to now down eight and a half percent. And then as you mentioned the plus one percent in the second half from the Cora King acquisition would really get us to that midpoint revision of around three and a half percent with the range of two to five percent. Okay, great, thank you.

Speaker Change: on the discretionary aspect was at the negative 20%.

Speaker Change: Similarly, we're increasing that an extra 5% to a down 25%. So if you flow that through as a percent of our business, that would really take market volume from an original expectation of down, call it 6.5%.

Ian Jones: If you flow that through as a percent of our business, that would really take market volume from an original expectation of down, call it 6.5% to now down 8.5%. Then, as you mentioned, the plus 1% in the second half from the core king acquisition would really get us to that midpoint revision of around 3.5% with the range of 2 to 5%. That was a very full sum of answers to that.

Speaker Change: to now down 8.5%.

Speaker Change: And then as you mentioned, you know, the plus one percent in the second half from the chloroquine acquisition would really get us to that midpoint.

Speaker Change: revision of around three and a half percent with the range up to two to five percent.

Nigel Edward Coe: It sounds like Coral King is about $20 million in annualized revenue. I just want to make sure that's the case. And then you talked about some of the shared initiatives on the West Coast, in particular the Sunbelt states. Maybe just talk about, sort of, give us an update in terms of the initiatives, the train, and perhaps some of the success you've seen with those in terms of those deal conversions. Just to calibrate you on the quarking, it has an annualized revenue result of around £25 million.

Speaker Change: Okay, great, thank you. Second question.

Speaker Change: Go ahead, Nigel. This is just a sell-through for second quarter, but that was a very fulsome answer, so thanks for that. But just on the... It sounds like Coral King is about $20 million of annualized revenue, just want to make sure that's the case. And then, just you talked about some of the shared initiatives on the West Coast.

Ian Jones: Just some of the core king is about 20 million dollars of annualized revenue. Just want to make sure that's the case.

Kevin Holleran: Then you talk about some of the share initiatives on the West Coast in particular, the thumbnail states, maybe just talk about so they give the gifts out there in terms of the initiatives and train and perhaps some of the success you've seen with those dealer conversions. Just to calibrate you on the core king, it has an annualized revenue result around 25 million. It's a little bit related in the first half of the year; the second half of the year around 12 million. Yeah, on dealer conversion, we have a lot of great initiatives underway. I would say in some of those markets where we would say we have shared growth opportunities, specifically the west, as you mentioned, and then also what we call the south central, around some additional on the street selling resources with marketing sport coming out of North Carolina.

Speaker Change: In particular, the Sunbelt states. Maybe just talk about, sort of, give us an update in terms of, you know, the initiatives in train and perhaps some of the, you know, success you've seen with those, with those dealer conversions.

Speaker Change: And just to calibrate Sean McCorkin, it has an annualized revenue result of around $25 million. It's a little bit more weighted in the first half of the year. The second half of the year, around $12 million.

Kevin P. Holleran: It's a little bit more weighted in the first half of the year than the second half of the year at around £12 million. On Dealer Conversion, we have a lot of great initiatives underway. You know, I would say in some of those markets where, you know, we would say we have shared growth opportunities, specifically the West, as you mentioned, and then also, what we call the South Central around some additional on-the-street selling resources with marketing support coming out of North Carolina. Obviously, the hub, which I spoke about in my prepared remarks, is really a pilot.

Speaker Change: Yeah, on dealer conversions, we have a lot of great initiatives underway.

Speaker Change: You know, I would say in some of those markets where

Speaker Change: You know, we would say we have shared growth opportunities, specifically the West, as you mentioned, and then also, you know, what we call the South Central around some additional on-the-street selling resources with marketing support.

Kevin Holleran: Obviously, the hub which I spoke about in my prepared remarks is really a pilot. We would like to see that proof of concept play out and be our expectation that we'll continue to roll that out in some additional markets going forward to really be that one stop shop for our dealers from our service and a support and a training standpoint. And then we've spoken in the past, there are some nuance differences from a product standpoint, products that may be selling the Northeast or in Florida. Small footprint heater, for example, is something we brought to market a couple of years ago.

Speaker Change: coming out of North Carolina. Obviously, the hub, which I spoke about in my prepared remarks, is really a pilot. You know, we would like to see that proof of concept play out.

Kevin P. Holleran: You know, we would like to see that proof-of-concept play out and, you know, it would be our expectation that we'll continue to roll that out in some additional markets going forward to really be that one-stop shop for our dealers from a service and a support and a training standpoint. You know, and then we've spoken in the past, there are some nuanced differences from a product standpoint, you know, products that maybe sell in the Northeast or in Florida, you know, small footprint heater, for example, is something we brought to market a couple years ago that's doing extremely well in the West Coast where there's smaller lot lines and need to get the equipment set on a smaller square foot pad.

Speaker Change: And it would be our expectation that we'll continue to roll that out in some additional markets going forward to really be that one-stop shop for our dealers from a service and a support and a training standpoint.

Speaker Change: You know, and then we've spoken in the past, there are some nuanced differences.

Speaker Change: from a product standpoint, you know, products that maybe sell in the Northeast or in Florida.

Speaker Change: you know, a small footprint heater, for example, is something we brought to market a couple years ago that's doing extremely well in the West Coast where there's smaller lot lines and need to get the equipment set on a smaller square foot pad. So, you know, lots of attention being paid and resources being allocated inside.

Kevin Holleran: That's doing extremely well in the West Coast where there's smaller lot lines and need to get the equipment set on a smaller square foot pad. So lots of attention being paid and resources being allocated inside our organization to continue focusing on those lower share markets where, frankly, we have opportunity for growth and we see nice, nice trend line occurring for us in those markets.

Kevin P. Holleran: So, you know, lots of attention is being paid to and resources are being allocated inside our organization to continue focusing on those lower share markets where, frankly, we have opportunity for growth, and we see a nice trend line occurring for us in those markets. Great, thank you.

Speaker Change: our organization to continue focusing on those lower share markets where, frankly, we have opportunity for growth and we see nice trend line occurring for us in those markets.

Kevin Holleran: Great. Thanks, Kevin. Thanks, Nigel. Thanks, Brian.

Jeffrey David Hammond: Thanks, guys. Thank you. Our next question comes from the line of Jeff Hammond with KeyBank Capital Markets. Please proceed. Hey, good morning, everyone.

Speaker Change: Great, thank you.

Jeff Hammond: Our next question comes from line of Jeff Hammond with KeyBanc Capital Markets. Please proceed with your question. Hey, good morning, everyone. Good morning, Jeff. Hey, just want to go back to inventory. It doesn't sound like you've changed the destock assumption, but I'm just wondering, you know, with kind of the pool pre-announcement and some of the softer, you know, dynamics on the discretionary. What maybe you're seeing the same or different around, you know, the want to hold inventory, you know, at the channel level, and then, you know, any early discussions about how, you know, early buy might play out, you know, the same or different.

Speaker Change: [inaudible]

Speaker Change: Thank you. Our next question comes from the line of Jeff Hammond with Key Bank Capital Markets. Please proceed with your question.

Jeffrey David Hammond: Thank you. Hey, just want to go back to inventory doesn't sound like you've changed that the D stock assumption, but I'm just wondering, you know, with kind of the pool pre announcement and some of the softer, you know, dynamics on the discretionary, what maybe you're seeing the same or different around, you know, the want to hold inventory, you know, at the channel level, and then, you know, any early discussions about how, you know, early buy might play out, you know, the same or different.

Jeffrey David Hammond: Hey, good morning, everyone.

Speaker Change: Good morning, Jeff.

Jeffrey David Hammond: Hey, just want to go back to inventory, doesn't sound like you've changed the destock assumption, but I'm just wondering, you know, with kind of the pool pre-announcement and some of the softer, you know, dynamics on the discretionary, what maybe you're seeing the same or different around?

Jeffrey David Hammond: You know, the want to hold inventory, you know, at the channel level and then, you know, any early discussions about how, you know, early buy might play out, you know, the same or different.

Ian Jones: Yeah, from an inventory standpoint, you know, I would say we don't have perfect information, but you know, talking in generalities, you know, when I was walking through the bridge just a moment ago, I'm on guidance. I would say that plus 10 was laid out. You know, I think that that still allows us to contemplate what we're seeing with the channel in terms of overall inventory held. We, you know, and I think our assumptions still, still hold there. I would say in the first half, you know, we've probably seen a little bit more aggressive movement on the channel inventory, which frankly is not unexpected when you really look at the environment that we're operating in.

Jeffrey David Hammond: Yeah, from an inventory standpoint, you know, less sales out the door obviously would require less inventory to maintain days on hand. You know, by this point, I think we were all assuming or at least hoping for some interest rate reductions, which have not occurred. So carrying costs across the broad channel have not been reduced at all, you know, creating that incentive for less inventory carry.

Speaker Change: Yeah, from an inventory standpoint,

Speaker Change: You know, I would say we don't have perfect information, but, you know, talking in generalities, you know, when I was walking through the bridge just a moment ago,

Speaker Change: I would say that plus 10 was laid out and I think that still allows us to contemplate what we're seeing with the channel in terms of overall inventory.

Speaker Change: held. We, you know, and I think our assumption still still holds.

Speaker Change: I would say in the first half, we've probably seen a little bit more aggressive movement on the channel inventory, which frankly is not unexpected when you really look at the environment that we're operating in.

Ian Jones: You know, less sales out the door obviously would require less inventory to maintain days on hand. You know, by this point, I think we were all assuming, or at least hoping, for some interest rate reductions, which have not occurred, so carrying costs across the broad channel have not reduced at all, you know, creating that incentive for less inventory carry. And frankly, us OEMs, you know, I think are pretty responsive right now from a lead time standpoint to be able to serve the demand as it comes. So, you know, we've seen some movement down our original expectations.

Speaker Change: You know, less sales out the door obviously would require less inventory to maintain days on hand.

Speaker Change: You know, by this point, I think we were all assuming, or at least hoping, for some interest rate reductions which have not occurred, so carrying costs across the broad channel has not reduced at all, you know, creating that incentive.

Kevin P. Holleran: And frankly, us OEMs, you know, I think we are pretty responsive right now from a lead time standpoint to be able to serve the demand as it comes. So, you know, we've seen some movement down from our original expectations. And as we play through the second half of the year, we still think that that assumption around the positive 10, will play out for us in the full year 2024.

Speaker Change: for less inventory carry.

Speaker Change: And, frankly, us OEMs, you know, I think are pretty responsive right now from a lead time standpoint to be able to serve the demand as it comes. So, you know, we've seen, you know, some movement down for our original expectations.

Ian Jones: And as we play through the second half of the year, we still think that that assumption around the ground, the positive 10 will play out for us in full year 2024. As for early buy, you know, it's a bit early on that, so we're still defining and writing the plan, but we're definitely attending on offering early buy later this year into the 2025 season. You know, based on conversations that we've had, we would expect solid participation in the program as we roll it out. I know you know this, but for the broader audience, you know, early buy is really designed as a win-win for both distributors and us manufacturers. Elements of that program, you know, is avoidance of some future price increases and allows us to level load our factories and ship at our discretion.

Speaker Change: And as we play through the second half of the year, we still think that that assumption around the positive 10 will play out for us in full year 2024.

Speaker Change: As for early buy, you know, it's a bit early on that, so we're still...

Kevin P. Holleran: So we're still defining and writing the plan, but we are definitely intending to offer early buy later this year into the 2025 season. You know, based on conversations that we've had, we would expect solid participation in the program as we roll it out. I know you know this, but for the broader audience, early buy is really designed as a win-win for both distributors and us manufacturers.

Speaker Change: defining and writing the plan but we are definitely intending on offering early by later this year into the 2025 season. You know based on conversations that we've had we would expect solid participation in the program as we roll it out.

Speaker Change: I know you know this, but for the broader audience, you know, Early Buy is really designed as a win-win for both distributors and us manufacturers.

Kevin P. Holleran: Elements of that program, you know, are the avoidance of some future price increases and allows us to level load our factories and ship at our discretion. So, you know, based upon the inventory, obviously these two questions are linked together, you know, with inventory reduction working through the end of the season here. What we would expect is a strong response to the early buy program that will roll out in the next, you know, call it a month or so, on the channel. Okay, thanks for that, Keller.

Speaker Change: elements of that.

Speaker Change: program, you know, is avoidance of some future price increases and allows us to level load our factories and ship.

Ian Jones: So, you know, based upon the inventory, obviously, these two questions are linked together. You know, with inventory reduction working through the end of the season here, what we would expect is a strong response to the early buy program that will roll out in the next, you know, calling month or so to the channel.

Speaker Change: are at our discretion. So, you know, based upon the inventory, obviously these two questions are linked.

Speaker Change: Together, you know, with inventory reduction working through the end of the season here, what we would expect is a strong response to the early buy program that will roll out in the next, you know, call it month or so, to the channel.

Ian Jones: Okay, thanks for that color. Just on cloaking, you know, more critical mass with this deal in commercial pools. Maybe just talk about where you see the best opportunity for revenue synergies out of them pulling you through, you pulling them through. And then just, what's the market and pipeline look for, you know, other look, I spent some time describing Class A and Class B there. You know, we have, we had some products that up, that we sold into Class A, but, you know, core king really does increase, you know, the catalog that we can now offer to, to Class A.

Kevin P. Holleran: Just on chlorking, you know, more critical mass with this deal in commercial pools. Maybe just talk about where you see the best opportunity for, for revenue synergies other than pulling you through you pulling them through and then just what's the market and pipeline look for, you know, other bolt-ons to continue to fill out the commercial, Yeah, you know, I think, you know, as I look, I spent some time describing Class A and Class B there, you know, we have, we had some products that, that, We sold into Class A, but you know, ChlorKing really does increase the catalog that we can now offer to Class A.

Keller: Okay, thanks for that Keller. Just on chlorking, you know, more critical mass with this deal in commercial pools, maybe just talk about where you see the best opportunity for

Speaker Change: for revenue synergies, other than pulling you through, you pulling them through. And then just, what's the market and pipeline look for, you know, other bolt-ons that continue to fill out the commercial pool space?

Speaker Change: Yeah, you know, I think, you know, as I look, I spent some time describing Class A and Class B there. You know, we have, we had some products that, that,

Speaker Change: We sold into Class A, but, you know, chloroquine really does increase.

Kevin P. Holleran: That said, there's still some important higher volume products in the Class A that us nor ChlorKing have that presents opportunity for us, either from an organic or an inorganic standpoint, like some larger horsepower pumps, for example, or higher capacity filters or heaters would be some that I think are future opportunities that we'll continue to solve for. But Class B, we're really happy, really pleased with what the catalog looks like there. We've been seeing for years running double-digit growth. Commercial is really not a market that Hayward focused on historically.

Speaker Change: you know, the catalog that we can now offer to Class A. That said, there's still some important higher volume.

Kevin Holleran: That said, there's still some, some important higher volume products in the Class A that, that us, nor Core King have, that presents opportunity for us, either from an organic, or an inorganic standpoint, like some larger horsepower pumps, for example, or higher capacity filters or heaters would be some that, that I think are future opportunities that will continue to, to solve for, you know, but Class B, you know, we're, we're really happy, really pleased with what our, what the catalog looks like there. We've been seeing, you know, for years running double-digit growth. And this is really not; commercial is really not a market that Hayward focused on historically.

Speaker Change: products in the class A that that us, Norc or King, have that presents opportunity for us, either from an organic

Speaker Change: or an inorganic standpoint like some larger horsepower pumps for example or higher capacity filters or heaters would be some that that I think are future opportunities that will continue to to solve.

Speaker Change: But Class B, you know, we're really happy, really pleased with what the catalog looks like there.

Speaker Change: We've been seeing, you know, for years, running double-digit growth. This is really not, commercial is really not a market that Hayward

Kevin Holleran: This is, this is, this is a relatively new development for us over the last, you know, five to eight years or so, where we focus. So, you know, we're excited. And there's other opportunities organically, and it organically to now leverage a broader set of relationships that core king bring to us. And we're anxious to get on with this and keep growing this, this commercial business job.

Speaker Change: focused on historically. This is this is this a relatively new

Kevin P. Holleran: This is a relatively new development for us over the last five to eight years or so where we focus. We're excited, and there are other opportunities organically and inorganically to now leverage a broader set of relationships that ChlorKing brings to us. We're anxious to get on with this and keep growing this commercial business. Okay, great. Thanks.

Speaker Change: development for us over the last you know five to eight years or so where we focus. So you know we're excited and there's other opportunities organically and inorganically to now leverage a broader set of relationships.

Joe: that Clark King bring to us, and we're anxious to get on with this and keep growing this commercial business, Jeff.

Kevin Holleran: Okay. Great. Thanks.

Jeffrey David Hammond: Okay, great. Thanks.

Andrew Carter: Our next question comes from the line of Andrew Carter with Steeple. Please proceed with your question. Hey, thanks. First question I wanted to ask, looking at your free cash flow outlook for the year at 160, given the year to date and what you're applying in the EBDA. I'm applying a pretty heavy working capital drag, more significant than the past couple of years.

Speaker Change: Thank you. Our next question comes from the line of Andrew Carter with CIFIL. Please proceed with your question.

William Andrew Carter: Hey, thanks. First question I wanted to ask, looking at your free cash flow outlook for the year at $160,000, given the year-to-date and what you're implying in the EBITDA, I'm implying a pretty heavy working capital drag.

Andrew Carter: Is that predicated on a, a pre-buy, a pretty significant increase in the pre-buy, therefore upside if on the cash flow, if pre-buy doesn't work, or something else in the inventory purchase levels? Thanks. Yes. Good morning, Andrew. We do expect a robust early buy that, that will raise the cash receivable position at the end of the year, year over year. That's constantly in our guidance. Additionally, our inventory position, which we have worked very diligently to reduce both year over year and from the end of 2023, we will probably take a strategic position in finished goods as we enter 2025 in anticipation of some of the ERP developments we have planned for 2025.

Speaker Change: More significant than the past couple years. Is that predicated on a pre-buy, a pretty significant increase in the pre-buy, therefore upside onto cash flow if pre-buy doesn't work, or something else in the inventory purchase levels? Thanks.

Speaker Change: Yes, good morning, Andrew. We do expect a robust early buy.

Speaker Change: That will raise the account receivable position at the end of the year, zero of the year.

Speaker Change: That's contemplated in our guidance. Additionally, our inventory position, which we which we have worked very diligently to reduce year over year from the end of 2023.

Speaker Change: We will probably take a strategic position in finished goods as we enter 2025 in anticipation of some of the ERP developments we have planned for 2025.

Ian Jones: That is still to be determined exactly how we invest in that particular working capital position, the timing of that. But we have, for now, included out within the ending balance you forecast. Thanks.

Speaker Change: That is still to be determined exactly how we invest in that particular working capital position, the timing of that, but we have for now included that within the ending balance sheet forecast.

Ian Jones: And I know that you're not going to really give any commentary around future pricing decisions today, but kind of regarding number one, kind of pricing you've taken. Is there anything you've seen that prices are too low or too high for your products? I mean, equipment's been pretty resilient. And the second thing is I know you mentioned earlier on about kind of SKU optimization value. Would you lean on that? Would you potentially lean on that heavier? And if you had to take a year off from pricing or something like that, or would it give you the option to take a year off?

Speaker Change: Thanks. And I know that you're not going to really give any commentary around future pricing decisions today, but kind of regarding number one, kind of the pricing you've taken, is there anything you've seen that prices are too high for your products? I mean, equipment's been pretty resilient. And the second thing is I know you mentioned earlier on about kind of SKU optimization value. Would you lean on that? Would you potentially lean on that heavier?

Speaker Change: And if you had to take a year off from pricing or something like that, or would it give you the option to take a year off? Just anything you can help us with there. Thanks.

Kevin Holleran: Just anything you can help us with there. Thanks. SKU rationalization has certainly received a lot more attention in the last year or so. We had some meaningful rationalization flow through Product Management operations and Engineering last year. That said, there's plenty more to be done there that we're conscious that this isn't really done in episodes, but this is something that's ongoing throughout our organization. And continue to tighten up that product catalog, which then allows us to obviously look at what the value creation is within each product line and go through that process of looking very objectively at the value.

Speaker Change: Skew rationalization has certainly received a lot more attention in the last year or so.

Kevin P. Holleran: We had some meaningful rationalization flow through product management, operations, and engineering last year. That said, there's plenty more to be done there. We're conscious that this isn't really done in episodes, but this is something that's ongoing throughout our organization and continues to tighten up that product catalog, which then allows us to obviously look at what the value creation is within each product line and go through that process of looking very objectively at the value, the life expectancy, some of the functionality that you get from the equipment that we offer through the channel to the homeowner. So they're absolutely linked.

Speaker Change: We had some meaningful rationalization flow through product management, operations, and engineering.

Speaker Change: last year.

Speaker Change: That said, there's plenty more to be done there. We're conscious that this isn't really done in episodes, but this is something that's ongoing.

Speaker Change: throughout our organization and continue to tighten up that product catalog, which then allows us to obviously look at what the value creation is.

Speaker Change: within each product line and, you know, go through that process.

Kevin Holleran: The life expectancy, some of the functionality that you get from the equipment that we offer through the channel to the homeowner. So either they're absolutely linked.

Speaker Change: of looking very objectively at the value

Speaker Change: the life expectancy, some of the functionality that you get from, you know, from the equipment that we offer through the channel to the homeowner. So either they're absolutely linked. I'm not sure if I...

Kevin Holleran: I'm not sure if I see it as one replacing the other in an off year; I think we can do both. But to your point, you know, I think that historically, pricing has really been sort of an offset to inflation. This market has been able to do that, and it's stuck. But we're certainly spending a lot more time looking from a SKU pound standpoint and then also from a value creation. And frankly, I think that there's still plenty of products in the in the lineup that that are not priced, a commensurate with with with value, give it.

Kevin P. Holleran: If I see it as one replacing the other in and out here, I think we can do both. But to your point, I think that historically, pricing has really been sort of offset inflation. This market has been able to do that, and it's stuck. But we're certainly spending a lot more time looking from a skew count standpoint, and then also from a value creation point of view. Frankly, I think that there are still plenty of products in the lineup that are not priced commensurate with the value given.

Speaker Change: If I see it as one replacing the other, in and off here, I think we can do both.

Speaker Change: But to your point, you know, I think that historically pricing has really been sort of an offset inflation. This market has been able to do that, and it's stuck.

Speaker Change: But we're certainly spending a lot more time looking.

Speaker Change: from a skew count standpoint, and then also from a value creation. Frankly, I think that there's still plenty of products in the lineup.

Speaker Change: that are not priced commensurate.

Kevin P. Holleran: So I think there's plenty of opportunity not just to offset inflation but to take a real objective look and see what kind of maximization we can get in future prices. Thank you. Our next question comes from the line of Saree Boroditsky with Jeffries. Please proceed with your question. Sorry, did you just repeat the question, Saree?

Kevin Holleran: So I think there's plenty of opportunity not just to offset inflation, but to take a real objective look and see what kind of maximization we can get in future price.

Speaker Change: with value given. So I think there's plenty of opportunity not just to offset inflation, but to take a real objective look and see what kind of maximization we can get in future pricing.

Andrew Carter: Thanks, I'll pass it on. Thank you.

Speaker Change: Thanks, I'll pass it on.

Saree Boroditsky: Our next question comes from the line of Sorry, Brodytski with Jeffries.

Speaker Change: Thank you. Our next question comes from the line of Saree Boroditsky with Jeffreys. Please proceed with your question.

Saree Boroditsky: Please proceed with your question. Hi, good morning. I guess for building on your last discussion, you know, could you quantify the potential for SKU rationalization and just like how that impacts margin performance as we think about the out years?

Saree Emily Boroditsky: Hi, good morning. I guess first building on your on your last discussion, you know, could you quantify the potential for skew rationalization and just like how that impacts margin performance as we think about the out years?

Ian Jones: Sorry, did you repeat the question? Sorry, which course? Could you quantify the potential for SKU rationalization and how that impacts margin performance in the out years? Yes, sure. So, our skew rationalization program initiated probably close to a year ago now. We've made very good progress. We're tackling the US facilities first, and then we'll progress to be well et al. We don't give specifics on the exact counts of skew that were rationalizing, but it's been a meaningful reduction through the end of Q2 here. As it implicates all of our working capital initiatives, as well as our margin initiatives, it will have a positive impact on our ability to price goods more on a value-based pricing methodology.

Speaker Change: Sorry, could you just repeat the question, Saree? Which quarter?

Saree Emily Boroditsky: Could you quantify the potential for skew rationalization and how that impacts margin performance in the out years?

Kevin P. Holleran: Yeah, sure. So our skew rationalization program initiated probably close to a year ago now. We've made very good progress. We're tackling the U.S. facilities first, and then we'll gradually whirl it out.

Speaker Change: Yeah, sure. So, our skew rationalization program initiated probably close to a year ago now. We've made very good progress.

Speaker Change: We're tackling the U.S. facilities first, and then we'll progressively whirl it down. We don't use specifics on the exact counter skews that we're rationalizing, but it's been a meaningful reduction through the end of Q2 here.

Kevin P. Holleran: We don't give specifics on the exact counter skews that we're rationalizing, but it's been a meaningful reduction through the end of Q2 here, to whatever changes may be occurring in the marketplace, but obviously there is keen interest with the channel to have product ready at the point of sale when the dealers come in the front door. So we're gonna continue to work closely with them to make sure that our demand signals out to our supply chain and our factories are commensurate and well-coordinated with the channel.

Speaker Change: as it implicates all of our working capital initiatives.

Speaker Change: as well as a margin initiative that will have a positive impact on our ability to price goods.

Ian Jones: So, we look to gain continued margin development through a more firm then SKU range. It will continue to enable our manufacturing locations, manage the throughput in a much more efficient way. So, that will be a positive there. It will continue to allow us to have best in customer programs and manage the situation through the business. And then additionally, as we think about developing the product line into the future, we're more focused on the key platforms across the business. So, a lot saying that we think as we step into 2025, all of that will provide us with margin expansion opportunity.

Speaker Change: or the value-based pricing methodology. So we look to gain.

Speaker Change: continued margin development through a more honed in SKU range.

Speaker Change: It will continue to enable our manufacturing locations, manage the throughput in a much more efficient way, so that will be a positive there. It will continue to allow us...

Speaker Change: to have best-in-class procurement programs and manage deflation through the business.

Speaker Change: And then additionally, as we think about developing the product line into the future, we're more focused on the key platforms across the business. So, a lot saying that, we think as we step into 2025,

Ian Jones: And we'll also help our working capital as well as the channels' working capital.

Speaker Change: All of that will provide us with margin expansion opportunity and will also help our working capital as well as the channel's working capital.

Ian Jones: I appreciate the color. Then, on the lower channel inventories, you know, you talked about distributors relying on your lead times for inventory this year. Is it this a 2024 response? Or do you expect distributors to continue to get more efficient on inventory and rely on OEMs more? And does that impact working capital for you?

Speaker Change: I appreciate the color. Then on the lower channel inventories, you know, you talked about distributors relying on your lead times for inventory this year. Is this a 2024 response or do you expect distributors to continue to get more efficient on inventory and rely on OEMs more? And does that impact working capital for you? Thank you.

Ian Jones: Thank you. Yeah, I mean, I think we'll continue to work very closely with our channel partners to ensure right inventory, right time at right location. I think one of the real strengths of historically and will continue into the future is our responsiveness from a supply chain and manufacturing standpoint. So, you know, I think our channel partners can continue to look to us to be able to respond timely to whatever changes may be occurring in the marketplace, but, you know, obviously, there is keen interest with the channel to have product ready at the point of sale when the dealers come in the front door.

Speaker Change: Yeah, I mean, I think we'll continue to work very closely with our channel partners to ensure right inventory, right time, at right location.

Speaker Change: I think one of the real strengths of Hayward historically and will continue into the future is our responsiveness from a supply chain and manufacturing standpoint. So I think our channel partners can continue to look to us to be able to respond timely.

Speaker Change: to whatever changes may be occurring in the in the marketplace. But, you know, obviously there is keen interest with the channel to have product ready at the point of sale.

Ian Jones: So, we're going to continue to work closely with them to make sure that our demand signals out to our supply chain and our factories are commensurate and well coordinated with the channel. And we feel really good that when the destock, you know, really ended late last year, you know, I like being in this position of having the right days on hand and, you know, being able to respond very timely and our sales in to match what their sales out into the retail marketplace. So, you know, I think that that's been a great development here in 2024, and we'll look to continue that into the future.

Speaker Change: when the dealers come in the front door. So we're going to continue to work closely with them to make sure that our demand signals out to our supply chain and our factories are commensurate and well-coordinated with the channel.

Kevin P. Holleran: We feel really good that when the destock really ended late last year, I like being in this position of having the right days on hand and being able to respond very timely with our sales in order to match what their sales out into the retail marketplace. So I think that that's been a great development here in 2024 and we'll look to continue that into the future. Absolutely not.

Speaker Change: We feel really good that when the de-stock really ended late last year, I like being in this position of having the right days on hand.

Speaker Change: and you know being able to respond very timely and our sales in to match what their sales out into the retail marketplace so you know I think that that's been a great development here in 2024 and we'll look to to continue that into the future.

Mike Halloran: Thank you.

Speaker Change: Thanks for taking the questions.

Mike Halloran: Our next question comes from the line of Mike Halloran with Bear.

Mike Halloran: Please proceed with your question. Thank you, morning everybody.

Speaker Change: Thank you. Our next question comes from the line of Mike Halloran with Baird. Please proceed with your question.

Ian Jones: This is as I'm for Mike. I want to follow up on Saree's questions. You know, obviously, margin performance here is healthy against lower volumes and challenge end markets. It's called out a little bit of mixed benefit, but then obviously operational efficiency as well that should prove a little bit more structural and sustainable. Maybe talk about how you think about margin sustainability, and we should expect pretty normal seasonal margin cadence here in the back half.

Pezan: Hey, good morning everybody, this is Pezan for Mike. I want to follow up on Saree's questions, you know, obviously margin performance here is healthy against lower volumes and challenged end markets.

Speaker Change: You called out a little bit of mixed benefit, but then obviously operational efficiencies as well that should prove a little bit more structural and sustainable. Maybe talk about how you think about margin sustainability and should we expect pretty normal seasonal margin cadence here in the back half?

Ian Jones: Yeah, good morning. Do we think we should sustainable absolutely? I mean, we've done a lot of work over the course of the last four years to improve the quality of our gross margin. Obviously, we were fighting for a period of time, inflation. That's firmly in the rear view mirror in terms of price cost management of inflation. And what you see now as margins continue to agree positively is a result of the very hard work that we've done to continuously improve the productivity in our manufacturing footprint. We've gone through a period of site rationalization of the course the last four years.

Speaker Change: Yeah, good morning.

Kevin P. Holleran: Obviously, we were fighting for a period of time inflation, that's firmly in the rear view mirror in terms of price-cost management of inflation, and what you're seeing now as margins continue to accrete positively is a result of the very hard work that we've done to continuously improve the productivity in our manufacturing footprint. We've gone through a period of slight rationalization over the course of the last four years.

Speaker Change: Do we think we are sustainable? Absolutely. I mean, we've done a lot of work over the course of the last four years to improve the quality of our gross margin.

Speaker Change: Obviously, we were fighting for a period of time inflation, that's firmly in the rear view mirror in terms of price-cost management of inflation.

Speaker Change: And what you're seeing now, as margins continue to accrete positively, is a result of the very hard work that we've done to continuously improve the productivity in our manufacturing footprint.

Speaker Change: We've gone through a period of slight rationalization over the course of the last four years. We will always have that opportunity as we continue to inorganically grow.

Ian Jones: We will always have that opportunity as we continue to inorganically grow. Pretty much every facility that we have acquired over the last couple of years, we've been able to collapse that production into the existing Haywood footprint. We'll not do that with the most recent acquisition that say very self-sufficient business operating very accidentally. But as we go forward, we can platform other businesses into our manufacturer location. We have a long legacy of six sigma car using improvements across our facility, a lean manufacturing culture that continues to produce here in the medium term. So all that saying, we feel very comfortable that we can sustain the gross margin as we continue to grow.

Kevin P. Holleran: We will always have that opportunity as we continue to inorganically grow, of Six Sigma Kaizen improvements across our facility, a lean manufacturing culture that continues to produce here in the medium term. So all that saying, we feel very comfortable that we can sustain the gross margin as we continue to grow. We have tremendous capacity utilization available to us today, we're probably around approximately 60% cap utilized. So we can continue to grow this business without having to add any additional capex.

Speaker Change: Pretty much every facility that we've acquired over the last couple of years, we've been able to collapse that production into the existing Hayward footprint.

Speaker Change: We'll not do that with the most recent acquisition, that's a very self-sufficient business operating very excellently, but as we go forward, we can platform other businesses into our manufacturing location. We have a long legacy.

Speaker Change: of Six Sigma Kaizen improvements across our facility at Lee Manufacturing.

Speaker Change: culture that continues to produce here in the medium term. So all that saying, we feel very comfortable that we can sustain the gross margin as we continue to grow.

Ian Jones: We have tremendous capacity utilization available to us today or probably around approximately 60% capitalized, so we can continue to grow this business without having to add any additional catbacks in terms of the cadence for the balance of the year. Yes, we do get a little bit of decrement in Q3. Q3 looks very similar to Q1 in terms of the size of ourselves in the business, and consequently, when we step from Q2 down to Q3, we get a little bit of leverage penalty. But then, as we step up in Q4, we get that leverage back. But, as you know, Q4 tends to be the early buy discount period, so that will have to wait and see how that margin opens up.

Speaker Change: We have tremendous capacity utilization available to us today. We're probably around approximately 60% cap utilized. So we can continue to grow this business without having to add any additional capex.

Kevin P. Holleran: In terms of the cadence for the balance of the year, yes, we do get a little bit of a decrement in Q3. Q3 looks very similar to Q1 in terms of the size of our sales in the business, and consequently, when we step from Q2 down to Q3, we get a little bit of a leverage penalty. But then as we step up in Q4, we get that leverage back. But, as you know, Q4 tends to be the early buy discount period.

Speaker Change: In terms of the cadence for the balance of the year, yes, we do get a little bit of detriment in Q3. Q3 looks very similar to Q1 in terms of the size of our sales.

Speaker Change: in the business. And consequently, when we step from Q2 down to Q3, we get a little bit of leverage penalty. But then as we step up in Q4, we get that leverage back. But as you know, Q4 tends to be

Kevin P. Holleran: So we'll have to wait and see how that margin opens up. We have a price announcement that goes into effect October 1st, we have discounts that go into effect October 1st for early buys, and then we'll be able to evaluate that position and its impact on margin. But we feel comfortable with where we're at. We're very pleased with the year-to-date performance of gross margin greater than 50%. That's a phenomenal result for us, and as a management team, we continue to cement that in over time. That's super helpful.

Speaker Change: the early-buy discount period, so that we'll have to wait and see how that margin opens up.

Ian Jones: We have a price announcement that goes into effect October 1st. We have discounts that go into effect October 1st on early buy, and then we'll be able to evaluate that position and its impact on margin, but we feel comfortable with where we're at. We're very pleased with the year today, almost a gross margin greater than 50%. That a phenomenal result for us, and as a management team, we continue to cement that end over the course of time.

Speaker Change: We have a price announcement that goes into effect October 1st. We have discounts that go into effect October 1st on early buy. And then we'll be able to evaluate the net position and its impact on margin. But we feel comfortable with where we're at.

Speaker Change: We're very pleased with the year-to-date performance of Gross Margin, greater than 50 percent. That's a phenomenal result for us, and as a management team, we continue to cement that in over the course of time.

Ian Jones: That's super helpful. Thank you.

Michael Patrick Halloran: Thank you. Maybe switching gears to capital deployment. You know, it sounded like inorganic maybe moved its way up the priority list in the prepared remarks, but maybe I'm just leaning on the fact that we just finished quarking.

Ian Jones: Maybe switching gears to capital deployment. It sounded like inorganic, maybe moved its way up the priority list in the prepare remarks, but maybe I'm just leaning on the fact that we just finished out of quarantine. Can you maybe talk about how you're thinking about prioritization of a commercial versus traditional residential pool? And then, are there any particular products or technologies that you're trying to prioritize or highlight as you filter through your funnel?

Speaker Change: That's super helpful. Thank you. Maybe switching gears to capital deployment, you know, it sounded like Inorganic maybe moved its way up the priority list and the

Speaker Change: in the prepared remarks, but maybe I'm just leaning on the fact that we just finished on a quarking.

Kevin P. Holleran: Can you maybe talk about how you're thinking about prioritizing commercial versus traditional residential pool? And then are there any particular products or technologies that you're trying to prioritize or highlight as you filter through your funnel? Let me just touch on our standard capital allocation price because we have not deviated from that. We'll always take our first priority as investment back into our business. We're an OEM, we're a manufacturer, we take care of our facilities, and we look to continue to upgrade those facilities with a capital expenditure profile of between 2% to 3% per year. This year, we're calling for around $30 million.

Speaker Change: Can you maybe talk about how you're thinking about prioritization of commercial versus traditional residential pool? And then are there any particular products or technologies that you're trying to prioritize or highlight as you filter through your funnel?

Ian Jones: Let me just touch on our standard capital allocation process, because we have not deviated from that. We'll always take our first priority as investment back into our business. We're an OVM or a manufacturer. We take care of our facilities, and we look to continue to upgrade those facilities with a capital expenditure profile between two to three percent per year. This year we're calling for around 30 million. It's a little bit lower than we had originally said, and that's purely a consequence of the timing of some of the investments that we're putting into our US facilities.

Speaker Change: Let me just touch on our standard capital allocation process, because we have not deviated.

Speaker Change: And Matt, you will always.

Matt: take our first priority as investment back into our business. We're an OVF, we're a manufacturer, we take care of our facilities, and we look to continue to upgrade those facilities.

Matt: with a capital expenditure profile of between 2% to 3% per year. This year we're calling for around $30 million. It's a little bit lower than we had originally said, and that's purely a consequence of timing of some of the investments that we're putting into our U.S. facilities.

Eifion S. Jones: It's a little bit lower than we had originally said, and that's purely a consequence of the timing of some of the investments that we're putting into our US facilities. Secondly, our priority in the short term here has been to de-lever our balance sheet, and we've done a really good job. We believe sequentially we've moved down from just over 4x now to 2.8x on an organic basis, taking into consideration clock.

Ian Jones: Secondly, our priority in the short term here has been to deliver our balance sheet, and we've done a really good job, we believe. Sequentially, we've moved down from just over four times now to the 2.8 on an organic basis, taken into consideration clocking. We're a 3.1 time, so we'll continue to move into our 12-year range of two to three times over the balance of the year. And then thirdly, inorganic activities at M&A; it's always been a growth attribute for this organization. It will continue to be a growth attribute given the very rich cash flow profile of this organization.

Matt: Secondly, our priority in the short term here has been to de-lever our balance sheet and we've done a really good job, we believe.

Eifion S. Jones: We're at 3.1x, and we'll continue to move into our target range of 2x to 3x over the balance of the year. And then thirdly, inorganic activities, M&A, it's always been a growth attribute for this organization. It will continue to be a growth attribute given the very rich cash flow profile of this organization. Corking was our most recent great acquisition.

Matt: Sequentially, we've moved down from just over four times now to 2.8 on an organic basis, taking into consideration clocking. We're at 3.1 times, and we'll continue to move into our target range of two to three times over the balance.

Matt: of the year.

Matt: And then thirdly, inorganic activities, M&A, it's always been a growth attribute for this organization. It will continue to be a growth attribute, given the very rich cash flow profile of this organization.

Ian Jones: Clocking was almost recent; great acquisition. We do the merger of pipeline. That covers both residential and commercial in focus. And then finally, as I mentioned, our cash profile does afford us the opportunity, so also think about return to Shell holder. Right now, no specific commitments there, but we do have remaining $400 million on our share repurchase program that's available for deployment at the appropriate time. I would just add, as I've mentioned, we maintain a healthy pipeline. Our market position in residential is significantly stronger than where we are in commercial, so that may afford us more opportunity from a commercial standpoint as we look at building out the product catalog.

Kevin P. Holleran: We do nurture a pipeline that covers both residential and commercial in focus. And then, as I mentioned, our cash profile does afford us the opportunity to also think about return to shareholders. Right now, no specific commitments there, but we do have remaining $400 million in our share repurchase program that's available for deployment at the appropriate time.

Speaker Change: Thank you for watching. Please subscribe, like, and comment. See you next time.

Speaker Change: Corking was our most recent great acquisition. We do nurture a pipeline.

Speaker Change: that covers both residential and commercial.

Speaker Change: in focus, and then finally.

Speaker Change: As I mentioned, our cash profile does afford us the opportunity to also think about return to shareholder. Right now, no specific commitments there, but we do have remaining...

Speaker Change: $400 million on our share repurchase program that's available for deployment at the appropriate time.

Eifion S. Jones: I would just add, as Ivan mentioned, we maintain a healthy pipeline. Our market position in residential is significantly stronger than where we are in commercial. So that may afford us more opportunity from a commercial standpoint as we look at building out the product catalog. But, you know, I'd say in terms of technology. I mean, we're very strong with what we call core pad equipment, pumps, filters, you know, cleaners, et cetera.

Speaker Change: I would just add, as Ivan mentioned, I mean, we maintain a healthy pipeline. Our market position in residential is significantly stronger.

Ivan: than where we are in commercial. So that may afford us more opportunity from a commercial standpoint as we look at.

Ian Jones: But, you know, I'd say in terms of technology, I mean, we're very strong what we call corpat equipment, pumps, filters, you know, cleaners, et cetera, so things around automation and around more than lifestyle products will continue to be key points of emphasis for us both organically and as we contemplate in organic opportunities going forward.

Speaker Change: building out the product, the product catalog, but you know, I'd say in terms of technology, I mean, we're very strong with what we call core pad equipment, pumps, filters.

Eifion S. Jones: So things around automation and around more lifestyle products will continue to be key points of emphasis for us, both organically and as we contemplate inorganic opportunities. Thank you. I'll pass it on. Thank you.

Speaker Change: you know, cleaners, etc. So things around automation and around more the lifestyle products will continue to be key points of emphasis for us both organically and as we contemplate inorganic opportunities going forward.

Ian Jones: Thank you all for that. Thank you.

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

Rafe Jadrosich: Our next question comes from line of race, Jedra Thick with Bank of America; please proceed.

Speaker Change: Thank you. Our next question comes from the line of Rafe Jadrosich with Bank of America. Please proceed with your question.

Rafe Jadrosich: Hi, good morning. Thanks for taking my questions. I wanted to ask on some of the comments or just follow up on some of the comments on the permits trend that they were seeing on the new construction side.

Rafe Jason Jadrosich: Thanks for taking my question. Yeah, I think it's probably a couple months, Rafe, is how we would define what we see in terms of permits. If you were to follow one specifically through the process, I think you'd be somewhere between kind of 45 to 60 days or so, depending upon what the workload of a specific dealer is that's filing the permit. Okay, so it's a pretty quick, um...

Rafe Jadrosik: Hi, good morning. Thanks for taking my questions.

Speaker Change: [inaudible]

Rafe Jadrosik: I wanted to ask on some of the comments, or just follow up on some of the comments, on the permits trend that you're seeing on the new construction side. Can you remind us the typical lag?

Kevin Holleran: Can you remind us the typical lag between your business and permits? Like, how do we think about whenever new construction bottoms starts to reflect at some point, like when would that actually flow through into your revenue? Yeah, I think it's probably a couple of months. Rafe's is how we would define, you know, what we see in terms of permitting. You know, if you were to follow one specifically through the process, I think you'd be somewhere between kind of 45 to 60 days or so, depending upon what the workload of a specific dealer is, that's filing the permit rate.

Speaker Change: between your business and permits. How do we think about whenever new construction bottoms starts to inflect at some point, when would that actually flow through into your revenue?

Speaker Change: Yeah, I think it's probably a couple of months, Rafe, is how we would define, you know,

Speaker Change: What we've seen in terms of permitting, you know, if you were to follow one specifically through the process, I think you'd be somewhere between kind of 45 to 60 days or so, depending upon what the workload of the specific dealer is that's filing the permit.

Kevin Holleran: Okay, so it's a pretty quick turnaround from the permit to yourself. And then now it is, I would say that wasn't that, you know, we were having to ask that question during COVID; that would have been a longer tail on that, but I think in general, you're, you know, you're kind of talking, you know, two months or so.

Rafe Jadrosik: Okay, so it's a pretty quick...

Rafe Jadrosik: It's a pretty quick turnaround from the permit to your sale.

Rafe Jadrosik: Now it is, I would say that if you asked that question during COVID, that would have been a longer tail on that, but I think in general, you're kind of talking two months or so.

Kevin Holleran: Okay, that's helpful.

Kevin Holleran: And then if we step back and look at the commercial market, you know, relative to Rezi, can you talk about, I mean, Rezi is pretty consolidated with you and the two other large players controlling the majority of the market. How is commercial setup competitively in terms of like the consolidation of that size? What is the relative size of commercial versus Rezi? And then what's the margin profile of that business compared to like your, your kind of legacy core business that you have today? Yeah, I think from a margin standpoint, I'll let all that I've added the end here, but it's, but it's a strong margin business.

Rafe Jadrosik: Okay, that's helpful. And then if we step back and look at the commercial market relative to Resi.

Speaker Change: Can you talk about, I mean, Resi is pretty consolidated with you and the two other large players controlling the majority of the market. How is commercial set up competitively?

Rafe Jason Jadrosich: In terms of like the consolidation of that size, what is the relative size of commercial versus residential? And then what's the margin profile of that business compared to your kind of legacy core business that you have today? I think from a margin standpoint, I'll let Ivan add at the end here, but it's a high-margin business, and one of the real benefits of Corking is that it has a pretty similar margin profile as the business that it's joining at Hayward. In terms of the competitive landscape, I would say the big three, as we're often referred to, all participate in the commercial market globally to some extent.

Speaker Change: In terms of like the consolidation of that size, what is the relative size of commercial versus resi? And then what's the margin profile of that business compared to like your kind of legacy core business that you have today?

Ivan: I think from a margin standpoint, I'll let Ivan add at the end here, but it's a strong margin business and one of the real benefits of Corking is it's a pretty similar margin profile as the business.

Kevin Holleran: And one of the real benefits of Core King is it's pretty similar margin profile as, as the business that it's joining at Hayward. In terms of competitive landscape, I would say, you know, the big three, as we're often referred to, all participate in the commercial market globally to some extent, but as you do look around, some of the individual product categories, it is a bit more fragment than I guess than what you might see in the residential space from some of the larger horsepower pumps to some of the larger BTU commercial heaters to some of the regenerative filter brands out there.

Ivan: that's joining at Hayward. In terms of competitive landscape, I would say

Ivan: You know, the big three, as we're often referred to, all participate in the commercial market globally, to some extent. But as you do look...

Kevin P. Holleran: But as you do look around some of the individual product categories, it is a bit more fragmented, I guess, than what you might see in the residential space, from some of the larger horsepower pumps to some of the larger BTU commercial heaters to some of the regenerative filter brands out there. So it's a bit more fragmented, I feel, than maybe the residential business, as we know. In terms of margin comparability, I'd say, generally speaking, we don't see a major difference.

Ivan: around some of the individual product categories, it is a bit more.

Ivan: fragmented, I guess, than what you might see in the residential space from

Ivan: some of the larger horsepower pumps to some of the larger BTU commercial heaters to some of the regenerative filter brands out there so it's a bit more it's a bit more fragmented I would I feel

Kevin Holleran: So it's a bit more, it's a bit more fragment I would, I feel, than maybe the the residential business as we know it. Yeah, in terms of margin comparability, I'd say generally speaking, we don't see a major difference. So the Jeff's and David are aligned between the residential commercial business. Maybe they have a slightly different profile within the ecosystem between gross margin and national DNA, but at the bottom line, it's very comparable. The nice thing about these type of acquisitions for us over the course of time, we have an opportunity to progressively improve the margin with the purchase panel that we can bring to the normal chair-like position costs.

Ivan: than maybe the residential business as we know it.

Speaker Change: In terms of margin variability, I'd say, generally speaking, we don't see a major difference. They just need to be aligned between residential and commercial business.

Eifion S. Jones: They just leave it aligned between residential and commercial business. Maybe they have a slightly different profile within the income statement between gross margin and SG&A, but at the bottom line, it's very comparable. The nice thing about these types of acquisitions for us is that over the course of time, we have an opportunity to progressively improve the margin with the purchase power that we can bring to the raw material acquisition costs. We look to continue to expand the clocking acquisition over time. The same applies to future acquisitions, that type of attribute that we can bring. Thank you; that's helpful.

Speaker Change: Maybe they have a slightly different profile within the income statement between gross margin and SG&A. But at the bottom line, it's very comparable. The nice thing about...

Speaker Change: These are type of acquisitions for us over the course of time. We have an opportunity to progressively improve the margin.

Speaker Change: with the purchase power that we can bring to the raw material acquisition cost. And so we look to continue to expand the clocking acquisition over the course of time. And, you know, same applies to future acquisitions, that type of attribute that we can bring.

Kevin Holleran: And so we look to continue expand the acquisition over the course of time. And same applies to future acquisitions; that type of attributes that we can breath.

Kevin Holleran: Thank you, that's helpful.

Speaker Change: Thank you, that's helpful.

Nigel Coe: Thank you.

Rafe Jason Jadrosich: Thank you. Our next question is a follow-up from the line of Nigel Coe with Wolf Research. Please proceed with your question. Oh, thanks for the follow-up. I think I have a couple of quick ones for you, Eifion. I think you mentioned factory utilization right now is about 65%. What would you say is a normal level?

Nigel Coe: Our next question is a follow-up from the line of Nigel Coe with Wolf Research.

Ian Jones: Please proceed with your question. Thanks for the follow-up. I think I have a couple of questions for you, Hydeon. I think you mentioned spectacularization right now as well, 65%. What would you say is a normal level? I'm assuming that's about two points. So gross margin and absorption.

Speaker Change #100: Thank you. Our next question is a follow-up from the line of Nigel Coe with Wolf Research. Please proceed with your question.

Nigel Edward Coe: Because I'm assuming that's about two points or so gross margin under absorption. So I'm just wondering, if number one, if you agree with that view, and you know, what is a normal level? Yeah, so for us, just to correct you, I said 60, 6-0% is what is probably mostly utilized today. And when we say normal, we would say that is probably trending back to where we would normally operate in these units pre-pandemic level. During the pandemic, we accelerated shifts within the facilities to take advantage of the capacity of the machinery, in the hours, and during the day.

Nigel Edward Coe: Thanks for the follow-up. I think I have a couple of quick ones for you, Eifion. I think you mentioned factory utilization right now is about 65%. What would you say is a normal level? Because I'm assuming that's about two points or so.

Ian Jones: So I'm just wondering if number one of you agree with that view and what is a normal level? Yeah, so for us, just to crush, I said 60, 60% is worth of, okay, monthly, utilize today. When we say normal, we would say that it's probably trending back to where we would normally operate in these units, pre-pandemic level. So we still have that opportunity as we continue to grow the business volume accurately. It was a great learning of the pandemic period to be able to tap into that later capacity to get more shifts on, to get access to those machine hours and those additional shifts in the week and over the weekend.

Nigel Edward Coe: Gross margin under absorption. So I'm just wondering if number one if you agree with that that view and you know, what is a normal level?

Eifion S. Jones: Yeah, so for us, just to correct you, I said 60, 6-0 percent is where our profit must be.

Eifion S. Jones: So we still have that opportunity as we continue to grow the business volumetrically. It was a great learning experience over the pandemic period to be able to tap into that latent capacity to get more shifts on, to get access to those machine hours and those additional shifts in the week and over the weekend. So that's always there now as an opportunity for us, given we've proven we can do that. We're not under-absorbing right now at our facilities.

Speaker Change #101: Thank you very much.

Speaker Change #102: to take advantage of the capacity in the machinery in the hours in the day.

Speaker Change #103: So we still have that opportunity as we continue to grow the business volumetrically. It was a great learning over the pandemic period to be able to tap into that latent capacity to get more shifts on, to get access to those machine hours.

Ian Jones: So that's always our now's opportunity for us, given we've proven that we can do that. We're not under-absorbing right now in our facilities.

Speaker Change #103: and those additional shifts in the week and over the weekend. So that's always there now as an opportunity for us.

Speaker Change #103: given we've proven out we can do that. We're not under-absorbing right now in our facilities.

Ian Jones: We balance, and this is a massive kudos to our operational team. They balance the variable cost labor in those facilities to match the current production level in those facilities. So we've got good absorption; it's appropriate level, absorption to the cost space we're incurring. And as we continue to grow volume, we will write some of his labor to keep walks up without absorption profile we need in the business.

Eifion S. Jones: We balance, and this is a massive kudos to our operational team, they balance the variable cost labor in those facilities to match the current production level in those facilities. So we've got good absorption; it's an appropriate level of absorption to the cost space we're incurring. And as we continue to grow volume, we will right-size labor to keep lockstep with that absorption profile we need in the business. Okay, I misread

Speaker Change #103: We balance, and this is a massive kudos to our operational team.

Speaker Change #103: They balance the variable cost labor in those facilities to match the current production level in those facilities.

Speaker Change #103: So, we've got good absorption, it's appropriate level absorption to the cost base we're incurring, and as we continue to grow volume, we will right-size labor to keep lockstep with that absorption profile we need in the business.

Ian Jones: Okay, I miss read the comments. Thanks for the clarification.

Nigel Edward Coe: Thanks for the clarification. And then just a quick one on free cash flow. You know, Cancer Seed will sell cubaQ from $3.51 down to $1.48, and I know normally we do see that drawdown in AR, but not to this degree. So I'm just wondering, you know, was that all organic, or was there some help from factoring in the quarter?

Ian Jones: And then just a quick one on free cash flow, you know, Councillor Seable fell, QVQ from 351 down to 148. And I don't normally; we do see that draw down in AR, but not this degree. So I'm just wondering, you know, is that all organic or was it some help from factoring in the quarter, and you know, any thoughts there? Yeah, so in terms of the accounts receivable, it normally does decline from Q1 to Q2 as a consequence of all the early buyer receipts that come into the business. As you know, early buyer offers a discount and up to six months, extended payment zones.

Speaker Change #104: Okay, I misread the comments. Thanks for the clarification. And then just a quick one on free cash flow. You know, Cancer Seed will sell...

Speaker Change #105: Qubicube from 351 down to 148 and I know normally we do see that drawdown in AR but not to this degree. So I'm just wondering you know is that all organic or was there some help from factoring in the quarter, you know, any thoughts there?

Eifion S. Jones: Yes, so in terms of accounts receivable, it normally does decline from Q1 to Q2 as a consequence of all the early buy receipts that come into the business. As you know, early buy offers a discount and up to six months' extended payment terms. And so most of our cash for early buy comes, for early buy receivable, comes in the second quarter. And that was the case that you saw this year.

Speaker Change #106: Yes, so in terms of the accounts receivable, it normally does decline from Q1 to Q2 as a consequence of all the early buy receipts that come into the business. As you know, early buy offers a discount and up to six months extended payment terms.

Ian Jones: And so most of our cash in, in, in early buyer come for early buyer receivable comes in the second quarter. And that was the case that you saw this year. So we're very pleased with the cash collection period for early buyers this year. Happy to report that the vast majority have paid exactly on time, which is great to see in the current climate. And, you know, as we step through the balance of the year now, I can't receive a little increase again as we ship in Q4 early buyer from the 2025 seat.

Speaker Change #107: And so most of our cash for early buy receivable comes in the second quarter, and that was the case that you saw this year. So we're very pleased.

Eifion S. Jones: So we're very pleased with the cash collection period for early buy this year and happy to report that the vast majority have paid exactly on time, which is great to see in the current climate. And, you know, as we step through the balance of the year now, accounts receivable will increase again as we ship in Q4 early buy for the 2025 season, but no big factoring impact there. No, no, not at all.

Speaker Change #107: With the cash collection period for early buy this year, I'm happy to report that the vast majority have paid exactly on time, which is great to see in the current climate.

Speaker Change #107: And, you know, as we step through the balance of the year now, accounts receivable will increase again as we ship in Q4 early buy for the 2025 season.

Ian Jones: Lisa. But no big factoring impact there. No, no, not at all. Okay, great. Thanks, Evan. Thank you.

Speaker Change #107: But no big factoring impact there.

Nigel Edward Coe: Okay, great. Thanks, everyone. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Holleran for any final...

Speaker Change #108: No, no, not at all.

Speaker Change #109: Okay, great. Thanks, Eifion.

Operator: Ladies and gentlemen, that concludes our question-and-answer session.

Kevin Holleran: I'll turn the floor back to Mr. Halloran for any final comments. Thank you, Moas. 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 #109: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Halloran for any final comments.

Kevin P. Holleran: Thank you, Melissa. 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. Please contact our team if you have any follow-up questions, and we look forward to talking to you again on the third quarter earnings call. Thanks, Melissa. You can now end the call.

Kevin P. Holleran: Thank you, Melissa. I'd like to thank everyone for their interest in Hayward.

Kevin P. Holleran: Our business is very well positioned to navigate the near-term challenges and deliver value.

Kevin P. Holleran: for all stakeholders in the years ahead. This wouldn't be possible without the hard work, dedication, and resilience.

Kevin Holleran: Please contact our team if you have any follow-up questions. We look forward to talking to you again on third quarter earnings call.

Kevin P. Holleran: of our employees and partners around the world. Please contact our team if you have any follow-up questions, and we look forward to talking to you again on the third quarter earnings call. Thanks, Melissa. You can now end the call.

Operator: Thanks, Moas, so you can now end the call. Thank you.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change #110: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.