Q4 2024 Hayward Holdings Inc Earnings Call
Christine: Welcome to Hayward Holdings fourth quarter 2024 earnings call. My name is Christine and I'll be your operator for today's call.
Christine: 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 1 on your touch-tone phone.
Please note that this conference is being recorded.
Speaker Change: I will now turn the call over to Kevin Maczka, Vice President, Investor Relations and FP&A. Mr. Maczka, you may begin.
Speaker Change: Thank you and good morning everyone. We issued our fourth quarter 2024 earnings press release this morning which has been posted to the investor relations section of our website at investor.hayward.com
Speaker Change: 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.
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 2025 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.
Additionally, during today's call, the company will discuss non-GAAP measures.
Speaker Change: 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.
Speaker Change: All comparisons will be made on a year-over-year basis. I will now turn the call over to Kevin Holleran.
Speaker Change: Thank you Kevin. Good morning everyone. It's my pleasure to welcome all of you to Hayward's fourth quarter earnings call. I'll begin on slide four of our earnings presentation by highlighting a tremendous milestone for Hayward.
the 100-year anniversary of the company's founding in 1925.
Speaker Change: As we celebrate this achievement, we reflect with immense pride on our journey, from the founding by Irving Hayward as a tool and die maker, to Oscar Davis acquiring the business in the 1960s and entering the pool market, to the global public company we are today.
Speaker Change: For a century, we've served our customers with outstanding products and services, and our centennial celebration is a testament to our resilience and past accomplishments.
Speaker Change: Our company has a solid foundation for future growth and value creation. We are extremely excited about the long-term prospects for the pool industry and our ability to execute our growth plans. Turning now to slide 5 of our presentation for today's key messages.
Speaker Change: I'm pleased to report strong fourth quarter results significantly exceeding expectations.
Speaker Change: We finished the year on a high note with better-than-anticipated in-quarter demand plus robust early-buy orders for the upcoming 2025 pool season. This resulted in solid sales and earnings growth, margin expansion, and increased cash flow generation.
Speaker Change: Net sales increased 17% for the quarter and 6% for the year through positive contributions from both volume and price. Gross profit margins expanded to record levels and full year free cash flow increased 22% exceeding our guidance.
Speaker Change: Solid profitability and cash flow enabled us to reduce net leverage into our targeted range of two to three times while completing accretive capital deployments for early debt repayment and a strategic acquisition.
Speaker Change: As I reflect on 2024, it was a successful year for Hayward. I'm proud of the performance of our team in a challenging global environment, and I'd like to thank all our valued customers and vendor partners for their efforts during the year.
Speaker Change: In addition to delivering solid financial results, we further strengthened the senior leadership team and executed key strategic initiatives to position us for profitable growth.
Speaker Change: This included expanding our customer relationships, advancing our technology leadership position with the introduction of innovative new products, and leveraging our operational excellence capabilities. I'll discuss our accomplishments in more detail in a moment.
Speaker Change: Moving to 2025, we expect to deliver sales and earnings growth on a full year basis in a continued dynamic operating environment. For the full year 2025, we expect net sales to increase approximately 1 to 5 percent.
Speaker Change: Turning now to slide six, highlighting the results of the fourth quarter and full year.
Speaker Change: Net sales in the fourth quarter increased 17% to $327 million, driven by price and a double-digit increase in volume. By segment, net sales increased 20% in North America and 2% in Europe and rest of the world.
Speaker Change: Gross profit margins expanded 220 basis points year-over-year and 170 basis points sequentially to a record 51.4 percent.
Speaker Change: Adjusted EBITDA increased 30% in the fourth quarter and adjusted EBITDA margin was a robust 30.2%. Adjusted diluted EPS increased 35% to $0.27.
Speaker Change: For the full year 2024, the net sales increased 6% to $1,052,000,000 and adjusted EBITDA increased 12% to $277,000,000, each exceeding our most recent guidance.
Speaker Change: We delivered strong profitability with gross margins exceeding 50% for the first time on a full year basis. Adjusted EBITDA margin for the full year was 26.4% and adjusted diluted EPS increased 20% to 67 cents.
Speaker Change: Turning now to slide 7, I'd like to share some perspective on the year. 2024 was a successful year for Hayward despite the macroeconomic challenges faced by the pool industry. We delivered on our financial commitments and strengthened our position as a premier company in the industry.
Speaker Change: As a technology leader, we increased investment in both R&D and engineering to support our commitment to innovation.
Speaker Change: Two great examples of new innovations are the micro-channel temperature control unit, an industry-first, single-unit product offering the ability
Speaker Change: to both heat pool water and cool it as low as 40 degrees for a cold plunge. Secondly, our proprietary OmniPro app, a cloud-based productivity tool for trade professionals enabling real-time remote monitoring and equipment configuration.
Speaker Change: We're excited by the adoption of these unique products in the marketplace.
Speaker Change: Hayward has a long-standing culture of operational excellence and continuous improvement. We demonstrated our capabilities again in 2024, consolidating our manufacturing footprint in Spain, investing in automation and productivity initiatives, and expanding gross margins.
Speaker Change: As a testament to our product and operational performance and the value we provide customers, Hayward was recognized during the year by the largest global distributor with separate awards for both innovation leadership and operational excellence.
Speaker Change: On the commercial side, we increased investment in customer care, leveraging new technologies and tools to enhance customer experience. We upgraded our customer loyalty programs, rewards trips, and partner summits to strengthen and expand our dealer relationships to help grow our respective businesses.
Speaker Change: We also launched Hayward Hub DFW in Texas, a first-of-its-kind Hayward training and support facility for dealers and trade professionals in this important growth market.
Speaker Change: During the year, we further strengthen the senior leadership team by appointing four accomplished executives to key positions within the organization. With these additions and expanded capabilities, I'm convinced we have the right leadership talent in place to execute our growth strategies.
Speaker Change: These achievements contributed to solid financial performance, including a return to sales growth and continued margin expansion.
Speaker Change: This enabled us to reduce net leverage while reinvesting in the business, repaying $123 million of our debt early and completing the strategic acquisition of Corking, advancing our position in the commercial pool market.
Turning now to slide 8.
Speaker Change: Following that review of 2024, I'd like to look forward and highlight the company's strategy to drive compelling growth and shareholder value.
At our core, we are a products company.
Speaker Change: Our product management and engineering roadmaps are designed to deliver innovative, energy efficient, automated solutions to transform the experience of water and increase the enjoyment of pool ownership.
Speaker Change: Leveraging best practices and capturing global trends, our teams are actively driving innovation and setting the pace for the industry.
Speaker Change: We are focused on creating customer advocacy for the Hayward brand, strengthening relationships with trade professionals, and in turn driving incremental growth.
Speaker Change: To enable this, our sales, marketing, and technical service teams continue to develop new value-added solutions for our trade professionals.
Speaker Change: Organizational changes and investment in our commercial teams allow us to further support, train, and develop our partners as well as attract new professionals to Hayward.
Speaker Change: The Clork King acquisition was a key investment in our commercial pool product category. We are pleased with its performance and see many additional opportunities to grow this category with focused leadership and new product introductions.
Speaker Change: As we integrate Clorking into Hayward, we are identifying cross-selling opportunities with our existing flow control team.
Speaker Change: We now have the opportunity to specify UV and chemical water treatment systems in addition to our core engineered thermoplastic valves into a broad and expanding water industry.
Speaker Change: We have a proven ability to drive margin expansion from already robust levels.
Speaker Change: Specifically, our gross profit margin expanded over 600 basis points in the last five years to 50.5%, and nearly 400 basis points since 2021, despite reduced volumes as the industry normalized after the pandemic.
Speaker Change: We see the opportunity for further margin upside over the long term, driven by four key pillars of our margin strategy. Productivity gains resulting from our operational excellence culture, a higher margin mix of technology products,
Speaker Change: operating leverage given current low capacity utilization levels and proactive price cost management.
Speaker Change: Finally, as we've highlighted before, we maintain a disciplined and balanced approach to capital allocation, emphasizing organic growth investments and strategic acquisition opportunities to complement our product offering, geographic footprint, and commercial relationships.
Speaker Change: In summary, I'm confident we have the right strategy in place to drive profitable growth and compelling shareholder returns. And with that, I'd like to turn the call over to Eifion to discuss our financial results in more detail.
Eifion Jones: Thank you, Kevin, and good morning. I'll start on slide 9. As Kevin stated, we are very pleased with our fourth quarter financial performance. Net sales increased and exceeded expectations.
Eifion Jones: We delivered outstanding margin expansion and generated better than expected free cash flow.
Eifion Jones: Looking at the results in more detail, net sales for the fourth quarter increased 17% to $327 million. This was driven by a 12% increase in volume, 4% positive net price realization, and a 2% contribution from the acquisition of Clawking, completed in June.
Eifion Jones: Gross profit in the fourth quarter increased 23% to $168 million. Gross profit margin increased 220 basis points year-over-year and 170 basis points sequentially to a quarterly record of 51.4%.
Eifion Jones: Adjusted EBITDA was $99 million in the fourth quarter and the adjusted EBITDA margin increased 300 basis points to 30.2%.
Adjusted diluted EPS in the quarter increased 35% to $0.27
Eifion Jones: Turning now to slide 10 for a review of our full-year results. Net sales for the fiscal year 2024 increased 6% to $1.05 billion. This exceeded our most recent guidance and was driven by 3% positive price realization, 2% higher volume, and a 1% contribution from the Claw King acquisition.
Eifion Jones: to 50.5%, exceeding 50% for the first time on a four-year basis.
Eifion Jones: Strong profit margins enabled us to reinvest in the business. In 2024, we increased research development and engineering investment by 5% to $26 million to support our commitment to growth and innovation.
Eifion Jones: SG&A expenses for the year increased 12% to $261 million, driven largely by normalized annual incentive compensation relative to a comparable low result in the prior year, targeted growth investments in selling and customer care, and acquired cloaking SG&A.
Eifion Jones: to 26.4%. Our effective tax rate was 18% in 2024 compared to 20% in 2023. Adjusted diluted EPS increased 20% to 67 cents for the full year 2024.
Eifion Jones: Now I'll discuss our reportable segment results. Turning to slide 11, for a review of our reportable segment results for the fourth quarter, North American net sales increased 20% to $286 million, driven by 5% net price realization.
Eifion Jones: 13% higher volume and 2% from the cloaking acquisition. Net sales increased 20% in the U.S. and 23% in Canada.
Eifion Jones: The robust volume increase in the quarter was driven primarily by strong in-quarter demand, plus increased early by demand for the upcoming 2025 pool season.
Eifion Jones: Gross Profit Margin increased 310 basis points to a robust 54.2% and Adjusted Segment Income Margin increased 500 basis points to 36.7%
Eifion Jones: Turning to Europe and the rest of the world, net sales for the quarter increased 2% to 41 million. Net sales benefited from 1% favorable net pricing and 2% higher volume, partially offset by 1% from foreign currency translation.
Eifion Jones: Net sales in Europe increased 1% and rest of the world increased 2%.
Eifion Jones: Gross profit margin was 31.4% and adjusted segment income margin was 12.8%. Turning to slide 12 for a review of our reportable segment results for the full year.
Eifion Jones: North American net sales increased 9% to $896 million, driven by a 4% higher price and volume, plus a 1% contribution from Corking.
Eifion Jones: Sales in the U.S. and Canada increased 8% and 16% respectively.
We are encouraged by the improved performance in Canada.
Eifion Jones: We delivered exceptional profitability with gross profit margins up 310 basis points to 53% and adjusted segment income margin up 360 basis points to 32.5%.
Eifion Jones: In Europe and the rest of the world, net sales for the full year reduced 8% to $156 million with a net pricing increase of approximately 1% offset by 9% lower volumes. Sales in Europe reduced 1% and the rest of the world reduced 16%.
Speaker Change: Gross Profit Margin was 36.2% and Adjusted Segment Income Margin was 14.6%.
Speaker Change: We took steps throughout 2024 to improve the performance of this segment, and are pleased to see signs of improvement in the fourth quarter. We expect our proactive actions, including appointing new senior leadership and simplifying the operating model, to result in improved sales and margin trends going forward.
Speaker Change: Turning to slide 13 for a review of the balance sheet and cash flow highlights.
Speaker Change: We are very pleased with the balance sheet's improvement and strong cash flow performance during the year. Net debt to adjusted EBITDA improved significantly, from 3.7 times at the end of 2023 to 2.8 times at the end of 2024, consistent with our target range of 2 to 3 times.
Speaker Change: Total liquidity at the end of the year was $360 million, including $197 million in cash and equivalents and short-term investments, plus availability under our credit facilities of $164 million.
Speaker Change: We have no near-term maturities on our debt. The term matures in 2028, and the undrawn ABL matures in 2026.
Speaker Change: Maturing in 2025 through 2028, limiting our cash interest rate and our term facilities to 6.4% in 2024. Our average interest rate earned on global cash deposits for the year was 5%.
Speaker Change: Overall, we are pleased with the quality of our balance sheet. Our business has strong free cash flow generation characteristics driven by high quality earnings which support continued growth investments.
Speaker Change: Cash flow from operations for the full year increased 15% to $212 million due to increased EBITDA on working capital management.
Speaker Change: Turning now to capital allocation on slide 14. As Kevin discussed, 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: We continue to pursue additional acquisition opportunities to augment our organic growth in addition to opportunistic share repurchases.
Turning now to slide 15 for the Outlook.
Speaker Change: We are introducing 2025 guidance reflecting sales and earnings growth driven by solid execution across the organization, positive price realization, and continued technology adoption.
Speaker Change: For Fiscal Year 2025, Hayward expects net sales to increase approximately 1% to 5% to $1.06 to $1.1 billion.
Speaker Change: This outlook reflects modest volume growth in non-discretionary aftermarket maintenance with modest reductions in the more discretionary elements of the market, new construction remodel and upgrade.
Speaker Change: We expect a positive net price contribution of approximately 2-3% based on prior
Pricing announcements for the year
Speaker Change: This does not include any new pricing actions that may become necessary as a consequence of the evolving tariff environment. We continue to evaluate the situation and will respond with appropriate supply chain and pricing actions as needed. Our business is seasonal. We expect normal seasonal strength.
Speaker Change: in the second and fourth quarters with a quarterly cadence generally consistent with the prior year.
Speaker Change: We anticipate full year 2025 adjusted EBITDA of $280 million to $290 million.
Speaker Change: We also expect solid cash flow generation again in 2025, with a conversion of greater than 100% of net income at approximately $160 million.
Speaker Change: We are confident in our ability to successfully execute in dynamic environments and remain very positive about the long-term growth outlook for the pool industry, particularly the strength of the aftermarket. And with that, I'll now turn the call back to Kevin.
Kevin: Thanks, Eifion. I'll pick back up on slide 16. Before we close, let me reiterate how proud and thankful I am for the team's performance throughout 2024.
Kevin: We had a strong finish to a successful year with a fourth quarter that exceeded expectations.
Kevin: For the year, we return to sales growth, delivering impressive margin expansion and strong cash flow, allowing us to fund our growth strategies. Looking forward, we expect continued sales and earnings growth in 2025 and are extremely excited about our longer-term prospects.
Kevin: We will be celebrating our 100-year anniversary throughout the year. I'm confident we have the right strategy and talent in place to drive compelling financial results and shareholder value creation. With that, we're now ready to open the line for questions.
But
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Speaker Change: Thank you. Our first question comes from the line of Nigel Coe with Wolf Research. Please proceed with your question.
Thanks, good morning everyone and congratulations on the 100th anniversary.
Speaker Change: Thanks for the question. So I just wanted to kind of maybe just dig in a bit deeper on the 13% volume growth in North America this quarter. You talked about strong
Speaker Change: in-court demand but also strong early buy so just wondering if there's any way you can maybe
Speaker Change: Dissag, the strength in Yoli Bai from the kind of in-quarter and is there any Impact on 1Q that we should consider on the back end of the strength we saw on 4Q?
It is fair to say that we had a good
Speaker Change: in-quarter demand period in Q4. Early buy orders and shipments were up year-over-year.
Speaker Change: But it's really important to understand that we shipped proportionally less of our early buy orders in 2024 than we did in 2023. That price was a little bit stronger due to that in-season demand, so that has a positive impact on the price.
Speaker Change: FX was a little bit better than expectations, which obviously positively affects translated earnings in North America for Canada.
Speaker Change: I think it's probably appropriate to say margins, consequently, due to price, were stronger. Because of that in-season demand, cash flow was stronger, enabling strengthening of the balance sheet throughout the quarter.
Speaker Change: It does set up, obviously, a bit of a stronger backlog coming into 2025 for the early-buy component.
Speaker Change: But I would remind you that, you know, we continue to evaluate the environment as we step into 2025. And as we mentioned in our prepared remarks, we fully expect Q1 to be very similar structurally to the prior year.
Thank you very much.
Speaker Change: In Q4, that had some impact on the stronger in-quarter demand that I've just touched upon.
Speaker Change: You know, I would just like to pause for a moment and you know beyond Q4
Speaker Change: to just put a finer point on some of the things and the achievements delivered throughout the year, you know, specifically on the commercial side, investing more in R&D and receiving some industry accolades.
Speaker Change: while also delivering some high-value new products to our pool owners. We did invest in sales and marketing to drive growth in some under-penetrated regions.
Speaker Change: We opened our first Hayward Hub, I hope that's the first of many, in the Dallas-Fort Worth market. Launched an OmniPro app.
and the Corking Acquisition is a fantastic business presenting
some nice cross-selling opportunities.
Speaker Change: Financially, all of that, as I said in my prepared remarks, drove net sales.
Speaker Change: of 6%, nine in North America, adjusted EBITDA of 12% growth and free cash flow of 22%. So gross margins, which I'm sure we'll talk about further here in the Q&A.
Speaker Change: Delivering a record north of 50% is really something to be proud of.
Speaker Change: in the U.S., 11% with commercial pool, and adjusted EBITDA over that same period of 10% growth. So again, it was a great quarter.
Speaker Change: A strong year and over the past five, some nice growth numbers to be proud of.
Speaker Change: Yeah, no question, thanks Kevin. We'll come back to the hurricane impact probably a little bit in the Q&A, but I did want to touch on tariffs because
Speaker Change: We've got some new headlines on the, well, we've got some headlines on the tape of tariffs in early March, China, Mexico and Canada.
Speaker Change: I'm just wondering if you could just maybe remind us on, you know, where your import exposures are. I think there's a bit of China, but no Mexico, so just maybe just rebase us on where we stand today.
Speaker Change: Yeah, let me touch on that. So, um, you know, I guess the first thing I would say is roughly 85%
Speaker Change: of North American net sales are produced in North America. The remaining, call it 15%, would be cost of goods.
Speaker Change: sourced either directly from a facility that we operate in China or some products out of our European operations.
Speaker Change: So we have good understanding, you know, from a cost of goods standpoint there.
Speaker Change: You know, what's a little harder to get our arms around completely would be Tier 2 and Tier 3 supply components.
but our supply chain team is working diligently.
Speaker Change: I know something came across this morning just before we went live on the call that we haven't fully digested yet, but you know as for China there was 10% that took effect February 4th
Speaker Change: We know exactly what that impact is from a Tier 1, from our WUCHI finished goods.
in terms of finished goods out of that facility.
Speaker Change: Mexico and Canada. You know Mexico is really more of a tier two or tier three.
Speaker Change: that we have some clarity on and continue to get more focused on that. So, we don't believe at this point that there's much impact with Canada.
Speaker Change: Our understanding is some of the reciprocal tariffs that have been in the news
Speaker Change: We don't believe, at this point, pool equipment will be impacted by that, Nigel. And then, you know, the steel and aluminum's, I think, more to be determined there, but we don't think that that's a sizable impact to our business either.
Speaker Change: I would just add Nigel, you know, based on everything that we're learning.
Speaker Change: You know, we've demonstrated the ability in periods past to put price through. We're fully prepared to react to the price increase to tackle any identified tariff cost impacts and protect the guided profitability we put in.
Great, thanks guys. Good luck out there.
Thanks, folks.
Speaker Change: Our next question comes from the line of Sareeb Roroditsky with Jefferies. Please proceed with your question.
Sareeb Roroditsky: Hi, thanks for taking the question. So, obviously, exit of the year with strong margin performance, but it looks like guidance implies about flattish EBITDA margins next year. Could you just talk about how you're thinking about gross margin performance and what are the puts and takes included in that outlook?
adjusted EBITDA line, you know, respectively, gross margin.
Speaker Change: 240 basis points, suggested you've got 150 basis points, a little bit better than we expected.
Speaker Change: When we look down the runway into 2025 and build our guidance and expectations around the year, I think it's really important to look at it from a two-year stack basis.
Speaker Change: So at the midpoint of 2025, you know, the two-year stack for us.
Speaker Change: is pretty good in overall conversion. We're above 40% sales to adjusted EBITDA margin conversion.
Adjusted EBITDA growth rate to 7%.
we've always talked about.
Thanks for watching!
Speaker Change: That's helpful. And then you probably did some color on the resilient non-discretionary aftermarket, maybe weaker new and remodeled. Just quantify how you're thinking about those markets given the limited volume embedded in guidance.
Yeah.
Speaker Change: So, you know, as we look at kind of the breakdown the net sales again, greater than 80% of our revenue is derived from the aftermarket, meaning product that goes on a pool or to a pool that is already built.
Thanks for tuning in. We'll see you next time. Bye.
Speaker Change: So, we would say of that 80 plus percent that's in the aftermarket, there is a percentage of that that really goes to remodels and larger scale renovations.
Speaker Change: You know, that along with the mid to high teens of our revenue derived from new construction at this point continues to be under pressure.
Speaker Change: We feel primarily, you know, through interest rates, elevated interest rates.
Speaker Change: But again, something north of 60% of our overall revenue, we would say, is very resilient, non-discretionary, and very reliable.
Speaker Change: You know, coming out of 2024, that's really what we saw in the full year 24. And at this point, based upon permit data that we keep a very close eye on, continue to be under pressure, we think at least for the first half
Speaker Change: of 2025, that'll stay under pressure, kind of flattish to slightly down, is what we see in that non-discretionary elements of our business, sir.
Appreciate the color. Thank you.
Speaker Change: Our next question comes from the line of Andrew Carter with Steeple. Please proceed with your question.
Andrew Carter: Thanks. Good morning. I guess I want to circle back to just kind of the initial guidance. I get the two-year basis and two-year, this is kind of just right kind of down the pike in terms of expectations.
Andrew Carter: But if you look back at kind of the, kind of take us through kind of 2024.
Andrew Carter: SGA was reset, higher warranty expense, also incentives underlined, so I would assume that's fully built for next year. There's a lot of puts and takes in the gross margin performance, including a one-timer here in the fourth quarter, plus Europe. So just kind of help us understand why the flow-through just isn't stronger next year.
Andrew Carter: … stepped up SGA or expecting some gross margin pressures. You've got the tariffs in there. Is it cross-currency from Canada? Just any extra help here. Thanks.
Thank you.
Andrew Carter: Again, I would say Andrew, we're taking a pragmatic approach. The margin results in 2024 were better than expected. We got after quite a bit of our lean operational initiatives in the second half of last year, and we've gleaned improvement from those.
Andrew Carter: We also were able to realize a little bit earlier synergy benefits into the corking acquisition of the gross margin line. So all of these, these, these, you know...
Great, great results.
Andrew Carter: If you look at it from a two-year stack basis, where we're ending 2025 is exactly where we as an internal management team here expect it to be.
It's just a little bit accelerated.
of the Oil & Gas Committee.
We are making investments into the business.
Andrew Carter: You're right to point out in 24, we made investments into SG&A, particularly into the selling side of the business.
the customer experience side of the business marketing initiatives.
of the cloaking acquisition.
Andrew Carter: and that will run rate full year through our 2025 results as well.
Andrew Carter: We were at 25% with corporate expenses in 2024. We're expecting to come down in 2025 modestly. But again, I would rather segment each year individually. We had great success in 2024.
Andrew Carter: Good, good, modest guide in 2025 in terms of the implicit gross margin growth, but please look at it from a two-year stack basis, exactly how we expected these two years to play out in terms of gross margin improvement and conversion rates to adjust the EBITDA.
Andrew Carter: still working on my math, but it's the working capital headwinds kind of de minimis almost.
Andrew Carter: What's that coming from, kind of continuing to improve the working capital here?
Andrew Carter: I'm surprised there's not a kind of I know that there's a there's there's an operational side you're taking some safety stock
Andrew Carter: But anything about kind of how lean your inventory is and just kind of the outlook for just how working capital can kind of stay this high. Thanks.
Sorry, free cash flow conversions, stay on this side. Apologize.
Yeah, okay.
Andrew Carter: Look, absolutely, look, you know, we've had a very focused initiative.
Andrew Carter: several focused initiatives around working capital improvement. You know, we evaluate working capital on the metric of cash conversion, and we saw steps to improvement in reducing our cash conversion cycle, which is, you know, our AR days plus our inventory days minus our accounts payable days.
Andrew Carter: In terms of our inventory days, we stepped down eight full days from the end of 2023 to the end of 2024. Again, a lot of focus around inventory, making sure we have the right product at the right time in the right place. You've heard me say that before. We have several discrete initiatives. I'll call out SKU Rationalization Initiative, which is enabling successful inventory reductions.
Andrew Carter: But I'd also call out our net accounts receivable accounts payable days also took a meaningful reduction year-over-year We we reduced over 11 days in terms of that net metric So, you know, we continue to see good cash use from working capital initiatives
Andrew Carter: Again, we think in 2025, we've got more work to do and more results to achieve here, and the team is very much focused. I'll shout out to the Collective Hayward team here an appreciation for what they achieved in the 2024 working capital reductions.
Andrew Carter: I'll just point out, Andrew, that while doing all of that, you know, we really take very seriously our ability to supply the market and be able to get product.
Andrew Carter: in reasonable lead times to our commitments. So, while continuing to work on driving working capital down.
Andrew Carter: You know, the overall mission is to continue to be a supplier of choice and hopefully continue winning some of these operational excellence accolades from our channel partners.
Thanks, I'll pass it on.
Thanks.
Speaker Change: Our next question comes from the line of Mike Holleran with Baird. Please proceed with your question.
Good morning, everyone.
On
Speaker Change: So just just clarifying a comment I assume you made I think in response to an earlier question on the seasonality impact of the pre-buy. I think you mentioned that the pre-buy take rate was
Speaker Change: is works through in the front half of the year relatively normal versus history. Is that the thought process, assuming things are relatively stable from a demand volume perspective?
Eifion Jones: You know, we were pleased with the participation that we saw from our channel partners there. It was incrementally higher year-on-year, and as I think Eifion mentioned in the first response.
Eifion Jones: was that from a percentage standpoint, we shipped less of that in 2024 than we did in 2020.
three, so that presents us with
Eifion Jones: You know, the luxury of having a slightly larger backlog starting the new year, but...
As you know, you know, never.
Eifion Jones: Do we have an order file that covers the entire quarter? And as we're moving into March, we're all looking for a warming trend.
you know, across our markets.
Eifion Jones: What else can we answer for you on the early buy and how that seasonality plays out?
Speaker Change: We're expecting normal seasonality, we don't guide quarterly as you know Mike, but Q1 is one of the softer quarters as sales out is less than it is.
Speaker Change: in Q2 and Q3, so we're calling, you know, again for Q1 to be on that seasonal normality of somewhere in the 20% range of what our full year net sales guide would be.
I would add mine to that.
Speaker Change: I'd just add one last point here. Typically, when we get into Q1, which is seasonally the lowest quarter of the year, we do some campaigning. That's been a legacy construct of how we approach it. Thank you.
Speaker Change: Q1, with a, as Kevin said, the luxury of a slightly larger backlog coming into the quarter due to less shipment of early buying 24 than prior year.
Speaker Change: You know, we may not do as much campaigning in Q1 as normal, but overall I would just guide you to a very typical Q1 as a percentage of overall sales, which is typically 19-20% for four-year sales.
Speaker Change: If you if you I know I know the housing starts are at a bottom or so the new pools
Speaker Change: A new construction is at a bottom here. If you look at the take rate.
Speaker Change: on the housing start side of the things or the attachment rate of pools on new homes. Do you see any noticeable differences as you work through the year? Probably a little bit too short of a sample size, but curious if you're seeing a relatively typical percentage of new homes with pools or if you've seen any.
Speaker Change: Disassociation versus history given the the mix of the of the house size. It's moving a little bit lower right now
Speaker Change: Yeah, as as you know, Mike, there's been high correlation historically between single-family home starts and new pool construction, even more so when it's staggered.
one year.
that attach, raise, become less.
Speaker Change: in 2024. You know, what we're starting to do more work on, and I think this became more clear...
Speaker Change: to us from a BI standpoint is that another big driver of new construction is not just single family home starts, but existing home turnover.
Speaker Change: and as you know that was at much lower levels in 2024 and I believe that has as much to do with this with that with that lower number of new pools being built
last year as anything.
That's helpful. I really appreciate it. Thanks all.
Thanks, bud.
Speaker Change: Our next question comes from line of Jeff Hammond with KeyBank. Please proceed with your question.
David Tarantino: Hey, good morning guys. This is David Tarantino on for Jeff.
David Tarantino: Just to follow up on the in-quarter demand commentary, could you give us some color on what you think sell-through trends look like and what was driving it? Is it mostly the repair benefits from recent hurricanes? Any color there would be helpful.
Yeah, I do think that Hurricane had some benefits.
a large channel partner, you know, had indicated
just last week that that in-quarter growth.
David Tarantino: in the Florida market was meaningful, which I believe does point to some of the repair activity that occurred in Q4 in that market specifically.
David Tarantino: Yeah, so I would say hurricane activity did have an impact You know for us in terms of shipments we prioritize order inflow
That was, that was...
keyed to that region.
David Tarantino: in fourth quarter was highest priority shipment for us. So we were looking to support the homeowners and the rebuild and repair activities in the impacted areas, Dave.
Speaker Change: Yeah, I'll take that one Dave. Good morning again. Yeah, look
Speaker Change: We, you know, we had some compression in in Europe and the rest of world margins in in 24 some discrete inventory items about the q3 and q4 which
Speaker Change: One time events, which weren't repeat they weren't material So they're not going to be a big needle mover overall for the full year type margin, but they did impact
discreetly in those particular quarters. We are looking.
Speaker Change: of Margin Growth Year-over-Year in Europe and the rest of the world.
at the gross profit line.
As Kevin mentioned in some of his remarks, we have
Speaker Change: and looking at building materials and cost structures there, so quite a lot of activity. I don't think we're going to see a step change in margin in 2025, but it will grow.
We do have ambition to close the gap.
between progressively close the gap.
Speaker Change: between Europe and the rest of the world, but it's got some structural differences as a market.
Speaker Change: which you know will never make it in our opinion an equating margin structure to the North American market but there are projects underway to progressively close the gap.
to progressively close the gap, excuse me.
Speaker Change: I feel in some ways that 2024 was really kind of a transitional year.
Speaker Change: For our Europe, rest of world business, some of the things that Ivan just touched on, you know, we're undertaken and we're still yet to see full benefit from, with some leadership changes and bench strength.
We do have an ex-pat.
Speaker Change: In the lead supply chain role, I think you're aware, David, that we consolidated facilities, one out of the greater Madrid area into a consolidated location in Barcelona. There were some fits.
It starts through the year there.
which is going to drive some nice new product introduction.
Speaker Change: In the region there and then just ongoing operating model Simplifications in addition to that that footprint that I just mentioned You know some back office standardization
Speaker Change: consolidating some G&A into a single location and we exited one underperforming business which presented a little bit of top-line headwind in
Speaker Change: in 2024. So, we're not sitting still. We're not, we're not, we're not, um...
Speaker Change: We're not, you know, pleased necessarily with the overall net sales or the margin performance in 2024, and that's going to progressively get better moving forward.
Okay, great. Thanks for the time, guys.
Thanks, sir. Thanks.
Speaker Change: Our next question comes from the line of Brian Lee with Goldman Sachs. Please receive your question.
Speaker Change: Hi, good morning everyone. This is Nick on for Brian. How's everyone today?
Bye, Nick.
Speaker Change: Hey, just wanted to follow up on just a little bit on the SKU rationalization. Last quarter you mentioned retiring some lower-tech or redundant products. Would you be able to give any more color on if this is more so U.S. or rest of the world, or could you quantify at all how much of a headwind this could possibly be to top line in 25 or potential margin tailwinds as well? Is also this ongoing, or is this more first half versus second half, or just how do we think about that? Thank you.
Speaker Change: Yes, certainly not expected to be a headwind to top line. We're doing this very much to improve the quality of our earnings structure inside the income statement.
You know, we have...
Speaker Change: We're into the program of skew rationalization. We've been in there now for about 18 months, nearly two years. We've made initial good progress.
Speaker Change: Again, with no negative implication to the top line. We obviously have to keep some legacy products for warranty purposes. When we get to raw materials...
Speaker Change: Our raw material structures continue to look to be rationalized to provide more common platforms.
Speaker Change: We're looking at that across the globe in all of our manufacturing facilities.
Speaker Change: what can we do to have common raw materials, what can we do to have common WIP platforms, all of those initiatives are in play and they will be accretive over the course of time.
Speaker Change: through the gross margin, but not given specific guidance around how it implicates 25.
Speaker Change: other than to say that this is, you know, this is an initiative that's
Speaker Change: in play and will be accretive over the course of time, hopefully to the top line as we promote more technology based platforms in finished goods, as well as opening up the margin as we get away from legacy raw material and whip structures.
Awesome, thank you. That's it for me. Appreciate it.
Thanks, Ted.
Speaker Change: Our next question comes from the line of Rafe Jadrzejewicz, Bank of America. Please proceed with your question.
Rafe Jadrzejewicz: Hi, good morning. Thanks for taking my question. I just wanted to ask a few questions on...
the 2025 Guidance Assumptions.
Rafe Jadrzejewicz: Can you just give a little more color on what's assumed for North America versus international?
Rafe Jadrzejewicz: Also, what's the M&A carryover that we should expect for 2025, and then is there any channel assumption changes? Should we think that volume growth is all sell-through, or is there any restock or destock included there?
Rafe Jadrzejewicz: In terms of Clork King, there's about 1% in our guide carryover.
Rafe Jadrzejewicz: That was closed right at the end of June in 2024, so half a year will carry over. In terms of channel inventory, we would say that as we work with our channel partners,
Rafe Jadrzejewicz: and that we're not expecting really any anything one way or the other.
Rafe Jadrzejewicz: in our guide from a channel inventory perspective in 2025, right?
Rafe Jadrzejewicz: than in Europe and rest of the world. And the FX implication, which is a minus 1 percent overall to Heywood, will be a little bit more waited negatively towards Europe and rest of the world. So when you think about bitcoin guidance.
All right.
Can you remind us how long your warranty typically lasts?
Rafe Jadrzejewicz: and then when you have really strong volume in 2021, 2022.
Rafe Jadrzejewicz: Are we coming to the point now where a lot of products are starting to come off warranty?
or maybe even as we go into 2026.
Rafe Jadrzejewicz: There are some differences, but I would say three years when products sold through the trade and then some of our W3 product line, which would be SKU specific.
for Omnichannel or for online sales rate.
Rafe Jadrzejewicz: That's really more of a one-year warranty period on those SKUs. So, yeah, with the three-year, I think we're starting to move through that standard three-year warranty period.
Rafe Jadrzejewicz: on some of the product that was placed, you know, call it late 2020 when the pandemic really started impacting market volume. So we would expect that to start to come due, you know, in the coming years.
Thank you. Thank you.
Very helpful, thank you.
Thank you.
Thanks Fred.
Speaker Change: Thank you. Mr. Holleran, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.
Mr. Holleran: Great. Thanks, Christine. In closing, I'd like to sincerely thank all our dedicated employees and valued partners around the world. Your hard work, passion, and unwavering commitment are the driving force behind our success.
We've built a strong foundation for growth
Mr. Holleran: and value creation in our first hundred years. I couldn't be more excited about the opportunities that lie ahead. Please contact our team if you have any follow-up questions and we look forward to talking to you again on the first quarter earnings call. Thank you for your interest in Hayward. Christine, you may now end the call.
Christine: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.