Hayward Holdings, Inc.

Welcome to Hayward's Holdings Third Quarter 2021 Earnings Call. My name is Patricia 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 1 on your touchtone phone. Please note that today's conference is being recorded. I will now turn the call over to Stuart Baker, Vice President, Global Strategic Planning and Business Development. Mr. Baker, you may begin.

Thank you. Good morning, everyone. We issued our third quarter 2021 earnings press release this morning to the investor relations portion of our website, investor.hayward.com. You can also find an earnings slide presentation that we'll reference during this call. I'm joined today by Kevin Horan, President, Chief Executive Officer, and Ifean Jones, Senior Vice President and Chief Financial Officer. Before we begin, I'd like to remind everyone that during this call, the company may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, anticipation, beliefs, estimates, forecasts, plans, and prospects. Such statements are subject to a variety of risks, uncertainties, and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company's earnings release posted on the website and will be provided in our Form 10Q for our third quarter of fiscal 2021 as filed with the Securities and Exchange Commission. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, the company will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of net income calculated under GAAP to adjusted EBITDA, as well as reconciliations for other non-GAAP measures discussed on this call, can be found in our earnings release and will be included in our Form 10-Q for the third quarter of fiscal 2021. I'd now like to turn the call over to Kevin Horan.

Thank you, Stuart, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's third quarter earnings call. I'll start on slide four of our earnings presentation with some highlights from our third quarter results. We had another very strong quarter of growth as we delivered net sales of $351 million, an increase of 56% year over year, an adjusted EBITDA of $98 million, an increase of 61% year over year. We achieved nearly 90 basis points of margin expansion despite sharp increases in inflation and supply chain headwinds that are creating challenges throughout the industry. We continued to de-lever during the quarter as a result of healthy cash generation and remain in a very favorable position to invest in growth initiatives as part of our capital allocation strategy. Drawn growth levels, and more pronounced supply chain disruptions are resulting in rapidly rising cost of material and transportation across the pool industry. In this environment, our strategic manufacturing footprint and operational capabilities are key differentiators. These strengths, along with our vertically integrated capabilities and strategic pricing actions, have allowed us to not only increase output, but also dampen the adverse impact of inflation on our results. As we look forward, we believe additional price increases are warranted to align with the current inflationary environment. Now moving to our guidance on slide five. We expect the current demand trends through the end of the year and into 2022 driven by pool remodels, upgrades to smart pad products, and new pool construction returning to historical averages. Given the strong performance to date and our ability to execute on our growth levers, we are raising the net sales guidance for full fiscal year 2021. We now expect net sales growth of 59% to 62% year over year, compared to our previously provided outlook of 54% to 58%. Given the demand levels and backlog growth, coupled with rapid inflationary pressure, we have been proactive in managing our price, implementing cost reductions, and improving production levels. However, during the quarter, we saw an acceleration of our supply chain and inflation headwinds leading to higher costs than previously anticipated. We've taken strategic pricing action this year and see the runway for these actions benefiting the price-cost dynamic positively, but we also expect a volatile environment in the near term. Despite these challenges, we're pleased to reaffirm our adjusted EBITDA guidance range for the full fiscal year 2021 of $405 million to $425 million, a growth range of 75% to 84% year over year. We field a lot of questions about the outlook for the pool industry. And on the next few slides, I'd like to spend a little time addressing why we continue to be very positive about the health of the industry, both in the near term and over the longer term. Turning to slide six, we believe affinity for outdoor living is here to stay, with strong secular trends driving a new appreciation for the backyard of which pool is the centerpiece. In addition to de-urbanization, migration to the pool-rich Sunbelt, and new work-from-home dynamic, we see millennials becoming an increased force among homebuyers, and they have embraced outdoor living as a key component of their home experience. According to the National Association of Home Builders, we're also seeing solid interest from potential homebuyers and strong year-over-year improvement in confidence levels in the remodeling industry. Collectively, these factors create a favorable backdrop for pool demand. On the right side of the slide, we reference some key metrics which capture the rapid adoption of IoT smart digital technology conversion of the homes. There will be an estimated 77 million smart homes by 2025, with smart home penetration rising to 60% from about 40% today. We're seeing very strong adoption in the pool market with smart IoT controls on 65% of new pools built compared to less than 30% of existing pools. Awareness of this increased functionality is driving upgrade conversions, and we believe we're in the early innings. This trend not only affords the homeowner greater control and ease of operating their pool features, it also provides Hayward the opportunity to directly interface with the user. Turning to slide seven, in addition to the digital conversion opportunity I just addressed, you can see similar opportunities with chemical treatment moving to natural saline pools and energy conversion to high efficiency variable speed pumps. Our market-leading Omni app is a gateway for controls and automation to become more mainstream, while simplicity of use is removing the barrier for homeowners and, frankly, trade professionals to include more technology products onto the pad as well as in and around the pool. Our product content opportunity on the technology-rich SmartPad pools can be three to four times compared to what we see in legacy pools. The SmartPad truly delivers the ease of use, ambiance, and enjoyment elements homeowners desire, in addition to lowering cost of ownership and providing environmentally sustainable solutions. Importantly, the equipment still only represents a small portion of the total pool cost. Finally, on slide eight, macro environment remains very positive, supporting the broader housing industry and remodeling activity remains strong and poised to continue growing. Looking more specifically at the pool industry, we have a strengthening trend in new pool construction. 2021 projected volume is just at the 35-year median levels with plenty of runway for future growth. The aftermarket of installed in-ground pools is at a record age now on average greater than 22 years old, providing a rich source of remodel and upgrade opportunities. Lastly, we see the trend in IoT-enabled smart technology in and around the home accelerating with approximately 60% penetration by 2025, a statistic which we now see on new pools. To wrap up on the industry, we continue to feel confident about the health of the pool industry in the near term and over the longer term. With that, I'd like to turn the call over to Ivy and Jones, who will discuss our financial results in more detail.