Hayward Holdings, Inc.

2023 Earnings Call. My name is Subenju and I will be your operator for today's call. 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 this conference is being recorded. I will now turn the call over to Kevin Majka, Vice President, Investor Relations. Mr. Majka, you may begin.

Thank you, and good morning, everyone. We issued our third quarter 2023 earnings press release this morning, which has been posted to the investor relations section of our website at investor.hayward.com. There you can also find an earnings slide presentation that we will reference during this call. I'm joined today by Kevin Holleran, President and Chief Executive Officer, and Ivian Jones, Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that during this call, the company may make certain statements that are considered forward-looking in nature, including management's outlook for 2023 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. It could cause actual results to differ materially. 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. Reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation. I would now like to turn the call over to Kevin Holleran.

Thank you, Kevin, 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 today's key messages. I'm pleased to report solid third quarter results consistent with expectations. The quarter was highlighted by continued execution in a challenging operating environment with strong profitability and cash flow generation. Gross profit margins expanded nearly 400 basis points through a laser focus on management of manufacturing freight costs and a higher mix of technology products. We also demonstrated our robust cash flow generation characteristics again this quarter. Cash flow from operations increased approximately 50% on a year-to-date basis as we effectively reduced working capital. This is a tremendous accomplishment by the entire Hayward team. End demand for Hayward products, defined as channel sell-through, met our expectations and exceeded our sales into the channel, resulting in further normalization of distributor inventory. We are encouraged to enter the 2024 pool season with leaner inventory positions reported by our primary channel partners in the US. And this sets up Hayward to return to a normal matching of sales with channel sell-through in this market. We are strengthening the business with investments in our industry-leading technology and operational capabilities. This includes the ongoing development of innovative IoT-connected products, and further footprint consolidation, allowing Hayward to better support our customers and drive long-term profitable growth. Overall, our team continues to execute in a challenging operating environment, and I'm pleased with our performance during the quarter. Finally, we're updating our guidance primarily to reflect the impact of more challenging macro conditions in certain international markets, specifically in Canada, Middle East, and Latin America. Early buy orders in our primary U.S. market increased year over year and are trending in line with expectations. However, recent in-season orders have been softer than previously anticipated, reflecting a cautious approach by channel partners ahead of 2024. For the full year 2023, we now expect net sales to reduce approximately 24% to 26% compared to last year and adjusted EBITDA of $245 to $255 million. Longer term, we expect to resume a solid historical growth trajectory of mid to high single digits. Turning now to slide five, highlighting the results of the quarter. I'm pleased to report net sales in line with expectations driven by stronger execution in the U.S. and Europe. Net sales in the third quarter reduced 10% year over year to $220 million, largely due to channel inventory movements and softer market conditions. By geography, net sales reduced by 9% in the U.S., and 15% in international markets. Europe reduced 6% with larger declines of 16% in Canada and 23% in rest of the world. I'm encouraged to see sales trends stabilizing in our largest markets of the US and Europe with each down less than 10% in the quarter. Aftermarket maintenance and repair remains resilient, whereas demand for discretionary product categories has been more impacted by the challenging macro conditions, particularly in the retail and online channels and certain international markets. Commercial pool sales increased double digits again in the quarter. We are focused on driving growth in these markets and are pleased with continued robust demand. Our gross price list increased 5%, but was more than offset by the comparative changes in the earned annual distributor rebates and dealer incentive programs, which are finalized in the fiscal third quarter for the seasonal year end. In other words, more distributors earned rebates this year while fewer achieved rebate thresholds last year. This is a positive outcome and reflects channel partner increased target attainment and a higher mix of premium dealers in our results. Importantly, this is a third quarter dynamic and we expect positive net price realization on a full year basis. As I mentioned, the gross margin performance was strong again in the third quarter, despite lower volumes and net pricing. Gross profit margins expanded nearly 400 basis points year over year to 47.8%. The improvement is the result of continuous operational improvements, a moderating rate of inflation in certain purchased material and freight costs, and a higher mix of technology products. This has allowed us to continue expanding gross margins at lower production volumes while positioning for future growth. Adjusted EBITDA in the third quarter is $47 million with a margin of 21.4%. We continue to deliver the expected $25 to $30 million in annual SG&A savings under our prior enterprise cost reduction program. These savings were partially offset in the third quarter by an increase in our field service warranty cost to accommodate higher labor costs per service call, as well as our commitment to the consumer to replace with a whole good if a spare part is not available. Importantly, our first-time quality metrics are consistent with prior periods, and our production of spare parts has increased in response to a significant increase in early buy demand for parts. Consequently, we expect field service warranty costs to moderate going forward. Adjusted diluted EPS in the quarter was $0.09. Turning now to slide six for a business update. End demand for Hayward products was consistent with our expectations in the quarter with our largest markets, U.S. and Europe, performing solidly. Non-discretionary aftermarket demand remains resilient, but demand for products used in discretionary new construction, upgrades, and remodels has been impacted by current economic conditions and rising interest rates. As a result, customers are participating in the early buy program as expected, but taking a cautious approach ahead of 2024 for in-season orders. However, we are encouraged to see signs of stabilization and demand for new construction in the U.S., particularly in the higher end of the market. Further, we continue to see compelling opportunities for upgrade and remodel given the record age of the installed base. We continue to see strong market acceptance of the connected suite of products within our Omni IoT automation ecosystem. Adoption of the Omni platform continues to grow with one of the largest builders in the U.S. now standardizing on Omni. Our Omni app is highly rated on both Apple and Google Play stores, and we have seen an increase to 94% of all Omni's activity used by homeowners via the app. We are also excited by the uptake of our Omni Retrofit Kit, which provides a simple upgrade path from legacy ProLogic controls to the latest technologies. As expected during the quarter, our channel partners continue to rebalance the level of inventory relative to the current economic outlook, normalized OEM lead times, and higher costs of carrying inventory. Our primary partners in the U.S. are reporting leader inventory levels in the channel entering the new pool season, whereas some partners and regions are still recalibrating. Turning to the price versus cost dynamics. We are maintaining price-cost neutrality and driving solid gross margin expansion through disciplined cost control and manufacturing productivity improvements. We continue to evaluate our global manufacturing footprint as part of our operational excellence initiatives. Given the merits of our newest manufacturing facility in Barcelona, we initiated a plan during the quarter to consolidate our facility near Madrid into Barcelona. This change will allow us to better leverage the benefits of a modern facility, more closely aligned manufacturing, engineering, and product management, and support margins. We continue to prioritize working capital management and deliver significant improvements. Total working capital declined by $139 million on a year-to-date basis, contributing to the positive cash flow performance. With that, I'd like to turn the call over to Ivian, who will discuss our financial results in more detail. Thank you, Kevin, and good morning.