Hayward Holdings, Inc.

Greetings, and welcome to the Hayward Holdings fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin Masca, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, and good morning, everyone. We issued our fourth 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 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 Form 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. 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 Howard.

Thank you, Kevin. Good morning, everyone. It's my pleasure to welcome all of you to Hayward's fourth quarter earnings call. I'll start on slide four of our earnings presentation with today's key messages. I'm pleased to report fourth quarter results in line with expectations. We executed well during the quarter and delivered net sales and earnings growth, record gross margins, and solid cash flow. Net sales increased 8% year over year through positive contributions from both volume and price, with gross profit margins expanding 690 basis points for the quarter and 270 basis points for the full year. We also generated better than expected cash flow during a seasonally soft period for cash collections, with full year free cash flow increasing 78% and exceeding our guidance range. These are tremendous accomplishments, and I'm extremely proud of the entire Hayward team. 2023 was characterized by a normalization of supply chains channel inventory D stocking and a return to establish seasonal buying patterns. We are encouraged to enter 2024 with more normalized channel inventory positions as reported by our primary distribution partners in the US channel continuously recalibrates the level of inventory on hand. to align with various inputs, like near-term outlook for end demand and cost of capital, but the post-pandemic reset is largely behind us. We executed many important strategic initiatives throughout the year to strengthen our business and drive profitable growth. This included advancing our technology leadership position with innovative connected pool solutions, leveraging our culture of continuous improvement and operational excellence, and expanding commercial relationships across sales channels. I will make additional comments on our strategic accomplishments in a moment. We enter 2024 expecting a return to sales and earnings growth on a full year basis. For the full year 2024, we expect net sales to increase approximately two to 7%. Now turning to slide five, highlighting the results of the fourth quarter and full year. I'm pleased to report solid execution and growth in the quarter. Net sales in the fourth quarter increased 8% year-over-year to $278 million, driven by positive volume and price. By segment, net sales in North America increased 10%, with our largest market, the United States, increasing 12%. Europe and rest of the world declined 4%, with Europe approximately flat. I'm encouraged by the sales trends in both the U.S. and Europe. We're focused on driving growth in the commercial segment of the market, and commercial pool sales increased double digits for the quarter and the year. As I mentioned, we achieved a record gross margin in the fourth quarter. Gross profit margins expanded 690 basis points year over year and 140 basis points sequentially to 49.2%. Adjusted EBITDA margin in the fourth quarter was 27.2%, and adjusted EPS was 20 cents. For the full year 2023, net sales reduced 24% to $992 million, with adjusted EBITDA of $247 million, each consistent with our most recent guidance. We delivered strong profitability despite reduced sales volume, and I'm particularly pleased to see gross margin expansion of 270 basis points to 48.1%. Adjusted EBITDA margin for the full year was a healthy 24.9%, and adjusted EPS was $0.56. Turning now to slide 6 for a business update. End demand for Hayward products was consistent with our expectations in the quarter, with the U.S. performing solidly, but the overall near-term demand environment remains uncertain. Non-discretionary aftermarket is resilient, but demand for discretionary new construction, upgrade, and remodel has been impacted by current economic conditions and rising interest rates. Our channel partners have been rebalancing the level of inventory relative to the current economic outlook, normalized OEM lead times, and higher cost of capital. While inventory levels have largely normalized at this point, the channel remains cautious and continuously recalibrates the level of inventory on hand to be appropriately positioned to support their customers. Turning to price versus cost, we implemented annual price increases to maintain price-cost neutrality. The pool industry has been very disciplined on price historically, and we expect to realize net price increase of approximately 2% in 2024. We demonstrated our operational excellence capabilities again in 2023, contributing to strong gross margin expansion on reduced sales volumes. We also completed footprint consolidations during the year in both North America and Europe. As a reminder, we initiated a plan during the third quarter to consolidate facilities in Spain to get closer to key customers, better leverage a modern facility, and support margins. We continue to prioritize working capital management and inventory reductions. Total inventory declined 24% in 2023, contributing to positive cash flow performance and 31% since the peak in 2022. Finally, during the fourth quarter, John Collins was promoted chief commercial officer. John now leads sales, marketing, product management, and customer service in North America and global industrial flow control. I'm confident in my senior leadership team and our ability to deliver on our commitments to shareholders. In addition, we continue to invest in technology leadership with the establishment of a business intelligence team in the fourth quarter, focused on progressively leveraging data analytics and scaling intelligent process capabilities. Turning now to slide seven, I'd like to share some perspective on the year. As expected, we face challenging economic conditions in 2023. I'm proud of the performance of the Hayward team as we accomplish many important strategic initiatives to strengthen our position as a premier company in the attractive pool industry. As a technology leader, one of our biggest differentiators is our ability to innovate, and I'll discuss some of our upcoming product introductions in a moment. We also demonstrated our longstanding commitment to operational excellence and continuous improvement. This included right-sizing our production levels and cost structure, further consolidating our agile and vertically integrated manufacturing footprint, and progressive investments in automation and other productivity initiatives. The individuals who build and service pools are the backbone of our industry. The voice of these customers is critical to the development of our product and commercial strategies. At Hayward, we believe in supporting our loyal dealers and investing to build strong partnerships with market-leading programs and events. This includes our Totally Hayward loyalty program, customer rewards trips, and partner summits to celebrate and reflect on our collective accomplishments and help dealers grow their business and thrive in the years ahead. Hayward is committed to delivering impressive operational and financial results in the most responsible way. And we continue to make great progress on our sustainability journey. During the year, Hayward received a regional top rated award by Morningstar Sustainalytics and an MSCI upgrade to A rating. As just one example of our success, the Hayward team embraced the challenge and achieved meaningful reductions in water and energy consumption in our facilities in 2023. These achievements contributed to strong profitability and cash flow during the year, allowing us to reinvest in the business to provide superior products and services for our customers and value creation for our shareholders. Turning to slide eight, I'd like to highlight some key new product technologies being introduced in early 2024. First is the new microchannel temperature control unit for pools and spas. This is the first deployment of microchannel temperature exchange technology in the pool industry. This unit provides more efficient temperature transfer, reduced weight, and improved corrosion resistance for coastal installations. Three models are available, heat only, heat cool, and cool only. The ability to cool to 40 degrees is important for installations in hot and humid environments where pool water temperature can be uncomfortably high. This also opens a new market opportunity for chiller-only installations to satisfy the increasingly popular wellness trend of cold plunge pools. Next is our new, all-new OmniPro app designed for authorized trade professionals. This exciting evolution or leading on the APP enables these professionals to have remote access to all on the connected homeowners they service. This new platform has two key benefits real time proactive monitoring of the operation of the pool and remote expert configuration of equipment via the cloud. Importantly, the OmniPro app provides significant value to these professionals, giving them the opportunity to promote other sales and service initiatives through a direct connection to the homeowner, creating greater stickiness for Hayward. Finally, the ColorLogic 2.0 platform embodies the next generation of color LED lighting. Homeowners are increasingly requesting additional lights to be added to their pools, spas, water features, and landscapes to create dramatic nighttime effects and attractive entertainment spaces. ColorLogic 2.0 offers the flexibility designers want with directional optics to ensure full light saturation of the water and a quick disconnect plug for ease of maintenance. In our future earnings calls, I look forward to introducing even more great product technologies designed to delight homeowners, as well as increase the competitive edge Hayward enjoys in the market. With that, I'd like to turn the call over to Avian, who will discuss our financial results in more detail. Avian. Thank you Kevin and good morning.