Hayward Holdings, Inc.

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. There you can also find an earnings slide presentation that we will reference during this call. I'm joined today by Kevin Halloran, 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 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 Halloran.

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 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. 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%. This represents the sixth consecutive quarter of year over year gross margin expansion. Cashflow generation was also solid during the seasonally strong period for collections with cash from operations increasing 26% year over year in the first half. Strong profitability and cashflow 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 B on a voluntary basis. Clore 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 Clore King 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 2024, we now expect net sales to increase approximately two to 5% and adjusted EBITDA to increase approximately three to 9%. Turning now to slide five, 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's sales declined 21%. 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. 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. Turning now to slide six 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 the 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 in the high-end new construction and remodel segments of the market. We expect similar trends in the second half of 2024. 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. We continue to expand in key U.S. 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 lifecycle 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. we believe this will be a winning formula as we grow in this key market. 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. 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. 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. 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 skew 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. In May, we further strengthened 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 engineering officer, and Dario Vicario as general manager of Europe and rest of the 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. 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. Turning now to slide seven. As I mentioned previously, we are excited about the opportunities to develop our commercial pool business. And a key building block is the addition of Chlor-King, nearly doubling our sales in the commercial market. 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 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 into projects all over the world. 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, CloreKing sales organization and trade relationships expand the size of the addressable market for other Hayward products. Similarly, Hayward's domestic and international scale afford CloreKing product growth opportunities. Other operational synergies related to our manufacturing base, global supply chain, and distribution network present compelling financial opportunities. CloreKing 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. 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. I'll start on slide eight. 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. Cash flow generation was robust, enabling early debt repayment and the strategic acquisition of Corking. 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. 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%. This is a strong result, primarily driven by continuous improvement and efficiency gains in our manufacturing operations. 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%. Our effective tax rate was 20% in the second quarter compared to 32% in the prior year period. The change was primarily due to timing of discrete tax items. Adjusted EPS in the quarter increased 11% to 21 cents. 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. 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%. 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. The increased sales in Europe is 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%. ADJUSTED SEGMENT INCOME MARGIN WAS 19.8%. 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 CLOCKING ACQUISITION. including the cash outlay for the acquisition. Net leverage was 3.1 times. 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% in the second quarter. Our average interest rate earned on global cash deposits for the quarter was 4.8%. 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 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. CAPEX of $11 million in the first half was below the prior year period due to project timing, resulting in the year-to-day increase in free cash flow of 32% to $199 million. 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 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 net savings for fiscal year 2024 are approximately $3 million, reflecting the partial year impact. 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. 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. 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. 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 clocking acquisition of approximately 1%. 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 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. 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 crowd strike outage had no material impact on the company. And with that, I'll turn the call back to Gavin.