Hayward Holdings, Inc. Q4 FY2021 Earnings Call

Good day. Thank you for standing by and welcome to the Hayward Holdings, Inc. Fourth Quarter and full-year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to dial in on your telephone since the conference is being recorded. In addition, if you require any further assistance, you may contact an operator. Thank you. I would now like to hand the conference over to your speaker today, Mr. Kevin Holleran, Chief Executive Officer of Hayward Holdings, Inc. Sir, please go ahead.

Thank you. Good morning, everyone. We issued our fourth quarter and full-year 2021 earnings press release this morning to the Investor Relations portion of our website at investor.hayward.com, where you can also find an earnings slide presentation that we will reference during this call. I'm joined today by Kevin Holleran, President, Chief Executive Officer, and Eifion 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 10-K for our full fiscal year 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 also 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 on the 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-K for our fiscal year 2021. I would now like to turn the call over to Kevin Holleran.

Thank you, Stuart and good morning everyone. It's a pleasure to welcome all of you to Hayward's fourth quarter and full-year earnings call. I'll start on Slide 4 of our earnings presentation with some highlights of our fourth quarter results. We had another very strong quarter of growth as we delivered net sales of $352 million, an increase of 35% year-over-year and adjusted EBITDA of $106 million, an increase of 43% year-over-year. We achieved nearly 170 basis points of margin expansion, returning to greater than 30% adjusted EBITDA margin despite the continuation of inflation and supply chain headwinds during the quarter. We were also able to further strengthen the balance sheet in the quarter, reducing leverage to 1.7 times to support current and future growth investments as part of our balanced capital allocation strategy. The strong fourth quarter results capped an incredible full year for Hayward and its first as a public company. I would like to take this time to acknowledge the entire Hayward team for their tireless efforts to meet market demand despite many challenges. I'd also like to thank our suppliers and trade partners for their support and dedication, which allowed us to achieve incredible growth and strengthened our market position in the very attractive pool industry. Turning to Slide 5, in the full year we achieved net sales growth of 60% to close the full year at just over $1.4 billion as we executed on a number of growth levers, such as SmartPad conversion, increased market adoption of new products, and expansion of our customer base, all of which were supported by Hayward's investment in capacity and distribution, resulting in higher output levels and driven by strong secular trends in outdoor living. Record adjusted EBITDA of $422 million was an increase of 82% year-over-year. Hayward's strategic manufacturing footprint, operational capabilities, and vertically integrated systems are key differentiators, allowing us to successfully operate in periods of high demand and disruption as seen over the course of this past year. In addition to these key differentiators, we were able to navigate effectively through the inflationary environment by successfully implementing pricing initiatives to soften the impact of rising prices across our cost base. All of this combined has allowed us to not only increase output but achieve significant margin expansion with our adjusted EBITDA margin expanding by more than 360 basis points for the full year to 30.1%. Turning to Slide 6, I would like to highlight in more detail the drivers of our growth in 2021 and beyond as we expect these drivers to continue supporting sustainable growth across the pool industry. In 2021, we saw our proprietary Omni control app drive accelerated demand for higher value IoT products, especially in the aftermarket upgrades and replacement markets, which represent roughly 80% of our sales. As demand for IoT products and technologies grow, so does the Omni app's user base as the pool is the centerpiece of the backyard. In the year, we saw our Omni users increase by almost 50% compared to the prior year. We focused our commercial team on channel development and new customer acquisition. This resulted in our total Hayward partners base growing by more than 20% compared to the prior year. The growth comes as we introduced field-based business development roles focused on increasing our dealer base and market adoption of Hayward products, and broadening our omni-channel capabilities with the expansion of our e-commerce platforms. Hayward's innovation and technology played a major role in this recent growth. As a market leader, our engineered products achieved significant growth in the key segments of controls, sanitization, as well as energy-efficient pumps and LED color lights, delivering simple-to-use, environmentally sustainable solutions. In Q4, we enhanced our offerings and capabilities with the acquisition of three technology companies, all of which will join our Omni control ecosystem thanks to its modern architecture. On Slide 7, I'll discuss the powerful SmartPad conversion taking place in our industry led by Omni automation systems. The Omni system is at the heart of the SmartPad, connecting various IoT-enabled devices. The power and simplicity of use have driven the connectivity of a broad array of technologies, with the top five growth categories in the industry being LED color lights, controls, variable speed pumps, heaters, and sanitization. Hayward's growth in these categories has outperformed the industry. A quick comment on heaters, which have received a lot of attention. As you can see, heaters have grown but they're not at the top of the list. However, we do appreciate the role they play in extending the swim season for pool owners by up to 50% in some geographic markets, thus increasing the use of all equipment on the PoolPad, which accelerates the repair, replacement, and upgrade cycle on those pools. These high-growth products are transforming the way people enjoy the pool and backyard living, and Hayward is leading the way with progressive launches of new products and upgrades to this connected ecosystem. Moving now to Slide 8, we focus on a number of key aftermarket conversion upgrade opportunities. For each of the three categories shown—controls, salt chlorination, and variable speed pumps—we compare the take rate at the time of new pool construction to the current level of aftermarket penetration. We believe in the promise that existing pool owners, if educated as to the merits of these compelling technologies, would desire the same benefits. Our sales teams are working with trade professionals to promote these exciting new technologies as aftermarket upgrades occur. Moving from the aftermarket to new construction penetration in these three categories alone affords the market an opportunity of nearly $6 billion. On Slide 9, we build upon the previous slide, which highlights key new technology adoption at the point of new construction or full-scale remodel. These new SmartPad pools, of course, include many other technology choices, including water features, LED color lights, multiple pumps, and heater solutions. The difference between a SmartPad pool and a legacy lower technology non-automated pool is typically around $7,000 for the equipment manufacturer. Given a typical pool has a lifetime of around 30 years and an equipment replacement cycle every ten years, there is a compelling annuity stream associated with the conversion—one which we feel is very positive for our industry, providing future growth. This opportunity is a key focus for our sales and marketing teams as we work with trade professionals to execute the vision. Finally, on Slide 10, I'd like to briefly discuss our M&A strategy, which focuses on core pool products for technology tuck-ins, as well as backyard adjacencies. We recently closed on three businesses which complement each other and further leverage our Hayward leading Omni Controls technology to increase the ambiance at the pool, spa, and backyard with a variety of novel water features, all of which benefit from our LED lighting technologies. With that, I'd like to turn the call over to Eifion Jones, who will discuss our financial results in more detail.

Thank you, Kevin, and good morning. I'll start on Slide 11; all comparisons will be made on a year-over-year basis. As Kevin mentioned earlier, we are pleased with our fourth quarter results and the continued demand and ongoing adoption for our pool products, particularly our increasing suite of connected SmartPad and lifestyle products, supported by continued strong operational performance in a very challenging environment. Net sales for our fourth quarter fiscal 2021 increased $91.7 million, or 35%, to $352.4 million. The increase in net sales was primarily the result of 22% higher volumes, mainly in residential pool equipment, enabled by our ability to increase production capacity to keep up with demand despite global capacity constraints. Daily net sales in the quarter reached a record high for Hayward at $5.9 million. Net sales in the quarter further benefited from a 14% net price impact compared to the prior year period, with foreign currency effects approximately flat over the comparable period. Gross profit in the fourth quarter increased to $165.4 million, an increase of $48 million, or 41% year-over-year. Gross profit margin was 46.9%, an increase of 188 basis points. The increase in gross margin is a result of manufacturing leverage on increased output, the initial effect of pricing actions announced in 2021, which were necessary to offset inflationary pressures and new materials, and reduced inventory reserve expense. Adjusted EBITDA increased to $105.7 million in the fourth quarter, representing an increase of $31.9 million, or 43%, and an adjusted EBITDA margin expansion of 169 basis points to 30%, as a result of the higher volumes and improved operating leverage across both our manufacturing base and operating expenses. We are particularly pleased with the increased strength of our balance sheet at the end of the quarter, with net leverage reduced to 1.7 times from 5.2 times at the end of the prior fiscal year. Now, turning to Slide 12, I'll discuss our full-year results. For the full fiscal year 2021, net sales increased 60% to $1.401 billion, driven primarily by a 50% increase in volume, mainly due to higher sales of residential equipment, an 8% favorable price impact, and a 2% favorable foreign currency effect. The increase in our gross profit grew 84% year-on-year, while core operating equipment grew 38%. For the full fiscal year 2021, gross profit increased 65% to $655.8 million, and the gross profit margin increased to 46.8%, representing an increase of 143 basis points compared to the prior year, primarily driven by higher net sales, manufacturing leverage, and a favorable mix due to stronger growth of higher margin North American sales, partially offset by inflationary increases from raw materials, freight, and higher import duties. We took proactive measures throughout 2021 to address these inflationary pressures, not only through managing prices but by leveraging our manufacturing footprint and disciplined cost management. The results of these initiatives have been not only the protection of our structural gross profit margin but also its expansion in one of the most challenging inflationary periods over the last 40 years. For the full fiscal year 2021, adjusted EBITDA increased to a record $421.7 million, and the adjusted EBITDA margin of 30.1% represented an increase of 363 basis points compared to the prior year. This is a full-year structural margin milestone in our history, and it reflects the tremendous amount of growth we achieved through improved sales mix, managing inflationary pressures, and achieving operating leverage across our installed manufacturing base, as well as operating expense leverage, while servicing the increasing and recurring aftermarket, which represents approximately 80% of our sales in 2021. I'll now discuss our reported segment results for the quarter and for the full year. As a reminder, Hayward's operational management structure is aligned to its key geographies and go-to-market strategy, resulting in two segments: North America, Europe, and Rest of the World. In North America, net sales for the fourth quarter increased approximately 40% to $297.6 million. The increase was driven by 24% higher sales volumes, a 15% favorable price impact, and a 1% favorable currency effect. Gross profit for the fourth quarter increased 42% to $142.1 million. Gross margin expanded 73 basis points to 47.8%, driven by the net price increase, improved manufacturing leverage, and additional cost savings, partially offset by supply chain conditions. Segment income in the fourth quarter increased 70% to $92.9 million. Adjusted segment income increased 53% to $103.2 million, yielding an adjusted segment income margin of 34.7%. Turning to Slide 14, for the full fiscal year, North America net sales increased 64% to $1.160 billion, driven by 55% higher sales volumes, an 8% favorable price impact, and a 1% favorable currency effect. Gross profit increased 67% to $559 million, and gross margin expanded 79 basis points to 48.2%. Segment income increased 110% to $359.9 million, with adjusted segment income increasing 92% to $396.4 million, yielding an adjusted segment income margin of 34.1%. Turning to Slide 15 for Europe and the Rest of the World, net sales for the fourth quarter increased 14% to $54.8 million. The increase was due to 11% higher sales volumes and a 7% favorable price impact, partially offset by negative currency effects of 4%. Gross profit in the quarter increased 34% to $23.3 million, with gross margin expanding 640 basis points to 42.5%, primarily driven by favorable product mix and volume leverage. Segment income increased 114% to $21.4 million, with adjusted segment income increasing $4.6 million to $16.4 million, yielding an adjusted segment income margin of 29.9%, an increase of 540 basis points. Moving to Slide 16 for the full fiscal year, Europe and Rest of World net sales increased 43% to $249 million, comprised of a 33% increase in sales volume, a 4% favorable price impact, and a 6% unfavorable currency effect. Gross profit increased 55% to $96.8 million, with gross margin improving 323 basis points to 40.2%. For the full fiscal year, segment income increased 92% to $59.2 million, with adjusted segment income increasing 79% to $61.1 million, yielding an adjusted segment income margin of 25.4%, an expansion of 510 basis points. I'd now like to make a few additional remarks regarding Hayward's financial performance below the gross profit level, which I'm not covered in the presentation. Selling, general, and administrative expenses during the fourth quarter increased $1.8 million, or 3%, to $60.1 million, primarily driven by increased expenses in distribution and variable compensation as a result of the higher volumes, partially offset by insurance proceeds related to the fire incident at our Yung Go Spring facility earlier in the year. As a percentage of net sales, SG&A decreased to 17.1%, a decrease of 532 basis points driven by improved operating leverage. For the full fiscal year 2021, SG&A increased 37% to $267.3 million compared to the prior year period. As a percentage of sales, SG&A decreased to 19.1%, an improvement of 323 basis points compared to the prior year, primarily due to increased productivity and operating leverage experienced in the business. Research, development, and engineering expenses during the quarter increased $0.5 million, or 9%, to $6.7 million, reflecting continued investment into new product programs for our 2022 launch period. As a percentage of net sales, R&D decreased to 1.9% compared to 4% in the prior year period. For the full fiscal year 2021, R&D increased to $22.9 million, a 14% increase compared to the prior year period, as a percentage of net sales. R&D decreased to 1.6% compared to 2.3% in the prior year. Operating income increased by $37.7 million, or 90%, to $79.5 million in the third quarter. This increase in operating income was driven by higher net sales and operating leverage, partially offset by increased costs of materials and shipping costs. For the full fiscal year 2021, operating income increased by $193.4 million to $318 million, a 155% increase compared to the prior year. Net interest expense decreased by 56% to $8.6 million for the fourth quarter of 2021 and by 18% to $60.3 million for the full-year 2021, primarily due to debt repayment in the first quarter of 2021 and lower interest rates as a result of the second-quarter 2021 amendment to our credit facilities. During the quarter, we incurred an income tax expense of $14.3 million compared to $6.6 million for the prior year period. For the full fiscal year 2021, we incurred an expense of $56.4 million, an increase of $41.9 million compared to the prior year. Our effective income tax rate decreased to 29.7% for fiscal year 2021 from 25.1% for fiscal year 2020. The lower effective tax rate benefited from previously valued foreign net operating losses, a benefit realized by the exercise of stock options, and the tax benefit associated with the exit from early-stage product business, all of which are considered discrete items. For the fourth quarter of 2021, net income increased $33.9 million, or 222%, to $63.7 million, and for the full fiscal year 2021, net income increased 371% to $203.7 million. As mentioned earlier, net leverage as of December 31, 2021, was 1.7 times compared to 5.2 times as of December 31, 2020. This was facilitated by strong cash flow generation to pay down debt, as well as robust growth in our full-year adjusted EBITDA. For the full year ended December 31, 2021, cash flow from operations was $187.5 million compared to $213.8 million during the prior year period. There was a cash use of $98.3 million for working capital, compared to a cash source for working capital in the prior-year period of $98.8 million. Investing activities for the full year were $48.8 million, primarily comprised of $26.2 million of capital expenditures and $21.5 million to fund acquisitions. In the prior year, investing activities were $13 million, primarily comprised of capital expenditures. Total liquidity at the end of the year was $394.7 million, inclusive of $265.8 million of unrestricted cash on hand and $128.9 million available on our revolving credit facilities. Given our strong cash flow profile, available liquidity, and consequential reduction in net leverage below our target range of two to three times, we have the flexibility to fund organic growth initiatives, pursue M&A, and return capital to shareholders. And with that, I will turn the call back to Kevin.

Thanks, Eifion. I'll pick back up on Slide 17. We remain committed to the importance of ESG, our stakeholders, and our business, and are driven by our core values. We've continued to focus on energy consumption throughout our operations, as well as making sustainable products the key focus of our new product development roadmap. We are committed to promoting a diverse, safe, and inclusive workplace, and we pride ourselves on our strong company culture and have recently completed our global employee engagement review. I'm excited to announce later this year we will publish our inaugural ESG report outlining our priorities and commitments with associated metrics for the business. Lastly, our commitment to community remains a priority, and we recently became a platinum sponsor of the Step Into Swim charity organized by the Pool & Hot Tub Association. The association uses its resources to provide swimming lessons and access to pools for underprivileged children who wouldn't normally have these opportunities. The charity's mission is to create 1 million more swimmers, and at Hayward we're excited to be part of realizing that goal. On Slide 18, we transition to our outlook for 2022. We continue to be very positive about the health of the overall pool industry. Strong secular trends have significantly raised the appreciation for the backyard of which a pool is the centerpiece. In addition, we continue to see favorable economic data that supports healthy levels of new residential construction and remodeling activity. These positive economic factors are accelerating growth in both new pool construction and the aftermarket. Early indications suggest new construction grew approximately 25% year-over-year, with 120 thousand in-ground pools. Our dealers remain bullish about 2022 as they carry strong order files into the new year. An agent pool stock supports future aftermarket sales, which made up approximately 80% of total sales in 2021, as repair, replacement, and upgrade accounted for 65% of the sales mix. That chart on the lower right reflects the 2021 growth of lifestyle products incorporated onto a SmartPad, which outpaced other core products as referenced in my earlier prepared remarks. We expect this trend to continue into 2022 as a key source of growth. I'll wrap up on Slide 19 and discuss our outlook for the full fiscal year 2022. We expect to grow net sales in the range of 9% to 12% compared to 2021, comprised of combined price and volume growth in the range of 11 to 14%, including the impact of two fewer trading days in 2022, partially offset by unfavorable FX impact year-on-year. This guidance reflects strong carryover demand, conversion of the current order file, pricing benefits, and ongoing product adoption. We expect to deliver adjusted EBITDA in the range of $460 to $475 million for the full fiscal year 2022, a growth range of 9% to 13% year-over-year. In summary, we continue to be confident about the underlying demand trends in the market, Hayward's position within the market, and the opportunity for Hayward to expand upon its achievements in 2022 and the years to come. With that, we're now ready to open the line for questions.

Thank you, and as a reminder, to ask a question you will need to dial in. To withdraw your question, please press the appropriate key. And please start by limiting your questions to one primary and one follow-up. One moment, please, for our first question. And your first question comes from the line of Jeff Hammond from KeyBanc Capital Markets. Your line is open.

Hey, good morning, guys.

Good morning, Jeff.

Good morning, Jeff.

So just on the sequential margin improvement, maybe just talk about what were the big drivers and then just on supply chain, what you're seeing there in terms of what's getting better, and what's still really challenging.

I would say that initially, Jeff, as you saw in the fourth quarter, we had good volume growth at 22%. We started to see operating leverage come through the business at a higher rate. I'd say furthermore, the price realization in the fourth quarter, which we had communicated would come, did come. We realized a collective price impact of 14% from the initiating price increases we announced earlier in the year. There's a little bit of FX headwind developing in the business, but no major consensus or quarter results. I would say in terms of the supply chain, Kevin, take that.

Yeah, I mean, either of us can. As for the supply chain, I'd say we've seen some improvement, Jeff, around steel, some commodity resins, packaging, and we're starting to see a bit of relief on the freight side. Pressure is still pretty high on the broad base of electronic components, some of the specialty metals which go into some salt products for us, and then there are still some resins that are bottlenecking. So that's going to be the landscape from a commodity standpoint on where we are seeing some improvement and still fighting the good fight on some of the others.

Okay, great. And then just maybe on the 11 to 14 kind of volume and price growth, kind of unpack how you are thinking about market growth, price, and outgrowth in that number? Thanks.

You've heard others in the industry go through where they see the market growth. We believe our 11% to 14% on our base business represents good growth against the challenges. We clearly demonstrated we have outgrown in 2021, and we believe in '22 that's going to be a continuation of our team here. In terms of overall price, the majority of the guidance we've given is price year-over-year, but there is some mid-single-digit volume growth at the high end of the guidance range that we gave. But just to be clear, the guidance we're giving here today does not include the surcharge that we instituted at the beginning of this year. If that surcharge continues to be necessary in 2022, then we'll update the markets on the inclusion of that surcharge. But at this current time, there is no full-year impact of the surcharge in our price guidance.

Okay. Thanks a lot.

Thank you. Your next question comes from the line of Nigel Coe from Wolfe Research. Your line is open.

Thanks. Good morning, everyone. I was going to kick off with the price mix question as well, but I just wanted to note it looks like at the low end, you've taken a no volume mix. I'm just wondering if you can get specific here, but would it be down volumes, unit volumes, up mix? Any kind of detail on that? Because you have pretty strong deal conversion in 2021, and I'm thinking that you'll probably get some benefit from that in '22. So it seems like share gains are reasonable, but just wondering how you think about that.

Yes. Let's talk about that. I would say, firstly, in the 11% to 14% combined price and volume, even at the low end, there was positive volume growth year-over-year. And as I just mentioned, at the upper end of the range, volume growth is close to mid-single digits. So we are expecting positive volume growth in '22 over '21, recognizing we just completed a historical step-up in our business, increasing our volume in 2021 by 50%. And so coming out into 2022 still indicating good volume growth coupled with sound price on the top line reflects how this industry has inflected, and double-digit growth at the midpoint of our guidance coming off the year we did last year, I think is a very encouraging initial view of '22.

Yeah. My question is about how we entered the year. I'm guessing it's going to be symmetrical to overall the mirror image of last year. Just wondering how you down in impact some of the Texas storm last year, when you competitively talked about that as the factors. I'm wondering what impact you're seeing from that.

I mean, Texas certainly benefited us on the broader industry, Nigel. We haven't really quantified that publicly, but it really wasn't just a one-year thing. I think that it will continue to play out as those markets continue to recover, but they may not have necessarily done the complete upgrade to those pools. So I don't necessarily think it's just a one-year phenomenon. Our volume guidance has lots of pluses and minuses. We've accounted for the Texas situation to whatever extent we'll step over that and continue to post volume growth in 2022. As you say, the year is starting out pretty similar to 2021 with some elevated backlogs starting the year and we're working hard to convert that backlog into product in the channel and for our dealer networks.

Okay. Thanks a lot.

And your next question comes from the line of Brian Lee from Goldman Sachs. Your line is open.

Hey guys, good morning. Thanks for taking the questions. Maybe just shifting gears a little bit to the margin side of things, Europe and rest of world margins. I might have missed this but quite a bit higher than you've been tracking historically and through the balance of '21. I know there was maybe a reversal of an insurance settlement that helped, but even if you strip that out, it seems like segment income margins were quite a bit higher than normal and sort of in the same range of the Americas. How should we think about that, and what were the drivers in 4Q? And then as you think about 2022 guidance, what's embedded in that in terms of margins for that particular segment?

I mean, we're very pleased with the way that the European and rest of world margins are beginning to develop. Recognizing that in Europe and Rest of the World, there's a bit of a mix of business. On Europe, Australia, and our expo business out to the Middle East and the Mediterranean region on a lot of business that Mediterranean business has a good strong margin profile. We started to see activity improve throughout the latter half of last year when those markets began to open up and so they contributed to a mix positive effect in the margin. But generally speaking, there are some other structural benefits to the European market. The team in Europe has instituted price management, are more appropriately leveraging a local manufacturing base, and obviously have clear cost control coming through the income statement. We've always said that the aim here is to close the margin in Europe and Rest of the World closer to North America. We were very pleased with the way they stepped forward in the quarter to post up close to 30% adjusted segment income margin in the quarter and for the year, now trailing options in the 20s, which is good to see. In terms of how to look for 2022, again, it's another progressive step in margin development in '22. Pricing actions and price management will continue, and we expect them to take another step up in '22, albeit it will be more moderate than we saw in '21.

Okay. Fair enough. Appreciate all that color. And then maybe just a bigger picture question. We're hearing pockets of labor availability issues. What are you hearing on the ground with respect to dealers and if that's going to be any incremental headwind as you move into this year?

It's a great question. I think—I just look backwards first, Brian, to say that I think the industry did a great job of expanding capacity in 2021. For us as an industry to have grown 25%, give or take, in new pool construction, clearly there was more labor operating in the backyard. We know that our dealers are continuing to look at capacity expansion to meet this homeowner demand for new pools as well as remodels, which we haven't really touched on in the call here but it's really much the same contractor doing both of those projects. We know that they're pushing and we are optimistic based upon what they're reporting back that they're going to be able to find labor. It wasn't that long ago that we were building a lot more pools, and I think those contractors found their way into other professions, and our dealers are trying to bring them back to be able to meet this surge in demand. So we know the efforts being put in and we as an industry are confident that they'll be able to continue meeting this demand.

Thanks, guys. I appreciate it.

Thank you.

Thanks, man.

Your next question comes from the line of Mike Halloran from Baird. Your line is open.

Good morning, everyone.

Morning.

First into the year, how do you think about front-half versus the back half? How that compares to normal seasonality, and any kind of volume or price discrepancies as you think about growth in the first half versus growth in the second half.

We only getting to see somewhat of a return to normal seasonality as we step into '22. Typically Q1 and Q3 are the lower season buy-in periods for the channel. We've ended 2022 with a very strong order file. We are concentrating in Q1 in our production units to fill out some of the product lines that the channel is demanding right now. We do see and expect a strong volume metric period in Q2, and then we'll see how the balance of the year develops as we get into that time period. But sentiment remains strong as we've started the year here.

And second question, inventory levels in the channel, or at least a little closer to normal backlogs to record bubbles. Maybe just reconcile those two. What do you think it means? Is there a risk from a cancellation perspective, or do you look at this more as just really good visibility as you work through the year, indicating more about underlying demand?

I think it's more of a sign of strength, Mike. I think it's a very credible order file. There have been plenty of price increases that we've had to announce into the end of last year. We ran a modest early buy last year. If the channel was feeling as if they had too much or were unhappy with their inventory turns, I think there was an opportunity for them to slow the bookings or even cancel, and we've seen negligible cancellations through those time periods. So we feel very good about the credibility of that order file. As for inventory levels, they are getting back to more normal levels with good turns on it. We don't think it's elevated, but I will acknowledge that there are some shortages of specific items that we'd like to be able to solve, and we're working hard here at the beginning part of 2022 to try and rectify that, whether it be some salt or other products. We know that it's not a perfectly balanced inventory from a skew standpoint, but we're working hard to solve that.

Appreciate it, thank you.

Sure.

And your next question comes from the line of Ryan Merkel from William Blair. Your line is open.

Hey, guys, just wanted to follow up on a couple of things. So first, you mentioned a surcharge that you put through in early January that's not in the guide. If you did get that, how much would price be up in '22 for the full year?

We talked about the surcharge and we instituted an 8% price increase on core skills and slightly higher on specialty skills. That 8% is bifurcated between clients, with an increase of 4% and an additional 4% surcharge. So the majority of that of up to 4% is not included within the guidance.

Got it. Okay. So sort of sounds like if you get that, price could be up somewhere in the 10% range for the full year. Is that the right ballpark?

Yeah, and if you look at the combined guidance for price, from 11% to 14% with that additional price factor, yes, it would be at that level or slightly above.

Okay. And then at the low end, volume off low single digits feels pretty conservative to me. How do we square that up just with the order file, the mix being positive share gains?

Yes. I think you're right, Ryan. I mean, look, we've embedded a level of conservatism built into our forecast there. We feel very positive about the start of the year to your point that we have a strong order file on the business right now. As we step into the primary season period of Q2 and get a better read on how the balance of the year is building, it's fair to size up the guidance we've given right now. It does have an element of conservatism in it. We don't want to get ahead of ourselves right out of the gate here, but we'll update you guys as we get through our Q1 and into Q2 visibility.

Got it. I get it, weather is always a wildcard, so I'm going to see if we get there. But last one, just quick. Are you assuming any channel load in the '22 guide?

We are not assuming additional inventory in the channel at year-end 2022, based on your question, Ryan.

Yes.

No, we're really not calling for additional inventory in the channel at year-end 2022. We'll see how the year plays out if retail demand and pull-through continue at the robust pace we've seen the last two years; in absolute terms, there could be an increase to support the forward-looking days on hand. But at this point, we're not assuming additional channel load.

Thank you. And your next question comes from the line of Joshua Pokrzywinski from Morgan Stanley. Your line is open.

Hey. Good morning, guys.

Good morning.

Just on Slide 8, I think it was looking at the Aftermarket installed base penetration. I guess it's still pretty low on maybe what's out there in the field. But how does that work in terms of the penetration or in the mix on current sales, like are we already at a decent run rate on what's going through today, or does that have a lot more room to move higher?

I think that Salt has additional growth opportunity to it, Josh. Kind of thinking of Slides 7 and 8, Salt certainly grew; it was kind of the fifth largest growing category last year, which was great for the industry. It's a great experience for the pool owner, but I do think that that particular product has some additional convergence opportunities for it to start inching closer to the take rate at the time of new construction.

I'd further add that we'll continue to invest in our Omni unique products, specifically for sanitization, and we're introducing new products that will continue to fuel our growth in that particular area.

Any sort of way you can dimension out how that mix has evolved over the past, call it, year or two, maybe relative to those kind of 30% - 35% installed base penetration numbers? Again, talking about where your own kind of sales run rates are on that mix, like the installed base has gone up by ten points, sort of order of magnitude would be helpful.

I would say in general that we're seeing a mix shift when it comes to these more lifestyle products. People are, with the introduction of the Omni system, absolutely pulling along some of these higher-feature IoT, sustainable products onto the pad. So I would say over the last couple of years, we've absolutely seen a mix shift to higher-performing, higher-price products being installed on the pads.

Got it. And then just as it pertains to the off-season activity, early buy load, however you want to look at it, I guess, what distinguishes that from, in your mind, to a normal sale? Like I think we normally associate early buy with something a bit more promotional on the pricing front, which clearly isn't happening. So is this just folks wanting to add inventory to make sure they're not scrambling in April, or was there some other sort of distinction, whether it was on price or payable terms or something else that would make this early buy specifically?

I would say early buy in general this year was really targeted by us for two things: the seasonal markets. We have strong market position in the seasonal markets, so we wanted to ensure that those markets had sufficient product on the shelf for when spring broke this year. Secondly, we wanted to make sure we had good visibility on some new products that we didn't have much history on yet. So we had their input and could build our forecast and our production schedules accordingly to prepare for what the market acceptance was going to be early in these new products' evolution. So those were really the two things that we targeted. It was a much reduced skew count this year, Josh, and from a terms on pricing discounting, also very much curtailed from a historical standpoint due to the order file that already existed in our possession.

Got it. That's helpful. Thanks. I'll leave it there.

And next question comes from the line of Rafe Jadrosich from BofA Securities. Your line is open.

Hi, good morning. Thanks for taking my questions.

Sure, Rafe.

Can you update us on your mix of renovation and repair compared to new construction where it is today, compared to historical periods? And then within renovations and repairs, how much is major renovation compared to break and fix? And then how would you expect that to trend in 2022?

I would reference back to Slide 18 rates and a lower last quarter. We tried to preemptively address this with new construction based upon the growth in the aftermarket. While it grew 25% and we had a nice share in that growth, it actually reduced in the overall mix from more of a 25% historically to more of a low 20% of our mix. So high 70s—rounding off to call it 80% is the aftermarket, and we really do break that into a couple of different categories. First would be remodel, which I'm not going to say it's been ignored, but it certainly has not received the amount of attention in the last couple of years compared to historically, as contractors have been more focused on new construction. So that's call it 13% - 15% or so. And then the balance is really all around this broader repair, replace upgrades, and we're starting to see in a much more upgrades are adding some new products that never existed on the pool pad before. Whether that's salt, whether that's a huge zone product, for example, where they were operating the pool for years, but now they've added that. What we're also seeing is when it's time for replacement, most of the time people are actually going for a more current generation, which will be a higher-priced, higher-performing, higher-feature product, which is beneficial to us and to the industry. So that's really how we look at the various revenue streams in our business between new construction at low 20% and the balance of it all being around the aftermarket.

Just following up on a point you just made. I think that the contractor backlog for new pool construction, it sounds like it stretches out maybe even into 2023. How do you think about that for a major remodel as well?

Yes, I think the remodel— I don't know when we're going to tap into that, but I think the industry has an opportunity for future growth. I don't think homeowners really want to shut the pool down and lose access to it. So it's as much the homeowner holding back on that as that pool stock is now at historic high in that '22 - '23 year range, along with the fact that most contractors are turning their attention to new construction, because frankly, it's a little bit of an easier project for them to start with—a pristine lawn in the backyard and put in a new pool. I think that this will be an opportunity that contractors in the industry will be able to mine in the out years.

And then one final quick one on price. The 14% price increase in Q4, and it sounds like maybe in the 10% range for 2022. Can you talk about the what's embedded for light price increases compared to the mix benefit of shifting with some of these higher-priced categories?

I'd say still the majority of the price increase is associated with real price index announcements. There is obviously a favorable price mix in there. A quick reference—an easy example is variable speed pumps. Year-over-year, we're going to take the full 12-month benefit of the variable speed pumps inclusion—whereas we only had half of the year in '21 with variable speed pumps, which are a higher-priced pump in comparison to its predecessors, single-speed pumps. But still, the short answer is the majority of the price increase that we've been giving is our price index.

Thank you. Your next question comes from the line of Nigel Coe from Wolfe Research. Your line is open.

Thanks for the follow-up. My actual question was on variable speed pumps, just wondering where the mix is and the way you see that mix in '22 versus '21. And then just curious if you have intel on what the mix of installed basis of single-speed versus variable-speed business is?

So yes. Clearly, when you think about the pump category as a whole for us in '21, variable speed pumps represented about 12% of our overall product lines, though still, as you know, about half a year's worth of single-speed, non-compliant business in that price of the legislation change. Based on the regulation change in mid-year, the larger pump is a pump, but the quality of the pump sale in '22 will be higher. So we do expect a mix up of pump activity to increase to about 13% of our world sales volume in '22, just based on natural growth that we've indicated in terms of value. We expect the business to also grow about 1% in overall mix impact from the higher-value variable-speed pumps.

Okay.

I think it's about 30%—it's about one in three, I would say, Nigel.

Great, thanks.

Thank you. And we have reached the end of our Q&A session. I would like to turn the conference back to Mr. Kevin Holleran for the closing remarks.

Great. Thanks, everyone. In closing, I'd like to thank everyone for their interest in Hayward. As you can see, our business is producing phenomenal operational and financial results, and we're very well positioned to continue to generate growth for all stakeholders in 2022 and the years ahead. Please reach out to our team if you have any follow-on questions, and we look forward to talking to you again about our Q1 performance during the week commencing April 25th. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.