Welcome to Hayward Holdings Third Quarter 2022 Earnings Call. My name is Adam, and I will be your operator today. Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President of Investor Relations. Mr. Maczka, you may begin.

Thank you, and good morning, everyone. We issued our third quarter 2022 earnings press release this morning which has been posted to the Investor Relations portion 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 Eifion 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 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 in our Form 10-K and Form 10-Q filings 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 US 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 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. Before we begin, I'd like to say that our thoughts are with everyone that was impacted by natural disasters in the Southeastern United States and Australia, and those in Europe impacted by the ongoing war in Ukraine. We are doing what we can to assist during this extremely difficult time. I'll start on Slide 4 of our earnings presentation with today's key messages. First, our third quarter performance was in line with our expectations. During the quarter, we continue to leverage our competitive advantages, increase market share and capitalize on the sustainable secular trends in our industry. I am pleased to see our primary channel partners report continued growth and channel sell-through for Hayward products in our core US market. However, consistent with the expectations we communicated a quarter ago, we saw a meaningful divergence between channel sell-through and our net sales into the channel as our partners reduce the level of inventory on hand in response to normalized lead times and safety stock requirements. We are making significant progress on this recalibration necessary to support 2023 with a normalized level and mix of product in the channel. Second, we're winning in the marketplace. We continue to see positive adoption of our innovative best-in-class products, and we are actively converting target accounts to Hayward loyalty programs. I am encouraged to see this result in further market share gains during the third quarter. Third, we are taking proactive steps to realign our cost structure to current conditions while prioritizing our strategic growth investments and productivity initiatives. We expect these actions to result in substantial variable cost savings and a structural SG&A reduction of approximately 10% on an annual basis. I'll provide additional details on our cost plans in a moment. Fourth, we are refining our full year 2022 guidance to reflect higher than expected inflation impacting Q4, continued normalization of channel inventory and the consequence of geopolitical events in Europe. We have addressed inflation with additional price announcements in the fourth quarter to be fully realized in 2023. We now expect full year 2022 net sales to decline approximately 6% and adjusted EBITDA of $365 million to $370 million. Finally, ESG is very important to Hayward and our shareholders. So I'm pleased to report continued progress on our journey. Following the development earlier this year of our ESG strategy and framework, which aligns to products, people, planet and principles, we completed our first Scope 1 and 2 emissions inventories in partnership with a third-party expert. These results and other SASB aligned reporting metrics are included in our first standalone disclosure, the Hayward ESG data sheet, which we published on our website during the third quarter. I would encourage stakeholders to review these disclosures, and I look forward to updating you on our accomplishments going forward. Turning now to Slide 5 to discuss the results of our third quarter. Net sales declined 30% year-over-year to $245 million, largely due to channel inventory correction and softer conditions in certain markets such as Europe and Canada. We are encouraged by continued price realization, market share capture and resiliency of our core US market. As I mentioned, sell-through in the US increased during the quarter, reflecting continued underlying demand in the market. Adjusted EBITDA in the third quarter was $60 million, yielding a 24.6% margin. Decremental EBITDA margins for the quarter were 36% as we initiated manufacturing and SG&A cost reduction plans and realized lower costs associated with incentive compensation and sales rebates. Turning now to Slide 6 for a business update. Our consumer demand varies significantly by region. Within North America, the US Sunbelt continues to be an area of strength, with softer trends in the Northeast US and Canada following the unfavorable weather earlier in the season. Year-to-date, Sunbelt markets have grown 36% faster than seasonal markets. Within Europe and the Rest of World, economic conditions are especially challenging in Europe, whereas we continue to see solid growth in the Middle East, Southeast Asia and Australia. We estimate that Hayward captured approximately $130 million or 200 basis points in share since 2019, which we believe is more structural than transitory. We saw evidence of further gains in the third quarter, most notably in the strategically important US Sunbelt region and in critical products on the pool pad like controls, variable speed pumps and water sanitization. I'll speak in more detail on this in a moment. We continue to see growth in our total Hayward partner base and strong adoption of our innovative new products. We added another 1,800 total Hayward partners year-to-date after approximately 1,500 in full year 2021. We believe these dealer additions are key to our long-term growth through their dedication and advocacy of Hayward products and evidence of stickiness of share gain. Further, in the past 12 months through September, the US sales team signed new accounts with an annual sales value of approximately $80 million with over 80% being larger account conversions. This new business is overweighted in the Sunbelt markets. Our strengthening IoT digital leadership position is driving the development of connected products within our omni-automation ecosystem, resulting in 17% growth in our new product vitality index. Turning to the price versus cost dynamic. A series of out-of-cycle price increases were required over the last few years to combat inflation and protect the structural margin profile of the business. While we have seen some commodity and freight costs start to ease, our total cost of goods sold continues to increase. As a result, we announced an additional 4% to 5% price increase in the fourth quarter to take effect at the beginning of 2023. The pool industry has been very disciplined on price historically, and we expect the recent price increases to hold. As noted earlier, we're making progress on recalibrating the level of Hayward inventory held by our channel partners. Distributors are reducing safety stocks built up during the period of strong demand and significant supply chain disruption, and we estimate a reduction of approximately $80 million occurred in the third quarter 2022 compared to a meaningful inventory build in the prior year period. After adjusting for these changes in channel inventory levels, our sales through the channel increased year-over-year. We are working with our channel partners to be appropriately positioned entering 2023. Finally, we are taking proactive and responsible actions to streamline the organization and optimize the cost structure to support margins. This includes a reduction of variable costs with specific attention to eliminating cost inefficiencies in our supply chain and reducing variable labor in our manufacturing cost base to maintain attractive gross margins in the mid to high 40s. In addition, we are targeting a structural SG&A reduction of approximately 10% on an annual basis or $25 million to $30 million when fully realized in 2023 with initial savings of approximately $8 million to be realized in 2022. We are taking actions to maintain a high 20s adjusted EBITDA profile. Turning now to Slide 7. I'd like to share some perspective on the company's transformation and strong financial and operating performance over the last three years. Based on our 2022 guidance, we will have grown net sales and adjusted EBITDA by approximately 80% and 115%, respectively, from 2019 to 2022. This represents CAGRs of 22% for net sales and 29% for adjusted EBITDA. We are extremely proud of these accomplishments. This period was characterized by strong demand across the industry, and we substantially outperformed following a successful transformation under a new and experienced leadership team that included several initiatives. We accelerated new product development and introduced innovative best-in-class products in the industry's top growth categories. I will provide some additional product detail on the following slide. We also revamped our go-to-market model to drive growth. This included restructuring the sales force and introducing dedicated business development teams focused solely on new customer acquisition. The result has been an impressive signing of pool builders, remodelers, and servicers. We also introduced a unique e-commerce approach that resulted in true multichannel capabilities across distribution, retail, and online. Hayward has a longstanding commitment to lean enterprise and continuous improvement and we substantially improved our manufacturing and supply chain capabilities, resulting in a doubling of production within the existing manufacturing footprint. We also established two new distribution centers in the US and invested in automation where appropriate to drive productivity. As a result, we far outpaced the industry, delivering robust growth and margin expansion, and this transformation has laid a strong foundation for profitable growth longer-term. Turning to Slide 8. I'd like to provide some additional detail on our new product development strategies. Here, we highlight the rich source of opportunity for technology upgrades in the US pool market. As we've discussed in the past, the existing 5.4 million in-ground pools have an average age approaching 25 years. These pools have significantly less technology installed when compared to a new pool being built in 2022. This slide highlights the three key technology product segments of IoT-enabled controls, salt chlorinators, and energy-efficient variable speed pumps. When building a new pool, consumers are educated to the benefits of these products, which deliver ease and convenience of use as well as a more affordable and enjoyable swimming experience. The take rate of these technologies when compared to penetration on existing installed pools is significantly different. The opportunity gap presents a compelling opportunity for the industry to provide a runway for growth. In these three segments alone, we see a potential revenue opportunity for the industry of approximately $6.5 billion. In recognition of this opportunity, we have focused our new product development priorities to deliver exciting IP-rich products attracting consumers and trade professionals to upgrade the installed base. Our success is evidenced in the blue column, which highlights Hayward's very strong growth over the last three years in these critical product categories relative to industry growth resulting in share gains. Recent new product introductions, extending our omni line of IoT-enabled control products, our new S3 low salt chlorination system, and XC ultra high-efficiency DOE-compliant pumps are just the start of several new impact products being released to support Hayward's position as the equipment supplier of choice. In fact, our new AquaRite S3 and S3 Omni salt chlorine generators are uniquely able to operate at just 800 parts per million of salt, roughly a quarter of the salinity required by most commercially available systems. This opens up significant markets in certain southern states such as Texas where the adoption of salt chlorine generators has been more limited. Further, our new industry-leading high efficiency TriStar XL variable speed pump and XC multispeed pump ranges are great examples of product leadership, resulting in share gains in a critically important category. This work was recently recognized by the United States Environmental Protection Agency with Hayward receiving its 2022 ENERGY STAR Partner of the Year Award. 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 9. All comparisons will be made on a year-over-year basis. Net sales for the third quarter decreased 30% to $245.3 million. This decrease was in line with our expectations and primarily driven by a 44% reduction in volume and a 1% unfavorable foreign exchange impact, partially offset by 12% price realization and a 3% contribution from acquisitions. The net price realization reflected the full cumulative impact of our previously announced price increases to mitigate the escalating inflationary cost pressures. The volume decline during the quarter was primarily driven by distribution channel destocking, which we anticipated stepping into the quarter. Our lead times have now normalized as most supply chain constraints have eased outside of some specific electronic-based material shortages. This improvement gives us the confidence to communicate normalized lead times to the channel and relieve their need to hold excess safety stock. It's important to understand in our primary US market, we have positive channel sell-through and the volume reductions we experienced compared to last year are due entirely to channel inventory movements. In the comparable quarter, the channel pulled in inventory, whereas this quarter, as Kevin mentioned, the channel destocked approximately $80 million. In addition, global uncertainty and geopolitical events continue to weigh on certain European markets. Our other markets in the Rest of World segment performed well as those markets continue to open up post-pandemic. Despite this unfavorable channel dynamic, we continue to experience good adoption of new products, particularly controls, sanitization, energy-efficient variable speed pumps, and lighting. Gross profit in the third quarter was $107.8 million. Gross profit margin declined 239 basis points to 43.9% as continued strong price realization was offset by inflation and lower operating leverage on reduced volumes. Our pricing initiatives have enabled us to successfully offset the majority of inflation. In addition, the adverse one-time impact of purchase accounting related to the acquisition of the specialty lighting business for Halco during the second quarter impacted gross profit margins by over 100 basis points in the third quarter. Adjusting for this purchase accounting entry, gross profit margin was 45.1% in the third quarter. Selling, general and administrative expenses during the third quarter decreased 27% to $50.5 million, primarily driven by lower performance-related compensation and warranty expenses. As a percentage of net sales, SG&A increased modestly to 21%. Adjusted EBITDA was $60.4 million in the third quarter. Adjusted EBITDA margin was 24.6% with the decremental margins limited to 36%. We implemented significant manufacturing and cost reduction actions during the third quarter to support gross profit margin as well as initial structural cost savings in SG&A. The quarter also benefited from lower incentive compensation and lower sales rebates. Our effective tax rate was 13.3% in the third quarter compared to 22.2% in the prior year period as we benefited from discrete items resulting from certain state legislation changes and the tax benefit resulting from the exercise of stock options. Adjusted EPS was $0.14, and we deployed $50 million to repurchase 4.8 million shares during the third quarter. Our cumulative share repurchase activity resulted in a year-over-year reduction in share count of approximately 23 million shares or 10% of shares outstanding. Now I'll discuss our reportable segment results for the quarter. Beginning on Slide 10, North America net sales for the third quarter declined 32% to $203.7 million. The year-over-year change was driven by 47% lower volumes, partially offset by a 12% favorable price impact and a 3% contribution from acquisitions. The reduction in volume was due to the channel inventory destocking in the quarter compared to channel pull-in during the comparable quarter last year. As I mentioned, this destocking was expected in the quarter and we do project continued normalization of inventory in the channel in the fourth quarter. Gross profit for the third quarter was $91.9 million, yielding a gross profit margin of 45.1%. Adjusting for the purchase accounting entry I mentioned, gross profit margin was 46.4% in the third quarter. Adjusted segment income was $56.9 million with an adjusted segment income margin of 27.9%. Turning to Europe and Rest of World on Slide 11. Net sales for the third quarter decreased 21% to $41.6 million. Net sales benefited from a price increase of approximately 10% but were adversely impacted by a 23% decline in volumes. In addition to channel destocking, geopolitical circumstances in Europe have negatively weighed on consumer sentiment, particularly in Northern Europe. We also experienced a 7% headwind from unfavorable foreign currency translation, primarily related to the euro, which dropped below dollar parity in the quarter. Gross profit for the third quarter was $15.9 million, yielding a gross profit margin of 38.3%. Adjusted segment income was $8.6 million on an adjusted segment income margin of 20.8%. Turning to Slide 12 for a review of our balance sheet and cash flow highlights. We are pleased with the quality of our balance sheet and the strong cash flow generation characteristics of the company. Our cash and cash equivalent balance at the end of the third quarter was $73 million and total liquidity was $128 million. Our ABL matures in 2026 and our term loan matures in 2028, and this attractive maturity schedule provides financial flexibility as we execute our strategic plans. Net debt to adjusted EBITDA for the last 12 months was 2.4 times compared to 2.3 times in the second quarter 2022. The modest sequential increase in leverage reflects the capital deployment in the quarter, which included $50 million in share repurchases. At the end of the quarter, diluted shares outstanding were 222 million shares. Cash flow from operations was a source of $80 million in the third quarter compared to a source of $76 million in the year-ago period and $144 million year-to-date. Working capital used year-to-date has been comparably higher as we took safety stock positions in certain raw materials and finished goods. Inventories peaked at the end of the second quarter and are moving down as we ourselves reduce our safety stock positions. CapEx was $8 million in the third quarter compared to $9 million in the year-ago period. Free cash flow was $72 million in the quarter and $120 million year-to-date. This represents a net income conversion of 312% in the third quarter and 73% year-to-date. The business has strong free cash flow generation characteristics, indicating high-quality earnings and supporting our growth investments. Turning now to capital allocation on Slide 13. We intend to maintain a disciplined financial policy going forward. Our capital allocation priorities will be balanced emphasizing strategic growth initiatives and shareholder returns while maintaining prudent financial leverage. We intend to continue investing in new product development, operational excellence, commercial programs, and productivity initiatives to drive growth in the business. We also remain an acquisitive company and seek to augment organic growth with tuck-in opportunities that enhance our product offering, geographic footprint, and commercial relationships. We are building a successful M&A track record after integrating four companies in the last 12 months in controls, water features, and lighting, which collectively contributed 3% sales growth in the quarter. Finally, the strong free cash flow generation supports continued opportunistic return of cash to shareholders. We deployed $50 million to repurchase 4.8 million shares in the open market in the third quarter and $343 million to repurchase 23 million shares year-to-date. Our year-to-date share repurchase activity is accretive to adjusted EPS by approximately 10%. At the end of the third quarter, we had $400 million remaining on the existing $450 million three-year share repurchase authorization.

Thanks, Eifion. I'll pick back up on Slide 14 and address the main trends supporting our outlook. We remain very positive about the long-term health of the pool industry, particularly the strength of the aftermarket. It continues to grow every year with the addition of new pools to the installed base and provides a rich upgrade and remodel opportunity as this space continues to age and adopt new technologies. The aftermarket has proven to be resilient across economic cycles. We firmly believe there has been a significant increase in the appreciation for the backyard as a consequence of numerous favorable secular trends. We also remain very encouraged by the execution of our teams that continued to deliver solid market share gains and price realization while implementing our cost reduction programs. With that said, the current operating environment is increasingly uncertain, especially in Europe. Inflation remains persistent and we are working through the reset of channel inventories. As a result, for the full year 2022, the company now anticipates a decrease in consolidated net sales of approximately 6% and adjusted EBITDA of $365 million to $370 million. I am confident in our ability to successfully execute in this dynamic environment and remain very positive about the long-term growth outlook. Turning now to Slide 15. Before we close, let me reiterate the key takeaways from today's presentation. Our third quarter results were consistent with our expectations. We continue to win in the marketplace as we introduce new products, convert target accounts to Hayward and increase our market share. We are controlling what we can control, optimizing our manufacturing base and taking proactive steps to realign our cost structure to current conditions while positioning for future growth. I have every confidence that these efforts will drive compelling financial results and shareholder value creation. With that, we're now ready to open the line for questions.

Our first question today comes from Jeff Hammond at KeyCorp.

So just I guess on these SG&A cuts, maybe just frame how you're starting to think about demand destruction or some of the consumer weakness lingering into 2023?

I think let me just start off with the cost actions and turn it to Kevin to talk about the latter part of your question. We began the cost actions, Jeff, in Q3 with initial actions taken across primarily our manufacturing base. Later on in the quarter, we started to address our SG&A through specific cost actions there that will start to primarily affect Q4 and then have a full effect in 2023. We have announced as of today, further actions, both across our manufacturing cost base and across our SG&A rate. We're focused really on rightsizing our factories to the current production levels that we see. And as we mentioned in our prepared remarks and in the release, we reduced about 10% of our SG&A base, which is approximately $25 million to $30 million. We'll continue to update you as we go forward and give you a fulsome update as we step into 2023. I mean at the end of the day, these actions there are to support and protect as we've become accustomed to mid to high 40s gross margin and protect our adjusted EBITDA in the high 20s.

As for the demand environment, Jeff, we're seeing still high single-digit retail pull-through out of the channel, that's obviously coming off some incredibly high comps from last year. We're really encouraged that that data indicates a continued share gain into the retail marketplace, which has been really our top-level priority for the last several years running. There's been quite a bit of discussion during this earnings season around new construction. We agree that based upon permit data, that that likely will be softer when the year closes out 2022. I guess the positive part offset there on the new construction side is it's really impacted the entry level and there's still net higher values coming across the pad. But again, what's really driving this industry is the aftermarket. And the break-fix, repair and replace some of the technology upgrading is still very optimistic. And the data shows that there's still great retail pull-through out into the marketplace. So I'll just close. Obviously, there's been a lot of pricing. We spoke about it in our prepared remarks. The market is accepting those prices. There's been a lot of it put into the marketplace because of inflationary headwinds, and we expect that to continue to hold through the latter half of this year and into 2023.

So just on the kind of implied fourth quarter guide, decrementals, I thought were quite good in the third quarter. It seems like you take a pretty big step down into the fourth quarter. Any kind of moving pieces there? And then just what are the expectations around any early buy, if any, in the fourth quarter guide?

I'll lead off and again let Kevin chime in on the latter of volume. I mean it's pretty clear based upon the full year guidance that we've given. Sales in the fourth quarter are expected to be in the range of high 250s to low 260s, pool call that midpoint 260. We expect EBITDA to be between $51 million to $56 million. As you point out, structurally, the margins around 21% at the midpoint adjusted EBITDA margin. Gross margins will be impacted in the fourth quarter by lower absorption. We're really focusing, Jeff, in the fourth quarter on the destocking on our balance sheet. In addition, obviously, to continue to work with the channel on their destock. So production in the fourth quarter will be limited. We are continuing to rightsize the manufacturing cost base, but production won't be down sequentially in Q4. We will have, as we talked about, continued inflation. Our acquisition cost in Q3 was higher than expected. It did necessitate us to put in another price increase. That price increase will be effective in January of '23. So we'll still have a bit of pinch in inflation also in Q4.

As for early buy, Jeff, we did run a program this year. I would say as it's closed out here in the month of October, it's a more normalized early buy kind of back to pre-pandemic expectations. Admittedly, we put a slightly lower expectation on it given the channel stock position, but we hit that expectation, which I find encouraging and a great sign that the channel remains confident in that end market demand and the expectation that we're going to get inventories down to the correct level, correct days on hand by year end. So we're working with the channel on getting that shift. As we continue to deplete, we also want to make sure that the inventory is in the right position and we got the right mix as the season kicks off into 2023.

The next question comes from Ryan Merkel of William Blair.

So picking up on that last comment you made, Kevin, it sounds like you think the channel destock is going to be done by the end of '22. And then can you update us on how much you're assuming for the total destock now? I think the prior estimate was $150 million?

I would say that what we discussed last quarter is unfolding as anticipated. We had a satisfactory destock that met expectations through Q3, with additional work needed in Q4. Assuming current demand trends continue, we believe we will be mostly finished and have our inventory in the right balance as we enter 2023. Year-over-year, there was some inventory build, as I mentioned in my prepared remarks from 2021. This year, we experienced a positive reversal of that trend as our market share continued to grow. While there was some inventory build in Q3 last year, we have actually reduced it by around $80 million, as noted in my remarks. Overall, we project a destock range of about $120 million to $150 million. Based on retail pull-through and our expected Q4 shift back into the channel, we expect to be mostly finished and reset coming out of Q4.

And then on pricing, how much will price contribute in 2023, just given the recent increase you talked about? And I think there'll be some carryover. That would be helpful.

There will be some carryover. I'll ask Eifion to give some more detail. There is carryover from an announcement, call it, in the midyear mark when it took effect. And then, of course, this most recent announcement, here in Q4, which will start to impact Q1 shipments. So we're probably going to get in a range now until we come in with our 2023 or formal guidance.

Obviously, we're not giving definitive guidance on price carry at this point. But what I would say is, as I mentioned earlier, we have now recently announced a 4% to 5% price increase, which is consequential to the inflation we saw coming through in Q3. That will take effect in January. So we’ll get a full year's benefit of that 4% to 5%. And then additionally, as you know, we did announce this past year in ‘22 a midyear price increase of approximately 4% to 5% as well. So we can take half a year of that and layer that on. So somewhere in the 7% range will be carried into next year.

The next question comes from Brian Lee at Goldman Sachs.

This is Miguel speaking on behalf of Brian. My first question is regarding the updated revenue growth guidance. Could you break down the reasons for the change in guidance? Was it entirely due to channel inventory, or could you explain how much was related to lower volume expectations in Europe compared to other regions? Additionally, I'm assuming that price continues to be a challenge and will offset some of these factors. I’m just looking for more details on the change in guidance compared to before.

Let me discuss sales. Previously, we projected around $200 million at the midpoint based on our original guidance, but now we anticipate it will be between $230 million and $240 million as we adjust our outlook heading into 2022. This adjustment revolves around three main themes. First, regarding the channel correction, as Kevin mentioned, we estimated between $120 million and $150 million and are currently trending towards the mid-range at about $130 million to $135 million. We believe we will complete this correction by the end of the year, as we recognized and addressed it earlier. Second, the market situation in Europe and the Rest of the World remains complex. Initially, we revised our expectations for this region down by $60 million, and we're now at a $70 million adjustment in our guidance. Lastly, the seasonal markets have experienced a slow start, particularly in the upper Midwest and Northeastern Canada, with no improvement seen throughout the summer. Those markets are essentially closed for the season now, and we anticipate better performance next year. For this year, the impact from seasonal markets is about $55 million, which is an increase from our previous expectations of $40 million. Therefore, the adjustment in our guidance is primarily due to a slightly higher channel correction, some deterioration in Europe and the Rest of the World—taking into account the effects of foreign exchange—and an acknowledgment that the seasonal markets have had a weak performance in 2022.

You also mentioned pricing at the end of the question, Miguel. We actually see pricing as a benefit going forward, rather than a headwind, as we move through the next several periods.

And then if I could just sneak in one more in. Any comments that you would make on, I guess, for lack of a better term, industry backlog, what your dealers know about and have queued up for next year? I would imagine that with these longer lead times between remodel and new pools that they're kind of booked out a little bit farther than usual. Is that starting to normalize? Is it still stretching out pretty far, any cancellations? Mostly anecdotal, I know because it's not really the way the industry works, but anything you could share would be helpful.

We're observing very few cancellations, so I don't believe that's impacting us. Conversations with our dealers and the dealer council suggest that things are returning to a more typical situation. While we've discussed permitting for new construction, it's clear that the industry is primarily driven by the aftermarket. The remodeling, upgrading, and repair services are what will significantly influence our future outlook. The OEMs have effectively addressed the backlog and are managing inventories in a much better way now. We expect new permits and new construction to likely decline this year, and we will reassess this situation in 2023. Overall, it seems that we are moving back to a more normal state as we conclude 2022 and get ready for the new season in 2023.