Welcome to Hayward Holdings fourth quarter 2024 earnings call. My name is Christine and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then one on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Kevin Maska, Vice President, Investor Relations and FT&A. Mr. Maska, you may begin.

Kevin Maska, Thank you and good morning, everyone. We issued our fourth 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 earning 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 2025 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. All comparisons will be made on a year-over-year basis. I will now turn the call over to Kevin Howard.

Thank you, Kevin. Good morning, everyone. It's my pleasure to welcome all of you to Hayward's fourth quarter earnings call. I'll begin on slide four of our earnings presentation by highlighting a tremendous milestone for Hayward, the 100-year anniversary of the company's founding in 1925. As we celebrate this achievement, we reflect with immense pride on our journey, from the founding by Irving Hayward as a tool and die maker, to Oscar Davis acquiring the business in the 1960s and entering the pool market, to the global public company we are today. For a century, we've served our customers with outstanding products and services, and our centennial celebration is a testament to our resilience and past accomplishments. Our company has a solid foundation for future growth and value creation. We are extremely excited about the long-term prospects for the pool industry and our ability to execute our growth plans. Turning now to slide five of our presentation for today's key messages, I'm pleased to report strong fourth quarter results significantly exceeding expectations. We finished the year on a high note with better than anticipated in-quarter demand plus robust early buy orders for the upcoming 2025 pool season. This resulted in solid sales and earnings growth, margin expansion, and increased cash flow generation. Net sales increased 17% for the quarter and 6% for the year through positive contributions from both volume and price. Gross profit margins expanded to record levels, and full-year free cash flow increased 22%, exceeding our guidance. Solid profitability and cash flow enabled us to reduce net leverage into our targeted range of two to three times while completing accretive capital deployments for early debt repayment and a strategic acquisition. As I reflect on 2024, it was a successful year for Hayward. I'm proud of the performance of our team in a challenging global environment and I'd like to thank all our valued customers and vendor partners for their efforts during the year. In addition to delivering solid financial results, we further strengthened the senior leadership team and executed key strategic initiatives to position us for profitable growth. This included expanding our customer relationships, advancing our technology leadership position with the introduction of innovative new products, and leveraging our operational excellence capabilities. I'll discuss our accomplishments in more detail in a moment. Moving to 2025, we expect to deliver sales and earnings growth on a full-year basis in a continued dynamic operating environment. For the full year 2025, we expect net sales to increase approximately 1% to 5%. Turning now to slide 6, highlighting the results of the fourth quarter and full year. Net sales in the fourth quarter increased 17% to $327 million, driven by price and a double-digit increase in volume. By segment, net sales increased 20% in North America and 2% in Europe and rest of the world. Gross profit margins expanded 220 basis points year over year and 170 basis points sequentially to a record 51.4%. Adjusted EBITDA increased 30% in the fourth quarter, and adjusted EBITDA margin was a robust 30.2%. Adjusted diluted EPS increased 35% to $0.27. For the full year 2024, the net sales increased 6% to $1,052,000,000 and adjusted EBITDA increased 12% to $277,000,000, each exceeding our most recent guidance. We delivered strong profitability with gross margins exceeding 50% for the first time on a full year basis. Adjusted EBITDA margin for the full year was 26.4% and adjusted diluted EPS increased 20 percent to 67 cents. Turning now to slide seven, I'd like to share some perspective on the year. 2024 was a successful year for Hayward despite the macro economic challenges faced by the pool industry. We delivered on our financial commitments and strengthened our position as a premier company in the industry. As a technology leader, we increased investment in both R&D and engineering to support our commitment to innovation we successfully launched several differentiated products during the year two great examples of new innovations are the micro channel temperature control unit an industry first single unit product offering the ability to both heat pool water and cool it as low as 40 degrees for a cold plunge secondly our proprietary omnipro app a cloud-based productivity tool for trade professionals enabling real-time remote monitoring and equipment configuration. We're excited by the adoption of these unique products in the marketplace. Hayward has a long-standing culture of operational excellence and continuous improvement. We demonstrated our capabilities again in 2024, consolidating our manufacturing footprint in Spain, investing in automation and productivity initiatives, and expanding gross margins. As a testament to our product and operational performance and the value we provide customers, Hayward was recognized during the year by the largest global distributor with separate awards for both innovation leadership and operational excellence. On the commercial side, we increased investment in customer care, leveraging new technologies and tools to enhance customer experience. We upgraded our customer loyalty programs, rewards trips, and partner summits to strengthen and expand our dealer relationships to help grow our respective businesses. We also launched Hayward Hub DFW in Texas, a first-of-its-kind Hayward training and support facility for dealers and trade professionals in this important growth market. During the year, we further strengthened the senior leadership team by appointing four accomplished executives to key positions within the organization. With these additions and expanded capabilities, I'm convinced we have the right leadership talent in place to execute our growth strategies. These achievements contributed to solid financial performance, including a return to sales growth and continued margin expansion. This enabled us to reduce net leverage while reinvesting in the business, repaying $123 million of our debt early and completing the strategic acquisition of Core King, advancing our position in the commercial pool market. Turning now to slide eight. Following that review of 2024, I'd like to look forward and highlight the company's strategy to drive compelling growth and shareholder value. At our core, we are a products company. Our product management and engineering roadmaps are designed to deliver innovative, energy-efficient, automated solutions to transform the experience of water and increase the enjoyment of pool ownership. Leveraging best practices and capturing global trends, our teams are actively driving innovation and setting the pace for the industry. We are focused on creating customer advocacy for the Hayward brand, strengthening relationships with trade professionals, and in turn driving incremental growth. To enable this, our sales, marketing, and technical service teams continue to develop new value-added solutions for our trade professionals. Organizational changes and investment in our commercial teams allow us to further support, train, and develop our partners as well as attract new professionals to Hayward. The Clark King acquisition was a key investment in our commercial pool product category. We are pleased with its performance and see many additional opportunities to grow this category with focused leadership and new product introductions. As we integrate Clark King into Hayward, we are identifying cross-selling opportunities with our existing flow control team we now have the opportunity to specify uv and chemical water treatment systems in addition to our core engineered thermoplastic valves into a broad and expanding water industry we have a proven ability to drive margin expansion from already robust levels specifically our gross profit margin expanded over 600 basis points in the last five years to 50.5 percent and nearly 400 basis points since 2021 despite reduced volumes as the industry normalized after the pandemic. We see the opportunity for further margin upside over the long term driven by four key pillars of our margin strategy. Productivity gains resulting from our operational excellence culture, a higher margin mix of technology products, operating leverage given current low capacity utilization levels and proactive price cost management. Finally, as we've highlighted before, we maintain a disciplined and balanced approach to capital allocation, emphasizing organic growth investments and strategic acquisition opportunities to complement our product offering, geographic footprint, and commercial relationships. In summary, I'm confident we have the right strategy in place to drive profitable growth and compelling shareholder returns. And with that, I'd like to turn the call over to Ivian to discuss our financial results in more detail.

Thank you, Kevin, and good morning. I'll start on slide nine. As Kevin stated, we are very pleased with our fourth quarter financial performance. Net sales increased and exceeded expectations. We delivered outstanding margin expansion and generated better than expected free cash flow. Looking at the results in more detail, net sales for the fourth quarter increased 17% to $327 million. This was driven by a 12% increase in volume, 4% positive net price realization, and a 2% contribution from the acquisition of clawking completed in June. Gross profit in the fourth quarter increased 23% to $168 million. Gross profit margin increased 220 basis points year over year and 170 basis points sequentially to a quarterly record of 51.4%. Adjusted EBITDA was $99 million in the fourth quarter, and the adjusted EBITDA margin increased 300 basis points to 30.2%. Our effective tax rate was 14% in the fourth quarter, compared to 21% in the prior year period. The change was primarily due to the timing of discrete items. Adjusted diluted EPS in the quarter increased 35% to $0.27. Turning now to slide 10 for a review of our full-year results. Net sales for the fiscal year 2024 increased 6% to $1.05 billion. This exceeded our most recent guidance and was driven by 3% positive price realization, 2% higher volume, and a 1% contribution from the clawking acquisition. Gross profit for full year increased 11% to $531 million. Gross profit margin increased 240 basis points to 50.5%, exceeding 50% for the first time on a four-year basis. Strong profit margins enabled us to reinvest in the business. In 2024, we increased research development and engineering investment by 5% to $26 million to support our commitment to growth and innovation. SG&A expenses for the year increased 12% to $261 million, driven largely by normalized annual incentive compensation relative to a comparable low result in the prior year. Targeted growth investments in selling and customer care and acquired clocking SG&A. Adjusted EBITDA increased 12% to $277 million, with adjusted EBITDA margin increasing 150 basis points to 26.4%. Our effective tax rate was 18% in 2024 compared to 20% in 2023. Adjusted diluted EPS increased 20% to 67 cents for the full year 2024. Now I'll discuss our reportable segment results. Turning to slide 11, for a review of our reportable segment results for the fourth quarter, North American net sales increased 20% to $286 million, driven by 5% net price realization, 13% higher volume, and 2% from the clocking acquisition. Net sales increased 20% in the U.S. and 23% in Canada. The robust volume increase in the quarter was driven primarily by strong in-quarter demand, but increased early by demand for the upcoming 2025 pool season. gross profit margin increased 310 basis points to a robust 54.2 percent and adjusted segment income margin increased 500 basis points to 36.7 percent turning to europe and rest of the world net sales for the quarter increased two percent to 41 million net sales benefited from one percent favorable net pricing and two percent higher volume partially offset by one percent from foreign currency translation. Net sales in Europe increased 1% and rest of the world increased 2%. Gross profit margin was 31.4% and adjusted segment income margin was 12.8%. Turning to slide 12 for a review of a reportable segment results for the full year. North American net sales increased 9% to $896 million driven by 4% higher price and volume plus a 1% contribution from clocking. Sales in the U.S. and Canada increased 8% and 16% respectively. We are encouraged by the improved performance in Canada. We delivered exceptional profitability with gross profit margins up 310 basis points to 53% and adjusted segment income margin up 360 basis points to 32.5%. In Europe and rest of the world, net sales for the full year reduced 8% to 156 million, with a net pricing increase of approximately 1% offset by 9% lower volumes. Sales in Europe reduced 1%, and the rest of the world reduced 16%. Gross profit margin was 36.2%, and adjusted segment income margin was 14.6%. We took steps throughout 2024 to improve the performance of this segment, and are pleased to see signs of improvement in the fourth quarter. We expect our proactive actions, including appointing new senior leadership and simplifying the operating model to result in improved sales and margin trends going forward. Turning to slide 13 for a review of the balance sheet and cash flow highlights. We are very pleased with the balance sheet improvement and strong cash flow performance during the year. net debt to adjusted EBITDA improved significantly from 3.7 times at the end of 2023 to 2.8 times at the end of 2024, consistent with our target range of two to three times. Total liquidity at the end of the year was $360 million, including $197 million in cash and equivalents and short-term investments plus availability under our credit facilities of 164 million. We have no near-term maturities on our debt. The term matures in 2028 and the undrawn ABL matures in 2026. Our borrowing rate benefits from 600 million of debt currently tied to fixed interest rate swap agreements maturing in 2025 through 2028, limiting our cash interest rate and our term facilities to 6.4% in 2024. Our average interest rate earned on global cash deposits for the year was 5%. Overall, we are pleased with the quality of our balance sheet. Our business has strong free cash flow generation characteristics driven by high quality earnings, which support continued growth investments. Cash flow from operations for the full year increased 15% to $212 million due to increased EBITDA on working capital management. Full-year 2024 CapEx of $24 million was below the prior year due to project timing. Free cash flow increased 22% to $188 million in 2024. Turning now to capital allocation on slide 14. As Kevin discussed, we maintain a disciplined financial policy and take a balanced approach emphasizing strategic growth investments and shareholder returns while maintaining prudent financial leverage. We continue to pursue additional acquisition opportunities to augment our organic growth in addition to opportunistic share repurchases. Turning now to slide 15 for the outlook. We are introducing 2025 guidance reflecting sales and earnings growth driven by solid execution across the organization, positive price realization, and continued technology adoption. For fiscal year 2025, Hayward expects net sales to increase approximately 1% to 5% to $1.06 to $1.1 billion. This outlook reflects modest volume growth in non-discretionary aftermarket maintenance with modest reductions in the more discretionary elements of the market, new construction, remodel, and upgrade. We expect a positive net price contribution of approximately 2% to 3% based on prior pricing announcements for the year. This does not include any new pricing actions that may become necessary as a consequence of the evolving tariff environment. We continue to evaluate the situation and will respond with appropriate supply chain and pricing actions as needed. Our business is seasonal. We expect normal seasonal strength in the second and fourth quarters, with a quarterly cadence generally consistent with the prior year. We anticipate full year 2025 adjusted EBITDA of $280 to $290 million. We also expect solid cash flow generation again in 2025, with a conversion of greater than 100% of net income at approximately $160 million. We are confident in our ability to successfully execute in dynamic environments and remain very positive about the long-term growth outlook for the pool industry, particularly the strength of the aftermarket. And with that, I'll now turn the call back to Kevin.

Thanks, Ivan. I'll pick back up on slide 16. Before we close, let me reiterate how proud and thankful I am for the team's performance throughout 2024. We had a strong finish to a successful year with a fourth quarter that exceeded expectations. For the year, we return to sales growth, delivering impressive margin expansion and strong cash flow, allowing us to fund our growth strategies. Looking forward, we expect continued sales and earnings growth in 2025 and are extremely excited about our longer-term prospects. We will be celebrating our 100-year anniversary throughout the year. I'm confident we have the right strategy and talent in place to drive compelling financial results and shareholder value creation. With that, we're now ready to open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Nigel Coe with Wolf Research. Please proceed with your question.

Thanks. Good morning, everyone, and congratulations on the anniversary, 100th anniversary. Thanks, Nigel. Yeah, thanks. Thanks for the question. So I just wanted to kind of maybe just dig in a bit deeper on the 13% volume growth in North America this quarter, you talked about strong in-quarter demand, but also strong early buy. So I'm just wondering if there's any way you can maybe disag the strength in the early buy from the kind of in-quarter. And is there any impact on 1Q that we should consider on the back end of the strength we saw on 4Q?

Yeah, good morning again, Nigel. It was a good quarter in North America. I mean, It is fair to say that we had a good in-quarter demand period in Q4. Early buy orders and shipments were up year over year, but it's really important to understand that we shipped proportionally less of our early buy orders in 2024 than we did in 2023. Net price was a little bit stronger due to that in-season demand, so that has a positive impact on the price. FX was a little bit better. than expectations, which obviously positively affects translated earnings in North America for Canada. I think it's probably appropriate to say margins consequently due to price were stronger. Because of that in-season demand, cash flow was stronger, enabling strengthening of the balance sheet throughout the quarter. It does set up obviously a bit of a stronger backlog coming into 2025 for the early buy component. But I would remind you that, you know, we continue to evaluate the environment as we step into 2025. And as we mentioned in our prepared remarks, we fully expect Q1 to be very similar structurally to the prior year.

Okay. Nigel, I just add that, you know, in Q4, there was some, you know, these aren't the circumstances that any of us necessarily look for, but there was some volume related to the hurricane activity in Q4 that had some impact on the stronger in-quarter demand that I've just touched upon. I would just like to pause for a moment and beyond Q4 to just put a finer point on some of the things and the achievements delivered throughout the year, specifically on the commercial side, investing more in R&D and receiving some industry accolades while also delivering some high-value new products to our pool owners. We did invest in sales and marketing to drive growth in some under-penetrated regions. We opened our first Hayward Hub, I hope that's the first of many, in the Dallas-Fort Worth market, launched an Omni Pro app, and the Clark King acquisition is a fantastic business, presenting some nice cross-selling opportunities. Financially, all of that, as I said in my prepared remarks, drove net sales of 6%, 9% in North America, adjusted EBITDA of 12% growth, and free cash flow of 22%. So gross margins, which I'm sure we'll talk about further here in the Q&A, delivering a record north of 50% is really something to be proud of. So from a five-year standpoint, You know, this sometimes gets overlooked, but, you know, over the last five now, we've delivered 7.5% CAGR on net sales, including 10% in the U.S., 11% with commercial pool, and adjusted EBITDA over that same period of 10% growth. So, again, it was a great quarter, a strong year, and over the past five, some nice growth numbers to be proud of.

Yeah, no question. Thanks, Kevin. We'll come back to the hurricane impact probably a little bit in the Q&A, but I did want to touch on tariffs because we've got some new headlines on the – well, we've got some headlines on the tape of tariffs in early March, China, Mexico, and Canada. I just wonder if you could just maybe remind us on, you know, where your import exposures are. I think there's a bit of China, but no Mexico. So just maybe just rebase us on where we stand today.

Yeah, let me touch on that. So, you know, I guess the first thing I would say is roughly 85% of North American net sales are produced in North America. The remaining, call it 15%, would be cost of goods sourced either directly from a facility that we operate in China or some products out of our European operations. So we have good understanding, you know, from a cost of goods standpoint there. You know, what's a little harder to get our arms around completely would be Tier 2 and Tier 3 supplied components. Our supply chain team is working diligently to really get some clarity around that.

I know something came across this morning just before we went live on the call that we haven't fully digested yet.

But as for China, there was 10% that took effect February 4th, we know exactly what that impact is from a tier one from our finished goods. In terms of finished goods out of that facility, Mexico and Canada, you know, Mexico is really more of a tier two or tier three that we have some clarity on and continue to get more focused on that. So we don't believe at this point that there's much impact with Canada. Our understanding is some of the reciprocal tariffs that have been in the news. We don't believe at this point pool equipment will be impacted by that, Nigel. And then the steel and aluminums I think more to be determined there but we don't think that that's a sizable impact to our business either.

I would just add Nigel you know based on everything that we're learning you know we've demonstrated the ability in periods past to put price through we're fully prepared to react with the price increase to tackle any identified tariff cost impact so protect the guided profitability we put in great thanks guys good luck out there thanks our next question comes from line of suribro raditski with jeffries please proceed with your question hi thanks for taking the question so obviously exit in the year with strong margin performance but it looks like guidance implies about flattish ebitda margins next year could

just talk about how you're thinking about gross margin performance and what are the puts and takes included in that outlook.

Yeah, thanks, Sri. Good morning. What I would say is that we had a great performance in 2024 at the gross margin line and at the adjusted EBITDA line, you know, respectively grown gross margin, 240 basis points, adjusted EBITDA, 150 basis points, a little bit better than we expected. When we look down the runway into 2025 and built our guidance and expectations around the year i think it's really important to to look at it from a two-year stack basis so the midpoint of 2025 you know the two-year stack for us uh is is pretty good in overall conversion we're above 40 sales to adjust the dvd margin conversion adjusted dvd growth rates at seven percent we've always talked about growth not being linear we'll make some great progress we'll invest we'll make subsequent progress but i think you know you have to look at it over the medium term. And we're really proud of both the conversion rates and the margin growth that we experienced in 2024. And we're taking a bit more of a pragmatic approach around 2025 at this particular point.

That's helpful. And then you probably did some color on the resilient non-discretionary aftermarket, maybe weaker and new and remodeled. Just quantify how you're thinking about those markets, given the limited volume embedded in guidance.

Yeah. So, you know, as we look at kind of the – and break down the net sales again, greater than 80% of our revenue is derived from the aftermarket, meaning product that goes on a pool or to a pool that is already built. So we would say of that 80 plus percent that's in the aftermarket, there is a percentage of that that really goes to remodels and larger scale renovations. You know, that along with the mid to high teens of our revenue derived from new construction, at this point continues to to be under pressure. We feel primarily, you know, through interest rates, elevated interest rates, but again, you know, something north of 60% of our overall revenue, we would say, is very resilient, non-discretionary, and very reliable. As we look, you know, coming out of 2024, that's really what we saw in the full year 24 and at this point based upon permit data that we keep a very close eye on continue to be under pressure we think at least for the first half of 2025 that'll that'll stay under pressure kind of flattish but just slightly down is what we see in that non-discretionary elements of our of our business siri appreciate the color thank you our next question comes from the line of andrew carter with steeple please proceed with your question

hey thanks good morning oh i guess i want to circle back to just kind of the morning the initial guidance i get the two-year basis and two-year this is kind of just right kind of down the pike in terms of expectations but if you look back at kind of the kind of take us through kind of 2024 sgna was reset higher warranty expense also incentives underlined So I would seem that's fully built for next year. There's a lot of puts and takes in the gross margin performance, including a one-timer here in the fourth quarter, plus Europe. So just kind of can help us understand why the flow through just isn't stronger next year. Is it just stepped up SGA? Are you expecting some gross margin pressures? You've got the tariffs in there. Is it cross currency from Canada? Just any extra help here.

Thanks. uh again you know i would say andrew we're taking a pragmatic approach you know the margin results in 2024 were better than expected we got after quite a bit of our lean operational initiatives in the second half of last year and we gleaned improvement from those we also were able to realize a little bit earlier synergy benefits into the clocking acquisition of the gross margin line So all of these great results accumulating in 2024, if you look at it from a two-year stack basis, where we're ending 2025 is exactly where we as an internal management team here expect it to be. It's just a little bit accelerated into the 2024 period. Again, I would ask you to look at the two-year stack basis from the end of 23 to the midpoint of our estimated guidance, say for 25, and look at the growth rates, both of the gross margin line, adjusted EBITDA, and the flow through of sales conversion to EBITDA, all within our expectations. We are making investments into the business. You're right to point out in 24, we made investments into SG&A, particularly into the selling side of the business, the customer experience side of the business and marketing initiatives. Obviously, we also acquired SG&A as a consequence of the clocking acquisition, and that will run right full year through our 2025 results as well. You know, I have talked about publicly before, focusing SG&A down to the lower 20s. You know, we were at 25% with corporate expenses in 2024. We're expected to come down in 25 modestly. But again, I would rather segment each year individually. We had great success in 24, good, good, modest guide in 25 in terms of the implicit gross margin growth. But please look at it from a two-year stack basis, exactly how we expected these two years to play out in terms of gross margin improvement and conversion rates to adjust.

Understood. And then getting on the working capital came in well ahead of your expectations this year plus next year it's pretty strong with still working on my math but it's the working capital headwinds kind of de minimis almost kind of what's that coming from kind of continuing to approve the working capital here surprised there's not kind of i know that there's a there's there's an operational side you're taking some safety stock but anything about you know kind of how lean your inventory is and just kind of the outlook for just how how working capital can kind of stay this high thanks or not sorry oh pre-cash flow conversion stay this high apologize yeah okay uh no absolutely look you know we've had a very focused initiative several focused initiatives around working capital improvement you

know we evaluate working capital on the metric of cash conversion and we saw stacked improvement in reducing our cash conversion cycle, which is, you know, our AR days plus our inventory days minus our accounts payable days. In terms of our inventory days, you know, we stepped down eight full days from the end of 2023 to the end of 2024. Again, a lot of focus around inventory, making sure we have the right products at the right time in the right place. You've heard me say that before. We have several discrete initiatives. I'll call out the SKU Rationalization Initiative, which is enabling successful inventory reductions. But I'd also call out our net accounts receivable accounts payable days also took a meaningful reduction year over year. We reduced over 11 days in terms of that. We continue to see good cash use from working capital initiatives. Again, we think in 2025, we've got more work to do and more results to achieve here. and the team is very much focused. I'll shout out to the Collective Hayward team here an appreciation for what they achieved in the 24 working capital reductions.

I'll just point out, Andrew, that while doing all of that, we really take very seriously our ability to supply the market and be able to get product in reasonable lead times to our commitments. So, while continuing to work on driving working capital down, you know, the overall mission is to continue to be a supplier of choice and hopefully continue winning some of these operational excellence accolades from our channel partners.

Thanks. I'll pass it on.

Thanks.

Our next question comes from the line of Mike Holler with Baird. Please proceed with your question.

Hi, good morning, everyone. so just just clarifying a comment i've seen you made i think in response to an earlier question on the seasonality impact of the pre-buy i think you mentioned that the pre-buy take rate was lower in 24 than it was in 23 so just could you clarify what you mean by that and then related it's a thought process then that the cadencing of how pre-buy is um works through in the front half of the year relatively normal versus history is that the thought process assuming things are relatively stable from a demand volume perspective from an early buy standpoint um you know we were

we were pleased with the participation um that we saw from our from our channel partners there It was incrementally higher year-on-year, and as I think Ivian mentioned in the first response, was that from a percentage standpoint, we shipped less of that in 2024 than we did in 2023. So that presents us with, you know, the luxury of having a slightly larger backlog starting the new year. But as you know, you know, never do we have an order file that covers the entire quarter. And as we're moving into March, we're all looking for a warming trend, you know, across our markets. So what else can we answer for you on the early buy and how that seasonality plays out? Again, Q1, we're expecting normal seasonality. We don't guide quarterly, as you know, Mike, but Q1 is one of the softer quarters as sales out is less than it is in Q2 and Q3. So we're calling, you know, again, for Q1 to be on that seasonal normality somewhere in the 20% range of what our full year net sales guide would be.

I would add mine. I just added one last point here. Typically, you know, when we get into Q1, which is seasonally the lowest quarter of the year, we do some campaigning. And, you know, that's been a legacy construct of how we approach Q1. With a, as Kevin said, the luxury of a slightly larger backlog coming into the quarter due to less shipment of early buying 24th and prior year, we may not do as much campaigning in Q1 as normal. But overall, I would just guide you to a very typical Q1 as a percentage of overall sales, which is typically 19% to 20% of four-year sales.

Great. That was super helpful. And then the second one, I know the housing starts are at a bottom or sort of the new pools, new construction is at a bottom here. If you look at the take rate on the housing start side of the things or the attachment rate of pools on new homes, do you see any noticeable differences as you work through the year? They're probably a little bit too short of a sample size, but curious if you're seeing a relatively typical percentage of new homes with pools or if you see many disassociation versus history given the mix of the house size is moving a little bit lower right now.

Yeah, as you know, Mike, there's been high correlation historically between single-family home starts and new pool construction, even more so when it's staggered one year. I would say that attach rate as we look back on 2024, and of course we don't know yet that final new construction number, but assuming it's in that 60,000 range, we would have seen that attach rate become less in 2024. You know, what we're starting to do more work on, and I think this became more clear to us from a BI standpoint, is that another big driver of new construction is not just single-family home starts, but existing home turnover. and as you know that was at much lower levels in 2024 and I believe that has as much to do with this uh with that uh with that lower number of new pools being built uh last year as anything that's helpful I really appreciate it thanks all our next question comes from line of Jeff

Hammond with KeyBank please proceed with your question hey good morning guys this is David Tarantino on for Jeff. Just to follow up on the in-quarter demand commentary, could you give us some color on what you think sell-through trends looked like and what was driving it? Is it mostly the repair benefits from recent hurricanes? Any color there would be helpful?

Yeah, I do think that hurricane had some benefits. A large channel partner, you know, had indicated just last week that in-quarter growth in the Florida market was meaningful, which I believe does point to some of the repair activity that occurred in Q4 in that market specifically. So So, yeah, so I would say hurricane activity did have an impact, you know, for us in terms of shipments. We prioritize order inflow that was keyed to that region in fourth quarter was highest priority shipment for us. So we were looking to support the homeowners and the rebuild and repair activities in the impacted areas, David.

Great. Thank you. And then could you give us your thoughts on the margins and international moving into 2025, maybe size the impact of the inventory noise and what gives you the confidence that that goes away? And then maybe just give us some color on what you think kind of the longer term margin entitlement is here with margins well off the peak.

Yeah, I'll take that one, Dave. Good morning again. Yeah, look, we had some compression in Europe, the rest of the world margins in 2024, some discrete inventory items, both Q3 and Q4, which were one-time events, which weren't repeat. They weren't material, so they're not going to be a big needle mover overall for the full-year-type margin, but they did impact those particular We are looking at margin growth year over year in Europe and the rest of the world at the gross profit line. As Kevin mentioned in some of his remarks, we have targeted here some initiatives consequential to leadership change, consolidation of manufacturing footprint, focus on the product line we're selling in that particular region, and looking at a bill of materials and cost structures there. So quite a lot of activity. I don't think we're going to see a step change in margin in 2025, but it will grow. We do have ambition to close the gap between – aggressively close the gap between Europe and the rest of the world. But it's got some structural differences as a market, which will never make it, in our opinion, and equating margin structure to the North American market. But there are projects underway to progressively close the gap.

I feel in some ways that 2024 was really kind of a transitional year for Europe, rest of world business. Some of the things that Ivan just touched on were undertaken and we're still yet to see full benefit from with some leadership changes and bench strength. We do have an expat in the lead supply chain role. I think you're aware, David, that we consolidated facilities, one out of the greater Madrid area into a consolidated location in Barcelona. There were some fits and starts through the year there. We altered the chief engineering role to be a global role, which is going to drive some nice new product introduction in the region there. And then just ongoing operating model simplifications in addition to that footprint that I just mentioned, you know, some back office standardization, consolidating some G&A into a single location. And we exited one underperforming business, which presented a little bit of top-line headwind in 2024. So we're not sitting still. We're not pleased necessarily with the overall net sales or the margin performance in 2024. And that's going to progressively get better moving forward.

Okay, great. Thanks for the time, guys. Thanks, Chip.

Our next question comes from the line of Brian Lee with Goldman Sachs. Please receive your question.

Good morning, everyone. This is Nick on for Brian. How's everyone today?

Hi, Nick.

Hey, just wanted to follow up on just a little bit on the SKU rationalization. Last quarter you mentioned retiring some lower tech or redundant products. Would you be able to give any more color on if this is more so U.S. or rest of the world, or could you quantify at all if this is, you know, or how much of a headwind this could possibly be to top line in 25 or potential margin tailwinds as well? Is also this ongoing, or is this more first half versus second half, or just how do we think about that?

Yeah, certainly not expected to be a headwind to top line. We're doing this very much to improve the quality of our earning structure inside the income statement and continue to have a more agile and lean working capital position, particularly, obviously, inventory. You know, we're into the program of SKU rationalization. We've been in it now for about 18 months, 22 years. We've made initial good progress. We're looking at all aspects of our SKU structures, both at the finished good level and at the raw material level. We continue to focus on moving out legacy finished good products, promoting obviously the more current technology-based products, again with no negative implications to the top line. We obviously have to keep some legacy products for warranty purposes. When we get to raw materials, raw material structures continue to look to be rationalized, to provide more common platforms we're looking at that across the globe in all of our manufacturing facilities what can we do to have common raw materials what could we do to have common web platforms all of those initiatives are in play and they will be accretive over the course of time through the gross margin but uh not giving specific guidance around how it implicates 25 other than to say that this is you know this is an initiative that's in play and will be accretive over the course of time, hopefully to the top line as we promote more technology-based platforms in finished goods, as well as opening up the margin as we get away from legacy war.

Awesome. Thank you. That's it for me. Appreciate it.

Our next question comes from the line of Rafe Chadrasek with Bank of America. Please proceed with your question.

Hi. Good morning. Thanks for taking my question. I just wanted to ask a few questions on the 2025 guidance assumptions. Can you just give a little more color on what's assumed for North America versus international? Also, what's the M&A carryover that we should expect for 2025? And then is there any channel assumption changes? Should we think that volume growth is all sell-through, or is there any restock or de-stock included there?

In terms of clorking, there's about 1% in our guide carryover. That was closed right at the end of June in 2024, so half-year will carryover. In terms of channel inventory, you know, we would say that as we work with our channel partners, after having some additional or some modest reductions in their inventory positions in 2024, what we're hearing back is that they're pleased with current levels, days on hand. and that we're not expecting really anything one way or the other in our guide from a channel inventory perspective in 2025, Ray. As for segment, I'll turn that over.

Yeah, I mean, the way our guidance breaks down, you know, overall, over 2% to 3% price is better. So the pricing dynamic in North America will be higher than in Europe and the rest of the world. and the FX implication, which is a minus 1% overall to Hayward, will be a little bit more weighted negatively towards Europe and the rest of the world. So when you think about midpoint guidance, overall for Hayward at 3%, I'd say higher in North America and lower in Europe and the rest of the world by roughly single-digit movements between the two.

That's really helpful. And just can you remind us for how long your warranty typically lasts? And then when you have really strong volume in 2021, 2022, are we coming to the point now where a lot of products are starting to come off warranty and there's a replacement opportunity that would either benefit you in 25 or maybe even as we go into 2026?

There's some differences, but I would say three years when products sold through the trade uh and then some of our uh w3 product line which would be skews specific for uh for omni channel or for um online sales rate that's that's really more of a one-year warranty period on those skews so uh yeah with the three-year um i think we're starting to uh to move through that standard three-year warranty period on some of the product that was placed you know call it late 2020 when the pandemic really started impacting uh market volume um so we would expect that to that to start to come due um you know in uh in the coming years very helpful thank you thank you mr hollering we have no further questions at this time i'd like to turn the floor back over to you for closing comments great thanks christine in closing i'd like to sincerely thank all our dedicated employees and valued partners around the world your hard work passion and unwavering commitment are the driving force behind our success we've built a strong foundation for growth and value creation in our first hundred years and i couldn't be more excited about the opportunities that lie ahead please contact our team if you have any follow-up questions and we look forward to talking to you again on the first quarter earnings call. Thank you for your interest in Hayward. Christine, you may now end the call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.