Welcome to Hayward Holdings first quarter 2025 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 Masca, Vice President, Investor Relations and FP&A. Mr. Masca, you may begin.

Thank you and good morning everyone. We issued our first quarter 2025 earnings press release this morning which has been posted to the Investor Relations section of our website at investor.hayward.com. There you can also find an earnings slide presentation that we will reference during this call. I'm joined today by Kevin Holleran, President and Chief Executive Officer, and Ivian Jones, Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that during this call, the company may make certain statements that are considered forward-looking in nature, including management's outlook for 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 filed 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 unless otherwise indicated. I will now turn the call over to Kevin Halloran.

Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's first quarter earnings call. I'll begin on slide four of our earnings presentation with today's key messages. I'm pleased to report first quarter results exceeded expectations. Net sales increased 8% with growth across both segments, North America and Europe and rest of the world, and positive contributions from volume and price. We delivered solid profitability in our seasonally softest quarter with gross profit margins increasing to 49.5% and adjusted EBITDA margins increasing to 21.5%. This represents the ninth consecutive quarter of year-over-year gross margin expansion. Robust sales growth and profitability coupled with effective working capital management enabled us to maintain net leverage within our targeted range at 2.8 times while funding our growth strategies and launching innovative new products. We're especially excited about the recent launch of OmniX, an industry-first suite of innovative products for the aftermarket. The OmniX automation platform is easily deployed in the installed base, providing tremendous opportunity to unlock the addressable aftermarket of millions of non-automated pools to wireless IoT connectivity and control. I'll provide more commentary on this differentiated new solution for pool owners in a moment. During this period of increased tariffs and heightened global economic uncertainty, we are aggressively executing our plans to mitigate the impact of tariffs, support margins, and position the company for continued growth while supporting our customers. Our team is rising to the occasion, and I'm very proud and appreciative of their efforts. We have a resilient business model with over 80% of our sales aligned with serving the aftermarket needs of the existing installed base and a strong balance sheet providing financial flexibility. I'm confident in our ability to navigate this rapidly evolving environment. That said, we are confirming our guidance for the full year 2025, reflecting the implications of the current tariff environment and execution of mitigation action plans. We continue to expect net sales to increase approximately one to five percent and adjusted EBITDA of 280 to 290 million. This guidance is unchanged, but many of the underlying assumptions certainly have, and Ivan will detail this for you. Turning now to slide five, highlighting the results of the first quarter. Net sales increased 8% to $229 million, driven by 3% increases in both price and organic volume, plus a 3% contribution from the core King acquisition. Sales growth was solid and consistent across both segments, with net sales increasing 8% in North America and 7% in Europe and rest of the world. Trends improved in March after a slower start to the year, with end demand for Hayward product now generally consistent with normal seasonal trends as we approach the peak pool season. During the quarter, we saw solid growth in critical product categories of pumps, lighting, automation, and sanitization. In addition, our commercial pool business continues to grow organically and benefit from the integration of the Cork King acquisition. As we all know, the economic outlook has become increasingly uncertain, but the majority of our business is resilient and tied to non-discretionary aftermarket maintenance. The more discretionary elements of the market, new construction and remodel, have been impacted by these economic conditions and higher interest rates as we expected entering the year. Gross profit margins increased 30 basis points to 49.5 percent. Adjusted EBITDA increased 9 percent to 49 million, and adjusted EBITDA margin also increased 30 basis points to 21.5 percent. We continue investing in the business to drive future growth. On the commercial side, we are executing targeted sales and marketing strategies to further increase our presence in high growth regions and capture market share. We are increasing investments in customer care, leveraging new technologies and tools to enhance customer experience. Following the successful launch of the first Hayward Hub and Support Facility in Texas, we added additional hub locations in Arizona and North Carolina to better support our dealers and trade professionals in the regions. On the product side, we are introducing a dedicated advanced engineering and innovation team to accelerate the development of new technology products finally adjusted diluted eps increased 25 to 10 cents turning now to slide six for an update on tariffs tariffs have of course been front page news for many weeks now and the global trade situation continues to evolve as a reminder we are predominantly a domestic manufacturer with approximately 85 percent of North America. However, we do source certain products from our Hayward facility in China and other third-party suppliers in China that are impacted by the more significant incremental tariff of 145%. Based on the latest information available, we estimate a total annualized tariff impact of approximately $85 million, with a partial year impact in 2025 of approximately $30 million, mostly related to China. Our planning assumption is that the current tariff rates remain in place. As such, we are aggressively executing mitigation action plans, including cost and supply chain initiatives, plus other pricing actions. We are working to establish increased certainty in our supply chain rather than having to respond to geopolitical uncertainty. On the cost side, we're accelerating cost reduction and productivity initiatives and actioning structural supply chain alternatives. As a result, we expect our direct sourcing from China into the U.S. as a percentage of cost of goods sold to decline from approximately 10% to 3% by year end. At this point, we expect our mitigation plans to fully offset the expected tariff-related cost increases and volume pressures. On the pricing side, we announced a 3% price increase in North America effective in late April and more recently announced another increase of four percent effective mid-June. We will continue evaluating the need for additional pricing action and managing channel inventory appropriately by limiting pre-orders ahead of the price increases. Our teams are working very diligently to support our customers while protecting profitability. Turning to slide seven, for many years Hayward has been a leader in IoT controls with our OmniLogic pool automation platform for the new construction and remodel markets in the u.s we are now excited to announce omni x our breakthrough smart iot technology designed to cost effectively enable wireless control of the existing installed base we estimate approximately two-thirds of the 5.4 million in ground pools in the u.s or 3.5 million pools are currently not automated today homeowners with an existing manually operated tool interested in IoT control are faced with just one option, the installation of a centralized control unit wired to all of the equipment. OmniX, on the other hand, is a decentralized wireless platform eliminating the need for a standalone control unit. By design, it provides a far more cost-effective, simpler path to automation. Starting with our newly launched OmniX variable speed pump, we are embedding control capabilities into our key products. At the time of natural break fix of equipment on the pool pad, homeowners can build their ecosystem one product at a time by replacing with OmniX enabled equipment. As they do, they can utilize the OmniX app to effortlessly control their pool.

This represents a great value proposition for both the homeowner as well as our service professionals now able to offer compelling easily installed upgrade 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 eight as kevin stated we are pleased with our first quarter financial performance net sales increased and exceeded expectations we delivered strong margins and maintained net leverage within our targeted range during our seasonally softest period for sales and cash collections looking at the results in more detail. Net sales for the first quarter increased 8%, $229 million. This was driven by 3% positive net price realization, a 3% increase in volume, and a 3% contribution from the acquisition of clawking, partially offset by 1% from foreign currency translation. Profit in the first quarter increased 8% to $113 million. Growth profit margin increased 30 basis points to 49.5%, with a 100 basis point increase in North America, offsetting a reduction in Europe and the rest of the world. We took steps throughout 2024 to improve the performance in Europe and the rest of the world, and are pleased to see the sequential margin progress in the quarter increasing 360 basis points from the fourth quarter 2024. Adjusted EBITDA increased 9% to $49 million in the first quarter, and adjusted EBITDA margin increased 30 basis points to 21.5%. As a reminder, we are strategically reinvesting in the business to drive future growth with targeted initiatives in sales and marketing, customer service, and engineering. Our effective tax rate was 23% in the first quarter, consistent with the prior year period. adjusted diluted EPS increased 25% to $0.10. Turning to slide nine for a review of our reportable segment results for the first quarter, North American net sales increased 8% to $187 million, driven by 3% net price realization, 2% higher volume, and 3% from the clocking acquisition. Net sales increased 9% in the U.S. and reduced 5% in Canada. Seasonal demand is increasing as expected as we approach the peak of the 2025 pool season. We did an increase in orders late in the quarter after a slower start to the year. Importantly, we are working closely with our channel partners to manage the level of Hayward inventory on hand relative to current demand levels and forward expectations. Gross profit margin increased 100 basis points to a robust 52.8 percent, and adjusted segment income margin also increased 100 basis points to 27.1 percent. Turning to Europe and rest of the world, net sales per quarter increased 7 percent to 42 million. Net sales benefited from 1 percent favorable net pricing, an 8 percent higher volume, partially offset by 2% from foreign currency translation. Net sales increased 8% in Europe and 3% in the rest of the world. We are pleased to see the volume growth and margin progression in the quarter. On a sequential basis, gross profit margins increased 360 basis points to 35%, and adjusted segment income margins increased 380 basis points to 16.6%. Turning to slide 10 for a review of our balance sheet and cash flow highlights. We are pleased with the quality of our balance sheet. Net debt to adjusted EBITDA improved significantly from four times a year ago to 2.8 times at the end of the first quarter, consistent with our targeted range of two to three times. Total liquidity at the end of the first quarter was 398 million, including 181 million in cash and cash equivalents plus availability under our credit facilities of 217 million. We have no near-term maturities on our debt. The term debt matures in 2028 and the undrawn ABL matures in 2026 and we're in the process of extending this maturity. Our borrowing rate benefits from 600 million in debt currently tied to fixed interest rate swapper agreements maturing in 2025 through 2028, limiting our cash interest rate on the term facilities to 5.8 percent in the quarter. Our average interest rate earned on global cash deposits for the first quarter, 4.2 percent. The business has strong free cash flow generation characteristics driven by high quality earnings. Cash flows are seasonal and the company typically uses cash in the first quarter and has strong cash generation in the second quarter related to the collection of early buyer receivables. Cash flow used in operations was $6 million in the first quarter compared to $77 million in the year-ago period. The first quarter, 2025, benefited $99 million in net proceeds from the sales of accounts receivable under the Receivable Purchase Agreement initiated in 2024. This receivable sale provides the business additional flexibility during a traditionally low cash quarter at a relatively modest cost and reduces the risk of a step up in the term loan interest rate as a consequence of seasonally penalized net leverage. CapEx was $6 million in the first quarter, consistent with the prior year, and consequently free cash flow was a use of $12 million. Turning now to capital allocation on slide 11, we maintain a disciplined and balanced approach to capital allocation emphasizing strategic growth investments and shareholder returns while maintaining prudent financial leverage we continue to pursue additional acquisition opportunities to augment our organic growth plans in addition to opportunistic share repurchases turning now to slide 12 for our full year 2025 outlook many of our planning assumptions have changed from a quarter ago as a consequence of the evolving tariff environment but overall our outlook for the year is unchanged. This is a testament to the hard work and dedication of the entire Hayward team. For fiscal year 2025, Hayward continues to expect net sales to increase approximately 1% to 5% to 1.06 to 1.1 billion and adjust the EBITDA of 280 to 290 million. We continue to expect solid execution across the organization, positive price realization, and continued technology adoption. We expect incremental anti-cycle pricing of approximately 3% to offset the tariff-related inflation. As a result, we now anticipate a positive net price contribution of approximately 5% to 6%. We're also taking a more pragmatic view of volumes given the heightened global macroeconomic uncertainty. Non-discretionary aftermarket maintenance remains resilient. We could see pressure on the more discretionary elements of the market, namely new construction, remodel, and upgrade. We are executing structural cost and productivity initiatives to offset volume pressure and support profitability. 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 more weighting for the second half of the year due to the timing of the out-of-cycle tariff price increases. We also expect solid cash flow generation in 2025, with a conversion of greater than 100% of net income and approximately $150 million. We are confident in our ability to successfully execute in a dynamic environment and remain very positive about the long-term growth out of the pool industry, particularly the strength of the aftermarket. And with that, I'll now turn the call back to Kevin. Thanks, Avian.

I'll pick back up on slide 13. Before we close, let me reiterate how thankful I am for the team's performance during this incredibly disruptive time. In one of the more challenging and uncertain environments we've seen in decades, Hayward delivered another strong quarter, exceeding expectations. Net sales increased 8%, margins continued to expand, and we delivered the balance sheet while investing for growth and introducing a groundbreaking new technology platform for pool owners. We confirmed our gardens for the full year, effectively countermeasuring significant new tariff headwinds. As I mentioned, I'm very proud of the entire team for their performance during this quarter and the rapid and effective execution of our mitigation plans. Hayward is a solid foundation built over the last 100 years, and 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 Andrew Carter with Stiefel. Please proceed with your question.

Hey, thank you. Good morning. kind of two parts as I kind of close the loop on tariffs for me. USMCA, you mentioned you don't think it changes. I assume you're talking about what you have in kind of the US that goes in Canada that's not affected. And then the second part of the question, just getting into kind of the actions you're taking, you mentioned China going 10% to 3%. Because you talk more about those mitigation actions. Are there costs to it? I noticed free cash flow guidance went down a little bit, and then the second, if you're going to end at three, and I assume you plan to leave these prices in place, is that a gross margin tailwind, or where are you going, have higher operating to where net-nets, it'd be neutral to where you would have been before Liberation Day? Thanks.

Sure. Let me, more than Andrew, regarding the tariffs, you know, the mitigation. And as we said, we're seeing on an annualized basis about $85 million. That's the result primarily of China-based product. We have a facility over there bringing finished goods into the U.S. Then, of course, we have some tier one and tier two suppliers. And then thirdly, which is a much smaller element of the $85 million, would be material coming from other tariff-impacted countries. You mentioned Mexico. At this point, because of USMCA, we do have product, not finished goods, but we do have material feeding our factories in the U.S. out of Mexico, but that's not really an element of this $85 million based upon the assumption that will continue to qualify for exemption there. You know, as I look at our global manufacturing footprint, we have seven facilities, four of which are in the U.S., one in China. And as I said in the prepared remarks, 85% of that product sold in the U.S. is made in one of those four U.S. factories. As we work through our mitigations, that will increase to something north of 90% as we resource and move some of the manufacturing into those four U.S. facilities. You know, we really are trying to get front-footed here and proactively managing the situation, working to increase certainty in our supply chain rather than having to respond to all the uncertainty created by the policies and the geopolitical events right now. I'll point out that we've really been working on this for several years in terms of trying to limit our exposure to China sourcing long before the tariff announcements of the last several weeks. That included transferring and even duplicating some tooling that was in our China facility into the U.S. and bringing some value-added assembly out of China into our domestic facilities. At the same time, prioritizing capital investments to automate, further automate some of these domestic locations. As you point out, it's really going to move us from what was even a high teen reliance on China only five years ago to something more around the 10 percent mark today to a low single digit by year end when the mitigations work through the system. So that's really our first, I'd say, prong of a four-prong mitigation strategy around structural sourcing alternatives. You know, augmenting that is really supplier price renegotiations with China-based suppliers and other tariff-impacted countries. inventory management we did pre-buy some inventory which allowed us to minimize the impact here in 2025 and then finally pricing we take out of cycle price increases very seriously and we're very thoughtful about them and that became necessary given the magnitude and the immediacy of the tariff increases you want to talk about some of them yeah morning Andrew let me just tackle a first point around cash flow.

Cash flow we have dropped from 160 million to 150 million diamonds for the year. You're right, that does include some CapEx to tool up inside the U.S. to accommodate the transfer of production out of our Wuxi facility back in to the United States. Additionally, we're recognizing that the closing working capital at the end of the year will actually be a little bit more expensive for that residual three percentage that Kevin was suggesting that we will still be procuring from China, but still a very handsome cash result, significantly higher than the net income.

Thanks. And then you said you were being thoughtful. So as far as the price increases go, I assume they are targeted towards the affected products or is it a broad line increase? And then you did mention managing kind of the managing pre-buys are you managing like the pre-buys tighter than a typical pre-buy and then you know if you are i mean do you see is there any you know extra headwind implied in gross margin from like a potential disconnect of you know somebody buying you know out ahead of the increase and then reducing it later thanks yeah in terms of pricing We did, I mean, there'll be some variation when final price lists on our most recent announcement are distributed.

But by and large, it's more across the line as opposed to just targeting those specific SKUs that are manufactured or most impacted. Those increases would effectively, you know, more or less take you out of the market on some of those products. And we take full-line, being a full-line supplier, very seriously. So there's some sharing across the entirety of the product line. I forgot what the second part of the question was. Pricing pre-buy. Oh, around pre-buy. You know, I would say we probably are a little tighter in terms of the cap that we put out there right now. I mean, what we normally put out there for the, you know, for the early buy or the winter stocking program has a little bit more flex upwards to it. At this point in time, given the time of year when these price increases take effect, early buy has been delivered. You know, as we work with our channel partners, their inventories and days on hand are appropriate and well suited for where we are in the season. and so we're just really trying to protect all of us from overstocking here and then having to deal with the pain of a destock later on. We're really just trying to match sales out with the replenishment, the replenishment in on par with what the sales out is, and that's really what's driving sort of the cap that we've announced to the channel partners.

Thanks. I'll pass it on.

Our next question comes from the line of Sari Boroditsky with Jeffries. Please proceed with your question.

Hi, thanks for taking the question. Maybe just building on that, I did think one of the larger pool distributors talked about increasing inventory levels, so just maybe quickly talk about how channel inventory looks today and then how that impacts demand as you go through the rest of the year.

Yeah, I mean, the information we see, you know, broadly across our channel partners is we feel really good about where the where the days on hand are for where we're at in the season. You know, obviously, late April here, you know, all markets as we work through the Easter weekend, that's that really ushers in the season in the more seasonal market series. So what we see is we're very pleased with where we're at, and we've spoken about this on previous earnings calls, that the D-stock and the recalibration of the inventory levels, that's been accomplished in prior periods. Early buy has been delivered through first quarter, and we feel that inventories are appropriate at this point in time.

I appreciate the color. And then maybe just a bigger picture, you know, pool equipment has obviously gotten significantly more expensive over the last several years. You know, I know equipment is still a small portion of the new pool build, but, you know, how are you thinking about balancing price and demand levels given the recent increases? And have you seen any customers trading down or repairing or replacing equipment?

Yeah, great question and something we keep our eyes peeled on. You know, I would say, I think the first part of your question was really asking, has there been demand destruction with just the overall project cost? you know what we debate is is deferral versus destruction at this point in time you know because of you know the housing market the turnover not being what what it has been historically I think some of those larger refurbishment or even building the pool at a new house that you bought I think that's being delayed a bit as as existing home sales have have struggled the last couple of years. So we see it a bit more as a deferral around some of that discretionary spend as opposed to destruction. In terms of trading down, you know, our guide, you know, is really trying to take that into account. We think it could happen. We don't have strong evidence of that happening. You know, as we look at permit values, we've spoken about this in the past. While the unit count on permits the last couple years have been down, the value of those permits have actually continued to climb, which would indicate that people who are building or doing the full-scale remodels are doing it right, and they're putting the features and the functionality on the pool as they want it.

However, you know, again, with a couple more equipment increases rolling through the system here and the channel uh here in 2025 we're trying to take a pragmatic approach uh and protect um against that if it were to happen as the year progresses i appreciate the questions thank you our next question comes from the line of jeff hammond with key bank please proceed with your question hey good morning everyone this is uh david tarantino on for jeff I know it's so early, but maybe could you give us some color on recent trends to start the selling season, particularly around if you've heard any feedback from dealers around shifts in consumer behavior following Liberation Day and the pricing actions?

Yeah, you know, Q1, I would say you may have heard this from some others who reported before us. The year started a bit slowly. I think weather may have played into that a bit in January into maybe middle of February or so, but March, as it turned out, was a really strong sales out month across the entire network. So that gave us some real optimism as the weather started improving, David. You know, I would say what we've seen in April, I'm not going to go too deep into that. I'd say what we've seen is contemplated in our confirming of the guide that we announced here this morning. So, again, you know, weather is improving. Easter is behind us. Pools are opening in all markets at this point. And we feel that it's going to be a good season. And that's being affirmed by the dealers that we talk to every day. And I think that we do have, as I mentioned in the prepared remarks, I think we have really some wind at our back with the recent introduction of this OmniX platform, which we've talked about it for years. And this is a great product that really gives the service trade and the existing pool owner who doesn't have automation or control the opportunity to take more control of that backyard and the functionality of it. So we're very bullish on what OmniX represents for us and for the industry as we work through the 2025 pool season. Great.

And then maybe as a follow-up, just on the margin bridge on slide 12, could you walk us through the cost levers you're pulling outside of price and reducing the China exposure to offset tariffs? Margin growth has been pretty impressive in recent years, so any color on the opportunity still out there would be helpful.

Yeah, sure. We've talked about this before. We have, outside of China, six facilities, three large ones in the United States, a small one through acquisition. We can continue to variabilize the input of production into those facilities rather than having to add fixed costs. So that's the first lever that we can do, leveraging those facilities on a variable nature. The second thing is we're very honed in right now in our skew rationalization programs on bill of material and value engineering initiatives and looking at that collective to really hone in on the cost of manufacturing and how do we make it smarter, how do we make it less expensive as it goes through our production facilities without compromising quality, of course. So those initiatives are in play today. As we onboard tooling into the United States to take on the current either outsourced or insourced China manufacturing, we'll do that, we believe, in an intelligent way and take the opportunity to put automation into our facilities to make that new addition of production in a very cost-effective way.

Great. Thanks, guys. Thanks, Ted.

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

Hi, guys. This is actually Sean Kalman for Rafe. First, the midpoint of guidance implies it looks like a mid-single-digit to high-single-digit decline in volumes for the rest of the year. So, could you give us some more detail on the drivers in terms of maintenance volume, discretionary volume, and then anything around trade down and de-stock assumptions?

Yeah. Good morning again. Yes. I mean, in terms of our guidance, the way it bridges out, we are calling for a further reduction in the discretionary side of the market. Then we do construction, remodels, and upgrade. You know, I think that's, as Kevin said, using his word, a pragmatic approach given where the macro situation is right now obviously new construction we see the permit data that's trending down even though the ticket value has gone up in terms of the remodel and the upgrading as kevin just mentioned we don't see that as destruction we see that as a push sideways as the consumer uh defers those elements We know that existing home sale turnover creates acceleration in remodels, whether it be the homeowner just before they sell tuning up or whether it be the new homeowner after purchase does some remodeling. So we're still waiting here for this existing home resale market to get some acceleration behind it. But as a consequence of where the macro situation stands today, we think it's pragmatic to take down that discretionary side of the marketplace. We don't believe individuals are foregoing the critical elements of the pool. You need that pool engine. That's the beauty of our industry. And if you're an existing pool owner, you have to maintain that pool. So that is a robust element. So the maintenance side of the business is very resilient.

Sean, I would just add, in terms of, you know, 50-plus percent amount of our revenue from the break-fix aftermarket, you know, that non-discretionary side, where we're thinking volume will hold year-on-year, we have accounted for a little bit of a mix-down, trade-down in the current guide that we confirmed here today.

Got it. It's very helpful. And then just kind of following up on that trade down. So you guys in the industry have really benefited from the adoption of automation. Do you think these additional price increases can limit that adoption? And then any color you have on early trends with OmniX sales would be helpful. Thank you.

I would say, I think OmniX is the answer to both parts of your question, Sean. I, you know, the initial load in with the channel and some of the early pull through with the dealers has been encouraging for us. And I would say, you know, in terms of automation, I, you know, OmniX brings a lot of things, you know, as I spoke about in the prepared remarks. But it really does allow you to build your ecosystem one at a time as natural break-fix occurs. We don't have the entire product line introduced yet. That will be phased over the next several quarters. But it's a much more cost-effective way for any homeowner, whether you're building new, whether you're refurbishing, or whether you're wanting to upgrade, you know, a 20-year pool that didn't have any automation or controls, it can be done in a much more efficient, cost-effective manner, which I believe will mitigate some of the concerns you raised in your question about the overarching price to bring that control and automation to the pool owners, you know, palm of their hand.

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

Hi, everyone. This is Nick on from Brian Lee. How's everybody doing today?

Hey, Nick.

Just a quick one. I think, you know, last year around this time we were talking about utilization rates. I think you guys are running around, you know, 60% or 65% utilization in your factories, which, you know, was expected to bring, you know, some decent operating leverage in the outer years when volume returns. But just, you know, wondering on if you're going to bring more manufacturing to the U.S. to mitigate tariffs and those additional costs, I would assume this is going to increase, you know, some of, you know, your U.S. manufacturing utilization and could this help margins? And is any of that uplift like included in the mitigation efforts or we could see, I guess, you know, additional upside from there? I know you talked about, you know, variabilizing these facilities, but just wondering if there is any additional leverage embedded there.

Yes, great question. You know, you're right, today we're probably around about 60% utilized in our U.S. facilities that provides us with a large amount of capacity to onboard this production coming out of China or insourcing from third parties in China. Kevin mentioned we're probably 10% today coming out of China, whether it be a combination of outsource and our own facility, that's reducing to an exit rate out of 25% to 3%, So that 7% comes into the U.S. facilities, which raises, you know, from 60 to high 60s utilization. So still quite a lot of headroom. As I mentioned a few questions ago, we're going to take the opportunity in that transfer of production to look at how to do that intelligently, smartly, in a more automated way. So, we'll get the leverage across the fixed-cost space, but I'm hoping as well now, and I believe in the team, that they'll actually be able to get a two-for-one here, get the leverage and get a bill of material reduction as we put some automation into our facilities.

No, that's a super helpful caller.

We have reached the end of the question and answer session. Mr. Holloway, I would now like to turn the floor back over to you for closing comments.

Thanks, Christine. In closing, I'd like to sincerely thank our dedicated employees and valued partners around the world. Your hard work, passion, and unwavering commitment are the driving force behind our success. Please contact our team if you have any follow-up questions, and we look forward to talking to you again on the second quarter earnings call. Thank you for your interest in Hayward. Christine, you can 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.