Welcome to Hayward Holdings third quarter 2025 earnings call. My name is Donna and I will be your operator for today's call. At this time all participants are on 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 send 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 FP&A. Mr. Maska you may be.

Thank you and good morning everyone. We issued our third quarter 2025 earnings press release this morning, which has been posted to the Investor Relations section of the website at investor.hayward.com. There you can also find the earnings slide presentation referenced during this call. I'm joined today by Kevin Holloran, 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 forms 10k and 10q 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 Hauer.

Thank you, Kevin. Good morning, everyone. It's my pleasure to welcome all of to Hayward's third quarter earnings call. I'll begin on slide four of our earnings presentation with today's key messages. I'm pleased to report third quarter results ahead of expectations, marking another quarter of strong execution by our global team. Our performance reflects the resiliency of our aftermarket model and continued traction in our strategic initiatives. Net sales increased seven percent with growth across both our North America and Europe and rest of world segments, and adjusted EBITDA increased 16%. We delivered further solid margin expansion driven by increased operational efficiencies, tariff mitigation actions, and disciplined cost management. Gross profit margin increased 150 basis points to 51.2%, and adjusted EBITDA margin increased 170 basis points to 24.2%. Cash flow generation was also strong, enabling us to further strengthen the balance sheet and reduce net leverage to 1.8 times, the lowest level in nearly four years. This provides enhanced financial flexibility as we execute our growth plans and fund our capital deployment priorities. During the quarter, we continued advancing key strategic initiatives to position for profitable growth. This included expanding our customer relationships, developing innovative new products to further our technology leadership position and leveraging our operational excellence capabilities at the same time our teams are aggressively executing tariff mitigation action plans to support margins and deliver on our commitments to shareholders and customers we've made great progress and i'm confident in our team's ability to navigate this dynamic environment as a result of our strong year-to-date performance and solid participation in our early buy programs with increased orders we're raising our full year guidance. We now expect net sales to increase approximately four to five and a half percent compared to our prior guidance of two to five percent. We now expect adjusted EBITDA to increase five to seven percent to a range of 292 to 297 million compared to our prior guidance of 280 to 290 million dollars. Turning now to slide five, highlighting the results of the third quarter, Net sales increased 7% to $244 million, driven by a 5% increase in net price and a 2% increase in volume. By segment, net sales increased 7% in North America and 11% in Europe and rest of the world. As I mentioned, gross profit margin expanded 150 basis points to 51.2%. Adjusted EBITDA increased 16% to $59 million, and adjusted EBITDA margin increased 170 basis points to 24.2%. This is a strong result in a seasonally lower sales quarter as we continue to make targeted investments in the business to drive future growth. Finally, adjusted diluted earnings per share increased 27% to $0.14. Turning now to slide six for a business update. Starting with demand environment, we are encouraged by recent trends. We had a solid finish to the 2025 pool season as our primary U.S. channel partners communicated improved out-the-door sales growth rates for Hayward products in the third quarter with stronger growth as the quarter progressed. This reflects the strength and stability of our aftermarket model as approximately 85 percent of our sales are aligned with serving the aftermarket needs of the existing installed base. Consistent with the trends in prior quarters, non-discretionary aftermarket maintenance demand remains resilient. We also see continued adoption of our technology solutions to automate and control pools. Homeowners are adding technology to improve the pool ambiance and experience rather than de-featuring to reduce cost as evidenced by the average value per pool pad continues to increase. As a result, we saw a double-digit growth in this critical product category of Omnicontrols during the quarter, nearly twice the overall Hayward growth rate. The early buy programs are nearing completion in North America and international markets, and we are pleased with the progress to date. Incoming orders are trending in line with expectations. We anticipate solid customer participation and increased orders relative to the prior year. Importantly, we are working closely with our channel partners to maintain appropriate levels of Hayward inventory on hand relative to current demand levels and forward expectations. The pool industry has always been very disciplined on price. We increased pricing this year as needed to combat tariffs and other inflations, and we continue to expect positive net price realization of mid-single digits in 2025. We are progressing with our value-based pricing and skew rationalization initiatives to optimize our price structure and enable our products to be priced appropriately relative to the exceptional value provided to pool owners. We expect these initiatives to yield further positive results going forward. The tariff environment remains uncertain. Our team is aggressively executing our mitigation action plans to offset the increased cost, and we are making great progress. As previously communicated, we are accelerating our lean initiatives and significantly reducing our exposure, lowering direct sourcing from China into the U.S. as a percentage of cost of goods sold from approximately 10% to 3% by year end. We intend to achieve this target regardless of any further tariff negotiation as it de-risks our supply chain and limits exposure to geopolitical uncertainty. Our teams are responding to the current enacted tariffs while monitoring the ongoing media reports, and we remain agile and ready to take further action as needed. We continue to make investments to drive future growth. On the product side, we are investing in advanced engineering and product development to continue bringing innovative new products to market. We previously introduced you to OmniX, an industry-first automation platform providing a cost-effective way to accelerate technology adoption in the installed base and increase average equipment content per pool pad. While early in the rollout, we are pleased with the continued dealer response to the new OmniX-enabled variable speed pump, and we will launch other product categories with embedded OmniX control capabilities in the coming quarters. We are ramping up our targeted sales and marketing strategies to further increase our presence in high-value yet under-penetrated regions. This is already translating into wins with important dealers converting to Hayward. We're also improving the customer experience with the continued rollout of the Hayward Hub training and support centers and hosting premier industry events. In the second quarter, Hayward sponsored the prestigious 2025 Pool and Spa Network Top 50 Builder Award event. And in the third quarter, we hosted our 25th PACE conference to educate and inspire our industry's most accomplished pool professionals. As we continue to invest in the industry and build upon our customer-first approach, we are seeing greater engagement and traction with dealers. As a technology leader in the industry, we are implementing AI tools to drive value for our customers. Our new AI agents are progressively fielding inbound customer service calls with no on-hold wait times, resolving approximately 80% of these calls without the need for human intervention and even proposing enhancements to our training programs. Hayward has a long-standing commitment to continuous improvement throughout the entire organization, and this is a great example of an early success in customer experience. With that, I'd like to turn the call over to Avian to discuss our financial results in more detail.

Thank you, Kevin, and good morning. I'll start on slide seven. As Kevin stated, we are very pleased with our third quarter financial performance. Net sales increased 7% and exceeded expectations. We delivered strong growth and adjusted EBITDA margin expansion to 51% and 24% respectively, and further reduced net leverage to 1.8 times. Looking at the results in more detail, the net sales increase of 7% to $244 million was driven by 5% positive net price realization and 2% higher volumes. Gross profit in the third quarter increased 11% to $125 million. Gross profit margin increased 150 basis points to 51.2%. By segment, gross margin increased 50 basis points in North America, with Europe and rest of the world increasing 750 basis points year over year and 300 basis points sequentially. Adjusted EBITDA increased 16% to $59 million in the third quarter, and adjusted EBITDA margin increased 170 basis points to 24.2%. We are delivering this level of margin expansion while strategically reinvesting in the business to drive future growth with targeted initiatives in sales and marketing, advanced engineering, and customer service. Our effective tax rate was approximately 23 percent in the third quarter and 24 percent year-to-day. Adjusted diluted EPS increased 27 percent to 14 cents. Turning to slide eight for a review of our reportable segment results for the third quarter. North American net sales increased seven percent to 208 million. Net price realization increased seven percent and volume was stable. Net sales increased 6% in the U.S. and 21% in Canada. As previously mentioned, we are encouraged by the recent demand trends for Haywood products. And demand, as reported by our primary U.S. channel partners, increased late in the season, resulting in a solid third quarter performance. The performance in Canada also continues to improve, as we saw strong order growth during the quarter. Gross profit margin increased 50 basis points to a robust 52.8%, and adjusted segment income margin was 29.6%. Turning to Europe and rest of the world, net sales for the quarter increased 11% to $36 million. A 1% reduction in net price realization was more than offset by 8% higher volume and 3% favorable foreign currency translation. The reduction in net price was largely due to an increased mix of discounted early buy shipments relative to the prior year period. Net sales increased 15% in Europe and 6% in rest of world. We took steps in recent quarters to improve the performance in Europe and rest of world and are pleased to see continued margin progression in the quarter. Gross profit margin increased 750 basis points to 41.9 percent and increased 300 basis points sequentially from 38.9 percent in the second quarter. This sequential increase was primarily related to the timing of a cumulative tariff refund during the third quarter. Adjusted segment income margins increased to 18.5 percent from 8.4 percent a year ago. Turning to slide nine for a review of our balance sheet and cash flow highlights. We are pleased with the quality of our balance sheet and the significant reduction in net leverage during the quarter and over the last two years. Net debt to adjusted EBITDA improved to 1.8 times compared to 2.1 times at the end of the second quarter and 2.8 times in the year-ago period. Reduced leverage provides additional flexibility as we execute our strategic growth plans. Total liquidity at the end of the third quarter was $552 million, including $448 million in cash and cash equivalents, short-term investments, and availability under our credit facilities of $104 million. We have no near-term maturities on our debt as the term debt and the undrawn ABL mature in 2028. Our borrowing rate benefits from $600 million in debt currently tied to fixed interest rate swap agreements maturing in 2026 through 2028, limiting our cash interest rate in our term facilities to 6% in the quarter. Our average interest rate earned on global cash deposits for the quarter was 4.3%. Our business has strong and seasonal free cash flow generation characteristics driven by high quality earnings. The company typically has strong cash generation in the second and third quarters while using cash in the first and fourth quarters. Year-to-date cash flow from operations was $283 million compared to $276 million in the year-ago period. CapEx of $21 million year-to-date was modestly higher than the prior year period, reflecting strategic growth investments and project timing. Consequently, a year-to-date free cash flow was $262 million. Given our outlook, we increased free cash flow guidance for the full year by $20 million, from approximately $150 million to approximately $170 million. This increase reflects improved profitability, capex, project timing, and working capital management. Turning now to capital allocation on slide 10. We maintain a disciplined and balanced approach to capital allocation, emphasizing strategic growth investments and manufacturing asset investments for tariff mitigation, maximizing long-term shareholder returns while maintaining prudent financial leverage. We continue to pursue additional acquisition opportunities in residential pool, commercial pool, and flow control to augment our organic growth plans in addition to potential share repurchases. During the third quarter, Hayward's Board of Directors authorized through purchase of up to $450 million in shares over three years to replace a similar expired authorization. Turning now to slide 11 for the full year 2025 outlook, we are increasing our guidance for net sales and adjusted EBITDA. For the fiscal year 2025, Hayward now expects net sales to increase approximately 4% to 5.5% or $1.095 to $1.110 billion, with adjusted EBITDA increasing approximately 5% to 7% or $292 to $297 million. We continue to expect solid execution across the organization, positive price realization, and continued product technology adoption. Relative to our prior guidance at the midpoints, this represents 17.5 million increase in net sales and a 9.5 million increase in adjusted EBITDA. Our guidance does not contemplate potential new tariffs affected on or after October 29th. If that does materialize, we will respond accordingly with further mitigation actions. As a reminder, fourth quarter 2024 net sales benefited from incremental demand related to the two major hurricanes that impacted the southeastern United States. We continue to expect solid cash flow in 2025 with a conversion of greater than 100% of net income. We increased our free cash flow guidance for the full year to approximately $170 million. We are confident in our ability to successfully execute in a dynamic environment and remain very positive about the long-term growth outlook for the pool industry, particularly the strength of the aftermarket. With that, I'll now turn the call back to Kevin.

Thanks, Ivan. I'll pick back up on slide 12. Before we close, let me reiterate how appreciative I am of the team's performance. Hayward delivered another strong quarter, exceeding expectations. Net sales increased 7%, and margins continue to expand as we effectively countermeasure the tariff headwinds. We delevered the balance sheet to under two times while investing in the business to drive future growth, and we increased our guidance for full-year net sales, adjusted EBITDA, and free cash flow. As the macroeconomic and tariff environment continues to evolve, we are excited about the fundamentals that drive our business and confident in our ability to execute our growth strategies and create shareholder value. And with that, we're now ready to open the line for questions.

Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that 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 the handset before pressing the star keys. Again, that is star one to ask a question at this time. We do ask, though, that you please keep yourself to one question and one follow-up. Our first question today is coming from Ryan Merkel of William Blair. Please go ahead.

Hey, everyone. Thanks for the question and a nice quarter. I wanted to start off on demand. Just talk about how the season progressed since July, and then where did you see the upside in the third quarter?

Yeah, good morning, Ryan. You know, as you know, Q3, from a ship-in standpoint for Hayward, you know, is one of our lower seasonal quarters, but it's an important one for the industry from a sales-out standpoint, as, you know, you're in the heat of the summer and closing out the seasonal year, you know, by the end of September. We felt really good about the sales out demand, as reported back to us or communicated by our largest channel partners. We saw progressively stronger sales out for Hayward product as the quarter progressed, really culminating with a really strong September. You know, the other positive that comes with that is what that sells out is it's really positioning channel inventory levels properly as we close out the season to then turn to early buy and what that demand signals for our factories and for the business. I would say that warm weather really did help extend the season, which is always welcomed by the industry. And that certainly played out in many regions around the globe. From a product standpoint, in the quarter, we continued to see nice progression with the reception to OmniX. But then, as I said in the prepared remarks, controls and lighting and even filtration had strong performance in the quarter. Outside of the U.S., I'd really like to highlight Canada. Canada had a really strong quarter, up over 20%, which is welcome. We had a nice, strong bounce back in all of 2024, particularly in the third quarter. So we didn't have an easy comp here comparing off a plus 17 in prior year, making the 20% growth even more impressive. Up there, we did see a relatively wet spring and then responded with strong seasonal flow orders, which was great. And there is some easing around the macro up there, particularly around some improved or lower mortgage rates. Continuing on that theme of international, Europe was up kind of low teens, which is also great with some improved supply chain capabilities. And because we struggled a bit with some early buy shipments last year, we actually started to ship some of the 2025 early buy into the channel kind of late third quarter this year. But the rest of the world, you know, was up mid single digits, particularly Asia up over 20 percent and Australia was high single digits. So, you know, this quarter in particular, we really did see nice balanced growth across a wide array of our markets. So, you know, now our attention obviously turns to early buy, as I mentioned in the prepared remarks, which is progressing nicely. So, yeah, it was a good quarter from a demand standpoint and nice progression as the quarter played out.

That's great, color. Thanks for all that. Yeah, on the early buy, which is my second question, you called it solid and it's tracking expectations. You know, how do we think about those comments relative to the market being flat? And what was the reception to your six to 7% price increase that you announced?

Yeah, well, you know, as is customary with early buy, there is a discount off of that announced price increase by participating in early buy to go along with extended payment terms. The whole program allows us to more level load our factories and have the product on the shelf for when the new season breaks here in 2026. I would say in general, we don't want to be passing the magnitude of the price increases on, you know, which has been, you know, multiple in a row here due to inflation and tariff headwinds, I would say that, you know, in general, I'd say the whole population has inflation fatigue and our industry is really no different there, you know, as it pertains to the tariffs, which I'm sure we'll talk more about here. You know, what we've passed along, you know, in the early spring, which took effect really in the May timeframe, was really dollar for dollar offset to the tariff impact. And we took it upon ourselves internally through our tariff mitigation plans to claw back the structural margin from that. So, you know, I would say that, you know, we're as anxious as anyone to get back to more inflationary times and to maybe put more certainty around what the tariff environment will look like. And the sooner that happens for our industry, the more welcomed that will be.

All right. Perfect. I'll pass it on. Thanks.

Thank you. Our next question is coming from Sari Boroditsky of Jefferies. Please go ahead.

Hi, good morning. Maybe just building on those pricing commentaries, I think one of the key distributors recently talked about innovation and new products is making the recent price increases a little bit more palpable. Maybe you could talk about some of your investments in new products and how much your sales are coming from this and how is this helping volumes versus price?

Yeah, so, you know, as we've spoken about, In prior calls, we had some very targeted investments in SG&A and operating expense in 2025, and that really continued a more recent trend. And one of those targeted areas is around engineering, new product development, advanced engineering with some new technology and innovation, trying to bring some new technology to our industry. We continue to work on that, and that will continue to be an area of very targeted investment. I think technology matters, and I think that innovation will ultimately dictate winners and losers in our industry like most. I mentioned OmniX. We're really proud of what that whole ecosystem brings to the aftermarket. it, that's an enormous opportunity for our industry to really start automating the more aged pools in the installed base that were built when automation and controls didn't exist. So our approach is to bring this ecosystem one piece at a time as break-fix occurs. We have the initial product out, but there's more coming in the upcoming quarters to help automate and bring optionality and functionality and ambiance to the installed base.

I appreciate that. And then maybe just taking a step back on this theme, maybe have you seen any trade-offs from price versus volume? And how do you think about that going forward as new pool construction especially has just gotten so much more expensive? Yeah.

Hi, Saree. It's Ivan. We haven't necessarily seen any tradeoff occurring at this time. We do know that many consumers, particularly at the entry level in the marketplace, remain on the sidelines for the new pool and maybe even some of the remodel business. But, you know, we continue to see in our product sales profile continued adoption of technology throughout the aftermarket installed base. And that also is reflective in the gross profit margin profiles that we're experiencing within the business. But certainly at the entry level, I'm quite sure that people are waiting for interest rates to break, the ability to move homes into that next level before they put the pool in. But we haven't necessarily seen, you know, larger-scale tradeoffs across the aftermarket. Again, we see quite good adoption of new technology, great adoption in our controls category, and we're continuing to invest behind that capability.

Thank you. Appreciate the question.

Thank you. Our next question is coming from Andrew Carter of Stifel. Please go ahead.

Yes, thank you. First question I wanted to ask about, given the renewed focus on private label that's out there, have you been seeing anything incremental in terms of either the positioning by the distributors, the demand from your contractors? And I know it's kind of – it's been mentioned that it's kind of a lower commodity side. What exposure do you have? And I get the price is high, but in this environment, wouldn't it be a lot more difficult to do a private label program given the tariffs, et cetera?

Yeah. I mean you used the term private label. I think that the way we look at it is maybe around some exclusive distribution rights. it's maybe the same thing. But, you know, I would say, you know, our industry has attracted lower priced offshore competitors frequently. I mean, it's consistently occurred, you know, over Hayward's history here. And while the recent inflationary environment and the tariffs impact in the U.S. market has perhaps opened the door further, you know, we believe that while there could be a price delta there, that the loyal dealer base of Totally Hayward partners will continue to appreciate the value proposition of what Hayward offers them and the marketplace. You know, when one of these Hayward dealers walks into a channel partner, they're asking for product by name. They're asking for a TriStar 900, not just a variable speed pump or the job that they're working on. So, you know, by no means am I dismissing, you know, the risk or the concern because I think it makes us sharper, you know, but we continue to feel confident in our investments in innovation, as we just spoke about with Cerise's question around new product development, the fact that we have a complete product line and can supply the entire pool pad to the trade, our national coverage of Hayward authorized service centers and the technical resources for the trade to call upon. You know, we proudly support the U.S. market with over 90 percent of the products sold in the U.S. are built in one of our four U.S. manufacturing facilities in Rhode Island, North Carolina, Tennessee, and Georgia. So we think we take pride in that. We think it's smart to shorten the supply chain to be able to satisfy the market. And I think our reputation for quality and service and dependability that's been built over our 100-year history means more than just the lower price. And I expect that to continue to serve us.

Second question, shifting gears. Number one, why the raise in the cash flow guidance for the year of $20 million? And then just level set expectations. I believe that you have higher capex over the next couple of years around your supply chain efforts. Could you speak to that? And at this point, you're going to have a balance sheet probably likely below two times over the next couple of years based on estimates. What are your capital allocation priorities, and would you be aggressive on share repurchase? Thanks.

Andrew, it's Ivan again. Coming back to the cash flow increase of approximately $20 million, half of that is attributable to the increase in the midpoint of EBITDA, going from a midpoint of $285 million down to a midpoint of $295 million. We have some project timing around CapEx, which will move some of the CapEx spend that we have planned for this year into next year. And finally, working capital improvements. And we've seen some modest but welcomed working capital days on hand reduction in our inventory. And that will be accretive to the cash flow in the year. Could you just repeat to me the second part of your question, Andrew?

Yeah, the next couple of years, thinking about what your priorities are going to be, stepped up CapEx spend that you might be doing, and then just kind of with this improved balance sheet, where your capital allocation priorities lie.

Yeah, okay, got it. So as we've previously talked about, we will be stepping up CapEx into the business. Historically, it's been around 2% to 2.5%, maybe up to 3% at times of revenue. I believe over the next several years will be all of that 3%, if not slightly more, as we continue to invest in automating our manufacturing and supply chain capabilities. We've already had some great success this year doing that, so a call out to several of our plants, including our Nashville facility, which has made some interesting automation investments. But that will be the thematic going forward over the next several years. We are completing ERP implementation. We've had some expenditures there this year and last year, and that will be a continuation into 26 and to 27. But the main focus of the organization right now is to take our facility capability up to the next level in terms of throughput, facilitated by automation and new technology platforms like AI and machine learning. In terms of the capital allocation priorities, it remains the same. We'll continue to do the organic capex I just mentioned. We continue to look at M&A. We nurture a pipeline of opportunities. We have the optionality now to focus on residential pool, commercial pool, and our small flow control business for accretive M&A opportunities. We did initiate a share repurchase program authorization. Again, we have the opportunity to be opportunistic and maybe programmatic at some point. The nice thing about this business, which we're now beginning to very clearly demonstrate, it has great cash flow characteristics, which gives us this optionality across that capital allocation spectrum.

Thanks. I'll pass it on.

Thank you. The next question is coming from Mike Halloran of Baird. Please go ahead.

Hey, good morning, everybody. It's Pezz on for Mike. I just want to follow up on the capital allocation side and maybe dial in a little bit on the funnel. You know, how are you thinking about the opportunities in both residential and commercial pool? You know, I noticed that you threw flow control in there. I know that's a part of the business that doesn't get a lot of love. You know, maybe talk about how you're thinking about the makeup of the funnel, the actionability of the funnel. And to Andrew's point, obviously, the leverage is continuing to progress nicely. So any color on the M&A opportunities, where you're spending most of your time, and what you're seeing from a valuation perspective would be helpful.

Yeah, so in terms of a funnel, I mean, obviously with the deal average that's occurred over the last several quarters, it puts us in a different position. That said, while Chlor King, which is now anniversary and a little over a year old, which has been a fantastic shot in the arm for our commercial business, we haven't announced anything, but we certainly have been working in the background to accelerate and work on some diligence with some opportunities that really hit the two key platforms that you mentioned, Pez, around residential. I think we've been pretty open in saying that we have aspirations for commercial to become a growth platform for us. And we continue to look both organically as well as inorganically at some opportunities there. You know, we did mention in the prepared remarks our industrial flow control business. It doesn't get a lot of attention, but it's a fantastic business that provides great access to distribution and some nice growing end markets. We're relatively niche in the products that we offer today, but we're progressively spending time as a leadership team looking at what that might be able to be for us. So that's getting increased attention from a strategy standpoint, again, both organically as well as inorganically. We're looking across all those platforms from a product technology standpoint, what that can bring to us. Does it provide regional diversity and growth for us and look at always to capitalize and leverage our distribution relationships and partnerships and go-to-market strategies? So those are several of the elements that we look and assess opportunities across.

Got it. Thank you. And then, you know, not to stick on a smaller part of the business, but maybe now that we're a year out of the Chloraking acquisition, maybe talk about the success that you've seen in being able to expand Chloraking's reach within your distribution channels and being able to bring that up to scale a little bit. And then on the flip side, maybe talk about what type of successes you've seen in pushing legacy Hayward products, you know, through that commercial market.

Yeah, there's been success across all those elements. We have a fantastic leader over that business that joined us from Core King. With those resources, with the acquisition, we melded our existing commercial team into one organization. and we're seeing cross-selling opportunities across both types of commercial pools. We talk about Class A and Class B, which is really just the size or the size of the commercial body. You know, we had a pretty complete product line along Class B, Legacy Hayward did, which are the smaller bodies of water, but really where we weren't represented was Class A, which would be larger than 100,000 gallons, which is really a sweet spot where Clore King participates. So with that acquisition and that integration, it brought relationships with the architects and the engineering firms and some of the specialized distribution that serves the large commercial market. So we're really pleased with the amount of cross-selling collaboration that's occurring across now the broader commercial market where we were before chloroquine really only participating and and and growing in the class b uh side of the market great thanks i'll pass it on thank you our next question is coming from jeff hammond of key bank capital markets please go ahead hi yes good morning um just on um i got on a little late so i don't know if you touched on this but um you know last

year there was a lot of storms and i think your fourth quarter benefited from some kind of repair work and i'm just wondering how you're contemplating you know that comp given given a quiet hurricane season yeah that certainly presents uh what we see as a bit of a headwind for q4 i mean it was a big fourth quarter, as you mentioned last year.

I think we were up kind of high teens as a business in the fourth quarter. And it was certainly aided by a couple unfortunate weather events that impacted the southeast with Helene and with Hurricane Milton. So we're not expecting that to repeat. And I think that, well, I don't think, I know that that's factored into the to the guidance that we, that we gave in our press release and our prepared remarks this morning. So, you know, what we did talk about, I'm not sure when you joined, you know, around early buy, we have had nice participation and nice response to our early buy program. It's really closing out here in a few days in the U.S. at the end of October, and it extends a little further for other international markets. But as we're talking this morning, we feel good about the participation and really what that says about channels, enthusiasm, and position heading into the new year, as well as what the dealer sentiment is, because our programs get taken to the dealer base out there. And that's what's culminated and aggregated into the early buy orders that we receive from our channel partners. So I'll stop there. Do you have anything to add around Q4?

Yeah, no, I mean, I think you captured it all, Kevin. I'd just add, you know, we expect, you know, a modest improvement in the North American early buy program to ship out in Q4 that will be slightly offset by a timely movement of early buy shipments in Europe. Jeff, you may have not heard it earlier. We shipped a little bit more early buy in Europe in Q3, we'll do less year over year in Q4. So net for total of Hayward early buy will be a spike positive. And then as Kevin mentioned, in Q4, we don't expect to ship that hurricane-related business that benefited 2024. So on a net basis, volume, we expect to be slightly down in Q4 versus last year. Upside to the guidance would be an extension in the season. and the low end of our guidance for Q4 would, at this point, pretty much reflect on the negative weather impacts.

And then, you know, as we go through the different pieces, it seems like aftermarket holding up fine, just maybe touch on what you're seeing on that repair-replace dynamic that came up, you know, over the last couple quarters. And then, you know, new pool, I get it, kind of not going down. But, you know, maybe just expand on what you're seeing on upgrade, remodel, if that's still kind of the biggest question mark or any, you know, signs of improvement there.

Yeah, as you say, the aftermarket is proving to be resilient. A question was asked earlier, I think it was by Sari, whether we were seeing any kind of trade down. Frankly, our guide contemplates maybe a little bit of mix in the aftermarket, but not much because it's holding up fine. On the new construction side, I'd say that the permit count has moderated, which is welcomed as the year has progressed here, but still a net through, call it three quarters, is still down. The trend continues that what is being built is at higher value year on year, which i think says something um about you know the features that folks are putting on and the fact that maybe the maybe the mid to upper end is holding up better than more the entry level uh pool i would say you know anecdotally what we hear from our from our builders and our remodelers is that there's still lots of pent-up demand on the remodel side the installed base continues to age and it's moving sideways a bit. I think there's stabilization around the remodel, but I think with a little bit of macro improvement around interest rates, around existing home sales, all of that will have very positive impact on the pool industry, both from a new construction as well as a refurb and remodel. I will close by saying last quarter there was follow-up questions around parts and what that may signal for a desire to repair versus replace. Third quarter, on a year-to-date basis, I think we're up about high single digits on part sales. Some of that is explained, obviously, by pricing. Third quarter was not necessarily a strong year-over-year quarter for part sales. So I think that this broad-based question or even concern around repair versus remodeling, our data does not necessarily show that there's widespread repairing going on and deferral of the equipment replacement.

Okay. Thanks so much, Kevin.

Thank you. Our next question is coming from Brian Lee of Goldman Sachs. Please go ahead.

Hey, guys. Good morning. Thanks for squeezing me in. I just had, you know, two hopefully quick questions. I know a lot of ground's been covered. And sorry if you already covered this, but first question was just around the strong increase in margins in the international markets, if you could kind of provide some color around what drove that and how sustainable that is. And then second question, you know, it looks like net pricing in North America has kind of kicked up a little bit from the beginning of the year, even from last quarter to this quarter in terms of net price realization. As we think about kind of the trend you're seeing into year-end or the buy season, et cetera, do you think 26 ends up being more of a normal kind of low single-digit price year, or are we going to see some of the factors from this year spill over into next where we're probably still going to be elevated, maybe more mid-single digits than the historical low? Just trying to get a sense of where kind of that pricing paradigm is heading to in 26. Thanks, guys.

Good morning, Brian. Let me tackle the Europe margins here, and then maybe between Kevin and I, we'll talk a little bit about the price. But in terms of the European margins, or ERW margins more specifically, we did see an improvement year over year of 750 bps, approximately 300 bps sequentially. You know, year over year, I would say it reflects the non-repeat of some discrete inventory items that we had in Q3 of 24, so it's good to see that noise behind us. We've stabilized those facilities that we have in Spain. We've talked about this in previous calls. We've improved the management team there, both locally and supplemented with some expats capabilities moving into that organization. And sequentially now throughout the year, we've been able to post margin improvements in our European business, which has affected positively the overall ERW segment. What I would say is in Q3 this year, we did have a couple of one-time benefits, including a tariff refund, which is a cumulative tariff refund. So that probably benefited the Q3 margins this year by approximately 100 bps. And then we had a couple of other one-timers that additionally contributed an additional 100 basis points. But even if you discount those elements, we still had good sequential margin improvements, which, again, reflects the stabilization of our production capabilities in country, in Spain, and we feel good about the progress that we have made. In terms of the pricing, you know, net pricing realization did take a step up, obviously, year over year in Q3 this year, consequential primarily to the seasonal price that was enacted at the end of last year, plus the midterm pricing that we put in this year to protect against tariffs that rolled through in its fullness in Q3. We got a partial benefit in Q2. We had a full benefit in Q3. We have announced further pricing for 2026, mid to high single digits in the U.S., much less elsewhere. Obviously, a lot of that is discounted through the early buy programs. But as we step into 2026, we'd expect a carry of that. We're not specifically guiding yet on 2026, but we certainly would expect slightly higher than normal, let's call it mid-single-digit pricing next year. We don't yet have any line of sight into end-of-year inflation next year, so we're not willing to commit to what next year's Q4 seasonal price increases would be. But we're hoping we get back to a normal inflationary environment where we can get to that normal pricing dynamic.

Appreciate all the color. Thanks, guys. I'll pass it on. Thanks. Thanks, Brian.

Thank you. The next question is coming from Nigel Koh of Wolf Research. Please go ahead.

Thanks. Good morning, everyone. So, Idion, I just wanted to follow up on your, I think you said 100 base points benefits in the quarter from tariff refunds. Just a bit more color there. I mean, are you winning some exemptions on some of the imports? And is this a one-timer, or would you expect this to continue in 26, recognizing that you are rebounding away from China? And then maybe just give us an update on where you are with that supply chain realignment.

Yeah, an element of our ERW business is exported from the United States and to the extent we are importing products into the U.S., manufacturing those products and then re-exporting them to service LATAM, Asia and the Middle East, were then eligible for a duty clawback on any tariffs we had paid on that initial inbound into the States. So, we've now taken a more aggressive position towards our duty refund timelines, given the pain we're feeling or have felt on the tariff charge coming into the business. It's not necessarily a one-time benefit, but it did take a pop in Q3 because it was a cumulative tariff refund, so a bit of catch-up in the quarter. We will continue to apply for the eligible tariff refunds that we are entitled to, and we will continue to do that. We have a long practice of doing that in the United States, and we're now getting more detailed in those applications. In terms of the progression of our tariff mitigation programs, we're well-progressed, Nigel. You know, we've said that for North American business, we're going to reduce our China exposure from 10% to 3%. 10% to 3% will progress. The team is doing a fantastic job getting after that mitigation. We're winning some success more so than we originally thought. So the actual cost to recalibrate the supply chain is coming in a little bit less than we had anticipated, which is a little bit of a tail to our margin. But, yes, we're well progress.

I'm very pleased with what we've been able to do there. Yeah, I mean, our global supply chain and operations team, you know, deserves props here. We laid out a very structured, thoughtful approach to it that was really four work streams ranging from supplier negotiations in the impacted regions to some strategic inventory and buy ahead to defer impact in 2025. That obviously has a shelf life to it. Some footprint and supply chain reshoring or movement. And then, as I mentioned earlier, some pricing actions in the U.S., which was protecting dollar for dollar, but we eternally felt we needed to, through our own action, you know, in the future, protect the structural gross margins through internal actions. So proud of the progress, more work to be done, but well progressed on this movement from 10% exposure to 3%. As I said, irrespective of future negotiations, We're going to forge ahead. We believe that shrinking the supply chain or shortening the supply chain is the right approach and continuing to be more reliant on our U.S. facilities or U.S.

Okay, that's great color. And then a quick crack at the early buy. You sound like you're quite pleased with the program. You know, if you could maybe just put a final point in that. Are you seeing sort of flattish year of year participation? Are we seeing some modest growth here? And then when you think about, you know, going back in time, is there a correlation between, you know, sort of early buy strength and what actually transpires in the following year? Or is it just a reflection of other things? I mean, if we see a strong early buy, does it tend to correlate with a strong following year?

Yeah, I don't know. Maybe by asking the question, we can actually ask our BI team to look at that correlation. I don't have any general impressions to that question, but it's a good one, and we'll see if we can tackle that. and maybe have a follow-up with you. As for early buy, when we laid out our expectations internally, there was, in terms of goal setting or objective setting, an ambition for some modest volume in addition to the year-over-year price. That is in what we laid out with our internal targets. So when I say that we feel good about the progress and the participation and where we are with, you know, a few days left in it, that would reflect, my comments would reflect some participation from a volume standpoint.

That's great. Thank you.

At this time, I'd like to turn the floor back over to Mr. Holloran for closing comments.

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

Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.