Welcome to Hayward Holdings Fourth Quarter 2025 Earnings Call. My name is Carrie, and I will be your operator for today's call. Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Investor Relations and FP&A. Mr. Maczka, you may begin.

Thank you, and good morning, everyone. We issued our fourth quarter and full-year 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 the earnings slide presentation referenced during this call. I'm joined today by Kevin Holleran, President and Chief Executive Officer; and Eifion Jones, Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that during this call, the company may make certain statements that are considered forward-looking in nature, including management's outlook for 2026 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Forms 10-K and 10-Q 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. 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. Additionally, I'd like to highlight a change in accounting principle. During the fourth quarter of 2025, we changed to a preferred presentation of warranty costs from SG&A to cost of sales. This change has no impact on net sales, operating income, net income or adjusted EBITDA. The change has been applied retrospectively to all periods presented and affects cost of sales, gross profit and SG&A expense. Tables outlining this presentation change are included in our earnings press release and in the appendix to the earnings slide presentation. I will now turn the call over to Kevin Holleran.

Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's fourth quarter earnings call. I'll begin on Slide 4 of our earnings presentation with today's key messages. Hayward delivered strong fourth quarter and full year 2025 results, outperforming expectations and extending our momentum. Our team executed at a high level across the organization, translating into sales and earnings growth, continued gross margin expansion and robust cash flow generation. I'm pleased to report that our net sales increased 7% in the fourth quarter against a very strong prior year comparison. Gross margin expanded and adjusted EBITDA increased 4%, demonstrating our ability to drive profitability even as we continue to invest in the business. Our full year performance was strong across all key financial metrics. Net sales increased 7%. Gross margin achieved a record 48% and adjusted EBITDA grew 8%. These results underscore the success of our business development strategies and the durability of our aftermarket-driven model. Cash flow generation was exceptional, enabling a further meaningful reduction in net leverage to 1.9x by year-end. At the same time, we're executing on our strategic priorities. We're investing in innovation, operational excellence and customer experience while maintaining a strong financial profile. These actions are strengthening our competitive position and supporting long-term value creation. 2025 also marked the 100-year anniversary of Hayward's founding in 1925, a remarkable milestone and testament to our resilience. It was important to us that we honor that legacy with strong performance in our centennial year, and I'm proud to say we did exactly that. As we enter our next century, we do so with a solid foundation for future growth and an unwavering commitment to our customers. Looking ahead, we enter the new year with confidence in the strength of our business and our ability to execute our strategic growth initiatives. For the full year, we expect continued sales and earnings growth with net sales increasing approximately 4% and adjusted diluted EPS increasing approximately 6% to 12%. Turning now to Slide 5, highlighting the results of the fourth quarter and full year. Net sales in the fourth quarter increased 7% to $349 million against a strong prior year comparison of 17% growth. Gross profit margins continued to expand and adjusted EBITDA increased 4%. Adjusted EBITDA margin of 29.4% was reduced largely due to the increased variable compensation costs associated with better-than-expected performance. Adjusted diluted EPS increased 7% to $0.29. For the full year 2025, net sales increased 7% to $1.122 billion and adjusted EBITDA increased 8% to $299 million, each exceeding our most recent guidance. Profitability was strong with gross margin increasing to 48% and adjusted EBITDA margin increasing to 26.7%. Adjusted diluted EPS increased 15% to $0.77. Overall, this performance reflects solid growth and margin expansion, balanced against targeted strategic investments in the business to support long-term value creation. Turning now to Slide 6. I'd like to share some strategic accomplishments from the year. 2025 was an important and successful year for Hayward, our centennial year and one in which we delivered on our financial commitments while further strengthening our position as a premier company in the industry. I'm extremely proud of our team's performance, and I want to thank all of our valued customers and vendor partners for their efforts throughout the year. Our aftermarket model focused on serving a large installed base of existing pools with regular equipment replacements and upgrades represents roughly 85% of our total sales and continues to prove its resilience. We generated another year of solid growth and profitability through a challenged macroeconomic backdrop in which new pool construction in the U.S. approached post-GFC lows. From a financial standpoint, we delivered robust growth in sales and double-digit increases in both adjusted diluted EPS and free cash flow, enabling a meaningful reduction in net leverage to 1.9x. At the segment level, North America delivered record margins. Canada continued its strong performance, and we were very pleased with the performance of ChlorKing in the first full year of ownership, strengthening our position in commercial pool equipment. Europe and Rest of World showed a solid recovery in sales and margins, reflecting the benefits of our organizational realignment and operational focus. As I reflect on the post-pandemic period for the industry, we have now delivered 2 consecutive years of top line growth aligned with our long-term algorithm, 6% in 2024 and 7% in 2025, alongside meaningful margin expansion and balance sheet delevering. Further, looking back to before the pandemic, our 6-year CAGRs from 2019 to 2025 are approximately 7% for net sales and 10% for adjusted EBITDA, underscoring the sustainable organic growth trajectory we believe our business can deliver over time despite some year-to-year variability. Beyond our financial results, we executed on key strategic growth initiatives to further strengthen the foundation for Hayward's next century of growth. As a technology leader, we increased our disciplined investments in research, development and engineering to support growth-enhancing innovation. We launched several differentiated products during the year, including the introduction of the OmniX automation ecosystem. I'll discuss this in more detail on the following slide. Hayward has a long-standing culture of operational excellence and continuous improvement, and we demonstrated our capabilities again in 2025. We successfully mitigated the impact of tariffs, realigned our supply chain and continued to derisk our sourcing footprint while making strategic investments in automation and productivity. We also continue to elevate the customer experience. We recently expanded the network of Hayward hubs, opening one in California in the fourth quarter, and our fifth hub is scheduled to open in Florida soon. We also increased training and support for dealers and trade professionals. After a successful pilot program, we are now scaling up the use of AI-enabled technical service agents to improve efficiency and service quality for our customers. These efforts are supporting successful dealer conversions and share gains. Turning now to Slide 7. Last year, we first introduced you to OmniX, an industry-first automation platform providing wireless connectivity and app control for a suite of products without the need for a central controller. This strategy directly addresses the need of the approximately 3.5 million U.S. pools with little or no automation, offering a seamless path to modernization. Today, I'm excited to share another key step in building out the OmniX ecosystem. Now every new Hayward variable speed pump and gas heater is OmniX-enabled. As homeowners replace older equipment, they will get automation as standard, lowering the barrier of large upfront costs and making aftermarket upgrades more accessible. With more OmniX-enabled products on the horizon, our ecosystem will continue to offer robust aftermarket upgrade options, driving further growth and giving pool owners even more ways to enhance and enjoy their pools over time. Additionally, our new OmniX products feature a common intuitive universal display. For pumps, this also includes universal communications, supporting seamless aftermarket integration with existing non-Hayward automation systems. On Slide 8, innovation in the aftermarket remains core to our strategy given the large addressable market for efficient connected products. Here, we showcase several new products, each designed to unlock significant aftermarket upgrade opportunities for Hayward either by providing access into new product categories or by broadening compatibility with competitive systems. Starting on the left-hand side of the slide, we've expanded our variable speed pump line with superior performing OmniX-enabled 4-horsepower models for large residential and small commercial pools. This is a key established segment of the pump market not previously served by Hayward. Our new ColorLogic LED landscape lights allow homeowners to create coordinated custom color effects across the pool, spa, water features and now their surrounding landscape. The TracJet pressure cleaner shares many of the same performance elements as our successful TracVac suction cleaner, fast cleaning and improved access to hard-to-reach spaces. Entering the pressure cleaner category opens up another segment of the automatic cleaner space for new and replacement installations. In Europe, new pumps have been introduced as direct drop-in replacements for the extensive installed base of competing products, presenting a promising opportunity to increase market share. Finally, we've also expanded our pool lighting product line. These lights present an excellent aftermarket alternative for trade professionals seeking robust lighting solutions compatible with non-Hayward systems. Collectively, these new products unlock incremental aftermarket opportunities by enabling easier upgrades, replacements and conversions across both Hayward and non-Hayward pool pads. Turning now to Slide 9. I'd like to briefly revisit the strategy we're executing to drive growth and value creation in 2026 and beyond. Hayward is fundamentally a growth company built on a strong and reliable organic growth engine complemented by disciplined inorganic opportunities. On the organic side, our product management and engineering road maps are focused on delivering innovative, energy-efficient and highly automated solutions that elevate the pool ownership experience. This includes industry-leading technology platforms like OmniX, positioning us at the forefront of connected intelligent pool solutions. We continue to enhance the overall customer experience through investments in sales and marketing programs, additional Hayward hubs as well as hosting premier industry events that reinforce our leadership and deepen engagement across the channel. Our commercial pool and industrial flow control businesses, though smaller in scale, are high-quality, high-potential contributors to our portfolio. We are experts in water movement and treatment solutions, focused on accelerating profitable growth in these attractive categories that scale our core capabilities. We have a proven track record of expanding margins from already strong levels. Over the past 6 years, our gross profit margin has expanded more than 700 basis points from 41% to 48%. We continue to see long-term margin upside supported by 4 pillars: productivity gains, a richer mix of higher-margin technology products, operating leverage from increased capacity utilization and proactive price/cost management. Finally, as we've emphasized, we maintain a balanced and disciplined approach to capital allocation, prioritizing organic growth investments while pursuing strategic acquisitions that enhance our product portfolio, expand our geographic reach and strengthen customer relationships. In summary, we are confident that our strategy positions Hayward to deliver sustainable, profitable growth and compelling shareholder returns in the years ahead. With that, I'd like to turn the call over to Eifion to discuss our financial results in more detail.

Thank you, Kevin, and good morning. Turning to Slide 10. We're pleased with our quarter 4 financial results. Net sales rose 7% to $349 million against a strong prior year comparison of 17% growth, mostly on price gains to offset inflation. Gross profit grew 10% to $169 million. Gross margin improved 160 basis points year-over-year and 70 basis points sequentially to 48.5%. As discussed, we changed warranty accounting, moving costs from SG&A to cost of sales, lowering gross profit and SG&A, but not affecting net sales, net income or adjusted EBITDA. Under the prior presentation method, gross profit margin would have been 52.1% for the quarter. Adjusted EBITDA increased 4% to $103 million with a margin of 29.4%, a decrease of 80 basis points year-over-year. During the quarter, we incurred increased variable compensation, reflecting strong annual performance, one-time legal expenses and further investments into our sales and advanced engineering teams. The effective tax rate was 9%, down from 14%. Adjusted diluted EPS rose 7% to $0.29. Turning to Slide 11. For fiscal 2025, net sales increased 7% to $1.12 billion and were ahead of expectations. Growth came from 5% price gains and 1% from ChlorKing acquisition. Gross profit rose 11% to $539 million. Margin was up 170 basis points to a record 48%. Under the prior presentation method, gross margin would have shown 51.5%. We increased research, development and engineering spending by 6% to $27 million. Sales, general and administrative expenses grew 14% to $247 million, mainly from higher compensation expenses, the execution of our sales and customer care investment plans and the integration of ChlorKing. Adjusted EBITDA rose 8% to $299 million, and the margin increased 30 basis points to 26.7%. The effective tax rate was 18%. Adjusted diluted EPS grew 15% to $0.77. Moving to Slide 12 for a discussion of our quarter 4 segment results. North America sales were up 8% to $309 million, mainly from price gains. U.S. sales were up 8%, Canada was up 10%. We saw strong in-quarter and early buy demand for 2026. Gross margin was up 80 basis points to 50.1%. Europe and Rest of World sales held approximately steady at $41 million, 5% FX gain offset lower prices and volume. Europe sales up 7%, Rest of World down 9%. Gross margin was up 590 basis points to 35.8%. Adjusted segment income margin up 350 basis points to 16.3%. On Slide 13 for a review of our full year segment results. North America sales were up 7% to $959 million with 6% higher pricing and ChlorKing's contribution. U.S. and Canada up 7% and 6%, respectively. We were pleased to see the Canadian performance continue to improve. Gross margin was up 150 basis points to 49.9%. Adjusted segment income margin was consistent with the prior year at 32.4%. Europe and Rest of World sales were up 4% to $163 million, driven by 2% volume and 2% FX gains. Europe up 5%, Rest of World up 3%. Gross margin was up 230 basis points to 36.7%. Adjusted segment income margin up 280 basis points to 17.4%. Commercial and operational actions improved performance across the segment. Turning to Slide 14 for a review of our balance sheet and cash flow. Free cash flow increased 20% as a result of improved profitability and working capital management, reducing net leverage to 1.9x and increasing liquidity by $164 million. This strengthens our ability for continued organic investment, strategic M&A opportunity pursuit, capital return while maintaining disciplined leverage. Moving to Slide 15. For capital allocation, we balance strategic growth investment with shareholder returns while maintaining prudent leverage. As an OEM, we prioritize organic investment into our manufacturing and supply chain footprint, followed by strategic M&A while remaining opportunistic for share repurchases. In the fourth quarter, we made a modest anti-dilutive repurchase of $4 million. Turning to Slide 16 to discuss our outlook for 2026. Net sales are expected to increase approximately 4%, and we're introducing adjusted diluted EPS guidance of $0.82 to $0.86. We expect free cash flow in the region of $200 million, exceeding 100% of net income, inclusive of modest working capital improvement, net interest expense of approximately $45 million, a normalized effective tax rate around 24% and increased CapEx of approximately $40 million as we continue to focus on upgrading our operational capabilities. We're confident in our ability to execute in the current climate and remain positive on pool industry growth given the strength of the aftermarket. With that, I'll turn the call back to Kevin.

Thanks, Eifion. I'll pick back up on Slide 17. Before closing, I want to thank the team again for their performance. Hayward delivered another strong quarter and year. We've achieved 2 consecutive years of solid growth and 6-year CAGRs of 7% for net sales and 10% for adjusted EBITDA, underscoring the strength and resiliency of our model. At the same time, we delevered the balance sheet to under 2x while investing in the business. As the macro environment evolves, our unwavering confidence in the fundamentals of our aftermarket-focused business and our proven ability to execute positions Hayward to capitalize on emerging opportunities and deliver substantial long-term value for our shareholders. We concluded our first 100 years with momentum, and we're energized by the many opportunities that lie ahead for Hayward. With that, we're now ready to open the line for questions.

Our first question will come from Ryan Merkel with William Blair.

Nice job this quarter. I want to start with the fourth quarter beat. Can you just talk about what the source of the upside surprise was in 4Q? And then secondarily, can we use normal seasonality as we think about modeling first quarter '26?

Ryan, I'll turn it over to Eifion to talk about the seasonality. But as for the fourth quarter, there were a lot of positives and for the full year for that matter. Notably, early buy, it turned out well for us. We received incremental orders year-on-year. And overall, we shipped a lower percentage of those orders in the fourth quarter because of stronger in-quarter demand despite comping off a heavy prior year due to the weather and the hurricanes in Q4 of '24. Obviously, that would result in carrying over a larger order file into Q1 of 2026. I think when you look at how the orders or how the fourth quarter played out, we were pleased to see high single-digit or even in the case of Canada, low double-digit year-on-year growth with U.S. up 8%, Europe up 7% and again, Canada up 10%. So those are 3 really big markets, important markets for us. And then posting record gross margin in the fourth quarter at 48.5% on the operating performance are things that I think we're real proud of. But like any year, when you close out the fourth quarter, it gives you the opportunity to reflect on the full year. And with 2025 being our 100th year, something that very few companies get to experience, it's allowed me to step back and take some perspective. And overall, I would just say the resilient performance of the organization is something that I'm really proud of, and I want to thank all my colleagues for inside of Hayward. The market is not giving much right now, but the team really did deliver across all major financial and strategic metrics last year. As you well know, new construction has been down 4 consecutive years, and it's really been cut in half from the 2021 high, yet net sales were up 7% last year and a similar 7% for the 6 years ending 2025, delivering record gross margins at 48% is a real highlight. Adjusted EBITDA, 10% CAGR, as I said in the prepared remarks, delivering 300 basis points over that 6-year period. And I don't want to leave out free cash flow last year. It represented nearly 150% of net income from profit performance and working capital improvements around specifically receivables and inventory. So strategically, the team has done a great job around innovation. I spent quite a bit of time in prepared remarks talking about some of those great products that are finding their way into the market. Investments around sales and service and not to be left out derisking the supply chain, all posted positive outcomes for us. So as I put a bow on 2025, our Centennial, I really think it does affirm Hayward's core strengths around disciplined execution, cycle-tested business model that's tied to the installed base and aftermarket demand as well as implementing a growth strategy that's delivering results. So a lot to be proud of. And again, I applaud the team for such strong performance. Around seasonality?

We anticipate a typical year in terms of seasonality. As you are aware, the first and third quarters usually yield lower results for us, while the second and fourth quarters typically see higher results. We expect modest growth in gross margins in 2026, particularly in the latter half of the year, driven by the cumulative benefits of operational improvements we plan to implement. Thus, we foresee a standard seasonal pattern with lower results in the first and third quarters and higher results in the second and fourth quarters.

Got it. All right. That's great. And then just a quick follow-up on the guide. Can you just talk about your assumptions for aftermarket, new pool and if there's any channel dynamics we need to think about, that would be helpful.

Yes. From a channel standpoint, I don't think there's anything really to note there. We felt good about year-ending inventory levels from a days on hand standpoint across our largest channel partners, no shadow inventory from what we can tell. And I just think that we've all gotten much better about managing those inventory levels coming through the COVID experience a few years back. As for demand that's informing the guide, I would say it's fairly normal demand for what we've seen in 2025. We're not calling for new construction to necessarily get better. I don't think that would be prudent at this point with what we see. And we continue to see the aftermarket or we expect the aftermarket to continue to perform, particularly with some of the new products that we're bringing that I think can offer solutions to the aftermarket for upgrade and automating their pad.

Our next question comes from Rob Wertheimer with Melius Research. Since we don't have a response, we'll go next to Jeff Hammond with KeyBanc. Sorry, we'll go to Nigel Coe with Wolfe Research.

Okay, going back to the first quarter comment, I'm curious if there are any impacts to mention, especially considering the severe weather in the Northeast and the colder temperatures in the South. Are there any noteworthy good or bad impacts? Also, Kevin, is it correct that there's a greater emphasis on the early buy program in the first quarter compared to the fourth quarter this year?

What I mentioned in response to Ryan's question was that a smaller percentage of what was received or collected through the early buy program last year was shipped in Q4. Regarding Q1, we won’t go into too much detail. However, it has been a challenging winter. A few weeks ago, we experienced some frozen conditions in markets that typically do not face that. Overall, the team is observing very little equipment replacement as a result. There isn’t much work being done this time of year in the Northeast, and minimal work will occur until the storm passes. Overall, the winter has been harsher during the first two months of 2026 compared to previous years.

Okay. And then maybe just a quick update on the tariff situation. There's obviously been some changes ongoing. And then just bring up to speed on the supply chain realignment as well.

Sure, tariffs in 2025 were challenging. At this point, we feel we've succeeded in that particular area, but a new year could present new challenges. I want to take a moment to express how proud both Kevin and I are of the entire Hayward team for their handling of tariffs in 2025. It required everyone’s effort to achieve success. With many variables at play, we ended the year with a record gross margin. To address your question, we've shown that we can manage the impact of tariffs through price increases and a strong focus on operational improvements. We've reduced our reliance on China from 10% at the start of 2025 to about 3% by year-end concerning U.S. cost of sales. Shifting away from China has its costs, which we estimate to be an additional $5 million to $6 million, equating to about a 1.5% cost increase in sales. We're currently assessing the recent Supreme Court ruling and the President's response. However, based on our initial thoughts, we believe we've adequately accounted for tariff exposure in our guidance and don’t anticipate any further threats. There are some variations by country, but overall, we feel well-prepared within the guidance we've provided. What we've shown, Nigel, is that tariffs are now a manageable factor for us rather than a significant annual obstacle. We can handle it. As we've mentioned before concerning our operations in China, we will be downsizing that facility. The team there is outstanding, and we plan to adjust that facility to better serve our global business.

We'll go next to Mike Halloran with Baird.

It's Pez on for Mike. I wanted to talk a little bit about the increased investments here. Obviously, a notable step-up in CapEx. You talked about the increased investment in RD&E, talked about the increased investment in customer success and operations. Maybe just give us a little bit more color, where is the spending going, particularly on the CapEx side? It's a pretty notable jump. And then any color you can give on the raised investments that you're spending broadly at the centralized level.

Yes. Let me take the CapEx and then turn it over to Kevin. We've communicated Pez over the last couple of years that we're likely to step our CapEx investment program. Historically, it's been 2% to 3% of revenue. We've communicated we have ambition to upgrade our U.S. manufacturing footprint, and we're doing that. We're doing it sequentially around the 3 sites that we have. We took a step up in 2025 with CapEx just tipping over $30 million. We've communicated $40 million in terms of 2026. This reflects upgrading, automation, modernizing and a little bit of onboarding of assets as we come out of Asia. We think it's a good step forward for these facilities. More to come as we step through 2026 in how we communicate success around what we're doing here. But at the end of the day, we still remain a very light CapEx business even at these slightly increased levels. So it's not going to be a large consumer of cash. And as we made in our prepared remarks, cash flow for 2026 is still going to be above 100% of net income, approximately $200 million. So it's not a large consumption of cash here, but it's a great step forward in the operational capabilities of our U.S. footprint.

As for the investment, Pez, yes, we've really been consciously investing back into the business, I'd say, over the last, call it, 18 months or so, specifically around a few key areas around R&D and then around the customer experience, sales and marketing. We think it's the right decision to invest in the downturn. So we're better positioned to benefit when the market recovers. As for early indications in terms of feedback and payback, you saw in the prepared remarks a long list of new products that are hitting the market that are really innovation breakthroughs as well as specifically targeting the established aftermarket out there. Some of these are new category entrants for us. A 4-horsepower is not a product that we participated in. So that's kind of blue sky opportunity for us. And we've really been out of the pressure cleaner market for some time as well. On top of that, though, more drop-in replacement for competitive product in the aftermarket is all the result of that investment. As for the front end, we have some great feedback coming out of the field around some dealer conversions around product training. You heard me talk in the prepared remarks about the establishment of the hubs, which are fit-for-purpose training centers in large markets. So we believe that this is reinforcing our innovation reputation and it's having the service trade out there best trained to handle Hayward product and install Hayward product into the marketplace.

Great. That's super helpful. And then just following up on the new product. Where do we stand from a vitality index perspective? Where are we looking to go? And then how does the making of OmniX and automation standard impact the ASP of the product portfolio?

Yes, Pez, I'll touch on the vitality index. We continue to make improvements there. As we mentioned in our prepared remarks, we have a lot of good new products on the slate that will contribute to revenue and profitability in 2026, and it will elevate up our vitality index year-over-year. We remain focused on investing. We've stepped our RD&E investment protocol inside the income statement as well as on the balance sheet, supporting our facilities with the necessary assets to get after some of these new product platforms. So we're very encouraged now with the momentum that we're gaining in terms of products that have been introduced in the last 3 years, which are in our revenue profile for 2026.

Regarding OmniX and its role in creating a fully connected system, we expect that most new constructions will opt for fully wired and connected systems with an omni control panel installed. Additionally, we see OmniX addressing the affordability aspect, allowing those who want an automated system at the time of construction to achieve that at a lower cost compared to fully connected products. We are excited about introducing new products into this ecosystem and bringing automation to what we estimate to be around 3.5 million in-ground pools in the U.S. that currently lack connectivity or automation. This presents a significant opportunity for us and the industry to expand in terms of automation.

And moving next to Brian Lee with Goldman Sachs.

This is Tyler Bisset on for Brian. Just first, on your 4% sales growth guidance for the year, how much of that is predicated on a return to positive volume growth versus continued price increases?

Yes. I mean we've assumed in terms of guidance approximately 3% global net price gain year-over-year and modest volume growth. The pricing will be a little bit higher inside the United States than outside the United States, where we see more modest price increases. As you know, we don't realize all the price given discounts, but plus 3% price and modest volume growth year-on-year with FX being somewhat neutral.

Super helpful. And while you guys expanded gross margins in the quarter, adjusted EBITDA margins declined a bit, and you partially attributed that to targeted strategic growth investments. Should we expect these investments to persist throughout '26? And then I also noticed you didn't provide any EBITDA guidance for the year. Do you plan to provide that later in the year? Or directionally, are you expecting EBITDA to increase year-over-year?

Let me address the first part of the question. In Q4, most of the decrease in adjusted EBITDA margins was due to higher variable compensation for management bonuses and sales incentives following a strong finish to the year. We exceeded our revenue, net income, and balance sheet targets for the full year. This higher compensation diluted margins in the quarter by about 130 basis points, but this is not expected to recur as we move into the new year since our targets and variable compensation will be reset. Additionally, we incurred costs related to certain legal settlements during the quarter. We've also continued to invest in our research, development, engineering, and sales team infrastructure, and we anticipate leveraging that cost base in 2026. Regarding guidance, we have advanced as an organization and believe that the adjusted diluted EPS metric is a more thorough and accountable measure for us. We have set expectations for adjusted diluted EPS growth of 6% to 12%, with a midpoint of 9%, primarily driven by operational performance rather than any significant changes in our capital structure. Success will depend on execution, efficiency, and margin improvement within the income statement. The combined figures for depreciation, interest expense, and taxes are comparable year-over-year with 2025. Depreciation has increased due to investments in our facilities, while interest expense has decreased because of cash accumulation and interest earnings on that cash. Our overall tax charge will rise, but the effective tax rate will be lower.

Moving on to Saree Boroditsky with Jefferies.

This is James on for Saree. I got dropped during the call, so sorry if this has been already asked. But can you kind of update us on what you're hearing from dealers out there? Like how much backlog do they hold? And what do they tell you about kind of Early Buy season for 2027 since one of your competitors kind of talked about like no recovery into 2027 as well. So kind of just wanted to hear your thoughts on it.

In the first quarter, we have many interactions with dealers, regional trade shows, and the significant event in Atlantic City. There are several dealer buying group shows, and some distributors host retail summits. Generally, I sensed a cautious optimism from those I spoke to, although I'm not positioned to summarize what type of order file or backlog they are carrying into 2026. Overall, it seems we are not anticipating any significant changes from the end of 2025 into 2026. In terms of leads, there is some cautious optimism as we approach 2026. However, I wasn't entirely clear on the question regarding 2027.

Yes. It was more so like what does like your discussion with like dealers tell you about potential like 2027 Early Buy season, but I think you kind of answered it.

Yes. I'm not sure that I would have good insight into 2027 at this point with so much of 2026 yet to play out.

Right, right. And I guess on the pool mix here, can you kind of provide what higher end versus lower end pool mix is currently looking like versus historical average? And if lower-end pool comes back in 2026 or 2027, should we expect some pressure on margins? Or would volume incremental like offset that?

I would say, in general, in terms of new construction, the whole industry is pretty aligned with the fact that, call it the 60,000, I'm rounding up from what the current estimates are in terms of U.S. in-ground construction that the makeup of that build count last year was largely kind of mid- to higher end, and that's been the case for a few years as we see with the ticket value of those builds. We would like to think that with some economic macro improvement that more of that entry-level pool would become a part of the mix. I would say content from our perspective might be a bit less. But in terms of margin, I would say the equipment that goes on that entry-level pool has a similar margin profile to the higher end. So I wouldn't assume that, that would throw off margin pressure when that segment of the new build market rebounds.

Yes, I'll just add to that. I mean most of our products have similar structural gross margins. And then with the additional volume, if and when this business does return, we'd expect to get leverage across the fixed cost base within the business, but within the factories and across the installed SG&A base.

We'll take our next question from Rob Wertheimer with Melius.

So question is just a little bit on technology connected pools, benefits and so on. So was there anything in technology development and competitive front and your own data that made this a good moment to invest a little bit more in OmniX in specific? And then more generally, could you just talk, obviously, as a consumer, the benefits to having automated pools are great. But maybe just recap the differences between a fully wired, fully connected automated pool and what maybe OmniX could do and what benefits that has for you?

Yes, we are very proud of the ratings our omni system receives online, which is supported by customer feedback. We believe that as an industry, we've recognized the opportunity in upgrading and automating the existing installed base. We felt it was time to offer the marketplace more tangible and affordable opportunities to enhance automation, doing it gradually as necessary repairs occur while enjoying your pool. This serves as a great entry point for introducing automation. Until recently, we had only a single variable speed pump, but now the options have expanded, and all variable speed pumps have the OmniX capability. Additionally, the Universal communications feature allows compatibility with equipment from competitors on the same pad. Could you remind me of the second part of your question?

I think you touched on it. Was there anything that made this the right moment for investment? And then just in general, what the benefits to you are because consumers see huge benefits, you get maybe more pull-through, more share, more dealer engagement. I'm just looking for a general overview of how you benefit from that technology.

Yes. I really do think this is an opportunity to upgrade that aftermarket. And I think the way that we've positioned the universal comms capability in our variable speed pump really broaden the funnel that it doesn't just have to be a Hayward pad that could take on that variable speed pump in the future that it's a more wide-open aftermarket opportunity for us. And we're going to continue talking in future earnings calls about additional products that will be bringing the OmniX capability that you can, again, build piece at a time, build out the network or the ecosystem to have full-fledged automation in a pool that may be 10 years old or older.

And moving on to Jeff Hammond with KeyBanc Capital Markets.

I noticed in your investments internal and external, you mentioned kind of industrial flow, which is a small piece of your business. And just it's not a business you talk about much, but just wondering how you're leaning in on that? And should we expect some external growth focus there?

It's a great question, and I'm glad you picked up on it because it's a business that we're spending a lot more time understanding what it can become. We spent a lot of time in 2025, understanding how that could grow. When we look at it broadly, Jeff, we see ourselves as experts in water management, whether it's filtration, whether it's filtering, treating, et cetera. And for our first 100 years, we've really focused that capability around residential and commercial pools. And we are trying to determine how that could be leveraged potentially into some other end markets. Nothing really to debut at this point but it is getting more of more of the leadership team's time. And we're seeing if this, call it, roughly $50 million business that's extremely profitable, by the way, can become something bigger and more important. Obviously, broader flow control, fluid management operates in much larger TAMs than the pool industry. So those are the things that have grabbed our attention and that we're spending time determining can it be a bigger platform inside of our business.

Great. Great. And then just back on the 4-horsepower pump and the pressure cleaner. Can you just talk about the TAM for those markets and what you think entitlement is in terms of kind of market share once you mature in those spaces?

Yes, I will keep our ambitions to myself, but I can share what we believe the total addressable markets are, not necessarily in dollars, but in the 4-horsepower range. We think that about 25% of all pumps are 3.5 horsepower or larger, which represents a significant segment of the pump market. Until now, we were unable to participate because our largest pump was around 2.7 horsepower before introducing the 4-horsepower option. This creates a substantial opportunity in an established market. We are proud of the performance of this new product and are dedicating considerable effort to educating the marketplace. Regarding pressure cleaners, a rough estimate in the U.S. is about 100,000 units per year, translating to roughly $50 million. These figures are approximate, but they highlight an opportunity for us that is not reflected in our current financials for these two product categories. This is why I am so excited. We have introduced high-performing products, and our goal now is to promote them and educate the market on their features and benefits.

And moving next to Andrew Carter with Stifel.

I wanted to confirm that your adjusted EPS guidance for the year does not account for any share repurchase. Additionally, our calculations indicate that your leverage will decrease to the low 1s by 2026. Is that correct? Could you also remind us of your cash flow priorities beyond organic investment?

Yes, Andrew, absolutely. Our adjusted diluted EPS guidance of 6 to 12 does not consider any significant changes in the company's capital structure. This is focused on executing the business's operating performance, achieving a top-line growth of 4%, modest gross margin expansion, increasing SG&A efficiency, and improving operating profitability. Regarding the second part of your question, the indication we're providing with $200 million in cash flow for the year reflects the current balance sheet. Kevin has mentioned various M&A opportunities, but there is nothing immediate. We will keep you updated as the year progresses. Our capital expenditures are slightly higher, but we are reducing the leverage on the balance sheet, positioning it very well without any other investments. And what was the last part of your question, Andrew?

I know what it was. It was about the priorities for cash flow beyond organic investment.

Yes. So look, I mean, capital allocation remains, as we previously communicated, we're always going to put first dollar back into the business in terms of upgrading our facilities through CapEx and making sure that they're well maintained. Second dollar will go to M&A opportunities. And with the balance sheet in the position it is right now, we feel good. We have a lot of optionality. And as Kevin mentioned, we've done really good here with the commercial business. We'll continue to look at tack-on opportunities in pool, and we're beginning to look a little bit into the flow control space, where we see very credible large TAMs that align with our core competencies. So a lot of great optionality when it comes to M&A. And then we remain opportunistic around share repurchases. We instituted a $450 million share repurchase program toward the end of last year. We've executed a little bit of that in Q4 in terms of anti-dilutive share repurchases. And again, we remain opportunistic there. But first dollar will be back into the business, second dollar to M&A. And while I'm on this topic, I just want to come back and reaffirm to Tyler, look, adjusted EBITDA is an important metric for us, and we will continue to report adjusted EBITDA as we step through the year, but we're anchoring on adjusted diluted EPS as our guidance metric. We believe that holds us to a higher standard as an organization, but we will continue to report adjusted EBITDA inside our earnings materials as we step through the year.

Second question, for your 10-K, there's a pretty notable shipment difference between your top 2 customers. Some of that being market share. But I guess I would ask in terms of inventory levels, is there a big difference in approach? And I guess, could you also kind of comment overall where channel inventory levels are today?

We don't see any major difference in the inventory approach between the two large partners you mentioned. Broadening this to our other distribution and channel partners, we feel that our inventory at the end of 2025 is in a very healthy position to serve the upcoming season. I also want to clarify something I mentioned earlier regarding the 4-horsepower pumps. I said all pumps installed, but I meant to specify all variable speed pumps, as there are still many single-speed pumps out there that I wanted to clarify.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Kevin Holleran for closing comments.

Thanks, Carrie. I want to thank all our employees and partners around the world. Your dedication and hard work have been essential, not just in closing out a strong year, but in helping us conclude Hayward's first 100 years with real momentum. We're excited for what's ahead as we begin our next century. If you have any follow-up questions, please reach out to our team. We appreciate your continued interest in Hayward and look forward to speaking with you again on our next earnings call. Carrie, you may now end the call.

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