Hayward Holdings, Inc. Q3 FY2024 earnings call

• Executed well this quarter with strong profitability, increased cash flow, and improved balance sheet. Net sales grew 3% driven by positive net price realization and ChlorKing acquisition. Gross profit margins expanded 190 basis points to 49.7% for the seventh consecutive quarter of year-over-year expansion. Cash flow from operations increased 27% year-to-date, reducing balance sheet leverage to 2.8x.
• North America business benefited from extended pool season and improved in-season orders, while Europe and rest of world were impacted by macroeconomic and geopolitical conditions. Early buy programs progressing as expected.
• Investing in technology leadership with new product introductions like Microchannel Temperature Control Unit and Paramount RDX unblockable drain. ChlorKing acquisition performing well with synergies seen in commercial pool market integration. Enhanced customer service and support with new leadership, customer productivity tools, and app adoption.

In the third quarter, consolidated net sales increased 3% year-over-year to $228 million. By segment, North American net sales increased 5% to $195 million, with a gross profit margin increasing 290 basis points to 52.3% and an adjusted segment income margin of 30.5%. Europe and rest of world net sales declined 7% to $33 million, with a gross profit margin reducing to 34.4% and an adjusted segment income margin of 8.4%.

• For full year 2024, net sales expected to increase approximately 3% to 5% to $1.02 billion to $1.04 billion. Adjusted EBITDA expected to increase approximately 5% to 9% to $260 million to $270 million. Full year free cash flow expected to be approximately $160 million.
• Refined guidance with raised lower ends of sales and profitability ranges.

• Macro-economic and geopolitical conditions impacting Europe and rest of world segments. Interest rates affecting demand for new construction and remodel. Potential tariff exposure on imported goods, though exposure is progressively reduced.

Q: On mix shifts and higher end pools affecting income statement?

A: There are geographic and product mix shifts with core aftermarket products performing well. Higher end pools with features like controls, automation, etc., are high margin and hold up better. Rate cuts needed to prop up new construction sales.

Q: On pricing realization for 2025, net or gross?

A: Broadly speaking, it's net pricing with gross prices moving up 3%-5% assuming discount percentages and allowances rebase remain same.

Q: On potential tariff exposure and competitive environment?

A: Imported goods from tariff impacted regions are around 10%-15% of COGS, with 85% of manufactured goods in core regions, reducing tariff exposure.

Q: On new construction cycle, where are we compared to pre-COVID, 2021-2022?

A: Pre-COVID new construction was around 75,000-85,000 per year, dropped to low 70s in 2022, expected around 60,000 in 2024, impacted by disaster recovery in Florida and macroeconomic conditions.