Hayward Holdings Inc (HAYW) 2021 Q4 法說會逐字稿

Good day. Thank you for standing by, and welcome to the Hayward Holdings, Inc. Fourth Quarter and Full Year 2021 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

Thank you. I would now like to hand the conference over to your speaker today, Mr. Kevin Holleran, Chief Executive Officer of Hayward Holdings, Inc. Sir, please go ahead.

Thank you. Good morning, everyone. We issued our fourth quarter and full year 2021 earnings press release this morning to the Investor Relations portion of our website at investor.hayward.com where you can also find an earnings slide presentation that we will reference during this call. I'm joined today by Kevin Holleran, President, Chief Executive Officer; and Eifion Jones, Senior Vice President and Chief Financial Officer.

Before we begin, I'd like to remind everyone that during this call, the company may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, anticipation, beliefs, estimates, forecasts, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements.

Such risks and other factors are set forth in the company's earnings release posted on the website and will be provided in our Form 10-K for our full fiscal year 2021 as filed with the Securities and Exchange Commission. The company does not undertake any duty to update such forward-looking statements.

Additionally, during today's call, the company will also discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of net income calculated under GAAP to adjusted EBITDA as well as reconciliations for other non-GAAP measures discussed on this call can be found in our earnings release and will be included in our Form 10-K for our full fiscal year 2021.

I would now like to turn the call over to Kevin Holleran.

Thank you, Stuart, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's Fourth Quarter and Full Year Earnings Call.

I'll start on Slide 4 of our earnings presentation with some highlights from our fourth quarter results. We had another very strong quarter of growth as we delivered net sales of $352 million, an increase of 35% year-over-year and adjusted EBITDA of $106 million, an increase of 43% year-over-year. We achieved nearly 170 basis points of margin expansion, returning to greater than 30% adjusted EBITDA margin despite continuation of inflation and supply chain headwinds during the quarter. We were also able to further strengthen the balance sheet in the quarter, deleveraging to 1.7x to support current and future growth investments as part of our balanced capital allocation strategy.

The strong fourth quarter results capped an incredible full year for Hayward in its first as a public company. I would like to take this time to acknowledge the entire Hayward team for their tireless efforts to meet market demand despite many challenges. I'd also like to thank our suppliers and trade partners for their support and dedication, which allowed us to achieve incredible growth and strengthened our market position in the very attractive pool industry.

Turning to Slide 5. For the full year, we achieved net sales growth of 60% to close the full year at just over $1.4 billion as we executed on a number of growth levers such as SmartPad conversion, increased market adoption of new products and expansion of our customer base, all of which were supported by Hayward's investment in capacity and distribution, resulting in higher output levels and driven by strong secular trends in outdoor living.

Record adjusted EBITDA of $422 million was an increase of 82% year-over-year. Hayward's strategic manufacturing footprint, operational capabilities and vertically integrated systems are key differentiators, allowing us to successfully operate in periods of high demand and disruption as seen over the course of this past year.

In addition to these key differentiators, we were able to navigate effectively through the inflationary environment by successfully implementing pricing initiatives to soften the impact of rising prices across our cost base. All this combined together has allowed us to not only increase output, but achieve significant margin expansion with our adjusted EBITDA margin expanding by more than 360 basis points for the full year to 30.1%.

Turning to Slide 6. I would like to highlight in more detail the drivers of our growth in 2021 and beyond as we expect these drivers to continue supporting sustainable growth across the pool industry. In 2021, we saw our proprietary Omni Control app drive accelerated demand for higher-value IoT products, especially in the aftermarket upgrade and replacement markets, which represents roughly 80% of our sales.

As demand for IoT products and technologies grow, so do the Omni app's user base as the pool is the centerpiece of the backyard. In the year, we saw our Omni users increase by almost 50% compared to the prior year. We focused our commercial team on channel development and new customer acquisition. This resulted in our total Hayward partner base growing by more than 20% compared to prior year. The growth comes as we introduce field-based business development roles focused on increasing our dealer base and market adoption of Hayward products and broadening our omnichannel capabilities with expansion of our e-commerce platforms.

Hayward's innovation and technology played a major role in the recent growth. As a market leader, our engineered products achieved significant growth in the key segments of controls, sanitization as well as energy-efficient pumps and LED color lights, delivering simple-to-use environmentally sustainable solutions. In Q4, we enhanced our offerings and capabilities with the acquisition of 3 technology companies, all of which will join our Omni Control ecosystem, thanks to its modern architecture.

On Slide 7, I'll discuss the powerful SmartPad conversion taking place in our industry led by Omni automation systems. Omni is at the heart of the SmartPad, creating the pull for IoT-enabled devices. The power and simplicity of use has driven connectivity of a broad array of technologies with the top 5 growth categories in the industry being LED color lights, controls, variable speed pumps, heaters and sanitization. Hayward's growth in these categories has outperformed the industry.

A quick comment on heaters, which has received a lot of attention. As you can see, heaters have grown, but they're not tops on the list. But we do appreciate the role they play in extending the swim season for pool owners by up to 50% in some geographic markets, and thereby, the increased use of all equipment on the pool pad, which accelerates the repair, replacement and upgrade cycle on those pools. These high-growth products are transforming the way people enjoy their pool and backyard living, and Hayward is leading the way with progressive launches of new products or upgrades to this connected ecosystem.

Moving now to Slide 8. We focus on a number of key aftermarket conversion upgrade opportunities. For each of the 3 categories shown, controls, salt chlorination and variable speed pumps, we compare the take rate at time of new pool construction to the current level of aftermarket penetration. We believe in the premise that existing pool owners get educated as to the merits of these compelling technologies would desire the same benefits.

Our sales teams are working with trade professionals to promote these exciting new technologies as aftermarket upgrades occur. Moving to the aftermarket to new construction penetration in these 3 categories alone affords a market opportunity of nearly $6 billion.

On Slide 9, we build upon the previous slide, which highlights key new technology adoption at the point of new construction or full-scale remodel. These new SmartPad pools, of course, have many other technology choices, including water features, LED color lights, multiple pumps and heater solutions. The difference between a SmartPad pool and a legacy lower technology nonautomated pool is typically around $7,000 for the equipment manufacturer. If a typical pool has a lifetime of around 30 years and an equipment replacement cycle every 10 years, there is compelling annuity stream associated with the conversion, one which we feel is very positive for our industry, providing future growth. This opportunity is a key focus for our sales and marketing teams as we work with trade professionals to execute the vision.

Finally, on Slide 10, I'd like to briefly discuss our M&A strategy, which focuses on core pool products or technology tuck-ins as well as backyard adjacencies. We recently closed on 3 businesses, which complement each other and further leverage our Hayward leading Omni Controls technology to increase the ambience, pool, spa and backyard with a variety of novel water features all of which benefit from our LED lighting technologies.

With that, I'd like to turn the call over to Eifion Jones to discuss our financial results in more detail.

Thank you, Kevin, and good morning. I'll start on Slide 11. All comparisons will be made on a year-over-year basis. As Kevin mentioned earlier, we are pleased with our fourth quarter results and the continued demand and ongoing adoption for our pool products that we have seen throughout the channel, particularly our increasing suite of connected SmartPad and lifestyle products, supported by continued strong operational performance in a very challenging environment.

Net sales for our fourth quarter fiscal 2021 increased $91.7 million or 35% to $352.4 million. The increase in net sales was primarily the result of 22% higher volumes, mainly in residential pool equipment enabled by our ability to increase production capacity to keep up with demand despite global capacity constraints. Daily net sales in the quarter of $5.9 million was a record rate for Hayward. Net sales in the quarter further benefited from a 14% net price impact over the prior year period, with foreign currency effects approximately flat over the comparable period.

Gross profit in the fourth quarter increased to $165.4 million, an increase of $48 million or 41% year-on-year. Gross profit margin was 46.9%, an increase of 188 basis points. The increase in gross margin is a result of manufacturing leverage on increased output, the initial effect of pricing actions announced in 2021, which were necessary to offset the inflationary pressures in raw materials, freight and higher import duties, and reduced inventory reserve expense.

Adjusted EBITDA increased to $105.7 million in the fourth quarter representing an increase of $31.9 million or 43% and an adjusted EBITDA margin expansion of 169 basis points to 30% as a result of the higher volumes and improved operating leverage across both our manufacturing base and operating expenses. We are particularly pleased with the improved strength of our balance sheet at the end of the quarter with net leverage reduced to 1.7x and 5.2x at the end of the prior fiscal year.

Now turning to Slide 12. I'll discuss our full year results. For the full fiscal year 2021, net sales increased 60% to $1,401.8 million, driven primarily by a 50% increase in volume mostly due to higher sales of residential pool equipment and 8% favorable price impact and a 2% favorable foreign currency effect. The increase in our lifestyle product categories grew 84% year-on-year and core operating equipment grew 48%.

For the full fiscal year 2021, gross profit increased 65% to $655.8 million and a gross profit margin increase to 46.8%, representing an increase of 143 basis points compared to the prior year, primarily driven by higher net sales, manufacturing leverage, favorable mix to stronger growth of higher margin North American sales, partially offset by the inflationary increases from raw materials, freight and higher import duties.

We took proactive measures throughout 2021 to address these inflationary pressures, not only through managing price, but by leveraging our manufacturing footprint and disciplined cost management. The results of these initiatives being not only the protection of our structural gross profit margin, but the expansion in this margin in one of the most challenging inflation periods over the last 40 years.

For the full fiscal year 2021, adjusted EBITDA increased to 82% to a record $421.7 million and adjusted EBITDA margin of 30.1%, represented an increase of 363 basis points compared to the prior year. This is a full year structural margin milestone in our history, and it reflects the tremendous amount of work to improve our sales mix, manage inflationary pressures, achieve operating leverage across our installed manufacturing base as well as operating expense leverage and servicing the increasing and recurring aftermarket, which represents approximately 80% of our sales in 2021.

I'll now discuss our report on the segment results for the quarter and for the full year. As a reminder, Hayward's operational management structure is aligned to its key geographies and go-to-market strategy resulted in 2 reportable segments: North America and Europe & Rest of World.

Okay. Let's turn to Slide 13. In North America, net sales for the fourth quarter increased approximately 40% to $297.6 million. The increase was driven by 24% higher sales volumes, 15% favorable price impact and 1% favorable currency effect.

Gross profit for the fourth quarter increased 42% to $142.1 million. Gross margin expanded 73 basis points to 47.8%, driven by the net price increase, improved manufacturing leverage and additional cost savings, partially offset by supply chain conditions. Segment income in the fourth quarter increased 70% to $92.9 million, whilst adjusted segment income increased 53% to $103.2 million and adjusted segment income margin increased 300 basis points to 34.7%.

Turning to Slide 14. For the full fiscal year, North American net sales increased 64% to $1,160.9 million, resulting from 55% higher sales volumes, 8% favorable price impact and a 1% favorable currency effect. Gross profit increased 67% to $559 million and gross margin expanded 79 basis points to 48.2%. Segment income increased 110% to $359.9 million, with adjusted segment income increased 92% to $396.4 million, yielding an adjusted segment income margin of 34.1%.

Let's go to Europe & Rest of World. Turning to Slide 15. For Europe & Rest of World, net sales for the fourth quarter increased 14% to $54.8 million. The increase was due to 11% higher sales volumes, 7% favorable price impact partially offset by negative currency effects of 4%. Gross profit in the quarter increased 34% to $23.3 million. Gross margin expanded 630 basis points to 42.5%, primarily driven by favorable product mix and volume leverage. Segment income increased 114% to $21.4 million. Adjusted segment income increased $4.6 million to $16.4 million, yielding an adjusted segment income margin of 29.9% or an increase of 540 basis points.

Turning to Slide 16. For the full fiscal year, Europe & Rest of World net sales increased 43% to $240.9 million, comprised of a 33% increase in sales volume, 4% favorable price impact and 6% favorable currency effect. Gross profit increased 55% to $96.8 million and gross margin improved 323 basis points to 40.2%. For the full fiscal year, segment income increased 93% to $59.2 million, with an adjusted segment income increased 79% to $61.1 million, yielding an adjusted segment income margin of 25.4%, an expansion of 510 basis points.

I'd now like to make a few additional remarks regarding Hayward's financial performance below the gross profit level, which are not covered in the presentation. Selling, general and administrative expenses during the fourth quarter increased $1.8 million or 3% to $60.1 million, primarily driven by increased expenses in distribution and variable compensation as a result of the higher volumes, partially offset by insurance claim proceeds related to the fire incident of our Yuncos, Spain facility earlier in the year.

As a percentage of net sales, SG&A decreased to 17.1%, a decrease of 532 basis points driven by improved operating leverage. For the full fiscal year 2021, SG&A increased 37% to $267.3 million compared to the prior year period. As a percentage of sales, SG&A decreased to 19.1%, an improvement of 323 basis points compared to the prior year primarily due to the increased productivity and operating leverage experienced in the business.

Research, development and engineering expenses during the quarter increased $0.5 million or 9% to $6.7 million reflecting continued investment into new product programs for our 2022 launch period. As a percentage of net sales, RD&E decreased to 1.9% and 2.4% in the prior year period. For the full fiscal year 2021, RD&E increased to $22.9 million, a 14% increase compared to the prior year period. As a percentage of net sales, RD&E decreased to 1.6% compared to 2.3% in the prior year.

Operating income increased by $37.7 million or 90% to $79.5 million in the fourth quarter. This increase in operating income was driven by higher net sales and operating leverage, partially offset by increased cost of materials and shipping costs. And for the full fiscal year 2021, operating income increased by $193.4 million to $318 million or 155% increase compared to the prior year.

Net interest expense decreased by 56% to $8.6 million for the fourth quarter 2021 and by 18% to $60.3 million, which includes debt extinguishment expenses, for the full year 2021, primarily due to debt repayments in the first quarter of 2021 and lower interest rates as a result of the second quarter 2021 amendment to our credit facilities. During the quarter, we incurred an income tax expense of $14.3 million compared to $6.6 million for the prior year period. And for the full fiscal year 2021, we incurred an expense of $56.4 million, an increase of $41.9 million compared to the prior year.

Our effective income tax rate decreased to 21.7% for the fiscal year 2021 and 25.1% for fiscal year 2020. The lower effective tax rate benefited from previously valued foreign net operating losses, a benefit realized by the exercise of stock options and a tax benefit associated with the exit in the early-stage product business, all of which are considered discrete items.

For the fourth quarter 2021, net income increased $43.9 million or 222% to $63.7 million, and for the full fiscal year 2021, net income increased 371%, $203.7 million.

As mentioned earlier, net leverage as of December 31, 2021 was 1.7x compared to 5.2x as of December 31, 2020. This was facilitated by strong cash flow generation to pay down debt as well as robust growth in our full year adjusted EBITDA.

For the full year ended December 31, 2021, cash flow from operations was $187.5 million compared to $213.8 million during the prior year period. There was a cash use of $98.3 million for working capital compared to a cash source for working capital in the prior year period of $98.8 million. Investing activities for the full year were $48.8 million, primarily comprised of $26.2 million in capital expenditures and $21.5 million to fund acquisitions. In the prior year, investing activities was $13 million, primarily comprised of capital expenditures.

Total liquidity at the end of the year was $394.7 million, inclusive of $265.8 million of unrestricted cash on hand and $128.9 million available on our revolving credit facilities. Given our strong cash flow profile, available liquidity and consequential reduction in leverage below our target range of 2 to 3x, we have the flexibility to fund organic growth initiatives, pursue M&A and return capital to shareholders.

And with that, I'll now turn the call back to Kevin.

Thanks, Eifion. I'll pick back up on Slide 17. We remain committed to the importance of ESG to our stakeholders and our business and are driven by our core values. We've continued to focus on the energy consumption throughout our operations as well as making sustainable products, a key focus of our new product development road map. We are committed to promoting a diverse safe and inclusive workplace, and we pride ourselves in our strong company culture and recently completed our Global Employee Engagement review. I'm excited to announce later this year, Hayward will publish its inaugural ESG report outlining our priorities and commitments with associated metrics for the business.

Lastly, our commitment to community remains a priority, and we recently became a platinum sponsor of the Step Into Swim charity organized by the Pool & Hot Tub Association. The association uses its resources to provide swimming lessons and access to pools to underprivileged children who wouldn't normally have these opportunities. The charity's mission is to create 1 million more swimmers, and at Hayward, we're excited to be part of realizing that goal.

On Slide 18, we transition to our outlook for 2022. We continue to be very positive about the health of the overall pool industry. Strong secular trends have significantly raised the appreciation from the backyard, of which pool is a centerpiece. In addition, we continue to see favorable economic data that supports healthy levels of new residential construction and remodeling activity. These positive economic factors are accelerating growth in both new pool construction and the aftermarket.

Early indications suggest new construction grew approximately 25% year-over-year with 120,000 in-ground pools. Our dealers remain bullish about 2022 as they carry strong order files into the new year. An aging pool stock supports future aftermarket sales, which made up approximately 80% of total sales in 2021 as repair, replace and upgrade makes up 65% of the sales mix.

The chart on the lower right reflects the 2021 growth of lifestyle products incorporated onto the SmartPad, which outpaced other core products. As referenced in my earlier prepared remarks, we expect this trend to continue into 2022 as a key source of growth.

I'll wrap up on Slide 19 and discuss our outlook for the full fiscal year 2022. We expect to grow net sales in the range of 9% to 12% compared to 2021, comprised of a combined price and volume growth range of 11% to 14%, including the impact of 2 fewer trading days in 2022, partially offset by unfavorable FX impact year-on-year. This guidance reflects strong carryover demand, conversion of current order file, pricing benefits and ongoing product adoption. We expect to deliver adjusted EBITDA in the range of $460 million to $475 million for the full fiscal year 2022, a growth range of 9% to 13% year-over-year.

In summary, we continue to be confident about the underlying demand trends in the market, Hayward's position within the market and the opportunity for Hayward to expand upon its achievements in 2022 and the years to come.

With that, we're now ready to open the line for questions.

(Operator Instructions) And your first question comes from the line of Jeff Hammond from KeyBanc Capital Markets.

So just on the sequential margin improvement. Maybe just talk about what were the big drivers? And then just on supply chain, what you're seeing there in terms of what's getting better, what's still really challenging?

Yes. I'll take that initially, Jeff. As you saw in the fourth quarter, we had good volume growth of 22%. And we started to see operating leverage come through the business at higher rate. I'd say furthermore, the price realization in the fourth quarter, which we had communicated would come, did come. We realized a collective price impact of 14% from the initiated price increases we've announced earlier on in the year. There is a little bit of FX headwind developing in the business, but no major concern for the fourth quarter results. .

I would say in terms of the supply chain, do you want to take that, Kevin?

Yes. I mean either of us can. Supply chain, I'd say we've seen some improvement, Jeff, around steel, some commodity resins, packaging, and we're starting to see a bit of relief on the freight side. Pressure is still pretty high on the broad base of electronic components. Some of the specialty metals, which go into some salt products for us. And then there are still some resins that are bottlenecking. So that's kind of the landscape from a commodity standpoint on where we're seeing some improvements and still fighting a good fight on some of the others.

Okay. Great. And then just maybe on the 11% to 14% kind of volume and price growth kind of unpack, how you're thinking about kind of market growth, price and outgrowth in that number?

Yes. I mean you've heard others in the industry talk about where they see the market growth. We believe our 11% to 14% on our base business represents good growth against the peer set. We clearly demonstrated. We had outgrown the peer set in 2021, and we believe in '22, that's going to be a continuation of our team here.

In terms of overall price, the majority of the guidance we've given is price year-over-year. There is some mid-single-digit volume growth at the high end of the guidance range that we gave. But just to be clear, the price guidance that we're giving here today does not include the surcharge that we instituted at the beginning of this year. If that surcharge continues to be necessary in 2022, then we'll update the markets on the inclusion of that surcharge. But at this current time, there is no full year impact of the surcharge in our price guidance.

And your next question comes from the line of Nigel Coe from Wolfe Research.

I was going to kick off with the price/volume mix question as well. But I just wanted to sort of it looks like sitting at the low end, you're baking in no volume mix. I'm just wondering, I don't know if you can get specific here, but would it be down volumes, unit volumes up mix, any color there? And the [bigger] market is because you have pretty strong deal conversion in 2021. And I'm thinking that you'd probably get some benefit from that in '22. So it seems like share gains are reasonable, but just wondering how you think about that.

Yes. No, let's talk about that. I would say, firstly, in the 11% to 14% combined price volume, even at the low end, there was positive volume growth year-over-year. And as I just mentioned, at the upper end of the range, volume growth is close to mid-single digits. So we are expecting another growth year volumetrically in '22 over '21, recognizing we just completed historical step-up in our business, increasing our volume in 2021 by 50%.

And so coming out into '22, still indicating good volume growth, coupled with sound price on the top line, that's a reflection of how this industry is inflected and double-digit growth at the midpoint of our guidance coming off the year we did last year, I think, is a very encouraging initial view of '22.

Yes. I mean no question about it. In terms of things about how we enter the year, I'm guessing it's going to be a little bit symmetrical to -- or rather a mirror image of last year. Just wondering how you've done and impact some of the Texas storm last year when your competitors talked about that as a factor, just wondering what impact you're seeing from that?

Yes. I mean Texas certainly benefited us and the broader industry, Nigel. We haven't really quantified that publicly. But it really wasn't just a 1-year thing. I think that it will continue to play out as those markets continue to. I think they triage but they may not have necessarily done the complete upgrade to those pads. So I don't necessarily think it's just a 1-year phenomena.

Our volume guidance has lots of pluses and minuses in it. We've accounted for the Texas situation to whatever extent, we'll step over that and continue to post volume growth in 2022. As you say, the year's starting out pretty similar to 2021 with some elevated backlogs starting the year. And we're working hard to convert that backlog into product, in the channel and for our dealer networks.

And your next question comes from the line of Brian Lee from Goldman Sachs.

Maybe just shifting gears a little bit to the margin side of things. Your Europe & Rest of World margins, I might have missed this, but quite a bit higher than you've been tracking at historically and through the balance of '21. I know there was maybe a reversal of an insurance settlement that helped. But even if you strip that out, it seems like segment income margins were quite a bit higher than normal and sort of in the same range of the Americas.

How should we think about that? Kind of what were the drivers in 4Q? And then as you think about 2022 guidance, sort of what's embedded in that in terms of margins for that particular segment?

Yes. It's good. I mean we're very pleased with the way that the European & Rest of World margins are beginning to develop. Recognizing that in Europe & Rest of the world, there is a bit of a mix of business. You have Continental Europe, Australia and our export business out to the Middle East and the Mediterranean region. And it's that latter business, that Mediterranean business, that really has a good strong margin profile attachment to it. And we started to see activity improve throughout the latter half of last year as those markets began to open up, and so they contributed to a mix positive effect in the margin.

But generally speaking, there are some other structural benefits to European market and the European team are doing. They have instituted price management, they're more appropriately leveraging the local manufacturing base and they've obviously got clear cost control coming through their income statement.

So we've always said that the aim here is to close the margin in our Europe & Rest of World closer to the North American, and we were very pleased with the way they step forward in the quarter to post up close to 30% adjusted segment income margin in the quarter and for the year, now trailing up into the mid-20s, which is good to see.

In terms of how they look for 2022? Again, it's another progressive step in margin development in '22. Their price actions, price management policies will continue, and we expect them to take another step-up in '22, albeit it will be more moderate than we saw in '21.

Okay. Fair enough. Appreciate all that color. And then maybe just kind of a bigger picture question. We're hearing pockets of labor availability issues. What are you kind of hearing on the ground with respect to dealers and if that's going to be any incremental headwind as you kind of move into this year?

It's a great question. I think -- I just look backwards first, Brian, to say that I think the industry did a great job of expanding capacity in 2021 for us as an industry to have grown 25%, give or take, in new pool construction. Clearly, there was more labor operating in the backyard. We know that our dealers are continuing to look at capacity expansion to be able to meet this homeowner demand for new pools as well as remodels, which we haven't really touched on in the call here, but it's really much the same contractor doing both of those projects.

So we know that they're pushing and we are optimistic based upon what they're reporting back that they're going to be able to find labor. It wasn't that long ago that we were building a lot more pools. I think those contractors found their way into other professions and our dealers are trying to bring them back to be able to meet this surge in demand. So we know the efforts being put in, and we, as an industry, are confident that they'll be able to continue meeting this demand.

And your next question comes from the line of Mike Halloran from Baird.

First, just on the cadencing through the year, how are you thinking about front half versus the back half, how that compares to normal seasonality? And any kind of volume or price discrepancies as you think about growth in the first half versus growth in the second half?

Yes. We are beginning to see a somewhat of a return to normal seasonality as we step into '22. I mean typically, Q1 and Q3 are the lower season volume periods for the channel. We've entered '22 with a very strong order file. We're concentrating in Q1 in our production units to fill out some of the hold on certain product lines that the channel is demanding right now. We do see and expect a strong volume metric period in Q2. And then we'll see how the balance of the year develops as we get into that time period. But sentiment remains strong as we've started the year here.

And second question, inventory levels in the channel are at least a little closer to normal, backlog still at record levels. Maybe just reconcile those 2, what do you think it means? Is there a risk from a cancellation perspective? Or do you look at this more as just really good visibility as you work through the year, and it says more about underlying demand?

I think it's more of the latter, Mike. I think it's a very credible order file. There's been plenty of price increases that we've had to announce into the industry. We ran kind of a modest early buy last year. If the channel was feeling as if they had too much or were unhappy with their inventory turns, I think there was opportunity for them to slow the bookings or even cancel and we've seen negligible cancellations through those time periods. So we feel very good about the credibility of that order file.

As for inventory levels, they are getting back to more normal levels, good turns on it. We don't think it's elevated. But what I will acknowledge is, I think that there's some shortages of some particular SKUs that we'd like to be able to solve, and we're working hard here the beginning part of 2022 to try and rectify that, whether it's some salt or other products. We know that it's not a perfectly balanced inventory from a SKU standpoint, but we're working hard to solve that.

And your next question comes from the line of Ryan Merkel from William Blair.

I just wanted to follow up on a couple of things. So first, you mentioned the surcharge that you put through in early January that's not in the guide. If you did get that, how much would price be up in '22 for the full year?

Well, we talked about the surcharge, we instituted an 8% price increase on core SKUs and slightly higher on specialty SKUs. That 8% bifurcate between price list increase of 4% and then an additional 4% surcharge. So the majority of that [after] 4% is not included within the guidance.

Got it. Okay. So sort of sounds like if you get that price could be up somewhere in the 10% range for the full year, is that the right ballpark?

Yes. If you look at the combined guidance that will give to 11% to 14% in -- with that additional price, yes, it would be at that level or almost slightly above.

Okay. And then at the low end, volume up low single digits, feels pretty conservative to me. How do we square that up just with the order file, mix being positive, share gains?

Yes. I was going to say, I think you're right, Ryan. I mean look, we've got a level of conservatism built into our forecast here. We feel very positive about the start of the year. To your point, the sort of very strong order file that we have on the business right now as we step into the primary season period of Q2, we'll get a better read on how the balance of the year is building, but it's fair to say that the guidance we've given right now does have an element of conservatism, and we don't want to get ahead of ourselves right out of the gate here. But we'll update you guys as we get through our Q1 and into Q2 visibility.

Got it. I get it, too. Weather is always a wildcard, so I'm going to see what we get there. But last one just quick. Are you assuming any channel load in the '22 guide?

We are not -- over the exiting of 2021, is that the basis of your question, Ryan?

Yes.

Yes. No, we're really not calling for at this point, additional inventory in the channel at year-end 2022. We'll see how the year plays out. If retail demand and pull-through continue on the robust pace we've seen in the last 2 years in absolute terms, there could be some increase to support the forward-looking days on hand. But at this point, we're not assuming additional channel load.

And your next question comes from the line of Josh Pokrzywinski from Morgan Stanley.

Just on the Slide 8, I think it was, looking at the aftermarket installed base penetration. I guess so it's still pretty low on maybe what's out there in the field. But how does that look in terms of the penetration or the mix on current sales? Like are we already at a decent run rate on what's going through today? Or does that have a lot more room to move higher as well?

I think that salt has additional growth opportunity to, Josh. Kind of synching up Slide 7 and 8, salt certainly grew. It was kind of the fifth largest growing category last year, which were -- which was great for the industry. It's a great experience for the pool owner. But I do think that, that particular product has some additional convergence, opportunities for it to start inching closer to this take rate at time of new construction.

Got it.

I'd further add that we're continuing to invest in our RD&E programs specifically around sanitization. And we're introducing a new low-salt product that will continue to fuel our growth in that particular cash group.

That's good.

Any sort of way you could dimension out how that mix is the volunteer over the past, call it, a year or 2, maybe relative to those kind of 30%, 35% installed base penetration numbers. Again, talking about where your own kind of sales run rates are on that mix? Like has it doubled? Is it gone up by 10 points, sort of order of magnitude would be helpful.

You're talking our specific growth in that salt category?

More about like the product mix. So if the kind of the higher spec stuff across those various categories was 30% in 2019 or 2020, is it 50% today? Is it 80% today, just looking at it from that perspective. But look, however you want to phrase it would be helpful.

Yes. I would say in general that we're seeing kind of a mix up when it comes to these more lifestyle products. People are -- with the introduction of the Omni System, that is absolutely pulling along some of these higher feature IoT sustainable products along with it onto the pad. So I would say over the last couple years, we've absolutely seen kind of a mix up, higher-performing higher-priced SKUs being installed on the pads.

Got it. And then just as it pertains to kind of the -- some of this off-season activity early live channel load, however you want to look at it. I guess what distinguishes that from, in your mind, just sort of like a normal sale because I think we normally associate early by with something a bit more kind of promotional on the pricing front, which clearly isn't happening.

So is this just folks wanting to add inventory to make sure they're not scrambling in April? Or was there some other sort of distinction, whether it was on price or payable terms or something else that would kind of make this early buy specifically?

Yes. I would say early buy in general this year was really targeted by us for 2 things. The seasonal markets, we have strong market position in the seasonal market. So we wanted to make sure that those markets had sufficient product on the shelf for when the spring broke this year. Secondly, we wanted to make sure we had as good a market visibility on some new products that we didn't have much history on yet. So that we had their input and could build our forecast on our production schedules accordingly so that we were prepared for what the market acceptance was going to be early in these new products evolution.

So those were really the 2 things that we targeted. It was a much reduced SKU count this year, Josh, and from a terms and a pricing discount, also very much curtailed from a historical standpoint because of the order file that already existed in our possession.

Your next question comes from the line of Rafe Jadrosich from BofA Securities.

Sure. Can you update us on your mix of R&R compared to new construction, where it is today compared to historical periods? And then within R&R, how much is major renovation compared to break and fix? And then how would you expect that to trend in 2022?

Yes. I would reference back to Slide 18, right, in the lower left corner. We tried to preemptively address that. New construction based upon the growth in the aftermarket, while we grew 25%, and we had a nice share in that growth, it actually reduced in the overall mix from more of a 25% historically to more of a low 20% of our mix. So high 70s, we're rounding off to, call it 80%, is the aftermarket. And we really do break that into a couple different categories.

First would be remodel, which I'm not going to say it's been ignored, but it certainly has not gotten the amount of attention in the last couple of years as it has historically as contractors have been more focused on the new construction. So that's, call it, 13%, 15% or so. And then the balance is really all around this broader repair, replace upgrade. And we're starting to see much more upgrades by adding some new products that never existed on the pool pad before whether that's salt, whether that's a UV ozone product, a heater, for example, where they were operating the pool for years, but they've added that.

What we're also seeing is when it's time for replacement, most of the time, people are actually going for a more current generation, which will be a higher priced, higher performing, a higher feature product, which is beneficial to us and to the industry. So that's really how we look at the various revenue streams in our business between new kind of low 20% and the balance of it all being around the aftermarket.

And then just following up on the point you just made. I think the contractor backlog for new pool construction, it sounds like it stretches out maybe even into 2023. How do you think about that for major remodel as well?

Yes. I think the remodel -- I don't know when we're going to tap into that, but I think the industry has -- that's an opportunity for future growth. I don't think homeowners really want to shut the pool down and lose access to it. So it's as much the homeowner holding back on that as that pool stock is now at a historic high in that '22, '23 year range as well as, I think, most contractors are turning their attention to new construction because, frankly, it's a little bit of an easier project for them to start with a pristine lawn in the backyard and put a new pool in as opposed to tearing something down and rebuilding it. So I think that this will be an opportunity that the contractors in the industry will be able to mine in the out years.

And then one final quick one on price. You talked about 14% price increase in 4Q, and it sounds like maybe in the 10% range for 2022. Can you talk about what's embedded for like-for-like price increases compared to the mix benefit of shifting to some of these higher-priced categories?

I'd say still the majority of the price increase is associated with real price index announcement. There is obviously a favorable price/mix effect built in there, a quick reference point -- an easy example there is variable speed pumps. Year-over-year, we're going to take the full 12-month benefit of the variable speed pump inclusion whereas we only got half of the year in '21 with variable speed pumps, which is a higher-priced pump in comparison to its predecessor single speed pump. But still, right, the short answer is the majority of the price increase that we've indicated is a price index.

And your next question comes from the line of Nigel Coe from Wolfe Research.

Actually, my question was actually around variable speed pumps. Just wondering where the mix is, the way you see that mix in '22 versus '21? And then just curious, any intel on what the mix of the installed base is of single-speed versus variable speed?

Yes. So clearly, when you think about the pump category as a whole for us in '21, pumps represented about 12% of our overall product line. Those still, as you know, about half a year worth of single-speed, noncompliant business in that prior to the legislation change or the regulation change in midyear. Like-for-like, a pump is a pump, but the quality of the pump sale in '22 will be higher. So we do expect a mix up of pump activity will actually take it up to about 13% of our overall sales volume into '22. Just based on natural growth that we've indicated in terms of value, we expect the business to also grow about 1% in overall mix impact from the high-value variable speed pumps.

And the installed base?

So I actually don't know the answer to the installed base of variable speed pumps across the group today. Kevin?

I think it's about 30 -- it's about 1 in 3, I would say, Nigel.

Okay.

So yes, we've enjoyed a long history of single-speed success. And we're very excited that the industry is converting to a higher priced, more efficient variable speed option.

Thank you. And we have reached the end of our Q&A session. I would like to hand the conference back to Mr. Kevin Holleran for the closing remarks.

Great. Thanks, Ludy. In closing, I'd like to thank everyone for their interest in Hayward. As you can see, our business is producing phenomenal operational and financial results, and we're very well positioned to continue to generate growth for all stakeholders in 2022 and the years ahead. Please reach out to our team if you have any follow-on questions, and we look forward to talking to you again about our Q1 performance during the week commencing April 25. Thank you.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.