Hayward Holdings Inc (HAYW) 2024 Q4 法說會逐字稿

Welcome to Heywood Holdings Fourth Quarter 2024 earnings call. My name is Christine, and I'll be your operator for today's call. (Operator Instructions) 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 a fourth quarter 2024 earnings press release this morning, which has been posted to the Investor Relations section of our website at investor.hayward.com. There, you can also find an earnings slide presentation that we will reference during this call. I'm joined today by Kevin Holleran, our 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 2025 in future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Form 10-K and 10-Q filings with the Securities and Exchange Commission that could cause actual results to differ materially. The company does not undertake any duty to us update such forward-looking statements.

Additionally, during today's call, the company will discuss non-GAAP measures. Reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation. All comparisons will be made on a year-over-year basis. 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 by highlighting a tremendous milestone for Hayward, the 100-year anniversary of the company's founding in 1925. As we celebrate this achievement, we reflect with immense pride on our journey from the founding by Irving Hayward as a tool and dye maker, to Oscar Davis acquiring the business in the 1960s and entering the pool market, to the global public company we are today.

For a century, we've served our customers with outstanding products and services, and our centennial celebration is a testament to our resilience and passed accomplishments. Our company has a solid foundation for future growth and value creation. We are extremely excited about the long-term prospects for the pool industry and our ability to execute our growth plans.

Turning now to slide 5 of our presentation for today, today's key messages. I'm pleased to report strong fourth-quarter results significantly exceeding expectations. We finished the year on a high note with better than anticipated in quarter demand plus robust early buy orders for coming 2025 pool season. This resulted in solid sales and earnings growth, margin expansion, and increased cash flow generation.

Net sales increased 17% for the quarter and 6% for the year through positive contributions from both volume and price. Gross profit margins expanded to record levels and full year free cash flow increased 22%, exceeding our guidance. Solid profitability and cash flow enabled us to reduce net leverage into our targeted range of 2 times to 3 times while completing accretive capital deployments for early debt repayment and a strategic acquisition.

As I reflect on 2024, it was a successful year for Hayward. I'm proud of the performance of our team in a challenging global environment, and I'd like to thank all our valued customers and vendor partners for their efforts during year.

In addition to delivering solid financial results, we further strengthened the senior leadership team and executing key strategic initiatives that position us for profitable growth. This included expanding our customer relationships, advancing our technology leadership position with the introduction of innovative new products, and leveraging our operational excellence capabilities.

I'll discuss our accomplishments in more detail in a moment. Moving to 2025, we expect to deliver sales and earnings growth on a full year basis in a continued dynamic operating environment. For the full year 2025, we expect net sales to increase approximately 1% to 5%.

Turning now to slide 6, highlighting the results of the fourth quarter and full year. Net sales in the fourth quarter increased 17% to $327 million, driven by price and the double digit increase in volume. By segment, net sales increased 20% in North America and 2% in Europe and Rest of World.

Gross profit margins expanded 220 basis points year-over-year, 170 basis points sequentially to a record 51.4%. Adjusted EBITDA increased 30% in the fourth quarter, and adjusted EBITDA margin was a robust 30.2%. Adjusted diluted EPS increased 35% to $0.27.

For the full year 2024, the net sales increased 6% to $1.052 billion, and adjusted EBITDA increased 12% to $277 million, each exceeding our most recent guidance. We delivered strong profitability with gross margins exceeding 50% for the first time on a full year basis. Adjusted EBITDA margin for the full year was 26.4%, and adjusted diluted EPS increased 20% to $0.67.

Turning now to slide 7, I'd like to share some perspective on the year. 2024 was a successful year for Hayward despite the macroeconomic challenges faced by the pool industry. We delivered on our financial commitments and strengthened our position as a premier company in the industry.

As a technology leader, we increased investment in both R&D and engineering to support our commitment to innovation. We successfully launched several differentiated products during the year. Two great examples of new innovations are the Microchannel Temperature Control Unit, an industry-first single-unit product, offering the ability to both heat cool water and cool it as low as 40 degrees for a cold punch.

Secondly, our proprietary Omni Pro App, a cloud-based productivity tool for trade professionals, enabling real-time remote monitoring and equipment configuration. We're excited by the adoption of these unique products in the marketplace.

Hayward has a long-standing culture of operational excellence and continuous improvement. We demonstrated our capabilities again in 2024, consolidating our manufacturing footprint in Spain, investing in automation and productivity initiatives, and expanding gross margins.

As a testament to our product and operational performance and the value we provide customers, Hayward was recognized during the year by the largest global distributor with separate awards for both innovation, leadership, and operational excellence.

On the commercial side, we increased investment in customer care, leveraging new technologies and tools to enhance customer experience. We upgraded our customer loyalty programs, rewards trips, and partner summits to strengthen and expand our dealer relationships to help grow our respective businesses. We also launched Hayward Hub DFW in Texas, a first-of-its-kind Hayward training and support facility for dealers and trade professionals in this important growth market.

During the year, we further strengthened the senior leadership team by appointing four accomplished executives to key positions within the organization. With these additions and expanded capabilities, I'm convinced we have the right leadership talent in place to execute our growth strategies.

These achievements contributed to solid financial performance, including a return to sales growth and continued margin expansion. This enabled us to reduce net leverage while reinvesting in the business, repaying $123 million of our debt early and completing a strategic acquisition of ChlorKing, advancing our position in the commercial pool market.

Turning now to slide 8. Following that review of 2024, I'd like to look forward and highlight the company's strategy to drive compelling growth and shareholder value. At our core, we are a products company. Our product management and engineering roadmaps are designed to deliver innovative, energy-efficient, automated solutions to transform the experience of water and increase the enjoyment of full ownership.

Leveraging best practices and capturing global trends, our teams are actively driving innovation and setting the pace for the industry. We are focused on creating customer advocacy for the Hayward brand, strengthen relationships with trade professionals, and in turn, driving incremental growth.

To enable this, our sales, marketing, and technical service teams continue to develop new value-added solutions for our trade professionals. Organizational changes and investment in our commercial teams allow us to further support, train, and develop our partners, as well as attract new professionals to Hayward.

The ChlorKing acquisition was a key investment in our commercial pool product category. We are pleased with its performance and see many additional opportunities to grow this category with focused leadership and new product introductions.

As we integrate ChlorKing into Hayward, we are identifying cross-selling opportunities with our existing flow control team. We now have the opportunity to specify UV and chemical water treatment systems, in addition to our core engineered thermal plastic valves into a broad and expanding water industry.

We have a proven ability to drive margin expansion from already robust levels. Specifically, our gross profit margin expanded over 600 basis points in the last five years to 15.5% and nearly 400 basis points since 2021, despite reduced volumes as the industry normalized after the pandemic. We see the opportunity for further margin upside over the long-term, driven by four key pillars of our margin strategy: productivity gains resulting from our operational excellence culture, a higher margin mix of technology products, operating leverage given current low capacity utilization levels, and proactive price cost management.

Finally, as we've highlighted before, we maintain a disciplined and balanced approach to capital allocation, emphasizing organic growth investments and strategic acquisition opportunities to complement our product offering, geographic footprint, and commercial relationships. In summary, I'm confident we have the right strategy in place to drive profitable growth and compelling shareholder returns.

And 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. I'll start on slide 9. As Kevin stated, we are very pleased with our fourth-quarter financial performance. Net sales increased and exceeded expectations, delivered outstanding margin expansion and generated better than expected free cash flow.

Looking at the results in more detail, net sales for the fourth quarter increased 17% to $327 million. This was driven by a 12% increase in volume, 4% positive net price realization, and a 2% contribution and from the acquisition of ChlorKing completed in June. Gross profit in the fourth quarter increased 23% to $168 million. Gross profit margin increased 220 basis points year over year and 170 basis points sequentially to a quarterly record of 51.4%.

Adjusted EBITDA was $99 million in the fourth quarter, and adjusted EBITDA margin increased 300 basis points to 30.2%. Our effective tax rate was 14% in the fourth quarter compared to 21% in the prior year period. This change was primarily due to timing of discrete items. Adjusted diluted EPS in the quarter increased 35% to $0.27.

Turning now to slide 10 for a review of our full year results. Net sales for the fiscal year 2024 increased 6% to $1.05 billion, this exceeded our most recent guidance, was driven by 3% positive price realization, 2% higher volume, and a 1% contribution from the ChlorKing acquisition.

Gross profit for the full year increased 11% to $531 million. Gross profit margin increased to 240 basis points to 50.5%, exceeding 50% for the first time on a full year basis. Strong profit margins enabled us to reinvest in the business.

In 2024, we increased research development and engineering investment by 5% to $26 million to support our commitment to growth and innovation. SG&A expenses for the year end increased 12% to $261 million, driven largely by normalized annual incentive compensation relative to a comparable low result in the prior year, targeted growth investments in selling and customer care, and acquired quoting SG&A.

Adjusted EBITDA increased 12% to $277 million, with adjusted EBITDA margin increasing 150 basis points to 26.4%. Our effective tax rate was 18% in 2024 compared to 20% in 2023. Adjusted diluted EPS increased 20% to $0.67 for the full year 2024.

Now, I'll discuss our reportable segment results. Turning to slide 11 for a review of our reportable segment results for the fourth quarter. North American net sales increased 20% to $286 million, driven by 5% net price realization, 13% in higher volume, and 2% from the ChlorKing acquisition.

Net sales increased 20% in the US and 23% in Canada. The robust volume increase in the quarter was driven primarily by strong in-quarter demand, plus increased early buy demand for the upcoming 2025 pool season. Gross profit margin increased 310 basis points to a robust 54.2%. And adjusted segment income margin increased 500 basis points to 36.7%.

Turning to Europe and Rest of World, net sales for the quarter increased 2% to $41 million. Net sales benefited from 1% favorable net pricing and 2% higher volumes, partially offset by 1% from foreign currency translation. Net sales in Europe increased 1% and Rest of World increased 2%. Gross profit margin was 31.4% and adjusted segment income margin was 12.8%.

Turning to slide 12 for a review of our reportable segment results for the full year. North American net sales increased 9% to $896 million, driven by 4% higher price and volume, plus a 1% contribution from ChlorKing. Sales in the US and Canada increased 8% and 16%, respectively. We are encouraged by the improved performance in Canada. We delivered exceptional profitability with gross profit margins up 310 basis points to 53% and adjusted segment income margin up 360 basis points to 32.5%.

In Europe and Rest of World, net sales for the full year reduced 8% to $156 million, with a net price increase of approximately 1%, offset by 9% lower volumes. Sales in Europe reduced 1% and Rest of World reduced 16%. Gross profit margin was 36.2% and adjusted segment income margin was 14.6%.

We took steps throughout 2024 to improve the performance of this segment and are pleased to see signs of improvement in the fourth quarter. We expect our proactive actions, including appointing new senior leadership and simplifying the operating model to result in improved sales and margin trends going forward.

Turning to slide 13 for a review of the balance sheet and cash flow highlights. We are very pleased with the balance sheet improvement and a strong cash flow performance during the year. Net debt to adjusted EBITDA improved significantly from 3.7 times at the end of 2023 to 2.8 times at the end of 2024, consistent with our target range of 2 times to 3 times.

Total liquidity at the end of the year was $360 million, including $197 million in cash and equivalents and short-term investments, plus availability under our credit facilities of $164 million. We have no near-term maturities on our debt. The term matures in 2028 and the undrawn ABL matures in 2026.

Our borrowing rate benefits from $600 million of debt currently tied to fixed interest rate swap agreements, maturing in 2025 through 2028, limiting our cash interest rate long-term facilities to 6.4% in 2024. Our average interest rate earned on global cash deposits for the year was 5%.

Overall, we are pleased with the quality of our balance sheet. Our business has strong free cash flow generation characteristics driven by high quality earnings, which support continued growth investments.

Cash flow from operations for the full year increased 15% to $212 million due to increased EBITDA and working capital management. Full year 2024 CapEx of $24 million was below the prior year due to project timing. Free cash flow increased 22% to $188 million in 2024.

Turning now to capital allocation on slide 14. As Kevin discussed, we maintain a disciplined financial policy and take a balanced approach, emphasizing strategic growth investments and shareholder returns, while maintaining prudent financial leverage. We continue to pursue additional acquisition opportunities through our own augment our organic growth in addition to opportunistic share repurchases.

Turning now to slide 15 for the outlook. We are introducing 2025 guidance, reflecting sales and earnings growth, driven by solid execution across the organization, positive price realization, and continued technology adoption.

For fiscal year 2025, Hayward expects net sales to increase approximately 1% to 5%, so $1.06 billion to $1.1 billion. This outlook reflects modest volume growth in non-discretionary aftermarket maintenance, with modest reductions in the more discretionary elements of the market, new construction remodel and upgrade. We expect a positive net price contribution of approximately 2% to 3% based on prior pricing announcements for the year.

This does not include any new pricing actions that may become necessary as a consequence of the evolving tariff environment. We continue to evaluate the situation, and we'll respond with appropriate supply chain and pricing actions as needed.

Our business is seasonal. We expect normal seasonal strength in the second and fourth quarters, with the quarterly cadence generally consistent with the prior year. We anticipate full year 2025 adjusted EBITDA of $280 million to $290 million. We also expect solid cash flow generation again in 2025, with the conversion of greater than 100% of net income of approximately $160 million.

We are confident in our ability to successfully execute in dynamic environments and remain very positive about the long-term growth outlook for the pool industry, particularly the strength of the aftermarket. And with that, I'll now turn the call back to Kevin.

Thanks, Eifion. I'll pick back up on slide 16. Before we close, let me reiterate how proud and thankful I am for the team's performance throughout 2024. We had a strong finish to a successful year with a fourth quarter that exceeded expectations.

For the year, we returned sales growth, delivering impressive margin expansion and strong cash flow, allowing us to fund our growth strategies. Looking forward, we expect continued sales and earnings growth in 2025 and are extremely excited about our longer-term prospects.

We will be celebrating our 100-year anniversary throughout the year. I'm confident we have the right strategy and talent in place to drive compelling financial results and shareholder value creation. With that, we're now ready to open the line for questions.

(Operator Instructions) Nigel Coe, Wolfe Research.

Good morning, everyone, and congratulations on the 100th anniversary. The question, so I just wanted to maybe just dig a bit deeper on the 13% volume growth in North America this quarter. You talked about strong in core demand, but also strong early buy.

So just wondering if there's any way you can, maybe, the fact to strengthen your early buy from the in-quarter. Is there any impact on 1Q that we should consider on the back end of the strength we saw in 4Q?

It was a good quarter in North America. Overall, as you mentioned, we were up volumetrically 13%. It is fair to say that we had a good in-quarter demand period in Q4. Early buy orders and shipments were up year-over-year. But it's really important to understand that the ship proportionately less of our early buy was in '24 than we did in 2023.

Net pricing a little bit stronger Q2. So that in-season demand. So that has a positive impact on the price. FX was a little bit better than expectations, which obviously, positively affects translated earnings in North America and Canada.

I think it's probably appropriate say, [margins], consequently, due to price for stronger because of that in-season demand. Cash flow was stronger, enabling strengthening of the balance sheet throughout the quarter.

It does set up, obviously, a bit of a stronger backlog coming into 2025 for the early buy components. But I would remind you that we continue to evaluate the environment as we step into 2025. And as we mentioned in our prepared remarks, we fully expect Q1 to be very similar structurally to the prior.

Nigel, I'd just add that in Q4, there was some -- these aren't the circumstances that Hayward necessarily look for, but there was some volume related to the hurricane activity in Q4 that had some impact on the stronger quarter demand that Eifion just touched upon.

I would just like to pause for a moment and beyond Q4 to just put a finer point on some of the things on the achievements delivered throughout the year, specifically on the commercial side, investing more in R&D and receiving some industry accolades, while also delivering some high-value products, new products to our pool owners.

We did invest in sales and marketing to drive growth and some underpenetrated regions. We opened our first Hayward Hub; I hope that's the first of many. And the Dallas-Fort Worth market launched the Omni Pro App. And the ChlorKing acquisition is a fantastic business, presenting some nice cross-selling opportunities.

Financially, all of that, as I said in my prepared remarks, drove net sales up 6%, [9%] in North America. Adjusted EBITDA of 12% growth and free cash flow of 22%. So gross margins, which I'm sure will talk about further here in the Q&A, delivering a record north of 50% is really something to be proud of.

So from a five-year standpoints, these sometimes gets overlooked. But in over the last five now we've delivered 7.5% CAGR on net sales, including 10% in the US, 11% with commercial pool, and adjusted EBITDA over that same period of 10% growth. So again, it was a great quarter, a strong year, and over the past five, some nice growth on numbers to be proud of.

Yeah, no question. Thanks, Kevin. We'll come back to the hurricane impact, probably a little bit in the Q&A, but I did want to touch on tariffs because they've got some new headlines on the well, you heard, you have got some type of tariffs in early March, China, Mexico, and Canada.

Just wondering if you could just maybe remind us on where your inputs versus, I think there's a bit of China, but no Mexico. So just maybe the basis on where we stand today.

Yeah, let me touch on that. So I guess first thing I would say is roughly 85% of North American net sales are produced in North America. The remaining, call it 15%, would be cost of goods sourced either directly from a facility that we operate in China or some products out of our European operations. So we have good understanding from a cost of goods standpoint there.

It's a little harder to get our arms around completely would be Tier 2 and Tier 3 supply components. Our supply chain team is working diligently to really get some clarity around that. I also came across this morning just before we went live on the call that we haven't fully digested yet.

But as for China, there was 10% that took effect February 4. We know exactly what that impact is from a Tier 1 from our [wood] sheet. Finished goods, in terms of finished goods out of that facility, Mexico and Canada -- Mexico is really more of a Tier 2 or Tier 3 that we have some clarity on and continue to get more focused on that.

So we don't believe at this point that there's much impact with Canada. Our understanding is some of the reciprocal tariffs that have been in the news. We don't believe at this point pool equipment will be impacted by that, Nigel. And then the steel and aluminums, I think more to be determined there, but we don't think that that's sizable impact to our business either.

I would just add, Nigel, based on everything that we're learning, we've demonstrated the ability in periods past input price through. Were fully prepared to react with the price increase to tackle any identified tariff cost impacts to protect the guiding profitability we put in.

Great. Thanks, guys. Good luck there.

Saree Boroditsky, Jefferies.

So, obviously, finishing the year with strong margin performance, but it looks like guidance implies about flat EBITDA margin next year. Could just talk about how you're thinking about gross margin performance and were the puts and takes included in that outlook.

What I would say, look, we had a great performance in 2024 at the gross margin line and at the adjusted EBITDA lines, respectively, growing gross margin. 240 basis points of adjusted EBITDA, 150 basis points, a little bit better than we expected.

When we look down the runway into 2025, and bill top guidance and expectations around the year, I think it's really important to look at it from a two-year stack basis. So the midpoint of 2025, the two-year stack for us, it is pretty good. And overall conversion, we're above 40% sales to adjusted EBITDA margin conversions, adjusted EBITDA growth rates of 7%.

We've always talked about growth, not being linear. We'll make some great progress with invest, make subsequent progress. But I think you have to look at it over the medium-term. And we're really proud of both the conversion rates and the margin growth that we are experiencing in '24. And we're taking a bit more of a pragmatic approach around '25 at this particular point.

That's helpful. And you probably did some color on the resilient non-discretionary aftermarket, maybe recurring new and remodeled. Just quantify how you're thinking about those markets given all the volume embedded in guidance?

Yeah, so as we look at the -- and break down the net sales, again. Greater than 80% of our revenue is derived from the aftermarket, meaning product that goes on a pool or to a pool that is already have built.

So we would say of that of that 80%-plus , that's in the aftermarket, there is, a percentage of that that really goes to remodels and larger scale renovations. That along with the, call it, mid- to [high-10s] of our revenue derived from new construction.

At this point continues to be under pressure. We feel primarily through interest rate -- elevated interest rates. But again, something north of 60% of our overall, revenue, we would say, is very resilient, non-discretionary, and very reliable.

As we look -- coming out of 2024, that's really what we saw in the full year '24. And at this point, based upon permit data that we keep a very close eye on, continue to be under pressure. We think at least for the first half of 2025, that'll stay under pressure, kind of flattish to slightly down is what we see high in that non-discretionary elements of our business.

Andrew Carter, Stifel.

I guess I want to circle back to just the initial guidance. I guess the two-year basis in two years, this is just right down the pipe in terms of expectations. But if you look back at the -- take us through 2024, SG&A was reset at higher warranty expense, also incentives underline. So obviously, that's fully built for next year.

There's a lot of puts and takes in the gross margin performance, including a one-timer here in the fourth quarter plus Europe. So just help us understand why the flow through just isn't stronger next year? Is it just steps of SG&A? Are you expecting from gross margin pressures? You got the tariffs in there, is it cross currency from Canada? Just any extra help here. Thanks.

Again, I would say, Andrew, we're taking a pragmatic approach. The margin results in 2024 were better than expected. We got asked quite a bit about lean operational initiatives in the second half of last year, and we plan to improve from those.

We also were able to realize a little bit earlier synergy benefits into the quoting acquisition on the gross margin line. So all of these great results accumulating in 2024, if you look at it from a two-year stack basis, where we're ending in 2025, it's exactly where we, as an internal management team, here expected to be. It's just a little bit accelerated into the 2024 period.

Again I would ask you to look at the two-year stack basis from the end of '23 to the midpoint of our estimated guidance here for '25. And look at the growth rates, both of the gross margin line, adjusted EBITDA, and the flow through of sales conversion to EBITDA, all within our expectations.

We are making investments into the business. You're right to point out in '24, we made investments into SG&A, particularly some insight into business, the customer experience side of the business, marketing initiatives. Obviously, we also acquired SG&A as a consequence of the ChlorKing acquisition, and that will run rate four years throughout 2025 results as well.

I have talked about publicly before focusing SG&A down in the low 20%s. We were at 25% with corporate expenses in 2024. Were expected to come down in '25, modestly. But again, I would run on segment each year individually.

We had great success in '24. Good, modest guide in '25 in terms of the implicit gross margin growth. But please look at it from a two-year stack basis. Exactly how we expect these two years to play out in terms of gross margin improvement and conversion rates to adjusted EBITDA.

Understood. And then getting on the working capital, came in well ahead of your expectations this year, plus next year, it's pretty strong with historical unmasked, but it's the working capital headwinds, de minimus almost.

What's that coming from continuing to improve the working capital here, surprises that -- I know that there's an operational side, you're taking some safety stock. But anything about how lean your inventory is? And just outlook for just how working capital can stay this high? Thanks. I'll have to start. Free cash flow conversion, stay this high. Apologies.

Look, we had a very focused initiative -- several focused initiatives around working capital improvement, and we evaluate working capital on the metric of cash conversion. And we still expect improvement in reducing our cash conversion cycle, which is our off-AR days plus our inventory days minus our accounts payable days.

In terms of our inventory days, we expect down eight full days from the end of '23 to the end of 2024. Again, a lot of focus around inventory to make sure we have the right parts of the right time in the right place. You've heard me say that before. We have several discrete initiatives. Our callout SKU rationalization initiative, which is enabling successful inventory reductions.

But I also call out our net accounts receivable accounts payable days also took a meaningful reduction year over year. We reduced over 11 days in terms of that net metric. So we continue to see good cash use for working capital initiatives. Again, we think in '25, we've got more work to do and more results to achieve here.

And the team is very much focused. A shout-out to the Hayward team here and appreciation of what they achieved in the '24 working capital reductions.

I'll just point out, Andrew, that while doing all of that, we really take very seriously our ability to supply the market and be able to get product reasonable lead times to our commitments. So while continuing to work on driving working capital down, the overall mission is to continue to be a supplier of choice and hopefully continue winning some of these operational excellence accolades from our channel partners.

Thanks. I'll pass it on.

Mike Halloran, Baird.

So just clarifying combination you made, I think in response to an earlier question on the seasonality impact of the pre-buy. I think you mentioned that the pre-buy take rate was lower in '24 than it was '23.So just could you clarify what you mean by that?

And then related is the thought process then that the cadence seeing of how pre-buy is worked through in the front half of the year, relatively normal versus history? Is that the thought process, assuming things are relatively stable from a demand volume perspective?

From an early buys standpoint, we were pleased with the participation that we saw from our channel partners there. It was incrementally higher year on year. And as, I think Eifion mentioned in the first response, was that from a percentage standpoint, we shipped less of that in 2024 than we did in 2023.

So that presents us with the luxury of having a slightly larger backlog starting the new year. But as you know, never do we have an order file that covers the entire quarter. And as we're moving into March, we're all looking for a warming trend across our markets.

So what else can we answer for you on the early buy and how that that seasonality plays out? Again, Q1, we're expecting normal seasonality. We don't guide quarterly, as you know, Mike, but we -- Q1 is one of the softer quarters as sales douse is less than it is in Q2 and Q3. So we're calling in again for Q1 to be on that seasonal, a normality, somewhere in the 20% range of what our full year net sales guide would be.

I would add, Mike, that (multiple speakers) I just had one last comment. Typically, when we get into Q1, which is seasonally the lowest quarter of the year, we do some campaigning, and that's been a legacy construct of how we approach Q1.

Kevin said, the luxury of a slightly larger backlog coming into the quarter due to less shipment of early buying '24 from prior year. We may not do as much campaigning in Q1 as normal. But overall, I would just guide you to a very typical Q1 as a percentage of overall sales, which typically 19% to 20% of full year sales.

Great. That was super helpful. And then second one, I know the housing starts are at the bottom or the new pools, new construction is at a bottom here. If you look at the take rate on the housing start side of the things or the attachment rate of pools on new homes, do you see any noticeable differences you work through the year?

Probably a little bit too short of the sample size, but curious if you're seeing a relatively typical percentage of new homes with pools or if you seen any disassociation versus history, given the mix of the house sciences moving a little bit lower right now?

Yeah, as you know, Mike, there's been a high correlation historically between single-family home starts and new pool construction. Even more so when it staggered one year. I would say that attach rates as we look back on 2024 -- of course, we don't know yet that final new construction number.

But assuming it's in that 60,000 range, we would have seen that attach rate become less in 2024. What we're starting to do more work on, and I think this became more clear to us from a from a from a BI standpoint, is that another big driver of new construction is not just single-family home starts, but existing home turnover. And as you know, that was at much lower levels in 2024, and I believe that has as much to do with this with that lower number of new tools being built last year as anything.

That's helpful. I really appreciate it. Thanks, all.

Jeff Hammond, KeyBanc.

Hey, good morning, guys. This is David Tarantino on for Jeff. Just to follow up that in-quarter demand commentary, could you give us some color on what you think sell-through trends look like and what was driving it? Is it mostly the repair benefits from recent hurricanes? Any color there would be helpful.

Yeah, I do think that hurricane had some benefits. A large channel partner had indicated just last week that in-quarter growth in the Florida market was meaningful, which I believe does point to some of the repair activity that occurred in Q4 in that market, specifically.

So yeah. So I would say hurricane activity did have an impact for us in terms of shipments. We prioritize order inflow that was paid to that region in fourth quarter was highest priority of shipment for us. So we were looking to support the homeowners and then rebuild and repair activities in the impacted areas, Dave.

Okay. Great. Thank you. And then could you give us your thoughts on the margins in international moving into 2025, maybe size the impact of the inventory noise and what gives you the confidence that that goes away? And then maybe just give us some color on what do you think longer-term margin entitlement is here with margins well off the peak?

Yeah. I'll take that one, Dave. Good morning again. Yeah, look, we have some compression in Europe, the Rest of World margins in 24. Some discrete inventory items in both Q3 and Q4, which were one-time events, which won't repeat. They weren't material so they're not going to be a big needle mover overall for the full year type margin. But the big impacts screen those particular quarters.

We are looking at margin growth year-over-year in Europe and Rest of World at the gross profit lines. As Kevin mentioned in some of his remarks, we have a targeted years, some initiatives, consequential to leadership change, consolidation of manufacturing footprints, focus on the product line we're selling at a particular region, and looking at bill of materials cost structures there. So quite a lot of activity.

I don't think we're going to see a step change in margin in '25, but it will grow. We do have ambition to close the gap between -- aggressively close the gap between Europe and Rest of World, but as customer structural differences of markets, which are one that I make it in our opinion and equating margin structure to the North American market. But the rock projects underway to progressively closing it, to progressively close the gap.

I feel in some ways 2024 was really a transitional year for our Europe, Rest of World business. Some of the things that Eifion just touched on, were undertaken. And we're still yet to see full benefit from with some leadership changes at bench strength.

We do have an ex-PAT in the lead supply chain role. I think you're aware, David, that we consolidated facilities, one out of the greater Madrid area into a consolidated location in Barcelona. There were some fits and starts through the year there.

We altered the Chief Engineering role to be a global role, which is going to drive some nice new product introduction in the region there. And then just ongoing operating model simplifications. In addition to that footprint that I just mentioned.

Some back-office standardization, consolidating some G&A into a single location. And we exited one underperforming business, which presented a little bit of top line headwind in 2024. So we're not sitting still. We're not pleased, necessarily, with the overall net sales or the margin performance in 2024, and that's going to progressively get better moving forward.

Okay. Great. Thanks for the time, guys.

Brian Lee, Goldman Sachs.

Good morning, everyone. This is Nick on for Brian, he's on holiday. I just wanted to follow-up on just a little bit on the SKU rationalization. Last quarter, you mentioned retiring some lower attacker with the NIM products.

Would you be able to give any more color on if this is more so you ask the Rest of World? Or can you quantify at all if this is -- or how much of a headwind this could possibly be to top line in '25 or potential margin tailwinds as well? And also, is this ongoing? Or is this more first half versus second half? Or just how do we think about that? Thank you.

Yeah, certainly not expected to be a headwind top line. We're doing is very much to improve the quality of our infrastructure inside the income statement and continue to have a more agile and lean working capital position of particularly obviously inventory. Were into the program with SKU rationalization. We've been in it now for about 18 months then in two years.

We've made initial good progress. We're looking at all aspects of our SKU structures, both at the finished good level and the raw material level. We continue to focus on moving out legacy finished good products, promoting, obviously, the more technology-based products. Again, with no with no negative implication to the top line.

We obviously have to keep some legacy products for warranty purposes. When we get raw materials, a long tail of structures continually look to be rationalized, provide more common platforms. We're looking at that across the globe in all of our manufacturing facilities.

What can we do to have common raw materials. What can we do to have common width platforms. All of those initiatives are in play. And they will be accretive over the course of time through the gross margin.

But given specific guidance around how we interface '25, other than to say that this is an initiative that's in play and will be accretive over the course of time. Hopefully, it's the top line, as we promote more technology-based platforms in finished goods, as well as opening up the margin as we get away from legacy raw material and with structures.

Awesome. Thank you. That's it for me. Appreciate it.

Rafe Jadrosich, Bank of America.

I'll ask a few questions on the 2025 guidance assumptions. Can you just give a little more color on what's assumed for North America versus international? Also, what's the M&A carry over that we should expect for '25?

And then is there any channel assumption changes? Or should we think it's -- that volume growth is all sell through? Or is there any restocking or destocking included there?

In terms of ChlorKing, there's about 1% in our guide carry over that was closed right at the end of June in 2024. So half year will carry over.

In terms of channel inventory, we would say that as we work with our channel partners after having some additional or some modest reductions in their inventory positions in 2024, what we're hearing back is that they're pleased with the current levels days on hand. And then we are not expecting really anything one way or the other in our guide from a channel inventory perspective in 2025, Rafe. As for segments, I'll turn that over to (multiple speakers) --

Yeah, I mean, the way our guidance breaks down, overall, over 2% to 3%. I suspect, aside the pricing dynamic, North America will be higher than in Europe and Rest of World. And the FX implication, which is a minus 1%, overall, will be a little bit more weight negatively towards Europe and Rest of World. So when you think about bit on guidance, overall, headwind at 3%, I'd say higher in North America and lower in Europe and Rest of World by, roughly, single-digit movements between the two.

That's really helpful. And can you remind us how long your warranty typically last? And then when you had really strong volume in 2021, 2022 are we coming to the point now where a lot of products are starting to come off warranty and there is a replacement opportunity that would either benefit you in '25 or maybe even as we go into 2026?

There's some differences but I would say three years when products sold through the trade. And then some of our W3 product line, which SKUs specific for Omni channel or for online sales rate, so that's really more of a one year warranty period on those SKUs.

So yeah, with a three-year, I think we're starting to move through that standard three-year warranty period. Some of the product that was placed, call it late 2020 when the pandemic really started impacting market volume. So we would expect that to start to come due in the coming years.

Very helpful. Thank you.

Thank you. Mr. Holleran, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments.

Great. Thanks, Christine. In closing, I'd like to sincerely thank all our dedicated employees and valued partners around the world. Your hard work, passion, and unwavering commitment are the driving force behind our success.

We've built a strong foundation for growth and value creation in our first 100 years. I couldn't be more excited about the opportunities that lie ahead. Please contact our team if you have any follow-up questions, and we look forward to talking to you again on the first quarter earnings call.

Thank you for your interest in Hayward. Christine, you may now end the call.

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