Good morning. My name is Saree Boroditsky. I cover multi-industrials at Jefferies, including Hayward. We're very excited to host the management team today, including Eifion Jones, CFO, and Stuart Baker, VP and Business Development. Thank you guys so much for attending. We're gonna start with some opening remarks, and then we'll open the floor to any questions. Okay. Thank you. Good morning still. Can we just pull the slide, if you don't mind? Yeah. I just want to give some opening remarks, a little bit about the health of the industry as we see it. Today, Hayward Industries is a leading player in the residential pool market. We have tremendous share in North America and a developing share in Europe and the rest of the world. If we look at the backdrop of this industry, it's an industry that certainly is supported by tremendous secular trends, which includes deurbanization, moving to the suburbs, strong Sun Belt migration, technology adoption, which is evident in the product line sales that we're experiencing over the last 24, 36 months. It benefits from a tremendous resilient aftermarket business. A lot of discussion typically occurs around new construction, but the strength and the backbone of this industry is the aftermarket. It constitutes close to 80% of our top line. We at Hayward have a very strong income statement. We have industry-leading gross margins, which we're proud to be able to report at Q2. We've achieved price-cost neutrality. We have tremendous free cash flow conversion as an organization, which gives us a lot of optionality around capital allocation. I think we've been able to demonstrate and prove out to the investment community the ability for us to put price in and maintain price to protect our structural gross margins, as well as being able to take share over the last couple of years. We have achieved that share not only on the basis of having a very agile manufacturing footprint, but also through our new product introduction programs. As you've seen in our most recent earnings call, we have adjusted our second half to recalibrate the inventory in the channel and give ourselves an opportunity also to recalibrate our own cost base within the business and right size our own working capital positions. We'll have a lot of opportunity, I think, over the next 25, 30 minutes to talk about that, but I just wanted to give you a sense of what we're seeing. The industry remains very, very strong. As we go through the second half, well, we'll be able to prove that out. Great. Thank you. You know, let's just kind of get into quarter first. You just posted earnings. You had a decline in volume and now a bigger decline expected in the second half of the year. Could you just talk through what you're seeing in the end-user pool market versus your channel sell-in? Yeah. We expected a great 2022. We expected over 25% sell-through out of the channel. We continue to see that rate in our primary North American markets in the Sun Belt. Where we have seen a little bit of a setback is in the seasonal markets, U.S., Northeast, Midwest, and then in Canada, the entirety of Canada. There has been some weather patterns that have delayed out the channel sales. When I come back to the overall pool market, we see tremendous adoption to new technologies. Our two fastest growing product categories are our most expensive categories, controls and variable speed pumps. We're seeing tremendous adoption of those products in the marketplace, which gives us a great indication that the consumers are seeking out high-value products. They're less sensitized to price than maybe some have a concern. We're really encouraged by that particular dynamic. Just how is the visibility into your business from a customer demand and then channel inventory perspective? Kind of what was your biggest surprise that made you revise the guidance? We have good, not excellent, but we have good channel inventory knowledge. We do get inventory positions reported to us by predominantly our U.S. distributors. We do get good sales-through information as well from a cohort of our distributors. We have decent, good information there. At the end of Q2, we saw channel inventories primarily in the U.S. at elevated levels, and that necessitated us to work with our distributors to take down the positions over the course of the next six months. You know, obviously, we're coming off a period of, you know, very strong demand, and you were able to ramp up volumes very quickly to meet this. You know, as we think about lower volumes going forward, how should we think about your cost structure? We have an excellent price dynamic in the industry. First and foremost, we believe pricing is sticky irrespective of the demand profile in the business, and that's been proven out over the historical timeframe in the industry. We have a very agile manufacturing footprint that allows us to decelerate production very rapidly because a lot of the cost base that we have within manufacturing is variable. We put in temp and contract labor to take care of surge demand, and we are able to take that out at a very rapid pace. Additionally, across the SG&A base, we have an opportunity to always recalibrate that. From a margin perspective, you know, our objective is high 40% gross margin and +30% structurally at the EBITDA line. Though we may take a little bit of a dip in Q3, we fully expect the full year to be at those metrics. There's been some supply chain issues still impacting sales of certain products. I believe you kind of mentioned them being kind of the higher priced products too, the variable pumps and automation. You know, what are you seeing in the supply chain? Are there any products where you could have shipped more in the quarter if you had more materials? Yeah, I would say generally speaking, the supply chain dynamic has vastly improved in the first half of this year versus the second half of last year. We've been able to post up record production in the first half, and the supply chain constraints I would say are largely dealt with at this point. It has required some agility on our part and some recalibration of relationships. Fundamentally, the supply chain is rectified. That's not to say that every product category is still rectified. Electronics, PCBAs are still constrained, and we continue to want more than we can get. At the end of the day, we would say the supply side is fundamentally rectified at this time. As we think about end market demand, you know, how do you think about contractor backlogs heading into 2023? Because they've been something that's been sold out for a while now. Sure. First thing to say is our builders are busy. Everybody's busy right now. Most of them, I think we're seeing a pretty much sold out through 2022, many of them through the first quarter of 2023. You know, we're still monitoring very closely. We have seen some slowdown in permits, but permitting was at an all-time high. I think that's a normal normalization of permits. The nice thing that we are seeing is that the permit values are actually higher, and that maybe speaks to a little bit of what Eifion just talked about, that content seems to be going up. Maybe some weakness at the very entry level of the pool market, but certainly in the mid to high end, we're not seeing that weakness in permits. You know, we get weekly reports, and we can see how many permits and what the permit values are, and it's that that remains still strong. There's been, I guess, some talk out of the push out of remodeling projects during the pandemic as homeowners maybe didn't want their pools out of commission for a period of time. I think builders were busy. You know, have you seen a return of this demand? You know, is there some pent-up opportunity there? I think we do think there is still pent-up demand there. As you said, most people through the pandemic did not want to give up their pool. The work from home dynamic is obviously the reason behind that. There was enough interest in new pool construction. It's like building a new house versus restoring a house. It's a lot easier for a builder to come in into a virgin backyard, dig a pool, rather than go in and be a little uncertain what they're gonna be working with and what they're finding. So they always prioritize new construction. If we start to see some new construction tail off, I think that's a natural time. We'll see them turn their time to remodeling. I think pools are still at a record age. According to P.K. Data, it's about 23 years old, which is at the end of a lifetime, really, of a pool. Once you get to over 20 years, you start to have structural issues with a pool. Typically, at that time, they sweep the pad. To us, it looks like a new construction. Pricing has been a larger contributor to growth than normal. You know, how much have prices increased cumulatively since 2019? You know, how much of this price is structural versus surcharge? When would you expect those surcharges to roll off? Sorry, a lot of questions there. Yeah. Just to level set. I mean, historically, the industry had a very disciplined price mechanism. Typically, at the beginning of the pool season, which is October first, we institute a price increase, which is there to protect against inflation and maybe a little bit more value, but typically to protect against inflation. It's been necessary over the last two years to continue that philosophy and protect against inflation, albeit we're now dealing with, aggregatedly since 2019, close to 30% in North America price increase. We believe that is sticky and necessary. We don't expect deflation. We expect the rate of inflation to decrease, but we don't necessarily expect deflation at this time. I think the more important aspect for the industry and for Hayward in particular is in order to command those prices, you have to provide a value proposition to the consumer. When we look again at those product lines which are increasing year-over-year in volume, it tends to be the higher value price products, which tells us that irrespective of the price that's gone into the market price, there is a level of price desensitivity that exists, and consumers are still willing to pay for the higher priced products. You have to remember that 80% of our business is directed towards the aftermarket. It's where repair and remodel takes place. It's where the upgrading takes place. It's where attributes are sought out by the consumer. We see that self-evident in the volume of our lifestyle product categories, heaters, lighting, controls, sanitization. High priced products all are accelerating volumetrically year- over- year. We're not concerned about the price points we put into the marketplace. As Stuart maybe have mentioned, at the very low end of the market, there could be some price sensitivity. At the end of the day, at new construction, pool equipment is still only about 10%-11% of the overall installed cost. It's not a major issue. If the price goes up 20%, 30%, it's only gonna add a couple of percentage points onto the overall installed pool price. It's not a major issue to the consumer. I guess, have prices been increasing pretty similarly across the competition? Yes. I mean, I think we've all faced the same inflationary challenges and have all necessitated these price increases to protect the margin. Just for the audience, if you do have questions, just please raise your hand. We're happy to take them throughout. The health of the housing market and consumers kind of sentiment has been a concern lately. Have you seen any impact so far from pool equipment demand? No, we haven't. I think the flip side of that question is, how much pent-up demand is there for pool in a compressed new construction housing sector? Historically, we would say for every 10-12 homes that are created, one has a new pool put in. Additionally, in the absence of new construction, if people are trying to upsize for their family reasons or for whatever, that will also be a generator for new pool growth. What we're seeing now is a larger adoption of new construction for pools. We'll begin to see more pools put in per new construction homes. There is today around about 4.5 million-5 million homes which are absent new construction. There's pent-up demand for about 400,000-500,000 pools associated with that 4.5 million-5 million absence of new construction. The positive message around the housing constraints today is that there is a tremendous amount of pent-up demand for pools that's on the come line to come. I believe that my family still wants a pool, so we're a future customer. Europe accounts for roughly 10% of your sales. Could you just talk about what you saw from a demand perspective there? Because we've kind of always focused on North America, and how you're thinking about the rest of the year into 2023. Yeah. Certainly Europe has had some challenges, separate from the North American sector. I mean, obviously, we have the Ukraine situation, which kicked off unfortunately in February. We had to back out of certain Russia-owned businesses, and that was a permanent step down in that sales profile of the organization. I think the general mood in Europe right now is not great. We have two large regions where we do very well, Spain and France. Those are very rich pool markets, and we continue to see good demand there. In the northern part, Germany, Switzerland, Austria, and maybe up into the Netherlands and Belgium, we're seeing some constraint on demand. We do expect it to recover. You know, we don't believe this current situation will last forever, and so we're hoping and expecting a better 2023. Then layer onto that, the translated result is not as good as we'd expected with the devaluation in the euro against the dollar. Might be worth just adding on our European segment business. Our leader there also oversees the Middle East. That's actually a very buoyant market. It's always interesting when you look at Europe and the adjacencies that right now, while Europe may be struggling a little bit, we're starting to see some really nice growth in the Middle East. Can we just talk about the penetration of smart pools? You know, what percentage of pools today are equipped with this technology and kind of where is it going to over the next five, maybe 10 years? Yeah. Actually we have a slide in our deck, but it's the way to think of it is about 30% of pools today in the aftermarket, so in the installed base, have some sort of digital control. That means 70% don't. I mean, most of them at best have a time clock. If anybody in the audience is a pool owner, you know it's a real pain to have to keep going and manually changing valves. I think as you look at new construction, the penetration of controls and automation in new construction is getting closer to 70%. Controls is becoming a standard. You know, you think about you have to have a pump, you have to have a filter. Increasingly, people want automation. The delta, that roughly 40% delta between, you know, the take rate of new construction and what's happening, what's already in the aftermarket is a pretty exciting opportunity for us as an addressable market. That's 40% of 5.4 million pools don't have a control, which at $1,500 for us OEM price, it's our biggest opportunity, this $3 billion opportunity to go into the aftermarket and really give people controls that they need. I guess given the higher price point, how much of your sales today are connected products or automation? Yeah. That falls into a category between automation, sanitization, and variable speed pumps, about 20%. These are all brand new product platforms that we've launched in the last 24 - 36 months. It's getting close to 25% of our revenue. It's exactly 22%, but it's getting close to 25%. Each year, these new technology products are an increasing part of our overall profile of revenue. I think it's important to understand we're creating an ecosystem. As we go through our new product development programs, very quickly, the majority of the pool pad will be a connected technology to our Omni controller and to our app. You as a pool consumer, pool owner, will have the ability to control 100% of the equipment attributes in and around your pool. Does that make consumers more sticky from, like, a brand preference? Absolutely. Yeah. Most people may not be gazing over the bush or the fence to see the brand of their pump. We find that of all of the Omni controls we sold, 95% of the consumers that own an Omni are actively using the app. Every time they open the app, they see Hayward. Typically, they're opening the app twice a day in season. That's it. It helps that brand reinforcement. I just wanna kind of touch on your margins. Obviously, 30% EBITDA margins are pretty noteworthy. You know, what enables this industry to generate such strong margins, and how do you think about EBITDA margin potential over the long term? Yeah. I think it comes down to three main pillars. One is price discipline. The industry has tremendous pricing power and price discipline. Secondly, it comes around new product introductions, and we are going through a bit of a renaissance in the industry as we bring new technologies in which have higher price points, higher margins, create a bit more of a Trojan horse mentality. As you put more products into an ecosystem and get brand recognition with the consumer, you're gonna get the pull through the channel for more products. And so bringing those high price innovative products is another attribute to our margin. Thirdly is operating leverage, and we regard Hayward as a very agile, vertically integrated manufacturer. A company that has the ability to scale up, and that's certainly been the case over the last two years, where we've gained significant operating leverage by being able to service the demand profile over the last two years from our existing four walls of manufacturing footprint. Then I'd say finally, we have a very legacy-based focus on cost structures, which dates back many, many decades, where we attack each day at the manufacturing level with Kaizens to make sure that we're cost optimizing our processes, and that actually extends across our SG&A base as well. I think you guys gained some market share during this last upturn. You know, you focused a little bit on new dealer acquisitions. How has that translated to growth for your Totally Hayward Rewards program? How sticky is that? Yeah. In 2021, we grew our dealer base. We grew our dealers, our builders and services by 21%. Through Q2, we're up about another 11% on that year. This is not by accident. We have a focused team. We actually took our sales force from being a generalist sales force and took individuals out of each region and made them a business development manager. Their sole focus is winning and converting dealer services over to Hayward. They only get paid, their commission is paid based purely on dealer conversion. That we think is very sticky. To become a Totally Hayward builder, it's something that is a conscious decision. You have to buy at least 30 pieces of equipment in three different product categories. These are not people that, you know, went to buy a Pentair pump and Pentair was out of stock, so they bought a Hayward and became a Totally Hayward partner. It's a conscious decision to change. They have to carry spare parts. They have to attend our training programs. I think as you've seen us over the last six quarters, really outperforming our peers, it's now becoming, we think, very sticky, largely because the amount of educational training that has to take place, as well as the spares that they have to carry. We think this is a great springboard and growth for the next few years as we grow with them. You know, typically the algorithm for poolscape is thought to be about 6%-8% growth a year. Given the last couple of years of extremely strong growth, you know, how do you think about the near term and long term growth algorithm? Yes. I do think that the business will grow above that historical growth algorithm rate. A couple of key underpinning attributes that give me that confidence. One is the outdoor living space is going through a technological revolution, very much in the same way the indoor space did over the last decade. That controller environment is entirely new to the pool space. 10 years ago, everything was operating on a mechanical clock, timer-based functionality. Now we have a controlled ecosystem, which obviously is a new additive product to our product range. As I mentioned, it enables the pool owner to have a greater affinity for their qualitative experience, and that's gonna create greater demand, we believe, for pool equipment, both core pool equipment and what we call lifestyle products, which enhance the experience. We do believe the growth algorithm has increased. Price is a great discipline factor of this industry, so we fully expect price to always be in step, if not slightly higher than inflation. I believe a high single-digit type growth algorithm is our expectation for the industry going forward. It won't necessarily be linear, but we definitely see a more positive growth algorithm going forward. Only have a few minutes left, so just kind of skipping over to capital allocation. You recently acquired the specialty lighting business. Can you just provide more details on this acquisition? How does it fit with your strategy? Then a little bit on, you know, where you're looking to acquire things in the future. Yeah. Let's just talk about Halco. It's a great company. It's a nice little acquisition for us in a space which is one of the top three fastest growing categories, which is lighting. You know, again, anybody that's got a pool, you can easily transform your whole backyard through really nice landscape lighting and pool and spa lighting, whether it's color or light, if you're mixing both. Halco is a market leader on the West Coast, and I think we've talked in the past that you know, the West Coast is an area of focus for us, where we want to grow our business. To acquire a company that's one of the market leaders in lighting on the West Coast opened up some access to new builders. It had a bit of a regional aspect. It has a nice technology play because where they had great lighting products, they didn't necessarily have the best control products, and we have the best control products. It's very easy to control their lights. There's a few little projects running right now, which should be ready for the 2023 season where we can run all of those lights. I think the third piece that was interesting to us is they brought with it roughly a $20 million landscape lighting business. You know, increasingly we want to be able to control the whole backyard. We see Omni as a bit like a home controller, but for the backyard. We can now, if you're a homeowner, you can control your landscape lights, your pool lights. You can have them mix, work together in concert if you want to have color lights in your landscape lights as well as, rather than just having warm white lights. You can create some great backyard effects. Just to clarify, we purchased the specialty lighting business from Halco, brand name J&J Electronics and Sollos. You know, for us as an organization, our capital allocation priorities remain as they have always been, which is to continuously make sure that we reinvest as we need to in our own business. We're a high CapEx model, typically around 2% of revenue a year. But we will continue to take that as our first priority in a capital allocation program. Second is M&A. We've done some M&A, technology-based M&A primarily over the last eight, nine, 10 months. Third, return to shareholder. You've seen how active we've been in that particular space over the last 12 months. As we go into this immediate next season of our life, we're really focusing in on the base business and making sure our manufacturing footprint is right sized and appropriately automated to continue to look at operating leverage and getting cost improvements inside our organization. Okay. We're out of time. Thank you guys so much for joining us today. Thank you. Thank you.