Welcome to Hayward Holdings Q2 2023 Earnings Call. My name is Michelle. I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press Star, then one on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Investor Relations. Mr. Maczka, you may begin. Thank you. Good morning, everyone. We issued our Q2 2023 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, 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 2023 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Form 10-K and Form 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 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. I would now like to 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 Q2 earnings call. I'll start on slide four of our earnings presentation with today's key messages. I'm pleased to report Q2 results exceeded expectations, with continued strong execution resulting in robust margin expansion and cash flow generation. Our team is performing remarkably well and driving structural improvements in the business during a challenging operating environment. Channel sell-through exceeded both our expectations and our sales into the channel, resulting in further normalization of distributor inventory. We expect the channel destocking to be fundamentally complete by the end of the Q3, positioning the channel at leaner levels entering the 2024 pool season. This sets up Hayward to return to a normal matching of sales with channel sell-through. We achieved record gross profit margins in the quarter through operational excellence and necessary price realization to offset inflation. This is a tremendous accomplishment, and I'm very proud of the Hayward team. We also demonstrated our strong cash flow generation characteristics. Cash flow from operations more than doubled on a year-to-date basis as we effectively reduced working capital. As we proactively manage costs and working capital, we continue to invest in the business to advance our technology leadership position, support our customers, and drive future growth. We continue to execute in a challenging operating environment, and I'm pleased with our performance during the quarter. Finally, we are refining our guidance. For the full year 2023, we now expect adjusted EBITDA of $265 million-$280 million, with the high end modestly reduced by $5 million and the low end maintained as a consequence of strong margin performance. We now expect net sales to reduce approximately 20%-23% compared to last year, primarily due to leaner channel inventory positions at the end of Q3, ahead of expected robust early buy participation in Q4. It's important to understand our outlook for channel sell-through in 2023 is unchanged. Looking forward, we have every expectation of resuming a solid historical growth trajectory of mid to high single digits, with our sales into the channel aligned with channel sell-through of Hayward products. Now turning to slide five, highlighting the results of the quarter. Net sales in the Q2 reduced 29% year-over-year to $283.5 million, largely due to channel inventory movements and softer market conditions related to global economic uncertainty. This compares to a period of extremely strong growth of 10% in the Q2 of 2022 and 66% in the Q2 of 2021. As I mentioned, based on data from our primary channel partners, sales out of the channel exceeded our expectations in the quarter. We are now seeing a return to more normal seasonality, with Q2 seasonally strong and Q3 typically lower sequentially as we exit the summer pool season. We are encouraged by continued price realization to offset inflation and the success of our innovative new solutions. The market is responding favorably to the connected suite of products within our Omni Automation ecosystem, with sales of IoT controls and lighting increases, increasing in the quarter. Commercial pool sales also increased double digits in the quarter. We are increasingly focused on driving growth in these markets and are pleased with the continued robust demand. As I mentioned, the gross margin performance was again exceptional this quarter. Gross profit margins expanded 70 basis points year-over-year to a record 48.1%, despite reduced net sales and 150 basis points sequentially. Having achieved price cost neutrality, the improvement in our gross margin is the result of multi-year operational improvements, including consolidation of our manufacturing footprint, removing inefficiencies, realizing value engineering savings, and driving continuous improvement. This has allowed us to continue expanding gross margins at lower production volumes while positioning for future growth. Adjusted EBITDA in the Q2 was $79.5 million, with a healthy margin of 28%. We continue to deliver the expected SG&A savings under our cost reduction program. Adjusted diluted EPS in the quarter was $0.19. Turning now to slide six for a business update. We estimate that Hayward captured significant market share over the last three years, and our teams are working hard to gain share going forward. As discussed in recent quarters, our new product development strategy is a key driver as we increase investments in innovative new products to further advance our technology leadership in the industry. Another important driver is the evolution of our go-to-market strategy. Prior restructuring of the sales force and the establishment of dedicated business development teams focused solely on new customer acquisition, resulting in solid growth in the number of new dealers converting to Hayward. To further improve the customer experience, we are enhancing the organizational structure in an important strategic region, integrating sales, technical service, support, and training under common leadership. This touches all aspects of customer engagement, from new dealer orientation and training to post-sale support. We're also enhancing our marketing campaigns for the service trade to incentivize conversion to Hayward products. This evolution will drive customer intimacy and deliver incremental demand for Hayward. Further, in international markets, we are reallocating resources to higher growth regions, notably Southeast Asia, Australia, and Middle East. Early success of these programs is encouraging and supportive of continued market share gains and establishing Hayward as a leading brand in these regions. Channel sell-through exceeded expectations in the quarter. Our channel partners continue to recalibrate the level of inventory as expected relative to the current economic outlook, normalized OEM lead times, and higher cost of carrying inventory. We continue to anticipate further reductions as we close out the pool season to a leaner position at the end of Q3 as distributors prepare to participate in the 2024 early buy program. Turning to the price versus cost dynamic, we implemented a price increase of 4%-5% at the beginning of the year to achieve price cost neutrality, and we continue to realize this pricing as expected. As a reminder, we took proactive actions in recent quarters to streamline the organization, optimize the cost structure, and maintain a healthy margin profile, with full-year gross margins in the mid to high 40s and adjusted EBITDA margins in the high 20s. We are delivering on these commitments. Our team continues to prioritize working capital management, and we delivered significant improvements during the quarter. On a year-over-year basis, balance sheet inventory and total working capital declined by $78 million and $135 million, respectively, contributing to the strong cash flow performance. Finally, we continue to make great progress on our ESG journey and are pleased that our performance is being recognized. Since receiving a 2023 regional top-rated award from Morningstar Sustainalytics last quarter, MSCI upgraded our ESG rating from triple B to A. Additionally, I'm proud to report that our full suite of variable speed pumps is now ENERGY STAR certified by the U.S. Environmental Protection Agency. Hayward is dedicated to develop the industry's most energy-efficient, high-performance products to drive market share gains, particularly in high energy cost markets like California. This achievement further demonstrates why we continue to be the number one-rated products brand by U.S. pool professionals. With that, I'd like to turn the call over to Eifion Jones, who will discuss our financial results in further detail. Thank you, Kevin. Good morning. I'll pick up on slide seven. All comparisons I'll make will be on a year-over-year basis. We are pleased with our Q2 financial results. Net sales exceeded expectations for the quarter, both sales into the channel and channel sell-through, and reflected a return to normal seasonality, coupled with a progressive right sizing of channel inventory. We delivered outstanding gross margin expansion to a record 48%. We're realizing our SG&A cost reductions in line with the plan. Our balance sheet is strong. We had an excellent quarter for free cash flow generation, enabling us to reduce leverage to 3.8x net debt to EBITDA. Looking at the results in more detail, net sales for the Q2 decreased 29%- $283.5 million. This was driven by a 35% reduction in volume, partially offset by positive price realization of 4%. It's important to understand the volume decline during the quarter was primarily driven by distribution channel inventory movements, in addition to the expected moderating and demand trends in the discretionary elements of our markets, like new construction. Unfavorable weather in certain U.S. markets at the start of the pool season had a modest impact. Despite the reduction in sales in the quarter, we delivered a three-year growth rate of 9% when compared to the Q2 of 2020. That's a three-year stack growth of approximately 29%. At the channel sell-through level, this growth rate was even higher. Gross profit in the Q2 was $136.5 million. Gross profit margin has increased 70 basis points year over year and 150 basis points sequentially to a record 48.1%. Disciplined manufacturing cost control, continued price realization, and moderating input cost inflation more than offset the impact of reduced production volumes. We achieved price cost neutrality and recalibrated our manufacturing cost base to deliver this strong gross margin performance. Over the last five years, we have improved capacity utilization with a rationalization of a manufacturing footprint, including the exit from one larger underutilized facility and the integration of three acquired manufacturing facilities. Hayward has a long-standing commitment to lean manufacturing and continuous improvement, and the business is well-positioned to deliver further productivity gains and robust profitability going forward. Selling, general, and administrative expenses declined 16% year over year to $58 million in the Q2. We took proactive actions in late 2022 to streamline the organization and optimize the SG&A cost structure, and we are now delivering on the targeted annual run rate savings of $25 million-$30 million. Adjusted EBITDA was $79.5 million in the Q2, and Adjusted EBITDA margin increased 660 basis points sequentially from 21.4%- 28%. We are pleased to report Adjusted EBITDA margins in the high 20s at these reduced volume levels, and we're positioned to drive solid margin expansion as volume growth returns. Our effective tax rate was 32% in the quarter, compared to 24% in the prior year period. The change was primarily due to the timing of a discrete tax item. Adjusted diluted EPS in the quarter was $0.19 on a fully diluted share count of 221 million shares. Diluted share count decreased approximately eight million shares, or 4% year-over-year, as a result of share repurchase activity in prior periods. Let's turn now to slide eight for a review of the reportable segment results. North America net sales for the Q2 declined 31%- $237 million, driven by 36% lower volumes, partially offset by a 4% favorable price impact. The reduction in volume was largely due to both the expected right-sizing of channel inventories and the moderating end demand trends, as previously communicated in new construction and remodel. Gross profit margin expanded 110 basis points year-over-year and 130 basis points sequentially to a very solid 49.9%, and adjusted segment income margin was 32.4%. Again, we are pleased with the margin performance in the quarter. This was a tremendous achievement for our team. Turning to Europe and rest of world, net sales for the Q2 decreased 20%- $46 million. Net sales benefited from net favorable price realization of 4%, but were adversely impacted by a 25% decline in volumes due to channel inventory reductions and the impact of geopolitical circumstances in Northern Europe. We are pleased with the results of our expansion campaigns into Asian markets, where we have established a solid share position. Overall, the segment gross profit margin was 39.1%, and adjusted segment income margin was 20.8%. Turning to slide nine for a review of our balance sheet and cash flow highlights. Net debt to adjusted EBITDA was 3.8x, down sequentially from 4.1x in the first quarter as a result of strong cash flow generation. Q2 is a seasonally strong period for cash collections, as the receivables related to early buy business sold in Q4 and Q1 on extended terms are collected in Q2. Additionally, we made great progress on the reduction of our own inventory, sequentially decreasing $40 million from the ending Q1 position. We expect net leverage to be closer to 3x by the end of the year. Total liquidity at the end of the Q2 was $437 million, including the cash, an equivalence balance of $205 million, and availability under our credit facilities of $232 million. We have no near-term maturities on our debt or interest rate swap agreements. Term debt of $1.1 billion matures in 2028, and the undrawn ABL matures in 2026. Our borrowing rate continues to benefit from the $600 million of debt currently tied to fixed interest rate swap agreements maturing in 2025 and 2027, and our average earned interest rate on global cash deposits for the quarter was 3.8%. This attractive maturity schedule provides financial flexibility as we execute our strategic plans. We completed the transition from LIBOR to SOFR on Term Loan B borrowings during the Q2 with no material impacts on our financial position. Overall, we are pleased with the quality of our balance sheet. We have strong but seasonal cash flow generation characteristics driven by high-quality earnings. Cash flow from operations was a robust $167 million in the H1 of 2023, compared to $64 million in the H1 of 2022, reflecting robust cash collection of prior early buy shipments and a reduction in our own inventory. We have been successful in managing our working capital inventory levels. Inventory has declined $49 million year to date and is now down $97 million since peak in the Q3 of 2022. CapEx of $16 million in the H1 was consistent with the prior year period. Free cash flow more than tripled in the H1 to $151 million. With a return to normal seasonality, the company will typically generate cash in the second and third quarters and use cash in the first and fourth quarters. For the full year 2023, we expect free cash flow conversion of greater than 100% of net income, with free cash flow now exceeding $175 million. Turning now to capital allocation, slide 10. As we've highlighted before, 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 consider tuck-in acquisition opportunities to complement our product offering, geographic footprint, and commercial relationships, in addition to opportunistic share repurchases. However, in the near term, we're prioritizing growth investments and reducing net leverage within our targeted range of 2x-3x. Turning now to slide 11 for our outlook. We remain very positive about the long-term health and growth profile of the pool industry, particularly the strength of the aftermarket and in Hayward's leadership position within the industry. We are refining our outlook for 2023 to reflect incremental reductions in channel inventory levels. Our view of underlying consumer demand for Hayward products is unchanged, but the broad channel network is adopting a very lean inventory position. We now anticipate a decrease in consolidated net sales of 20%-23% due to modest incremental reductions in channel inventory levels. Our outlook for end demand, defined as channel sell-through, remains unchanged. In North America, the nondiscretionary aftermarket is resilient, but we expect new construction to be down approximately 30%, with remodel and upgrade down approximately 25%. In Europe and rest of world, we continue to anticipate a broad reduction of approximately 25% as geopolitical circumstances weigh on consumer sentiment in Northern Europe. These decreases will be partially offset by a 4%-5% net sales contribution from price increases initiated at the beginning of the year. We expect gross profit margin to modestly increase in the H2 of 2023. Given the solid margin performance, we are maintaining the low end of our prior range, with the expected adjusted EBITDA to be between $265 million and $280 million. As discussed, we also expect strong cash flow generation in 2023, with free cash flow exceeding $175 million. Our interest expense expectation is approximately $75 million, reflecting the current interest rate environment and borrowing levels. The effective tax rate forecast remains approximately 25% for the remainder of the year, and our CapEx spending forecast is also unchanged at $25 million-$30 million. I'll close with this summary. I'm proud of the Hayward team's ability to execute throughout this challenging period for the industry, delivering net sales ahead of expectations for the quarter, with record gross margins at reduced sales volumes. I am also very pleased with the strong cash flow generation and reduced balance sheet leverage. With channel inventory reducing to lean positions, increased market share over 2019, structural gross profit and adjusted EBITDA margins returning to our target levels, and a strong balance sheet, we're in good financial position as we enter the H2 of the year and the commencement of the 2024 pool season. With that, I'll now turn back to Kevin. Thanks, Ivan. I'll pick back up on slide 12. Before we close, let me summarize the key takeaways from today's presentation. We delivered Q2 2023 results ahead of expectations. Our team executed well in a challenging environment, maintaining disciplined cost control and achieving record gross margins and strong cash flow, all while investing in the business to drive future growth. 2023 is a year of normalization as the industry navigates global economic uncertainty and channel inventory recalibration. We view this as a temporary dynamic in a resilient industry characterized by consistent growth, an ever-growing aftermarket, and a number of secular tailwinds, including the appeal of outdoor living, Sun Belt migration, connected smart home technologies, and environmentally sustainable products. Each of these are here to stay, and the pool industry is a beneficiary of each of them. As a leader in this very attractive industry, I'm excited about the opportunities to leverage Hayward's competitive advantages and drive profitable growth and shareholder value creation. With that, we're now ready to open the line for questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a 3-tone prompt acknowledging your request. Should you wish to remove yourself from the queue, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Andrew Carter of Stifel. Please go ahead. Hey, thanks very much. First question I wanted to ask. The gross margin performance ahead of your expectations. As you think about the price cost, I know you said neutrality, but I would assume prices are well ahead of input cost inflation. Where you start to see some real easing, like, peak? I know that days inventory have actually continued to increase. Anything you can help us on cadence or gross margins? y- yeah, Andrew, this is Kevin. you know, I would say from a price cost, achieving that neutrality here in, in Q2, as you know, that this has been many quarters in the making to get to this neutral position. And I think the organization has done a great job of really implementing pricing initiatives to protect those margins. In terms of inflation, I think it's safe to say we've seen some moderation in the rate of inflation, particularly in some highly volatile commodities that we that we've dealt with historically, but we've not yet seen wholesale deflation. Frankly, we're not calling for that in the immediate future. you know, that's, that's really informing some of our thoughts heading into 2024, which, which we're certainly not guiding. We're in process of really determining what kind of pricing actions to offset inflation will be contemplated heading into 2024. Again, at this point, we're not seeing deflation, really just more moderation. Other things that have helped the gross margin, you know, certainly the raw material supply coming back to near normal is certainly presented a bit of a tailwind for us. You know, no longer having to do some of these spot buys, air freighting, or really working overtime in our facilities to satisfy demand, have all been key elements of what's driven the margin performance more recently. Thank you. I would just add- I have a question. I would just add- Yeah, go ahead, Ivan. I would just... Yeah, I would just add, Andrew, when you think about the 48%, which is an improvement, obviously, you've got to split the margin into two pieces, the margin benefit here. One is price cost neutrality. We're ticking that box. The second element has been the progressive background story over the last three years to rightsize our manufacturing facilities. You know, since the end of 2019, we've exited 4 facilities all within the U.S. One was on the West Coast, three were acquired facilities, and all of that has been synergized into the remaining existing four walls of our facilities. That has been additive to the margin, which is really now being visible inside the margin, probably masked over the last three years because of all the inflation noise. Thank you. 1 other question. The free cash flow guidance has gone higher by just $25 million. You generated $150 million, that means $25 million in the H2. If I look at your leverage target, that implies that you've got a lot more free cash flow. Could you square that with us? If there's any kind of downside to your expectations around pre-buys, could that be a stronger fundamental performance for the year? Thanks. Sure. It's a great question there. Yeah, obviously, you can see in my, let's call it conservatism inside the cash flow forecast. We've done $151 million year to date in free cash flow. We're calling greater than $175, and I do believe it will be greater than $175 to achieve closer to the 3-point net leverage. We've still got to get through the announcement of our early buy program. As you know, under the early buy program, it does include extended terms. We have to see the offtake level to that early buy, and that may change the outlook for free cash flow as we get into the H2 of the year. We feel very good about our ability to continue to reduce leverage in the business down to that 3 times based upon our current outlook today. Thanks. I'll pass it on. Thank you. The next question comes from Jeff Hammond of KeyBanc Capital. Please go ahead. Hey, good morning, guys. Morning. Morning, Jeff. Hey, was interested in your comment about sell-through exceeding expectations, and I'm just wondering if that's a market dynamic or market share, you know, dynamics. Then, you know, I guess if sell-through is coming in better, what's kind of informing the bigger destock? Yeah, I would say, you know, it, it was better than expectations. In our original guide, we laid out, you know, net of price, you know, something in the 10% range. We're seeing - 10%, that is, year-over-year. We're seeing something slightly better than that here in the Q2, you know, but not, not, not, you know, massively better than that. It's still negative. You know, I think our sell-through, Jeff, has continued to be really strong based upon data we collect and working with our, with our channel partners. You know, we, you know, as we work through, you know, the end of the pool season here, Q3, you know, we are calling for additional destock. As I said in, in my prepared remarks, we expect to really be, be there, you know, at, at lower than originally expected, inventory levels. I think that that's really what, what, what prompted some of the update to the guide that we presented here this morning. I think it also presents us with an opportunity around early buy to really position ourselves well heading into the 2024 pool season. Okay, then just maybe level set us on how you're thinking about Q3, Q4, Q seasonality. Then I think you mentioned the word robust in terms of early buy. Like, just what's your level of visibility and communication with your you know, distributor partners around, you know, just the, the, the size and magnitude of early buy? Thanks. Yeah, from a seasonality standpoint, you know, I'd say it's, it, it's trending back to, to more, to a more normal seasonality that we've seen historically. You know, that kind of call H1, would call it high 40%, H2, kind of low 50%, with, you know, Q1 and Q3 looking pretty similar to each other. You know, Q2 being, or I should say Q4 being, a, a tick up from what we historically see in Q2, based upon kind of collecting those early buy orders and being able to ship them, at our discretion. So, you know, we really see that returning to that more normalized, quarterly seasonality. I'm sorry, the second part of the question, I forgot what that was. Just the visibility. Yeah. Yeah. Visibility on early buy and communication with the distributors. Yeah, you know, we, we, we, we have had conversations, you know, and I think based upon, you know, the desire here to maybe take inventory to an incrementally lower level exiting Q3, I think positions all stakeholders, OEMs, as well as channel partners, to really lean into early buy, for, for the 2024 season. We haven't had what I'd call a normal early buy now for, you know, for several years. You know, I see it really kind of returning to a more to a more normal early buy expectation with maybe a little bit of tailwind, given the fact that inventory levels, we'd expect to be to be even healthier than they have been historically. Okay. Thanks so much. Thank you. The next question comes from Robert Wertheimer of Melius Research. Please go ahead. Thank you. Good morning, everybody. Morning. It seems like you and others in the, in the industry have, kind of the same view that the, channel destock will be completed at 3Q. I wonder, if you could just share, like, your, your investigation around it, what you've done, any industry metrics you can sort of see to, to, you know, to, to give us background, you know, how confident you are in, in that estimate? Sure. it's not a perfect science in terms of collecting every single industry data point, but we get good information on our primary U.S. trading partners, our distributors, and some from the retail side of the channel. And what we've seen is a progressive destock since Q2 end, end of Q2 2022. There has been a progressive level of destocking taking place, and it really accelerated over the 1st half of this year with a great level of destocking occurring in the Q2. What we're hearing from the channel is that they want to continue that trend as we get into the heat of the season, Q3, with every expectation they want to have their balance sheets at a lean position as they enter the early buy period. That's what we're hearing, and based upon the numbers that are being reported back to us, that's, that's what we're seeing. Okay, perfect. I, I apologize if I missed it. You, you, I'm sure saw one of your competitors sort of quantify the destock impact on revenue for them this year. Do you have a similar quantification of that? When you say lean, you know, for the channel, do we end up the year sort of normal ranges or a little bit lean or a little bit fat on channel inventory versus underlying sales levels? I'll stop there. Thanks. Sure. What, what we've effectively included within our guidance is a channel destock on the full year of approximately $160 million, a little bit less than that. That's really both at the primary channel level and a little bit associated with what we're hearing could be held at the dealer at the dealer level as well. In the entirety of the full-year channel destock, embed within our guidance is approximately $160 million. Perfect. Thank you. The next question comes from Saree Boroditsky of Jefferies. Please go ahead. Good morning. This is James on for Saree. Thanks for taking my questions, and I, I wanted to touch on the pricing. How are you thinking about the pricing, like, going into 2024 as other, like, pool industry players are suggesting, like, higher than normal pricing? Yeah, I mean, we, you know, I'd say we're still working through that. It's, we normally work through the pricing same time that we're developing or, or designing the early buy program. You know, what we see, you know, we still really see an expectation around inflation next year. You know, depending upon the source, I think it's, you know, somewhere between 3% and 4%. I think we'll continue to battle wage inflation as that works through the components and, you know, even in some of our own suppliers. You know, we're intent on continuing to maintain price cost neutrality. Obviously, we're, we're aware of how much price has been put into the marketplace over the last, call it, three years or so, you know, with an eye to potential demand destruction. Again, you know, given the inflation estimates that are that are out there, you know, we're, we're, we're looking at implementing additional price actions into 2024. Great. Thank you. I will leave my questions there. Thank you. Thank you. The next question comes from Rafeh Yardemian of Bank of America. Please go ahead. Hey, hi, good morning. It's Rafeh. Thanks for taking my question. Just following up on the comment on the pricing expectation for next year and then the early buy expectation for the kind of having it in line with normal trends. What, what, like, incentivizes dealers and distributors to participate in that early buy? We're kind of talking about them, you know, working hard to get their inventory lower than normal. Like, is there potential that they just continue to operate with these lower levels of inventory? Or, you know, do you expect kind of the return to normal pricing cadence to get them to pull forward their orders? Yeah, I mean, I think that there will be participation in, in early buy. You know, again, it's still being designed for the 2024 season, but you know, traditionally, early buy has been a poor element of our, of our industry, both, you know, really in all markets, whether that's seasonal or more the Sun Belt markets. Historically, there has been a, a pricing pricing announcement at that, at that time, with some discounts incorporated into the early buy program, along with some payment terms. You know, those are the enticements, you know, that I, that you, that was in your question there, Rafi. You know, and obviously, there's great benefit to to the OEMs-... you know, in our ability to, to, run our factories, smooth out some of the production, peaks and valleys, and, you know, as important, get product staged into the channel, should we have a, an early break to spring so that, we're ready to respond, if there's an early start to the season. Thanks. That, that, that's really helpful. Kind of stepping back and thinking longer term, I think you described 2023 as a year of normalization after really exceptional growth, the prior two years. How do we think about when we could sort of get back to that long-term algorithm for the industry of mid to high single digit growth with, like, consistent pricing? You know, when do you think we will sort of get, get the industry is gonna hit this, like, normalization stage? Yeah, I'm not sure we're ready to, to call 2024 yet. You know, we are, as well as all of our participants and peers in the industry here, really do expect the industry to get back on this traditional mid to high single-digit growth rate. I think it really comes down to, you know, more the macroeconomic, the interest rate environment, the inflationary environment. I think all of these over the last, you know, call it 12 months or so, has had a bit of an impact. That was in our original guide, and I think others are aligned around the impact that that's having on some of the more discretionary aspects of our industry. It's a great attribute in our industry, this largely nondiscretionary, a reliable aftermarket. There is an aspect, whether it's new construction, whether it's the decision to, to remodel or even upgrade some of the technology on your pad, that does have a bit of a discretionary aspect to it, and we've seen some softness there in 2023. I think that as we work through the H2 of the year, Rafeh, and get more confident in our forecast or budget for 2024, we need to, you know, make some assessments around what that macro environment's gonna be into 2024. Okay. thank you. Very helpful. Thank you. Once again, ladies and gentlemen, if you do have a question, please press star 1 at this time. The next question comes from Brian Lee of Goldman. Please go ahead. Hi, thanks for taking the questions. This is Grace on for Brian. I guess the first question on gross margin, kudos on the executions. You mentioned maintaining price cost neutral neutrality in 2024, and sounds like there's more optimization measures and streamlining you can squeeze out more margin. Just wonder, how should we think about, like, the long-term gross margin trajectory here? Should we see a path heading in see a path towards, like, 50% gross margin in the next couple of years? Thanks. Look, we're really pleased that we've been able to, now, you know, wrestle inflation to the ground and get to price cost neutrality. We'll continue to monitor inflation as we step into 2024 and take the requisite actions to protect the margin if we see inflation start to percolate again. You know, our current view for the forward, 2024 year is that inflation will probably normalize back down to this 3%, maybe 3.5% level, and I think we're aligned with where the, where the economic outlook there is as well. You know, the, the bigger, benefactor to margin growth over the next couple of years is gonna come from continued lean operational focus. We've got plans and ambitions to continue to improve our facilities. We have a tremendous track record of being able to lean up our facilities, drive process improvements in those facilities, and we're gonna make the requisite investments to continue along that path, both in terms of process improvement as well as CapEx improvements. I'd say, you know, the, the, the third attribute to our margin is products. We've had a, a, a great three years in terms of new product introductions that have great margin profiles, and it's a win-win for the consumer with great energy savings and other attributes that they're looking for. As long as we continue to do that for the consumer, then I think we'll continue to see margin accretion over the course of time. Thank you. That's helpful. Let me just- Sorry, please go ahead. Let me just. Yeah, I was just gonna add, you know, in our presentation today and our script and some of the questions, you know, there's a lot of, you know, good information there around things like gross margin and channel destock, and that's obviously all work in progress. I think it's important to kind of step back and just give a little bit of perspective on where we sit as an organization. You know, the last three years, we've gained share. We've realized pricing against inflation, but as Ivan just said, more importantly, we've expanded gross margins due to the tremendous work of our operations team to optimize footprint, lean out our facilities, and really match variable cost to our production volumes. We haven't spoken about it today, much, but we're, you know, hitting our, our expectations around right sizing the SG&A cost out, you know, between $25 million and $30 million, you know, which is really, enabling these high 20% adjusted EBITDA margins. I think it'll provide margin tailwind, as, as volume, returns. We've spoken about the channel destocking. We've worked hard with our channel partners to get that down to healthier levels, you know, as we enter the 2024 pool season, and there's been obvious, a strengthening on the balance sheet from a working capital standpoint. What we are laser focused on as an organization, as we head, you know, move through 2023 and enter 2024, is, is really the top line. That is, around, you know, gaining further share, particularly in historically underrepresented, markets for Hayward, to continue delivering on best-in-class technology, and product solutions for the, for the pool owner, and to be a great supply partner to our trade professionals and, and channel partners, as well as an employer of choice and of course, an investment of choice. You know, I just wanted to kind of give some perspective on what we've been working hard on and what our focus is, heading forward as an organization. Thank you. Just a follow-up to one of the prior questions on growth. Sounds like all these inventory destocking could be a tailwind in 2024. Just wonder if you can quantify how much of that tailwind could be, and also knowingly, how should we think about 2024 growth versus the historical, let's say, 6% growth rate in the industry? Thanks. As I mentioned, we, we you know, destocked for this year is approximately $160 million. You know, we've, we've seen substantial progress. That destock through the H1 of the year, more than 75% based on our calculations, has been ticked off in the first half with the balance now in Q3. As we enter the 2024 pool season, which commences October 1st, we expect that destock to be no longer a headwind as we head into next year. That's when we start to, to, on an annualized basis, start to achieve sell-in match to sell-out match. I, I, I don't think we, we want to get finite here on 2024, but we certainly think the $160 million is unlikely to repeat obviously next year, so that, that headwind is, is fully removed. In terms of the second part of your question, which is, I, I think been asked a couple of times so far, is: what does the longer-term growth algorithm look like in the business, and when do we get back to it? Look, I still think, you know, we, we, we're super excited about this industry. This industry has got a fundamental attribute that many other industries don't have, which is a tremendous aftermarket installed base that we're servicing. Every year, that installed base grows with the addition of new pools. Over the last three years, a, a tremendous amount of new pools have been additive to that installed base, and that installed base will continue to be serviced over the next several years. Coupled with that is the adoption of new technologies. Coupled with that is continued adoption of increased attributes to the pool pad and in the pool. You know, we, we think we're moving into, into a, a, you know, a, a, a parted cloud environment now. We're looking at blue skies and green fields as we go forward, and we're super excited. Whether it gets to the algorithm in 2024 is to be determined, but, you know, we do need the macro environment to improve a little bit, all the noise around recession to abate, inflation to normalize, the Federal Reserve to, to, to, to be pleased with, with their work effort so far. Then I think we will get much better visibility. The headwind on channel destock, we're, we're going to say basically no longer exi-exists as we enter 2024. Okay, thank you. I'll take the rest offline. Thank you. Thank you. The next question comes from Nigel Coe of Wolfe Research. Please go ahead. Can you hear me? We can, yeah. Hey, good morning. This is Darren from Wolfe Research on behalf of Nigel. What I wanted to really dig into was kind of wanting to understand kind of how did the sell-through compare by region in North America, and what impact did weather have overall? Was the last part of the question weather? Yes. Yeah. Yeah, I... You know, I mean, I'd say weather, as you look over the fH1, has had a bit of an impact, but more so I would say in Q1 than what we saw overall in Q2. I think it's pretty well understood, you know, some of the issues on the West Coast in Q1. I think that that's largely improved in Q2. You know, some of the more high-share regions for Hayward have actually performed well in the Q2. So, you know, I mean, we're not going to necessarily break out, you know, how we did region by region, but I would say weather has had a bit of an impact through the fH1. It's in a much better, it's, it's more cooperative, right now as we work through the summer and hopefully finish out the pool season here, and will continue to allow us to hit those, those channel inventory levels as we, as we work through the end of the, the Q3 here. Gotcha. Thank you. Thanks, Darren. Thank you. There are no further questions. I will turn the call back over to Kevin Holleran. Thank you, Michelle. In closing, I'd like to thank everyone for their interest in Hayward. Our business is very well positioned to navigate the near-term challenges and deliver value for all stakeholders in the years ahead. This would not be possible with the hard work, dedication, and resilience of our employees and partners around the world. Please contact our team if you have any follow-up questions, and we look forward to talking to you again on the Q3 earnings call. Thanks, Michelle. You can now end the call. Thank you. Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.