Welcome to Hayward Holdings Q3 2023 Earnings Call. My name is Svangel, and I will be your operator for today's call. 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 touch tone 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, and good morning, everyone. We issued our Q3 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. It 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 Q3 Earnings Call. I'll start on slide four of our earnings presentation with today's key messages. I'm pleased to report solid Q3 results consistent with expectations. The quarter was highlighted by continued execution in a challenging operating environment with strong profitability and cash flow generation. Gross profit margins expanded nearly 400 basis points through a laser focus on management of manufacturing and freight costs and a higher mix of technology products. We also demonstrated our robust cash flow generation characteristics again this quarter. Cash flow from operations increased approximately 50% on a year-to-date basis as we effectively reduced working capital. This is a tremendous accomplishment by the entire Hayward team. End demand for Hayward products, defined as channel sell-through, met our expectations and exceeded our sales into the channel, resulting in further normalization of distributor inventory. We are encouraged to enter the 2024 pool season with leaner inventory positions reported by our primary channel partners in the U.S., and this sets up Hayward to return to a normal matching of sales with channel sell-through in this market. We are strengthening the business with investments in our industry-leading technology and operational capabilities. This includes the ongoing development of innovative IoT-connected products and further footprint consolidation, allowing Hayward to better support our customers and drive long-term profitable growth. Overall, our team continues to execute in a challenging operating environment, and I'm pleased with our performance during the quarter. Finally, we're updating our guidance primarily to reflect the impact of more challenging macro conditions in certain international markets, specifically in Canada, Middle East, and Latin America. Early buy orders in our primary U.S. market increased year- over- year and are trending in line with expectations. However, recent in-season orders have been softer than previously anticipated, reflecting a cautious approach by channel partners ahead of 2024. For the full year 2023, we now expect net sales to reduce approximately 24%-26% compared to last year, and adjusted EBITDA of $245 million-$255 million. Longer term, we expect to resume a solid historical growth trajectory of mid to high single digits. Turning now to slide five, highlighting the results of the quarter. I'm pleased to report net sales in line with expectations, driven by stronger execution in the U.S. and Europe. Net sales in the Q3 reduced 10% year over year to $220 million, largely due to channel inventory movements and softer market conditions. By geography, net sales reduced by 9% in the US and 15% in international markets. Europe reduced 6%, with larger declines of 16% in Canada and 23% in rest of world. I'm encouraged to see sales trends stabilizing in our largest markets of the US and Europe, with each down less than 10% in the quarter. Aftermarket maintenance and repair remains resilient, whereas demand for discretionary product categories has been more impacted by the challenging macro conditions, particularly in the retail and online channels and certain international markets. Commercial pool sales increased double digits again in the quarter. We are focused on driving growth in these markets and are pleased with the continued robust demand. Our gross price list increased 5%, but was more than offset by the comparative changes in the earned annual distributor rebate and dealer incentive programs, which are finalized in the fiscal Q3 for the seasonal year-end. In other words, more distributors earned rebates this year, while fewer achieved rebate thresholds last year. This is a positive outcome and reflects channel partner increased target attainment and a higher mix of premium dealers in our results. Importantly, this is a Q3 dynamic, and we expect positive net price realization on a full year basis. As I mentioned, the gross margin performance was strong again in the Q3, despite lower volumes and net pricing. Gross profit margins expanded nearly 400 basis points year-over-year to 47.8%. The improvement is a result of continuous operational improvements, a moderating rate of inflation in certain purchased material and freight costs, and a higher mix of technology products. This has allowed us to continue expanding gross margins at lower production volumes while positioning for future growth. Adjusted EBITDA in the Q3 is $47 million, with a margin of 21.4%. We continued to deliver the expected $25 million-$30 million in annual SG&A savings under our prior enterprise cost reduction program. These savings were partially offset in the Q3 by an increase in our field service warranty costs to accommodate higher labor costs per service call, as well as our commitment to the consumer to replace with a whole good if a spare part is not available. Importantly, our first-time quality metrics are consistent with prior periods, and our production of spare parts has increased in response to a significant increase in early buy demand for parts. Consequently, we expect field service warranty costs to moderate going forward. Adjusted Diluted EPS in the quarter was $0.09. Turning now to slide 6 for a business update. End demand for Hayward products was consistent with our expectations in the quarter, with our largest markets, U.S. and Europe, performing solidly. Non-discretionary aftermarket demand remains resilient, but demand for products used in discretionary new construction, upgrades, and remodels has been impacted by current economic conditions and rising interest rates. As a result, customers are participating in the Early Buy Program as expected, but taking a cautious approach ahead of 2024 for in-season orders. However, we are encouraged to see signs of stabilization in demand for new construction in the U.S., particularly in the higher end of the market. Further, we continue to see compelling opportunities for upgrade and remodel, given the record age of the installed base. We continue to see strong market acceptance of the connected suite of products within our Omni IoT automation ecosystem. Adoption of the Omni platform continues to grow, with one of the largest builders in the U.S. now standardizing on Omni. Our Omni app is highly rated on both Apple and Google Play stores, and we have seen an increase to 94% of all Omni's activity used by homeowners via the app. We are also excited by the uptake of our Omni Retrofit Kit, which provides a simple upgrade path from legacy ProLogic controls to the latest technology. As expected, during the quarter, our channel partners continued to rebalance the level of inventory relative to the current economic outlook, normalized OEM lead times, and higher costs of carrying inventory. Our primary partners in the U.S. are reporting lower inventory levels in the channel entering the new pool season, whereas some partners and regions are still recalibrating. Turning to the price versus cost dynamic. We are maintaining price cost neutrality and driving solid gross margin expansion through disciplined cost control and manufacturing productivity improvements. We continue to evaluate our global manufacturing footprint as part of our operational excellence initiatives. Given the merits of our newest manufacturing facility in Barcelona, we initiated a plan during the quarter to consolidate our facility near Madrid into Barcelona. This change will allow us to better leverage the benefits of a modern facility, more closely align manufacturing, engineering, and product management, and support margins. We continue to prioritize working capital management and deliver significant improvements. Total working capital declined by $139 million on a year-to-date basis, contributing to the positive cash flow performance. With that, I'd like to turn the call over to Eifion, who will discuss our financial results in more detail. Thank you, Kevin, and good morning. I'll pick up on slide seven. All comparisons I'll make will be on a year-over-year basis. As Kevin stated, we are pleased with our Q3 financial performance. Net sales modestly exceeded expectations for the quarter and reflected a return to normal seasonality, coupled with a progressive right sizing of channel inventory. We delivered outstanding gross margin expansion to 47.8%, and we're realizing our SG&A cost reductions in line with plan. Our balance sheet is strong, and we generated good cash flow. Looking at the results in more detail, net sales for the Q3 decreased 10% to $220.3 million. This was driven by an 8% reduction in volume and 3% reduction in net price. The volume decline during the quarter was primarily driven by the expected distribution channel inventory movements and moderating end demand trends in discretionary elements of our markets, like new construction and through the retail channels, as well as weaker performances in Canada and certain other export markets. Gross price increased approximately 5%, but was reduced in the quarter by comparably higher annual rebate settlements and dealer incentives, resulting in a net price decrease of 3% for the quarter. This is an end of seasonal year performance calculation quarter for us and can result in some swings to our rebate and incentive calculations based on final target achievements. Last year's final calculation for the seasonal year, performed in the Q3, resulted in a favorable adjustment to income, whereas this year, the rebates are more normal. This dynamic is generally limited to the Q3. The key point is our price increases are holding, and our incentive programs are yielding solid volume results with strong margins. Gross profit in the Q3 was $105.4 million. Gross profit margin increased 390 basis points year-over-year to 47.8%, compared to 43.9% in the prior year period, and a record 48.1% achieved in the Q2 of 2023. Disciplined manufacturing cost control and moderating input material and freight costs more than offset the impact of reduced production volumes. As we have discussed before, Hayward has a long-standing commitment to lean manufacturing and continuous improvement, and I'm excited about our plans to deliver further productivity gains across our manufacturing and supply chain. Selling general and administrative expenses increased modestly on a sequential basis to $59 million in the Q3. We are delivering on the annual run rate savings of $25 million-$30 million targeted under our prior enterprise cost reduction program. However, we increased our field service warranty accrual rate in the quarter, primarily to account for higher service labor costs and reduced spare parts availability. We are taking proactive actions to address this and limit the impact going forward, including ramping production of spare parts, and we expect these costs to moderate going forward. The increase in the accrual rate was partially offset by reduced variable compensation expense. In the quarter, we took a restructuring charge of $3.3 million, primarily related to the exit from our manufacturing facility near Madrid, and movement of that manufacturing to our newer facility in Barcelona. This will yield an annual cost savings of approximately $2 million once the move is complete. Adjusted EBITDA of $47.2 million in the Q3, and adjusted EBITDA margin was 21.4%. We are positioned to drive solid margin expansion as volume growth returns. We recorded an income tax benefit of $2.3 million in the Q3 related to favorable discrete tax items. We continue to expect an effective tax rate of 25% for the Q4. Adjusted diluted EPS in the quarter was $0.09 on a fully diluted share count of 221 million shares. Let's turn now to slide 8 for a review of our reportable segment results. North American net sales for the Q3 declined 9% to $185 million, driven by 5% lower volumes and 4% unfavorable net price impact. The reduction in volume was largely due to both the expected right sizing of channel inventories and moderating end demand trends, as previously communicated. Sales in Canada declined 16% in the quarter. This market is going through a tougher macro period. Relative to the U.S., it's a very short season and now closed for 2023, and there is a higher concentration of lower cost in-ground pools and above ground pools in that market, where demand is more significantly impacted by economic condition and financing costs. Despite the temporary net pricing dynamic I previously mentioned, gross profit margin in the quarter expanded 430 basis points year-over-year to a solid 49.4%. For two quarters in a row now, the NAM segment has posted greater than 49% gross margins. Adjusted segment income margin was 24.9%. We were pleased with the margin performances in the quarter. Turning to Europe and Rest of World, net sales for the Q3 decreased 15% to $35 million. Net sales benefited from net favorable price realization of 4% and foreign currency translation benefit of 3%, offset by a 22% decline in volume. We were pleased with the performance in Europe, where sales declined 6% overall and increased 1% in Southern Europe. In contrast, Rest of World declined 23%. We continue to invest in our expansion campaigns into Asia markets, where we have established a solid share position, but we're seeing a tempering of demand in that region, as well as increased macro pressure in the Middle East and Latin America. Overall, for the segment, gross profit margin expanded 130 basis points year-over-year to 39.6%, and adjusted segment income margin was 18.9%. Again, solid margin performances. Turning to slide for a review of our balance sheet and cash flow highlights. Net debt to adjusted EBITDA was 3.9 times at the end of the Q3, compared to 3.8 times in the Q2. We continue to prioritize de-leveraging to our targeted range of 2-3 times. I'll discuss this a little further shortly. Total liquidity at the end of the Q3 was $402 million, including a cash and cash equivalent balance of $244 million, and availability under our credit facilities of $158 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. This attractive maturity schedule provides financial flexibility as we execute our strategic plans. 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, which limits our cash interest rate on our term facilities to 6.7%. Our average earned interest rate on global cash deposits for the quarter was 4.6%. Overall, we are pleased with the quality of our balance sheet. We have a strong but seasonal cash flow generation characteristic, driven by high-quality earnings. Cash flow from operations was a robust $217 million year to date in 2023, compared to $144 million in the prior year period, reflecting effective working capital management. We made great progress reducing working capital by $139 million year to date. CapEx of $23 million year to date was consistent with the prior year period. Year to date, free cash flow generation of $194 million increased 62% compared to the prior year period last year. For the full year 2023, we expect free cash flow generation of approximately $125 million-$150 million, dependent upon the mix of standard versus early buy final order activity. With the return to normal seasonality, the company will typically use cash in the Q1 and Q4 and generate cash in the Q2 and Q3. This year, larger early buy orders with extended payment terms will push the collection of some receivables into the first half of 2024. Turning now to capital allocation on 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. In the near term, we are prioritizing CapEx growth investments and reducing net leverage within our targeted range of 2-3 times. We continue to consider tuck-in acquisition opportunities to complement our product offering, geographic footprint, and commercial relationships, in addition to opportunistic share repurchases. 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 updating our outlook for 2023 to reflect primarily a reduction in outlook for the Canadian and rest of world markets. Our outlook for the U.S. and Europe is moderately tempered by the more cautious stocking by our channel partners in the fourth quarter. It's clear some of our partners increasingly favor in-season purchasing rather than stocking ahead of the 2024 season, and will continue to use current, albeit increasingly normalized inventories, to service remaining in season 2023 business. Consequently, we now anticipate a decrease in consolidated net sales of 24%-26%. We now expect Adjusted EBITDA to be between $245 million and $255 million, with free cash flow in the range of $125 million-$150 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 Q4, and our CapEx spending forecast for the full year is approximately $30 million. With that, I'll now turn the call back to Kevin. Thanks, Eifion. I'll pick back up on slide 12. I'll close with this summary. We delivered Q3 2023 results in line with expectations. I'm proud of the Hayward team's ability to execute throughout this challenging period for the industry, delivering net sales ahead of expectation for the quarter, with strong gross margin expansion at reduced sales volumes and further cash flow generation. With channel inventories reducing to leaner positions, increased market share over 2019, healthy structural margins, and a strong balance sheet, we are well positioned as we enter the 2024 pool season. Longer term, this is a resilient industry characterized by consistent growth and 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. As a leader in this 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. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, please restrict yourself to one question and one follow-up. One moment please, while we poll for questions. The first question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please go ahead. Hey, good morning, guys. Good morning. Morning. Yeah, just wanted to go back to this negative pricing. I guess what's a little confusing to me is, given all the destocking and the weaker demand, why rebates are higher, and just maybe help me understand, you know, if there's other discounting in there or, you know, maybe how the rebate true-up works that maybe, you know, obfuscates kind of the underlying price? Sure. Morning, Jeff. You know, as we said in the prepared remarks, we're obviously very pleased with the 47.8% gross profit margins posted up in the Q3. Again, that was up nearly 400 basis points with net sales down 10%. You know, maybe even more impressive is knowing that that's within thirty bps of the record of gross profit last quarter, with net sales down sequentially 22%. But your question is really getting at, you know, the pricing impact while posting those margins. And I would, you know, just want to point out that this is not a reflection on giving back list or invoice price. That was up 5% in the quarter. The realization, you know, we've realized positive year to date, and we fully expect to post positive price on a full year basis. In Q3, it's a bit of a unique period for us as this wraps up the end of the seasonal year, and true-ups occur, you know, as the curtain drops on the full year. And that's really what occurred here. I'll turn it over to Eifion to maybe walk through some of the accounting of that in just a moment. But again, it does not reflect the loss of market pricing or the stickiness of past price increases or give back there. I t's really related to two things, and I'll turn it over to Eifion in just a moment. It's this end-of-season performance calculation occurs, which can result in some swings to our rebate and incentive calculations. Last year's final calculation resulted actually in a favorable adjustment to income in Q3, whereas this year the rebates are more normal. And then secondly, was a higher mix this year of some qualifying dealers, primarily higher-end builders, that earn incentives based upon volume. So again, with the destock that's occurring and the fact that kind of the mid-level or the higher-end pools continue to perform well, you know, in a more destock, lower sales environment, that became a bigger percentage of our overall mix. Anything to that, Eifion? Yeah, I'd say, Jeff, it's very much limited to the Q3. Last year's final calculation resulted in a favorable adjustment to income. So we're stepping over that favorability year on year. This year we have a more normalized rebate as a percentage of sales. So it's strictly limited to final accounting on seasonal year rebates, and we expect positive price realization, as we go forward here. Okay, that's very helpful. And then just, you know, as, as we look into 2024, maybe any update on that destock number 160? And then just, you know, how are you seeing markets starting to shape up as you look into 2024 and kind of your confidence you recapture, you know, on, on sell-through, you know, that destock impact or, or most of it? Yeah, I mean, the 160 that you just referenced, you know, that is our best estimate. At this point, we'll be in a better position to validate that, at year-end. But, you know, again, we don't have perfect information globally, but we do get input. You know, we did make great progress, have made great progress, through September. No doubt, you've heard others in the industry talking about getting leaner on inventory, and we agree. That said, there's still some pockets or some regions that need some additional recalibration, but it's largely behind us now. As for 2024, you know, obviously you're not asking for guidance at this point, but, you know, we kind of look at it as we work through the budgeting process here. Look, there's certainly some positives that we'll be able to comp off of, but there's obviously some things that we're needing more time to better understand. You know, the three things I would say around the positives, the headwind from the heavy destock, as I just spoke on, is largely behind us here in 2023. Your prior question was around net pricing. We expect to have positive net pricing. Again, we announced increase that took effect on October 1st that are now on the price list and out into the marketplace. And then thirdly, around this aftermarket resiliency, it continues to be resilient here in 2023. We'd expect it to play out again as always in 2024. You know, we don't know where new pools are gonna land, but, you know, if current estimates play out and it's in the 70,000 range, you know, again, that's gonna add more pools to the installed base than we had ending 2022, that will be needing service and maintenance and repair and remodel into the future. You know, on the more concerning side, you know, certainly the macro is giving us all some pause. We spoke about some of the interest rates that are hitting all markets and particularly, in particular Canada, and some of the export markets. And frankly, at this point, we don't see tailwind that's gonna meaningfully recover new construction going into 2024, particularly at that entry level, which is much more finance-based or interest rate-based. So those are some of the factors that we're that we're overlaying as we look out into 2024, and we'll be back, you know, in February with our with our firm outlooks for for 2024, Jeff. Okay. Appreciate the color, guys. Thank you. Next question comes from the line of Saree Boroditsky with Jefferies. Please go ahead. Good morning. This is James on for Saree. Thanks for taking questions. I wanted to talk about your commentary on softer than previously expected in-season orders. Can you provide some more color on this and how the sell-through was like in Q3 and into October? Yeah. So I would say the sell-through was kind of on expectations. You know, there's a large distributor who's already re-reported earnings. I would say what they reported for their equipment sell-through is on par with what we saw being sold for the Hayward product, you know, into the marketplace, which is, you know, again, sort of on expectations for what we saw rounding out the season here. And as for the first part of the question, you know, we saw really throughout the Q3, and frankly, we're calling for it in the Q4, to just have some more tempered expectation around what we'd call in-season orders. And what I mean by that, it's not an early buy. The order flow in advance of the early buy season was not quite to expectation. I think that probably highlights continued diligence around inventory utilization and balance sheet considerations. So that's really what the commentary gets at, is overall we've seen a nice response. We're still not yet complete with the early buy season, but we've seen on expectation ordering there. But when you look at it, combined with what the expectation was around in-quarter flow orders, we didn't quite see that in the Q3, and that's giving us some pause as we look out into Q4 and look at the full year guidance. I think, James, this is Eifion. I think, James, the channel is being very cautious in what they take into inventory, given the macro dynamics that you see right now, particularly around interest rates and the cost to carry inventory. So they're buying it when they need it and not earlier. And we see that, I think, across the entirety of our channel footprint. As we said in our prepared remarks, we think that the result of that is they're moving the purchasing of the 2024 season much closer to the in-season demands they have. So given where our interest rates are, the channel has just been super cautious, I believe, in what they're taking in. Got it. Thanks for the color. Then as a follow-up, you guys talked about, like, resilient aftermarket demand and even going into 2024. But I believe one of your competitor kind of talked about, like, aftermarket coming in weaker given higher interest rates. So can you provide more color on what you mean by resilient here? Yeah, I mean, when we, when we define the aftermarket, you know, broadly speaking, that's everything but new construction. And that certainly gets a lot of attention. But the aftermarket, you know, is a combination of that classic break, fix, remodel, activity, and then just some, just some upgrading, where we define that as if the heater wasn't there on the pad last year, and it's added this year, that's an upgrade. So I, I do think that, you know, the break fix when we're talking about really resilient and, and nondiscretionary, that's the piece of the aftermarket that we're really referring to. The other, the other elements of, of the aftermarket, whether it's the, the remodel, or some of the upgrading activity, is certainly impacted by the current macro environment and the interest rate in the environment. But again, we view that break fix as something, you know, in the 50% range of our overall business. And by and large, that stayed very resilient, you know, through this macro environment that we're experiencing. Great. Thanks for taking my questions. Thank you. Next question comes from the line of Ryan Merkel with William Blair. Please go ahead. Hey, everyone. Thanks for taking the questions. I wanted to start off with Q4, just coming in a lot lighter than we were expecting. What, what's really the headline there? Is it the international business that's weaker, or what else is in there? It is. I mean, the headline is, Ryan, it's Canada and some of our export markets. We were in Canada last week. You know, I would say that there's still some destock that needs to occur in the Canadian market. The mortgage rate environment up there is very different in terms of shorter lock periods, and there's been a lot in the headlines recently about over the next couple of years, what the adjustments are gonna look like for the homeowner. It's a big headwind that is causing a lot of concern with the homeowner in the Canadian market, and it's obviously having an impact on really that discretionary income and what they're looking to do at the household. So, you know, I would say as you look back over the last three to four years, I would say that the response in the early periods of COVID up in Canada were even stronger than what we saw in our core U.S. market. And now that some of the macro factors are playing in, the recovery seems to be even sharper than what we're experiencing in the core U.S. market. So Canada really is the biggest headline affecting the Q4 outlook. I think what's important, Ryan, to also understand is the demand channel sell-through that we've seen in our core markets, U.S. and Europe, actually is in line with our expectations. And we have a similar expectation for channel sell-through in Q4. But as I just mentioned in the previous response, what the channel is taking in in Q4 is gonna be lighter than we expected as they shift their buying patterns to be more juxtaposed to their needs in the 2024 season. I just think it's a general cautious approach to managing their balance sheets as we continue to wrangle as an economy here with our interest rates. It was probably implied, Ryan. Of course, we know it. You may not. We're a high share player in the Canadian market, which is why that's having such an impact on the Hayward outlook right now. Got it. Okay, that's actually really helpful. Thank you for walking through that. And then for my follow-up, can you just talk about price in 2024? I think you've come out with a list price increase, and then any change to incentives for the early buy, or would you call them normal? So tackling the first one, yes, we did announce a price increase for the 2024 season. The actual wording on the price increase, up to 5% on the whole goods, slightly more on parts, and that's a U.S.-centric comment. It does vary a little bit as you go around the horn, around the rest of our business. But generally speaking, once you put all of that into the calculation of the SKU range, we'd expect probably an average price increase of about 3%-4% globally next year on a weighted SKU basis. And really, that's to protect against where we see inflation dynamics, and most of those inflation dynamics are consequential to labor cost increases in the business. In terms of the early buy, we have given a standard discount more in line with history on the early buy. And in terms of terms, we have gone to a more standardized approach on payment terms of 180 days in the main. Some customers have slightly different, but generally speaking, 180 days with a 2% discount to pricing. Perfect. Thank you. Thank you. Next question comes from the line of Andrew Carter with Stifel. Please go ahead. Yeah, hey, thank you. I just wanna go back to this vendor incentive issue in the quarter. I guess, number one, why was this so abrupt and kinda not telegraphed in the quarter, you know, given the focus on pricing here? And I'm still a little confused about how the rebates could be up this year, given I know you said it was a tailwind last year, but I would assume you probably might had a better volume sell-through last year than this year than what's implied. Can some individual customers outperforming drive the mix that much? Just some incremental clarity there. Thank you. Yeah, it is a limited Q3 dynamic, Andrew. This time last year, when we performed seasonal rebate calculations, the final calculations resulted in a positive adjustment back to income, given the aggregate misses across the channel. Our rebate structures are based upon channel sell-in, in the main, and last year, they were limited based upon channel performance. This year, we've restructured our programs. In the U.S., we've actually gone to a more quarterly-based program structure. That's in recognition of the dynamics we were assisting the channel with in terms of destock, and we've had slightly higher rebate percentage payments this year than we have had last year. But given it all gets accounted for in Q3, you can have a year-over-year swing dynamic. Has no implications to the overall growth price. Growth price still remains positive year over year, and this adjustment really is a Q3 dynamic. So, so quickly, so was one more incremental thing this year a change in the program relative to last year? Did I hear that correctly? We changed, in the U.S., we changed our program to a more quarterly-based program incentive. Last year was a typical seasonal approach. So you're accruing for seasonal rebates. You get to the end of the season, you evaluate where the channel is, and then you make your adjustments accordingly. This year, it's been more quarterly adjustments. Thank you. Second question about your year-end leverage. If I'm calculating right off your updated guidance, I'm getting, like, a 3.7-3.4. That would assume best on best, worst on worst. Is that fair? Because the pre-buy will dictate cash flow. Within that, where, what are the implications for where leverage will go into kinda Q1? Is there... And I know that debt paydown is your highest priority. Is there, help us understand that and what the dynamics are and how much, how aggressively you're wanting to pay down debt. Thanks. Sure. Yeah. The range that that you recount there is broadly correct, and it, as you said, is heavily dependent on the mix of businesses. We step through the final 9-10 weeks of the year here. As we mentioned, lower flow orders as the channel moves their flow in season terminology we're using here. As they ship those orders to closer to the 2024 season, you push that cash collection into that time period, and you actually exit this year with slightly higher inventories. So we do expect to deleverage as we step into the new year. We expect to get back into our targeted range of 2-3 times in 2024, once we collect the early buy cash, and we see these in-season orders go through in the back end of Q1, Q2 of next year. We feel really good about our liquidity position. Right now, we've got significant cash on the balance sheet. We remain undrawn on our ABL facility. We've done a good job on our own here, reducing our own inventory levels on our balance sheet, which has been a great source of cash this year. So, from my perspective, we feel, I feel very comfortable with the liquidity position in the business a nd recognize that with the shift in order mix, it will defer a little bit of cash collection into next year, whereas we had anticipated this year, but that's just a timing issue. Thanks. I'll pass it on. Thank you. Next question comes from the line of Mike Halloran with Baird. Please go ahead. Hey, good morning, guys. Pez on for Mike. A quick one for you. So obviously, a lot of moving pieces, given the destocking, the pricing discounts impacting EBITDA margins, but can you maybe help us understand what you think the right run rate exiting this year looks like? Obviously, a little bit wider range of expectations or, possible outcomes going into Q4 and in the next year than we were initially anticipating. So if you could touch on that a little bit, on exit rate expectations, that would be helpful. Yeah. In terms of the quality of the income statement, we still expect to exit out this year at high 40s gross margin, and slightly over mid-20s Adjusted EBITDA when you calculate our results at the midpoint. So, you know, we're very pleased with the quality of our income statement, despite the year-on-year net sales decline as we go through this channel destocking period. So, you know, that's come as a consequence of a lot of hard work in the business to protect our margin. And, as we indicated, we look forward to next year to see that leverage opportunity lift both of those margin dynamics, both at the gross profit line, and more importantly, at the Adjusted EBITDA line. But as we exit this year, we're still gonna post up high 40s gross margin and slightly over mid-20s adjusted EBITDA margin. Got it. That's super helpful. And maybe at a high level, can you just dig into the diverging trends of the gross margin and the adjusted EBITDA margin that we saw in this quarter? Maybe help us with the puts and takes that drove the gain in gross margin, but the weakness in adjusted EBITDA margin. Yeah, I think it just, strictly comes down to, as we've discussed before, Q1 and Q3 tend to be the low parts of our season, of our year. And then when you look at the coverage you have across your SG&A base, you have less coverage in Q3. So you'll see, healthy margins throughout the year at the gross margin level, but, less leverage across the SG&A base in Q1 and Q3. And that's what limited the adjusted EBITDA margin, in this particular quarter. It will lift again in Q4 as we get more, leverage across that SG&A base. We had, as we mentioned, a little bit of a sequential increase in SG&A costs, consequential to field service warranty costs. That's a true-up of the accrual there in recognition of higher field service inflation costs rolling through. But again, that will moderate as we go forward here. But it strictly comes back to a leverage across the SG&A base in a seasonally light sales period. Thanks. I appreciate the color. I'll pass it on. Thank you. Next question comes from the line of Nigel Coe with Wolfe Research. Please go ahead. Thanks, guys. Good. So thanks. Hi, Nigel, how are you doing? Good, thanks. Good. All right, so, Canada. Let's talk about Canada. Can you remind us how big is Canada? What percentage of your North American segment is Canada? And, is there any material difference in margins between Canada and your North American business? Canada, on a comparison basis, was nearly 10% in 2022, and it's about 2/3 of that, in our overall mix this year. Historically, there had been more of a margin decrement in Canada, but I'd say the team has done a great job over the last handful of years, working the price list value, basing our pricing, and it's gotten much closer to our, to our standard, call it U.S., margin rate, Nigel. Okay, that's great. This caution, you know, distributors being cautious, I can't say I'm surprised, but I'm curious, have you seen any material change in different, you know, difference in behavior between the smaller distributors and the larger players like Tool? I've got to imagine that the, you know, the inventory holding costs in these, in the current rate environments is crippling some of the smaller players. So I'm just wondering if there's any difference you've seen out there. I mean, is it not just an end market issue? Is it also a rate issue as well? I've not necessarily seen irrational behavior across the various distributor partners. You know, as we said earlier, I would, I really see them just being maybe more cautious with the rate of reorder as they move inventory off their balance sheet. That's kinda what we've seen as opposed to, you know, some kind of irrational pricing that they're putting out into the marketplace. Yeah, it wasn't really a pricing comment, but and just my final comment is really actually on pricing, the adjustment. So Eifion, I think you said you've gone to a quarterly basis now as opposed to a seasonal basis. But is this true up really just purely a Q3 issue? I'm just wanna make sure this isn't gonna bleed through into Q4 as well. Yeah, I want to be clear, Nigel, it absolutely is a Q3 issue, and it really is stepping over a good guy last year, not repeating this year. So, it's, you know, we expect positive price realization in the Q4 year-over-year. It's a little bit unfortunate we have these year-over-year seasonal true-ups in the Q3. As you mentioned, as I mentioned, we've moved to a quarterly program this year. We've actually changed the overall structure of our rebates to go onto a calendar year basis, whereas historically it used to be on a pool seasonal year basis, ending in Q3. So, you know, we expect to shift to quarterly for the balance of the year and then on a calendar year basis as we go into 2024. Okay, I just killed a horse on that one, so thank you very much there. Thank you. Next question comes from the line of Sean Elmer with Bank of America. Please go ahead. Hi, guys. Thanks for taking my question. Despite the pricing headwinds, the gross margin was near record levels. So can you talk about what you're seeing on inflation for materials and labor and what your expectations are heading into 2024? So we have seen moderating inflation in some commodities. The overall basket of raw materials, including purchased items, still remains moderately inflated over last year, but the rate of inflation is certainly decreasing. I think when it comes to labor costs, we are seeing labor costs now move positive, move higher, and that was one of the main implications, reasons why we increased our price list as we move into 2024. But just to again come back to the price dynamic, you know, price list in the quarter was positive year-over-year. You've just got this one-time rebate anomaly, which is unfortunately affecting the Q. But as you step into Q4, you'll see the fullness of price year-over-year. The full year, we still expect very positive price realization, and margins will continue to hold into the high 40s as we step through Q4. Great. Thank you. Thank you. Next question comes from the line of Brian Lee with Goldman Sachs. Please go ahead. Hi, everyone. This is Nick Cash on the line for Brian Lee. Just had a quick question regarding destocking. You know, it seems that you guys still are having some destocking issues in Canada, but I just really wanted to know and gauge how you guys are seeing the rest of North America and the rest of the world, and if you have any visibility on being fully destocked in 2024 in any of these other markets. And you also mentioned buyers being a little bit more cautious, and that's, I guess, you know, the new base case, or do you happen to see or expect any, you know, restocking period that could possibly be a tailwind going into 2024? Thank you. Yeah. You know, as I would say, we've made great progress through September. There are still maybe some particular channel partners or even some regions, you mentioned Canada, where there's still some recalibration needing to occur. But we felt really good, you know, at the close of the seasonal year, being September, the progress that was made. You know, the normal inventory flow, because of the early buy or the winter stocking programs, is that, you know, you work down inventory through Q3, and then Q4 and Q1 are normally restocking periods, and then work that inventory off through Q2 and Q3 as the markets are open, everywhere. So that's really what we're seeing around a destocking standpoint. I forgot the second part of the question. Around in 2024 and the rest of the world. I think when it comes to the rest of the world, you know, it's a bit of a wait and see. You know, some of those markets have got a bit more macro sensitivity than our primary U.S. and European markets. So we'll continue to monitor that situation and work with those channel partners to get that pull-through to help them move that material through those channels. But it's something that we won't have full visibility of until we actually step into the 2024 season. Yeah, I mean, with our supply chain capabilities as we exhibited through the COVID experience, whether the orders come in through an Early Buy Program or whether they're more in season, we'll be partnering with our channel folks to respond. What we both believe is best in class to be able to respond to the market dynamics as they play out here into 2024. Awesome. Thank you, guys. Appreciate the color. Thank you. There are no further questions at this time. I would like to turn the floor back over to Kevin Holleran for closing comments. Great, thank you. In closing, I'd just like to thank everyone for their interest in Hayward. Our business is well positioned to navigate the near-term challenges and deliver value to all stakeholders in the year ahead. This wouldn't be possible without 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 Q4 earnings call. Thank you, operator. You can now end the call. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.