Hayward Holdings Inc Stock

Welcome to Hayward Holdings Second Quarter 2026 Earnings Conference Call. My name is Robert, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Kevin Maczka, Vice President, Investor Relations and FP&A. Mr. Maczka, you may begin.

Thank you, and good morning, everyone. We issued our second quarter 2026 earnings press release this morning, which has been posted to the Investor Relations section of our website at investor.haward.com. There, you can also find the earnings slide presentation referenced 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 2026 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Forms 10-K and subsequent Forms 10-Q filed 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. During today's call, the company will discuss non-GAAP measures, Reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation. All comparisons will be made on a year-over-year basis, unless otherwise indicated.

I will now turn the call over to Kevin Holleran.

Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you at Hayward's second quarter earnings call. I'll begin on Slide 4 of our earnings presentation with today's key messages. I'm pleased to report another strong quarter. Net sales increased 6% in the second quarter and 9% through the first half with positive price realization and stable volume. This performance reflects the resilience of our installed base aftermarket business model, coupled with focused execution across the organization. Our teams are advancing strategic initiatives to strengthen our market position and drive profitable growth even as we navigate macroeconomic, geopolitical and inflationary challenges.

We are clearly gaining traction, and I'm proud of the team's performance. During the quarter, we completed a comprehensive debt refinancing extending our maturities, reducing our cost of capital by approximately $6 million on a full year basis and adding financial flexibility to support our strategic priorities. Eifion will provide further details on the refinancing in a moment. We also made further solid progress on the balance sheet, generating cash and reducing net leverage to 1.5x, the lowest level since our IPO in 2021. We achieved this while increasing share repurchases and demonstrating our confidence in the business and our commitment to disciplined capital allocation.

Given the first half performance and our visibility into the second half, we are maintaining our guidance for full year 2026. We continue to expect net sales to increase approximately 5% and adjusted diluted EPS to increase approximately 9% to 13%.

Turning now to Slide 5, highlighting our second quarter and first half results. Net sales increased 6% to $318 million in the second quarter. North America increased 9% driven by positive contribution from both price and volume as demand remained resilient across our installed base aftermarket. Europe and Rest of World declined 8% as certain regions continue to be impacted by macroeconomic conditions and geopolitical disruption related to the ongoing conflict in Ukraine and the Middle East.

We were pleased to see continued solid demand for some of our more discretionary product categories such as salt chlorine generators, automation and lighting. Commercial Pool and Industrial Flow Control delivered solid growth again this quarter, with net sales for both businesses up double digits in the first half. Gross profit margin declined modestly in the second quarter and was approximately flat to the first half, consistent with our expectations. As previously communicated, we anticipated second quarter pressure from incremental inflation in specialty metals, freight and resin costs before our mitigation actions are fully implemented. Importantly, margins remained near record levels.

The second quarter 2025 represented Hayward's highest-ever quarterly gross margin as a public company and second quarter 2026 was the second highest. I'm pleased with how our sales and operational teams maintained strong profitability despite these new pressures. Similarly, adjusted EBITDA margin in the first half remained healthy and consistent with the prior year as we continued to make targeted investments in product innovation and customer initiatives.

Adjusted diluted EPS increased 8% to $0.26 in the second quarter. Combined with our outstanding first quarter performance, we delivered a strong first half with net sales up 9%, adjusted EBITDA also up 9% and adjusted diluted EPS up 18%. Our performance reflects the strength and execution of our strategy.

Let me highlight some of the initiatives gaining traction and helping position Hayward for sustained profitability growth on Slide 6. The focus of our strategy is clear: support our customers with superior products and services to drive share gains while sharpening our operational excellence to enable profitable growth. Starting with the customer side. Innovation continues to be our engine. We've increased our RD&E investment and it's paying off with new product vitality now up to 23%. Our proprietary OmniX platform is leading the way, especially in the aftermarket, and we will introduce more OmniX-enabled product categories to expand the connected ecosystem. We're also deepening our reach with the trade through our Hayward Hub training centers.

These hubs are reinforcing our position in our strongest markets by further developing existing dealer capabilities while also supporting dealer conversions in targeted growth markets. We look forward to opening our sixth center in Atlanta in the fourth quarter. We're increasingly using AI to raise the bar across the organization. One use case in customer service resulted in 98% of our North America calls now being answered within 1 second by an AI agent and 80% of those calls resolved with no need for escalation to a live technical service representative. That's a better experience for our customers and greater efficiency for us.

On the operational excellence side, we're staying disciplined and proactive. We're taking continued cost actions, investing in automation and productivity, near shoring and increasingly dual sourcing to mitigate tariff and geopolitical risk and driving value engineering across our processes and products. Internally, we're managing our own inventory tightly across both finished goods and raw materials and accelerating SKU rationalization and product platforming.

We maintain visibility in the inventory levels and sell-through across our primary North America channel partners through regular communication and reporting. Current channel inventory remains consistent with seasonal patterns, including the normal second quarter reduction and is aligned with our assumptions for end market sell-through and product availability.

Finally, the Power Of Us campaign reinforces all of this. This is a compelling message and is resonating across the industry. As a proud American company since 1925, approximately 90% of our products sold in the United States today are manufactured or assembled in our domestic centers of excellence. The takeaway is simple. We're driving both growth and productivity. The combination of customer intimacy, and operational excellence driving market share and profitability is exactly how we intend to outperform our industry and create long-term value.

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

Thank you, Kevin, and good morning. Turning to Slide 7. I'll walk through our second quarter financial performance in more detail. We delivered another strong quarter of sales and earnings growth, with net sales increasing 6% to $318 million against a 5% growth comparison in the prior year period. Growth was primarily driven by price realization to offset inflation with volumes stable in the quarter. I am particularly pleased to see positive volume growth in our primary North American market, which reflects the impact of the investments we have made in our sales, marketing and customer care teams to strengthen customer engagement, improve execution and support sustainable demand generation.

Gross profit increased 8% to $155 million, while gross profit margin declined 50 basis points to 48.7%. As communicated last quarter, we anticipated sequential second quarter gross margin increases to be more moderate than the prior year due to the timing of incremental inflation, and the partial quarter benefit of our surcharges and other mitigation actions.

As Kevin noted, we were pleased to deliver our second highest quarterly gross margin since the IPO, suppressed only by the prior year period despite facing challenges over the past 12 months, including tariffs, commodity inflation, higher transportation cost and the management effort required to nearshore production from China and establish dual sourcing to continue to improve supply chain resilience.

Adjusted EBITDA increased 5% to $93 million, with adjusted EBITDA margin increasing 700 basis points sequentially from the first quarter and declining 40 basis points year-over-year to 29.1%. We continue to make targeted investments in sales and marketing, advanced engineering and customer service. The effective tax rate was 23%, and adjusted diluted EPS increased 8% to $0.26.

Moving to Slide 8 to discuss our segment performance for the second quarter. North America net sales were up 9% to $278 million, driven by a 7% price realization and 2% volume growth. Within the region, U.S. sales also increased 9% and Canada was up 2% given the weather-related slow start of the season. Gross margin reduced 90 basis points from the prior year to 50.4% due to inflationary pressures and timing of our mitigation actions.

Similar to the consolidated result, the North American gross margin trolled only the segment record performance in the year ago period. Sales in Europe and Rest of World declined 8% to $41 million with positive contributions from price and FX, offset by reduced volume. Europe sales declined 4% and Rest of World declined 16% and impacted primarily by the geopolitical disruption related to the ongoing conflict in the Middle East. That said, we were pleased to see continued margin improvement in the segment. Gross margin increased 50 basis points to 37.9% and adjusted segment income margin was consistent with the prior year at 18.1%, driven by improved operational execution.

Moving to Slide 9. Our first half segment performance was strong. North American net sales increased 10%, driven by 8% price realization and 2% volume growth, with both the U.S. and Canada delivering double-digit gains. Europe and Rest of World was flat overall as 5% growth in Europe offset a 9% decline in Rest of World, again, primarily reflecting the disruption for the Middle East conflict. Adjusted segment income margin remained consistent with strong prior year levels in North America and expanded 130 basis points in Europe and Rest of World. Overall, we are pleased with our first half performance.

Turning to Slide 10. During the quarter, we successfully amended our existing term loan B, extending the maturity profile, reducing our interest rate and enhancing financial flexibility. The amended term loan B of $960 million now matures in 2033 compared to 2028 previously and carries a 61 basis point lower spread. This reduces annual run rate interest expense by approximately $6 million, leaving total debt substantially unchanged. We also replaced our $425 million ABL revolver due 2028 with a new undrawn $425 million 5-year cash flow revolver maturing in 2031, providing full availability without a borrowing base limitation.

The refinancing was well received with Moody's upgrading our corporate family rating and S&P affirming its rating with a positive outlook. Together, these actions strengthen the balance sheet and support organic investment, strategic M&A and capital returns while maintaining disciplined leverage.

Turning to Slide 11. Our financial position remains a source of strength and gives us meaningful flexibility to execute our plans. We continue to strengthen the balance sheet during the quarter, reducing that leverage to 1.5x, the lowest level since our IPO from 2.1x a year ago. We ended the quarter with a combined $483 million of cash, cash equivalents and short-term investments combined with availability under our credit facility, that's over $900 million of total liquidity.

Cash flow from operations was strong in the second quarter, resulting in $172 million in the first half of 2026 compared to $188 million in the prior year period. Free cash flow was $154 million, and our outlook for the full year is unchanged at approximately $200 million. To sum it up, with low leverage, ample liquidity and strong cash flow, we are well positioned to support continued organic investment, pursue strategic M&A and return capital to shareholders.

Turning to Slide 12, capital allocation. We balanced strategic growth investment with stockholder returns while maintaining prudent leverage. As an OEM, we prioritize organic investment into our manufacturing and supply chain footprint followed by strategic M&A, while remaining opportunistic with respect to share repurchases. We accelerated our share repurchase activity in the first half deploying approximately $64 million to repurchase 4.4 million shares.

Turning to Slide 13. Given our strong half performance and current visibility into the second half, we are maintaining our guidance for full year 2026. We continue to expect Nextel to increase approximately 5% and adjusted diluted EPS increasing approximately 9% to 13% to a range of $0.84 to $0.87. We continue to expect free cash flow in the region of $200 million, exceeding 100% of net income. This outlook includes net interest expense of approximately $45 million, a normalized effective tax rate of around 24%, and an increased CapEx of approximately $40 million as we continue to invest in upgrading our operational capabilities. Overall, we are confident in our ability to execute and remain positive on pool industry growth supported by the strength and the resilience of the aftermarket.

With that, I'll turn the call back to Kevin.

Thanks, Ivan. Before we open the line for questions, let me close by reinforcing the key messages from today's call. Hayward delivered another strong quarter and first half, underscoring the durability of our installed base aftermarket model, strength of our brand and product portfolio and the consistency of our execution. We grew sales and protected profitability in a dynamic cost environment. At the same time, we continued advancing the initiatives to define Hayward's next phase of value creation, deepening customer relationships through innovation and service, expanding our connected product ecosystem and operating with even greater efficiency and discipline.

We also reduced leverage to the lowest level since our IPO, accelerating our share repurchase activity and completed an important refinancing. Looking ahead, we remain confident in the long-term fundamentals of the pool industry and in Hayward's ability to deliver results through a range of market conditions.

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

[Operator Instructions] Our first question comes from Andrew Carter with Stifel. .

Given the news in the industry with Pentair's decline and channel rightsizing, could you step back and kind of give us an estimate of what your readout is, like your sellout to customers, also potentially how much that sellout varies by customer. And then I guess the second part to build on that. How many days of inventory are in the channel now? Is that meaningfully different than what it was, say, pre-COVID because you've obviously got the quicker supply chain. And then what are your estimates for days inventory in the channel by the end of the year?

I mean might have some of those statistics you were asking about. I mean overall, we feel really balanced with our inventory in the channel ending Q2, I would call it very normal. As expected, Q2 is a big sellout quarter for us. traditionally the biggest net reduction in inventory after the channel builds inventory in Q4 and Q1 get ready for the season. And as we move into Q3, we would expect another net reduction, although historically, not normally at the same level that we see in Q2, all culminating with lower inventories than what we would expect to be a very normal participation from the channel come early by time.

You mentioned COVID. There were certainly lessons learned coming through the COVID experience through supply chain disruption and demand profile. We embarked on a much improved process with our largest North American channel partners of sharing information around inventory levels, our out-the-door sales, what we expect them to be moving forward. And I would say our conversations with our largest channel partners are very productive. They -- in general, we all feel very balanced, we're aligned on what we believe the go-forward sales out figures are in Q3 and Q4. We're not hearing any kind of divergent opinions on what we expect Hayward sales out to be, nor are we hearing from the channel partners any expectations to make step level reductions in their days on hand that they've had historically.

So I think all of this is supported by the fact that we're proud of the reliable supply chain in the domestic centers of excellence with shorter lead times that really negates any reason for the channel to order ahead or to increase stocking levels. So we feel really good exiting Q2, and we feel -- we see very balanced inventories across our largest channel partners.

Yes, Andrew, if you look at the entirety of the channel across North America and take into consideration primary European markets, we typically operate at this time of year, just over 4 months' worth of inventory in the channel. And in aggregate, that's kind of where we're at, exiting out of June. Some channel partners who have got stronger balance sheets may go a little bit higher, others lower. Between now and the end of the year, we typically start to see inventories climb as folks start to take in their positions for the early buy, particularly in Q4.

As Kevin mentioned, normalized inventory across the channel coming out of Q2 and I feel really good about how we set up for Q3 stepping into Q4 as well.

Our next question comes from Jeff Hammond with KeyBanc Capital Markets.

So maybe sticking with the competitor news and dislocation. I'm just wondering maybe any color where you think you might be benefiting from some of that dislocation. I think they talked about some customer share loss around 80/20 implementation and then maybe like-for-like replacement on older pool pads. Just wondering what you're seeing there and any opportunities.

Yes. As I've said for -- pretty consistently for several quarters running, we feel good about our share gains. We think that it's been over a longer period of time, perhaps than was seen by the market. I think that's a little bit more apparent maybe in the current period. I'd say our team is executing a playbook. We've had basically to grow greater than market has been a consistent theme in the organization since I joined in 2019. And I think it's multipro. I think we're playing offense and that the investments that we've made around SG&A and RD&E are paying off from a product and innovation standpoint, it's a steady pipeline of products that touch a number of different themes, Jeff, whether it's like-for-like replacement or bringing automation and upgrade to the established installed base or filling in some product gaps that we may have had historically like a horsepower or bringing some products to market that can drop in on some competitive products. .

Those are kind of the prongs around products and the innovation. There's a long list around commercial excellence, whether it's brand building, making sure that our brand is resonating with all builders and servicers to some reorganization around our field organization, bringing sales and technical service together under common leadership adding some business development folks to tell the Hayward story and to start recruiting into the family and then some dealer support, whether it's some education or whether it's the hubs at the OmniPro app, et cetera.

So I think all of that is really wrapped up again with a comment I made to Andrew's question around supply chain capabilities. And I think having shorter lead times, manufacture in the U.S. in our centers of excellence, all supports a multipronged share playbook that we've been executing for several years, and we continue to see gains from it.

Okay. Great. And then just on gross margins. I know you guys telegot pretty well that you had a tough comp in the gross margin, you'd be down year-over-year. And there were maybe some price cost transition issues. Can you just speak to how you see gross margins trending into 3Q, 4Q as you look year-on-year and maybe how you're working through those price cost issues and how price is translating?

Yes. Thanks. I'll keep off and Kevin can correct me when needed. But you're exactly right. Stepping into Q2, we expected to have a lower sequential gain than we did in the prior year. I was actually more pleasantly surprised with the demand of gross margin gain that we actually achieved. But nonetheless, when the announcements on the wall came through in Iran in February, that obviously accelerated inflation, came out as quickly at the end of Q1. We immediately reacted and announced a surcharge to the effect of an orders mid-quarter. And given the order to invoice lag to be effective on the invoice sometime later in the quarter. That played out.

Maybe we've got a little bit more on the invoice than we were originally expecting, in terms of timing, but that played out exactly as expected. So at the end of Q2, we would say we're all caught up now on that particular inflationary pressure. As we look into the balance of the year, normally receive margins decrease in Q3 as it's a lower leverage period for us. And then in Q4, margins will come back up again as we get more leverage from volume in that particular quarter.

Right now, as I said at Q1, we believe, based on the activities that we have in place right now that we'll be able to maintain gross margins for the full year approximately in line with last year. The guys are doing an absolutely fantastic job in the operational supply team backing all these headwinds. And then with the assistance of the commercial team and pricing action, in some cases, discrete pricing action, we're able to hold our gross margins at last year's level, which is obviously, a great position to be at, last year was a record level. So feeling really good about the balance of the year and the ability to deliver another good margin year in [indiscernible].

[Operator Instructions] Our next question comes from Brian Lee with Goldman Sachs.

This is Brian. Sorry for technical difficulty. I guess first, just a follow-up to the prior question around kind of the price cost actions and gross margin trajectory that's helpful, call it for the balance of the year. How should we think about -- and I know you get this question every now and then, the ability to continue to leverage price here, are you getting any flat pushback from the channel? I know it's been a good kind of tailwind for the past couple of years. How should we think about your ability to continue to capture price and then kind of what magnitude as you head into next year? I know it sounds like the second half, you're recalibrating pretty well there, and you're seeing good momentum. But beyond that, I guess just how should we be thinking about the price [indiscernible]?

Yes. Brian, there certainly has been a lot of price pushed through the marketplace over the last several years due to inflationary or tariff pressures that we've all felt, and we're actually contemplating as we speak, what some of those inflationary assumptions are as we make the turn into the second half of this year, and it's always part of our early buy program where we announce what those impacts are heading into the next year. So we're going through that as we speak right now, Brian.

But to your question, I feel confident in our ability to continue to pass along at least dollar for dollar, what those impacts are. We are all hoping for a little bit more muted inflationary environment going forward. but we are confident that we can pass dollar for dollar. And what we have done more recently is we take it on ourselves to take on cost out and productivity and efficiency projects internally to protect that structural margin. We think that that's the right thing to do given some of the pressures -- pricing pressures that have been pushed into the market over the last 3-plus years. So that's our approach, Eifion, do you have anything to add around broad price cost?

I mean, as Kevin mentioned, we have the ability at the beginning of each season here to adjust pricing in line with inflation. We have, for the last several periods here tried to protect all of a dollar and then use our manufacturing facilities and the supply chain to return structural gross margin, and that's played out as expected. So disciplined industry with that ability, but we're conscious that a lot of price has gone in over the last several years. And we're doing our darndest here to make sure that we're limiting price increases as we continue to go forward, only those that are necessary to protect dollar-for-dollar and leveraging our facilities to return structural margin.

Absolutely. Helpful color, guys. Second question for me, and I'll pass it on. Just in terms of the market share gains, as you mentioned, Kevin, you've said that consistently over the past few quarters, I guess, kind of come to light that does seem to be playing out based on what we've seen from some of your peer group in the recent past? So when you think about the share gains you've seen. I'd imagine some of that's new technology, some of that's through innovation, but some of that may be just through kind of how you're interfacing with the dealers and the channel. How do you envision kind of being able to maintain those share gains, maybe even accelerate them? Kind of what are some levers you think you can put forth to kind of keep those sticky?

Thanks for the question. I think they're very durable, very sticky. These share gains have been won by our commercial operations team doing a better job of telling the Hayward story. We've been focused on this industry for decades, and we're bringing great products that resonate that are dealer-driven things that they're telling us that they would like to improve. We take to heart, and we work through our product management and our design teams. I think we really continue to focus and impress upon the dealers out there that we are looking to help them be successful, help them with as some small, some large business owner operators, what we can do from the OEM side to enable them to be more successful in the profession and in the business that they operate.

So we -- given the fact it's multipronged, whether it's around the commercial side, around the supply chain side, and listening to our dealers bringing product innovation to life. I think we have a lot to offer, a lot to sell and the momentum is gaining. So our expectation is not to see back, but to continue the positive trajectory that we've been on over the last several years.

Our next question comes from Rafe Jadrosich with Bank of America.

The first one is just on IEEPA refunds. Is there any benefit that you're seeing it in the second quarter or later this year? Or what's sort of embedded in guidance? Or what's your expectation there?

No, at this particular point, we're still in the process of substantially receiving IEEPA refunds as we stepped into the, I think the first tranche of IEEPA refunds are now in. Currently, we're evaluating what's the most appropriate way to return to customer. That will be our ambition, there's complexity to that. Obviously, whatever we would return would be natural cost to be incurred for those refunds. But right now, we're still in the process of claiming those refunds in the aggregate. the less than $10 million for us. Some of that is a consequence of the great job that we did, recalibrate in supply chain last year to get away from the impact of those IEEPA refunds. But right now, our line of sight is to approximately $8 million to $10 million worth of refunds. We have ambition to return to customers still working through that compexity. We'll update you at the end of Q3 on how that play down.

Got it. Okay. So nothing in guidance or anything like that?

There isn't.

Okay. And then just in terms of sellout, there's an earlier question on that. Can you just tell what you think like industry sellout was in 2Q? And if I were to go back, 90 days ago when you reported 1Q, like what's your full year expectation for the end markets? And have they changed at all? Like what are you expecting for new construction, R&R, international? Just how do we think about how the sellout has evolved and your outlook for the back half of the year?

I think the best proxy for what sellout was in the second quarter rate would be the largest distributor that reported last week, who I believe reported plus 3 in the equipment category over second quarter. We -- across our largest trade partners, Hayward sales out was a bit better than that. And actually traditional distribution saw even a bit better than that of Hayward product. as well. So we were encouraged with what we saw through our largest trade partners in Q2 in terms of Hayward sales out vis-a-vis the broader equipment category in general. In terms of first quarter, do you have that handy?

Yes. I mean we were mid-single digits in the first quarter on the sellout. I mean we don't get perfect information across the wider channel, but based on the reporting distributors, we were up mid-single digits.

Let me just also clarify an early point that I made that was asked by Andrew, which may be part of your question as well. I mean, typically, what we see in the channel inventory position is during Q2 and Q3 sales out exceed sell-in. So you see decreasing absolute inventories as we get to the end of Q3, you typically see a days on hand start to increase, even though it was absolute dollar values are lower in terms of inventory. And then as you step into Q4, you see the absolute inventory climb as we get ready for the season, which then takes place, obviously, in the subsequent year. typically, days on hand are going to be the highest at the end of the year, given that inventory pull in by the channel.

We have reached the end of the question-and-answer session. I'd like to turn the call back over to Kevin Holleran for closing comments.

Thanks, Robert. In closing, I want to thank our employees and partners around the world. Your dedication and hard work continues to be critical to the progress we're making across our business. We're encouraged by our strong first half of the year and remain confident in our strategy. If you have any follow-on questions, please reach out to our team. We appreciate your continued interest in Hayward and look forward to speaking with you again on our next earnings call. Bobby, you may now on the call.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Welcome to Hayward Holdings First Quarter 2026 Earnings Call. My name is Carrie, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Investor Relations and FP&A. Mr. Maczka, you may begin.

Thank you, and good morning, everyone. We issued our first quarter 2026 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 the earnings slide presentation referenced 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 2026 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Forms 10-K and 10-Q filed 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.

During today's call, the company will discuss non-GAAP measures. Reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation. All comparisons will be made on a year-over-year basis, unless otherwise indicated.

I will now turn the call over to Kevin Holleran.

Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's first quarter earnings call. I'll begin on Slide 4 of our earnings presentation with today's key messages.

The headline is clear. We delivered an outstanding first quarter, meaningfully ahead of expectations, highlighted by double-digit sales and earnings growth. Net sales increased 12% against the prior year comparison of 8% growth, driven by strong price realization and positive volume. Adjusted EBITDA grew 15% and adjusted diluted EPS increased 30% and demonstrating the earnings power of our model.

Margins expanded further with both gross margin and adjusted EBITDA margin rising despite incremental inflation, tariffs and targeted investments in innovation, operations and customer initiatives. We also made further solid progress on the balance sheet. Q1 is typically a seasonally low cash flow quarter, yet we reduced net leverage from 2.8x to 2.4x year-over-year. These results underscore the strength of our predominantly installed base aftermarket business model and disciplined execution of our strategic initiatives.

Given our strong first quarter performance and confidence in our outlook, we are increasing our full year guidance. For the full year 2026, we now expect net sales to increase approximately 5% and adjusted diluted EPS to increase approximately 9% to 13%.

Turning now to Slide 5, highlighting the results of the first quarter. Net sales increased 12% to $255 million, driven by strong pricing execution, positive volume and a favorable contribution from foreign exchange. North America and Europe and Rest of World increased 12% and 9%, respectively. As demand remained resilient across our installed base aftermarket, we were pleased to see some of our more discretionary products like automation and heaters outpace core categories in the quarter. This top line growth, combined with disciplined cost management translated into meaningful margin expansion.

Gross margin increased 50 basis points to 46.5% and adjusted EBITDA margin expanded 60 basis points to 22.1%. Adjusted diluted EPS increased 30% to $0.13. Overall, this was another quarter of strong execution, delivering balanced growth and increased profitability.

Turning now to Slide 6. 2025 marked Hayward's 100th anniversary and 2026 marks the fifth anniversary of our IPO on the New York Stock Exchange. These milestones provide an opportunity to reflect on the significant evolution in the company over the past 5 years. During this period, we've transformed Hayward into a more efficient, more disciplined and better-positioned organization for long-term market leadership. We strengthened our senior leadership team with proven operators to guide the next phase of growth.

Innovation remains our engine. We continue to develop industry-leading aftermarket focused products and solutions to expand our total addressable market. On the commercial side, we've redesigned our commercial excellence programs to support builder, dealer and servicer conversions to Hayward. Operational excellence has long been part of Hayward's DNA and we further consolidated our manufacturing and distribution footprint to improve efficiency, better serve customers and derisk our supply chain amid geopolitical uncertainty.

At the same time, we elevated how we operate day to day, accelerating lean and continuous improvement initiatives to drive productivity across the organization. All of this is underpinned by disciplined financial management. We've strengthened the balance sheet, meaningfully reducing net leverage and increased flexibility to invest through challenging market environments. In parallel, we're increasingly leveraging AI across the organization to enhance decision-making, sharpen execution and improved productivity.

These are not just incremental improvements. Together, they set a strong foundation for Hayward's next chapter of profitable growth.

Turning now to Slide 7. These accomplishments are important, but what matters most is how they translate into results and support future value creation. When you step back and look at our track record, the results are clear. Over the last several years, we've delivered top line growth in line with our long-term targets, while expanding margins and growing earnings all in a challenging macro backdrop. Specifically looking back to before the pandemic, our 6-year CAGR from 2019 to 2025 were approximately 7% for net sales and 10% for both gross profit and adjusted EBITDA. That performance underscores the resilience of our organic growth profile.

Our position is advantageous and differentiated. With approximately 85% of our sales derived from serving the aftermarket needs of a large and growing installed base built over decades, this mix provides visibility and a significant runway for continued growth. Our pricing discipline, operational agility and cost control have helped us expand margins despite inflation, giving us the financial strength to fully fund growth and productivity initiatives.

Looking ahead, our momentum is supported by an aging installed base requiring continuous maintenance, repair and upgrade. We are expanding our addressable market through new aftermarket innovations such as OmniX, providing pool owners a low-cost path to a connected pool pad and an improved overall experience. By investing in customer care, we are strengthening our competitive position and driving conversions to Hayward. At the same time, we continue to expand our presence in commercial pool and flow control.

With durable secular tailwinds in place, we remain confident in our long-term growth trajectory and our ability to deliver compelling value for shareholders.

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

Thank you, Kevin, and good morning. Turning to Slide 8. I'll walk through our financial performance in more detail. We delivered a strong first quarter with results meaningfully ahead of last year. Net sales increased 12% to $255 million against an 8% growth comparison a year ago. Price realization remains strong, offsetting inflation, and we also saw positive contributions from both volume and foreign exchange. The majority of the net price realization reflects underlying price increases over the last 12 months, including a specific product category increase in Q1 this year related to specialty metal components inflation.

A portion of the increase, approximately 2 percentage points, was attributable to incentive mix across the retailer and builder channels. Gross profit increased 13% to $119 million, driving gross margin expansion of 50 basis points to 46.5%. Adjusted EBITDA increased 15% to $56 million, with margin expanding 60 basis points to reflecting cost management and operating leverage in the model.

The effective tax rate was 22%. Adjusted diluted EPS increased 30% to $0.13.

Moving to Slide 9, segment performance for the first quarter. North America net sales were up 12% to $210 million driven by positive pricing and volume. Within the region, U.S. sales were up 11% and Canada was up a robust 26%. Gross margin was consistent with the prior year as operating leverage offset incremental tariff and inflationary pressures.

Sales in Europe and Rest of World increased 9% to $45 million, largely due to favorable FX gains and relatively stable price and volume. Europe sales increased 14%, and rest of world reduced 1%, impacted by geopolitical disruption in the Middle East related to the ongoing conflict in Iran. Margin performance in this segment continued to improve, with gross margin increasing 230 basis points to 35.8%, and adjusted segment income margin expanding 280 basis points to 19.4%, driven by improved operational execution.

Turning to Slide 10. We have a strong balance sheet and cash flow profile. Cash flows are seasonal in nature with typical cash usage in the first quarter due to extended payment terms offered for the Early Buy program, followed by cash generation in the second quarter driven by the collection of the Early Buy receivables. Cash flow used in operations was $151 million in the first quarter 2026 compared to $6 million in the year ago period. As a reminder, the first quarter 2025 benefited from $99 million in net proceeds from the sale of accounts receivable, whereas we did not recognize any such proceeds in 2026.

We continue to strengthen the balance sheet, reducing net leverage to 2.4x from 2.8x a year ago. While net leverage increased in the first quarter from 1.9x at year-end, this is expected due to the seasonal cash usage tied to the Early Buy program. Net leverage usually rises in Q1 due to the extended Early Buy payment terms then reduces in Q2 due to cash inflows from those receivables. Importantly, leverage is lower year-over-year, reflecting ongoing balance sheet improvement.

We have ample liquidity and financial flexibility to support continued organic investment, strategic M&A and return capital to shareholders, all while maintaining disciplined leverage.

Capital allocation on Slide 11. We balanced strategic growth investment with stockholder returns while maintaining prudent financial leverage as an OEM, we prioritize organic investment into our manufacturing and supply chain footprint, followed by strategic M&A while remaining opportunistic for share repurchases. In the first quarter, we made a modest anti-dilutive repurchase of approximately $6 million.

Turning to Slide 12. We are updating our outlook for 2026. Following a better-than-expected first quarter, net sales are expected to increase approximately 5%, up from our prior guidance of approximately 4%. We now expect adjusted diluted EPS to increase approximately 9% to 13% to a range of $0.84 to $0.87. Geopolitical disruptions and rising costs for specialty metals, freight and resins are currently applying a modest downward pressure on gross margin with some year-over-year compression expected in Q2 before our mitigation efforts are fully realized.

We anticipate that these counter measures will safeguard gross profit levels and allow us to maintain full year gross margin in line with last year, with margins expected to normalize during the second half as our initiatives are implemented. We expect free cash flow in the region of $200 million, exceeding 100% of net income. This outlook includes modest working capital improvement, net interest expense of approximately $45 million, a normalized effective tax rate of around 21% and increased CapEx of approximately $40 million as we continue to invest in upgrading our operational capabilities.

Overall, we are confident in our ability to execute in the current environment and remain positive on pool industry growth, supported by the strength and the resilience of the aftermarket.

With that, I'll turn the call back to Kevin.

Thanks, Eifion. Before closing, I want to thank the team again for their performance. Hayward delivered an outstanding first quarter, highlighted by double-digit sales and earnings growth. Given the strong start to the year and our confidence in our outlook, we are increasing our guidance for the year. Importantly, the company is far stronger today than it was just 5 years ago at the time of our IPO and the structural improvements we've made across leadership, innovation, commercial execution and operations are enduring and continue to compound.

With a large aging installed base, industry-leading technologies like OmniX and a disciplined operating culture, we believe Hayward is exceptionally well positioned to deliver consistent growth, expanding profitability and strong cash flow over time. We remain confident in the long-term fundamentals of the pool industry and excited about the opportunities ahead.

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

[Operator Instructions] And our first question will come from Jeff Hammond with KeyBanc Capital Markets.

Great start to the year. I wonder, one, just what really surprised you? Was it weather late in the quarter? Was it better Early Buy follow through? And then just around Early Buy some concern or question about channel inventories, big distributor showing good growth and a competitor kind of talking about some normalization of inventories needed to happen. Just touch on how you're feeling about your inventories and sell-in versus sell-through?

Sure. So first about the quarter, Jeff, weather was certainly good. I would say warm and generally dry, which are good for our industry. There were some regions that certainly had some exceptions to that, namely parts of the East Coast with some extremely cold, hence precipitation. But in general, I would think weather was a pleasant surprise for the winter months, which are not always that way.

I would say the other thing that was really positive is as you look across the geographies and the specific end markets, we saw a nice participation and double-digit growth out of most regions. Overall, U.S. was 11%. Canada continues with its strong recovery in the mid-20% growth. Commercial been a great story for us, nearly 20% growth. Industrial flow control, low double-digit growth. And then Europe, in the low teens growth year-on-year.

I would say the one exception to that would be Rest of World, which is where Middle East is part of that. We did see some softness for some obvious reasons during the quarter. But on balance, I would say sales across all end markets and geographies was very strong for us.

You mentioned Early Buy. We were well positioned coming into the start of the year with a nice carryover from our Early Buy orders that were received during fourth quarter. Because of some nice flow business in fourth quarter, we were able to really meter the Early Buy shipments both fourth quarter and carried more of that into first quarter of this year, allowing us to really stage the inventory in the channel as the season starts.

As for the inventory question, second part of your comments there, we closely monitor channel inventory levels with our partners. And as I said, we were able to manage the timing of those Early Buy shipments to ensure that the inventories remain balanced at year-end, and we feel good about where they are exiting the first quarter. On balance, we're comfortable with overall inventory levels from a days on hand standpoint based on our current outlook for the seasonal demand profile.

As of today, our mid-single-digit net sales guide assumes sell-in approximates to the sellouts for the full year. and the normal inventory levels will be achieved within the channel throughout the year and exiting the year. I know you're aware of this, but just as a reminder, the normal cadence for our industry is that sell-in exceeds sellout in fiscal fourth quarter and first quarter and then as you work through the season in Q2 and Q3, the sellout of the channel exceeds what the OEMs or what Hayward sells into the channel. So in summary, we feel comfortable with the inventory levels that are staged in the channel and in the market currently and expect to stay that way through the year.

Okay. Good. Just a follow-up here. Eifion, you mentioned some inflation and margin impact into 2Q. Can you just speak to where you're seeing incremental inflation, how the Section 232 update does or doesn't impact you? And what you're doing in terms of price? Is it broad or more targeted? I know there's some issues with Refinium and other with salt chlorinators, et cetera, but just walk us through that.

Yes. Before I jump into the response, let me just lead off by saying, despite these higher pockets of inflation, which are higher than we originally expected. The team is doing a really good job getting after limiting the impact of these cost increases. And we're executing the playbook that we've become adapted doing -- over the last several years. But to be clear, look, we are experiencing some inflation as we step into 2026. I'd also say, despite -- just to clarify what I said in the call, we continue to expect sequential gross margin to improve from Q1 to Q2.

There will be probably a little bit more modest than we did last year in part because we'll start to have price increases that we put into place. But specifically, we're experiencing higher energy-based costs coming through as a consequence of the disruption and so on a global basis. And we've also experienced slightly higher specialty metal costs earlier in the year. And we've acted quickly. We put two price increases and the first 1 in Q1, which was an out-of-cycle price increase on the alternative salt sanitization line.

That went in on orders in Q1 most likely to start impacting invoices in Q2 onwards. And then more recently, early on in Q2, we put in a surcharge of approximately 2.5% which, again, on orders early in the quarter may be affecting invoices positively at the end of the quarter, but certainly rolling on to the full invoice profile in Q3 and 4 onwards. So those are the necessary actions that we've taken.

I'd say as a consequence of both of those actions, we still expect full year gross margins to be comparable to the record we set last year. And the operational team continues to execute all of their supply chain initiatives to limit the impact of any further inflation.

Was there a second part of the question that you had, second part?

Tariffs.

In terms of the tariffs, Jeff, what I would say is the roll of and then the reinstitution of the 122 and to your point, the 232s, we've evaluated the net impact of that. And it's no different from what we thought coming into the year. So we don't see any further either as a consequence of this change in tariff regime.

Our next question comes from Nigel Coe with Wolfe Research.

I just want to go back to the 10% price in North America. You mentioned a couple of -- what sounds like unusual contribution. I just wanted to make sure, we understand that. And maybe just specify what's baked in to price in your guide? I think it was 3% prior. How does that look right now?

Yes. As you mentioned, we originally saw pricing for the full year with average broadly speaking, plus 3, obviously, higher in North America, lower outside North America. We now expect it to be plus 4%. Some of that mail is consequential to the benefit we took in Q1, slightly different incentive mix across the channel. Retailers and builders earning a little bit less, normal distributors earning their more margin benefits. But we've increased guidance up 1% to reflect the pricing positivity.

As I mentioned, the Q1 pricing increase associated with specialty metals impacting salt chlorination. That's a very discrete product line. There's an affect that price increase does not affect the entirety of our product line. So that has a very small positive impact on the full year when you think about total headwind pricing. The surcharge, which is 2.5%, we've put that in, in early Q2. We have not built that into guidance because we view it as temporary or structural. At any particular point in time, we may withdraw that 2.5%. So it's not it's not appropriate for us to include that within our guidance.

But for the balance of the year, we expect pricing to be developing quite similar to what we originally thought, which is, again, mid-single digits for North America, maybe slightly higher in the U.S. specifically and then lower single-digit development in Europe and Rest of World, overall, averaging about plus 4% for the entire year.

Just to reiterate what you said, to Jeff, again, we'll be lapping in Q2, Nigel, the tariff off-cycle increase that was announced in Q2 of 2025. So that will start to expire here as we work through the second quarter.

Okay. Kevin. And then just you made it very clear that you're not expecting there to be any channel inventory headwind this year, sell-in versus sell-through relatively similar. Do you think that there's any impact still from the price increases? Obviously, there's been a lot of price going in over the last several years in 2026 as well. Is there any lasting impact here? Have you seen any mix of weight towards lower-cost competitors? Any descoping of the pads, anything you can point to?

Yes. I mean we certainly have our eyes peeled for that, Nigel. It's a very logical question with the amount of price that has been passed through to the pool owner. We can't point to anything specific that would say absolutely yes. I would say here in first quarter, we were very encouraged to see positive volume for the first time in several quarters. So that would actually be absolutely contrary to that concern. That said, there is a lot of price there. We continue to try and price products for the value that we think they create for the pool owner.

And that's how we're driving our product development and our pricing decisions. Again, when we make these announcements, they're not necessarily blanket same percentage across all product categories or all SKUs, Nigel. We're fairly tactical and specific in where we think the market can accept the pricing, and frankly, where it can't. From a sales standpoint, as we look at first quarter, we were encouraged by some of the sales in numbers on what we would call discretionary products. You don't necessarily need color LED lights on your pool, salt chlorine generators or controls but we saw a nice sales up in those numbers in the first quarter.

So to summarize, we certainly are very aware of the question that you're asking, looking for data and early indication. But thus far, we see that the market is accepting the pricing that we've put in, and we hope it's nearing it in though. We're not -- we don't want to continue having to put these dollar for dollar price increases into the marketplace. So stay tuned on that one.

We'll go next to Andrew Carter with Stifel.

First off, I wanted to ask, I think Pinteir said yesterday, their sell-out was above what Pool Corp said that their equipment sellout was 7%. Could you kind of comment directionally where you were? I think it's interesting in there, you said that weather was favorable. You're heavier skewed to the Northeast, that weather has been absolutely terrible. So I think there'd be late. So if you want to add any context to that.

Yes. I mean in terms of sales out with the larger channel partners that we get that information from, I would say, our sales out was consistent, Andrew, with really what our full year guidance is. So we saw, call it, mid-single-digit sales out through our larger channel partners, which gives us confidence there.

In terms of weather, yes, I mean, some of our larger share geographies, certainly in the U.S. are more seasonal in nature. And we view that all sales were okay in those regions, it certainly didn't help us in the first quarter. So we see that as an opportunity as the weather finally starts to turn in the Northeast, in the Midwest I quoted Canada earlier at plus mid-20s, high share region or country for us as well.

So it didn't necessarily help but overall, the balance of the country where we are growing share, which has been very targeted in our go-to-market and our dealer conversion strategies help mute some of the weather impacts from the Midwest and East Coast, Andrew.

Moving next to Rafe Jadrosich with Bank of America.

Just on the guidance increase for the full year, can you just talk about sort of what's driving that? Is that just 1Q upside? And is it better price realization or volume compared to your expectations? Or are you seeing it in the order book? Like what's changed versus what you're expecting a couple of months ago?

Yes. Let me start on that, Rafe, and then I'll ask Eifion to give more detail. But for the balance of the year, our guide assumes relatively stable demand environment with some regional differences. In North America, we're expecting pricing, as Eifion mentioned earlier, to be up in the mid-single-digit range, supported by disciplined execution and with modest improvements in aftermarket volume, perhaps offset slightly with new construction activity.

And then in Europe, Rest of World, where pricing is more limited and volumes will be broadly flat. So taken together, all of this supports the full year outlook of that approximate 1% increase in the net sales growth.

Yes, I think you got it, Kevin. The increase from 4% to 5% of the top line growth is a reflection of the better pricing performance in Q1, recognizing Q1 typically only represents about 20%, 21% of our mobile sales. But we moved up modestly there. In terms of the EPS guide, we've moved up, I think, a little bit more meaningfully. Our original guidance there was $0.82 to $0.86, we've now moved that low end up to $0.84 and top end to $0.87. So about $0.0015 increase at the midpoint in those ranges, and that really reflects continued leverage across the SG&A base.

And we've been investing in SG&A progressively over the last couple of years. we increased in Q1 year-over-year in SG&A, but less than the net sales growth. So we're beginning to see leverage come across the SG&A base as we talked about as we exited last year. So we're pleased with the development in the EPS, obviously, again, fueled in part by the top line movement.

Okay. That's helpful. And then -- just on the -- on your market share, it's obviously tough for us to tell because you have different channel dynamics and sell-in and sell-out, but it seems to us like you're gaining a little bit of market share 1 like would you agree with that? And if it's true, like what are the -- what do you think the key drivers are? Is it like where you underpenetrated regionally? Is it like OmniX? Like what's leading to that outperformance relative to the industry?

Yes. I mean we think that we are picking up some modest share. It's hard fought certainly because there are some great competitors out there. But this has been a concerted effort several years in the making rate. And it is a combination of things from some great new product launches, OmniX is certainly grabbing a lot of headlines. But there's other products behind it, whether it's entry into a 4-horsepower, variable speed or some aftermarket lights or bringing some new cleaner products to the market.

As Eifion just mentioned, we've added some resources to our field sales and service teams to provide better service, better support in our efforts to gain the attention of some new dealers out there.

And then certainly, geographically, as we spoke, Andrew, highlighted earlier some of our higher share regions, we were underpenetrated in some markets, not only around the country, but around the globe. And we've had some very focused regional approaches to try and grow out West and in the Southwest and in the South Central and parts of Florida. So it's a multipronged approach across new product introduction, in-market sales, support, marketing programs and focused on some of those underpenetrated markets where Hayward has been historically underrepresented.

[Operator Instructions] We'll go next to Brian Lee with Goldman Sachs.

I guess on the guidance, it does sound like most of it's priced in terms of the incremental 1 percentage point on the top line. But you did allude to the fact that volume went positive here for the first time in a while, and your tone sounds relatively constructive. I know it's early in the year, but any sense of kind of the demand environment may be picking up or at least you are modestly doing better and that being a potential tailwind as you move the year I know price has obviously helped a lot, and it looks like it will continue to help. But any additional commentary you can make on sort of what you're seeing here from a demand perspective and what it might translate to for the rest of the year?

I think it's a great question. As you -- as you said, when you're framing the question, Brian, it's early in the year, though. And Q1 not all markets are even open for business at that point in time. So while we're optimistic, I don't -- we're not yet confident to assume that there will continue to be market demand or market volume that could assist with the revision to guidance at this point. As we look the aftermarket continues to be resilient.

As I mentioned, we see a nice sales in demand for some of the upgraded or products that we see adding features and functionality to the pool pad. From a remodel standpoint, there seems to be some pockets of optimism as we interact with our dealers in the first quarter. And new construction, I think it's just responsible for us to assume that it's going to remain flattish until there's some catalyst for us to think otherwise or see otherwise on the new construction side.

So we certainly would like to be back in front of this audience in the coming quarter, talking about some more bullish outlook on market demand, but we're not yet to the point of adding that as an element of our guidance.

Yes. Maybe just to tag on one last point, which is a follow-up to what Rafe was asking as well. We have introduced the OmniX, I'll call it, platform into our product range. We started last year and we've seen good momentum year-over-year in the adoption of OmniX as it was launched attached to that original pump category. That confidence there, that uptick in activity allows us to think about expanding, and we are expanding it across other product categories.

So as Kevin just mentioned, we're being reserved a little bit, but the aftermarket remains resilient. Discretionary spend for us, at least, both in sell-in and what we can see in sellout is positive, and the adoption of OmniX has been good.

Yes, absolutely. I appreciate that color. And maybe on that point, I know in the past, you guys have kind of shared some product vitality statistics. And you're clearly gaining some share and definitely from a body language perspective, you sound more constructive than some of your peers. So this feels company-specific. But is there anything you can share in terms of product vitality, sort of what amount of growth is coming from new products? And -- because that seems like that could be 1 of the more sustainable trends for you from a growth perspective. I get the underpenetrated regions and things of that nature. There's multiple prongs to it. But maybe on the new product front, anything you could share just to -- providing growth for you guys?

Yes, sure. It's probably more appropriate trust to share vitality as we come out of the season, so we get a really good view on what's sold out right now, for the last couple of quarters we've been selling in. So let's maybe hold the answer to that question until we come out of Q2 when we can get better visibility on vitality out of the channel. What I would say is last year, we did launch and introduce a number of different new products. We're very pleased with the success of that. We featured a bunch of those at the end of last year in our earnings presentation.

And as we look at Q1 specifically this year, we're very pleased with what we would call the discretionary side of the product range. It continues as a positive momentum sell in over the last -- certainly Q1, but over the last couple of preceding quarters. So we're seeing good adoption of technology, good adoption of features including lights, control systems, heaters on an LTM basis continues to do well. So from a discretionary perspective, which is attached to a lot of our new product launches, we're seeing very good adoption.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Kevin Holleran for closing comments.

Thanks, Carrie. In closing, I want to thank our employees and partners around the world. Your dedication and hard work continue to be critical to the progress we're making across the business. We're encouraged by our strong start to the year and remain confident in our strategy. If you have any follow-on questions, please reach out to our team. We appreciate your continued interest in Hayward and look forward to speaking with you again on the next earnings call. Carrie, you may now end the call.

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

Welcome to Hayward Holdings Fourth Quarter 2025 Earnings Call. My name is Carrie, and I will be your operator for today's call. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Investor Relations and FP&A. Mr. Maczka, you may begin.

Thank you, and good morning, everyone. We issued our fourth quarter and full-year 2025 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 the earnings slide presentation referenced 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 2026 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Forms 10-K and 10-Q filed 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. During today's call, the company will discuss non-GAAP measures. Reconciliations of historical non-GAAP measures discussed on this call to the comparable GAAP measures can be found in our earnings release and the appendix to the slide presentation. All comparisons will be made on a year-over-year basis unless otherwise indicated. Additionally, I'd like to highlight a change in accounting principle.

During the fourth quarter of 2025, we changed to a preferred presentation of warranty costs from SG&A to cost of sales. This change has no impact on net sales, operating income, net income or adjusted EBITDA. The change has been applied retrospectively to all periods presented and affects cost of sales, gross profit and SG&A expense. Tables outlining this presentation change are included in our earnings press release and in the appendix to the earnings slide presentation.

I will now turn the call over to Kevin Holleran.

Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's fourth quarter earnings call. I'll begin on Slide 4 of our earnings presentation with today's key messages. Hayward delivered strong fourth quarter and full year 2025 results, outperforming expectations and extending our momentum. Our team executed at a high level across the organization, translating into sales and earnings growth, continued gross margin expansion and robust cash flow generation.

I'm pleased to report that our net sales increased 7% in the fourth quarter against a very strong prior year comparison. Gross margin expanded and adjusted EBITDA increased 4%, demonstrating our ability to drive profitability even as we continue to invest in the business. Our full year performance was strong across all key financial metrics. Net sales increased 7%. Gross margin achieved a record 48% and adjusted EBITDA grew 8%. These results underscore the success of our business development strategies and the durability of our aftermarket-driven model.

Cash flow generation was exceptional, enabling a further meaningful reduction in net leverage to 1.9x by year-end. At the same time, we're executing on our strategic priorities. We're investing in innovation, operational excellence and customer experience while maintaining a strong financial profile. These actions are strengthening our competitive position and supporting long-term value creation. 2025 also marked the 100-year anniversary of Hayward's founding in 1925, a remarkable milestone and testament to our resilience. It was important to us that we honor that legacy with strong performance in our centennial year, and I'm proud to say we did exactly that.

As we enter our next century, we do so with a solid foundation for future growth and an unwavering commitment to our customers. Looking ahead, we enter the new year with confidence in the strength of our business and our ability to execute our strategic growth initiatives. For the full year, we expect continued sales and earnings growth with net sales increasing approximately 4% and adjusted diluted EPS increasing approximately 6% to 12%.

Turning now to Slide 5, highlighting the results of the fourth quarter and full year. Net sales in the fourth quarter increased 7% to $349 million against a strong prior year comparison of 17% growth. Gross profit margins continued to expand and adjusted EBITDA increased 4%. Adjusted EBITDA margin of 29.4% was reduced largely due to the increased variable compensation costs associated with better-than-expected performance. Adjusted diluted EPS increased 7% to $0.29. For the full year 2025, net sales increased 7% to $1.122 billion and adjusted EBITDA increased 8% to $299 million, each exceeding our most recent guidance.

Profitability was strong with gross margin increasing to 48% and adjusted EBITDA margin increasing to 26.7%. Adjusted diluted EPS increased 15% to $0.77. Overall, this performance reflects solid growth and margin expansion, balanced against targeted strategic investments in the business to support long-term value creation.

Turning now to Slide 6. I'd like to share some strategic accomplishments from the year. 2025 was an important and successful year for Hayward, our centennial year and one in which we delivered on our financial commitments while further strengthening our position as a premier company in the industry. I'm extremely proud of our team's performance, and I want to thank all of our valued customers and vendor partners for their efforts throughout the year.

Our aftermarket model focused on serving a large installed base of existing pools with regular equipment replacements and upgrades represents roughly 85% of our total sales and continues to prove its resilience. We generated another year of solid growth and profitability through a challenged macroeconomic backdrop in which new pool construction in the U.S. approached post-GFC lows. From a financial standpoint, we delivered robust growth in sales and double-digit increases in both adjusted diluted EPS and free cash flow, enabling a meaningful reduction in net leverage to 1.9x.

At the segment level, North America delivered record margins. Canada continued its strong performance, and we were very pleased with the performance of ChlorKing in the first full year of ownership, strengthening our position in commercial pool equipment. Europe and Rest of World showed a solid recovery in sales and margins, reflecting the benefits of our organizational realignment and operational focus.

As I reflect on the post-pandemic period for the industry, we have now delivered 2 consecutive years of top line growth aligned with our long-term algorithm, 6% in 2024 and 7% in 2025, alongside meaningful margin expansion and balance sheet delevering. Further, looking back to before the pandemic, our 6-year CAGRs from 2019 to 2025 are approximately 7% for net sales and 10% for adjusted EBITDA, underscoring the sustainable organic growth trajectory we believe our business can deliver over time despite some year-to-year variability. Beyond our financial results, we executed on key strategic growth initiatives to further strengthen the foundation for Hayward's next century of growth.

As a technology leader, we increased our disciplined investments in research, development and engineering to support growth-enhancing innovation. We launched several differentiated products during the year, including the introduction of OmniX automation ecosystem. I'll discuss this in more detail on the following slide. Hayward has a long-standing culture of operational excellence and continuous improvement, and we demonstrated our capabilities again in 2025. We successfully mitigated the impact of tariffs, realigned our supply chain and continue to derisk our sourcing footprint while making strategic investments in automation and productivity.

We also continue to elevate the customer experience. We recently expanded the network of Hayward hubs, opening one in California in the fourth quarter, and our fifth hub is scheduled to open in Florida soon. We also increased training and support for dealers and trade professionals. After a successful pilot program, we are now scaling up the use of AI-enabled technical service agents to improve efficiency and service quality for our customers. These efforts are supporting successful dealer conversions and share gains.

Turning now to Slide 7. Last year, we first introduced you to OmniX, an industry-first automation platform providing wireless connectivity and app control for a suite of products without the need for central controller. This strategy directly addresses the need of the approximately 3.5 million U.S. pools with little or no automation, offering a seamless path to modernization. Today, I'm excited to share another key step in building out the OmniX ecosystem. Now every new Hayward variable speed pump and gas heater is OmniX-enabled.

As homeowners replace older equipment, they will get automation as standard, lowering the barrier of large upfront cost and making aftermarket upgrades more accessible. With more OmniX-enabled products on the horizon, our ecosystem will continue to offer robust aftermarket upgrade options, driving further growth and giving pool owners even more ways to enhance and enjoy their pools over time. Additionally, our new OmniX products feature a common intuitive universal display. For pumps, this also includes universal communications, supporting seamless aftermarket integration with existing non-Hayward automation systems.

On Slide 8, innovation in the aftermarket remains core to our strategy given the large addressable market for efficient connected products. Here, we showcase several new products, each designed to unlock significant aftermarket upgrade opportunities for Hayward either by providing access into new product categories or by broadening compatibility with competitive systems. Starting on the left-hand side of the slide, we've expanded our variable speed pump line with superior performing OmniX-enabled 4-horsepower models for large residential and small commercial pools. This is a key established segment of the pump market not previously served by Hayward.

Our new ColorLogic LED landscape lights allow homeowners to create coordinated custom color effects across the pool, spa, water features and now their surrounding landscape. The TracJet pressure cleaner shares many of the same performance elements as our successful TracVac suction cleaner, fast cleaning and improved access to hard-to-reach spaces. Entering the pressure cleaner category opens up another segment of the automatic cleaner space for new and replacement installations.

In Europe, new pumps have been introduced as direct drop-in replacements for the extensive installed base of competing products, presenting a promising opportunity to increase market share. Finally, we've also expanded our pool lighting product line. These lights present an excellent aftermarket alternative for trade professionals seeking robust lighting solutions compatible with non-Hayward systems. Collectively, these new products unlock incremental aftermarket opportunities by enabling easier upgrades, replacements and conversions across both Hayward and non-Hayward pool pads.

Turning now to Slide 9. I'd like to briefly revisit the strategy we're executing to drive growth and value creation in 2026 and beyond. Hayward is fundamentally a growth company built on a strong and reliable organic growth engine complemented by disciplined inorganic opportunities. On the organic side, our product management and engineering road maps are focused on delivering innovative, energy-efficient and highly automated solutions that elevate the pool ownership experience. This includes industry-leading technology platforms like OmniX, positioning us at the forefront of connected intelligent pool solutions.

We continue to enhance the overall customer experience through investments in sales and marketing programs, additional Hayward hubs as well as hosting premier industry events that reinforce our leadership and deepen engagement across the channel. Our commercial pool and industrial flow control businesses, though smaller in scale, are high-quality, high potential contributors to our portfolio. We are experts in water movement and treatment solutions, focused on accelerating profitable growth in these attractive categories that scale our core capabilities.

We have a proven track record of expanding margins from already strong levels. Over the past 6 years, our gross profit margin has expanded more than 700 basis points from 41% to 48%. We continue to see long-term margin upside supported by 4 pillars: productivity gains, a richer mix of higher-margin technology products, operating leverage from increased capacity utilization and proactive price/cost management. Finally, as we've emphasized, we maintain a balanced and disciplined approach to capital allocation, prioritizing organic growth investments while pursuing strategic acquisitions that enhance our product portfolio, expanding our geographic reach and strengthening customer relationships.

In summary, we are confident that our strategy positions Hayward to deliver sustainable, profitable growth and compelling shareholder returns in the years ahead.

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

Thank you, Kevin, and good morning. Turning to Slide 10. We're pleased with our quarter 4 financial results. Net sales rose 7% to $349 million against a strong prior year comparison of 17% growth, mostly on price gains to offset inflation. Gross profit grew 10% to $169 million. Gross margin improved 160 basis points year-over-year and 70 basis points sequentially to 48.5%. As discussed, we changed warranty accounting, moving costs from SG&A to cost of sales, lowering gross profit and SG&A, but not affecting net sales, net income or adjusted EBITDA.

Under the prior presentation method, gross profit margin would have been 52.1% for the quarter. Adjusted EBITDA increased 4% to $103 million with a margin of 29.4%, a decrease of 80 basis points year-over-year. During the quarter, we incurred increased variable compensation, reflecting strong annual performance, onetime legal expenses and further investments into our sales and advanced engineering teams. The effective tax rate was 9%, down from 14%. Adjusted diluted EPS rose 7% to $0.29.

Turning to Slide 11. For fiscal 2025, net sales increased 7% to $1.12 billion and were ahead of expectations. Growth came from 5% price gains and 1% from ChlorKing acquisition. Gross profit rose 11% to $539 million. Margin was up 170 basis points to a record 48%. Under the prior presentation method, gross margin would have shown 51.5%. We increased research, development and engineering spending by 6% to $27 million. Sales, general and administrative expenses grew 14% to $247 million, mainly from higher compensation expenses, the execution of our sales and customer care investment plans and the integration of ChlorKing.

Adjusted EBITDA rose 8% to $299 million, and the margin increased 30 basis points to 26.7%. The effective tax rate was 18%. Adjusted diluted EPS grew 15% to $0.77. Moving to Slide 12 for a discussion of our quarter 4 segment results. North America sales were up 8% to $309 million, mainly from price gains. U.S. sales were up 8%, Canada was up 10%. We saw a strong in-quarter and early buy demand for 2026. Gross margin was up 80 basis points to 50.1%. Europe and Rest of World sales held approximately steady at $41 million, 5% FX gain offset lower prices and volume.

Europe sales up 7%, Rest of World down 9%. Gross margin was up 590 basis points to 35.8%. Adjusted segment income margin up 350 basis points to 16.3%. On Slide 13 for a review of our full year segment results. North America sales were up 7% to $959 million with 6% higher pricing and ChlorKing's contribution. U.S. and Canada up 7% and 6%, respectively.

We were pleased to see the Canadian performance continue to improve. Gross margin was up 150 basis points to 49.9%. Adjusted segment income margin was consistent with the prior year at 32.4%. Europe and Rest of World sales were up 4% to $163 million, driven by 2% volume and 2% FX gains. Europe up 5%, Rest of World up 3%. Gross margin was up 230 basis points to 36.7%. Adjusted segment income margin up 280 basis points to 17.4%. Commercial and operational actions improved performance across the segment.

Turning to Slide 14 for a review of our balance sheet and cash flow. Free cash flow increased 20% as a result of improved profitability and working capital management, reducing net leverage to 1.9x and increasing liquidity by $164 million. This strengthens our ability for continued organic investment, strategic M&A opportunity pursuit, capital return while maintaining disciplined leverage.

Moving to Slide 15. For capital allocation, we balance strategic growth investment with shareholder returns while maintaining prudent leverage. As an OEM, we prioritize organic investment into our manufacturing and supply chain footprint, followed by strategic M&A while remaining opportunistic for share repurchases. In the fourth quarter, we made a modest anti-dilutive repurchase of $4 million.

Turning to Slide 16 to discuss our outlook for 2026. Net sales are expected to increase approximately 4%, and we're introducing adjusted diluted EPS guidance of $0.82 to $0.86. We expect free cash flow in the region of $200 million, exceeding 100% of net income, inclusive of modest working capital improvement, net interest expense of approximately $45 million a normalized effective tax rate around 24% and increased CapEx of approximately $40 million as we continue to focus on upgrading our operational capabilities. We're confident in our ability to execute in the current climate and remain positive on pool industry growth given the strength of the aftermarket.

With that, I'll turn the call back to Kevin.

Thanks, Eifion. I'll pick back up on Slide 17. Before closing, I want to thank the team again for their performance. Hayward delivered another strong quarter and year. We've achieved 2 consecutive years of solid growth and 6-year CAGRs of 7% for net sales and 10% for adjusted EBITDA, underscoring the strength and resiliency of our model. At the same time, we delevered the balance sheet to under 2x while investing in the business. As the macro environment evolves, our unwavering confidence in the fundamentals of our aftermarket-focused business and our proven ability to execute positions Hayward to capitalize on emerging opportunities and deliver substantial long-term value for our shareholders. We concluded our first 100 years with momentum, and we're energized by the many opportunities that lie ahead for Hayward.

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

[Operator Instructions] Our first question will come from Ryan Merkel with William Blair.

Nice job this quarter. I want to start with the fourth quarter beat. Can you just talk about what the source of the upside surprise was in 4Q? And then secondarily, can we use normal seasonality as we think about modeling first quarter '26?

Ryan, I'll turn it over to Eifion to talk about the seasonality. But as for the fourth quarter, there were a lot of positives and for the full year for that matter. Notably, early buy, it turned out well for us. We received incremental orders year-on-year. And overall, we shipped a lower percentage of those orders in the fourth quarter because of stronger in-quarter demand despite comping off a heavy prior year due to the weather and the hurricanes in Q4 of '24. Obviously, that would result in carrying over a larger order file into Q1 of 2026.

I think when you look at how the orders or how fourth quarter played out, we were pleased to see high single digit or even in the case of Canada, low double-digit year-on-year growth with U.S. up 8%, Europe up 7% and again, Canada up 10%. So those are 3 really big markets, important markets for us. And then posting record gross margin in fourth quarter at 48.5% on the operating performance are things that I think we're real proud of. But like any year, when you close out fourth quarter, it gives you the opportunity to reflect on the full year.

And with 2025 being our 100th year, something that very few companies get to experience, it's allowed me to step back and take some perspective. And overall, I would just say the resilient performance of the organization is something that I'm really proud of, and I want to thank all my colleagues for inside of Hayward. The market is not giving much right now, but the team really did deliver across all major financial and strategic metrics last year. As you well know, new construction has been down 4 consecutive years, and it's really been cut in half from the 2021 high, yet net sales were up 7% last year and a similar 7% for the 6 years ending 2025, delivering record gross margins at 48% is a real highlight.

Adjusted EBITDA, 10% CAGR, as I said in the prepared remarks, delivering 300 basis points over that 6-year period. And I don't want to leave out free cash flow last year. It represented nearly 150% of net income from profit performance and working capital improvements around specifically receivables and inventory. So strategically, the team has done a great job around innovation. I spent quite a bit of time in prepared remarks talking about some of those great products that are finding their way into the market. Investments around sales and service and not to be left out derisking the supply chain, all posted positive outcomes for us. So as I put a bow on 2025, our Centennial, I really think it does affirm Hayward's core strengths around disciplined execution, cycle-tested business model that's tied to the installed base and aftermarket demand as well as implementing a growth strategy that's delivering results. So a lot to be proud of. And again, I applaud the team for such strong performance. Around seasonality?

Seasonality, Ryan, we expect a normal year. I mean, as you know, Q1 and Q3 are the lower top and bottom line result periods for us and Q2 and Q4 are the high result periods. Gross margins -- we expect to modestly expand in 2026 with greater gains, I would say, in the second half based on the cumulative effects of the operational improvements we will deliver in the year. So a normal seasonal year with Q1 and Q3 being lower, Q2, Q4 being higher.

Got it. All right. That's great. And then just a quick follow-up on the guide. Can you just talk about your assumptions for aftermarket, new pool and if there's any channel dynamics we need to think about, that would be helpful.

Yes. From a channel standpoint, I don't think there's anything really to note there. We felt good about year-ending inventory levels from a days on hand standpoint across our largest channel partners, no shadow inventory from what we can tell. And I just think that we've all gotten much better about managing those inventory levels coming through the COVID experience a few years back. As for demand that's informing the guide, I would say it's fairly normal demand for what we've seen in 2025. We're not calling for new construction to necessarily get better. I don't think that would be prudent at this point with what we see. And we continue to see the aftermarket or we expect the aftermarket to continue to perform, particularly with some of the new products that we're bringing that I think can offer solutions to the aftermarket for upgrade and automating their pad.

Our next question comes from Rob Wertheimer with Melius Research. Since we don't have a response, we'll go next to Jeff Hammond with KeyBanc. Sorry, we'll go to Nigel Coe with Wolfe Research.

Okay. maybe just going back to the 1Q comment. Just wondering if there's any -- obviously, we've had some pretty severe weather in the Northeast and a bit colder in the South as well. So any impacts to note there and maybe good or bad impacts to note? And I just want to confirm, Kevin, you mentioned that there's a bit more weighting on the early buy program in 1Q versus 4Q this year?

Yes. What I had said to Ryan's question, Nigel, was that we -- as a percent of what was received or collected through the early buy program last year that a smaller percentage of that was shipped in Q4. As for Q1, we're not going to get too granular on it. But yes, it's been a rough winter. I would say several weeks ago, there were some frozen conditions in some markets that aren't accustomed to that. By and large, the team is seeing very little in terms of equipment replacement coming from that. I don't think a great deal of work is done this time of year in the Northeast, but very little will be done until this storm passes -- so it's -- I would say, overall, the winter has been more severe through the first 2 months of 2026 than what we have seen in prior years.

Okay. And then maybe just a quick update on the tariff situation. There's obviously been some changes ongoing. And then just bring up to speed on the supply chain realignment as well.

Sure. I mean, look, tariffs in '25, it was a challenging year. I think at this point, we are declaring victory on that specific battle, but obviously, a new year potentially new challenges. What I would say, though, before I get the fullness of the answer here is we have to call out just how extremely proud Kevin and I are of the entire Hayward team on the way they handled, I'd say, tariffs in 2025.

It took the entire team to deliver success here. A lot of moving pieces, and we declared victory with a record gross margin at the end of 2025. But getting back to the question, look, we've demonstrated we can manage offsetting tariffs with price increases and then aggressively focusing on operational improvements. We have reduced our dependency on China from 10% entering 2025 down to approximately 3% by the end of the year in terms of U.S. cost of sale exposure to China.

It comes with the cost. We do recognize that moving out of China comes with an incremental cost. It's probably costing us incrementally $5 million to $6 million or about a 1.5% price cost increase in cost of sales. We're still digesting, I would say, the recent SCOTUS ruling and the response from the President. But based on initial view of how tariffs are looking from those comments, we believe we've covered the exposure in our guidance and don't see any additional threat -- there's some puts and takes by country, but we believe on a net basis, we're fully covered within the guidance that we've given.

I think what we've demonstrated, Nigel, is tariffs have become for us a managed variable and not a year-by-year structural headwind. We can deal with it. We've previously mentioned how we're handling our Chinese operation. We'll downsize that facility. Folks there are listening to this call. They're a great team, and we'll recalibrate that facility to service our rest of world business.

We'll go next to Mike Halloran with Baird.

It's Pez on for Mike. I wanted to talk a little bit about the increased investments here. Obviously, a notable step-up in CapEx. You talked about the increased investment in RD&E, talked about the increased investment in customer success and operations. Maybe just give us a little bit more color, where is the spending going, particularly on the CapEx side? It's a pretty notable jump. And then any color you can give on the raised investments that you're spending broadly at the centralized level.

Yes. Let me take the CapEx and then turn it over to Kevin. We've communicated Pez over the last couple of years that we're likely to step our CapEx investment program. Historically, it's been 2% to 3% of revenue. We've communicated we have ambition to upgrade our U.S. manufacturing footprint, and we're doing that. We're doing it sequentially around the 3 sites that we have. We took a step up in 2025 with CapEx just tipping over $30 million. We've communicated $40 million in terms of 2026. This reflects upgrading, automation, modernizing and a little bit of onboarding of assets as we come out of Asia.

We think it's a good step forward for these facilities. More to come as we step through 2026 in how we communicate success around what we're doing here. But at the end of the day, we still remain a very light CapEx business even at these slightly increased levels. So it's not going to be a large consumer of cash. And as we made in our prepared remarks, cash flow for 2026 is still going to be above 100% of net income, approximately $200 million. So it's not a large consumption of cash here, but it's a great step forward in the operational capabilities of our U.S. footprint.

As for the investment, Pez, yes, we've really been consciously investing back into the business, I'd say, over the last, call it, 18 months or so, specifically around a few key areas around R&D and then around the customer experience, sales and marketing. We think it's the right decision to invest in the downturn. So we're better positioned to benefit when the market recovers. As for early indications in terms of feedback and payback, you saw in the prepared remarks a long list of new products that are hitting the market that are really innovation breakthroughs as well as specifically targeting the established aftermarket out there.

Some of these are new category entrants for us. A 4-horsepower is not a product that we participated in. So that's kind of blue sky opportunity for us. And we've really been out of the pressure cleaner market for some time as well. On top of that, though, more drop-in replacement for competitive product in the aftermarket is all the result of that investment. As for the front end, we have some great feedback coming out of the field around some dealer conversions around product training. You heard me talk in the prepared remarks about the establishment of the hubs, which are fit-for-purpose training centers in large markets. So we believe that this is reinforcing our innovation reputation and it's having the service trade out there best trained to handle Hayward product and install Hayward product into the marketplace.

Great. That's super helpful. And then just following up on the new product. Where do we stand from a vitality index perspective? Where are we looking to go? And then how does the making of OmniX and automation standard impact the ASP of the product portfolio?

Yes, Pez, I'll touch on the vitality index. We continue to make improvements there. As we mentioned in our prepared remarks, we have a lot of good new products on the slate that will contribute to revenue and profitability in 2026, and it will elevate up our vitality index year-over-year. We remain focused on investing. We've stepped our RD&E investment protocol inside the income statement as well as on the balance sheet, supporting our facilities with the necessary assets to get after some of these new product platforms. So we're very encouraged now with the momentum that we're gaining in terms of products that have been introduced in the last 3 years, which are in our revenue profile for 2026.

As for OmniX and how it plays into a fully connected pad out there, we believe that majority of new builds will continue to go to fully wired, fully connected with an omni control panel installed at that time. But I think that OmniX also plays to the affordability concern out there that if someone wants to still have an automated pad at time of new build that they can do that a bit more affordably than maybe the fully connected product pad out there. So we love bringing new products into this ecosystem and bringing automation to the -- what we estimate to be about 3.5 million in-ground pools in the U.S. that don't have any form of connectivity or automation to it, and that's an enormous TAM expansion opportunity for us and for the whole industry to bring automation.

And moving next to Brian Lee with Goldman Sachs.

This is Tyler Bisset on for Brian. Just first, on your 4% sales growth guidance for the year, how much of that is predicated on a return to positive volume growth versus continued price increases?

Yes. I mean we've assumed in terms of guidance approximately 3% global net price gain year-over-year and modest volume growth. The pricing will be a little bit higher inside the United States than outside the United States, where we see more modest price increases. As you know, we don't realize all the price given discounts, but plus 3% price and modest volume growth year-on-year with FX being somewhat neutral.

Super helpful. And while you guys expanded gross margins in the quarter, adjusted EBITDA margins declined a bit, and you partially attributed that to targeted strategic growth investments. Should we expect these investments to persist throughout '26? And then I also noticed you didn't provide any EBITDA guidance for the year. Do you plan to provide that later in the year? Or directionally, are you expecting EBITDA to increase year-over-year?

Let me address the first part -- well, let me address almost the entirety of the question. Inside Q4, the majority of the dilution to the margin on adjusted EBITDA was attributable to higher variable compensation for both management bonus and sales incentives following a great close to the year. We beat top line, we beat bottom line, and we beat our balance sheet targets for the full year. So this higher variable compensation, I would say, diluted margins in the queue by approximately 130 basis points. That won't necessarily repeat as we step into the year. Targets are reset and therefore, variable compensation is reset.

Also in the quarter, we recorded costs associated with the settlement of certain litigation. And then as you mentioned, we have continued to invest in our research development and engineering and our sales team infrastructure, and we do expect to leverage that cost base in 2026. I would say in terms of the guidance, we have matured here as an organization. We do believe the adjusted diluted EPS metric is a more complete and accountable measure for us. But I do want to be clear. We've guided adjusted diluted EPS up 6% to 12% at the midpoint, 9% growth.

It is squarely driven on operational performance. We're not assuming any material changes in the capital structure. It's about execution, efficiency and margin delivery inside the income statement. And the aggregation of depreciation, interest expense and tax in absolute dollars is fairly comparable year-over-year with 2025.

Depreciation is higher given we're investing in our facilities. Interest expense is lower given the accretion of cash onto the balance sheet and the interest earnings on that and our tax charge on the business in dollar-wise will be higher, but the effective tax rate will be lower.

Moving on to Saree Boroditsky with Jefferies.

This is James on for Saree. I got dropped during the call, so sorry if this has been already asked. But can you kind of update us on what you're hearing from dealers out there? Like how much backlog do they hold? And what do they tell you about kind of Early Buy season for 2027 since one of your competitors kind of talked about like no recovery into 2027 as well. So kind of just wanted to hear your thoughts on it.

We -- in the first quarter, we do have a lot of interactions with dealers, regional trade shows, the big one in Atlantic City. There are several dealer buying group shows, some of the distributors have retail summits, et cetera. I would say that there's cautious optimism I'm not in a position to aggregate overall what kind of an order file or backlog they're carrying into 2026. But I would say, in general, those that I spoke to, I really felt there was -- we weren't assuming any step level change from year ending '25 into 2026. But in terms of leads, it was prompting some general cautious optimism heading into 2026. I wasn't quite clear on the question around 2027 or...

Yes. It was more so like what does like your discussion with like dealers tell you about potential like 2027 Early Buy season, but I think you kind of answered it.

Yes. I'm not sure that I would have good insight into 2027 at this point with so much of 2026 yet to play out.

Right, right. And I guess on the pool mix here, can you kind of provide what higher end versus lower end pool mix is currently looking like versus like historical average? And if lower-end pool comes back in 2026 or 2027, should we expect some pressure on margins? Or would volume incremental like offset that?

I would say, in general, in terms of new construction, the whole industry is pretty aligned with the fact that, call it the 60,000, I'm rounding up from what the current estimates are in terms of U.S. in-ground construction that the makeup of that build count last year was largely kind of mid- to higher end, and that's been the case for a few years as we see with the ticket value of those builds. We would like to think that with some economic macro improvement that more of that entry-level pool would become a part of the mix. I would say content from our perspective might be a bit less. But in terms of margin, I would say the equipment that goes on that entry-level pool has a similar margin profile to the higher end. So I wouldn't assume that, that would throw off margin pressure when that segment of the new build market rebounds.

Yes, I'll just add to that. I mean most of our products have similar structural gross margins. And then with the additional volume, if and when this business does return, we'd expect to get leverage across the fixed cost base within the business, but within the factories and across the installed SG&A base.

We'll take our next question from Rob Wertheimer with Melius.

So question is just a little bit on technology connected pools, benefits and so on. So was there anything in technology development and competitive front and your own data that made this a good moment to invest a little bit more in OmniX in specific? And then more generally, could you just talk, obviously, as a consumer, the benefits to having automated pools are great. But maybe just recap the differences between a fully wired, fully connected automated pool and what maybe OmniX could do and what benefits that has for you?

Yes, sure. I mean we're very proud of the ratings that our omni system receives online. And I think that's really reinforced from voice of customer that we get back. We do believe, I think as an industry in total, we have identified this upgrading and automating of the installed base as an opportunity that's available. And we really felt it's time for us to give the marketplace more tangible opportunities, more affordable opportunities to do that and really doing it one piece at a time as natural break fix occurs through the natural course of enjoying your pool. I think that's a great entry point to get in and bring automation.

Frankly, having -- up until very recently, we had a single variable speed pump, which is now the funnel has broadened, Rob with all variable speed pumps now having the OmniX capability and that Universal comms, which I spoke about, which allows you to drop in onto a competitive pad that -- and it can talk across the equipment that is on that pad. So there was a second part of your question, which I if you could remind me the second part of the question.

I think you touched on it. Was there anything that made this the right moment for investment? And then just in general, what the benefits to you are because consumers see huge benefits, you get maybe more pull-through, more share, more dealer engagement. I'm just looking for a general overview of how you benefit from that technology.

Yes. I really do think this is an opportunity to upgrade that aftermarket. And I think the way that we've positioned the universal comms capability in our variable speed pump really broaden the funnel that it doesn't just have to be a Hayward pad that could take on that variable speed pump in the future that it's a more wide open aftermarket opportunity for us. And we're going to continue talking in future earnings calls about additional products that will be bringing the OmniX capability that you can, again, build piece at a time, build out the network or the ecosystem to have full-fledged automation in a pool that may be 10 years old or older.

And moving on to Jeff Hammond with KeyBanc Capital Markets.

I noticed in your investments internal and external, you mentioned kind of industrial flow, which is a small piece of your business. And just it's not a business you talk about much, but just wondering how you're leaning in on that? And should we expect some external growth focus there?

It's a great question, and I'm glad you picked up on it because it's a business that we're spending a lot more time understanding what it can become. We spent a lot of time in 2025, understanding how that could grow. When we look at it broadly, Jeff, we see ourselves as experts in water management, whether it's filtration, whether it's filtering, treating, et cetera. And for our first 100 years, we've really focused that capability around residential and commercial pools. And we are trying to determine how that could be leveraged potentially into some other end markets.

Nothing really to debut at this point but it is getting more of more of the leadership team's time. And we're seeing if this, call it, roughly $50 million business that's extremely profitable, by the way, can become something bigger and more important. Obviously, broader flow control, fluid management operates in much larger TAMs than the pool industry. So those are the things that have grabbed our attention and that we're spending time determining can it be a bigger platform inside of our business.

Great. Great. And then just back on the 4-horsepower pump and the pressure cleaner. Can you just talk about the TAM for those markets and what you think entitlement is in terms of kind of market share once you mature in those spaces?

Yes. I mean we have -- I'll keep our ambitions maybe to myself, but I will identify what we believe the -- those TAMs to be, not necessarily in dollars, but in the 4-horsepower range. We believe somewhere around 1/4 of all pumps are 3.5 horsepower or larger. And so it's a meaningful segment of the pump market. And frankly, up until now, we were unable to participate in because our largest pump was about 2.7 horsepower before this 4 horsepower. So it's an enormous opportunity in an established market. We're really proud of the performance that we have with this new introduction, and we're spending a lot of time educating the marketplace on this new product.

As for pressure cleaners, I'll use a round number of -- in U.S., it's roughly 100,000 units per year. That's about a $50 million. I'm using round numbers here, Jeff, but it's an opportunity that we don't have in either of these 2 product categories, any real volume in our current financials. So that's what has me so excited for us. We brought great performing product to the marketplace. And now it's our job to get it promoted and educate the marketplace on some of the features and benefits of these new products that we've introduced.

And moving next to Andrew Carter with Stifel.

I wanted to ask, first off, just to confirm, your adjusted EPS guidance for the year does not include any share repurchase. And also, our math suggests your leverage will drop into the low 1s in 2026. Is that correct? So I guess could you refresh -- could you remind us of kind of your cash flow priorities beyond organic investment?

Yes. Andrew, yes, absolutely. Our adjusted diluted EPS guidance of 6 to 12 does not contemplate any material change in the capital structure of the business. This is about execution of operating performance of the business, top line growth of 4%, modest gross margin expansion, further SG&A leverage, good operating profitability growth in the business. In terms of the second part of your question, the -- yes, look, the signaling that we're putting out here with $200 million worth of cash flow in the year [Audio Gap] will the balance sheet right now. Kevin has been mentioning throughout the call, opportunities that exist inside M&A. Nothing imminent there. We'll continue to update you as we go through the year. We've got a little bit higher CapEx. But yes, we're delevering the balance sheet into a really healthy position absent any other deployment. And then the very last part of the question, Andrew?

I know what it was. It was about the priorities for cash flow beyond organic investment.

Yes. So look, I mean, capital allocation remains, as we previously communicated, we're always going to put first dollar back into the business in terms of upgrading our facilities through CapEx and making sure that they're well maintained. Second dollar will go to M&A opportunities. And with the balance sheet in the position it is right now, we feel good. We have a lot of optionality. And as Kevin mentioned, we've done really good here with the commercial business. We'll continue to look at tack-on opportunities in pool, and we're beginning to look a little bit into the flow control space, where we see very credible large TAMs that align with our core competencies.

So a lot of great optionality when it comes to M&A. And then we remain opportunistic around share repurchases. We instituted a $450 million share repurchase program toward the end of last year. We've executed a little bit of that in Q4 in terms of anti-dilutive share repurchases. And again, we remain opportunistic there. But first dollar will be back into the business, second dollar to M&A. And while I'm on this topic, I just want to come back and reaffirm to Tyler, look, adjusted EBITDA is an important metric for us, and we will continue to report adjusted EBITDA as we step through the year, but we're anchoring on adjusted diluted EPS as our guidance metric. We believe that holds us to a higher standard as an organization, but we will continue to report adjusted EBITDA inside our earnings materials as we step through the year.

Second question, for your 10-K, there's a pretty notable shipment difference between your top 2 customers. Some of that being market share. But I guess I would ask in terms of inventory levels, is there a big difference in approach? And I guess, could you also kind of comment overall where channel inventory levels are today?

I would say we don't see any major difference in terms of inventory approach between the two large partners that you're referring to. And if I'm -- the second part of the question, broadening it to more distribution and channel partners that we get data from, we would say that we feel that our inventory exiting 2025 is in a very healthy spot to be able to serve the upcoming season, Andrew.

I did just want to circle back because a colleague here pointed out to me when I was answering Jeff Hammond's question around the 4-horsepower. I think I said all pumps installed. What I meant to say was all variable speed pumps because there's still a number of single-speed pumps out there that I wanted to make sure I clarified on. So thanks for that.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Kevin Holleran for closing comments.

Thanks, Carrie. I want to thank all our employees and partners around the world. Your dedication and hard work have been essential, not just in closing out a strong year, but in helping us conclude Hayward's first 100 years with real momentum. We're excited for what's ahead as we begin our next century. If you have any follow-up questions, please reach out to our team. We appreciate your continued interest in Hayward and look forward to speaking with you again on our next earnings call. Carrie, you may now end the call.

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

Welcome to Hayward Holdings Third Quarter 2025 Earnings Call. My name is Donna, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kevin Maczka, Vice President, Investor Relations and FP&A. Mr. Maczka, you may begin.

Thank you, and good morning, everyone. We issued our third quarter 2025 earnings press release this morning, which has been posted to the Investor Relations section of the website at investor.hayward.com. There, you can also find the earnings slide presentation referenced 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 2025 and future periods. Such statements are subject to a variety of risks and uncertainties, including those discussed in our most recent Forms 10-K and 10-Q filed 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. All comparisons will be made on a year-over-year basis unless otherwise indicated. I will now turn the call over to Kevin Holleran.

Thank you, Kevin, and good morning, everyone. It's my pleasure to welcome all of you to Hayward's third quarter earnings call. I'll begin on Slide 4 of our earnings presentation with today's key messages. I'm pleased to report third quarter results ahead of expectations, marking another quarter of strong execution by our global team. Our performance reflects the resiliency of our aftermarket model and continued traction in our strategic initiatives. Net sales increased 7% with growth across both our North America and Europe and Rest of World segments and adjusted EBITDA increased 16%. We delivered further solid margin expansion, driven by increased operational efficiencies and tariff mitigation actions and disciplined cost management.

Gross profit margin increased 150 basis points to 51.2% and adjusted EBITDA margin increased 170 basis points to 24.2%. Cash flow generation was also strong, enabling us to further strengthen the balance sheet and reduce net leverage to 1.8x, the lowest level in nearly 4 years. This provides enhanced financial flexibility as we execute our growth plans and fund our capital deployment priorities. During the quarter, we continued advancing key strategic initiatives to position for profitable growth. This included expanding our customer relationships, developing innovative new products to further our technology leadership position and leveraging our operational excellence capabilities.

At the same time, our teams are aggressively executing tariff mitigation action plans to support margins and deliver on our commitments to shareholders and customers. We've made great progress, and I'm confident in our team's ability to navigate this dynamic environment. As a result of our strong year-to-date performance and solid participation in our early buy programs with increased orders, we're raising our full year guidance. We now expect net sales to increase approximately 4% to 5.5% compared to our prior guidance of 2% to 5%. We now expect adjusted EBITDA to increase 5% to 7% to a range of $292 million to $297 million compared to our prior guidance of $280 million to $290 million.

Turning now to Slide 5, highlighting the results of the third quarter. Net sales increased 7% to $244 million, driven by a 5% increase in net price and a 2% increase in volume. By segment, net sales increased 7% in North America and 11% in Europe and Rest of World. As I mentioned, gross profit margin expanded 150 basis points to 51.2%. Adjusted EBITDA increased 16% to $59 million, and adjusted EBITDA margin increased 170 basis points to 24.2%. This is a strong result in a seasonally lower sales quarter as we continue to make targeted investments in the business to drive future growth.

Finally, adjusted diluted earnings per share increased 27% to $0.14. Turning now to Slide 6 for a business update. Starting with the demand environment, we are encouraged by recent trends. We had a solid finish to the 2025 pool season as our primary U.S. channel partners communicated improved out-the-door sales growth rates for Hayward products in the third quarter with stronger growth as the quarter progressed. This reflects the strength and stability of our aftermarket model as approximately 85% of our sales are aligned with serving the aftermarket needs of the existing installed base. Consistent with the trends in prior quarters, nondiscretionary aftermarket maintenance demand remains resilient. We also see continued adoption of our technology solutions to automate and control pools.

Homeowners are adding technology to improve the pool ambiance and experience rather than defeaturing to reduce cost as evidenced by the average value per pool pad continues to increase. As a result, we saw a double-digit growth in this critical product category of omni controls during the quarter, nearly twice the overall Hayward growth rate. The early buy programs are nearing completion in North America and international markets, and we are pleased with the progress to date. Incoming orders are trending in line with expectations. We anticipate solid customer participation and increased orders relative to the prior year. Importantly, we are working closely with our channel partners to maintain appropriate levels of Hayward inventory on hand relative to current demand levels and forward expectations.

The pool industry has always been very disciplined on price. We increased pricing this year as needed to combat tariffs and other inflation, and we continue to expect positive net price realization of mid-single digits in 2025. We are progressing with our value-based pricing and SKU rationalization initiatives to optimize our price structure and enable our products to be priced appropriately relative to the exceptional value provided to pool owners. We expect these initiatives to yield further positive results going forward. The tariff environment remains uncertain. Our team is aggressively executing our mitigation action plans to offset the increased costs and we are making great progress. As previously communicated, we are accelerating our lean initiatives and significantly reducing our exposure, lowering direct sourcing from China into the U.S. as a percentage of cost of goods sold from approximately 10% to 3% by year-end.

We intend to achieve this target regardless of any further tariff negotiation as it derisks our supply chain and limits exposure to geopolitical uncertainty. Our teams are responding to the current enacted tariffs while monitoring the ongoing media reports, and we remain agile and ready to take further action as needed. We continue to make investments to drive future growth. On the product side, we are investing in advanced engineering and product development to continue bringing innovative new products to market. We previously introduced you to OmniX, an industry-first automation platform providing a cost-effective way to accelerate technology adoption in the installed base and increase average equipment content per pool pad.

While early in the rollout, we are pleased with the continued dealer response to the new OmniX enabled variable speed pump and we will launch other product categories with embedded OmniX control capabilities in the coming quarters. We are ramping up our targeted sales and marketing strategies to further increase our presence in high-value yet underpenetrated regions. This is already translating into wins with important dealers converting to Hayward. We're also improving the customer experience with the continued rollout of the Hayward Hub training and support centers and hosting premier industry events. In the second quarter, Hayward sponsored the prestigious 2025 Pool & Spa network top 50 builder award event. And in the third quarter, we hosted our 25th PACE conference to educate and inspire our industry's most accomplished pool professionals.

As we continue to invest in the industry and build upon our customer-first approach, we are seeing greater engagement and traction with dealers. As a technology leader in the industry, we are implementing AI tools to drive value for our customers. Our new AI agents are progressively fielding inbound customer service calls with no on-hold wait times resolving approximately 80% of these calls without the need for human intervention and even proposing enhancements to our training programs. Hayward has a long-standing commitment to continuous improvement throughout the entire organization, and this is a great example of an early success in customer experience. With that, I'd like to turn the call over to Eifion to discuss our financial results in more detail.

Thank you, Kevin, and good morning. I'll start on Slide 7. As Kevin stated, we are very pleased with our third quarter financial performance. Net sales increased 7% and exceeded expectations. We delivered strong growth and adjusted EBITDA margin expansion to 51% and 24%, respectively and further reduced net leverage to 1.8x. Looking at the results in more detail, the net sales increase of 7% to $244 million was driven by a 5% positive net price realization and 2% higher volumes. Gross profit in the third quarter increased 11% to $125 million. Gross profit margin increased 150 basis points to 51.2%. By segment, gross margin increased 50 basis points in North America with Europe and Rest of World increasing 750 basis points year-over-year and 300 basis points sequentially.

Adjusted EBITDA increased 16% to $59 million in the third quarter, and adjusted EBITDA margin increased 170 basis points to 24.2%. We are delivering this level of margin expansion while strategically reinvesting in the business to drive future growth with targeted initiatives in sales and marketing, advanced engineering and customer service. Our effective tax rate was approximately 23% in the third quarter and 24% year-to-date. Adjusted diluted EPS increased 27% to $0.14. Turning to Slide 8 for a review of our reportable segment results for the third quarter. North American net sales increased 7% to $208 million. Net price realization increased 7% and volume was stable. Net sales increased 6% in the U.S. and 21% in Canada. As previously mentioned, we are encouraged by the recent demand trends for Hayward products, and demand as reported by our primary U.S. channel partners increased late in the season, resulting in a solid third quarter performance.

The performance in Canada also continues to improve as we saw strong order growth during the quarter. Gross profit margin increased 50 basis points to a robust 52.8% and adjusted segment income margin was 29.6%. Turning to Europe and Rest of World. Net sales for the quarter increased 11% to $36 million, a 1% reduction in net price realization was more than offset by 8% higher volume and 3% favorable foreign currency translation. The reduction in net price was largely due to an increased mix of discounted early buy shipments relative to the prior year period. Net sales increased 15% in Europe and 6% in Rest of World. We took steps in recent quarters to improve the performance in Europe and Rest of World and are pleased to see continued margin progression in the quarter.

Gross profit margin increased 750 basis points to 41.9%, and increased 300 basis points sequentially from 38.9% in the second quarter. This sequential increase was primarily related to the timing of a cumulative tariff refund during the third quarter. Adjusted segment income margins increased to 18.5% from 8.4% a year ago. Turning to Slide 9 for a review of our balance sheet and cash flow highlights. We are pleased with the quality of our balance sheet and the significant reduction in net leverage during the quarter under over the last 2 years. Net debt to adjusted EBITDA improved to 1.8x compared to 2.1x at the end of the second quarter and 2.8x in the year ago period. Reduced leverage provides additional flexibility as we execute our strategic growth plans.

Total liquidity at the end of the third quarter was $552 million, including $448 million in cash and cash equivalents, short-term investments and availability under our credit facilities of $104 million. We have no near-term maturities on our debt as the term debt and the undrawn ABL mature in 2028. Our borrowing rate benefits from $600 million in debt currently tied to fixed interest rate swap agreements maturing in 2026 through 2028, limiting our cash interest rate on our term facilities to 6% in the quarter. Our average interest rate earned on global cash deposits for the quarter was 4.3%. Our business has strong and seasonal free cash flow generation characteristics, driven by high-quality earnings. The company typically has strong cash generation in the second and third quarters, while using cash in the first and fourth quarters.

Year-to-date cash flow from operations was $283 million, compared to $276 million in the year ago period. CapEx of $21 million year-to-date was modestly higher than the prior year period, reflecting strategic growth investments and project timing. Consequently, year-to-date free cash flow was $262 million. Given our outlook, we increased free cash flow guidance for the full year by $20 million from approximately $150 million to approximately $170 million. This increase reflects improved profitability, CapEx, project timing and working capital management. Turning now to capital allocation on Slide 10. We maintain a disciplined and balanced approach to capital allocation. emphasizing strategic growth investments and manufacturing asset investments for tariff mitigation, maximizing long-term shareholder returns while maintaining prudent financial leverage.

We continue to pursue additional acquisition opportunities in residential pool, commercial pool and flow control to augment our organic growth plans in addition to potential share repurchases. During the third quarter, Haywood's Board of Directors authorized through purchase of up to $450 million in shares over 3 years to replace a similar expired authorization. Turning now to Slide 11 for the full year 2025 outlook. We are increasing our guidance for net sales and adjusted EBITDA. For the fiscal year 2025, Hayward now expect net sales to increase approximately 4% to 5.5% or $1.095 to $1.110 billion, with adjusted EBITDA increasing approximately 5% to 7% or $292 million to $297 million. We continue to expect solid execution across the organization, positive price realization and continued product technology adoption.

Relative to our prior guidance at the midpoint, this represents $17.5 million increase in net sales and a $9.5 million increase in adjusted EBITDA. Our guidance does not contemplate potential new tariffs effective on or after October 29. If that does materialize, we will respond accordingly with further mitigation actions. As a reminder, fourth quarter 2024 net sales benefited from incremental demand related to the 2 major hurricanes that impacted the Southeastern United States. We continue to expect solid cash flow in 2025 with a conversion of greater than 100% of net income. We increased our free cash flow guidance for the full year to approximately $170 million. We are confident in our ability to successfully execute in a dynamic environment and remain very positive about the long-term growth outlook for the pool industry, particularly the strength of the aftermarket. And with that, I'll now turn the call back to Kevin.

Thanks, Eifion. I'll pick back up on Slide 12. Before we close, let me reiterate how appreciative I am of the team's performance. Hayward delivered another strong quarter, exceeding expectations. Net sales increased 7% and margins continue to expand as we effectively countermeasure the tariff headwinds. We delevered the balance sheet to under while investing in the business to drive future growth, and we increased our guidance for full year net sales, adjusted EBITDA and free cash flow. As the macroeconomic and tariff environment continues to evolve, we are excited about the fundamentals that drive our business and confident in our ability to execute our growth strategies and create shareholder value. And with that, we're now ready to open the line for questions.

[Operator Instructions] Our first question today is coming from Ryan Merkel of William Blair.

Nice quarter. wanted to start off on demand. Just talk about how the season progress since July? And then where did you see the upside in the third quarter?

Yes. As you know, Q3, from a shipping standpoint for Award, is one of our lower seasonal quarters but it's an important one for the industry from a sales out standpoint as you're in the heat of the summer and closing out the seasonal year by the end of September. We felt really good about the sales-out demand as reported back to us or communicated by our largest channel partners. We saw progressively stronger sales-out for Hayward product as the quarter progressed really culminating with a really strong September. The other positive that comes with that is -- with that sales-out is it's really positioning channel inventory levels properly as we close out the season to then turn to early buy and what that demand signals for our factories and for the business.

I would say that weather -- warm weather really did help extend the season, which is always welcomed by the industry, and that certainly played out in many regions around the globe. From a product standpoint, in the quarter, we continue to see nice progression with the reception to OmniX. But then as I said in the prepared remarks, controls and lighting and even filtration, had strong performance in the quarter. Outside of the U.S., I'd really like to highlight Canada. Canada had a really strong quarter, up over 20%, which is welcome. We had a nice strong bounce back in all of 2024, particularly in the third quarter. So we didn't have an easy comp here comparing off a plus 17% in prior year, making the 20% growth, even more impressive up there, we did see a relatively wet spring and then responded with strong seasonal flow orders, which was great. And there is some easing around the macro up there, particularly around some improved or lower mortgage rates.

Continuing on that theme of international, Europe was up kind of low teens, which is also great with some improved supply chain capabilities. And because we struggled a bit with some early buy shipments last year, we actually started to ship some of the 2025 early buy into the channel kind of late third quarter this year. But rest of world, was up mid-single digits, particularly Asia, up over 20% and Australia was high-single digits. So this quarter, in particular, we really did see nice balanced growth across a wide array of our markets. So now our attention obviously turns to early buy. As I mentioned in the prepared remarks, which is progressing nicely. So yes, it was a good quarter from a demand standpoint, a nice progression as the quarter played out.

That's great color. Yes, on the early buy, which is my second question, you called it solid and it's tracking expectations. How do we think about those comments relative to the market being flat? And what was the reception to your 6% to 7% price increase that you announced?

Yes. Well, as is customary with early buy, there is a discount off of that announced price increase by participating in early buy to go along with extended payment terms. The whole program allows us to more level load our factories and have the product on the shelf for when the new season breaks here in 2026. I would say, in general, we don't want to be passing the magnitude of the price increases on which has been multiple in a row here due to inflation and tariff headwinds. I would say that in general, I'd say, the whole population has inflation fatigue and our industry is really no different there. As it pertains to the tariffs, which I'm sure we'll talk more about here, what we've passed along in the early spring, which took effect really in the May time frame was really dollar for dollar offset to the tariff impact. And we took it upon ourselves internally through our tariff mitigation plans to claw back the structural margin from that.

So I would say that we're as anxious as anyone to get back to more inflationary times and to maybe put more certainty around what the tariff environment will look like. And the sooner that happens for our industry, the more welcome that will be.

Our next question is coming from Saree Boroditsky of Jefferies.

Maybe just moving on those pricing commentaries, I think one of the key distributors recently talked about innovation and new products is making the recent price increases a little bit more palatable, maybe you could talk about some of your investments in new products and how much of your sales are coming from this? And how is it helping the volumes versus price?

Yes. So as we've spoken about in prior calls, we had some very targeted investments in SG&A and operating expense in 2025, and that really continued a more recent trend. One of those targeted areas is around engineering, new product development, advanced engineering with some new technology and innovation, trying to bring some new technology to our industry. We continue to work on that, and that will continue to be an area of very targeted investment, I think technology matters. And I think that innovation will ultimately dictate winners and losers in our industry like most. I mentioned OmniX, we're really proud of what that whole ecosystem brings to the aftermarket. That's an enormous opportunity for our industry to really start automating the more aged pools in the installed base that were built when automation and controls didn't exist.

So our approach is to bring this ecosystem 1 piece at a time as break fix occurs. We have the initial product out, but there's more coming in the upcoming quarters to help automate and bring optionality and functionality and ambience to the installed base.

Appreciate that. And then maybe just picking a step back on this theme. Maybe have you seen any trade-off from price versus volume? And how do you think about that going forward as new pool construction, especially has just gotten so much more expensive?

It's Eifion. We haven't necessarily seen any trade-off occurring at this time. We do know that many consumers, particularly at the entry level in the marketplace remain on the sidelines for the new pool and maybe some of the remodel business. But we continue to see in our product sales profile, continued adoption of technology throughout the aftermarket installed base and that also is reflective in the gross profit margin profiles that we're experiencing within the business. But certainly, at the entry level, I'm quite sure that people are waiting for interest rates to break the ability to move homes into that next level before they put the pool in. But we haven't necessarily seen larger-scale trade-offs across the aftermarket.

Again, we see quite good adoption of new technology, great adoption in our controls category and we're continuing to invest behind that capability.

Our next question is coming from Andrew Carter of Stifel.

First question I wanted to ask about given the renewed focus on private label that's out there, have you been seeing anything incremental in terms of either the positioning by the distributors, the demand from your contractors, and I know it's kind of -- it's been mentioned that it's kind of a lower commodity side. what exposure do you have? And I get the price is high, but -- and in this environment, wouldn't it be a lot more difficult to do a private label program given the tariffs, et cetera?

Yes. I mean you used the term private label. I think that the way we look at it is maybe around some exclusive distribution rights. It's maybe the same thing. But I would say our industry has attracted lower-priced offshore competitors frequently. I mean it's consistently occurred over the over Haywards history here. And while the recent inflationary environment and the tariffs impact in the U.S. market has perhaps opened the door further, we believe that while there could be a price delta there as the loyal dealer base of totally Hayward partners will continue to appreciate the value proposition of what Hayward offers them in the marketplace. When one of these Hayward dealers walks into a channel partner, they're asking for product by name. They're asking for a TriStar 900, not just a variable speed pump for the job that they're working on.

So by no means am I dismissing the risk or the concern because I think it makes us sharper. But we continue to feel confident in our investments in innovation, as we just spoke about with Saree's question around new product development, the fact that we have a complete product line and can supply the entire pool pad to the trade. Our national coverage of Hayward authorized service centers and the technical resources for the trade to call upon, we proudly support the U.S. market with over 90% of the products sold in the U.S. are built in 1 of our 4 U.S. manufacturing facilities in Rhode Island, North Carolina, Tennessee and Georgia.

So we think -- we take pride in that. We think it's smart to shorten the supply chain to be able to satisfy the market. And I think our reputation for quality and service and dependability that's been built over our 100-year history means more than just the lower price, and I expect that to continue to serve us well.

Second question, shifting gears. Number one, why the raise in the cash flow guidance for the year of $20 million? And then just level set expectations, I believe that you have higher CapEx over the next couple of years around your supply chain efforts. Could you speak to that? And at this point, you're going to have a balance sheet probably likely below 2x over the next couple of years based on the estimates. What are your capital allocation priorities? And would you be aggressive on share repurchase?

Andrew, it's Eifion again. Coming back to the cash flow increase of approximately $20 million, half of that is attributable to the increase in the midpoint of EBITDA, going from the mid $285 million down to a midpoint of $295 million. We had some project timing around CapEx, which will move some of the CapEx spend that we have planned for this year into next year. And finally, working capital improvements. And we've seen some modest but welcomed working capital days on hand reduction in our inventory, and that will be accretive to the cash flow in the year. Could you just repeat to me the second part of your question, Andrew?

Yes, the next couple of years thinking about what your priorities are going to be, stepped up CapEx spend that you might be doing? And then just kind of with this improved balance sheet, where your capital allocation priorities lie?

Yes. Okay. Got it. So as we've previously talked about, we will be stepping up CapEx into the business. Historically, it's been around 2% to 2.5%, maybe up to 3% at times of revenue. I believe over the next several years, it will be all of that 3%, if not slightly more, as we continue to invest in automating our manufacturing and supply chain capabilities. We've already had some great success this year doing that. So a call out to several of our plants, including our Nashville facility, which has made some interesting automation investments, but that will be the thematic going forward over the next several years. We are completing our ERP implementation. We've had some expenditures there this year and last year, and that will be a continuation into '26 and to '27. But the main focus of the organization right now is to take our facility capability up to the next level in terms of throughput, facilitated by automation and new technology platforms like AI and machine learning. .

In terms of the capital allocation priorities, it remains the same. We'll continue to do the organic CapEx I just mentioned. We continue to look at M&A. We nurture a pipeline of opportunities. We have the optionality now to focus on residential pool, commercial pool and our spill flow control business. for accretive M&A opportunities. We did initiate a share repurchase program authorization. Again, we have the opportunity to be opportunistic and maybe programmatic at some point. The nice thing about this business, which will now begin to very clearly demonstrate, it has great cash flow characteristics, which gives us this optionality across that capital allocation spectrum.

The next question is coming from Mike Halloran of Baird.

It's Pez on for Mike. I just want to follow up on the capital allocation side and maybe dial in a little bit on the funnel. How are you thinking about the opportunities in both residential and commercial pool? I noticed that you threw flow control in there. I know that's a part of the business that doesn't get a lot of love. Maybe talk about how you're thinking about the makeup of the funnel, the actionability of the funnel. And to Andrew's point, obviously, the leverage is continuing to progress nicely. So any color on the M&A opportunities where you're spending most of your time? And what you're seeing from a valuation perspective would be helpful.

Yes. So in terms of a funnel, I mean, obviously, with the deleverage that's occurred over the last several quarters. it puts us in a different position. That said, while ChlorKing, which is now anniversaried and a little over a year old, which is about a fantastic shot in the arm for our commercial business. We haven't announced anything, but we certainly have been working in the background to accelerate and work on some diligence with some opportunities that really hit the 2 key platforms that you mentioned as around residential. I think we've been pretty open in saying that we have aspirations for commercial to become a growth platform for us, and we continue to look both organically as well as inorganically add some opportunities there. .

We did mention in the prepared remarks, our industrial flow control business. It doesn't get a lot of attention, but it's a fantastic business that provides great access to distribution and some nice growing end markets. We're relatively niche in the products that we offer today but we're progressively spending time as a leadership team looking at what that might be able to be for us. So that's getting increased attention from a strategy standpoint, again, both organically as well as inorganically we're looking across all those platforms from a product technology standpoint, what that can bring to us, does it provide a regional diversity and growth for us and looking always to capitalize and leverage our distribution, relationships and partnerships and go-to-market strategies. So that's -- those are several of the elements that we look and assess opportunities across customers.

Got it. And then not to stick on a smaller part of the business, but maybe now that we're a year out of the ChlorKing acquisition, maybe talk about the success that you've seen in being able to expand ChlorKing's reach within your distribution channels and being able to bring that up to scale a little bit? And then on the flip side, maybe talk about what type of successes you've seen in pushing legacy Hayward product through that commercial market? .

Yes. There's been success across all those elements as we have a fantastic leader over that business that joined us from ChlorKing with those resources with the acquisition, we melded our existing commercial team into 1 organization. And we're seeing cross-selling opportunities across both types of commercial tools. We talk about Class A and Class B, which is really just the size or the size of the commercial body. We had a pretty complete product line along Class B legacy Hayward did, which are the smaller bodies of border. But really where we weren't represented was Class A, which would be larger than 100,000 gallons which is really a sweet spot where ChlorKing participates. So with that acquisition and that integration, it brought relationships with the architects and the engineering firms and some of some of the specialized distribution that serves the large commercial market.

So we're really pleased with the amount of cross-selling and collaboration that's occurring across now the broader commercial market where we were -- for ChlorKing really only participating and growing in the Class B side of the market.

Our next question is coming from Jeff Hammond of KeyBanc Capital Markets. .

Just on -- I got on a little late, so I don't know if you touched on this, but -- last year, there was a lot of storms and I think your fourth quarter benefited from some kind of repair work, and I'm just wondering how you're contemplating that comp given a quiet hurricane season?

That certainly presents what we see as a bit of a headwind for Q4. I mean it was a big fourth quarter, as you mentioned last year. I think we were up kind of high teens as a business in the fourth quarter. And it was certainly aided by a couple of unfortunate weather events that impacted the Southeast with Helene and with Hurricane Milk. So we're not expecting that to repeat and I think at that point, I don't think -- I know that that's factored into the guidance that we gave in our press release and our prepared remarks this morning.

So what we did talk about, I'm not sure when you joined around early buy, we have had nice participation and nice response to our Early Buy program. It's really closing out here in a few days in the U.S. at the end of October, and it extends a little further for other international markets. But as we're talking this morning, we feel good about the participation, really what that -- what that says about channels, enthusiasm and position heading into the new year as well as what the dealer sentiment is because our programs get taken to the dealer base out there. and that's what's culminated and aggregated into the early buy orders that we received from our channel partners. So I'll stop there. Eifion, do you have anything to add around Q4?

Yes. No. I mean I think you catch it all, Kevin. I'd just add. We expect a modest improvement in the North American early buy program to ship out in Q4. That will be slightly offset by a timing movement of early buy shipments in Europe. Jeff, you may have not heard it. I think we shift a little bit more early mine in Europe in Q3 was we'll do less year-over-year in Q4. So net for total Hayward early bar will be a slight positive. And then as Kevin mentioned, in Q4, we don't expect to ship that hurricane-related business. that benefited 2024. So on a net basis, volume, we expect to be slightly down in Q4 versus last year. Upside to the guidance would be an extension in the season at the low end of our guidance for Q4 would go at this point, pretty much reflect on the negative weather impacts.

Okay. And then as we go through the different pieces, it seems like aftermarket holding up fine. Just maybe touch on what you're seeing on that repair replace dynamic that came up over the last couple of quarters. And then new pool I get it kind of not going down, but maybe just expand on what you're seeing on upgrade remodel, if that's still kind of the biggest question mark or any signs of improvement there?

Yes. As you say, the aftermarket is proving to be resilient. A question was asked earlier, are we seeing -- I think it was by Saree, whether we were seeing any kind of trade down. Frankly, our guide contemplates maybe a little bit of mix in the aftermarket. But -- but not much because it's holding up fine. On the new construction side, I'd say that the permit count has moderated, which is welcomed as the year has progressed here, but still net through, call it, 3 quarters is still down. The trend continues that what is being built is at higher value year-on-year which I think says something about the features that folks are putting on and the fact that maybe the mid to upper end is holding up better than more of the entry-level pool.

I would say, anecdotally, what we hear from our builders and our remodelers is that there's still lots of pent-up demand on the remodel side. The installed base continues to age, and it's moving sideways a bit. I think there's stabilization around the remodel bus I think with a little bit of back grow improvement around interest rates, around existing home sales, all of that will have a very positive impact on the pool industry, both from a new construction as well as a refurb and remodel.

I will close by saying last quarter, there was some follow-up questions around parts and what that may signal for a desire to repair versus replace. We -- third quarter -- on a year-to-date basis, I think we're up about high-single digits on parts sales. Some of that is explained obviously by pricing. Third quarter was not necessarily a strong year-over-year quarter for part sales. So I think that this broad-based question or even concern around repair versus remodeling. Our data has not necessarily show that there's widespread repairing going on and deferral of the equipment replacement.

Our next question is coming from Brian Lee of Goldman Sachs.

I just had 2 hopefully quick questions. I know a lot of ground has been covered. And sorry if you already covered this. But first question was just around the strong increase in margins in the international markets, if you could kind of provide some color around what drove that and how sustainable that is? And then the second question, it looks like net pricing in North America has kind of ticked up a little bit from the beginning of the year, even from last quarter to this quarter in terms of net price realization. As we think about kind of the trend you're seeing into year-end, the early buy season, et cetera, do you think '26 ends up being more of a normal kind of low-single-digit price year? Or are we going to see some of the factors from this year spill over into next where we're probably still going to be elevated, maybe more mid-single digits than the historical low? Just trying to get a sense of where kind of that pricing paradigm is heading to in '26..

Let me tackle the Europe margins and then maybe between Kevin and I will talk a little bit about the price. But in terms of the European margins or ERW margins, more specifically, we did see an improvement year-over-year of 750 bps, approximately 300 bps sequentially. Year-over-year, I would say it reflects the non-repeat of some discrete inventory items that we have in Q3 of '24. So it's good to see that noise behind us. We've stabilized those facility -- facilities that we have in Spain. We've talked about this in previous calls. We've improved the management team there, both locally, supplemented with some expats or capabilities moving into that organization. And sequentially now throughout the year, we've been able to post margin improvements in our European business, which has affected the positive of the overall ERW segment.

What I would say is in Q3 this year, we did have a couple of onetime benefits including a tariff refund, which is a cumulative tariff free fund, so that probably benefited the Q3 margins this year by approximately 100 bps and then we had a couple of other onetimes that additionally contributed an additional 100 basis points. But even if you discount those elements, we still had good sequential margin improvement which again reflects the stabilization of our production capabilities in country in Spain, and we feel good about the progress that we have made.

In terms of the pricing, net pricing realization did take a step up, obviously, year-over-year in Q3 this year, consequential primarily to the seasonal price that was enacted at the end of last year, plus the midterm pricing that we put in this year to protect against tariffs. That rolled through in its fullness in Q3. We've got a partial benefit in Q2. We had a full benefit in Q3. We have announced further pricing for 2026 of mid-to-high-single digits in the U.S., much less elsewhere. Obviously, a lot of that is discounted through the early buy programs. But as we step into 2026, we'd expect to carry of that. But we're not specifically guiding yet on 2026, but we certainly would expect slightly higher than normal, let's call it, mid-single-digit pricing next year. We don't get how many line of sight into end of year inflation next year. So we're not willing to commit to what next year's Q4 seasonal price increases would be. But we're hoping we get back to a normal inflationary environment where we can get to that normal pricing dynamic.

The next question is coming from Nigel Coe of Wolfe Research.

Eifion, I just wanted to follow up on your -- I think you said 100 basis points benefits in the quarter from tariff refunds. Just a bit more color there. I mean, are you winning some exemptions on some of the imports? And is this a one-timer? Or would you expect this to continue in '26, recognizing that you are rebalancing away from China? And then maybe just give us an update on where you are with that supply chain realignment.

Yes. An element of our ERW business is exported from the United States. And to the extent we are importing products into the U.S. manufacturing of those products and then reexporting them to service LatAm, Asia and the Middle East, we're then eligible for a duty clawback on any tariffs we had paid on that initial inbound in the States. So we've now taken a more aggressive position towards our duty refund time lines, given the pain we're feeling or have felt on the tariff charge coming into the business. It's not necessarily a onetime benefit, but it did take a pop in Q3 because it was a cumulative tariff refund.

So a bit of catch-up in the quarter. We will continue to apply for the eligible tariff refunds that we are entitled to and we will continue to do that. We have a long practice of doing that in the United States and that we're now getting more detailed in those applications. In terms of the progression of our tariff mitigation programs, we're well progress, Nigel. We've said that the North American business, we're going to reduce our China exposure from 10% to 3%, we're well progressed. The team is doing a fantastic job getting after that mitigation. We're winning some success more so than we originally thought. So the actual cost to recalibrate the supply chain is coming in a little bit less than we had anticipated, which is a little bit of a tail to our margin. But yes, we're well progressed and very pleased with what we've been able to do there.

Yes. I mean our global supply chain and operations team deserves props here. We, I think, laid out a very structured, thoughtful approach to that was really 4 work streams ranging from supplier negotiations in the impacted regions to some strategic inventory buy ahead to defer impact in 2025. That obviously has a shelf life to it, some footprint and supply chain, reshoring or movement and then, as I mentioned earlier, are some pricing actions in the U.S., which was -- protecting dollar for dollar, but we internally felt we needed to, through our own actions in the future, protect the structural gross margins through internal actions. So proud of the progress, more work to be done, but well progressed on this movement from 10% exposure to 3%. As I said, irrespective of future negotiations, we're going to forge ahead. We believe that shrinking the supply chain or shortening the supply chain is the right approach and continuing to be more reliant on our U.S. facilities for U.S. sales.

Okay. That's great color. And then a quick crack at the early buy. You sound like you're quite pleased with the program. If you could maybe just put a finer point on that. Are you seeing sort of flattish participation? Are we seeing some smallest growth here? And then when you think about going back in time, is there a coalition between sort of early buy strength and what actually transpires in the following year? Or is it just a re[Foreign Language]ection of other things? I mean, is there any -- if we see a strong early buy is a tend to call it with a strong following year?

Yes. I don't know, maybe by asking the question, we can actually ask our BI team to look at that correlation. I don't have any general impressions to that question, but it's a good one, and we'll see if we could tackle that, Nigel and maybe I'll follow up with you. As for early buy when we laid out our expectations internally, there was in terms of goal setting or objectives, setting an ambition for some modest volume in addition to the year-over-year price. So that is in what we laid out with our internal targets. So when I say that we feel good about the progress and the participation and where we are with a few days left in it, that would reflect my comments would reflect some participation from a volume standpoint.

Thank you. At this time, I would like to turn the floor back over to Mr. Holleran for closing comments. .

Thank you, Donna. In closing, I'd like to sincerely thank our dedicated employees and valued partners around the world. The hard work, passion and unwavering commitment are the driving force behind our success and it's much appreciated. Please contact our team if you have any follow-up questions, and we look forward to talking to you again on the fourth quarter earnings call. Thanks for your interest in Hayward. Donna, you can now close the call. Thank you.

Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.