Third Quarter 2026 Earnings - HAYWARD HOLDINGS INC

Financial Performance:

• Third quarter 2026 net sales increased 6% YoY to $260 million; year-to-date sales rose 8%.
• Adjusted diluted EPS grew 29% in Q3 to $0.18 and 21% year-to-date, driven by operating leverage.
• Consolidated gross margin expanded 10 basis points to a strong level despite inflationary headwinds; year-to-date gross margin remained flat vs. prior year.
• Adjusted EBITDA increased 9% to $65 million in Q3, with adjusted EBITDA margin expanding 60 basis points to 24.8%.
• Net leverage stands at 1.5x, the lowest level since the 2021 IPO.
• Cash, cash equivalents, and short-term investments totaled $475 million with total liquidity of approximately $900 million.
• Year-to-date operating cash flow was $225 million; free cash flow was $196 million.

Guidance and Future Outlook:

• Raised full-year 2026 net sales growth guidance to 5-6% (previously ~5%).
• Raised full-year 2026 adjusted EPS guidance to $0.86-$0.88, representing 12-14% growth (previously $0.84-$0.87).
• Maintains full-year free cash flow expectation of approximately $200 million, exceeding 100% of net income.
• Assumes Q4 net sales growth of flat to +3%, with pricing contributing 2-3% and volume remaining modest.
• Forecasts mid-single-digit inflation for the full year (slightly above mid-single digits net of supply chain efficiencies).
• Anticipates normalized effective tax rate of ~24% and capital expenditures of ~$40 million for 2026.

Business Segments and Product Lines:

• North America: Net sales up 9% in Q3 ($226M), driven by 7% price realization and 2% volume growth; U.S. sales up 10%.
• Europe and Rest of World (ROW): Net sales declined 6% in Q3 ($34M), primarily due to shipment timing from the Wuxi, China facility shifting Q3 revenue to Q4; ROW segment grew 6%.
• Commercial pool and flow control product groups delivered double-digit net sales growth.
• OmniX automation ecosystem and advanced engineering investments recognized with 2026 Innovation Award.
• Launched sixth "Hayward Hub" training center in Atlanta, the first dedicated to commercial aquatics.
• Repurposing the Wuxi, China facility to serve European/ROW demand to enhance cost competitiveness.

Market and Competitive Landscape:

• Over 85% of sales derived from the durable, recurring aftermarket base, providing resilience against the decline in new in-ground pool construction (down >20% over three years).
• Achieving broad-based share gains across regions (West/South Central), product categories (sanitization, automation, LED lighting), and dealer types (builders, service trade).
• Channel inventories in the U.S. remain balanced; distributors are adopting "lean" inventory management but maintaining healthy sell-through velocities.
• Early buy program for the 2027 season shows year-over-year order growth ahead of the prior year in North America.
• Industry-wide volume expected to be flat next year; Hayward aims to outperform the market through share capture.

Risks and Challenges:

• Inflationary pressures on raw materials (specialty metals, resins) and freight costs remain a key headwind.
• Geopolitical uncertainty and tariff policies impacting Canada and European markets.
• Macroeconomic sensitivity to housing market trends and interest rates, though aftermarket demand provides a buffer.
• Supply chain transition involving the Wuxi, China facility caused temporary shipment delays affecting Q3 Europe recognition.
• New construction environment remains challenged with permitting volumes modestly down YoY.

Management Commentary and Tone:

• Tone is confident and resilient, emphasizing the durability of the business model and the strength of the installed base.
• Management highlighted "operational excellence" and "disciplined cost management" as key drivers for margin expansion despite inflation.
• Emphasized a strategy focused on "profitable growth" via innovation and dealer conversion rather than relying solely on new construction.
• Expressed pride in team execution and the successful implementation of share gain initiatives over multiple quarters.

Analyst Questions and Answers:

• Inventory & Early Buy: Confirmed modest "belt tightening" in distributor inventory days on hand, viewing it as prudent; early buy program is tracking ahead YoY due to favorable payment terms and channel confidence.
• Pricing & Inflation: Q3/Q4 pricing will see lower net price realization compared to prior year due to higher volume of discounted early buy orders; full-year inflation expected to be slightly above mid-single digits.
• Share Gains: Gains are broad-based rather than concentrated in specific channels; specific growth areas include sanitization, automation, and LED lighting.
• Europe Margins: Repurposing Wuxi China is incremental to existing margin improvement programs but no definitive margin contribution number provided yet; supply chain cadence needs to be established.
• Capital Allocation: Priorities remain organic investment (CapEx), followed by strategic M&A (pipeline active but disciplined), and opportunistic share repurchases ($115M YTD, $331M remaining).
• Replacement Cycles: Anticipating emergence of COVID-era replacement cycle demand (7-10 year lifecycle) over the next year as warranty periods expire.

Other Key Points:

• Expressed condolences to the team in Spain regarding a recent high-speed train crash.
• Reinforced that Q3/Q4 are typically periods where "sell-out" exceeds "sell-in," leading to inventory depletion before the early buy season.
• Noted that late-season orders in Q4 prior year will not be repeated in Q4 of the current year, impacting growth comparisons.