Hayward Holdings, Inc. 2026 Q3 Earnings Call

Thank you, and good morning, everyone. We issued our third 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 am 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 Form 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 is my pleasure to welcome all of you to Hayward's third quarter earnings call. I will begin on slide 4 with key takeaways from the quarter. Hayward delivered another solid quarter. Net sales increased 6%, driven by favorable price realization and higher volumes. Adjusted diluted EPS increased 29%, reflecting the operating leverage in our model. Year to date, net sales are up 8%. We also maintained gross margin and expanded adjusted EBITDA margin, despite continued significant inflationary pressures and ongoing investment in product innovation, operational capabilities, and sales and marketing initiatives. The strength and quality of our financial results underscore two defining advantages of our business, a large and growing installed base that generates recurring aftermarket demand, and a technology adoption curve that continues to expand the addressable opportunity for connected, automated, and energy-efficient pool solutions.

Together, these resilient demand drivers support consistent performance across market cycles, including the currently challenged new construction environment. Data from our primary U.S. channel partners indicates healthy demand for Hayward products, durable share gains, and balanced channel inventories. Against that backdrop, our Early Buy program for the 2027 pool season is progressing well, with North America orders ahead of the prior year. Our financial position remains a source of strength. Net leverage remained at 1.5 times, matching the second quarter results and the lowest level since our 2021 IPO, even as we increased share repurchases, demonstrating our confidence in the business. Our strong year-to-date performance and continued execution support our increased full-year outlook. For the full year 2026, we now expect net sales to increase approximately 5%-6% and adjusted diluted EPS to increase 12%-14%.

Overall, the quarter reinforced the strength of our strategy, the momentum behind our share gain initiatives, and our ability to deliver profitable growth in a dynamic macroeconomic environment. I am proud of the team's performance and appreciate the continued support of our dealers, partners, and vendors. Turning to slide 5, I will review our third quarter and year-to-date results. Net sales increased 6% to $260 million in the quarter. North America grew 9% with a positive contribution from price and another quarter of volume growth, supported by the proven resilience of the aftermarket. Net sales in Europe and rest of world declined 6% in the third quarter, but were down just 1%, including the timing of an in-transit shipment now recognized in the fourth quarter. Commercial pool and flow control again delivered strong results, with both product groups generating double-digit net sales growth in the quarter and year-to-date periods.

Consolidated gross margin expanded 10 basis points in the quarter and remained in line with the strong prior year level on a year-to-date basis. This is an impressive accomplishment given the meaningful incremental inflation and tariff headwinds. Adjusted EBITDA margin increased in both the quarter and year to date. We continue to increase investments in R&D and advanced engineering to fuel product innovation, while lower SG&A spending in the quarter reflected disciplined cost management and the absence of a non-recurring prior year expense. As a result, adjusted diluted EPS increased 29% in the quarter and 21% year to date. Through the first nine months, net sales increased 8%, adjusted EBITDA grew 9%, and adjusted diluted EPS rose 21%. This is particularly strong performance given the challenging operating environment, highlighting the durability and earnings power of our model. Turning to slide 6, I will provide an update on the business.

The 2026 pool season ended on a high note as our primary U.S. channel partners reported robust third quarter growth in Hayward sales, with momentum building as the quarter progressed. We are pleased to see our strategic growth initiatives translating into share gains and strong end demand for Hayward products. This performance also reflects the stability of the aftermarket, as the existing installed base drives more than 85% of our sales. While a new pool is a discretionary purchase, maintaining an existing pool is not. Once a pool is installed, its water and equipment require timely, ongoing care, not only to keep it safe and swimmable, but to protect the value of the home. That essential maintenance creates recurring demand independent of new pool construction. This aftermarket stability is evident in our recent performance.

Over the last three years, new in-ground pool construction in the U.S. declined over 20% towards lows not seen since the great financial crisis. Yet our guidance implies a cumulative increase in Hayward net sales of nearly 20%. Our growth is driven far more by recurring demand than by new pool construction. Our broad-based share gains reflect differentiated products and deeper engagement with builders and servicers. Our new aftermarket offerings simplify the substitution for Hayward equipment on existing pool pads, making it easier for trade professionals to align with Hayward. The share gains we've earned over multiple recent quarters are the result of investments in innovation, service, and dealer conversion, giving us confidence that these gains are durable. U.S. channel inventories remain balanced for Hayward, and we've continued to deliver growth even as some customers have modestly reduced days on hand.

We view that as prudent inventory management rather than a reflection of demand concerns, as sales out of the channel at our primary U.S. partners were strong throughout the quarter. Combined with solid Early Buy momentum and ongoing share gains, the data points we monitor give us confidence that inventory levels are healthy. Early Buy programs are progressing well across both segments. In North America, orders were ahead of the prior year at the end of the third quarter, and we expect the program to conclude in the fourth quarter with solid year-over-year growth. Innovation remains central to our growth strategy. We are proud to recently receive the 2026 Innovation Award from the pool industry's largest distributor, recognizing the impact of our investments in research, development, and engineering, specifically noting the advancements we've made in OmniX, our proprietary automation ecosystem for the aftermarket.

The pool industry has historically demonstrated strong pricing discipline. This year, we implemented targeted pricing actions to address inflation and tariffs not fully offset by productivity gains, and we continue to expect mid-single digit positive net price realization in 2026. We are also progressing with value-based pricing and SKU rationalization to better align pricing with the differentiated value we deliver, creating an additional opportunity over time. We continue to advance the strategic priorities that support profitable growth and long-term stockholder value creation. We see a tremendous opportunity in progressively automating the large installed base of manually controlled pools, and our product roadmap is increasingly focused on technology solutions for the aftermarket. At the same time, we are deepening relationships with the trade and converting dealers, the key decision-makers on equipment purchases to Hayward. We have a long-proven track record of operational excellence, and this remains another important value driver.

We are investing in automation and productivity, reducing supply chain risk, and advancing value engineering across our products and processes. We are progressively repurposing our Wuxi, China, facility to support a greater share of demand in Europe and rest of world after reshoring U.S.-focused production. This makes excellent use of a cost-advantaged, efficient facility with a dedicated workforce and will support greater competitiveness and profitability in Europe and rest of world. In summary, our business is strong, and our strategies are delivering results. We are executing well in the current environment and reinvesting to position for sustained profitable growth. Turning now to slide 7, I'd like to provide an update on Hayward Hubs. As discussed on previous calls, expanding our network of Hayward Hub customer training centers is an important priority.

More than showrooms, these facilities give trade professionals hands-on experience with our products in real-world settings, guided by experienced trainers. I am pleased to share that the Atlanta Hub, our sixth location, is now fully operational. Commercial pool remains a key growth driver, making the Atlanta opening especially exciting. This is our first commercial aquatics hub, showcasing our full range of commercial as well as residential pool products. With that, I would like to turn the call over to Ivan to discuss our financial results in more detail.

Thank you, Kevin, and good morning. Turning to slide 8, I will walk through our third quarter financial performance in more detail. We delivered another solid quarter of sales and earnings growth, with net sales increasing 6% to $260 million against a robust 7% growth comparison from the prior year period. Growth was primarily driven by price realization to combat inflation and tariffs, along with another quarter of volume growth. I am particularly pleased to see volume increase 2% in our primary North American market for the quarter and year to date, reflecting the impact of the investments we have made in new products and sales and marketing. Consolidated gross margin expanded 10 basis points in the quarter as a greater mix of higher margin North American sales more than offset modest declines in both segments. Pricing and productivity gains primarily offset increased costs from specialty metals, resins, freight, and other inputs.