HAYW - NYSE

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, 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 ambience 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 America 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 and 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, Hayward'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 2x 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 Hayward, 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 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 one 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 taking a step back on this theme. Maybe have you seen any trade-offs 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 Hayward's 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 one 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 midpoint $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 one 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 water. 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 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 before 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 Milton. 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 captured 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 earlier, we shipped a little bit more early buy in Europe in Q3 was we'll do less year-over-year in Q4. So net for total Hayward early buy 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 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 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 does 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 that 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 positively 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 refund, 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 into 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 details 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 reflection of other things? I mean, is there any -- if we see a strong early buy, does it 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.