I think, what’s really important to understand is what I mentioned earlier. We have done a significant amount of work over the last five years to improve the manufacturing costs base within our business. Our teams are very agile in the management of costs base, and we’ve done a lot to consolidate and collapse, really starting back in 2019, 2020 with the exit from the West Coast Pomona facility. And then progressively, as we’ve acquired businesses, we’ve collapsed those manufacturer locations into the remaining facilities of Hayward. And that’s been a significant contributor to margin expansion over the course of time. A little bit massive over the pandemic period due to the price cost challenges we had. But now that that’s been neutralized, you see the full benefit of that hard work coming through the margin.
So we’ve got good expectations, or I say good ambitions to continue to grow over the course of time. We don’t want to get into specifics, but we’re highly encouraged with where we are at right now.
Jae Hyun Ko: Great. Thanks for the color. And I kind of wanted to go back on the, like channel inventory. So I think Paul kind of noted, like, continued normalization in inventory during the quarter. So can you kind of comment on what you are seeing from the customer inventory perspective?
Kevin Holleran: Yes. So as we look at channel inventory, we obviously work very closely with our channel partners. We would say as we exited 2023 that the destock, through the COVID experience, is really behind us. Now, as we match in a more normal environment, match our shipments into their pull-through into the end market, there is some desire with the channel for them to see if they can be more judicious with their own inventory levels, while preventing stock outs. So we’re working closely with them. There is obviously additional expense to the carrying costs, so there’s incentive to see if we can serve the market together, without necessarily needing as much inventory as was there historically. So, as you’ve heard with some other public comments that desire, we’re fully aware of that, working closely with our channel partners to try and be as efficient in the levels of working capital as possible.
So that places, high priority internally here for us to be able to identify, through forecasting, the right SKUs to build at the right time so that our service levels are as good and reactive as possible to what’s getting pulled through the channel. And I think that that’s something we’re very good at. So, we continue to work closely with them and, better match sales in with their sales out of the channel.
Jae Hyun Ko: Okay. Thank you.
Kevin Holleran: And our guide, I should just close by saying our guidance did contemplate some incrementally lower levels of inventory in the channel. So, again, that just highlights the fact that we’re working closely with the channel, and we’re fully aware of what some of the actions are there.
Jae Hyun Ko: Got it. Thanks.
Operator: Your next question comes from Mike Halloran from Baird. Your line is now open.
Michael Pesendorfer: Hi, good morning, everybody. This is Pesendorfer on for Mike. So I wanted to take a different look at kind of the splits and how growth is going. And can you maybe talk about which products are most impacted given the mix of business skewing heavily towards aftermarket and what that impact to margins might be?
Eifion Jones: Yes, I mean, what we see in the aftermarket, obviously, as end of life occurs for installed core equipment items, those get replaced almost immediately to protect the pool environment, which is, a fantastic attribute for this business. You have this very strong aftermarket that has an urgent need for replacement when the need arises. But what we’re also seeing in the aftermarket is adoption of what we’ve previously coined and continued to coin lifestyle products, heating category, automation category, lighting and controls. Those product categories continue to see good adoption as we continue our journey here. And those items tend to have higher price attributes, higher margin attributes. They create a great value proposition to the consumer, and we see high take on rates for those products.
Michael Pesendorfer: Understood. So maybe just a clarification, just on definition. If I have an existing pool and I add some lighting as part of, maybe I had something break, but I want to increase the amount of lighting I have. Is that considered part of the aftermarket or would that be considered part of the upgrade bucket?
Eifion Jones: So we define our business into four categories. New construction is, I think, clearly understood as new construction. The aftermarket represents three categories remodel. Because a pool has to be remodeled periodically, typically every seven years to 10 years. Upgrade, which is the item you just mentioned. If you’re expanding the attributes that you have on your pool, we would classify that as upgrading your experience. And then we have the third pinwheel – third element of our pinwheel in the aftermarket, which is maintenance. And aftermarket maintenance represents about 50% of the entirety of our business base. And that maintenance is defined as replacement of end of life or when needed repair.
Michael Pesendorfer: Got it. Thank you. That’s helpful. And then one quick one on the addition of the COO and some of the changing rules. Where is – I believe it was Eric. Where’s Eric going to be initially spending his time? Are there any projects that, he’s going to be going after to begin with? Or is this more of, picking up the torch and kind of just carrying on implementation of operational excellence?
Kevin Holleran: Certainly that latter part, I mean, it’s a competitive advantage, and, he brings a very compelling set of experiences and skills to it. But, there are several things. We got new product launches that we want to make sure are done seamlessly. Obviously, there’s a ramp in volumes here in Q2, so there’s greater demand placed on our facilities. We are in the midst of ERP implementation. There’s a schedule there later this year, and then a Go Live in 2025. So, obviously, that places a lot of work on the entire organization, but obviously, the operations team is a big part of that. And then, obviously, working to maintain price cost neutrality, which we achieved last year, and continuing to drive through on these gross margin improvement activities that Eifion has touched on a few times here this morning during the call.
So a lot of work to be done. High expectations on he and that entire group to continue performing and showing results through the organization.
Michael Pesendorfer: Very helpful. Thank you. I’ll pass it on.
Operator: Your last question comes from Rafe Jadrosich from Bank of America. Your line is now open.
