Andrew Carter: You’ve got every single point, and I apologize I have a bad habit of that, asking too many questions with one. So I’ll just ask it real simple. I’ve got — on the second one, I’ve got your COGS outlook kind of down 1.3% to down 3.6%, kind of matching what your underlying kind of implied volume outlook is of minus 1.2% to 3.8%. That’s with FX at 1%. I guess in that outlook, are you assuming inflation on the materials or anything in there because that just — I guess that implies material costs are essentially neutral year-over-year.
Eifion Jones : Yes, sure. I mean, we haven’t assumed underlying inflation to be 2%, but we’re going to continue to drive efficiencies through our manufacturing locations. We’ve got a great legacy — we’re doing a number of things in manufacturing, lean manufacturing principles have come back to before over the last 18 months, and we’ve done a really good job there across the manufacturing footprint. Additionally, we’ve gone through a consolidation program in Europe. We consolidated two of our manufacturing facilities in Spain into one, and that will yield some benefits. So once we fully commission that facility. So we’re doing a lot to continue to realize positive gross margin development despite maintaining price cost neutrality.
Operator: Our next question comes from the line of Nigel Coe with Wolfe Research.
Nigel Coe : Just a couple of kind of clarifications here. So Kevin, based on your comments about expectations between U.S. and International. So mid-single digit down, single units down in — sorry, discretionary — just talk about the discretionary here. It seems like we’re looking at sell-through down in the sort of mid-single-digit zone with — and therefore, the guidance to that maybe 8 to 9 points of benefit from prior year inventory drawdown. I just want to make sure that the math there is correct. But my first question is really about the, you mentioned cost control throughout the slides in your prepared remarks. So just wondering, as we think about recovery. Do we need to think about investment spending ramping up or exact comp or any other kind of discretionary costs coming back in, that might — margins from here?
Kevin Holleran: Nigel, I’ll take the first part of the question, then I’ll hand it off to Eifion on the second half. Yes, I think the math that you’re doing is spot on. Again, I’ll just walk through, I guess, the first time I answered this, I didn’t specifically address what we think what was a headwind in 2023, how it may become a bit of a tailwind in our guide. So again, two points of price. Overall, when you look at the global volume decline. We see that in the 6% to 7% negative up range or down range. We could see it high single-digit, maybe 10% tailwind from the deep stock reversing in 2024 and then again, potentially 1% on the FX. So I think that should all tie out to what you were backing into when you ask a question, Nigel.
Eifion Jones : So and then, Nigel? Yes, sorry, can you repeat the second half, you were fading in and out, Nigel.
Nigel Coe : Yes. So it’s about the discretionary cost control. You mentioned cost control, which is obviously a natural when you have one — as much as you are. But just thinking about the recovery, are there things we need to consider in terms of investment spending, exec comp, et cetera, anything discretionary that might creep incremental margins on the way back up.
Eifion Jones : Yes. So I mean the guidance that we’ve given for the year at the adjusted EBITDA level of $255 million to $275 million fully contemplates all the costs that we’re planning to put in there, including compensation. It also includes the continuing thematic investing into research development and in engineering. In 2023, we invested greater than — I think it was around about a 10% increase in RD&E expenditures year-over-year, and we will continue to do that, to drive the technology platform across the product line. We’re not at the point yet where we need to reinvest in G&A. We do have some plans to invest in sales personnel, and that also has been contemplated within the guidance that we’ve given. But we’re going to be very methodical as we go forward over here over the next two years to make sure that cost base is kept in line with the growth on the top line.
Nigel Coe : Great. And then a quick follow-on. The free cash flow of $160 million. I’m assuming the priority is debt reduction in 2024. So does the guide embeds — the $160 million deployed in debt reduction, is that embedded in your interest expense guidance?
Eifion Jones : So the free cash flow generation contemplates cash flow from operations, which obviously considers aggressive reduction in the net debt position in the business. We will make a determination on how we tackle the gross debt. But certainly, the accumulated cash earnings in the business will continue to be invested and earn at a very degree, as we demonstrated before. But at the end of the day, that $160 million reflects the conversion of EBITDA to free cash flow once you take out CapEx, interest rate and tax and also consider the modest working capital improvement, primarily in inventory over the course of 2024.
Operator: Our next question comes from the line of Rafe Jadrosich with Bank of America.
Rafe Jadrosich: First, just following up on Nigel’s question, the decrementals have been really impressive over the last year? And how do we think going forward here, if volume growth does kind of improve in the second half of the year and then into ’25. How do we think about incrementals longer term, either from a gross margin or EBITDA perspective?
Eifion Jones : Yes. I mean historically, the incrementals in the business used to be in the high 30s. we’ve done better than that. Most recently, as we’ve moved through both incrementals and decrementals, what I would say is we strive to achieve at least what we have historically, if not better, on the incremental side and it all comes back to manufacturing cost discipline and SG&A purposeful investments. And so a bit hesitant to give you a firm figure, but we certainly look to beat the historical.
Rafe Jadrosich: And then just on the — can you talk about what the full-year sellout was for 2023 versus the sell-in? I think last quarter, you’ve given a sort of estimated destock number, I think, of $160 million. Did that come in about what you were initially expecting?
Eifion Jones : Yes. So we don’t get perfect sell-out information across the globe. So we have to kind of triangulate that number based upon those in the U.S. that do report that type of information to us. And what we do know is across the entirety of the globe there was destock, meaningful destock over the 2023 time period. Again, what we’ve put into our guidance is approximately $100 million or 10% of that, not repeating in 2024, which Kevin just kind of just walked through. Yes, that’s what we feel comfortable with right now, given some of the macro uncertainty that we’ve got in the business. But what we’d say is we are largely destocked now back to historical days on hand, and that was really achieved coming out of 2023.
Rafe Jadrosich: And the last one, just very quickly on the — it looks like just SG&A, are you guiding for maybe slight deleverage or flattish year-over-year? Can you just sort of bridge us to what — where you’re getting leverage, like what are the puts and takes on SG&A?
Eifion Jones : Yes. So we have progressively built our G&A team, our general and administrative team up over the last 3 years. And so we’ll continue to leverage on that. We have made some discrete investments into G&A, specifically around our business intelligence capabilities. We’ve built out recently a team in that regard. And we look for great leverage on that investment over the next couple of years. But we really do have an opportunity to hold that G&A base now given where we exited out of ’23, but maybe just slightly over inflation. And so that will be a great opportunity for margin leverage as we go forward. And then obviously, in the manufacturing cost base, we have a good amount of latent capacity that we can continue to tap into as well as continuing to execute on lean manufacturing strategies to reduce cost.
Operator: Mr. Holleran, we have no further questions at this time. I would like to turn the floor back over to you for closing comments.
Kevin Holleran : Thank you, Christine. In closing, I’d just like to thank everyone for their interest in Hayward. Our business is very well positioned to navigate the near-term challenges and deliver value for our stakeholders in the years ahead. This wouldn’t be possible without the hard work, dedication and resilience of our employees and our partners around the world. Please contact our team if you have any follow-up questions, and we look forward to talking to you again on the first quarter earnings call. Thanks, Christine, you may now end the call.
Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
