Holley (HLLY) Q2 2025 Earnings Call August 06, 2025 08:30 AM ET Speaker0Good morning, ladies and gentlemen, and welcome to the conference call to discuss Holley's Second Quarter twenty twenty five Earnings Results. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions for asking questions will be provided at that time. We ask that participants limit themselves to one question and one related follow-up during the Q and A period. Please ...

Financial Data and Key Metrics Changes - For the second quarter of 2025, total revenue was $935 million, exceeding the midpoint of guidance by approximately $35 million, driven by $25 million in higher recurring revenue and $8 million from favorable foreign exchange [9][10] - Adjusted EBITDA margin was 16.7%, outperforming guidance by about 180 basis points, primarily due to a favorable mix of higher recurring revenue and higher margin equipment [10][11] - Adjusted EPS for the second quarter was $1.49, with GAAP EPS at $0.07 [11] Business Line Data and Key Metrics Changes - JBT segment revenue increased by 13% year over year, with adjusted EBITDA of $82 million and an adjusted EBITDA margin of 18%, up 220 basis points from the prior year [11] - Morell segment revenue was $480 million, with adjusted EBITDA of $75 million, representing a margin of 15.5%, attributed to integration synergies and favorable revenue mix [12] Market Data and Key Metrics Changes - Combined orders totaled $938 million, including $22 million from favorable year-over-year foreign exchange translation [5] - EMEA was the strongest region, while North America was relatively soft; Latin America showed strength, and Asia Pacific remained choppy [6] Company Strategy and Development Direction - The company is focused on capitalizing on the expanded portfolio of offerings and cross-selling opportunities resulting from the integration of JBT and Morell [7][20] - The strategy includes optimizing product flow and increasing efficiency through fully integrated systems, which enhances customer value [17][19] - The company aims to achieve mid-teen margins in both fish and meat businesses by 2027 through project selectivity and improved service quality [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment, noting healthy orders despite macroeconomic challenges [5] - The company is reestablishing full-year earnings guidance due to expectations for backlog conversion and synergy savings [7][13] - Management highlighted the importance of mitigating tariff impacts through negotiations and sourcing adjustments [10][57] Other Important Information - The company ended the quarter with a backlog of $1.4 billion, providing significant support for revenue conversion in the latter half of the year [6][13] - Free cash flow for the year was $106 million, with $88 million generated in the second quarter, supporting balance sheet deleveraging [12] Q&A Session Summary Question: Insights on poultry investments and customer conversations - Management noted good visibility into the front half of 2026, with poultry companies making significant investments in automation and efficiency [28][29] Question: Margin performance at Morell - Management indicated a 400 basis point improvement in margins, driven by integration synergies, restructuring efforts, and a favorable mix of recurring revenue [41][44] Question: Impact of tariffs on orders - Management acknowledged some episodic delays in orders due to tariffs but emphasized that the impact is not systemic [63][80] Question: Pricing strategies and backlog - Management confirmed ongoing negotiations regarding backlog pricing and the ability to implement price increases on parts and equipment [88][91] Question: Future guidance and margin expectations - Management expects a sequential decline in margins for Q3 due to tariff impacts and a shift in revenue mix, but anticipates a rebound in Q4 [49][54]

Financial Data and Key Metrics Changes - The company reported a solid Q2 performance with double-digit margins and accelerating free cash flow, raising the full-year profit guidance by $35 million for continuing operations [6][11] - Adjusted EBITDA for continuing operations was $145 million, with a profit margin of 7.5%, reflecting a 210 basis point improvement from the previous year [20] - Free cash flow guidance was increased by $50 million to approximately $275 million at the midpoint for the year [27][30] Business Line Data and Key Metrics Changes - Continuing operations saw sales of $2.052 billion, a decrease from the previous year due to lower end market demand, while adjusted EBITDA was impacted by lower sales and tariffs [18][20] - Cost savings initiatives delivered $59 million in profit, contributing to a total of $110 million year-to-date, with a target of $225 million for the current year [22][30] Market Data and Key Metrics Changes - The company experienced softness in the North American commercial vehicle market, partially offset by better volumes in South America and Europe [11][62] - Tariff impacts were noted, with expectations of an 80% recovery for the year, although there was a headwind of 80 basis points in Q2 [10][11] Company Strategy and Development Direction - The company is transitioning to a more North American-centric light vehicle company, with a strong aftermarket business and integrated thermal and sealing operations [12][34] - A commitment to return $1 billion to shareholders, with an increased share buyback target of $600 million, was announced [7][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a 10% margin target for 2026, supported by a cost reduction savings plan of $310 million [34][38] - The outlook for the commercial vehicle market remains cautious, with no cyclical upturn expected in the near term [64] Other Important Information - The Off Highway business is classified as a discontinued operation, with the sale expected to close in Q4, and the company is focused on a smooth transition [6][7] - The company has ample liquidity of approximately $1.35 billion at the end of Q2, allowing for flexibility in capital allocation [32] Q&A Session Summary Question: Can you provide color on the drivers of the expected margin improvement from new business backlog? - The new business wins are coming from significant programs with customers like JLR and Ford, contributing to the backlog [41][42] Question: How much room is there for incremental cost savings? - Most remaining cost savings will focus on operating improvements in the plants, with opportunities to reduce stranded costs [45][46] Question: Will the Off Highway guidance cut impact deal closing timing? - No, the guidance cut will not impact the timing of the deal closing, as the Off Highway team has maintained margins despite lower revenue [52][54] Question: What is driving the expected improvement in working capital? - The improvement is attributed to the normalization of working capital requirements and efficiency gains expected in the second half of the year [97][99] Question: Can you clarify the nature of variable costs associated with stranded costs? - Variable costs include fixed costs that will decrease with the reduction in business size, such as auditing costs [100][101]

Financial Data and Key Metrics Changes - The company reported consolidated net sales of $1,100,000,000 for Q2 2025, representing a 5% increase year over year [27] - Adjusted EBITDA for the quarter was $121,000,000, or 11% of net sales [33] - GAAP net income for Q2 was $58,000,000, or $2.29 per diluted share, compared to $61,000,000, or $2.40 per diluted share in the prior year [32] - Gross margins decreased to 24.4% from 25.3% year over year, primarily due to executive separation costs and changes in product mix [30] Business Line Data and Key Metrics Changes - RV OEM net sales totaled $840,000,000, up 5% from the same period in 2024, driven by market share gains [27] - Aftermarket net sales were $268,000,000, an increase of 4% year over year, primarily due to product innovations and expanding relationships [30][12] - Adjacent Industries OEM net sales increased by 10% year over year to $336,000,000, largely due to recent acquisitions [29] Market Data and Key Metrics Changes - North American RV sales were up 5%, while overall RV sales increased by 3% year over year [9] - The marine market experienced a 15% decline in sales due to inflation and high interest rates affecting retail demand [30] - The company expects North American RV wholesale shipments for 2025 to be between 320,000 and 350,000 units [24] Company Strategy and Development Direction - The company aims to achieve an organic revenue target of $5,000,000,000 by 2027, supported by strategic acquisitions and product innovations [4][38] - A focus on reducing raw material exposure and diversifying the supply chain is emphasized, with a goal to reduce China exposure from 24% in 2024 to 10% by 2025 [7] - The company is committed to facility consolidation and cost reduction initiatives, targeting an 85 basis point overhead reduction for 2025 [8] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the retail environment, noting that while inflation and tariff uncertainties persist, there are signs of stabilization in demand [23] - The company anticipates a slow and steady recovery in inventory levels once demand improves, particularly in the RV sector [45] - Management remains confident in their ability to align cost structures and capital deployment with market conditions [24] Other Important Information - The company executed a $300,000,000 share repurchase program, returning $187,000,000 to shareholders year to date through dividends and repurchases [34] - The company is focused on maintaining a strong financial foundation while pursuing strategic acquisitions and investments in innovation [19] Q&A Session Summary Question: What is the current state of dealer inventories in RV and marine markets? - Management noted that dealers remain cautious, leading to significant destocking, and expect a slow and gradual rise in inventory levels once demand improves [43][45] Question: What is the expected impact of tariffs on margins? - The tariff impact increased from 180 basis points to 290 basis points due to a rise in tariffs from 20% to 30%, but management is confident in their mitigation strategies [57][58] Question: How is the company addressing the shift towards single axle trailers? - Management indicated that while single axle trailers have increased in market share, they expect a return to larger multi-axle units as consumer preferences evolve [64][70] Question: What is the outlook for retail demand and production volumes? - Management expects retail demand to stabilize, with wholesale and retail being similar this year, but anticipates a soft fourth quarter due to seasonal trends [96][98]

Financial Data and Key Metrics Changes - Organic net sales decreased by 4.2% in Q3 2025, with North America Sun Care business underperforming expectations by approximately $25 million [42] - Adjusted gross margin rate decreased by 150 basis points, impacted by lower Sun Care sales [42] - GAAP diluted net earnings per share were $0.62 compared to $0.98 in Q3 2024, while adjusted earnings per share were $0.92 compared to $1.22 in the prior year [44] Business Line Data and Key Metrics Changes - Wet Shave organic net sales were down about 2%, while international Wet Shave grew about 3% [33] - Sun and Skin Care organic net sales were down approximately 5%, with mid single-digit growth in Grooming led by 28% organic net sales growth for Cremo [35] - Fem Care organic net sales were down approximately 10%, driven largely by tampons and pads [37] Market Data and Key Metrics Changes - International markets delivered 2% organic growth, with double-digit growth in Greater China and mid single-digit growth in Oceania and Europe [32] - In North America, organic sales declined about 8%, with significant declines in Sun Care, Wet Shave, and Fem Care [32] - Market share for Hawaiian Tropic increased by 150 basis points in Q3, while Cremo saw a 40 basis point increase [15] Company Strategy and Development Direction - The company is committed to investing in brand campaigns and innovations to strengthen its portfolio for long-term success [20] - A focus on international market growth strategy, which now represents 40% of global sales, is expected to deliver mid-single-digit organic growth [10] - The company is undergoing a transformation in North America to improve commercial effectiveness and operating efficiency [14] Management Comments on Operating Environment and Future Outlook - The operating environment remains challenging due to tariffs and foreign exchange volatility, impacting full-year profit headwinds [8] - Management remains confident in the ability to grow international markets and across core categories despite short-term pressures [39] - The company anticipates organic net sales to be down approximately 1.3% for the fiscal year, with adjusted earnings per share expected to be approximately $2.65 [46] Other Important Information - The company returned approximately $32 million to shareholders during the quarter, achieving a target of approximately $90 million in share repurchases for the fiscal year [45] - The company is actively pursuing opportunities to mitigate the potential impact of tariffs through expanded sourcing efforts and vendor negotiations [24] Q&A Session Summary Question: Can you expand on the drivers of the free cash flow cut? - Management indicated that lower earnings and additional FX headwinds were significant drivers of the cash flow change, alongside working capital changes [54][56] Question: Can you speak high level to the puts and takes for fiscal 2026? - Management noted that while they cannot provide specific guidance for 2026, they are confident in their ability to deliver growth in the range of 2% to 3% moving forward [66][72] Question: What drives the organic sales growth expected in Q4? - Management expects growth driven by improved performance in Sun Care, Fem Care, and Wet Ones, with a positive outlook based on recent sales data [82][86] Question: Will elevated levels of brand support continue into fiscal 2026? - Management confirmed that they will continue to invest in brand support and innovation, particularly in international markets and key brands in North America [90][92] Question: How are inventories currently in the channel for Sun Care? - Management stated that they are generally comfortable with inventory levels and are prepared to replenish quickly due to their supply chain advantages [102]

Financial Data and Key Metrics Changes - Q2 net sales were $424.4 million, down 4.5% year-over-year, with base business down 4.2% [6][17] - Q2 adjusted EBITDA was $58 million, a decrease of $5 million or 9.3% compared to last year [6][16] - Adjusted EBITDA as a percentage of net sales was 13.7% for the 2025 fiscal year [16][27] - Adjusted net income was $2.9 million or $0.04 per adjusted diluted share, down from $6.6 million or $0.08 per adjusted diluted share in the previous year [27] Business Line Data and Key Metrics Changes - The frozen and vegetables business unit saw a segment adjusted EBITDA decline of $6.5 million due to higher costs and trade spend [6][7] - The specialty business unit experienced an 8% decline in net sales, primarily due to lower Crisco oil pricing, but segment adjusted EBITDA improved by 3% [7][18] - Meals segment net sales declined by $3.8 million or 3.5%, but adjusted EBITDA increased by $1.8 million or 7.7% [18] - Spices and Flavor Solutions saw a slight decline in net sales of less than $2 million, with commodity costs increasing [21][22] Market Data and Key Metrics Changes - The U.S. frozen vegetables business is expected to turn profitable with an increase in segment adjusted EBITDA of $8 million to $10 million compared to last year [13] - Negative foreign exchange impacts have moderated, and a better cost environment is anticipated for the frozen and vegetables business unit [20][25] - Approximately 90% of net sales are to U.S. customers, with 80% to 85% of products sourced from the U.S., Canada, and Mexico [35] Company Strategy and Development Direction - The company aims to achieve adjusted EBITDA as a percentage of net sales approaching 20%, reduce leverage closer to five times, and improve cash flow generation [8][15] - Recent divestitures are part of a strategy to reshape the portfolio for higher margins and cash flows [10][30] - The company is committed to reducing net debt and leverage ratio over the next twelve months [36] Management's Comments on Operating Environment and Future Outlook - Management expects solid improvement in the second half of fiscal year 2025, with flat to slightly positive net sales and year-over-year growth in adjusted EBITDA [11][12] - The company anticipates a modestly softer economic environment impacting consumer spending patterns [33] - Management is optimistic about stabilizing top-line performance and managing input costs effectively [34] Other Important Information - Selling, general, and administrative expenses increased by 9.4% to $47.2 million, reflecting higher consumer marketing expenses [26] - The company generated $17.8 million in net cash from operations during Q2 2025, compared to $11.3 million in Q2 2024 [28] - The company expects to reduce pro forma net leverage ratio to less than six times by the end of the next year [36] Q&A Session Summary Question: What is the expected organic sales interpretation for the second half? - Management indicated that base business net sales are projected to be down about 1% to 2% after accounting for the 53rd week benefit [39][40] Question: How are retailers responding to pricing actions related to tariffs? - Management noted that most tariff exposure is in spices and flavor solutions, and they expect to implement pricing actions to recover tariff costs [48][50] Question: What is the EBITDA for the divested brands? - Management did not disclose EBITDA for the divested brands, as it is a sale to a private company [55] Question: What is the current leverage ratio and availability on the cash flow revolver? - The leverage ratio is approximately 6.8 times, providing a cushion of about 0.7 turns [60] Question: Are there any changes in sourcing to mitigate spice and seasoning tariffs? - Management is exploring alternative sourcing but noted that most spices are sourced from countries already subject to tariffs [66]

Financial Data and Key Metrics Changes - The company reported a strong third quarter with results exceeding expectations, reflecting efforts to strengthen the business and restore margins [7][11] - Adjusted EPS is now expected to be between $3.55 and $3.65, with adjusted EBITDA projected between $630 million and $640 million [11] - The company returned $84 million to shareholders through dividends and share repurchases in the quarter [10] Business Line Data and Key Metrics Changes - The battery category performed well, while auto care was softer due to mild weather; however, the new podium series is performing strongly [8][14] - Organic sales were strong, with battery category growth contributing positively, while auto care showed a slight decline [18] Market Data and Key Metrics Changes - The impact of tariffs on the business has improved significantly, with current rates lower than previously guided [8] - The company expects production credits to contribute $35 million to $40 million annually to gross margin, net earnings, and free cash flow [9][19] Company Strategy and Development Direction - The company is focused on restoring margins, investing in growth, and building a more agile operation [7] - The acquisition of Advanced Power Solutions is expected to enhance manufacturing capabilities and mitigate tariff impacts [10][29] - The company is prioritizing debt reduction while also evaluating opportunities for share repurchase and capital allocation [35][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering fiscal 2025 outlook and continued earnings growth into fiscal 2026 [11] - The company noted that consumer behavior is cautious, but the battery category remains resilient [90] Other Important Information - The company has made significant investments in production and digital transformation, with expectations of generating 10% to 12% free cash flow compared to sales over the next couple of years [32][38] - The company has seen a stable competitive landscape, with private label shares remaining flat [44] Q&A Session Summary Question: Key fundamental drivers for the quarter and next - Management highlighted organic growth, gross margin improvement, and earnings growth as key drivers [14][15] Question: Details on production credits - Production credits are expected to contribute significantly to earnings without requiring additional investment [22] Question: Impact of the Advanced Power Solutions acquisition - The acquisition is part of a broader strategy to enhance manufacturing capabilities and optimize costs [29][30] Question: Capital allocation outlook - The company plans to prioritize debt reduction while remaining flexible in capital allocation strategies [35][36] Question: Competitive landscape and holiday outlook - Management noted stable market shares and a normal holiday season is anticipated, with adjustments for earlier shopping patterns [44][46] Question: Consumer inventory levels - Retailer inventory levels are slightly elevated, while consumer inventory levels are lighter due to stretched purchase cycles [88] Question: Pricing impact from tariffs - Pricing adjustments related to tariffs have been negotiated with retailers and are expected to show benefits in Q4 [68][92]

Financial Data and Key Metrics Changes - The company reported net sales of $55.2 million for Q2 2025, a slight increase compared to the same period last year [4][30] - Consolidated gross margin for Q2 was 35.6%, down from 36.1% in the prior year [31] - Adjusted EBITDA for Q2 was a loss of $2.1 million, reflecting a negative adjusted EBITDA margin of -3.8% [34] Business Line Data and Key Metrics Changes - The Adventure segment experienced an 8% decline in sales year-over-year, primarily due to reduced demand from a global OEM customer [23][30] - The Outdoor segment saw a 1% increase in sales, with North American wholesale up 1.6% and European wholesale up 4.8% [16][31] - Black Diamond's revenue for Q2 was $36.5 million, up 2.1% from the prior year, with gross margin at 34.9%, an increase of 80 basis points [15][18] Market Data and Key Metrics Changes - North American digital direct-to-consumer sales were down 20.1%, reflecting a strategic shift towards full-price sales [16][70] - International distributor markets saw an 81.3% increase, indicating a shift in delivery timing [17] - The company faced a $3.9 million consolidated headwind from tariffs in 2025, despite mitigation efforts [38] Company Strategy and Development Direction - The company is focused on simplifying its organizational structure and product offerings to drive sustainable growth [5][8] - A divestiture of the PEEPS brand for $9.1 million aligns with the company's simplification strategy [6][37] - The company aims to maintain a nearly debt-free balance sheet while prioritizing reinvestment in existing segments for organic growth [8][39] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding macroeconomic conditions, consumer sentiment, and evolving tariff policies impacting future performance [9][21] - The company is optimistic about its positioning compared to a year ago, despite ongoing challenges [21][43] - Management refrained from providing specific guidance for Q3 or full-year 2025 due to uncertainties [39] Other Important Information - The company has initiated a review to evaluate opportunities for shareholder value creation, including further cost reductions [8] - The sale of PEEPS is expected to be accretive, as it previously incurred losses [74] - The company is focused on improving inventory quality and reducing exposure to discounted merchandise [6][20] Q&A Session Summary Question: What is the status of the Adventure segment's vehicle fit growth? - Management confirmed an increase to 579 vehicle fits, focusing on the top-selling vehicles in both the Australian and U.S. markets [46][49] Question: Can you elaborate on the promotional actions taken in the Adventure segment? - The company has moved inventory that was previously written off, recovering costs but impacting margins [50][52] Question: How does the Outdoor segment's discontinued merchandise sales compare year-over-year? - The decrease in discontinued merchandise sales is attributed to less PFAS inventory being sold compared to the previous year [53][55] Question: What are the trends in outdoor revenue and growth expectations for the rest of the year? - The wholesale business is expected to show low single-digit growth, while direct-to-consumer sales are anticipated to remain soft due to a shift towards full-price selling [63][70] Question: What is the cash flow outlook for the remainder of the year? - The company aims to improve cash flow through working capital management and does not anticipate share buybacks, focusing instead on organic reinvestment [82][84] Question: Can you clarify the company's exposure to tariffs by country? - The Adventure segment sources most products from China, while Black Diamond sources from various Southeast Asian countries, with ongoing efforts to mitigate tariff impacts [88][89]

Financial Data and Key Metrics Changes - The company's net sales decreased by 2% in the second quarter, but were in line with the prior year when excluding the Kichler divestiture and currency impacts [13][22] - Gross margins increased by 10 basis points to 37.7%, while operating profit grew by $14 million to $413 million, resulting in an operating profit margin increase of 100 basis points to 20.1% [13][24] - Earnings per share (EPS) grew by 8% to $1.3 per share [13][24] Business Line Data and Key Metrics Changes - Plumbing sales increased by 4% in local currency, with North American Plumbing sales up by 5% driven by favorable pricing and volume [14][25] - International plumbing sales increased by 1% in local currency, with operating profit for the segment at $276 million and an operating margin of 21% [15][25] - Decorative Architectural segment sales decreased by 12%, with total paint sales down mid-single digits due to lower volume [15][27] Market Data and Key Metrics Changes - The global repair and remodel market is anticipated to decline by low single digits, with the company expecting to outperform the market [19][33] - The company expects its sales to be roughly flat, excluding the impacts of divestiture and currency, with lower volumes offset by pricing [19][33] Company Strategy and Development Direction - The company aims to strengthen its portfolio of brands and enhance consumer experiences while driving profitable growth [8][20] - The focus is on leveraging digital strategies, including e-commerce and digital marketing, to accelerate top-line growth [83] - The company is committed to maintaining cost discipline while investing in future growth opportunities [30][34] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the dynamic geopolitical and macroeconomic environment, emphasizing the need for mitigation actions against tariffs and commodity cost increases [12][17] - The company anticipates some uncertainty in near-term market conditions but remains optimistic about structural factors supporting long-term growth [20][34] - Management expects headwinds in the second half of the year, particularly related to tariff costs and commodity inflation [35] Other Important Information - The company plans to allocate approximately $450 million towards share repurchases or acquisitions in 2025, with a focus on bolt-on acquisitions [38][41] - The balance sheet remains strong, with gross debt to EBITDA at two times and $1.3 billion in liquidity [28][29] Q&A Session Summary Question: Allocation of $450 million to repurchases and acquisitions - Management indicated that acquisitions would be bolt-on in nature, focusing on core areas, with the majority of the allocation expected for share repurchases [38][41] Question: Sustainability of propane growth - The propane business has grown significantly, and management believes there is still room for growth, particularly through partnerships with The Home Depot [42][43] Question: Pre-buy activity in plumbing - Some pre-buy activity was noted in plumbing, primarily related to tariff price increases, but overall channel inventories remain healthy [48][50] Question: DIY paint consumption trends - Management highlighted that existing home sales, which are at a three-decade low, are a major driver of softness in the DIY market [54][56] Question: Performance of plumbing brands - Upper premium and luxury brands are performing well, while mid-tier brands are experiencing some trade-down [61][63] Question: Mitigation actions against tariffs - Management is employing pricing, cost reductions, and sourcing changes to mitigate tariff impacts, with a focus on reducing exposure to China [74][104] Question: Working capital dynamics - Working capital is impacted by tariffs and inflation, with a focus on maintaining lean inventory while managing tariff-related costs [118][119]

Financial Data and Key Metrics Changes - Net sales increased by 5% to approximately $300 million, driven by a 5% increase in net price realization, a 2% decrease in volume, and a 2% contribution from the Core King acquisition [7][18] - Gross profit margins reached a record 52.7%, with adjusted EBITDA margin increasing to 29.5%, marking the tenth consecutive quarter of year-over-year gross margin expansion [6][11] - Net leverage was significantly reduced to 2.1 times, the lowest level in over three years, providing enhanced financial flexibility [6][23] Business Line Data and Key Metrics Changes - North American net sales increased by 6% to $255 million, driven by a 6% net price realization and a 3% contribution from the Clor King acquisition [20] - In Europe and Rest of World, net sales increased by 3% to $44 million, with a 1% contribution from favorable net pricing and a 3% favorable foreign currency translation [22] Market Data and Key Metrics Changes - End demand improved in June, resulting in customer orders generally aligning with normal seasonal patterns for the quarter [8] - Nondiscretionary aftermarket maintenance demand remained resilient, while discretionary elements of the market faced pressure [8][27] Company Strategy and Development Direction - The company is focused on mitigating tariff impacts while supporting margins and fulfilling commitments to shareholders and customers [6][12] - Investments are being made in advanced engineering and new product development to drive future growth, particularly in high-growth regions [11][25] - The company aims to increase its presence in the commercial pool business, which has seen significant growth post-acquisition of Clor King [10][87] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the dynamic environment and refined guidance for full-year 2025, expecting net sales to increase approximately 2% to 5% [7][26] - The company anticipates solid cash flow generation in 2025, with a conversion of greater than 100% of net income [27] Other Important Information - The company has authorized a share repurchase of up to $450 million over three years [25][94] - The tariff environment remains uncertain, with an estimated total annualized tariff impact of approximately $30 million [13][14] Q&A Session Summary Question: Outlook for gross margin in the second half - Management highlighted that the strong Q2 gross margin performance was driven by productivity improvements and product line rationalization, with expectations for continued margin protection despite potential percentage moderation [34][37] Question: New pool market outlook - Management expects modestly down pool data for the year but sees potential for improvement as interest rates and the housing market stabilize [39][42] Question: Guidance adjustments and volume outlook - The company adjusted its volume outlook to reflect stronger performance, with expectations for a negative 1% overall on volume [46][48] Question: SG&A increase and future expectations - The increase in SG&A is attributed to targeted investments in engineering and customer care, with a goal to leverage SG&A as a percentage of sales in the medium term [56][57] Question: Trends in sell-in versus sell-through - Management noted that Q2 saw a strong sell-through, with healthy order profiles and expectations for normal inventory levels as the season progresses [63][65] Question: Repair versus replace dynamics - There is a noticeable trend towards repairing equipment rather than replacing it, driven by economic pressures [66][68] Question: M&A pipeline and opportunities - The company has a healthy pipeline of M&A opportunities, focusing on both domestic and international bolt-on acquisitions [88][90]