THIRD QUARTER FISCAL 2022 SUMMARY
- Net Sales decreased 30% year-over-year to $245.3 million
- Net Income decreased 54% year-over-year to $23.1 million
- Adjusted EBITDA decreased 39% year-over-year to $60.4
million
- Adjusted diluted EPS decreased 43% year-over-year to $0.14
Hayward Holdings, Inc. (“Hayward”) (NYSE: HAYW), a global
designer, manufacturer and marketer of a broad portfolio of pool
equipment and associated automation systems, today announced
financial results for the third quarter ended October 1, 2022 of
its fiscal year 2022.
CEO COMMENTS
“Our third quarter results were in line with our expectations,”
said Kevin Holleran, Hayward’s President and Chief Executive
Officer. “We continue to leverage our competitive advantages,
increase market share, and capitalize on the sustainable secular
trends in our industry. I am particularly pleased with continued
solid growth and outperformance in channel sell-through in our core
U.S. market for the third quarter, as reported by our primary
channel partners. However, consistent with our expectations, we saw
a meaningful divergence between this channel sell-through and our
net sales into the channel as our partners reduced the level of
inventory on hand in response to normalizing lead times and safety
stock requirements. We are taking proactive steps to streamline the
organization and realign our cost structure to current conditions
while prioritizing our strategic growth investments.”
THIRD QUARTER FISCAL 2022 CONSOLIDATED RESULTS
Net sales decreased by 30% to $245.3 million for the third
quarter of fiscal 2022. The decline in net sales during the quarter
was the result of lower volumes, partially offset by favorable
pricing and acquisitions. The decline in volume was primarily
driven by distribution channel destocking as supply chain pressure
eases, lead times normalize, and the industry starts to return to
the pre-pandemic seasonal trend of lower sales activity in the
third quarter. Additionally, macroeconomic uncertainty and
geopolitical factors in Europe weighed on customer demand and
contributed to the decline in volume.
Gross profit decreased by 34% to $107.8 million for the third
quarter of fiscal 2022. Gross profit margin decreased 239 basis
points to 43.9%. The decrease in gross margin was principally due
to the decline in volume resulting in lower operating leverage.
Gross profit margin was also negatively impacted by the inventory
fair value step-up adjustment recognized as part of purchase
accounting related to the second quarter acquisition of J&J
Electronics and Sollos (the “Specialty Lighting Business”).
Selling, general, and administrative (“SG&A”) expenses
decreased by 27% to $50.5 million for the third quarter of fiscal
2022. The decrease in SG&A was primarily driven by lower
incentive compensation, selling and distribution, and warranty
expenses as well as the absence of a patent infringement litigation
settlement which occurred in the prior year period. As a percentage
of net sales, SG&A increased 96 basis points to 21%, compared
to the prior year period of 20%. Research, development, and
engineering expenses were $6.1 million for the third quarter of
fiscal 2022, or 3% of net sales, as compared to $6.4 million for
the prior year period, or 2% of net sales.
Operating income decreased by 48% to $40.3 million for the third
quarter of fiscal 2022. The decrease in operating income was driven
by lower sales.
Interest expense, net, increased by approximately 26% to $13.9
million for the third quarter of fiscal 2022 primarily as a result
of variable rate increases on the term loan and utilization of the
ABL revolving credit facility.
Income tax expense for the third quarter of fiscal 2022 was $3.5
million for an effective tax rate of 13.3%, compared to $14.3
million at an effective tax rate of 22.2% for the prior-year
period. The decrease was primarily due to discrete items resulting
from certain state legislation changes and the tax benefit
resulting from the exercise of stock options.
Net income decreased by 54% to $23.1 million for the third
quarter of fiscal 2022.
Adjusted EBITDA decreased by 39% to $60.4 million for the third
quarter of fiscal 2022. Adjusted EBITDA margin decreased 341 basis
points to 24.6%.
Diluted GAAP EPS decreased by 52% to $0.10 for the third quarter
of fiscal 2022. Adjusted diluted EPS decreased by 43% to $0.14 for
the third quarter of fiscal 2022.
THIRD QUARTER FISCAL 2022 SEGMENT RESULTS
North America
Net sales decreased by 32% to $203.7 million for the third
quarter of fiscal 2022. The decrease was primarily the result of a
decline in volume, partially offset by increases in price to offset
inflationary pressure and the favorable impact of acquisitions. The
decline in volume was primarily the result of distribution channel
destocking and the seasonal trend of lower sales activity in the
third quarter as discussed above.
Segment income decreased by 47% to $48.7 million for the third
quarter of fiscal 2022. Adjusted segment income decreased by 42% to
$56.9 million.
Europe & Rest of World
Net sales decreased by 21% to $41.6 million for the third
quarter of fiscal 2022. The decrease was primarily due to a decline
in volume as a result of geopolitical factors and macroeconomic
uncertainty, unfavorable impact of foreign currency translation,
and channel inventory reductions, partially offset by price
increases.
Segment income decreased by 17% to $8.8 million for the third
quarter of fiscal 2022. Adjusted segment income decreased by 23% to
$8.6 million.
BALANCE SHEET AND CASH FLOW
As of October 1, 2022, Hayward had cash and cash equivalents of
$72.9 million and approximately $55.2 million available for future
borrowings under its ABL Facility. Cash flow from operations for
the nine months ended October 1, 2022, of approximately $144
million was a decrease of approximately $55 million from the prior
year comparative period as a result of the increase in cash used
for working capital, partially offset by an increase in net
income.
COST OPTIMIZATION PROGRAM
During the three months ended October 1, 2022, the Company
initiated an enterprise cost reduction program to address the
current market dynamics and maintain the Company’s strong financial
metrics. The initial focus was on a reduction of variable costs
with specific attention to eliminating cost inefficiencies in our
supply chain and reducing labor in our production cost base. In
addition to these variable cost reductions, the Company identified
structural selling, general and administrative cost reduction
opportunities totaling $25 million to $30 million in 2023, with
initial savings of approximately $8 million to be realized in
2022.
OUTLOOK
Hayward is refining its full fiscal year 2022 guidance to
reflect higher than expected inflation impacting the fourth
quarter, normalizing channel inventory levels and geopolitical
events in Europe. Hayward continues to see increasing consumer
demand for pool equipment products in the U.S., specifically, for
our suite of SmartPadTM products into the aftermarket. Hayward is
confident in the long-term outlook for profitable growth and robust
cash flow generation, driven by new product innovation, growing
commercial relationships with prominent pool dealers and builders,
and agile manufacturing capabilities.
For fiscal year 2022, Hayward now expects net sales to decrease
approximately 6% from prior year, and Adjusted EBITDA of $365
million to $370 million.
Please see the Forward-Looking Statements section of this
release for a discussion of certain risks relevant to Hayward’s
outlook.
SHARE REPURCHASE PROGRAM
For the three and nine months ended October 1, 2022, Hayward
repurchased approximately $50.0 million and $343.1 million,
respectively, in common stock under its previously approved share
repurchase program, leaving approximately $400.0 million remaining
under the renewed authorization, which occurred on July 26, 2022.
Hayward's Board of Directors renewed the initial authorization of
the existing repurchase program and authorized Hayward to
repurchase up to an aggregate of $450 million of its common stock
over the next three years. The repurchase program will continue to
be funded by cash on hand and cash generated from operations.
CONFERENCE CALL INFORMATION
Hayward will hold a conference call to discuss the results
today, November 1, 2022 at 9:00 a.m. (ET).
To access the live conference call, please register for the call
in advance by visiting
https://www.netroadshow.com/events/login?show=c0ffcc93&confId=42857.
Registration will also be available during the call. After
registering, a confirmation e-mail will be sent including dial-in
details and a unique access code for entry. To ensure you are
connected for the full call please register at least 10 minutes
before the start of the call.
Interested investors and other parties can also listen to a
webcast of the live conference call by logging onto the Investor
Relations section of the company's website at
https://investor.hayward.com/events-and-presentations/default.aspx.
An earnings presentation will be posted to the Investor Relations
section of the company’s website prior to the conference call.
For those unable to listen to the live conference call, a replay
will be available approximately two hours after the call through
the archived webcast on the Hayward website or by dialing (866)
813-9403 or (44) 204-525-0658. The access code for the replay is
480626. The replay will be available until 11:59 p.m. Eastern Time
on November 15, 2022.
ABOUT HAYWARD HOLDINGS, INC.
Hayward Holdings, Inc. (NYSE: HAYW) is a leading global designer
and manufacturer of pool equipment and technology all key to the
SmartPad™ conversion strategy designed to provide superior outdoor
living experience. Hayward offers a full line of innovative,
energy-efficient and sustainable residential and commercial pool
equipment, including a complete line of advanced pumps, filters,
heaters, automatic pool cleaners, LED lighting, internet of things
(IoT) enabled controls, alternate sanitizers and water
features.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This press release contains certain statements that are
“forward-looking statements” as that term is defined under the
Private Securities Litigation Reform Act of 1995 (the “Act”) and
releases issued by the Securities and Exchange Commission (the
“SEC”). Such forward-looking statements relating to Hayward are
based on the beliefs of Hayward’s management as well as assumptions
made by, and information currently available to it. These
forward-looking statements include, but are not limited to,
statements about Hayward’s strategies, plans, objectives,
expectations, intentions, expenditures and assumptions and other
statements contained in or incorporated by reference in this
earnings release that are not historical facts. When used in this
document, words such as “guidance,” “may,” “will,” “should,”
“could,” “intend,” “potential,” “continue,” “anticipate,”
“believe,” “estimate,” “expect,” “plan,” “target,” “predict,”
“project,” “seek” and similar expressions as they relate to Hayward
are intended to identify forward-looking statements. Hayward
believes that it is important to communicate its future
expectations to its stockholders, and it therefore makes
forward-looking statements in reliance upon the safe harbor
provisions of the Act. However, there may be events in the future
that Hayward is not able to accurately predict or control, and
actual results may differ materially from the expectations it
describes in its forward-looking statements.
Examples of forward-looking statements include, among others,
statements Hayward makes regarding: Hayward’s outlook, financial
position; business plans and objectives; general economic and
industry trends; business prospects; future product development and
acquisition strategies; growth and expansion opportunities;
operating results; and working capital and liquidity. The
forward-looking statements in this earnings release are only
predictions. Hayward may not achieve the plans, intentions or
expectations disclosed in Hayward’s forward-looking statements, and
you should not place significant reliance on its forward-looking
statements. Hayward has based these forward-looking statements
largely on its current expectations and projections about future
events and financial trends that it believes may affect its
business, financial condition and results of operations. Moreover,
neither Hayward nor any other person assumes responsibility for the
accuracy and completeness of forward-looking statements taken from
third-party industry and market reports.
Important factors that could affect Hayward’s future results and
could cause those results or other outcomes to differ materially
from those indicated in its forward-looking statements include the
following: its ability to execute on its growth strategies and
expansion opportunities; uncertainties affecting the pace of
distribution channel destocking and its impact on sales volumes;
its ability to maintain favorable relationships with suppliers and
manage disruptions to its global supply chain and the availability
of raw materials, including as a result of the COVID-19 pandemic;
its relationships with and the performance of distributors,
builders, buying groups, retailers and servicers who sell Hayward’s
products to pool owners; competition from national and global
companies, as well as lower-cost manufacturers; impacts on
Hayward’s business from the sensitivity of its business to
seasonality and unfavorable economic business and weather
conditions; Hayward’s ability to identify emerging technological
and other trends in its target end markets; Hayward’s ability to
develop, manufacture and effectively and profitably market and sell
its new planned and future products; failure of markets to accept
new product introductions and enhancements; the ability to
successfully identify, finance, complete and integrate
acquisitions; Hayward’s ability to attract and retain senior
management and other qualified personnel; regulatory changes and
developments affecting Hayward’s current and future products;
volatility in currency exchange rates; Hayward's ability to realize
cost savings from restructuring activities; Hayward’s ability to
service its existing indebtedness and obtain additional capital to
finance operations and its growth opportunities; impacts on
Hayward’s business from political, regulatory, economic, trade, and
other risks associated with operating foreign businesses, including
risks associated with geopolitical conflict; Hayward’s ability to
establish and maintain intellectual property protection for its
products, as well as its ability to operate its business without
infringing, misappropriating or otherwise violating the
intellectual property rights of others; the impact of material cost
and other inflation; the impact of changes in laws, regulations and
administrative policy, including those that limit U.S. tax
benefits, impact trade agreements and tariffs, or address the
impacts of climate change; the outcome of litigation and
governmental proceedings; impacts on Hayward’s business from the
COVID-19 pandemic; and other factors set forth in “Risk Factors” in
Hayward’s Annual Report on Form 10-K for the year ended December
31, 2021 and its Quarterly Report on Form 10-Q for the period ended
July 2, 2022.
Many of these factors are macroeconomic in nature and are,
therefore, beyond Hayward’s control. Should one or more of these
risks or uncertainties materialize, or should underlying
assumptions prove incorrect, Hayward’s actual results, performance
or achievements may vary materially from those described in this
earnings release as anticipated, believed, estimated, expected,
intended, planned or projected. The forward-looking statements
included in this earnings release are made only as of the date of
this earnings release. Unless required by United States federal
securities laws, Hayward neither intends nor assumes any obligation
to update these forward-looking statements for any reason after the
date of this earnings release to conform these statements to actual
results or to changes in Hayward’s expectations.
NON-GAAP FINANCIAL MEASURES
This earnings release includes certain financial measures not
presented in accordance with the generally accepted accounting
principles in the United States (“GAAP”) including adjusted net
income, adjusted basic EPS, adjusted diluted EPS, EBITDA, adjusted
EBITDA, adjusted EBITDA margin, adjusted gross profit margin,
adjusted segment income, adjusted segment income margin, net debt
and free cash flow. These financial measures are not measures of
financial performance in accordance with GAAP and may exclude items
that are significant in understanding and assessing the Company’s
financial results. Therefore, these measures should not be
considered in isolation or as an alternative to net income (loss),
segment income or other measures of profitability or performance
under GAAP. You should be aware that the Company’s presentation of
these measures may not be comparable to similarly titled measures
used by other companies, which may be defined and calculated
differently. See the appendix for a reconciliation of historical
non-GAAP measures to the most directly comparable GAAP
measures.
Reconciliation for the forward-looking full year fiscal 2022 net
sales and adjusted EBITDA outlook is not being provided, as Hayward
does not currently have sufficient data to accurately estimate the
variables and individual adjustments for such reconciliation.
Hayward Holdings, Inc. Unaudited Condensed
Consolidated Balance Sheets (Dollars in thousands, except per
share data)
October 1, 2022
December 31, 2021
Assets
Current assets
Cash and cash equivalents
$
72,907
$
265,796
Accounts receivable, net of allowances of
$2,872 and $2,003, respectively
108,543
208,112
Inventories, net
313,379
233,449
Prepaid expenses
16,051
12,459
Other current assets
51,368
30,705
Total current assets
562,248
750,521
Property, plant, and equipment, net of
accumulated depreciation of $76,600 and $67,366, respectively
148,428
146,754
Goodwill
927,055
924,264
Trademark
736,000
736,000
Customer relationships, net
236,321
242,854
Other intangibles, net
108,983
103,192
Other non-current assets
111,363
74,885
Total assets
$
2,830,398
$
2,978,470
Liabilities and Stockholders'
Equity
Current liabilities
Current portion of the long-term debt
$
11,957
$
12,155
Accounts payable
65,354
87,445
Accrued expenses and other liabilities
152,011
190,378
Income taxes payable
—
13,886
Total current liabilities
229,322
303,864
Long-term debt, net
1,067,002
973,124
Deferred tax liabilities, net
266,290
262,378
Other non-current liabilities
71,523
69,591
Total liabilities
1,634,137
1,608,957
Stockholders' equity
Preferred stock, $0.001 par value,
100,000,000 authorized, no shares issued or outstanding as of
October 1, 2022 and December 31, 2021
—
—
Common stock $0.001 par value, 750,000,000
authorized; 239,942,927 issued and 211,276,558 outstanding at
October 1, 2022; 238,432,216 issued and 233,056,799 outstanding at
December 31, 2021
240
238
Additional paid-in capital
1,067,148
1,058,724
Common stock in treasury; 28,666,369 and
5,375,417 at October 1, 2022 and December 31, 2021,
respectively
(357,408
)
(14,066
)
Retained earnings
484,254
320,875
Accumulated other comprehensive income
2,027
3,742
Total stockholders' equity
1,196,261
1,369,513
Total liabilities, redeemable stock, and
stockholders' equity
$
2,830,398
$
2,978,470
Hayward Holdings, Inc. Unaudited Condensed
Consolidated Statements of Operations (Dollars in thousands,
except per share data)
Three Months Ended
Nine Months Ended
October 1, 2022
October 2, 2021
October 1, 2022
October 2, 2021
Net sales
$
245,267
$
350,624
$
1,055,169
$
1,049,409
Cost of sales
137,483
188,170
567,626
559,033
Gross profit
107,784
162,454
487,543
490,376
Selling, general, and administrative
expense
50,493
68,807
188,297
207,129
Research, development, and engineering
expense
6,142
6,370
16,411
16,187
Acquisition and restructuring related
expense
2,288
783
9,499
2,452
Amortization of intangible assets
8,521
8,700
23,828
26,162
Operating income
40,340
77,794
249,508
238,446
Interest expense, net
13,938
11,050
35,105
42,297
Loss on debt extinguishment
—
—
—
9,418
Other (income) expense, net
(234
)
2,087
3,056
4,655
Total other expense
13,704
13,137
38,161
56,370
Income from operations before income
taxes
26,636
64,657
211,347
182,076
Provision for income taxes
3,549
14,336
47,968
42,072
Net income
$
23,087
$
50,321
$
163,379
$
140,004
Earnings per share
Basic
$
0.11
$
0.22
$
0.74
$
0.24
Diluted
$
0.10
$
0.21
$
0.70
$
0.23
Weighted average common shares
outstanding
Basic
212,905,429
231,339,007
222,009,824
172,820,430
Diluted
222,006,615
243,783,501
232,131,395
185,673,814
Hayward Holdings, Inc.
Unaudited Condensed Consolidated
Statements of Cash Flows
(In thousands)
Nine Months Ended
October 1, 2022
October 2, 2021
Cash flows from operating
activities
Net income
$
163,379
$
140,004
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation
13,931
14,096
Amortization of intangible assets
28,437
30,903
Amortization of deferred debt issuance
fees
2,312
2,771
Stock-based compensation
5,787
13,308
Deferred income taxes
(4,221
)
(3,014
)
Allowance for bad debts
869
584
Loss on debt extinguishment
—
9,418
Loss on disposal of property, plant and
equipment
5,550
3,743
Changes in operating assets and
liabilities
Accounts receivable
96,874
(9,115
)
Inventories
(70,469
)
(66,027
)
Other current and non-current assets
(16,902
)
(10,699
)
Accounts payable
(24,472
)
9,671
Accrued expenses and other liabilities
(57,411
)
63,520
Net cash provided by operating
activities
143,664
199,163
Cash flows from investing
activities
Purchases of property, plant, and
equipment
(23,533
)
(19,098
)
Purchases of intangibles
—
(818
)
Acquisitions, net of cash acquired
(61,337
)
—
Proceeds from sale of property, plant, and
equipment
4
25
Proceeds from settlements of investment
currency hedge
—
719
Net cash used in investing activities
(84,866
)
(19,172
)
Cash flows from financing
activities
Proceeds from issuance of common stock -
Initial Public Offering
—
377,400
Costs associated with Initial Public
Offering
—
(26,124
)
Purchase of common stock for treasury
(343,319
)
(10,530
)
Cash paid for taxes from share
withholdings
(871
)
(10,174
)
Proceeds from issuance of long-term
debt
—
51,659
Debt issuance costs
—
(12,422
)
Payments of long-term debt
(7,500
)
(367,144
)
Proceeds from revolving credit
facility
150,000
68,000
Payments on revolving credit facility
(50,000
)
(68,000
)
Proceeds from issuance of short term
debt
8,119
—
Payments of short term debt
(2,849
)
—
Other, net
473
522
Net cash (used in) provided by financing
activities
(245,947
)
3,187
Effect of exchange rate changes on cash
and cash equivalents and restricted cash
(5,740
)
(1,505
)
Change in cash and cash equivalents and
restricted cash
(192,889
)
181,673
Cash and cash equivalents and restricted
cash, beginning of period
265,796
115,294
Cash and cash equivalents and restricted
cash, end of period
$
72,907
$
296,967
Supplemental disclosures of cash flow
information
Cash paid-interest
32,725
53,686
Cash paid-income taxes
93,503
39,242
Equipment financed under finance
leases
1,603
—
Reconciliations
Consolidated
Reconciliations
Adjusted EBITDA and Adjusted EBITDA Margin Reconciliations
(Non-GAAP)
Following is a reconciliation from net income to adjusted
EBITDA:
(Dollars in thousands)
Three Months Ended
Nine Months Ended
October 1, 2022
October 2, 2021
October 1, 2022
October 2, 2021
Net income
$
23,087
$
50,321
$
163,379
$
140,004
Depreciation
4,333
4,847
13,931
14,096
Amortization
10,249
10,405
28,437
30,903
Interest expense
13,938
11,050
35,105
42,297
Income taxes
3,549
14,336
47,968
42,072
Loss on extinguishment of debt
—
—
—
9,418
EBITDA
55,156
90,959
288,820
278,790
Stock-based compensation (a)
(4
)
484
1,248
16,383
Sponsor management fees (b)
—
—
—
90
Currency exchange items (c)
52
1,149
2,776
4,379
Acquisition and restructuring related
expense, net (d)
2,288
783
9,499
2,452
Other (e)
2,935
4,954
11,970
13,941
Total Adjustments
5,271
7,370
25,493
37,245
Adjusted EBITDA
$
60,427
$
98,329
$
314,313
$
316,035
Adjusted EBITDA margin
24.6
%
28.0
%
29.8
%
30.1
%
(a)
Represents non-cash stock-based
compensation expense related to equity awards issued to management,
employees, and directors. Beginning in the three months ended July
2, 2022, the adjustment includes only expense related to awards
issued under the 2017 Equity Incentive Plan, which were awards
granted prior to the effective date of Hayward’s initial public
offering (the “IPO”), whereas in prior periods, the adjustment
included stock-based compensation expense for all equity awards.
Under the historical presentation, the stock-based compensation
adjustment for the three and nine months ended October 1, 2022
would have been an expense of $1.8 million and $4.7 million,
respectively.
(b)
Represents fees paid to certain of the
Company’s controlling stockholders for services rendered pursuant
to a 2017 management services agreement. This agreement and the
corresponding payment obligation ceased on March 16, 2021, the
effective date of the IPO.
(c)
Represents unrealized non-cash losses
(gains) on foreign denominated monetary assets and liabilities and
foreign currency contracts.
(d)
Adjustments in the three months ended
October 1, 2022 are primarily driven by separation costs associated
with a reduction-in-force as well as costs associated with the
relocation of the corporate headquarters. Adjustments in the nine
months ended October 1, 2022 are primarily driven by transaction
costs associated with the acquisition of the Specialty Lighting
Business, costs associated with the relocation of the corporate
headquarters, and separation costs associated with a
reduction-in-force. Adjustments in the three and nine months ended
October 2, 2021 are primarily driven by restructuring related costs
associated with the exit of a redundant manufacturing and
distribution facility and costs associated with the relocation of
the corporate headquarters.
(e)
Adjustments in the three months ended
October 1, 2022 primarily includes the non-cash increase in cost of
goods sold resulting from the fair value inventory step-up
adjustment recognized as part of the purchase accounting for the
Specialty Lighting Business. Adjustments in the three months ended
October 2, 2021 include a legal settlement and fees, costs related
to a fire at our manufacturing and administrative facilities in
Yuncos, Spain, and operating losses related to an early-stage
product business acquired in 2018 that was phased out.
Adjustments in the nine months ended
October 1, 2022 include expenses associated with the
discontinuation of a product joint development agreement, a
non-cash increase in cost of goods sold resulting from the fair
value inventory step-up adjustment recognized as part of the
purchase accounting for the Specialty Lighting Business, and costs
incurred related to the selling stockholder offering of shares in
May 2022, which are reported in SG&A in our unaudited condensed
consolidated statements of operations, partially offset by gains
resulting from an insurance policy reimbursement related to the
fire incident in Yuncos, Spain. Adjustments in the nine months
ended October 2, 2021 include a write-off related to the
aforementioned fire in Yuncos, Spain, a legal settlement and fees
related to patent infringement litigation, expenses incurred in
preparation for the IPO and transaction related bonuses, costs
related to our debt refinancing, and operating losses related to an
early stage product business acquired in 2018 that was phased
out.
Following is a reconciliation from net income to adjusted EBITDA
for the last twelve months:
(Dollars in thousands)
Last Twelve Months(f)
Fiscal Year
October 1, 2022
December 31, 2021
Net income
$
227,100
$
203,725
Depreciation
18,661
18,826
Amortization
36,524
38,990
Interest expense
43,662
50,854
Income taxes
62,312
56,416
Loss on extinguishment of debt
—
9,418
EBITDA
388,259
378,229
Stock-based compensation (a)
3,884
19,019
Sponsor management fees (b)
—
90
Currency exchange items (c)
2,882
4,485
Acquisition and restructuring related
expense, net (d)
22,077
15,030
Other (e)
2,914
4,884
Total Adjustments
31,757
43,508
Adjusted EBITDA
$
420,016
$
421,737
Adjusted EBITDA margin
29.8
%
30.1
%
(a)
Represents non-cash stock-based
compensation expense related to equity awards issued to management,
employees, and directors. Beginning in the three months ended July
2, 2022, the adjustment includes only expense related to awards
issued under the 2017 Equity Incentive Plan, which were awards
granted prior to the effective date of Hayward’s initial public
offering (the “IPO”), whereas in prior periods, the adjustment
included stock-based compensation expense for all equity awards.
Under the historical presentation, the stock-based compensation
adjustment for the three and nine months ended October 1, 2022
would have been an expense of $1.8 million and $4.7 million,
respectively.
(b)
Represents fees paid to certain of the
Company’s controlling stockholders for services rendered pursuant
to a 2017 management services agreement. This agreement and the
corresponding payment obligation ceased on March 16, 2021, the
effective date of the IPO.
(c)
Represents unrealized non-cash losses
(gains) on foreign denominated monetary assets and liabilities and
foreign currency contracts.
(d)
Adjustments in the last twelve months
ended October 1, 2022 include business restructuring related costs
associated with the exit of an early-stage product business
acquired in 2018, transaction costs associated with the acquisition
of the Specialty Lighting Business, costs associated with the
relocation of the corporate headquarters, and separation costs
associated with a reduction-in-force. Adjustments in the last
twelve months ended December 31, 2021 include business
restructuring related costs associated with the exit of an
early-stage product business acquired in 2018, severance and
relocation costs associated with the relocation of our corporate
headquarters, and business restructuring related costs associated
with the exit of redundant manufacturing and distribution
facilities.
(e)
Adjustments in the last twelve months
ended October 1, 2022 include expenses associated with the
discontinuation of a product joint development agreement, a
non-cash increase in cost of goods sold resulting from the fair
value inventory step-up adjustment recognized as part of the
purchase accounting for the Specialty Lighting Business, and costs
incurred related to the selling stockholder offering of shares in
May 2022, which are reported in SG&A in our unaudited condensed
consolidated statements of operations, partially offset by gains
resulting from an insurance policy reimbursement related to the
fire incident in Yuncos, Spain.
Adjustments in the twelve months ended
December 31, 2021 include net insurance settlement proceeds for
property damage loss as well as the consequential business
interruption loss amount caused by the fire incident in Yuncos
Spain, a legal settlement and related fees, operating losses
related to the early stage product business acquired in 2018, debt
refinancing expenses, and expenses incurred in preparation with the
IPO.
(f)
Items for the last twelve months ended
October 1, 2022 are calculated by adding the item for the nine
months ended October 1, 2022 plus Fiscal Year ended December 31,
2021 and subtracting the item for the nine months ended October 2,
2021.
Adjusted Net Income and Adjusted EPS Reconciliation
(Non-GAAP)
Following is a reconciliation of net income to adjusted net
income and earnings per share to adjusted earnings per share:
(Dollars in thousands)
Three Months Ended
Nine Months Ended
October 1, 2022
October 2, 2021
October 1, 2022
October 2, 2021
Net income
$
23,087
$
50,321
$
163,379
$
140,004
Tax adjustments (a)
(2,897
)
(2,410
)
(3,128
)
(5,255
)
Other adjustments and amortization:
Stock-based compensation (b)
(4
)
484
1,248
16,383
Sponsor management fees (c)
—
—
—
90
Currency exchange items (d)
52
1,149
2,776
4,379
Acquisition and restructuring related
expense, net (e)
2,288
783
9,499
2,452
Other (f)
2,935
4,954
11,970
13,941
EBITDA adjustments
5,271
7,370
25,493
37,245
Loss on extinguishment of debt
—
—
—
9,418
Amortization
10,249
10,405
28,437
30,903
Tax effect(a)
(3,756
)
(4,604
)
(13,066
)
(20,492
)
Pro forma adjustments (g):
Interest savings
—
—
—
6,443
Acquisitions
—
875
2,761
3,079
Tax effect(a)
—
(227
)
(667
)
(2,623
)
Adjusted net income
$
31,954
$
61,730
$
203,209
$
198,722
Weighted average number of common shares
outstanding, basic
212,905,429
231,339,007
222,009,824
172,820,430
Weighted average number of common shares
outstanding, diluted
222,006,615
243,783,501
232,131,395
185,673,814
Adjusted basic EPS(h)
$
0.15
$
0.27
0.92
1.15
Adjusted diluted EPS(h)
$
0.14
$
0.25
0.88
1.07
(a)
Tax adjustments for the three and nine
months ended October 1, 2022 reflect a normalized tax rate of 24.2%
and 24.5% compared to our effective tax rate of 13.3% and 22.7%,
respectively. Our effective tax rate for the three and nine months
ended October 1, 2022 includes the impact of the revaluation of
deferred tax liabilities as a result of state tax law changes and
the tax benefit resulting from the exercise of stock options. Tax
adjustments for the three and nine months ended October 2, 2021
reflect a normalized tax rate of 25.9% and 25.1% compared to our
effective tax rate of 22.2% and 23.1%, respectively. Our effective
tax rate for the three and nine months ended October 1, 2022
includes the impact of the release of a valuation allowance on the
deferred tax assets and the tax benefit resulting from the exercise
of stock options. All non-tax adjustments are effected at the
normalized rate.
(b)
Represents non-cash stock-based
compensation expense related to equity awards issued to management,
employees, and directors. Beginning in the three months ended July
2, 2022, the adjustment includes only expense related to awards
issued under the 2017 Equity Incentive Plan, which were awards
granted prior to the effective date of Hayward’s initial public
offering (the “IPO”), whereas in prior periods, the adjustment
included stock-based compensation expense for all equity awards.
Under the historical presentation, the stock-based compensation
adjustment for the three and nine months ended October 1, 2022
would have been an expense of $1.8 million and $4.7 million,
respectively.
(c)
Represents fees paid to certain of the
Company’s controlling stockholders for services rendered pursuant
to a 2017 management services agreement. This agreement and the
corresponding payment obligation ceased on March 16, 2021, the
effective date of the IPO.
(d)
Represents unrealized non-cash losses
(gains) on foreign denominated monetary assets and liabilities and
foreign currency contracts.
(e)
Adjustments in the three months ended
October 1, 2022 are primarily driven by separation costs associated
with a reduction-in-force as well as costs associated with the
relocation of the corporate headquarters. Adjustments in the nine
months ended October 1, 2022 are primarily driven by transaction
costs associated with the acquisition of the Specialty Lighting
Business, costs associated with the relocation of the corporate
headquarters, and separation costs associated with a
reduction-in-force. Adjustments in the three and nine months ended
October 2, 2021 are primarily driven by restructuring related costs
associated with the exit of a redundant manufacturing and
distribution facility and costs associated with the relocation of
the corporate headquarters.
(f)
Adjustments in the three months ended
October 1, 2022 primarily includes the non-cash increase in cost of
goods sold resulting from the fair value inventory step-up
adjustment recognized as part of the purchase accounting for the
Specialty Lighting Business. Adjustments in the three months ended
October 2, 2021 include a legal settlement and fees, costs related
to a fire at our manufacturing and administrative facilities in
Yuncos, Spain, and operating losses related to an early-stage
product business acquired in 2018 that was phased out.
Adjustments in the nine months ended
October 1, 2022 include expenses associated with the
discontinuation of a product joint development agreement, a
non-cash increase in cost of goods sold resulting from the fair
value inventory step-up adjustment recognized as part of the
purchase accounting for the Specialty Lighting Business, and costs
incurred related to the selling stockholder offering of shares in
May 2022, which are reported in SG&A in our unaudited condensed
consolidated statements of operations, partially offset by gains
resulting from an insurance policy reimbursement related to the
fire incident in Yuncos, Spain. Adjustments in the nine months
ended October 2, 2021 include a write-off related to the
aforementioned fire in Yuncos, Spain, a legal settlement and fees
related to patent infringement litigation, expenses incurred in
preparation for the IPO and transaction related bonuses, costs
related to our debt refinancing, and operating losses related to an
early stage product business acquired in 2018 that was phased
out.
(g)
The adjustments for the nine months ended
October 1, 2022 represent pro-forma adjustments related to the
acquisition of the Specialty Lighting Business and the adjustments
for the three and nine months ended October 2, 2021 represent
pro-forma adjustments related to interest savings from repayment in
full of our Second Lien Term Facility and partial repayment of our
First Lien Credit Agreement as if such payments had occurred at the
beginning of the period.
(h)
For the nine months ended October 2, 2021,
adjusted net income used in the computation of adjusted basic and
diluted EPS does not include certain IPO related items impacting
net income attributable to common stockholders used as the
numerator of the US GAAP basic and diluted EPS computations,
including a deemed dividend to Class A shareholders of $85.5
million and dividends to Class C shareholders of $41 thousand.
Including these items in the calculation of adjusted EPS would
result in adjusted basic and diluted EPS of $0.58 and $0.54 per
share, respectively.
Segment Reconciliations
Following is a reconciliation from segment income to adjusted
segment income for the North America (“NAM”) and Europe & Rest
of World (“E&RW”) segments:
(Dollars in thousands)
Three Months Ended
Three Months Ended
October 1, 2022
October 2, 2021
Total
NAM
E&RW
Total
NAM
E&RW
Net sales
$
245,267
$
203,674
$
41,593
$
350,624
$
298,236
$
52,388
Gross profit
$
107,784
$
91,850
$
15,934
$
162,454
$
141,655
$
20,799
Gross profit margin % (a)
43.9
%
45.1
%
38.3
%
46.3
%
47.5
%
39.7
%
Segment income
$
57,493
$
48,704
$
8,789
$
102,502
$
91,920
$
10,582
Segment income margin %
23.4
%
23.9
%
21.1
%
29.2
%
30.8
%
20.2
%
Depreciation
4,049
3,853
196
4,428
4,253
175
Amortization
1,728
1,728
—
1,705
1,705
—
Stock-based compensation
(276
)
(284
)
8
(92
)
(126
)
34
Other (b)
2,516
2,878
(362
)
957
568
389
Total adjustments
8,017
8,175
(158
)
6,998
6,400
598
Adjusted segment income
$
65,510
$
56,879
$
8,631
$
109,500
$
98,320
$
11,180
Adjusted segment income margin %
26.7
%
27.9
%
20.8
%
31.2
%
33.0
%
21.3
%
Expenses not allocated to segments
Corporate expense, net
$
6,344
$
15,225
Acquisition and restructuring related
expense
2,288
783
Amortization of intangible assets
8,521
8,700
Operating income
$
40,340
$
77,794
(a)
Excluding the non-cash increase in cost of
goods sold resulting from the fair value inventory step-up
adjustment recognized as part of the purchase accounting for the
Specialty Lighting Business, adjusted gross profit margin was
45.0%, an increase of 108 basis points, for the three months ended
October 1, 2022. For NAM, excluding the impact of the purchase
accounting adjustment, adjusted gross profit margin was 46.4%, an
increase of 128 basis points, for the three months ended October 1,
2022
(b)
The three months ended October 1, 2022 for
NAM includes a non-cash increase in cost of goods sold resulting
from the fair value inventory step-up adjustment recognized as part
of the purchase accounting for the Specialty Lighting Business. The
three months ended October 2, 2021 includes operating losses which
relate to an early stage product business acquired in 2018 that was
phased out in 2021.
The three months ended October 1, 2022 for
E&RW includes collections of previously reserved bad debt
expense related to certain customers impacted by the conflict in
Russia and Ukraine. The three months ended October 2, 2021
represents the impact of a fire at our manufacturing and
administrative facilities in Yuncos, Spain.
(Dollars in thousands)
Nine Months Ended
Nine Months Ended
October 1, 2022
October 2, 2021
Total
NAM
E&RW
Total
NAM
E&RW
Net sales
$
1,055,169
$
892,050
$
163,119
$
1,049,409
$
863,276
$
186,133
Gross profit
$
487,543
$
421,725
$
65,818
$
490,376
$
416,753
$
73,623
Gross profit margin %
46.2
%
47.3
%
40.3
%
46.7
%
48.3
%
39.6
%
Segment income
$
306,844
$
267,854
$
38,990
$
304,848
$
267,020
$
37,828
Segment income margin %
29.1
%
30.0
%
23.9
%
29.0
%
30.9
%
20.3
%
Depreciation
13,006
12,435
571
13,496
12,653
843
Amortization
4,609
4,609
—
4,740
4,740
—
Stock-based compensation
183
72
111
7,904
7,318
586
Other (a)
8,966
8,616
350
6,991
1,551
5,440
Total adjustments
26,764
25,732
1,032
33,131
26,262
6,869
Adjusted segment income (a)
$
333,608
$
293,586
$
40,022
$
337,979
$
293,282
$
44,697
Adjusted segment income margin % (a)
31.6
%
32.9
%
24.5
%
32.2
%
34.0
%
24.0
%
Expenses not allocated to segments
Corporate expense, net
$
24,009
$
37,788
Acquisition and restructuring related
expense
9,499
2,452
Amortization of intangible assets
23,828
26,162
Operating income
$
249,508
$
238,446
(a)
The nine months ended October 1, 2022 for
NAM includes expenses associated with the discontinuation of a
product joint development agreement and a non-cash increase in cost
of goods sold resulting from the fair value inventory step-up
adjustment recognized as part of the purchase accounting for the
Specialty Lighting Business. The nine months ended October 2, 2021
include operating losses which relate to an early stage product
business acquired in 2018 that was phased out in 2021.
The nine months ended October 1, 2022 for
E&RW includes bad debt reserves related to certain customers
impacted by the conflict in Russia and Ukraine partially offset by
subsequent collections. The nine months ended October 2, 2021
represents the impact of a fire at our manufacturing and
administrative facilities in Yuncos, Spain.
Source: Hayward Holdings, Inc.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221101005299/en/
Investor Relations: Kevin Maczka
investor.relations@hayward.com
Media Relations: Tanya McNabb tmcnabb@hayward.com
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