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.

Investor Relations: Kevin Maczka investor.relations@hayward.com

Media Relations: Tanya McNabb tmcnabb@hayward.com

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