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Hayward Holdings Announces Second Quarter Fiscal Year 2022 Financial Results

07/28/2022

Strong Quarter Driven by North America Sales

SECOND QUARTER FISCAL 2022 HIGHLIGHTS

  • Net Sales increased 10% year-over-year to $399.4 million, North America increased by 17%
  • Net Income increased 25% year-over-year to $66.3 million
  • Adjusted EBITDA increased 16% year-over-year to $127.6 million

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 second quarter ended July 2, 2022 of its fiscal year 2022.

CEO COMMENTS

“I am pleased to report another quarter of growth and improved operational results,” said Kevin Holleran, Hayward’s President and Chief Executive Officer. “Our strong execution and price realization drove improved gross margins, and our recent product introductions continue to drive good share gains. Overall in our core U.S. market, we see healthy demand driven by product upgrade trends in the aftermarket and resilient new construction activity. Additionally, we closed on the acquisition of a specialty lighting business which strengthens our portfolio of lighting solutions. However, during the quarter, we started to see the impact of the macro-economic environment, particularly in Europe, while seasonal markets in North America were impacted by the cool and wet spring weather. Given these trends and improving supply chain predictability, we expect our channel partners will reduce their Hayward inventory on hand by approximately 4 to 6 weeks in the second half of 2022. We are reducing our 2022 guidance to reflect this inventory reduction, and are taking the appropriate actions to manage our production and costs to maintain our industry leading margins. We and our Board are very confident in Hayward’s long term growth and free cash flow generation and as such are replenishing our share repurchase program to $450 million over 3 years.”

SECOND QUARTER FISCAL 2022 CONSOLIDATED RESULTS

Net sales increased by 10% to $399.4 million for the second quarter of fiscal 2022. Net sales continue to be driven by trends in aftermarket upgrades and consumer investments in outdoor living spaces. Net sales growth during the quarter was the result of favorable pricing and acquisitions, partially offset by lower volumes and unfavorable foreign exchange impact. The decline in volume was primarily the result of 20% lower volume sales in Europe due to geopolitical factors, poor weather in seasonal markets in North America, and initial channel inventory reductions.

Gross profit increased by 13% to $189.4 million for the second quarter of fiscal 2022. Gross profit margin increased 130 basis points to 47.4%. The increase in gross margin was due to the full impact of our pricing actions implemented over the last 18 months to offset inflation.

Selling, general, and administrative (“SG&A”) expenses decreased by 4% to $68.9 million for the second quarter of fiscal 2022. The decrease in SG&A was a result of lower performance related incentive-based compensation and warranty expenses. As a percentage of net sales, SG&A decreased 244 basis points to 17%, compared to the prior year period. Research, development, and engineering expenses were $5.0 million for the second quarter of fiscal 2022, or 1% of net sales, as compared to $5.0 million for the prior year period, or 1% of net sales.

Operating income increased by 27% to $102.7 million for the second quarter of fiscal 2022. The increase in operating income was driven by higher sales.

Interest expense, net, decreased by approximately 11% to $11.6 million for the second quarter of fiscal 2022 primarily as a result of lower interest rates as a result of the amendment to our credit facilities in the second quarter of fiscal 2021.

During the quarter we incurred an income tax expense of $21.1 million with an effective tax rate of 24.1% compared to $12.6 million at an effective tax rate of 19.4% for the prior year period. The increase is primarily due to the increase in income from operations in the current year.

Net income increased by 25% to $66.3 million for the second quarter of fiscal 2022.

Adjusted EBITDA increased by 16% to $127.6 million for the second quarter of fiscal 2022. Adjusted EBITDA margin expanded 166 basis points to 32.0%.

SECOND QUARTER FISCAL 2022 SEGMENT RESULTS

North America
Net sales increased by 17% to $342.1 million for the second quarter of fiscal 2022. The increase was driven by improved pricing and acquisitions, which offset the lower volume in weather effected seasonal markets, namely the Midwest, Northeast and Canada, as well as a moderating of channel inventory.

Segment income increased by 24% to $110.5 million for the second quarter of fiscal 2022. Adjusted segment income increased by 24% to $122.5 million.

Europe & Rest of World
Net sales decreased by 19% to $57.4 million for the second quarter of fiscal 2022. The decrease was primarily driven by a decline in volume and the unfavorable impact from foreign currency, as well as channel inventory reductions.

Segment income increased by 7% to $13.2 million for the second quarter of fiscal 2022. Adjusted segment income decreased by 27% to $13.0 million.

BALANCE SHEET AND CASH FLOW

As of July 2, 2022, Hayward had cash and cash equivalents of $109.0 million and approximately $130.1 million available for future borrowings under its ABL Facility. Cash flow from operations for the six months ended July 2, 2022, of approximately $64 million was a decrease of approximately $60 million from the comparative period as a result of the increase in working capital.

OUTLOOK

Hayward is reducing its full fiscal year 2022 guidance to reflect its outlook for the expected channel inventory reduction in the second half of the year as well as continued impact of geopolitical events in Europe and unfavorable exchange rates. Hayward continues to see robust consumer demand for pool equipment products in the U.S., specifically, for our suite of SmartPadTM products into both new construction and the aftermarket. In addition, recent acquisitions and new products support Hayward's leading market position. Hayward is confident in its ability to successfully execute in an evolving environment in the near-term and remains positive about its long-term growth outlook.

For the full fiscal year 2022, Hayward's outlook for net sales is a decline of 2% to 6% year-over-year and for Adjusted EBITDA, is $385 million to $400 million. Despite the reduction in current year outlook, we are very proud that the midpoint of our revised guidance for fiscal year 2022 implies a three year aggregate growth of $613 million, or 84%, in net sales and $220 million, or 128%, in Adjusted EBITDA.

Please see the Forward-Looking Statements section of this release for a discussion of certain risks relevant to Hayward’s outlook.

SHARE REPURCHASE PROGRAM

In the first half of 2022, Hayward repurchased approximately $293.1 million in common stock under its previously approved share repurchase program, leaving approximately $156.9 million remaining under the initial authorization. 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, July 28, 2022 at 9:00 a.m. (ET).

To access the live conference call, please register for the call in advance by visiting https://ige.netroadshow.com/registration/q4inc/11296/hayward-holdings-inc-2q22-earnings-call/. 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 061360. The replay will be available until 11:59 p.m. Eastern Time on August 11, 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; 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 and business 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 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.

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”), EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted segment income, adjusted segment income margin and net debt. 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)

 

 

 

July 2, 2022

 

December 31, 2021

Assets

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

108,965

 

$

265,796

Accounts receivable, net of allowances of $3,235 and $2,003, respectively

 

 

248,639

 

 

208,112

Inventories, net

 

 

312,461

 

 

233,449

Prepaid expenses

 

 

17,709

 

 

12,459

Other current assets

 

 

21,126

 

 

30,705

Total current assets

 

 

708,900

 

 

750,521

Property, plant, and equipment, net of accumulated depreciation of $74,683 and $67,366, respectively

 

 

147,651

 

 

146,754

Goodwill

 

 

926,730

 

 

924,264

Trademark

 

 

736,000

 

 

736,000

Customer relationships, net

 

 

228,491

 

 

242,854

Other intangibles, net

 

 

138,708

 

 

103,192

Other non-current assets

 

 

94,875

 

 

74,885

Total assets

 

$

2,981,355

 

$

2,978,470

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

Current liabilities

 

 

 

 

Current portion of the long-term debt

 

$

11,957

 

$

12,155

Accounts payable

 

 

97,500

 

 

87,445

Accrued expenses and other liabilities

 

 

200,686

 

 

190,378

Income taxes payable

 

 

 

 

13,886

Total current liabilities

 

 

310,143

 

 

303,864

Long-term debt, net

 

 

1,119,312

 

 

973,124

Deferred tax liabilities, net

 

 

256,453

 

 

262,378

Other non-current liabilities

 

 

73,826

 

 

69,591

Total liabilities

 

 

1,759,734

 

 

1,608,957

 

 

 

 

 

Stockholders' equity

 

 

 

 

Preferred stock, $0.001 par value, 100,000,000 authorized, no shares issued or outstanding as of July 2, 2022 and December 31, 2021

 

 

 

 

Common stock $0.001 par value, 750,000,000 authorized; 239,583,621 issued and 215,687,086 outstanding at July 2, 2022; 238,432,216 issued and 233,056,799 outstanding at December 31, 2021

 

 

240

 

 

238

Additional paid-in capital

 

 

1,064,113

 

 

1,058,724

Common stock in treasury; 23,896,535 and 5,375,417 at July 2, 2022 and December 31, 2021, respectively

 

 

(307,225)

 

 

(14,066)

Retained earnings

 

 

461,167

 

 

320,875

Accumulated other comprehensive income

 

 

3,326

 

 

3,742

Total stockholders' equity

 

 

1,221,621

 

 

1,369,513

Total liabilities, redeemable stock, and stockholders' equity

 

$

2,981,355

 

$

2,978,470

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

July 2, 2022

 

July 3, 2021

 

July 2, 2022

 

July 3, 2021

Net sales

 

$

399,442

 

$

364,422

 

$

809,902

 

$

698,785

Cost of sales

 

 

210,077

 

 

196,404

 

 

430,143

 

 

370,863

Gross profit

 

 

189,365

 

 

168,018

 

 

379,759

 

 

327,922

Selling, general, and administrative expense

 

 

68,947

 

 

71,802

 

 

137,804

 

 

138,322

Research, development, and engineering expense

 

 

5,033

 

 

4,997

 

 

10,269

 

 

9,817

Acquisition and restructuring related expense

 

 

4,940

 

 

1,636

 

 

7,211

 

 

1,669

Amortization of intangible assets

 

 

7,697

 

 

8,632

 

 

15,307

 

 

17,462

Operating income

 

 

102,748

 

 

80,951

 

 

209,168

 

 

160,652

Interest expense, net

 

 

11,605

 

 

12,975

 

 

21,167

 

 

31,247

Loss on debt extinguishment

 

 

 

 

3,608

 

 

 

 

9,418

Other (income) expense, net

 

 

3,804

 

 

(1,000)

 

 

3,290

 

 

2,568

Total other expense

 

 

15,409

 

 

15,583

 

 

24,457

 

 

43,233

Income from operations before income taxes

 

 

87,339

 

 

65,368

 

 

184,711

 

 

117,419

Provision for income taxes

 

 

21,079

 

 

12,552

 

 

44,419

 

 

27,736

Net income

 

$

66,260

 

$

52,816

 

$

140,292

 

$

89,683

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

$

0.23

 

$

0.62

 

$

0.02

Diluted

 

$

0.29

 

$

0.22

 

$

0.59

 

$

0.02

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

218,401,182

 

 

231,103,424

 

 

225,358,529

 

 

143,721,029

Diluted

228,642,982

 

244,203,652

235,943,099

 

153,571,905 

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

 

Six Months Ended

 

July 2, 2022

 

July 3, 2021

Cash flows from operating activities

 

 

 

 

Net income

 

$

140,292

 

$

89,683

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

Depreciation

 

 

9,598

 

 

9,251

Amortization of intangible assets

 

 

18,188

 

 

20,497

Amortization of deferred debt issuance fees

 

 

1,478

 

 

2,253

Stock-based compensation

 

 

3,632

 

 

12,478

Deferred income taxes

 

 

(9,423)

 

 

(3,403)

Allowance for bad debts

 

 

1,232

 

 

131

Loss on debt extinguishment

 

 

 

 

9,418

Loss on disposal of property, plant and equipment

 

 

5,359

 

 

3,742

Changes in operating assets and liabilities

 

 

 

 

Accounts receivable

 

 

(40,727)

 

 

(36,989)

Inventories

 

 

(67,946)

 

 

(26,586)

Other current and non-current assets

 

 

5,918

 

 

(1,534)

Accounts payable

 

 

5,982

 

 

29,817

Accrued expenses and other liabilities

 

 

(9,907)

 

 

14,631

Net cash provided by operating activities

 

 

63,676

 

 

123,389

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchases of property, plant, and equipment

 

 

(15,855)

 

 

(9,854)

Purchases of intangibles

 

 

 

 

(528)

Acquisitions, net of cash acquired

 

 

(61,337)

 

 

Proceeds from sale of property, plant, and equipment

 

 

4

 

 

25

Proceeds from settlements of investment currency hedge

 

 

 

 

699

Net cash used in investing activities

 

 

(77,188)

 

 

(9,658)

 

 

 

 

 

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

 

 

(293,159)

 

 

(1,044)

Proceeds from issuance of long-term debt

 

 

 

 

51,659

Debt issuance costs

 

 

 

 

(12,289)

Payments of long-term debt

 

 

(5,000)

 

 

(364,644)

Proceeds from revolving credit facility

 

 

150,000

 

 

68,000

Payments on revolving credit facility

 

 

 

 

(68,000)

Issuance of Class A stock

 

 

 

 

Proceeds from issuance of short term debt

 

 

6,979

 

 

Payments of short term debt

 

 

(642)

 

 

Other, net

 

 

721

 

 

(108)

Net cash (used in) provided by financing activities

 

 

(141,101)

 

 

24,850

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

 

(2,218)

 

 

(52)

Change in cash and cash equivalents and restricted cash

 

 

(156,831)

 

 

138,529

Cash and cash equivalents and restricted cash, beginning of period

 

 

265,796

 

 

115,294

Cash and cash equivalents and restricted cash, end of period

 

$

108,965

 

$

253,823

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

Cash paid-interest

 

$

19,358

 

$

29,152

Cash paid-income taxes

 

 

67,286

 

 

25,675

Equipment financed under finance leases

 

 

1,531

 

 

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

 

Six Months Ended

 

 

July 2, 2022

 

July 3, 2021

 

July 2, 2022

 

July 3, 2021

Net income

 

$

66,260

 

$

52,816

 

$

140,292

 

$

89,683

Depreciation

 

 

4,758

 

 

4,503

 

 

9,598

 

 

9,251

Amortization

 

 

9,091

 

 

10,105

 

 

18,188

 

 

20,497

Interest expense

 

 

11,605

 

 

12,975

 

 

21,167

 

 

31,247

Income taxes

 

 

21,079

 

 

12,552

 

 

44,419

 

 

27,736

Loss on extinguishment of debt

 

 

 

 

3,608

 

 

 

 

9,418

EBITDA

 

 

112,793

 

 

96,559

 

 

233,664

 

 

187,832

Stock-based compensation (a)

 

 

315

 

 

5,265

 

 

1,252

 

 

15,899

Sponsor management fees (b)

 

 

 

 

 

 

 

 

90

Currency exchange items (c)

 

 

3,453

 

 

(593)

 

 

2,724

 

 

3,230

Acquisition and restructuring related expense, net (d)

 

 

4,940

 

 

1,636

 

 

7,211

 

 

1,669

Other (e)

 

 

6,136

 

 

7,527

 

 

9,035

 

 

8,986

Total Adjustments

 

 

14,844

 

 

13,835

 

 

20,222

 

 

29,874

Adjusted EBITDA

 

$

127,637

 

$

110,394

 

$

253,886

 

$

217,706

Adjusted EBITDA margin

 

 

32.0 %

 

 

30.3 %

 

 

31.3 %

 

 

31.2 %

(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 six months ended July 2, 2022 would have been an expense of $1.9 million and $2.9 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 and six months ended July 2, 2022 are primarily driven by transaction costs associated with the acquisition of the specialty lighting business of Halco Lighting Technologies, LLC and costs associated with the relocation of the corporate headquarters. Adjustments in the three and six months ended July 3, 2021 are primarily driven by restructuring related costs associated with the exit of a redundant manufacturing and distribution facility.

 

(e) Adjustments in the three months ended July 2, 2022 include expenses associated with the discontinuation of a product joint development agreement, costs incurred for follow-on equity offerings 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 three months ended July 3, 2021 include a write-off related to the aforementioned fire in Yuncos, Spain, costs related to our debt refinancing, and operating losses related to an early stage product business acquired in 2018 that was phased out.

 

Adjustments in the six months ended July 2, 2022 include expenses associated with the discontinuation of a product joint development agreement, follow-on equity offerings 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. Also included in the six months ended are bad debt reserves for certain customers in Russia and Ukraine partially offset by collections of these previously reserved receivables. Adjustments in the six months ended July 3, 2021 include a write-off related to the aforementioned fire in Yuncos, Spain, 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

 

 

July 2, 2022

 

December 31, 2021

Net income

 

$

254,334

 

$

203,725

Depreciation

 

 

19,175

 

 

18,826

Amortization

 

 

36,680

 

 

38,990

Interest expense

 

 

40,774

 

 

50,854

Income taxes

 

 

73,099

 

 

56,416

Loss on extinguishment of debt

 

 

 

 

9,418

EBITDA

 

 

424,062

 

 

378,229

Stock-based compensation (a)

 

 

4,372

 

 

19,019

Sponsor management fees (b)

 

 

 

 

90

Currency exchange items (c)

 

 

3,979

 

 

4,485

Acquisition and restructuring related expense, net (d)

 

 

20,572

 

 

15,030

Other (e)

 

 

4,933

 

 

4,884

Total Adjustments

 

 

33,856

 

 

43,508

Adjusted EBITDA

 

$

457,918

 

$

421,737

Adjusted EBITDA margin

 

 

30.3 %

 

 

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 six months ended July 2, 2022 would have been an expense of $1.9 million and $2.9 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 July 2, 2022 and December 31, 2021 each 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 July 2, 2022 include expenses associated with the discontinuation of a product joint development agreement, follow-on equity offerings, legal reserve and fee expenses, operating losses related to the early stage product business acquired in 2018 mentioned above, and bad debt reserves for certain customers in Russia and Ukraine, 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, legal reserve and fee expenses, operating losses related to the early stage product business acquired in 2018 mentioned above, debt refinancing expenses, and expenses incurred in preparation with the IPO.

 

(f) Last twelve months adjusted EBITDA is calculated as six months ended July 2, 2022 Adjusted EBITDA plus Fiscal Year ended December 31, 2021 Adjusted EBITDA less six months ended July 3, 2021 Adjusted EBITDA.

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

 

 

July 2, 2022

 

July 3, 2021

 

 

Total

 

NAM

 

E&RW

 

Total

 

NAM

 

E&RW

Net sales

 

$

399,442

 

$

342,080

 

$

57,362

 

$

364,422

 

$

293,575

 

$

70,847

Gross profit

 

$

189,365

 

$

166,818

 

$

22,549

 

$

168,018

 

$

140,442

 

$

27,576

Gross profit margin %

 

 

47.4 %

 

 

48.8 %

 

 

39.3 %

 

 

46.1 %

 

 

47.8 %

 

 

38.9 %

Segment income

 

$

123,771

 

$

110,539

 

$

13,232

 

$

101,652

 

$

89,285

 

$

12,367

Segment income margin %

 

 

31.0 %

 

 

32.3 %

 

 

23.1 %

 

 

27.9 %

 

 

30.4 %

 

 

17.5 %

Depreciation

 

 

4,454

 

 

4,248

 

 

206

 

 

4,410

 

 

4,109

 

 

301

Amortization

 

 

1,394

 

 

1,394

 

 

 

 

1,473

 

 

1,473

 

 

Stock-based compensation

 

 

829

 

 

765

 

 

64

 

 

3,753

 

 

3,748

 

 

5

Other (a)

 

 

5,040

 

 

5,538

 

 

(498)

 

 

5,597

 

 

551

 

 

5,046

Total adjustments

 

 

11,717

 

 

11,945

 

 

(228)

 

 

15,233

 

 

9,881

 

 

5,352

Adjusted segment income

 

$

135,488

 

$

122,484

 

$

13,004

 

$

116,885

 

$

99,166

 

$

17,719

Adjusted segment income margin %

 

 

33.9 %

 

 

35.8 %

 

 

22.7 %

 

 

32.1 %

 

 

33.8 %

 

 

25.0 %

Expenses not allocated to segments

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expense, net

 

$

8,386

 

 

 

 

 

$

10,433

 

 

 

 

Acquisition and restructuring related expense

 

 

4,940

 

 

 

 

 

 

1,636

 

 

 

 

Amortization of intangible assets

 

 

7,697

 

 

 

 

 

 

8,632

 

 

 

 

Operating income

 

$

102,748

 

 

 

 

 

$

80,951

 

 

 

 

(a) The three months ended July 2, 2022 for NAM includes expenses associated with the discontinuation of a product joint development agreement that Hayward believes are not representative of its ongoing business operations. The three months ended July 3, 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 July 2, 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 July 3, 2021 represents the impact of a fire at our manufacturing and administrative facilities in Yuncos, Spain.

(Dollars in thousands)

Six Months Ended

 

Six Months Ended

 

July 2, 2022

 

July 3, 2021

 

Total

 

NAM

 

E&RW

 

Total

 

NAM

 

E&RW

Net sales

$

809,902

 

$

688,376

 

$

121,526

 

$

698,785

 

$

565,040

 

$

133,745

Gross profit

$

379,759

 

$

329,875

 

$

49,886

 

$

327,922

 

$

275,098

 

$

52,824

Gross profit margin %

 

46.9 %

 

 

47.9 %

 

 

41.0 %

 

 

46.9 %

 

 

48.7 %

 

 

39.5 %

Segment income

$

249,351

 

$

219,150

 

$

30,201

 

$

202,346

 

$

175,100

 

$

27,246

Segment income margin %

 

30.79 %

 

 

31.8 %

 

 

24.9 %

 

 

29.0 %

 

 

31.0 %

 

 

20.4 %

Depreciation

 

8,957

 

 

8,582

 

 

375

 

 

9,068

 

 

8,400

 

 

668

Amortization

 

2,881

 

 

2,881

 

 

 

 

3,035

 

 

3,035

 

 

Stock-based compensation

 

459

 

 

356

 

 

103

 

 

7,996

 

 

7,444

 

 

552

Other (a)

 

6,450

 

 

5,738

 

 

712

 

 

6,034

 

 

983

 

 

5,051

Total adjustments

 

18,747

 

 

17,557

 

 

1,190

 

 

26,133

 

 

19,862

 

 

6,271

Adjusted segment income (a)

$

268,098

 

$

236,707

 

$

31,391

 

$

228,479

 

$

194,962

 

$

33,517

Adjusted segment income margin % (a)

 

33.1 %

 

 

34.4 %

 

 

25.8 %

 

 

32.7 %

 

 

34.5 %

 

 

25.1 %

Expenses not allocated to segments

 

 

 

 

 

 

 

 

 

 

 

Corporate expense, net

$

17,665

 

 

 

 

 

$

22,563

 

 

 

 

Acquisition and restructuring related expense

 

7,211

 

 

 

 

 

 

1,669

 

 

 

 

Amortization of intangible assets

 

15,307

 

 

 

 

 

 

17,462

 

 

 

 

Operating income

$

209,168

 

 

 

 

 

$

160,652

 

 

 

 

(a) The six months ended July 2, 2022 for NAM includes expenses associated with the discontinuation of a product joint development agreement and certain general and administrative expenses that Hayward believes are not representative of its ongoing business operations. The six months ended July 3, 2021 include operating losses which relate to an early stage product business acquired in 2018 that was phased out in 2021.

 

The six months ended July 2, 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.

 

Investor Relations Contact: Hayward Investor Relations: 908-288-9706
investor.relations@hayward.com

Media Relations Contact:
Tanya McNabb
tmcnabb@hayward.com

Source: Hayward Holdings, Inc

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