Hayward Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended July 3, 2021; comparisons are to periods ended June 27, 2020. Amounts are in U.S. dollars, millions, except per-share data. The company designs, manufactures, and markets pool equipment and automation systems, with North America and Europe & Rest of World reportable segments.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $364.4 | $220.0 | $698.8 | $390.2 |
| Gross profit / margin | $168.0 / 46.1% | $97.9 / 44.5% | $327.9 / 46.9% | $173.4 / 44.4% |
| Operating income | $81.0 | $34.9 | $160.7 | $47.4 |
| Net income | $52.8 | $18.7 | $89.7 | $8.3 |
| Adjusted EBITDA (non-GAAP) | $110.4 | $61.0 | $217.7 | $96.8 |
| Adjusted EBITDA margin (non-GAAP) | 30.3% | 27.7% | 31.1% | 24.8% |
- Q2 basic and diluted EPS were $0.23 and $0.22. Six-month EPS was $0.02 basic and diluted, reduced by a one-time, non-cash $85.5 deemed dividend related to conversion of Class A shares in the IPO; the filing says this had no income-statement or cash impact.
- Six-month operating cash flow was $123.4, versus $72.8; investing cash flow was $(9.7), including $9.9 of capital expenditures; financing cash flow was $24.9. Cash and cash equivalents at July 3 were $251.9, up from $114.9 at year-end.
- At July 3, gross debt including capital leases was $1,009.3; reported debt, net of issuance costs and current portion, was $978.5, versus $1,300.3 at December 31, 2020. The company had no ABL borrowings and reported $193 of borrowing availability. It was in compliance with credit-facility covenants.
- Current assets were $627.0 and current liabilities $263.1. Seasonal working-capital movements include higher receivables and inventory; cash flow is typically stronger in the second and third quarters.
Material changes versus prior period
- Q2 sales rose 65.7%; management attributed growth primarily to higher residential pool-equipment volumes, with volume contributing 56.7 percentage points, price 4.1 points, and currency and other factors 4.9 points. Six-month sales rose 79.1%; the comparison also includes five additional days in the 2021 period.
- Q2 gross margin increased 161 basis points and six-month gross margin increased 249 basis points. Management cited pricing, manufacturing leverage, savings and favorable mix, partly offset by higher raw-material, logistics and tariff costs.
- IPO proceeds funded debt repayments: the company received $356.6 net proceeds and repaid $364.6 of debt during the first half, including full repayment of the $205.0 second-lien facility. A May amendment increased the first-lien term facility to $1.0 billion, lowered its rate and extended maturity to May 2028; the ABL facility was amended to $425 million, with a $475 million peak-season commitment and maturity to June 2026.
Outlook, commentary and risks
- No numerical full-year earnings or revenue guidance is provided in the filing. Management expected cost volatility to continue in the second half of 2021 and said it would use pricing, purchasing, automation and productivity measures to protect profitability. U.S. price increases of 5%–7% were announced for the next seasonal year beginning September 26, 2021; earlier global increases had not yet fully flowed through shipments due to order backlogs.
- Management described strong demand for pool upgrades and new construction. It also cited supply and shipping constraints, higher materials and freight costs, import duties, labor shortages and pandemic-related transportation and operating disruptions as ongoing risks.
- A June fire damaged part of the Yuncos, Spain facility. The company recorded $5.0 of expense for destroyed assets and inventory, filed an insurance claim still under review, and reported minimal manufacturing disruption.
- Patent litigation brought by Pentair and Danfoss concerning pool pumps, drives and controllers remains pending; the district-court actions are stayed. The company has recorded reserves for contingencies and management said a material adverse effect from litigation was remote, while noting potential damages or injunction risks if its defenses fail.
- Disclosure controls were deemed ineffective at July 3 because of a continuing material weakness in internal control over financial reporting. Management did not provide a specific remediation timetable.
- The company expects to complete its corporate-function relocation from New Jersey to Charlotte by spring 2022; estimated severance and retention costs are approximately $5.3, recognized as earned.
Most important facts for investors to verify
- Whether strong pool demand and order backlog persist, and whether announced price increases offset continuing input, freight, tariff and labor-cost pressures.
- Whether working-capital needs and seasonal cash generation support debt service and planned operations; confirm availability under the borrowing-base-limited ABL facility.
- Progress toward remediating the material weakness and the effect of the disclosed control deficiencies on future reporting reliability.
- Insurance recovery and any lasting operational or financial impact from the Yuncos fire, and developments in the Pentair/Danfoss patent litigation.
- Interpret six-month EPS in light of the IPO-related deemed dividend and distinguish GAAP results from management’s non-GAAP adjusted EBITDA measures.