Hayward Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended April 2, 2022, compared with the three months ended April 3, 2021. Hayward designs, manufactures and markets pool equipment and automation systems. The business is seasonal, and first-quarter cash use is typically affected by customer credit terms and inventory needs.
Financial results
| Metric | Q1 2022 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $410.5 million | $334.4 million | +22.8% |
| Gross profit / margin | $190.4 million / 46.4% | $159.9 million / 47.8% | Margin down 144 bps |
| Operating income | $106.4 million | $79.7 million | +33.5% |
| Net income | $74.0 million | $36.9 million | +100.8% |
| Adjusted EBITDA / margin | $126.2 million / 30.8% | $107.3 million / 32.1% | EBITDA +17.6%; margin down 134 bps |
| Operating cash flow | $(56.9) million | $(131.6) million | Cash use reduced by $74.7 million |
| Capital expenditures | $7.3 million | $4.8 million | Increased |
| Cash and cash equivalents, period-end | $118.2 million | $265.8 million at Dec. 31, 2021 | Down $147.6 million |
| Total debt, including finance leases | $999.8 million | $1,002.8 million at Dec. 31, 2021 | Down $3.0 million |
Sales growth reflected price increases of 17.0% and volume growth of 6.7%, partly offset by currency and other effects. Residential pool products generated $389.6 million of sales. North America sales rose 27.6% to $346.3 million; Europe & Rest of World sales rose 2.0% to $64.2 million. Net income per diluted share was $0.30, versus $(0.85) in the prior-year quarter; the prior period included a substantial non-cash deemed dividend related to the IPO, limiting EPS comparability.
Liquidity, debt and capital allocation
- At April 2, 2022, the company had $118.2 million in cash, no ABL borrowings and $325.4 million of ABL borrowing availability. The ABL commitment is up to $425 million, with a peak-season commitment of $475 million.
- The First Lien Term Facility had $992.5 million outstanding, matures in 2028, and had an effective borrowing rate of 3.59% including the interest-rate hedge. The company reported compliance with all credit-facility covenants.
- First-quarter operating cash use reflected seasonal working-capital needs, including receivables and inventory. Management said operating cash flow and ABL availability should fund working capital, capital expenditures and debt service for the next 12 months.
- The company repurchased 4.08 million shares for approximately $81 million during the quarter. After quarter-end, it repurchased about 3.0 million additional shares for $50 million. The $450 million authorization had approximately $319.2 million remaining after the post-quarter repurchase.
Changes, outlook and risks
- Gross margin declined as inflation in raw materials and freight outweighed some benefit from pricing. Adjusted EBITDA margin also declined despite higher sales and adjusted EBITDA.
- Interest expense, including debt-extinguishment costs, was substantially lower than in the prior-year quarter, which included a $5.8 million extinguishment loss and significant debt repayment.
- Management cited continued volatility in metals, resins, electronic components, freight and import duties. Pricing and productivity initiatives are intended to mitigate cost pressures; the filing provides no specific full-year financial guidance.
- Europe & Rest of World results faced unfavorable currency effects, macroeconomic uncertainty and the cessation of sales to certain customers related to the Russia-Ukraine conflict. Related bad-debt write-offs were included in adjustments to non-GAAP measures.
- The company disclosed that its disclosure controls and procedures were not effective at period-end because of a continuing material weakness in internal control over financial reporting. Remediation was underway, but the company did not know the time frame for full remediation.
- The corporate-office relocation from New Jersey to North Carolina was expected to be largely complete by early summer 2022; first-quarter related expense was approximately $2.2 million. The 2021 fire at its Yuncos, Spain facility had caused minimal manufacturing disruption.
Investor verification points
- Track whether pricing and productivity can offset ongoing material, freight and supply-chain inflation without further margin erosion.
- Monitor seasonal working-capital conversion, cash levels and availability under the ABL facility as the year progresses.
- Review debt service, interest-rate exposure and the effect of the $500 million interest-rate swap notional amount.
- Assess the pace and economics of further share repurchases alongside liquidity needs and debt reduction.
- Follow remediation of the material weakness and any updates on its scope or timing.
- Evaluate ongoing exposure to foreign exchange movements and the Russia-Ukraine conflict, including customer credit and sales impacts.