Hayward Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended October 1, 2022; comparisons are with the quarter ended October 2, 2021. Nine-month figures compare the corresponding 2021 periods. Amounts are in U.S. dollars; financial statement amounts below are rounded to millions unless stated otherwise.
Business context and results
Hayward designs, manufactures, and markets pool equipment and automation systems. It reports North America and Europe & Rest of World segments. Management said the business is seasonal, with cash flows generally higher in the second and third quarters. It estimated that aftermarket sales represented approximately 80% of net sales; this is a management estimate, not a GAAP measure.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $245.3 | $350.6 | $1,055.2 | $1,049.4 |
| Gross profit / margin | $107.8 / 43.9% | $162.5 / 46.3% | $487.5 / 46.2% | $490.4 / 46.7% |
| Operating income | $40.3 | $77.8 | $249.5 | $238.4 |
| Net income | $23.1 | $50.3 | $163.4 | $140.0 |
| Diluted EPS | $0.10 | $0.21 | $0.70 | $0.23 |
| Adjusted EBITDA and margin (non-GAAP) | $60.4 / 24.6% | $98.3 / 28.0% | $314.3 / 29.8% | $316.0 / 30.1% |
For the nine months, operating cash flow was $143.7 million, down from $199.2 million. Capital expenditures were $23.5 million; net cash used in investing was $84.9 million, including $61.3 million of acquisitions, net of cash acquired. Net cash used in financing was $245.9 million, primarily reflecting share repurchases. Cash and cash equivalents were $72.9 million at October 1, 2022, versus $265.8 million at December 31, 2021.
At October 1, 2022, debt included $987.5 million under the First Lien Term Facility, $100.0 million outstanding on the ABL revolving facility, and $7.1 million of finance lease obligations. The balance sheet reported $1,067.0 million of long-term debt, net of current portion and issuance costs. ABL borrowing availability was $55.2 million; the company reported compliance with its credit-facility covenants. Management said operating cash flow and ABL availability should be sufficient for working capital, capital expenditures, and debt service over the next 12 months.
Changes versus comparable periods
- Q3 sales fell 30.0%, with volume down 43.6%; price increases and acquisitions partly offset the decline. Management attributed lower volume mainly to distributor destocking as supply constraints eased and lead times normalized, a return toward typical third-quarter seasonality, and macroeconomic uncertainty.
- Q3 gross margin fell 239 basis points, primarily from lower volume and reduced operating leverage. A non-cash inventory fair-value step-up tied to the Halco specialty lighting acquisition reduced Q3 margin by approximately 108 basis points, according to management.
- Q3 net income and adjusted EBITDA declined substantially year over year. For the nine months, sales were nearly flat and adjusted EBITDA declined slightly, while net income increased; the prior-year period included a $9.4 million debt-extinguishment loss and IPO-related EPS effects.
- Q3 North America sales declined 31.7%; Europe & Rest of World sales declined 20.6%. For the nine months, North America sales rose 3.3%, while Europe & Rest of World sales declined 12.4%, including adverse foreign-exchange effects.
- Share repurchases totaled approximately $343.1 million for the nine months. The company reported 211.3 million shares outstanding at October 31, 2022 and $400.0 million remaining under its renewed $450 million authorization.
Outlook, commentary, and risks
- The filing provides no specific company revenue or earnings guidance. Management described a cost-reduction program initiated in Q3, with $25–$30 million of structural SG&A savings targeted for 2023 and approximately $8 million expected in 2022.
- Management cited continuing uncertainty around pool-industry demand normalization, channel inventory reductions, weather, inflation in materials and manufacturing costs, supply-chain conditions, foreign exchange, and geopolitical and broader economic factors. Price increases and productivity efforts are intended to mitigate cost pressures.
- The company acquired Halco Lighting’s specialty lighting business in June 2022 for a net acquisition cost of approximately $59.7 million. Purchase-price allocation remained preliminary at quarter-end.
- On October 7, 2022, after quarter-end, the company amended its ABL facility to add a $35 million FILO sublimit and replace LIBOR with adjusted term SOFR.
- Management concluded disclosure controls and procedures were not effective at October 1, 2022 because previously disclosed material weaknesses in internal control over financial reporting remained. Remediation steps were underway, but management gave no specific completion timetable.
- The company reported no significant pending litigation as of October 1, 2022. International operations expose it to political, trade, currency, regulatory, and geopolitical risks.
Most important facts for investors to verify
- Whether channel destocking and lower sales volumes persist, and whether pricing can offset cost inflation without further margin deterioration.
- Cash conversion and liquidity trends, including the effect of inventory, working capital, buybacks, and ABL borrowing availability.
- Debt-service exposure to variable interest rates, the effectiveness of the $500 million interest-rate swap, and terms and costs under the amended SOFR-based ABL facility.
- Progress and independent validation of remediation of the material weaknesses in internal controls.
- Realization and timing of announced cost savings, and final purchase-accounting values and integration results for the Halco acquisition.
- That adjusted EBITDA and related adjusted measures are non-GAAP metrics and may not be comparable across companies; assess them alongside GAAP results.