Hayward Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results; it does not provide a clear standalone fourth-quarter income statement. Hayward designs, manufactures, and markets pool equipment and automation systems. Its reportable segments are North America (NAM) and Europe & Rest of World (E&RW). The company completed its IPO in March 2021.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $1,401.8 million | $875.4 million | +60.1% |
| Gross profit / margin | $655.8 million / 46.8% | $397.0 million / 45.4% | Margin +143 bps |
| Operating income | $318.0 million | $124.6 million | +155.3% |
| Net income | $203.7 million | $43.3 million | +370.5% |
| Adjusted EBITDA / margin | $421.7 million / 30.1% | $231.6 million / 26.5% | +82.1%; margin +363 bps |
| Cash from operating activities | $189.4 million | $213.8 million | −11.4% |
| Capital expenditures | $26.2 million | $14.2 million | Increased |
| Cash and cash equivalents, year-end | $265.8 million | $114.9 million | +$150.9 million |
| Long-term debt, net of issuance costs | $973.1 million | $1,300.3 million | −$327.1 million |
Revenue growth reflected volume growth of 50.4%, price net of discounts and allowances of 7.5%, and currency and other effects of 2.2%. Management attributed stronger margins to volume leverage, pricing that helped offset inflation, operating leverage, and a favorable mix. Sales were approximately 83% NAM and 17% E&RW; both segments grew, with NAM sales up 64.3% and E&RW up 42.7%.
Operating cash flow declined despite higher earnings, mainly because of strategic inventory purchases, inflation and longer supply-chain transit times, and higher receivables. Year-end current assets were $750.5 million and current liabilities $303.9 million. The ABL balance was zero at year-end, with $128.9 million of borrowing availability reported, subject to conditions. Management said cash from operations and ABL availability should cover working capital, capital expenditures, and debt service for the next 12 months.
Material changes and significant items
- The company used $356.6 million of IPO proceeds, alongside other cash, to repay debt; total voluntary term-loan repayments in 2021 were $364.6 million. The second-lien facility was repaid in full. Year-end first-lien term debt was $995.0 million, due May 2028; it carries a variable rate. The 2021 debt refinancing and repayments resulted in a $9.4 million debt-extinguishment loss.
- The ABL commitment was increased to $425 million, with a peak-season commitment of $475 million, and maturity extended to June 2026. Hayward reported compliance with debt covenants at year-end.
- Three fourth-quarter acquisitions added pool-related technology and products: SmartPower, SmartValve, and Water Works Technologies Group. SmartValve may entail up to $7.5 million in additional milestone payments. Water Works’ purchase-price allocation was preliminary.
- A fire at the Yuncos, Spain facility caused $5.4 million of recorded losses; a $12.8 million insurance settlement was received in the fourth quarter, with the excess over recorded losses recognized in other income.
- Hayward discontinued a product line from an early-stage acquired business and recorded a $6.3 million intangible-asset impairment. It also recorded restructuring costs, including costs related to the headquarters relocation and facility changes.
- At year-end, the board had authorized up to $450 million in share repurchases; none were reported during Q4 2021. Subsequent to year-end, the company agreed to repurchase 4.08 million shares from Sponsor affiliates for approximately $80.8 million, or $19.80 per share. No common-stock dividend was declared or paid in 2021.
Outlook, risks, and contingencies
The filing provides no specific quantified revenue or earnings guidance. Management cited aftermarket replacements and upgrades, an aging installed pool base, new products, and energy-efficient and connected equipment as growth drivers. It estimated aftermarket sales at approximately 80% of FY2021 net sales, based on management estimates rather than GAAP sales classification. Products launched in the prior three years contributed approximately 14% of FY2021 net sales.
Management noted continued raw-material, freight, and supply-chain cost pressures, while saying price increases and demand had so far mitigated their impact. Risks include possible normalization of pandemic-related demand, supply disruptions and inflation, seasonality and weather, customer and distributor dependence, and competition. Pool Corporation represented approximately 36% of FY2021 sales and 42% of year-end receivables; the top five customers represented about 52% of sales.
Hayward disclosed unremediated material weaknesses in internal control over financial reporting involving control documentation and segregation of duties, control activities, and IT general controls. Management said none had caused a material misstatement, but disclosure controls were not effective at the reasonable-assurance level. Remediation was underway; the company did not estimate the cost or completion date. The auditor issued an unqualified opinion on the financial statements; the filing did not include management’s internal-control effectiveness assessment or an auditor attestation because of the new-public-company transition period.
Other investor-relevant exposures include variable-rate debt (a 1 percentage-point rate change was estimated to affect annual interest cost by approximately $6 million), currency movements, and goodwill and intangible assets totaling approximately $2.0 billion, about 67% of total assets. No goodwill impairment was recorded in 2021. Hayward settled a long-running Pentair/Danfoss patent lawsuit for $3.5 million, while denying infringement and making no admission of liability. The filing says other ordinary-course litigation is not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether demand and margins remain resilient as pandemic-era pool demand, customer inventory patterns, pricing, and inflation evolve.
- Cash conversion and working-capital trends, particularly inventory build, early-buy receivables, and collections; operating cash flow fell year over year despite sharply higher net income.
- Debt-service capacity and exposure to variable interest rates, including the ABL’s conditional availability and the transition from LIBOR reference rates.
- Progress in remediating the disclosed material weaknesses and whether future filings report effective controls.
- Execution, integration, contingent payments, and returns from the 2021 acquisitions, as well as the effects of the product discontinuance and Spain facility fire.
- Customer concentration, especially Pool Corporation’s share of sales and receivables, and the economics and governance of the post-year-end repurchase from Sponsor affiliates.