Hayward Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 30, 2024, compared with the three months ended April 1, 2023. Hayward designs and manufactures pool and outdoor living technology. The quarter had one additional working day versus the prior-year period. Results are unaudited; the company cautions that the seasonally affected quarter is not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 2024 | Prior year | Change |
|---|---|---|---|
| Net sales | $212.6 million | $210.1 million | +1.2% |
| Gross profit / margin | $104.6 million / 49.2% | $97.9 million / 46.6% | +6.8%; margin +260 bps |
| Operating income | $30.9 million | $27.8 million | +10.8% |
| Net income | $9.8 million | $8.4 million | +17.0% |
| Diluted EPS | $0.04 | $0.04 | Flat |
| Adjusted EBITDA and margin | $45.0 million / 21.2% | $44.9 million / 21.4% | +0.2%; margin down 20 bps |
| Net cash used in operating activities | $77.2 million | $90.9 million | Cash use improved $13.7 million |
Gross margin improved primarily from manufacturing efficiencies. SG&A rose 9.3% to $60.0 million, reflecting higher warranty, marketing and selling costs; SG&A increased to 28.2% of sales from 26.1%. Net interest expense declined to $18.6 million, though the effective borrowing rate including hedges increased to 7.28% from 6.71%. The effective tax rate rose to 23.8% from 9.0%, primarily because of a lower tax benefit from stock compensation.
Segments and material changes
- North America: Sales increased 6.6% to $173.4 million, driven by higher Early Buy shipments and net price. Segment income rose 19.4% to $39.7 million; segment margin improved to 22.9% from 20.5%, primarily reflecting higher sales and manufacturing efficiencies.
- Europe & Rest of World: Sales declined 17.5% to $39.1 million. Management attributed the volume decline mainly to delayed shipments associated with European manufacturing consolidation. Segment income fell 38.7% to $6.0 million and margin declined to 15.4% from 20.8%, reflecting lower sales and operating leverage.
- Consolidated sales growth was modest: volume contributed 0.5 percentage points and price 0.6 points. North America represented 82% of sales versus 77% a year earlier.
- Restructuring expense decreased to $0.5 million from $1.6 million. The company continued consolidating European operations; restructuring liabilities were $0.9 million at quarter-end.
Cash, debt and liquidity
Cash and cash equivalents were $115.9 million at March 30, 2024, down $62.2 million from year-end. Operating cash outflow was $77.2 million, primarily reflecting seasonal working-capital movements, including increased accounts receivable; investing cash inflow of $19.1 million included $25.0 million of proceeds from short-term investments. Capital expenditures were $5.9 million.
Long-term debt, net of issuance costs and current maturities, was $1.078 billion; reported debt subtotal before those deductions was $1.110 billion. The ABL revolver had no borrowings and $347.2 million of availability at quarter-end. The company reported compliance with all credit-facility covenants and believes operating cash flow and ABL availability will cover working capital, capital expenditures and debt service over the next 12 months.
Subsequent event: In April 2024, Hayward used $123.1 million of cash to voluntarily prepay the Incremental Term Loan B, reducing its principal balance to zero as of April 30. The term facilities mature in May 2028; the ABL facility matures in June 2026. The company uses $600 million notional interest-rate swaps to hedge variable-rate debt exposure.
Outlook, risks and unusual items
- The filing provides no specific numeric full-year 2024 revenue, earnings or cash-flow guidance.
- Management describes the business as seasonal: sales are typically higher in the second and fourth quarters, while working capital and cash flow vary with the Early Buy program, inventory build and customer payment timing.
- Key risks include distributor inventory and end-user demand variability, seasonality and macroeconomic conditions, interest-rate and foreign-exchange movements, supply-chain and raw-material disruption, competition, cybersecurity, and the ability to execute product and growth initiatives.
- A consolidated securities class action alleges misleading statements concerning inventory, growth, demand and 2022 financial projections; a related derivative action is stayed pending a motion-to-dismiss decision. Hayward disputes the allegations and intends to defend itself. It cannot estimate a reasonably possible loss or range at this time.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether delayed European shipments normalize and the manufacturing consolidation delivers its expected operational benefits.
- Whether North American Early Buy shipments and channel inventory trends translate into sustained underlying demand.
- How seasonal receivables, inventory and customer payment timing affect cash conversion in subsequent quarters.
- The cash and liquidity impact of the April $123.1 million debt prepayment, alongside the company’s ongoing debt service and interest-rate exposure.
- Developments in the securities class action and derivative litigation, for which no loss estimate is currently available.
- Non-GAAP adjusted EBITDA and segment measures are supplemental, are not GAAP measures, and may not be comparable with similarly titled measures at other companies.