Hayward Holdings, Inc. — FY 2023 Form 10-K
Business context and reporting period. Hayward designs, manufactures and markets pool equipment and automation systems. This annual report covers the fiscal year ended December 31, 2023, compared primarily with FY 2022; it does not provide a standalone Q4 income statement. The business is seasonal and depends substantially on replacement and upgrade demand. North America generated 83% of FY 2023 net sales, and Europe & Rest of World generated 17%.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Net sales | $992.5 million | $1,314.1 million | Down 24.5% |
| Gross profit / margin | $477.0 million / 48.1% | $597.0 million / 45.4% | Profit down 20.1%; margin up 270 bps |
| Operating income / margin | $175.2 million / 17.7% | $285.6 million / 21.7% | Income down 38.6%; margin down 400 bps |
| Net income | $80.7 million | $179.3 million | Down 55.0% |
| Diluted EPS | $0.37 | $0.78 | Down |
| Adjusted EBITDA and margin | $247.3 million / 24.9% | $367.6 million / 28.0% | EBITDA down 32.7%; margin down 310 bps |
| Net cash from operating activities | $184.5 million | $115.9 million | Up $68.6 million |
Revenue fell primarily because of lower volume as end-market demand moderated and distributors destocked; price increases and acquisitions partly offset the decline. Gross margin improved with better manufacturing cost management, while reduced sales and operating leverage weighed on operating income and adjusted EBITDA. Net interest expense rose 43.2% to $73.6 million, mainly reflecting higher variable rates.
At year-end, cash and cash equivalents were $178.1 million, with another $25.0 million in short-term investments. Gross indebtedness was approximately $1.112 billion, including $1.098 billion under the first-lien term facilities; the ABL balance was zero, with $256.5 million of borrowing availability subject to conditions. The first-lien facilities mature in May 2028. The company reported compliance with debt covenants and no mandatory excess-cash-flow prepayment due in 2024. Management said operating cash flow and ABL availability should cover working capital, capital expenditures and debt service for the next 12 months.
Operating cash flow increased as working capital generated cash, including lower inventory; accounts receivable rose with seasonal and Early Buy shipments. Capital expenditures were $31.0 million. Investing cash use was $55.4 million, including $25.0 million invested in certificates of deposit.
Material changes, outlook and notable items
- North America sales declined 25.8%; Europe & Rest of World sales declined 17.6%. Segment income and adjusted segment income also declined in both segments.
- FY 2023 included $13.2 million of acquisition and restructuring expense. This included a $6.7 million non-cash charge tied to a discontinued product line and $2.4 million for European manufacturing and professional-services consolidation.
- The 2023 Early Buy program shipments began in late Q3 and were expected to continue through approximately Q1 2024; most related payments were expected in Q2 2024. Management described the industry as returning to more normalized seasonal patterns after pandemic-related demand and acceleration abated.
- The filing provides no quantified FY 2024 revenue or earnings guidance. Management cites aftermarket demand, new energy-efficient and connected products, and geographic/product expansion as business drivers, while noting macroeconomic uncertainty and channel inventory effects.
- Pool Corporation accounted for approximately 36% of FY 2023 sales and 38% of year-end receivables; the top five customers represented approximately 59% of sales. This concentration creates customer and credit exposure.
- Two securities class actions were consolidated, and a shareholder derivative suit was filed, alleging claims related to statements about post-IPO growth and demand trends. Hayward disputes the allegations and said it could not estimate a potential loss or range.
- Previously reported material weaknesses in financial reporting controls were reported as remediated by year-end 2023; management and the auditor concluded controls were effective as of December 31. Revenue recognition was identified as a critical audit matter, with audit work addressing transactions, rebates and receivables.
Key facts for investors to verify
- Whether sales volumes and distributor inventories stabilize, and how Early Buy collections affect FY 2024 cash flow.
- Whether margin recovery can continue if revenue remains weak, including the effect of pricing, costs, product mix and operating leverage.
- Debt-service sensitivity to interest rates: the filing estimates a 1 percentage-point rate change would alter annual interest cost by approximately $5.0 million, net of swap settlements.
- Progress and financial impact of restructuring, product-line discontinuation, and new product launches.
- Developments in the securities and derivative litigation, for which the company has not estimated potential losses.
- Customer concentration, receivables collectability, and continued effectiveness of remediated financial controls.