10-K: Hayward Holdings Relocates Executive and Files Annual Report Amidst Market Volatility

Hayward Holdings, Inc. details an executive relocation agreement and files its annual 10-K report, revealing a decrease in net sales and net income amidst challenging market conditions.

Summary

• Hayward Holdings, Inc. entered into a relocation agreement with Kevin Holleran, providing benefits including a $10,000 lump sum, up to $90,000 for home sale assistance, up to $22,000 for home purchase assistance, $25,000 for household goods move assistance, up to $2,000 for final move assistance, and a potential $15,000 quick sale bonus.
• The company's 10-K filing for the fiscal year ended December 31, 2023, shows a decrease in net sales to $992.5 million from $1.314 billion in the previous year, a 24.5% decrease.
• Net income also decreased significantly to $80.7 million from $179.3 million in the prior year, a 55% decrease.
• The company's adjusted EBITDA decreased to $247.3 million from $367.6 million, a 32.7% decrease, with the adjusted EBITDA margin decreasing to 24.9% from 28.0%.
• The North America segment saw a 25.8% decrease in net sales, while the Europe & Rest of World segment experienced a 17.6% decrease.
• The company's goodwill and intangible assets totaled $1.971 billion, representing approximately 67% of total assets.
• The company has approximately $1.111 billion in total debt, including $1.098 billion under its first lien term loan facility.
• The company has an asset-based lending facility with a borrowing capacity of up to $425 million, and up to $475 million under certain circumstances, with a zero balance as of December 31, 2023.
• The company's largest customer accounted for approximately 36% of net sales in fiscal year 2023 and 38% of accounts receivable as of December 31, 2023.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to significant decreases in key financial metrics, despite some positive aspects like increased gross profit margin. The overall tone is cautious and highlights numerous risks.

Positives

• Gross profit margin increased to 48.1% in Fiscal Year 2023 compared to 45.4% in Fiscal Year 2022, an increase of 270 basis points.
• Selling, general and administrative expense decreased by 6.1% due to cost reductions and lower compensation related expenses.
• The company has a share repurchase program authorized to repurchase up to $450 million of its common stock.
• The company has a strong brand and a large installed base of pool equipment.

Negatives

• Net sales decreased by 24.5% year-over-year.
• Net income decreased by 55% year-over-year.
• Adjusted EBITDA decreased by 32.7% year-over-year.
• The company is exposed to credit risk on its accounts receivable, which is heightened during periods when economic conditions worsen.
• The company is subject to various risks associated with international business operations, including geopolitical conflicts.
• The company is subject to risks related to cybersecurity threats and data privacy regulations.

Risks

• The company's business depends on the performance of distributors, builders, buying groups, retailers and servicers.
• Unfavorable economic and business conditions may adversely affect demand for the company's products.
• The company operates in markets with high levels of competition, which may result in pressure on profit margins.
• The company's future success depends on developing, manufacturing and attaining market adoption of new products.
• The company's results of operations and cash flows may fluctuate from quarter to quarter due to seasonality and weather conditions.
• A loss of, or material cancellation, reduction or delay in purchases by, one or more of the company's largest customers could harm its business.
• The company is exposed to credit risk on its accounts receivable, which is heightened during periods when economic conditions worsen.
• The company is exposed to political, regulatory, economic, trade and other risks that arise from its international business operations, including the risks associated with geopolitical conflicts.
• The company may not be able to identify, finance and complete suitable acquisitions, and any completed acquisitions may be unsuccessful or consume significant resources.
• The company may be negatively impacted by litigation and other claims, including intellectual property, product liability or warranty claims, and health and safety concerns, including product recalls.
• The company has significant goodwill and intangible assets and future impairment of its goodwill and intangible assets could have a material adverse effect on its results of operations.
• Exchange rate fluctuations could adversely affect the company's financial condition, results of operations and cash flows.
• Changes in the company's effective tax rate or exposure to additional income tax liabilities could adversely affect its financial results.
• The company may experience cost and other inflation.
• The company depends on its ability to attract, develop and retain highly qualified personnel, including key members of management.
• Disruptions in the financial markets could adversely affect the company, its customers, consumers and suppliers.
• The company relies on information technology systems to support its business operations and is subject to risk, including cybersecurity threats, because of such reliance.
• The company may encounter difficulties in operating or implementing a new ERP system and human resources information system, which may adversely affect its operations and financial reporting.
• The company depends on suppliers, including single-source suppliers and, in a few cases, sole-source suppliers, to consistently supply it with components for its products, and any failure to procure such components could have a material adverse effect on its business, product inventories, sales and profit margins.
• Product manufacturing disruptions, including as a result of catastrophic and other events beyond the company's control, could cause it to be unable to meet customer demands or increase its costs.
• The cost of raw materials could increase the company's cost of goods sold and cause its results of operations and financial condition to suffer.
• If the company or its customers do not manage product inventory in an effective and efficient manner, it could adversely affect profitability.
• The nature of the company's business subjects it to compliance with, and liabilities under, employment, environmental, health, transportation, safety, and other governmental regulations.
• The company's handling of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation.
• The company's employees, commercial partners, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
• Violations of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and other anti-corruption laws outside the United States could have a material adverse effect on the company.
• The company's failure to satisfy international trade compliance regulations, and changes in U.S. government sanctions, could have a material adverse effect on the company.
• Climate change and legal or regulatory responses thereto may have an adverse impact on the company's business and results of operations.
• If the company is unable to adequately obtain and maintain its intellectual property and proprietary rights or if it is accused of infringing on, misappropriating or otherwise violating the intellectual property of others, its competitive position could be harmed or it could be required to incur significant expenses to enforce or defend its rights.
• If the company's trademarks and trade names are not adequately protected, it may not be able to build name recognition in its markets of interest, and third parties could assert trademark infringement claims against it.
• The company relies on access to intellectual property owned by third parties, so its rights to develop and commercialize certain products are subject to the terms and conditions of licenses granted to it by others.
• The company may be subject to claims that its employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what it regards as its own intellectual property.
• The company may not be able to effectively enforce its intellectual property rights throughout the world.
• The company's indebtedness could adversely affect its financial condition.
• Provisions in the company's charter documents and Delaware law may deter takeover efforts that stockholders may believe to be beneficial to stockholder value.
• Future sales of the company's common stock, or the perception in the public markets that these sales may occur, may depress the price of common stock.
• The price of the company's common stock has been, and may in the future be, volatile and your investment in the company's common stock could suffer a decline in value.

Future Outlook

The company expects to receive payments for most of the shipments under the 2023 Early Buy program during the second quarter of 2024. The company also aims to keep its manufacturing plants running at a consistent level throughout the year.

Management Comments

• Management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.
• Management believes that net cash provided by operating activities and availability under the ABL Facility will be adequate to finance working capital requirements, inclusive of capital expenditures, and debt service over the next 12 months.

Industry Context

The pool industry has attractive market characteristics, including significant aftermarket requirements, innovation-led growth opportunities, and a favorable industry structure. The company is a leader in this market with a highly recognized brand and a large installed base of pool equipment.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards or competitors.
• However, it does mention that Hayward has an estimated North American seasonal residential pool market share of approximately 34%.
• The document also notes that the company competes against large and well-established national and global companies, as well as regional and local niche OEMs and lower cost manufacturers.

Management Changes

Legal Proceedings

• The company is involved in a securities class action lawsuit alleging materially false or misleading statements regarding growth and demand trends.
• A shareholder derivative lawsuit has also been filed against current and past officers and directors of the company alleging breaches of fiduciary duties.

Related Party Transactions

• The company repurchased shares of common stock from certain affiliates of CCMP Capital Advisors, LP in 2022.

Stakeholder Impact

• Shareholders are negatively impacted by the decrease in net income and adjusted EBITDA.
• Employees may be affected by cost reduction programs and potential restructuring.
• Customers may experience changes in product offerings and pricing.
• Suppliers may be affected by changes in the company's supply chain management.

Next Steps

• The company will continue to pursue attractive product and global geographic market opportunities.
• The company will continue to develop and bring to market innovative products.
• The company will continue to implement operational initiatives designed to mitigate the impacts of inflation and reduce costs.

Key Dates

Keywords

pool equipment, relocation, financial results, annual report, Hayward Holdings, debt, EBITDA, net sales, net income, intellectual property, risk factors, internal controls, cybersecurity, supply chain, manufacturing, market competition