10-Q: Hayward Holdings Reports Strong Q2 Earnings Amidst Margin Expansion and Strategic Growth

Hayward Holdings, Inc. announced a significant increase in net income and gross profit for the second quarter and first half of 2025, driven by price increases, acquisitions, and operational efficiencies.

Summary

• Net sales for the three months ended June 28, 2025, increased by 5.3% to $299.6 million, up from $284.4 million in the prior year, primarily due to positive net price impact (5.3%) and acquisitions (2.1%), partially offset by a 2.5% decline in volume.
• Gross profit for the three months ended June 28, 2025, rose by 8.8% to $157.8 million, with gross profit margin expanding by 170 basis points to 52.7%.
• Net income for the three months ended June 28, 2025, increased by 19.2% to $44.8 million, up from $37.6 million, with net income margin improving to 15.0%.
• Adjusted EBITDA for the three months ended June 28, 2025, grew by 6.8% to $88.2 million, and Adjusted EBITDA margin increased by 50 basis points to 29.5%.
• For the six months ended June 28, 2025, net sales increased by 6.3% to $528.4 million, gross profit increased by 8.6% to $271.2 million, and net income increased by 24.7% to $59.1 million.
• North America (NAM) segment net sales increased by 5.8% in Q2 2025 and 6.7% for the six months, driven by price and the ChlorKing acquisition, despite a volume decline in Q2.
• Europe & Rest of World (E&RW) segment net sales increased by 2.7% in Q2 2025 and 4.6% for the six months, with six-month volume growth driven by improved market conditions in the Middle East, Asia, and Europe.
• E&RW gross profit margin decreased by 190 basis points in Q2 2025 to 38.9% due to unfavorable mix and higher manufacturing costs.
• Cash and cash equivalents increased to $365.1 million as of June 28, 2025, from $196.6 million at December 31, 2024.
• Net cash provided by operating activities decreased by 10.2% to $188.4 million for the six months ended June 28, 2025, primarily due to less cash generated by working capital.
• Long-term debt, net, slightly decreased to $949.1 million as of June 28, 2025.
• A new share repurchase program of up to $450.0 million was authorized on July 28, 2025, expiring July 28, 2028, with $400.0 million remaining available under the previous authorization as of June 28, 2025.

Sentiment

Score: 8

Explanation: The company reported strong financial performance with significant increases in net sales, gross profit, and net income, coupled with margin expansion and effective debt management. The authorization of a new share repurchase program is a positive signal for shareholder returns. While there are ongoing legal proceedings and some volume declines, the overall financial health and strategic positioning appear robust.

Positives

• Net sales increased by 5.3% for the quarter and 6.3% for the six months, demonstrating continued revenue growth.
• Gross profit margin expanded significantly by 170 basis points to 52.7% for the quarter, indicating improved operational efficiencies and pricing power.
• Net income increased by 19.2% for the quarter and 24.7% for the six months, reflecting strong profitability.
• Adjusted EBITDA and Adjusted EBITDA margin both improved, showcasing healthy core operating performance.
• Interest expense, net, decreased by $3.1 million for the quarter and $8.1 million for the six months, primarily due to lower interest rates and reduced debt.
• The successful integration of the ChlorKing acquisition contributed positively to net sales, particularly in the North America segment.
• The company finalized its corporate office relocation, resulting in a $0.2 million reduction in expense.
• A new $450.0 million share repurchase program was authorized, signaling confidence in future cash flow and commitment to shareholder returns.
• The company was in compliance with all covenants under its Credit Facilities as of June 28, 2025.

Negatives

• Volume declined by 2.5% for the quarter in total net sales and 2.7% in the North America segment, attributed to the timing of orders.
• Selling, general, and administrative (SG&A) expense increased by 13.8% for the quarter and 11.2% for the six months, primarily due to higher salary costs from wage inflation and investments in selling and customer care teams, and higher incentive compensation.
• E&RW segment experienced a decrease in gross profit margin (190 basis points for the quarter) and segment income (8.4% for the quarter) due to unfavorable mix and higher manufacturing costs.
• Net cash provided by operating activities decreased by 10.2% for the six months ended June 28, 2025, compared to the prior year, driven by less cash generated by working capital.

Risks

• Relationships with and performance of distributors, builders, buying groups, retailers, e-tailers, and servicers who sell products to pool owners.
• Impact of changes in laws, regulations, and administrative policy, including those limiting U.S. tax benefits, impacting trade agreements, or addressing climate change.
• Sensitivity of the business to seasonality and unfavorable economic and business conditions.
• Ability to develop, manufacture, and effectively and profitably market and sell new and future products.
• Impact of product manufacturing disruptions, including catastrophe, procurement challenges, and other events beyond control.
• Competition from national and global companies, as well as lower-cost manufacturers.
• Imposition, or threat of imposition, of tariffs and other trade restrictions.
• Exposure to credit risk on accounts receivable.
• Impacts on business from political, regulatory, economic, trade, and other risks associated with operating international businesses, including geopolitical conflict.
• Ability to maintain favorable relationships with suppliers and manage disruptions to the global supply chain and raw material availability.
• Failure of markets to accept new product introductions and enhancements.
• Reliance on information technology systems and susceptibility to threats, including cybersecurity threats, and risks from collection and use of personal information data.
• Use of artificial intelligence technologies may not be successful and may present business, intellectual property, compliance, and reputational risks.
• Misuse of technology-enabled products could lead to reduced sales, liability claims, or harm to reputation.
• Volatility in currency exchange rates and interest rates.
• Ability to service existing indebtedness and obtain additional capital.
• Ability to establish, maintain, and effectively enforce intellectual property protection.
• Impact of material cost and other inflation.
• Ability to attract and retain senior management and other qualified personnel.
• Outcome of litigation and governmental proceedings, including product liability claims and securities class actions.
• Uncertainties related to distribution channel inventory practices and impact on net sales volumes.
• Ability to realize cost savings from restructuring activities.

Future Outlook

The company believes it is well-positioned for future growth, driven by aftermarket replacements and upgrades to higher-value IoT and energy-efficient models. Management expects net cash provided by operating activities and availability under the ABL Facility to be adequate to finance working capital, capital expenditures, and debt service over the next 12 months. The company aims to maintain constant manufacturing levels throughout the year, building inventory in the first and third quarters and selling it down in the second and fourth quarters.

Management Comments

• We believe that we are well-positioned for future growth.
• Aftermarket replacements and upgrades to higher value Internet of Things and energy efficient models are a primary growth driver for our business.
• We aim to keep our manufacturing plants running at a constant level throughout the year and consequently we typically build inventory in the first and third quarters, and inventory is sold-down in the second and fourth quarters.
• We focus on increasing cash flow, solidifying the liquidity position through working capital initiatives, and paying our debt obligations, while continuing to fund business growth initiatives and return of capital to shareholders.
• We believe that net cash provided by operating activities and availability under the ABL Facility will be adequate to finance our working capital requirements, inclusive of capital expenditures, and debt service over the next 12 months.
• We dispute the allegations of wrongdoing in the Securities Class Action and the Derivative Action and intend to vigorously defend ourselves in these matters.

Industry Context

The company operates in the global pool and outdoor living technology market, which is characterized by significant aftermarket requirements for existing pools, innovation-led growth opportunities, and a favorable industry structure. The company holds an estimated 33% market share in the North American residential pool market, with approximately 85% of its North American residential pool net sales coming from recurring aftermarket sales. The industry benefits from a product replacement cycle of 8 to 11 years, creating continuous sales opportunities. The business is seasonal, with higher sales in the second and fourth quarters. Geopolitical conflicts have adversely affected market demand in the Middle East and Asia, impacting the Europe & Rest of World segment.

Comparison to Industry Standards

• The filing states an estimated North American residential pool market share of approximately 33%, indicating a strong competitive position within its primary market.
• The filing does not provide specific comparable companies, projects, or results to benchmark against industry standards beyond its self-reported market share.

Corporate Governance

Legal Proceedings

• A wrongful death lawsuit related to a discontinued product is expected to be settled for $22.0 million, fully covered by the company's insurance carriers, with payment expected within three months.
• A consolidated securities class action lawsuit alleges materially false or misleading statements regarding inventory, growth, and demand trends, and 2022 financial projections. The court granted in part and denied in part a motion to dismiss, and the case is currently stayed for mediation. Unspecified monetary damages are sought.
• A shareholder derivative lawsuit alleges breaches of fiduciary duties, aiding and abetting breaches, unjust enrichment, corporate waste, and Section 10(b) violations in connection with the securities class action. This action is also stayed pending the outcome of the securities class action mediation. Unspecified damages and corporate governance improvements are sought.
• The company disputes the allegations in both the securities class action and derivative action and intends to vigorously defend itself, but is currently unable to estimate a reasonably possible financial loss or range of financial loss for these ongoing matters.

Stakeholder Impact

• Shareholders: Positive impact from increased net income, EPS, and the authorization of a new share repurchase program. Potential uncertainty from ongoing securities litigation.
• Employees: Higher salary costs due to wage inflation and investments in selling and customer care teams, indicating potential benefits. Restructuring activities may involve some employee impact, though corporate office relocation is finalized.
• Customers: Continued focus on new product development and quality, and investments in customer care teams, should benefit customers. Pricing increases may impact customer purchasing decisions.
• Suppliers: Ongoing need to maintain favorable relationships and manage global supply chain disruptions.
• Creditors: Improved financial performance and compliance with debt covenants indicate a stable position, while debt reduction and ABL facility extension are positive for credit risk.

Next Steps

• Continue to evaluate the impact of the H.R. 1 (One Big Beautiful Bill Act) on consolidated financial statements, though no significant impact is anticipated in Q3 2025.
• Proceed with mediation for the consolidated securities class action lawsuit.
• Continue to vigorously defend against the securities class action and shareholder derivative lawsuits.
• Potentially execute share repurchases under the newly authorized $450.0 million program.

Key Dates

Recommendation

Hayward Holdings demonstrated strong financial performance in Q2 and the first half of 2025, with notable increases in net sales, gross profit, and net income, alongside significant margin expansion. The company's strategic focus on aftermarket sales and energy-efficient products, coupled with its strong market position in North America, provides a solid foundation for continued growth. Effective debt management and the authorization of a new share repurchase program signal a commitment to shareholder value. While ongoing legal proceedings introduce some uncertainty, the core business strength and positive financial trends suggest a favorable outlook for investors.

Keywords

Pool equipment, Outdoor living technology, Residential pool, Commercial pool, Flow control, Aftermarket sales, Energy efficient products, IoT, SEC filing, 10-Q, Financial results, Earnings, Gross profit, EBITDA, North America, Europe, International sales, ChlorKing, Share repurchase, Debt management, Litigation, Artificial intelligence risk