10-Q: Hayward Holdings Reports Strong Q3 2025 Growth

Hayward Holdings, Inc. announced robust financial results for Q3 2025, with significant increases in net sales, gross profit, and net income, alongside a new $450 million share repurchase program.

Summary

• Net sales for the three months ended September 27, 2025, increased by 7.4% to $244.3 million, up from $227.6 million in the prior-year period.
• Gross profit rose by 10.6% to $125.1 million, with gross profit margin expanding by 150 basis points to 51.2% for the three months ended September 27, 2025.
• Net income for the quarter increased by 45.6% to $24.0 million, compared to $16.5 million in the same period last year, with net income margin improving to 9.8%.
• Diluted earnings per share (EPS) for the quarter was $0.11, up from $0.07 in the prior-year quarter.
• Adjusted EBITDA for the three months ended September 27, 2025, grew by 15.6% to $59.1 million, resulting in an Adjusted EBITDA margin of 24.2%.
• For the nine months ended September 27, 2025, net sales increased by 6.7% to $772.8 million, and net income rose by 30.1% to $83.2 million.
• North America (NAM) segment net sales increased by 6.8% for the quarter, driven by positive net price and modest volume growth.
• Europe & Rest of World (E&RW) segment net sales increased by 10.7% for the quarter, primarily due to higher volume and favorable foreign currency translation.
• Cash and cash equivalents increased to $428.7 million as of September 27, 2025, up from $196.6 million at December 31, 2024.
• The Board of Directors authorized a new share repurchase program of up to $450 million, expiring on July 28, 2028.

Sentiment

Score: 8

Explanation: The company reported strong financial performance across key metrics, including significant increases in net sales, gross profit, and net income, coupled with improved margins and cash flow. The authorization of a substantial share repurchase program is a positive signal. While ongoing legal proceedings and new AI-related risks are noted, the overall financial health and strategic actions indicate a very positive outlook.

Positives

• Strong net sales growth of 7.4% for the quarter and 6.7% for the nine months, indicating healthy demand and effective pricing strategies.
• Significant expansion in gross profit margin by 150 basis points for the quarter and 120 basis points for the nine months, driven by positive net price impact and operational efficiencies.
• Substantial increase in net income by 45.6% for the quarter and 30.1% for the nine months, demonstrating improved profitability.
• Adjusted EBITDA grew by 15.6% for the quarter and 9.9% for the nine months, reflecting strong operational performance.
• Interest expense, net, decreased by 14.3% for the quarter and 20.5% for the nine months, primarily due to lower interest rates and increased interest income on cash deposits.
• Net cash provided by operating activities increased by 2.6% to $283.0 million for the nine months, strengthening liquidity.
• The company was in compliance with all covenants under its Credit Facilities as of September 27, 2025.
• Successful settlement of a wrongful death lawsuit for $22.0 million, fully covered by insurance, with no anticipated future financial obligation.
• Authorization of a new $450 million share repurchase program signals confidence in future cash flow and commitment to shareholder returns.

Negatives

• Selling, general, and administrative (SG&A) expense increased by 8.2% for the quarter and 10.2% for the nine months, primarily due to higher incentive compensation, salary costs, and a non-recurring litigation expense.
• The effective tax rate increased to 23.0% for the quarter and 23.9% for the nine months, primarily due to a decrease in tax benefit from stock compensation and prior-year return-to-provision adjustments.
• North America (NAM) adjusted segment income margin decreased by 90 basis points for the quarter, despite overall segment income growth.

Risks

• The use of artificial intelligence (AI) technologies may not be successful and could present business, intellectual property, compliance, and reputational risks.
• Exposure to litigation and other claims, including intellectual property, product liability or warranty claims, and health and safety concerns, including product recalls, which can be costly and divert management resources.
• Impacts on business from seasonality and unfavorable economic and business conditions.
• Competition from national and global companies, as well as lower-cost manufacturers.
• The imposition, or threat of imposition, of tariffs and other trade restrictions could adversely affect business by reducing market demand or increasing supply costs.
• Political, regulatory, economic, trade, and other risks associated with operating international businesses, including geopolitical conflicts (e.g., Middle East, Ukraine/Russia) which have negatively impacted the E&RW segment.
• Reliance on information technology systems and susceptibility to cybersecurity threats.
• Ability to service existing indebtedness and obtain additional capital to finance operations and growth opportunities.

Future Outlook

The company anticipates continued focus on new product development and quality. Shipments for the 2025 Early Buy program, which began in late Q3, are expected to continue through approximately the first quarter of 2026. The company is evaluating the impact of recently issued accounting standards (ASU 2023-09, ASU 2024-03, ASU 2025-06) but does not anticipate a material impact on 2025 income tax expense from the One Big Beautiful Bill Act. Management believes that net cash provided by operating activities and availability under the ABL Facility will be adequate to finance working capital requirements, capital expenditures, and debt service over the next 12 months.

Management Comments

• "RD&E spend continues to be focused on new product development and new product quality."
• "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."

Industry Context

The company operates in the pool and outdoor living technology industry, characterized by significant aftermarket requirements, innovation-led growth opportunities, and a favorable industry structure. Aftermarket replacements and upgrades to higher-value Internet of Things (IoT) and energy-efficient models are a primary growth driver. The company holds an estimated North American residential pool market share of approximately 33%, with aftermarket sales representing about 85% of North American residential pool net sales, indicating a recurring revenue stream driven by an 8-11 year product replacement cycle. Geopolitical conflicts, particularly in the Middle East and Ukraine/Russia, have adversely affected market demand in the E&RW segment.

Comparison to Industry Standards

• The company estimates its North American residential pool market share at approximately 33%, positioning it as a leader in this segment.
• Aftermarket sales are estimated to represent approximately 85% of North American residential pool net sales, which is generally considered a strong, recurring revenue base within the industry, driven by an 8 to 11-year product replacement cycle.
• No specific comparable companies or projects were mentioned in the filing to benchmark against global industry standards.

Management Changes

Corporate Governance

Legal Proceedings

• A securities class action lawsuit, consolidated under 'City of Southfield Fire and Police Retirement System vs. Hayward Holdings, Inc., et al.', alleges materially false or misleading statements regarding inventory, growth, demand trends, and financial projections for 2022. The case is currently stayed for mediation after a motion to dismiss was partially granted and denied.
• Two shareholder derivative lawsuits, 'Heicklen v. Holleran, et al.' and 'Hertzog v. Holleran, et al.', allege breaches of fiduciary duties, corporate waste, and insider trading against current and past officers and directors. These actions are also stayed pending mediation in the securities class action.
• A wrongful death lawsuit related to a discontinued product was settled for $22.0 million, with the full amount paid by the company's insurance carriers, and no anticipated future financial obligation.

Stakeholder Impact

• Shareholders: Positive financial results and a new share repurchase program could lead to increased shareholder value, though ongoing litigation introduces uncertainty.
• Employees: Higher incentive compensation and salary costs reflect investment in personnel, but restructuring actions in the E&RW segment involved a reduction-in-force.
• Customers: Continued focus on new product development and quality, along with the Early Buy program, aims to enhance customer experience and loyalty.
• Creditors: Strong cash flow and compliance with debt covenants indicate a healthy financial position, reducing credit risk.
• Suppliers: Operational efficiencies and stable manufacturing levels suggest consistent demand for raw materials and components.

Next Steps

• Continue shipments for the 2025 Early Buy program through approximately the first quarter of 2026.
• Engage in mediation for the consolidated securities class action and shareholder derivative lawsuits.
• Execute the newly authorized $450 million share repurchase program.
• Evaluate the impact of new accounting standards (ASU 2023-09, ASU 2024-03, ASU 2025-06) on disclosures and financial statements.

Key Dates

Recommendation

The filing demonstrates robust financial performance with significant year-over-year growth in net sales, gross profit, and net income, coupled with expanding margins and strong cash flow from operations. The reduction in interest expense and the authorization of a substantial share repurchase program underscore financial discipline and a commitment to shareholder returns. While legal proceedings and new AI-related risks exist, the core business shows strong momentum and operational efficiency, making it an attractive investment opportunity for long-term growth.

Keywords

Pool equipment, Outdoor living technology, Residential pool, Commercial pool, Flow control, SEC filing, 10-Q, Financial results, Net sales, Gross profit, Net income, Adjusted EBITDA, Share repurchase, Debt compliance, Litigation, Artificial intelligence risks, Supply chain, Tariffs, Geopolitical risk