SECOND QUARTER FISCAL 2023 SUMMARY
- Net Sales of $283.5 million
- Net Income of $29.5 million
- Adjusted EBITDA* of $79.5 million
- Diluted EPS of $0.13 and adjusted diluted EPS* of $0.19
- Strong year-to-date cash flow from operations of $166.5
million
Hayward Holdings, Inc. (NYSE: HAYW) (“Hayward” or the
“Company”), a global designer, manufacturer and marketer of a broad
portfolio of pool equipment and outdoor living technology, today
announced financial results for the second quarter ended July 1,
2023 of its fiscal year 2023. Comparisons are to financial results
for the prior-year second fiscal quarter.
CEO COMMENTS
“I am pleased to report another quarter of strong execution,
margin expansion, and cash flow generation,” said Kevin Holleran,
Hayward’s President and Chief Executive Officer. “Our team is
performing remarkably well and driving structural improvements in
the business during a challenging operating environment. Channel
sell through exceeded our sales into the channel as expected,
resulting in further normalization of distributor inventory. We
achieved record gross profit margins and solid cash flow growth in
the quarter through operational excellence, necessary pricing to
offset inflation, and effective working capital management. With
progressively leaner channel inventory positions, we are well
positioned for growth. We continue to invest in the business to
advance our technology leadership, support our customers and drive
shareholder value.”
SECOND QUARTER FISCAL 2023 CONSOLIDATED RESULTS
Net sales decreased by 29% to $283.5 million for the second
quarter of fiscal 2023. The decline in net sales during the quarter
was the result of lower volumes, partially offset by favorable
pricing and acquisitions. The decline in volume was primarily the
result of distribution channel destocking and the moderation of
end-market demand due to macroeconomic factors.
Gross profit decreased by 28% to $136.5 million for the second
quarter of fiscal 2023. Gross profit margin increased 70 basis
points to 48.1%. The increase in gross margin was principally due
to net price increases to offset inflation and the reduction in
spending, specifically in freight and overhead, as the prior-year
period experienced increased costs resulting from escalated and
expedited production activity.
Selling, general, and administrative expenses (“SG&A”)
decreased by 16% to $57.7 million for the second quarter of fiscal
2023. The decrease in SG&A was driven by cost reductions and
lower compensation-related expenses associated with the reduction
in headcount from the enterprise cost-reduction program implemented
during 2022 and the absence of a non-recurring one-time expense in
the prior-year period. As a percentage of net sales, SG&A
increased 310 basis points to 20.4%, compared to the prior-year
period of 17.3%. Research, development, and engineering expenses
were $6.9 million for the second quarter of fiscal 2023, or 2% of
net sales, as compared to $5.0 million for the prior-year period,
or 1% of net sales.
Operating income decreased by 39% to $63.0 million for the
second quarter of fiscal 2023. The decrease in operating income was
driven by lower sales. Operating income as a percentage of net
sales (“operating margin”) was 22.2% for the second quarter of
fiscal 2023, a 350 basis point reduction from the 25.7% operating
margin in the second quarter of fiscal 2022.
Interest expense, net, increased by approximately 65% to $19.1
million for the second quarter of fiscal 2023 primarily as a result
of variable rate increases on the term loan, partially offset by
net interest income on the Company’s interest rate swaps.
Income tax expense for the second quarter of fiscal 2023 was
$13.8 million for an effective tax rate of 31.9%, compared to $21.1
million at an effective tax rate of 24.1% for the prior-year
period. The decrease in income tax expense was primarily due to the
decrease in income from operations. The increase in the effective
tax rate was driven by a discrete tax expense related to a change
in the indefinite reinvestment assertion for one jurisdiction.
Net income decreased by 56% to $29.5 million for the second
quarter of fiscal 2023.
Adjusted EBITDA* decreased by 38% to $79.5 million for the
second quarter of fiscal 2023. Adjusted EBITDA margin* decreased
400 basis points to 28.0%.
Diluted EPS decreased by 54% to $0.13 for the second quarter of
fiscal 2023. Adjusted diluted EPS* decreased by 48% to $0.19 for
the second quarter of fiscal 2023.
SECOND QUARTER FISCAL 2023 SEGMENT RESULTS
North America
Net sales decreased by 31% to $237.4 million for the second
quarter of fiscal 2023. The decrease was primarily the result of a
decline in volume, partially offset by increases in price and the
favorable impact of acquisitions. The decline in volume was
primarily the result of distribution channel destocking and the
moderation of end-market demand due to macroeconomic factors.
Segment income decreased by 36% to $71.0 million for the second
quarter of fiscal 2023. Adjusted segment income* decreased by 37%
to $76.9 million.
Europe & Rest of World
Net sales decreased by 19% to $46.2 million for the second
quarter of fiscal 2023. The decrease was primarily due to a decline
in volume as a result of distribution channel destocking,
geopolitical factors, and macroeconomic uncertainty, partially
offset by net price increases and the favorable impact of foreign
currency translation.
Segment income decreased by 29% to $9.4 million for the second
quarter of fiscal 2023. Adjusted segment income* decreased by 26%
to $9.6 million.
BALANCE SHEET AND CASH FLOW
As of July 1, 2023, Hayward had cash and cash equivalents of
$205.0 million and approximately $231.7 million available for
future borrowings under its revolving credit facilities. Cash flow
provided by operations for the six months ended July 1, 2023 of
approximately $167 million was an increase of approximately $103
million from the prior-year period primarily as a result of cash
generated by working capital compared to cash used for working
capital during the prior-year period, partially offset by a
decrease in net income.
OUTLOOK
Our outlook for channel sell through is unchanged. Hayward is
refining its full year 2023 guidance to reflect incremental
reductions in channel inventory levels and better than expected
margins. For the full fiscal year 2023, Hayward expects net sales
to decrease 20% to 23% and Adjusted EBITDA* of $265 million to $280
million.
We remain positive about the health of the pool industry,
particularly the strength of the ever-increasing aftermarket,
representing approximately 80% of the business. The industry
continues to benefit from secular demand tailwinds, including
outdoor living, sunbelt migration, smart home technology adoption,
and environmentally sustainable products. Hayward is confident in
its ability to successfully execute in an evolving environment in
the near-term and its long-term outlook for robust growth and cash
flow generation, driven by new product innovation, expanding
commercial relationships, and operational excellence.
Please see the Forward-Looking Statements section of this
release for a discussion of certain risks relevant to Hayward’s
outlook.
CONFERENCE CALL INFORMATION
Hayward will hold a conference call to discuss the results
today, August 2, 2023 at 9:00 a.m. (ET).
Interested investors and other parties can listen to a webcast
of the live conference call by logging onto the Investor Relations
section of the company’s website at
https://investor.hayward.com/events-and-presentations/default.aspx.
An earnings presentation will be posted to the Investor Relations
section of the company’s website prior to the conference call.
The conference call can also be accessed by dialing (888)
886-7786 or (416) 764-8658.
For those unable to listen to the live conference call, a replay
will be available approximately two hours after the call through
the archived webcast on the Hayward website or by dialing (844)
512-2921 or (412) 317-6671. The access code for the replay is
63731594. The replay will be available until 11:59 p.m. Eastern
Time on August 16, 2023.
ABOUT HAYWARD HOLDINGS, INC.
Hayward Holdings, Inc. (NYSE: HAYW) is a leading global designer
and manufacturer of pool and outdoor living technology. With a
mission to deliver exceptional products, outstanding service and
innovative solutions to transform the experience of water, Hayward
offers a full line of energy-efficient and sustainable residential
and commercial pool equipment including pumps, filters, heaters,
cleaners, sanitizers, LED lighting, and water features all
digitally connected through Hayward’s intuitive IoT-enabled
SmartPad™.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This press release contains certain statements that are
“forward-looking statements” as that term is defined under the
Private Securities Litigation Reform Act of 1995 (the “Act”) and
releases issued by the Securities and Exchange Commission (the
“SEC”). Such forward-looking statements relating to Hayward are
based on the beliefs of Hayward’s management as well as assumptions
made by, and information currently available to it. These
forward-looking statements include, but are not limited to,
statements about Hayward’s strategies, plans, objectives,
expectations, intentions, expenditures and assumptions and other
statements contained in or incorporated by reference in this
earnings release that are not historical facts. When used in this
document, words such as “guidance,” “may,” “will,” “should,”
“could,” “intend,” “potential,” “continue,” “anticipate,”
“believe,” “estimate,” “expect,” “plan,” “target,” “predict,”
“project,” “seek” and similar expressions as they relate to Hayward
are intended to identify forward-looking statements. Hayward
believes that it is important to communicate its future
expectations to its stockholders, and it therefore makes
forward-looking statements in reliance upon the safe harbor
provisions of the Act. However, there may be events in the future
that Hayward is not able to accurately predict or control, and
actual results may differ materially from the expectations it
describes in its forward-looking statements.
Examples of forward-looking statements include, among others,
statements Hayward makes regarding: Hayward’s 2023 guidance;
business plans and objectives; general economic and industry
trends; business prospects; future product development and
acquisition strategies; future channel stocking levels; and growth
and expansion opportunities. The forward-looking statements in this
earnings release are only predictions. Hayward may not achieve the
plans, intentions or expectations disclosed in Hayward’s
forward-looking statements, and you should not place significant
reliance on its forward-looking statements. Hayward has based these
forward-looking statements largely on its current expectations and
projections about future events and financial trends that it
believes may affect its business, financial condition and results
of operations. Moreover, neither Hayward nor any other person
assumes responsibility for the accuracy and completeness of
forward-looking statements taken from third-party industry and
market reports.
Important factors that could affect Hayward’s future results and
could cause those results or other outcomes to differ materially
from those indicated in its forward-looking statements include the
following: its relationships with and the performance of
distributors, builders, buying groups, retailers and servicers who
sell Hayward’s products to pool owners; impacts on Hayward’s
business from the sensitivity of its business to seasonality and
unfavorable economic business and weather conditions; competition
from national and global companies, as well as lower-cost
manufacturers; Hayward’s ability to develop, manufacture and
effectively and profitably market and sell its new planned and
future products; its ability to execute on its growth strategies
and expansion opportunities; impacts on Hayward’s business from
political, regulatory, economic, trade, and other risks associated
with operating foreign businesses, including risks associated with
geopolitical conflict; its ability to maintain favorable
relationships with suppliers and manage disruptions to its global
supply chain and the availability of raw materials; Hayward’s
ability to identify emerging technological and other trends in its
target end markets; failure of markets to accept new product
introductions and enhancements; the ability to successfully
identify, finance, complete and integrate acquisitions; its
reliance on information technology systems and susceptibility to
threats to those systems, including cybersecurity threats, and
risks arising from its collection and use of personal information
data; regulatory changes and developments affecting Hayward’s
current and future products; volatility in currency exchange rates
and interest rates; Hayward’s ability to service its existing
indebtedness and obtain additional capital to finance operations
and its growth opportunities; Hayward’s ability to establish and
maintain intellectual property protection for its products, as well
as its ability to operate its business without infringing,
misappropriating or otherwise violating the intellectual property
rights of others; the impact of material cost and other inflation;
Hayward’s ability to attract and retain senior management and other
qualified personnel; the impact of changes in laws, regulations and
administrative policy, including those that limit U.S. tax
benefits, impact trade agreements and tariffs, or address the
impacts of climate change; the outcome of litigation and
governmental proceedings; impacts on Hayward’s product
manufacturing disruptions, including as a result of catastrophic
and other events beyond its control, including risks associated
with geopolitical conflict; uncertainties affecting the pace of
distribution channel destocking and its impact on sales volumes;
Hayward’s ability to realize cost savings from restructuring
activities; Hayward’s and its customers’ ability to manage product
inventory in an effective and efficient manner; and other factors
set forth in “Risk Factors” in Hayward’s most recent Annual Report
on Form 10-K and Quarterly Report on Form 10-Q.
Many of these factors are macroeconomic in nature and are,
therefore, beyond Hayward’s control. Should one or more of these
risks or uncertainties materialize, or should underlying
assumptions prove incorrect, Hayward’s actual results, performance
or achievements may vary materially from those described in this
earnings release as anticipated, believed, estimated, expected,
intended, planned or projected. The forward-looking statements
included in this earnings release are made only as of the date of
this earnings release. Unless required by United States federal
securities laws, Hayward neither intends nor assumes any obligation
to update these forward-looking statements for any reason after the
date of this earnings release to conform these statements to actual
results or to changes in Hayward’s expectations.
*NON-GAAP FINANCIAL MEASURES
This earnings release includes certain financial measures not
presented in accordance with the generally accepted accounting
principles in the United States (“GAAP”) including adjusted net
income, adjusted basic EPS, adjusted diluted EPS, EBITDA, adjusted
EBITDA, adjusted EBITDA margin, total segment income, adjusted
total segment income, adjusted total segment income margin,
adjusted segment income and adjusted segment income margin. These
financial measures are not measures of financial performance in
accordance with GAAP and may exclude items that are significant in
understanding and assessing the Company’s financial results.
Hayward believes these non-GAAP measures provide analysts,
investors and other interested parties with additional insight into
the underlying trends of its business and assist these parties in
analyzing the company’s performance across reporting periods on a
consistent basis by excluding items that it does not believe are
indicative of its core operating performance, which allows for a
better comparison against historical results and expectations for
future performance. Management uses these non-GAAP measures to
understand and compare operating results across reporting periods
for various purposes including internal budgeting and forecasting,
short and long-term operating planning, employee incentive
compensation, and debt compliance. Therefore, these measures should
not be considered in isolation or as an alternative to net income
(loss), segment income or other measures of profitability,
performance or financial condition under GAAP. You should be aware
that the Company’s presentation of these measures may not be
comparable to similarly titled measures used by other companies,
which may be defined and calculated differently. See the appendix
for a reconciliation of historical non-GAAP measures to the most
directly comparable GAAP measures.
Reconciliation of full fiscal year 2023 adjusted EBITDA outlook
to the comparable GAAP measure is not being provided, as Hayward
does not currently have sufficient data to accurately estimate the
variables and individual adjustments for such reconciliation.
Hayward Holdings, Inc. Unaudited
Condensed Consolidated Balance Sheets (Dollars in thousands,
except per share data)
July 1, 2023
December 31, 2022
Assets
Current assets
Cash and cash equivalents
$
205,002
$
56,177
Accounts receivable, net of allowances of
$3,082 and $3,937, respectively
147,353
209,109
Inventories, net
234,478
283,658
Prepaid expenses
12,491
14,981
Income tax receivable
17,056
27,173
Other current assets
17,330
21,186
Total current assets
633,710
612,284
Property, plant, and equipment, net of
accumulated depreciation of $92,420 and $84,119, respectively
155,869
149,828
Goodwill
934,404
932,396
Trademark
736,000
736,000
Customer relationships, net
218,580
230,503
Other intangibles, net
100,682
106,673
Other non-current assets
104,409
107,329
Total assets
$
2,883,654
$
2,875,013
Liabilities and Stockholders’
Equity
Current liabilities
Current portion of the long-term debt
$
14,695
$
14,531
Accounts payable
53,683
54,022
Accrued expenses and other liabilities
133,660
163,283
Income taxes payable
—
574
Total current liabilities
202,038
232,410
Long-term debt, net
1,081,444
1,085,055
Deferred tax liabilities, net
262,655
264,111
Other non-current liabilities
67,696
70,403
Total liabilities
1,613,833
1,651,979
Stockholders’ equity
Preferred stock, $0.001 par value,
100,000,000 authorized, no shares issued or outstanding as of July
1, 2023 and December 31, 2022
—
—
Common stock $0.001 par value, 750,000,000
authorized; 241,672,792 issued and 213,006,423 outstanding at July
1, 2023; 240,529,150 issued and 211,862,781 outstanding at December
31, 2022
242
241
Additional paid-in capital
1,074,749
1,069,878
Common stock in treasury; 28,666,369 and
28,666,369 at July 1, 2023 and December 31, 2022, respectively
(357,424
)
(357,415
)
Retained earnings
538,085
500,222
Accumulated other comprehensive income
14,169
10,108
Total stockholders’ equity
1,269,821
1,223,034
Total liabilities, redeemable stock, and
stockholders’ equity
$
2,883,654
$
2,875,013
Hayward Holdings, Inc. Unaudited
Condensed Consolidated Statements of Operations (Dollars in
thousands, except per share data)
Three Months Ended
Six Months Ended
July 1, 2023
July 2, 2022
July 1, 2023
July 2, 2022
Net sales
$
283,543
$
399,442
$
493,679
$
809,902
Cost of sales
147,033
210,077
259,278
430,143
Gross profit
136,510
189,365
234,401
379,759
Selling, general, and administrative
expense
57,716
68,947
112,603
137,804
Research, development, and engineering
expense
6,873
5,033
12,850
10,269
Acquisition and restructuring related
expense
1,309
4,940
2,872
7,211
Amortization of intangible assets
7,637
7,697
15,254
15,307
Operating income
62,975
102,748
90,822
209,168
Interest expense, net
19,130
11,605
38,491
21,167
Other (income) expense, net
625
3,804
(134
)
3,290
Total other expense
19,755
15,409
38,357
24,457
Income from operations before income
taxes
43,220
87,339
52,465
184,711
Provision for income taxes
13,767
21,079
14,602
44,419
Net income
$
29,453
$
66,260
$
37,863
$
140,292
Earnings per share
Basic
$
0.14
$
0.30
$
0.18
$
0.62
Diluted
$
0.13
$
0.29
$
0.17
$
0.59
Weighted average common shares
outstanding
Basic
212,861,564
218,401,182
212,692,393
225,358,529
Diluted
220,503,544
228,642,982
220,506,921
235,943,099
Hayward Holdings, Inc. Unaudited
Condensed Consolidated Statements of Cash Flows (In
thousands)
Six Months Ended
July 1, 2023
July 2, 2022
Cash flows from operating
activities
Net income
$
37,863
$
140,292
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation
8,590
9,598
Amortization of intangible assets
18,543
18,188
Amortization of deferred debt issuance
fees
2,242
1,478
Stock-based compensation
4,146
3,632
Deferred income taxes
(1,673
)
(9,423
)
Allowance for bad debts
(879
)
1,232
Loss on disposal of property, plant and
equipment
137
5,359
Changes in operating assets and
liabilities
Accounts receivable
63,801
(40,727
)
Inventories
50,234
(67,946
)
Other current and non-current assets
15,225
5,918
Accounts payable
(427
)
5,982
Accrued expenses and other liabilities
(31,286
)
(9,907
)
Net cash provided by operating
activities
166,516
63,676
Cash flows from investing
activities
Purchases of property, plant, and
equipment
(15,703
)
(15,855
)
Acquisitions, net of cash acquired
—
(61,337
)
Proceeds from sale of property, plant, and
equipment
5
4
Net cash used by investing activities
(15,698
)
(77,188
)
Cash flows from financing
activities
Proceeds from revolving credit
facility
144,100
150,000
Payments on revolving credit facility
(144,100
)
—
Proceeds from issuance of long-term
debt
1,827
—
Payments of long-term debt
(6,153
)
(5,000
)
Proceeds from issuance of short-term notes
payable
5,347
6,979
Payments of short-term notes payable
(3,542
)
(642
)
Purchase of common stock for treasury
(9
)
(293,159
)
Other, net
(351
)
721
Net cash used by financing activities
(2,881
)
(141,101
)
Effect of exchange rate changes on cash
and cash equivalents and restricted cash
888
(2,218
)
Change in cash and cash equivalents and
restricted cash
148,825
(156,831
)
Cash and cash equivalents and restricted
cash, beginning of period
56,177
265,796
Cash and cash equivalents and restricted
cash, end of period
$
205,002
$
108,965
Supplemental disclosures of cash flow
information
Cash paid-interest
$
37,223
$
19,358
Cash paid-income taxes
6,779
67,286
Equipment financed under finance
leases
—
1,531
Reconciliations
Consolidated
Reconciliations
Adjusted EBITDA and Adjusted EBITDA Margin Reconciliations
(Non-GAAP)
(Dollars in thousands)
Three Months Ended
Six Months Ended
July 1, 2023
July 2, 2022
July 1, 2023
July 2, 2022
Net income
$
29,453
$
66,260
$
37,863
$
140,292
Depreciation
4,228
4,758
8,590
9,598
Amortization
9,289
9,091
18,543
18,188
Interest expense
19,130
11,605
38,491
21,167
Income taxes
13,767
21,079
14,602
44,419
EBITDA
75,867
112,793
118,089
233,664
Stock-based compensation (a)
375
315
732
1,252
Currency exchange items (b)
1,205
3,453
1,131
2,724
Acquisition and restructuring related
expense, net (c)
1,309
4,940
2,872
7,211
Other (d)
722
6,136
1,583
9,035
Total Adjustments
3,611
14,844
6,318
20,222
Adjusted EBITDA
$
79,478
$
127,637
$
124,407
$
253,886
Adjusted EBITDA margin
28.0
%
32.0
%
25.2
%
31.3
%
(a)
Represents non-cash stock-based
compensation expense related to equity awards issued to management,
employees, and directors. The adjustment includes only expense
related to awards issued under the 2017 Equity Incentive Plan,
which were awards granted prior to the effective date of Hayward’s
initial public offering (the “IPO”).
(b)
Represents unrealized non-cash losses on
foreign denominated monetary assets and liabilities and foreign
currency contracts.
(c)
Adjustments in the three months ended July
1, 2023 are primarily driven by $0.5 million of separation costs
associated with the enterprise cost-reduction program initiated in
2022, $0.5 million of integration costs from prior acquisitions and
$0.3 million of costs associated with the relocation of the
corporate headquarters. Adjustments in the three months ended July
2, 2022 primarily include $3.1 million of costs associated with the
acquisition of the specialty lighting business of Halco
Technologies, LLC (the “Specialty Lighting Business”), $1.2 million
of costs associated with the relocation of the corporate
headquarters and other immaterial items.
Adjustments in the six months ended July
1, 2023 are primarily driven by $1.3 million of separation costs
associated with the enterprise cost-reduction program initiated in
2022, $0.8 million of integration costs from prior acquisitions and
$0.6 million of costs associated with the relocation of the
corporate headquarters. Adjustments in the six months ended July 2,
2022 are primarily driven by $3.3 million of costs associated with
the relocation of the corporate headquarters, $3.2 million of
transaction costs associated with the acquisition of the Specialty
Lighting Business and other immaterial items.
(d)
Adjustments in the three months ended July
1, 2023 primarily include $0.3 million of costs incurred related to
the selling stockholder offering of shares in May 2023, which are
reported in SG&A in the unaudited condensed consolidated
statement of operations, and other miscellaneous items the Company
believes are not representative of its ongoing business operations.
Adjustments in the three months ended July 2, 2022 are primarily
driven by a one-time $5.5 million expense associated with the
discontinuation of a product joint development agreement, $0.9
million of costs associated with follow-on equity offerings, $0.7
million of transitional expenses incurred to enable go-forward
public company regulatory compliance, and other miscellaneous items
partially offset by $1.1 million of gains resulting from an
insurance policy reimbursement related to the fire incident in
Yuncos, Spain.
Adjustments in the six months ended July
1, 2023 primarily includes $0.6 million of costs associated with
follow-on equity offerings, $0.4 million of transitional expenses
incurred to enable go-forward public company regulatory compliance
and other miscellaneous items the Company believes are not
representative of its ongoing business operations. Adjustments in
the six months ended July 2, 2022 are primarily driven by a
one-time $5.5 million expense associated with the discontinuation
of a product joint development agreement, $1.0 million of
transitional expenses incurred to enable go-forward public company
regulatory compliance, $0.9 million of costs associated with
follow-on equity offerings, $0.9 million of expenses related to the
corporate headquarters transition, $0.7 million of bad debt
reserves related to certain customers impacted by the conflict
between Russia and Ukraine, net of subsequent collections, and
other immaterial items, partially offset by $1.1 million of gains
resulting from an insurance policy reimbursement related to the
fire incident in Yuncos, Spain.
Following is a reconciliation from net income to adjusted
EBITDA:
Following is a reconciliation from net income to adjusted EBITDA
for the last twelve months:
(Dollars in thousands)
Last Twelve Months(e)
Fiscal Year
July 1, 2023
December 31, 2022
Net income
$
76,918
$
179,347
Depreciation
18,238
19,246
Amortization
38,748
38,393
Interest expense
68,711
51,387
Income taxes
25,073
54,890
EBITDA
227,688
343,263
Stock-based compensation (a)
1,082
1,602
Currency exchange items (b)
(667
)
926
Acquisition and restructuring related
expense, net (c)
3,823
8,162
Other (d)
6,170
13,622
Total Adjustments
10,408
24,312
Adjusted EBITDA
$
238,096
$
367,575
Adjusted EBITDA margin
23.9
%
28.0
%
(a)
Represents non-cash stock-based
compensation expense related to equity awards issued to management,
employees, and directors. The adjustment includes only expense
related to awards issued under the 2017 Equity Incentive Plan,
which were awards granted prior to the effective date of the
IPO.
(b)
Represents unrealized non-cash losses on
foreign denominated monetary assets and liabilities and foreign
currency contracts.
(c)
Adjustments in the last twelve months
ended July 1, 2023 include $4.2 million separation costs associated
with a reduction-in-force from the enterprise cost-reduction
program, $2.3 million of costs associated with the relocation of
the corporate headquarters, $0.8 million of integration costs from
prior acquisitions and other immaterial items, partially offset by
a $2.4 million gain resulting from the release of certain reserves
associated with the exit of an early-stage product line
discontinued in 2021 and a $1.3 million purchase-price adjustment
related to the acquisition of the Specialty Lighting Business.
Adjustments in the year ended December 31,
2022 primarily include $5.0 million of costs associated with the
relocation of the corporate headquarters, $2.9 million separation
costs associated with a reduction-in-force, and $1.9 million
transaction costs associated with the acquisition of the Specialty
Lighting Business, partially offset by a $2.4 million gain
resulting from the release of certain reserves associated with the
exit of an early-stage product line discontinued in 2021.
(d)
Adjustments in the last twelve months
ended July 1, 2023 include $3.3 million non-cash increase in cost
of goods sold resulting from the fair value inventory step-up
adjustment recognized as part of the purchase accounting for the
Specialty Lighting Business, $1.6 million of transitional expenses
incurred to enable go-forward public company regulatory compliance,
$1.1 million of costs incurred related to registered share
offerings by selling stockholders, which are reported in SG&A
in the consolidated statements of operations, $0.2 million of gains
on the sale of fixed assets, and other immaterial items, partially
offset by $0.5 million of subsequent collections against bad debt
reserves taken in response to the conflict between Russia and
Ukraine.
Adjustments in the year ended December 31,
2022 include $5.5 million of expenses associated with the
discontinuation of a product joint development agreement, a $3.3
million non-cash increase in cost of goods sold resulting from the
fair value inventory step-up adjustment recognized as part of the
purchase accounting for the Specialty Lighting Business, $2.3
million of transitional expenses incurred to enable go-forward
public company regulatory compliance, $1.4 million of costs
incurred related to the selling stockholder offering of shares in
May 2022, which are reported in SG&A in the consolidated
statements of operations, $0.9 million of expenses related to the
corporate headquarters transition, $0.2 million bad debt reserves
related to certain customers impacted by the conflict between
Russia and Ukraine, and other immaterial items, partially offset by
subsequent collections and $1.1 million of gains resulting from an
insurance policy reimbursement related to the fire incident in the
manufacturing and administrative facilities in Yuncos, Spain.
(e)
Items for the last twelve months ended
July 1, 2023 are calculated by adding the items for the six months
ended July 1, 2023 plus fiscal year ended December 31, 2022 and
subtracting the items for the six months ended July 2, 2022.
Adjusted Net Income and Adjusted EPS Reconciliation
(Non-GAAP)
Following is a reconciliation of net income to adjusted net
income and earnings per share to adjusted earnings per share:
(Dollars in thousands)
Three Months Ended
Six Months Ended
July 1, 2023
July 2, 2022
July 1, 2023
July 2, 2022
Net income
$
29,453
$
66,260
$
37,863
$
140,292
Tax adjustments (a)
3,046
(250
)
1,498
(250
)
Other adjustments and amortization:
Stock-based compensation (b)
375
315
732
1,252
Currency exchange items (c)
1,205
3,453
1,131
2,724
Acquisition and restructuring related
expense, net (d)
1,309
4,940
2,872
7,211
Other (e)
722
6,136
1,583
9,035
Total other adjustments
3,611
14,844
6,318
20,222
Amortization
9,289
9,091
18,543
18,188
Tax effect (f)
(3,200
)
(5,845
)
(6,284
)
(9,315
)
Certain transaction-related adjustments
(g):
Acquisitions
—
849
—
2,291
Tax effect (f)
—
(207
)
—
(553
)
Adjusted net income
$
42,199
$
84,742
$
57,938
$
170,875
Weighted average number of common shares
outstanding, basic
212,861,564
218,401,182
212,692,393
225,358,529
Weighted average number of common shares
outstanding, diluted
220,503,544
228,642,982
220,506,921
235,943,099
Basic EPS
$
0.14
$
0.30
$
0.18
$
0.62
Diluted EPS
$
0.13
$
0.29
$
0.17
$
0.59
Adjusted basic EPS
$
0.20
$
0.39
$
0.27
$
0.76
Adjusted diluted EPS
$
0.19
$
0.37
$
0.26
$
0.72
(a)
Tax adjustments for the three and six
months ended July 1, 2023 reflect a normalized tax rate of 24.8%
and 25.0% compared to the Company’s effective tax rate of 31.9% and
27.8%. The Company’s effective tax rate for the three and six
months ended July 1, 2023 includes the impact of a discrete tax
expense related to a change in the indefinite reinvestment
assertion for one jurisdiction, partially offset by a tax benefit
resulting from the exercise of stock options. Tax adjustments for
the three and six months ended July 2, 2022 reflect a normalized
tax rate of 24.4% and 24.2% compared to the effective tax rates of
24.1% and 24.0%, respectively. The Company’s effective tax rate for
the three and six months ended July 2, 2022 includes the tax
benefit resulting from the exercise of stock options. All non-tax
adjustments are effected at the normalized rate.
(b)
Represents non-cash stock-based
compensation expense related to equity awards issued to management,
employees, and directors. The adjustment includes only expense
related to awards issued under the 2017 Equity Incentive Plan,
which were awards granted prior to the effective date of the
IPO.
(c)
Represents unrealized non-cash losses on
foreign denominated monetary assets and liabilities and foreign
currency contracts.
(d)
Adjustments in the three months ended July
1, 2023 are primarily driven by $0.5 million of separation costs
associated with the enterprise cost-reduction program initiated in
2022, $0.5 million of integration costs from prior acquisitions and
$0.3 million of costs associated with the relocation of the
corporate headquarters. Adjustments in the three months ended July
2, 2022 primarily include $3.1 million of costs associated with the
acquisition of the specialty lighting business of Halco
Technologies, LLC (the “Specialty Lighting Business”), $1.2 million
of costs associated with the relocation of the corporate
headquarters and other immaterial items.
Adjustments in the six months ended July
1, 2023 are primarily driven by $1.3 million of separation costs
associated with the enterprise cost-reduction program initiated in
2022, $0.8 million of integration costs from prior acquisitions and
$0.6 million of costs associated with the relocation of the
corporate headquarters. Adjustments in the six months ended July 2,
2022 are primarily driven by $3.3 million of costs associated with
the relocation of the corporate headquarters, $3.2 million of
transaction costs associated with the acquisition of the Specialty
Lighting Business and other immaterial items.
(e)
Adjustments in the three months ended July
1, 2023 primarily include $0.3 million of costs incurred related to
the selling stockholder offering of shares in May 2023, which are
reported in SG&A in the unaudited condensed consolidated
statement of operations, and other miscellaneous items the Company
believes are not representative of its ongoing business operations.
Adjustments in the three months ended July 2, 2022 are primarily
driven by a one-time $5.5 million expense associated with the
discontinuation of a product joint development agreement, $0.9
million of costs associated with follow-on equity offerings, $0.7
million of transitional expenses incurred to enable go-forward
public company regulatory compliance, and other miscellaneous items
partially offset by $1.1 million of gains resulting from an
insurance policy reimbursement related to the fire incident in
Yuncos, Spain.
Adjustments in the six months ended July
1, 2023 primarily includes $0.6 million of costs associated with
follow-on equity offerings, $0.4 million of transitional expenses
incurred to enable go-forward public company regulatory compliance
and other miscellaneous items the Company believes are not
representative of its ongoing business operations. Adjustments in
the six months ended July 2, 2022 are primarily driven by a
one-time $5.5 million expense associated with the discontinuation
of a product joint development agreement, $1.0 million of
transitional expenses incurred to enable go-forward public company
regulatory compliance, $0.9 million of costs associated with
follow-on equity offerings, $0.9 million of expenses related to the
corporate headquarters transition, $0.7 million of bad debt
reserves related to certain customers impacted by the conflict
between Russia and Ukraine, net of subsequent collections, and
other immaterial items, partially offset by $1.1 million of gains
resulting from an insurance policy reimbursement related to the
fire incident in Yuncos, Spain.
(f)
The tax effect represents the immediately
preceding adjustments at the normalized tax rates as discussed in
footnote (a) above.
(g)
The adjustments for the three and six
months ended July 2, 2022 represent adjustments related to the
acquisition of the Specialty Lighting Business as if the
acquisition had occurred at the beginning of the period.
Segment Reconciliations
Following is a reconciliation from segment income to adjusted
segment income for the North America (“NAM”) and Europe & Rest
of World (“E&RW”) segments:
(Dollars in thousands)
Three Months Ended
Three Months Ended
July 1, 2023
July 2, 2022
Total
NAM
E&RW
Total
NAM
E&RW
Net sales
$
283,543
$
237,352
$
46,191
$
399,442
$
342,080
$
57,362
Gross profit
$
136,510
$
118,442
$
18,068
$
189,365
$
166,818
$
22,547
Gross profit margin %
48.1
%
49.9
%
39.1
%
47.4
%
48.8
%
39.3
%
Income from operations before income
taxes
$
43,220
$
87,339
Expenses not allocated to segments
Corporate expense, net
8,425
8,386
Acquisition and restructuring related
expense
1,309
4,940
Amortization of intangible assets
7,637
7,697
Interest expense, net
19,130
11,605
Other (income) expense, net
625
3,804
Segment income
$
80,346
$
70,962
$
9,384
$
123,771
$
110,539
$
13,232
Segment income margin %
28.3
%
29.9
%
20.3
%
31.0
%
32.3
%
23.1
%
Depreciation
$
4,068
$
3,837
$
231
$
4,454
$
4,248
$
206
Amortization
1,651
1,651
—
1,394
1,394
—
Stock-based compensation
192
180
12
829
765
64
Other (a)
290
290
—
5,040
5,538
(498
)
Total adjustments
6,201
5,958
243
11,717
11,945
(228
)
Adjusted segment income
$
86,547
$
76,920
$
9,627
$
135,488
$
122,484
$
13,004
Adjusted segment income margin %
30.5
%
32.4
%
20.8
%
33.9
%
35.8
%
22.7
%
(a)
The three months ended July 1, 2023 for
NAM includes miscellaneous items the Company believes are not
representative of its ongoing business operations. The three months
ended July 2, 2022 includes a one-time $5.5 million expense
associated with the discontinuation of a product joint development
agreement.
The three months ended July 2, 2022 for
E&RW includes $0.5 million of collections associated with
previous bad debt write-offs related to certain customers impacted
by the conflict between Russia and Ukraine.
(Dollars in thousands)
Six Months Ended
Six Months Ended
July 1, 2023
July 2, 2022
Total
NAM
E&RW
Total
NAM
E&RW
Net sales
$
493,679
$
400,056
$
93,623
$
809,902
$
688,377
$
121,525
Gross profit
$
234,401
$
197,455
$
36,946
$
379,759
$
329,875
$
49,884
Gross profit margin %
47.5
%
49.4
%
39.5
%
46.9
%
47.9
%
41.0
%
Income from operations before income
taxes
$
52,465
$
184,711
Expenses not allocated to segments
Corporate expense, net
14,524
17,665
Acquisition and restructuring related
expense
2,872
7,211
Amortization of intangible assets
15,254
15,307
Interest expense, net
38,491
21,167
Other (income) expense, net
(134
)
3,290
Segment income
$
123,472
$
104,238
$
19,234
$
249,351
$
219,150
$
30,201
Segment income margin %
25.0
%
26.1
%
20.5
%
30.8
%
31.8
%
24.9
%
Depreciation
$
8,373
$
7,925
$
448
$
8,957
$
8,582
$
375
Amortization
3,288
3,288
—
2,881
2,881
—
Stock-based compensation
365
342
23
459
356
103
Other (a)
388
388
—
6,450
5,738
712
Total adjustments
12,414
11,943
471
18,747
17,557
1,190
Adjusted segment income
$
135,886
$
116,181
$
19,705
$
268,098
$
236,707
$
31,391
Adjusted segment income margin %
27.5
%
29.0
%
21.0
%
33.1
%
34.4
%
25.8
%
(a)
The six months ended July 1, 2023 for NAM
includes miscellaneous items the Company believes are not
representative of its ongoing business operations. The six months
ended July 2, 2022 includes a one-time $5.5 million expense
associated with the discontinuation of a product joint development
agreement and other immaterial miscellaneous items the Company
believes are not representative of its ongoing business
operations.
The six months ended July 2, 2022 for
E&RW represents $0.7 million of bad debt reserves related to
certain customers impacted by the conflict between Russia and
Ukraine, partially offset by subsequent collections.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230802173304/en/
Investor Relations: Kevin Maczka investor.relations@hayward.com
Media Relations: Tanya McNabb tmcnabb@hayward.com
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