THIRD QUARTER FISCAL 2023 SUMMARY
- Net Sales of $220.3 million
- Net Income of $11.8 million
- Adjusted EBITDA* of $47.2 million
- Diluted EPS of $0.05 and adjusted diluted EPS* of $0.09
- Strong year-to-date cash flow from operations of $216.9
million
Hayward Holdings, Inc. (NYSE: HAYW) (“Hayward” or the
“Company”), a global designer, manufacturer and marketer of a broad
portfolio of pool and outdoor living technology, today announced
financial results for the third quarter ended September 30, 2023 of
its fiscal year 2023. Comparisons are to financial results for the
prior-year third fiscal quarter.
CEO COMMENTS
“Our third quarter results were consistent with expectations,
reflecting continued execution amid challenging operating
conditions,” said Kevin Holleran, Hayward’s President and Chief
Executive Officer. “We delivered strong gross profit margin
expansion of nearly 400 basis points and generated cash flow
through operational excellence and effective cost control. We are
encouraged by progressively leaner channel inventory levels
reported by our primary U.S. distributors and increased early buy
orders compared to last year. However, channel partners are
generally taking a cautious approach given the macroeconomic
uncertainty and rising interest rate environment. While our outlook
for the US and Europe is modestly reduced, we are updating our
near-term outlook primarily as a consequence of additional pressure
in Canada and other international markets. Longer-term, we have
established a solid foundation for profitable growth and
shareholder value creation, and we continue to invest in the
business to enhance our competitive advantages.”
THIRD QUARTER FISCAL 2023 CONSOLIDATED RESULTS
Net sales decreased by 10% to $220.3 million for the third
quarter of fiscal 2023. The decline in net sales during the quarter
was the result of lower volumes and a decrease in net price,
partially offset by the favorable impact of foreign currency
translation. The decline in volume was primarily the result of
distribution channel destocking and the moderation of end-market
demand due to macroeconomic factors. The decrease in net price
resulted from an increase in sales allowances, which was primarily
driven by activity in our seasonal year rewards programs, partially
offset by positive list price realization.
Gross profit decreased by 2% to $105.4 million for the third
quarter of fiscal 2023. Gross profit margin increased 390 basis
points to 47.8%. The increase in gross profit margin was
principally due to management of our manufacturing costs, including
reduced costs specifically in freight and tariffs, partially offset
by lower operating leverage. The prior-year period included the
impact from a non-cash increase in cost of goods sold resulting
from purchase accounting.
Selling, general, and administrative expense (“SG&A”)
increased by 18% to $59.5 million for the third quarter of fiscal
2023. The increase in SG&A was driven by increased field
service warranty costs. As a percentage of net sales, SG&A
increased 640 basis points to 27.0%, compared to the prior-year
period of 20.6%, driven by reduced operating leverage. Research,
development, and engineering expenses were $6.2 million for the
third quarter of fiscal 2023, or 3% of net sales, as compared to
$6.1 million for the prior-year period, or 3% of net sales.
Operating income decreased by 28% to $28.9 million for the third
quarter of fiscal 2023, due to the aggregated effects of the items
described above. Operating income as a percentage of net sales
(“operating margin”) was 13.1% for the third quarter of fiscal
2023, a 330 basis point reduction from the 16.4% operating margin
in the prior-year period.
Interest expense, net, increased by approximately 25% to $17.4
million for the third 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 benefit for the third quarter of fiscal 2023 was $2.3
million for an effective tax rate of (23.7)%, compared to income
tax expense of $3.5 million for an effective tax rate of 13.3% for
the prior-year period. The change in the effective tax rate was
driven by the exercise of stock options, the release of the
valuation allowance against foreign tax credit carryovers and prior
period return-to-provision adjustments.
Net income decreased by 49% to $11.8 million for the third
quarter of fiscal 2023.
Adjusted EBITDA* decreased by 22% to $47.2 million for the third
quarter of fiscal 2023. Adjusted EBITDA margin* decreased 320 basis
points to 21.4%.
Diluted EPS decreased by 50% to $0.05 for the third quarter of
fiscal 2023. Adjusted diluted EPS* decreased by 36% to $0.09 for
the third quarter of fiscal 2023.
THIRD QUARTER FISCAL 2023 SEGMENT RESULTS
North America
Net sales decreased by 9% to $185.1 million for the third
quarter of fiscal 2023. The decline was primarily the result of
lower volume along with a decrease in net price driven by
comparably increased sales allowances. The decline in volume was
driven by distribution channel destocking and the moderation of end
market demand trends due to macroeconomic factors. The decrease in
net price resulted from a comparable increase in sales allowances,
which was primarily driven by activity in our seasonal year rewards
programs, partially offset by positive list price realization.
Segment income decreased by 18% to $40.1 million for the third
quarter of fiscal 2023. Adjusted segment income* decreased by 19%
to $46.1 million.
Europe & Rest of World
Net sales decreased by 15% to $35.2 million for the third
quarter of fiscal 2023. The decline was primarily due to lower
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 27% to $6.4 million for the third
quarter of fiscal 2023. Adjusted segment income* decreased by 23%
to $6.7 million.
BALANCE SHEET AND CASH FLOW
As of September 30, 2023, Hayward had cash and cash equivalents
of $244.2 million and approximately $158.0 million available for
future borrowings under its revolving credit facilities. Cash flow
provided by operations for the nine months ended September 30, 2023
of approximately $217 million was an increase of approximately $73
million from the prior-year period. The increase was primarily the
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
Hayward is updating its guidance primarily to reflect the impact
of more challenging macro conditions in Canada, the Middle East,
and Latin America, in addition to modestly reduced expectations for
the US and Europe. Early buy orders in our primary US market
increased year-over-year and were in line with expectations.
However, recent in-season orders have been softer than previously
anticipated reflecting a cautious approach by channel partners
ahead of 2024. For the full fiscal year 2023, Hayward now expects
net sales to decrease 24% to 26% from the prior year and Adjusted
EBITDA* in the range of $245 million to $255 million.
While we expect continued challenging industry conditions over
the near term, we remain positive about the long-term 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, October 31, 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 (877)
423-9813 or (201) 689-8573.
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
13741998. The replay will be available until 11:59 p.m. Eastern
Time on November 14, 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,” “outlook,” “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 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,
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.
Adjusted EBITDA outlook for full year 2023 is calculated in a
manner consistent with the historical presentation of this measure
in the appendix.
Hayward Holdings, Inc.
Unaudited Condensed Consolidated
Balance Sheets
(In thousands)
September 30, 2023
December 31, 2022
Assets
Current assets
Cash and cash equivalents
$
244,245
$
56,177
Accounts receivable, net of allowances of
$3,027 and $3,937, respectively
125,493
209,109
Inventories, net
221,450
283,658
Prepaid expenses
12,756
14,981
Income tax receivable
23,224
27,173
Other current assets
15,729
21,186
Total current assets
642,897
612,284
Property, plant, and equipment, net of
accumulated depreciation of $92,163 and $84,119, respectively
159,527
149,828
Goodwill
932,216
932,396
Trademark
736,000
736,000
Customer relationships, net
211,727
230,503
Other intangibles, net
97,595
106,673
Other non-current assets
103,120
107,329
Total assets
$
2,883,082
$
2,875,013
Liabilities and Stockholders’
Equity
Current liabilities
Current portion of the long-term debt
$
14,646
$
14,531
Accounts payable
47,616
54,022
Accrued expenses and other liabilities
135,620
163,283
Income taxes payable
—
574
Total current liabilities
197,882
232,410
Long-term debt, net
1,080,259
1,085,055
Deferred tax liabilities, net
258,514
264,111
Other non-current liabilities
66,093
70,403
Total liabilities
1,602,748
1,651,979
Stockholders’ equity
Preferred stock, $0.001 par value,
100,000,000 authorized, no shares issued or outstanding as of
September 30, 2023 and December 31, 2022
—
—
Common stock $0.001 par value, 750,000,000
authorized; 242,356,177 issued and 213,689,808 outstanding at
September 30, 2023; 240,529,150 issued and 211,862,781 outstanding
at December 31, 2022
243
241
Additional paid-in capital
1,078,200
1,069,878
Common stock in treasury; 28,666,369 and
28,666,369 at September 30, 2023 and December 31, 2022,
respectively
(357,637
)
(357,415
)
Retained earnings
549,873
500,222
Accumulated other comprehensive income
9,655
10,108
Total stockholders’ equity
1,280,334
1,223,034
Total liabilities, redeemable stock, and
stockholders’ equity
$
2,883,082
$
2,875,013
Hayward Holdings, Inc.
Unaudited Condensed Consolidated
Statements of Operations
(Dollars in thousands, except per share
data)
Three Months Ended
Nine Months Ended
September 30, 2023
October 1, 2022
September 30, 2023
October 1, 2022
Net sales
$
220,304
$
245,267
$
713,983
$
1,055,169
Cost of sales
114,893
137,483
374,171
567,626
Gross profit
105,411
107,784
339,812
487,543
Selling, general, and administrative
expense
59,454
50,493
172,057
188,297
Research, development, and engineering
expense
6,177
6,142
19,027
16,411
Acquisition and restructuring related
expense
3,348
2,288
6,220
9,499
Amortization of intangible assets
7,523
8,521
22,777
23,828
Operating income
28,909
40,340
119,731
249,508
Interest expense, net
17,448
13,938
55,939
35,105
Other (income) expense, net
1,932
(234
)
1,798
3,056
Total other expense
19,380
13,704
57,737
38,161
Income from operations before income
taxes
9,529
26,636
61,994
211,347
Provision (benefit) for income taxes
(2,259
)
3,549
12,343
47,968
Net income
$
11,788
$
23,087
$
49,651
$
163,379
Earnings per share
Basic
$
0.06
$
0.11
$
0.23
$
0.74
Diluted
$
0.05
$
0.10
$
0.23
$
0.70
Weighted average common shares
outstanding
Basic
213,416,502
212,905,429
212,933,763
222,009,824
Diluted
220,863,228
222,006,615
220,634,232
232,131,395
Hayward Holdings, Inc.
Unaudited Condensed Consolidated
Statements of Cash Flows
(In thousands)
Nine Months Ended
September 30, 2023
October 1, 2022
Cash flows from operating
activities
Net income
$
49,651
$
163,379
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation
13,018
13,931
Amortization of intangible assets
27,803
28,437
Amortization of deferred debt issuance
fees
3,458
2,312
Stock-based compensation
6,701
5,787
Deferred income taxes
(5,965
)
(4,221
)
Allowance for bad debts
(906
)
869
Loss on disposal of property, plant and
equipment
945
5,550
Changes in operating assets and
liabilities
Accounts receivable
85,216
96,874
Inventories
61,715
(70,469
)
Other current and non-current assets
9,500
(16,902
)
Accounts payable
(6,265
)
(24,472
)
Accrued expenses and other liabilities
(27,934
)
(57,411
)
Net cash provided by operating
activities
216,937
143,664
Cash flows from investing
activities
Purchases of property, plant, and
equipment
(22,623
)
(23,533
)
Acquisitions, net of cash acquired
—
(61,337
)
Proceeds from sale of property, plant, and
equipment
13
4
Net cash used by investing activities
(22,610
)
(84,866
)
Cash flows from financing
activities
Proceeds from revolving credit
facility
144,100
150,000
Payments on revolving credit facility
(144,100
)
(50,000
)
Proceeds from issuance of long-term
debt
3,320
—
Payments of long-term debt
(9,325
)
(7,500
)
Proceeds from issuance of short-term notes
payable
6,130
8,119
Payments of short-term notes payable
(5,174
)
(2,849
)
Purchase of common stock for treasury
(222
)
(343,319
)
Other, net
73
(398
)
Net cash used by financing activities
(5,198
)
(245,947
)
Effect of exchange rate changes on cash
and cash equivalents and restricted cash
(1,061
)
(5,740
)
Change in cash and cash equivalents and
restricted cash
188,068
(192,889
)
Cash and cash equivalents and restricted
cash, beginning of period
56,177
265,796
Cash and cash equivalents and restricted
cash, end of period
$
244,245
$
72,907
Supplemental disclosures of cash flow
information
Cash paid-interest
$
56,438
$
32,725
Cash paid-income taxes
14,913
93,503
Equipment financed under finance
leases
—
1,603
Reconciliations
Consolidated
Reconciliations
Adjusted EBITDA and Adjusted EBITDA Margin Reconciliations
(Non-GAAP)
Following is a reconciliation from net income to adjusted
EBITDA:
(Dollars in thousands)
Three Months Ended
Nine Months Ended
September 30, 2023
October 1, 2022
September 30, 2023
October 1, 2022
Net income
$
11,788
$
23,087
$
49,651
$
163,379
Depreciation
4,428
4,333
13,018
13,931
Amortization
9,260
10,249
27,803
28,437
Interest expense
17,448
13,938
55,939
35,105
Income taxes
(2,259
)
3,549
12,343
47,968
EBITDA
40,665
55,156
158,754
288,820
Stock-based compensation (a)
269
(4
)
1,001
1,248
Currency exchange items (b)
145
52
1,276
2,776
Acquisition and restructuring related
expense, net (c)
3,348
2,288
6,220
9,499
Other (d)
2,784
2,935
4,367
11,970
Total Adjustments
6,546
5,271
12,864
25,493
Adjusted EBITDA
$
47,211
$
60,427
$
171,618
$
314,313
Adjusted EBITDA margin
21.4
%
24.6
%
24.0
%
29.8
%
(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
September 30, 2023 are primarily driven by $1.9 million of
separation costs associated with the centralization of operations
in Europe and $1.5 million of costs associated with the relocation
of the corporate headquarters. Adjustments in the three months
ended October 1, 2022 primarily include $1.3 million of costs
associated with the reduction-in-force as part of the 2022
enterprise cost reduction program and $1.1 million of costs
associated with the relocation of the corporate headquarters,
partially offset by other individual immaterial items.
Adjustments in the nine months ended
September 30, 2023 are primarily driven by $2.1 million of costs
associated with the relocation of the corporate headquarters, $1.9
million of separation costs associated with the centralization of
operations in Europe, $1.3 million of separation costs associated
with the enterprise cost-reduction program initiated in 2022 and
$0.8 million of integration costs from prior acquisitions.
Adjustments in the nine months ended October 1, 2022 are primarily
driven by $4.2 million of costs associated with the relocation of
the corporate headquarters, $3.1 million of transaction costs
associated with the acquisition of the specialty lighting business
of Halco Technologies, LLC (the “Specialty Lighting Business”),
$1.4 million of costs associated with the reduction-in-force and
other individual immaterial items.
(d)
Adjustments in the three months ended
September 30, 2023 primarily include $1.9 million of costs related
to inventory and fixed assets as part of the centralization of
operations in Europe and $0.8 million of costs incurred related to
the selling stockholder offerings of shares during 2023, which are
reported in SG&A in the unaudited condensed consolidated
statement of operations. Adjustments in the three months ended
October 1, 2022 are primarily driven by a $2.7 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.
Adjustments in the nine months ended
September 30, 2023 primarily includes $1.9 million of costs related
to inventory and fixed assets as part of the centralization of
operations in Europe, $1.5 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 nine months ended October 1, 2022 are primarily driven by a
one-time $5.5 million expense associated with the discontinuation
of a product joint development agreement, a $2.7 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, $1.4 million of
transitional expenses incurred to enable go-forward public company
regulatory compliance, $1.2 million of costs associated with
follow-on equity offerings, $0.9 million of expenses related to the
corporate headquarters transition, $0.4 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
for the last twelve months:
(Dollars in thousands)
Last Twelve Months(e)
Fiscal Year
September 30, 2023
December 31, 2022
Net income
$
65,619
$
179,347
Depreciation
18,333
19,246
Amortization
37,759
38,393
Interest expense
72,221
51,387
Income taxes
19,265
54,890
EBITDA
213,197
343,263
Stock-based compensation (a)
1,355
1,602
Currency exchange items (b)
(574
)
926
Acquisition and restructuring related
expense, net (c)
4,883
8,162
Other (d)
6,019
13,622
Total Adjustments
11,683
24,312
Adjusted EBITDA
$
224,880
$
367,575
Adjusted EBITDA margin
23.1
%
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 September 30, 2023 include $2.9 million of costs associated
with the relocation of the corporate headquarters, $2.9 million
separation costs associated with a reduction-in-force from the 2022
enterprise cost-reduction program, $1.9 million of separation costs
associated with the centralization of operations in Europe, $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 September 30, 2023 include $1.9 million of costs related to
inventory and fixed assets as part of the centralization of
operations in Europe, $1.7 million of costs associated with
follow-on equity offerings, $1.2 million of transitional expenses
incurred to enable go-forward public company regulatory compliance
and a $0.7 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.
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
September 30, 2023 are calculated by adding the items for the nine
months ended September 30, 2023 plus fiscal year ended December 31,
2022 and subtracting the items for the nine months ended October 1,
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
Nine Months Ended
September 30, 2023
October 1, 2022
September 30, 2023
October 1, 2022
Net income
$
11,788
$
23,087
$
49,651
$
163,379
Tax adjustments (a)
(4,401
)
(2,897
)
(2,905
)
(3,128
)
Other adjustments and amortization:
Stock-based compensation (b)
269
(4
)
1,001
1,248
Currency exchange items (c)
145
52
1,276
2,776
Acquisition and restructuring related
expense, net (d)
3,348
2,288
6,220
9,499
Other (e)
2,784
2,935
4,367
11,970
Total other adjustments
6,546
5,271
12,864
25,493
Amortization
9,260
10,249
27,803
28,437
Tax effect (f)
(3,554
)
(3,756
)
(9,838
)
(13,066
)
Certain transaction-related adjustments
(g):
Acquisitions
—
—
—
2,761
Tax effect (f)
—
—
—
(667
)
Adjusted net income
$
19,639
$
31,954
$
77,575
$
203,209
Weighted average number of common shares
outstanding, basic
213,416,502
212,905,429
212,933,763
222,009,824
Weighted average number of common shares
outstanding, diluted
220,863,228
222,006,615
220,634,232
232,131,395
Basic EPS
$
0.06
$
0.11
$
0.23
$
0.74
Diluted EPS
$
0.05
$
0.10
$
0.23
$
0.70
Adjusted basic EPS
$
0.09
$
0.15
$
0.36
$
0.92
Adjusted diluted EPS
$
0.09
$
0.14
$
0.35
$
0.88
(a)
Tax adjustments for the three and nine
months ended September 30, 2023 reflect a normalized tax rate of
22.5% and 24.2% compared to the Company’s effective tax rate of
(23.7)% and 19.9%. The Company’s effective tax rate for the three
months ended September 30, 2023 includes the tax benefits resulting
from the exercise of stock options, the release of the valuation
allowance against foreign tax credit carryovers and prior period
return-to-provision adjustments, while the nine months ended rate
includes the aforementioned items, partially offset by the impact
of a discrete tax expense related to a change in the indefinite
reinvestment assertion for one jurisdiction. Tax adjustments for
the three and nine months ended October 1, 2022 reflect a
normalized tax rate of 24.2% and 24.5% compared to the effective
tax rates of 13.3% and 22.7%, respectively. The Company’s effective
tax rate for the three and nine months ended October 1, 2022
includes the impact of the revaluation of deferred tax liabilities
as a result of state tax law changes and 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
September 30, 2023 are primarily driven by $1.9 million of
separation costs associated with the centralization of operations
in Europe and $1.5 million of costs associated with the relocation
of the corporate headquarters. Adjustments in the three months
ended October 1, 2022 primarily include $1.3 million of costs
associated with the reduction-in-force as part of the 2022
enterprise cost reduction program and $1.1 million of costs
associated with the relocation of the corporate headquarters,
partially offset by other individual immaterial items.
Adjustments in the nine months ended
September 30, 2023 are primarily driven by $2.1 million of costs
associated with the relocation of the corporate headquarters, $1.9
million of separation costs associated with the centralization of
operations in Europe, $1.3 million of separation costs associated
with the enterprise cost-reduction program initiated in 2022 and
$0.8 million of integration costs from prior acquisitions.
Adjustments in the nine months ended October 1, 2022 are primarily
driven by $4.4 million of costs associated with the relocation of
the corporate headquarters, $3.1 million of transaction costs
associated with the acquisition of the Specialty Lighting Business,
$1.4 million of costs associated with the reduction-in-force and
other individual immaterial items.
(e)
Adjustments in the three months ended
September 30, 2023 primarily include $1.9 million of costs related
to inventory and fixed assets as part of the centralization of
operations in Europe and $0.8 million of costs incurred related to
the selling stockholder offerings of shares during 2023, which are
reported in SG&A in the unaudited condensed consolidated
statement of operations. Adjustments in the three months ended
October 1, 2022 are primarily driven by a $2.7 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.
Adjustments in the nine months ended
September 30, 2023 primarily includes $1.9 million of costs related
to inventory and fixed assets as part of the centralization of
operations in Europe, $1.5 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 nine months ended October 1, 2022 are primarily driven by a
one-time $5.5 million expense associated with the discontinuation
of a product joint development agreement, a $2.7 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, $1.4 million of
transitional expenses incurred to enable go-forward public company
regulatory compliance, $1.2 million of costs associated with
follow-on equity offerings, $0.9 million of expenses related to the
corporate headquarters transition, $0.4 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 nine months ended
October 1, 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
September 30, 2023
October 1, 2022
Total
NAM
E&RW
Total
NAM
E&RW
Net sales
$
220,304
$
185,070
$
35,234
$
245,267
$
203,674
$
41,593
Gross profit
$
105,411
$
91,456
$
13,955
$
107,784
$
91,850
$
15,934
Gross profit margin %
47.8
%
49.4
%
39.6
%
43.9
%
45.1
%
38.3
%
Income from operations before income
taxes
$
9,529
$
26,636
Expenses not allocated to segments
Corporate expense, net
6,741
6,344
Acquisition and restructuring related
expense
3,348
2,288
Amortization of intangible assets
7,523
8,521
Interest expense, net
17,448
13,938
Other (income) expense, net
1,932
(234
)
Segment income
$
46,521
$
40,108
$
6,413
$
57,493
$
48,704
$
8,789
Segment income margin %
21.1
%
21.7
%
18.2
%
23.4
%
23.9
%
21.1
%
Depreciation
$
4,273
$
4,027
$
246
$
4,049
$
3,853
$
196
Amortization
1,738
1,738
—
1,728
1,728
—
Stock-based compensation
86
75
11
(276
)
(284
)
8
Other (a)
115
115
—
2,516
2,878
(362
)
Total adjustments
6,212
5,955
257
8,017
8,175
(158
)
Adjusted segment income
$
52,733
$
46,063
$
6,670
$
65,510
$
56,879
$
8,631
Adjusted segment income margin %
23.9
%
24.9
%
18.9
%
26.7
%
27.9
%
20.8
%
(a)
The three months ended September 30, 2023
for NAM includes miscellaneous items the Company believes are not
representative of its ongoing business operations. The three months
ended October 1, 2022 includes a $2.7 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.
The three months ended October 1, 2022 for
E&RW includes $0.4 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)
Nine Months Ended
Nine Months Ended
September 30, 2023
October 1, 2022
Total
NAM
E&RW
Total
NAM
E&RW
Net sales
$
713,983
$
585,126
$
128,857
$
1,055,169
$
892,050
$
163,119
Gross profit
$
339,812
$
288,911
$
50,901
$
487,543
$
421,725
$
65,818
Gross profit margin %
47.6
%
49.4
%
39.5
%
46.2
%
47.3
%
40.3
%
Income from operations before income
taxes
$
61,994
$
211,347
Expenses not allocated to segments
Corporate expense, net
21,265
24,009
Acquisition and restructuring related
expense
6,220
9,499
Amortization of intangible assets
22,777
23,828
Interest expense, net
55,939
35,105
Other (income) expense, net
1,798
3,056
Segment income
$
169,993
$
144,346
$
25,647
$
306,844
$
267,854
$
38,990
Segment income margin %
23.8
%
24.7
%
19.9
%
29.1
%
30.0
%
23.9
%
Depreciation
$
12,646
$
11,952
$
694
$
13,006
$
12,435
$
571
Amortization
5,026
5,026
—
4,609
4,609
—
Stock-based compensation
451
417
34
183
72
111
Other (a)
503
503
—
8,966
8,616
350
Total adjustments
18,626
17,898
728
26,764
25,732
1,032
Adjusted segment income
$
188,619
$
162,244
$
26,375
$
333,608
$
293,586
$
40,022
Adjusted segment income margin %
26.4
%
27.7
%
20.5
%
31.6
%
32.9
%
24.5
%
(a)
The nine months ended September 30, 2023
for NAM includes miscellaneous items the Company believes are not
representative of its ongoing business operations. The nine months
ended October 1, 2022 includes a one-time $5.5 million expense
associated with the discontinuation of a product joint development
agreement, a $2.7 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 and other immaterial miscellaneous items the
Company believes are not representative of its ongoing business
operations.
The nine months ended October 1, 2022 for
E&RW represents $0.4 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/20231031228283/en/
Investor Relations: Kevin Maczka
investor.relations@hayward.com
Media Relations: Tanya McNabb tmcnabb@hayward.com
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