SEC Form 10-Q filed by Hayward Holdings Inc.

10/29/24 4:32:14 PM ET

Industrial Machinery/Components

Industrials

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hayw-20240928

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-40208

Hayward Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

1415 Vantage Park Drive

Suite 400

Charlotte, NC

(Address of Principal Executive

Office)

82-2060643

(I.R.S. Employer Identification No.)

28203

(Zip Code)

(704) 837-8002

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $.001 per share

HAYW

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had outstanding 215,424,560 shares of common stock as of October 25, 2024.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q of Hayward Holdings, Inc. (the “Company,” “we” or “us”) contains certain “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relating to us are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements contained in or incorporated by reference in this Quarterly Report on Form 10-Q that are not historical facts. When used in this document, words such as “may,” “will,” “should,” “could,” “intend,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “target,” “predict,” “project,” “seek” and similar expressions as they relate to us are intended to identify forward-looking statements. We believe that it is important to communicate our future expectations to our shareholders, and we therefore make forward-looking statements in reliance upon the safe harbor provisions of the Act. However, there may be events in the future that we are not able to accurately predict or control, and actual results may differ materially from the expectations we describe in our forward-looking statements.

Examples of forward-looking statements include, among others, statements we make regarding: our financial position; business plans and objectives; general economic and industry trends; business prospects; future product development and acquisition strategies; future channel stocking levels; growth and expansion opportunities; operating results; and working capital and liquidity. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Moreover, neither we 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 our future results and could cause those results or other outcomes to differ materially from those indicated in our forward-looking statements include the following:

• our relationships with and the performance of distributors, builders, buying groups, retailers and servicers who sell our products to pool owners;

• impacts on our business from the sensitivity of our business to seasonality and unfavorable economic and business conditions;

• competition from national and global companies, as well as lower cost manufacturers;

• our ability to develop, manufacture and effectively and profitably market and sell our new planned and future products;

• our ability to execute on our growth strategies and expansion opportunities;

• our exposure to credit risk on our accounts receivable;

• impacts on our business from political, regulatory, economic, trade and other risks associated with operating foreign businesses, including risks associated with geopolitical conflict;

• our ability to maintain favorable relationships with suppliers and manage disruptions to our global supply chain and the availability of raw materials;

• our ability to identify emerging technological and other trends in our target end markets;

• failure of markets to accept new product introductions and enhancements;

• the ability to successfully identify, finance, complete and integrate acquisitions;

• our reliance on information technology systems and susceptibility to threats to those systems, including cybersecurity threats, and risks arising from our collection and use of personal information data;

• regulatory changes and developments affecting our current and future products;

• volatility in currency exchange rates and interest rates;

• our ability to service our existing indebtedness and obtain additional capital to finance operations and our growth opportunities;

• our ability to establish, maintain and effectively enforce intellectual property protection for our products, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others;

• the impact of material cost and other inflation;

• our 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;

• the impact of product manufacturing disruptions, including as a result of catastrophic and other events beyond our businesses;

• uncertainties related to distribution channel inventory practices and the impact on net sales volumes;

• our ability to realize cost savings from restructuring activities; and

• other factors set forth in the respective “Risk Factors” section of this Quarterly Report on Form 10-Q and of our Annual Report on Form 10-K for the year ended December 31, 2023.

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated, believed, estimated, expected, intended, planned or projected. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.


HAYWARD HOLDINGS, INC.
Table of Contents

PART I—FINANCIAL INFORMATION
	ITEM 1.	Financial Statements (unaudited)	1
		Unaudited Condensed Consolidated Balance Sheets	1
		Unaudited Condensed Consolidated Statements of Operations	2
		Unaudited Condensed Consolidated Statements of Comprehensive Income	3
		Unaudited Condensed Consolidated Statements of Changes in Redeemable Stock and Stockholders ’ Equity	4
		Unaudited Condensed Consolidated Statements of Cash Flows	6
		Notes to Unaudited Condensed Consolidated Financial Statements	7
		Note 1 Nature of Operations and Organization	7
		Note 2 Significant Accounting Policies	7
		Note 3 Revenue	8
		Note 4 Inventories	8
		Note 5 Accrued Expenses and Other Liabilities	8
		Note 6 Income Taxes	9
		Note 7 Long-Term Debt	10
		Note 8 Derivatives and Hedging Transactions	11
		Note 9 Fair Value Measurements	12
		Note 10 Segments and Related Information	13
		Note 11 Earnings Per Share	15
		Note 12 Commitments and Contingencies	15
		Note 13 Leases	17
		Note 14 Stockholders’ Equity	17
		Note 15 Stock-based Compensation	18
		Note 16 Acquisitions and Restructuring	18
		Note 17 Related-Party Transactions	20

	I TEM 2.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	21
	I TEM 3.	Quantitative and Qualitative Disclosures About Market Risk	36
	I TEM 4.	Controls and Procedures	36

PART II—OTHER INFORMATION
	I TEM 1.	Legal Proceedings	37
	I TEM 1A.	Risk Factors	38
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
	ITEM 5.	Other Information	40
	ITEM 6.	Exhibits	41

SIGNATURES			42


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share data)


	September 28, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	274,184	$	178,097
Short-term investments	—		25,000
Accounts receivable, net of allowances of $2,881 and $2,870, respectively	99,932		270,875
Inventories, net	229,363		215,180
Prepaid expenses	15,541		14,331
Income tax receivable	11,634		9,994
Other current assets	18,898		11,264
Total current assets	649,552		724,741
Property, plant, and equipment, net of accumulated depreciation of $108,726 and $95,917, respectively	164,654		158,979
Goodwill	953,175		935,013
Trademark	736,000		736,000
Customer relationships, net	209,836		206,308
Other intangibles, net	92,479		94,082
Other non-current assets	84,168		91,161
Total assets	$	2,889,864	$	2,946,284
Liabilities and Stockholders’ Equity
Current liabilities
Current portion of long-term debt	$	14,079	$	15,088
Accounts payable	73,562		68,943
Accrued expenses and other liabilities	159,709		155,543
Income taxes payable	825		109
Total current liabilities	248,175		239,683
Long-term debt, net	959,906		1,079,280
Deferred tax liabilities, net	239,362		248,967
Other non-current liabilities	69,266		66,896
Total liabilities	1,516,709		1,634,826
Commitments and contingencies (Note 12)

Stockholders’ equity
Preferred stock, $0.001 par value, 100,000,000 authorized, no shares issued or outstanding as of September 28, 2024 and December 31, 2023	—		—
Common stock $0.001 par value, 750,000,000 authorized; 244,078,929 issued and 215,412,560 outstanding at September 28, 2024; 242,832,045 issued and 214,165,676 outstanding at December 31, 2023	244		243
Additional paid-in capital	1,089,782		1,080,894
Common stock in treasury; 28,666,369 and 28,666,369 at September 28, 2024 and December 31, 2023, respectively	(358,125)		(357,755)
Retained earnings	644,831		580,909
Accumulated other comprehensive income	(3,577)		7,167
Total stockholders’ equity	1,373,155		1,311,458
Total liabilities, redeemable stock, and stockholders’ equity	$	2,889,864	$	2,946,284

See accompanying notes to the unaudited condensed consolidated financial statements.

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Net sales	$	227,569	$	220,304	$	724,531	$	713,983
Cost of sales	114,474		114,893		361,770		374,171
Gross profit	113,095		105,411		362,761		339,812
Selling, general and administrative expense	64,509		59,454		187,678		172,057
Research, development and engineering expense	6,449		6,177		18,870		19,027
Acquisition and restructuring related expense	1,145		3,348		2,488		6,220
Amortization of intangible assets	7,576		7,523		21,425		22,777
Operating income	33,416		28,909		132,300		119,731
Interest expense, net	13,209		17,448		48,600		55,939
Loss on debt extinguishment	—		—		4,926		—
Other (income) expense, net	(705)		1,932		(1,989)		1,798
Total other expense	12,504		19,380		51,537		57,737
Income from operations before income taxes	20,912		9,529		80,763		61,994
Provision (benefit) for income taxes	4,411		(2,259)		16,841		12,343
Net income	$	16,501	$	11,788	$	63,922	$	49,651

Earnings per share
Basic	$	0.08	$	0.06	$	0.30	$	0.23
Diluted	$	0.07	$	0.05	$	0.29	$	0.23

Weighted average common shares outstanding
Basic	215,231,886		213,416,502		214,836,643		212,933,763
Diluted	221,436,206		220,863,228		221,251,355		220,634,232

See accompanying notes to the unaudited condensed consolidated financial statements.

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In thousands)


	Three Months Ended
	September 28, 2024				September 30, 2023
	Gross	Taxes	Net		Gross	Taxes	Net
Net income			$	16,501			$	11,788
Other comprehensive income (loss):
Foreign currency translation adjustments	6,605	—	6,605		(5,235)	—	(5,235)
Net change on cash flow hedges	(13,914)	3,478	(10,436)		961	(240)	721
Comprehensive income			$	12,670			$	7,274

	Nine Months Ended
	September 28, 2024				September 30, 2023
	Gross	Taxes	Net		Gross	Taxes	Net
Net income			$	63,922			$	49,651
Other comprehensive income (loss):
Foreign currency translation adjustments	(1,436)	—	(1,436)		(1,625)	—	(1,625)
Net change on cash flow hedges	(12,411)	3,103	(9,308)		1,562	(390)	1,172
Comprehensive income			$	53,178			$	49,198

See accompanying notes to the unaudited condensed consolidated financial statements.

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Statements of Changes in Redeemable Stock and Stockholders' Equity

(Dollars in thousands)


	Common Stock		Additional Paid-in Capital			Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
		Shares			Amount
Balance as of December 31, 2023		214,165,676	$	243		$	1,080,894	$	(357,755)	$	580,909	$	7,167	$	1,311,458
Net income		—	—			—		—		9,840		—		9,840
Stock-based compensation		—	—			1,983		—		—		—		1,983
Issuance of Common Stock for compensation plans		550,713	1			799		—		—		—		800
Repurchase of stock		—	—			—		(355)		—		—		(355)
Other comprehensive loss		—	—			—		—		—		(3,234)		(3,234)
Balance as of March 30, 2024		214,716,389	$	244		$	1,083,676	$	(358,110)	$	590,749	$	3,933	$	1,320,492
Net income		—	—			—		—		37,581		—		37,581
Stock-based compensation		—	—			2,649		—		—		—		2,649
Issuance of Common Stock for compensation plans		355,409	—			355		—		—		—		355

Other comprehensive loss		—	—			—		—		—		(3,679)		(3,679)
Balance as of June 29, 2024		215,071,798	$	244		$	1,086,680	$	(358,110)	$	628,330	$	254	$	1,357,398
Net income		—	—			—		—		16,501		—		16,501
Stock-based compensation		—	—			2,667		—		—		—		2,667
Issuance of Common Stock for compensation plans		340,762	—			435		—		—		—		435
Repurchase of stock		—	—			—		(15)		—		—		(15)
Other comprehensive loss		—	—			—		—		—		(3,831)		(3,831)
Balance as of September 28, 2024		215,412,560	$	244		$	1,089,782	$	(358,125)	$	644,831	$	(3,577)	$	1,373,155

See accompanying notes to the unaudited condensed consolidated financial statements.

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Statements of Changes in Redeemable Stock and Stockholders' Equity

(Dollars in thousands)


	Common Stock		Additional Paid-in Capital			Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
		Shares			Amount
Balance as of December 31, 2022		211,862,781	$	241		$	1,069,878	$	(357,415)	$	500,222	$	10,108	$	1,223,034
Net income		—	—			—		—		8,410		—		8,410
Stock-based compensation		—	—			2,047		—		—		—		2,047
Issuance of Common Stock for compensation plans		912,288	1			569		—		—		—		570
Repurchase of stock		—	—			—		(9)		—		—		(9)
Other comprehensive loss		—	—			—		—		—		(3,933)		(3,933)
Balance as of April 1, 2023		212,775,069	$	242		$	1,072,494	$	(357,424)	$	508,632	$	6,175	$	1,230,119
Net income		—	—			—		—		29,453		—		29,453
Stock-based compensation		—	—			2,099		—		—		—		2,099
Issuance of Common Stock for compensation plans		231,354	—			156		—		—		—		156


Other comprehensive income		—	—			—		—		—		7,994		7,994
Balance as of July 1, 2023		213,006,423	$	242		$	1,074,749	$	(357,424)	$	538,085	$	14,169	$	1,269,821
Net income		—	—			—		—		11,788		—		11,788
Stock-based compensation		—	—			2,555		—		—		—		2,555
Issuance of Common Stock for compensation plans		683,385	1			896		—		—		—		897
Repurchase of stock		—	—			—		(213)		—		—		(213)
Other comprehensive loss		—	—			—		—		—		(4,514)		(4,514)
Balance as of September 30, 2023		213,689,808	$	243		$	1,078,200	$	(357,637)	$	549,873	$	9,655	$	1,280,334

See accompanying notes to the unaudited condensed consolidated financial statements.

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended
	September 28, 2024		September 30, 2023
Cash flows from operating activities
Net income	$	63,922	$	49,651
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	13,929		13,018
Amortization of intangible assets	26,299		27,803
Amortization of deferred debt issuance fees	3,248		3,458
Stock-based compensation	7,299		6,701
Deferred income taxes	(8,344)		(5,965)
Allowance for bad debts	(62)		(906)
Loss on debt extinguishment	4,926		—

(Gain) loss on sale of property, plant and equipment	(451)		945
Changes in operating assets and liabilities
Accounts receivable	173,400		85,216
Inventories	(4,204)		61,715
Other current and non-current assets	(6,203)		9,500
Accounts payable	2,871		(6,265)
Accrued expenses and other liabilities	(868)		(27,934)
Net cash provided by operating activities	275,762		216,937

Cash flows from investing activities
Purchases of property, plant, and equipment	(17,552)		(22,623)

Acquisitions, net of cash acquired	(61,636)		—
Proceeds from sale of property, plant, and equipment	311		13
Proceeds from short-term investments	25,000		—
Net cash used in investing activities	(53,877)		(22,610)

Cash flows from financing activities


Proceeds from revolving credit facility	—		144,100
Payments on revolving credit facility	—		(144,100)
Proceeds from issuance of long-term debt	2,886		3,320
Payments of long-term debt	(129,971)		(9,325)
Proceeds from issuance of short-term notes payable	6,340		6,130
Payments of short-term notes payable	(4,676)		(5,174)





Other, net	(427)		(149)
Net cash used in financing activities	(125,848)		(5,198)

Effect of exchange rate changes on cash and cash equivalents	50		(1,061)
Change in cash and cash equivalents	96,087		188,068
Cash and cash equivalents, beginning of period	178,097		56,177
Cash and cash equivalents, end of period	$	274,184	$	244,245

Supplemental disclosures of cash flow information
Cash paid-interest	$	47,965	$	56,438
Cash paid-income taxes	26,853		14,913
Equipment financed under finance leases	843		—

See accompanying notes to the unaudited condensed consolidated financial statements.

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Nature of Operations and Organization

Hayward Holdings, Inc. (“Holdings,” the “Company,” “we” or “us”) is a global designer and manufacturer of pool and outdoor living technology. The Company has seven manufacturing facilities worldwide, which are located in North Carolina, Georgia, Tennessee, Rhode Island, Spain (two) and China, and other facilities in the United States, Canada, France and Australia. Cash flow is impacted by the seasonality of the swimming pool business. Cash flow is usually higher in the second and third quarters due to terms of sale to our customers.

We establish actual interim closing dates using a fiscal calendar in which our fiscal quarters end on the Saturday closest to the calendar quarter end, with the exception of year-end which ends on December 31 of each fiscal year. The interim closing date for the first, second and third quarters of 2024 are March 30, June 29, and September 28, compared to the respective April 1, July 1, and September 30, 2023 dates. We had equal working days in the three and nine months ended September 28, 2024 and September 30, 2023.

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information. All such adjustments are of a normal recurring nature. Certain information and note disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been condensed or omitted pursuant to such rules and regulations.

These interim financial statements should be read in conjunction with the Company’s annual consolidated financial statements and notes thereto for the fiscal year ended December 31, 2023. The results of operations for the three and nine months ended September 28, 2024 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2024.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified for comparative purposes to conform to the current presentation.

Recently Issued Accounting Standards

Segment Reporting

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company will adopt the standard in the Company's annual report on Form 10-K for the year ended December 31, 2024. In addition to other required disclosures, the Company will disclose cost of goods sold, selling, general and administrative expense (“SG&A”) and research, development and engineering expense (“RD&E”) by segment.

Income Taxes

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which is intended to improve income tax disclosure requirements by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and is required to be applied prospectively with the option of retrospective application. The Company is evaluating the impact of the standard on its income tax disclosures and does not intend to early adopt.

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

3. Revenue

The following table disaggregates net sales between product groups and geographic regions, respectively (in thousands):


	Three Months Ended				Nine Months Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Product groups
Residential pool	$	200,794	$	198,073	$	652,697	$	646,608
Commercial pool	14,172		9,518		34,259		30,595
Flow control	12,603		12,713		37,575		36,780
Total	$	227,569	$	220,304	$	724,531	$	713,983

Geographic
United States	$	182,435	$	174,317	$	562,510	$	543,471
Canada	12,533		10,754		47,000		41,655
Europe	16,807		17,495		71,290		72,705
Rest of World	15,794		17,738		43,731		56,152
Total International	45,134		45,987		162,021		170,512
Total	$	227,569	$	220,304	$	724,531	$	713,983

4. Inventories

Inventories, net, consist of the following (in thousands):


	September 28, 2024		December 31, 2023
Raw materials	$	87,359	$	103,559
Work in progress	21,378		15,374
Finished goods	120,626		96,247
Total	$	229,363	$	215,180

5. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):


	September 28, 2024		December 31, 2023
Selling, promotional and advertising	$	47,467	$	48,440
Employee compensation and benefits	20,569		16,923
Warranty reserve	20,052		22,154
Inventory purchases	18,097		20,790
Insurance reserve	10,837		9,450
Operating lease liability - short term	9,062		7,828
Payroll taxes	4,155		1,700
Freight	4,019		6,034
Short-term notes payable	3,956		2,292
Deferred income	2,197		4,021
Professional fees	2,140		1,449
Taxes - non income	1,582		679
Business restructuring costs	659		1,690

Other accrued liabilities	14,917		12,093
Total	$	159,709	$	155,543

The Company offers warranties on certain of its products and records an accrual for estimated future claims. Such accruals are based on historical experience and management’s estimate of the level of future claims.

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table summarizes the warranty reserve activities (in thousands):


Balance at December 31, 2023	$	22,154

Accrual for warranties issued during the period	8,202
Payments	(6,999)
Balance at March 30, 2024	23,357

Accrual for warranties issued during the period	11,637
Payments	(10,124)
Balance at June 29, 2024	24,870
Acquisitions	1,105
Accrual for warranties issued during the period	9,167
Payments	(15,090)
Balance at September 28, 2024	$	20,052


Balance at December 31, 2022	$	19,652

Accrual for warranties issued during the period	5,424
Payments	(7,076)
Balance at April 1, 2023	18,000

Accrual for warranties issued during the period	10,135
Payments	(11,309)
Balance at July 1, 2023	16,826

Accrual for warranties issued during the period	16,382
Payments	(16,172)
Balance at September 30, 2023	$	17,036

Warranty expenses for the three and nine months ended September 28, 2024 were $9.2 million and $29.0 million, respectively, and $16.4 million and $31.9 million, respectively, for the three and nine months ended September 30, 2023.

6. Income Taxes

The Company’s effective tax rate for the three months ended September 28, 2024 and September 30, 2023 was 21.1% and (23.7)%, respectively, after discrete items. The change in the Company’s effective tax rate was primarily due to the exercise of stock options, the release of the valuation allowance against foreign tax credit carryovers and return-to-provision adjustments in the three months ended September 30, 2023.

The Company’s effective tax rate for the nine months ended September 28, 2024 and September 30, 2023 was 20.9% and 19.9%, respectively. The change in the Company’s effective tax rate was primarily due to a decrease in excess tax benefit from stock compensation and the release of the valuation allowance against foreign tax credit carryovers in the nine months ended September 30, 2023, partially offset with a change to the Company's permanent reinvestment assertion for one jurisdiction in the nine months ended September 30, 2023.

The Company will recognize a tax benefit in the financial statements for an uncertain tax position only if the Company’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes. There were no uncertain tax positions at September 28, 2024 or December 31, 2023.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Management evaluates the need for valuation allowances on the deferred tax assets according to the provisions of ASC 740,

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Income Taxes. In making this determination, the Company assesses all available evidence (positive and negative) including recent earnings, internally-prepared income tax projections, and historical financial performance.

7. Long-Term Debt

Long-term debt, net, consists of the following (in thousands):


	September 28, 2024		December 31, 2023
First Lien Term Facility, due May 28, 2028	$	970,000	$	975,000
Incremental B First Lien Term Facility, due May 28, 2028	—		123,438
ABL Revolving Credit Facility	—		—
Other bank debt	11,267		8,775
Finance lease obligations	2,800		4,729
Subtotal	984,067		1,111,942
Less: Current portion of the long-term debt	(14,079)		(15,088)
Less: Unamortized debt issuance costs	(10,082)		(17,574)
Total	$	959,906	$	1,079,280

In April 2024, the Company made $123.1 million of voluntary principal prepayments of the incremental term loan portion of the First Lien Term Facility (the “Incremental Term Loan B”). As a result of these prepayments, there is zero aggregate principal outstanding remaining on the Incremental Term Loan B.

On June 26, 2024, the Company entered into the Fourth Amendment to its existing ABL Revolving Credit Facility (the “ABL Facility”) to replace the Canadian reference rate from the Canadian Dollar Offered Rate (“CDOR”) to the Canadian Overnight Repo Rate Average (“CORRA”).

The Company’s First Lien Term Facility and ABL Revolving Credit Facility (collectively “Credit Facilities”) contain collateral requirements, restrictions, and covenants, including restrictions under the First Lien Term Facility on the Company’s ability to pay dividends on the Common Stock. Under the agreement governing the First Lien Credit Facility (the “First Lien Credit Agreement”), the Company must also make an annual mandatory prepayment of principal commencing April 2023 for between 0% and 50% of the excess cash, as defined in the First Lien Credit Agreement, generated in the prior calendar year. The amount due varies with the First Lien Leverage Ratio as defined in the First Lien Credit Agreement, from zero if the First Lien Leverage Ratio is less than or equal to 2.5x, to fifty percent if the First Lien Leverage Ratio is greater than 3.0x less certain allowed deductions. The Company did not have a mandatory prepayment in 2024 based on the First Lien Leverage Ratio as of December 31, 2023 and the applicable criteria under the First Lien Credit Agreement. All outstanding principal under the First Lien Credit Agreement is due at maturity on May 28, 2028. The maturity date under the ABL Revolving Credit Facility (“ABL Facility”) is June 1, 2026. As of September 28, 2024, the Company was in compliance with all covenants under the Credit Facilities.

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

8. Derivatives and Hedging Transactions

The Company holds derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions. In general, the types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates and interest rates. In hedging these transactions, the Company holds the following types of derivatives in the normal course of business.

Interest Rate Swap Agreements

The Company enters into interest rate swap agreements designated as cash flow hedges to manage interest rate risk related to its variable rate debt obligations. As cash flow hedges, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in interest rates to which the Company is exposed. Unrealized gains and losses on these instruments have been designated as effective and as such, the related gains or losses have been recorded as a component of accumulated other comprehensive income, net of tax. Other comprehensive income or loss is reclassified into current period income when the hedged interest expense affects earnings.

As of September 28, 2024 and December 31, 2023, the Company was a party to interest rate swap agreements that hedged a notional amount of $600.0 million of the Company’s variable rate debt. During the three months ended September 28, 2024, the Company entered into interest rate swap agreements with a notional amount of $250.0 million that will become effective in March 2025 and replace existing swap agreements with a notional amount of $250.0 million that had March 2025 maturity dates. These new agreements mature in March 2028.

Foreign Exchange Contracts

The Company enters into foreign exchange contracts to manage risks associated with future intercompany and foreign currency transactions that may be adversely affected by changes in exchange rates. These contracts are marked-to-market with the resulting gains and losses recognized in earnings. For the three months ended September 28, 2024 and September 30, 2023, the Company recognized $0.6 million of expense and $1.2 million of income, respectively, and for the nine months ended September 28, 2024 and September 30, 2023, the Company recognized $0.3 million of income and $0.3 million of expense, respectively in Other (income) expense, net, related to foreign exchange contracts.

The following table summarizes the gross fair values and location of the significant derivative instruments within the Company’s unaudited condensed consolidated balance sheets (in thousands):


	Other Current Assets		Other Non-Current Assets		Accrued Expenses and Other Liabilities		Other Non-Current Liabilities		Other Current Assets		Other Non-Current Assets		Accrued Expenses and Other Liabilities		Other Non-Current Liabilities
	September 28, 2024								December 31, 2023
Interest rate swaps	$	2,084	$	9,435	$	—	$	2,976	$	—	$	21,398	$	—	$	445
Foreign exchange contracts	—		—		394		—		227		—		872		—

Total	$	2,084	$	9,435	$	394	$	2,976	$	227	$	21,398	$	872	$	445

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The following tables present the effects of derivative instruments by contract type in accumulated other comprehensive income (“AOCI”) in the Company’s unaudited condensed consolidated statements of comprehensive income (in thousands):

Gain (Loss) Recognized in AOCI (1)

Gain (Loss) Reclassified From AOCI to Earnings (2)

Location of Gain (Loss) Reclassified from AOCI into Earnings

Three Months Ended

September 28, 2024

September 30, 2023

September 28, 2024

September 30, 2023

Interest rate swaps (3)

(9,542)

5,244

4,372

4,284

Interest expense, net

(1) The tax benefit and expense, respectively, on the gain (loss) recognized in AOCI for the three months ended September 28, 2024 and September 30, 2023 was $2.4 million and $0.2 million, respectively.

(2) The tax expense on the gain reclassified from AOCI to earnings for the three months ended September 28, 2024 and September 30, 2023 was $1.1 million and $1.1 million, respectively.

(3) The Company estimates that $6.6 million of unrealized gains will be reclassified from AOCI into earnings in the next twelve months.

Gain (Loss) Recognized in AOCI (1)

Gain (Loss) Reclassified From AOCI to Earnings (2)

Location of Gain (Loss) Reclassified from AOCI into Earnings

Nine Months Ended

September 28, 2024

September 30, 2023

September 28, 2024

September 30, 2023

Interest rate swaps

716

12,753

13,127

11,191

Interest expense, net

(1) The tax expense on the gain recognized in AOCI for the nine months ended September 28, 2024 and September 30, 2023 was $0.2 million and $0.4 million, respectively.

(2) The tax expense on the gain reclassified from AOCI to earnings for the nine months ended September 28, 2024 and September 30, 2023 was $3.3 million and $2.8 million, respectively.

9. Fair Value Measurements

The Company is required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair value. The fair values of financial instruments are estimates based upon market conditions and perceived risks. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.

The accounting guidance for fair value measurements and disclosures establishes a three-level fair value hierarchy:

•Level 1 - Inputs are based on quoted prices in active markets for identical assets and liabilities.

•Level 2 - Inputs are based on observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.

•Level 3 - One or more inputs are unobservable and significant.

Financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s financial instruments include cash and cash equivalents, accounts receivable, and accounts payable. The carrying amount of these instruments approximate fair value because of their short-term nature.

The Company’s interest rate swaps and foreign exchange contracts are measured in the financial statements at fair value on a recurring basis. The fair values of these instruments are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves. These instruments are customary, over-the-counter contracts with various bank counterparties. Accordingly, the fair value measurements of the interest rate swaps and foreign exchange contracts are categorized as Level 2.

The Company’s investment plan assets as part of the nonqualified Hayward Industries Supplemental Retirement Plan (the “Supplemental Retirement Plan”) are presented in the financial statements at fair value on a recurring basis and are based on quoted market prices in active markets. Accordingly, the fair value measurements of the Supplemental Retirement Plan assets

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

are categorized as Level 1. The value of investments related to the Supplemental Retirement Plan is included in other assets and a corresponding liability to participants is recorded in other liabilities.

The following table sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis (in thousands):


	September 28, 2024								December 31, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Interest rate swaps	$	—	$	11,519	$	—	$	11,519	$	—	$	21,398	$	—	$	21,398
Foreign exchange contracts	—		—		—		—		—		227		—		227
Supplemental Retirement Plan assets	7,551		—		—		7,551		5,910		—		—		5,910
Liabilities:
Interest rate swaps	$	—	$	2,976	$	—	$	2,976	$	—	$	445	$	—	$	445
Foreign exchange contracts	—		394		—		394		—		872		—		872
Supplemental Retirement Plan liabilities	7,551		—		—		7,551		5,910		—		—		5,910

The estimated fair value of the long-term debt and related current maturities (excluding finance leases, the ABL Facility, and other bank debt) is based on observable quoted prices in active markets for similar liabilities and is classified as a Level 2 input. The fair value of the ABL Facility approximates its carrying value.

The following table sets forth the Company’s financial assets and liabilities that were not carried at fair value (in thousands):


	September 28, 2024				December 31, 2023
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Short-term investments	$	—	$	—	$	25,000	$	25,000
Liabilities:
Long-term debt and related current maturities	$	970,000	$	973,036	$	1,098,438	$	1,098,422

10. Segments and Related Information

The Company’s operational and management structure is aligned to its key geographies and go-to market strategy resulting in two reportable segments: North America (“NAM”) and Europe & Rest of World (“E&RW”). Operating segments have not been aggregated to form the reportable segments. The Company determined its reportable segments based on how the Company’s Chief Operating Decision Maker (“CODM”) reviews the Company’s operating results in assessing performance and allocating resources. The CODM reviews net sales, gross profit and segment income for each of the reportable segments. Gross profit is defined as net sales less cost of sales incurred by the segment. The CODM does not evaluate reportable segments using asset information as these are managed on an enterprise-wide basis. Segment income is defined as segment net sales less cost of sales, selling, general and administrative expense (“SG&A”) of the segment and research development and engineering expense (“RD&E”) of the segment, excluding segment acquisition and restructuring related expense as well as amortization of intangible assets recorded within segment SG&A expense. The accounting policies of the segments are the same as those of Holdings.

The North America segment manufactures and sells residential and commercial swimming pool equipment and supplies as well as equipment that controls the flow of fluids.

The Europe & Rest of World segment manufactures and sells residential and commercial swimming pool equipment and supplies.

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company sells its products primarily through distributors and retailers. Financial information by reportable segment, net of intercompany transactions, is included in the following summary (in thousands):


	Three Months Ended						Three Months Ended
	September 28, 2024						September 30, 2023
	North America		Europe & Rest of World		Total		North America		Europe & Rest of World		Total
External net sales	$	194,968	$	32,601	$	227,569	$	185,070	$	35,234	$	220,304

Segment income	51,569		2,475		54,044		40,108		6,413		46,521
Capital expenditures (1)	6,240		579		6,819		6,524		120		6,644
Depreciation and amortization (1)(2)	6,081		271		6,352		5,765		246		6,011
Intersegment sales	4,093		66		4,159		1,734		79		1,813

	Nine Months Ended						Nine Months Ended
	September 28, 2024						September 30, 2023
	North America		Europe & Rest of World		Total		North America		Europe & Rest of World		Total
External net sales	$	609,510	$	115,021	$	724,531	$	585,126	$	128,857	$	713,983

Segment income	166,646		16,800		183,446		144,346		25,647		169,993
Capital expenditures (1)	15,701		1,806		17,507		21,110		1,082		22,192
Depreciation and amortization (1)(2)	17,493		791		18,284		16,978		694		17,672
Intersegment sales	17,108		126		17,234		9,453		187		9,640

(1) Capital expenditures and depreciation associated with Corporate are not included in these totals.

(2) Amortization expense excluded from segment income is not included in these totals.

The following table presents a reconciliation of segment income to income from operations before income taxes (in thousands):


	Three Months Ended				Nine Months Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Total segment income	$	54,044	$	46,521	$	183,446	$	169,993
Corporate expense, net	11,907		6,741		27,233		21,265
Acquisition and restructuring related expense	1,145		3,348		2,488		6,220
Amortization of intangible assets	7,576		7,523		21,425		22,777
Operating income	33,416		28,909		132,300		119,731
Interest expense, net	13,209		17,448		48,600		55,939
Loss on debt extinguishment	—		—		4,926		—
Other (income) expense, net	(705)		1,932		(1,989)		1,798
Total other expense	12,504		19,380		51,537		57,737
Income from operations before income taxes	$	20,912	$	9,529	$	80,763	$	61,994

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

11. Earnings Per Share

The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders (in thousands, except share and per share data):


	Three Months Ended				Nine Months Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Net income attributable to common stockholders	$	16,501	$	11,788	$	63,922	$	49,651








Weighted average number of common shares outstanding, basic	215,231,886		213,416,502		214,836,643		212,933,763
Effect of dilutive securities(a)	6,204,320		7,446,726		6,414,712		7,700,469
Weighted average number of common shares outstanding, diluted	221,436,206		220,863,228		221,251,355		220,634,232

Earnings per share attributable to common stockholders, basic	$	0.08	$	0.06	$	0.30	$	0.23
Earnings per share attributable to common stockholders, diluted	$	0.07	$	0.05	$	0.29	$	0.23

(a) For the three months ended September 28, 2024 and September 30, 2023 there were potential common shares totaling approximately 2.5 million and 2.9 million, respectively, and for the nine months ended September 28, 2024 and September 30, 2023, there were potential common shares totaling approximately 2.5 million and 2.8 million, respectively, that were excluded from the computation of diluted EPS as the effect of inclusion of such shares would have been anti-dilutive.

12. Commitments and Contingencies

Litigation

The Company is involved in litigation arising in the normal course of business. Where appropriate, these matters have been submitted to the Company’s insurance carrier. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. It is not possible to quantify the ultimate liability, if any, in these matters.

On August 2, 2023, a securities class action complaint was filed in the United States District Court for the District of New Jersey against the Company and certain of its current directors and officers (Kevin Holleran and Eifion Jones) and MSD Partners and CCMP Capital Advisors, LP on behalf of a putative class of stockholders who acquired shares of the Company’s common stock between March 2, 2022 and July 27, 2022. That action is captioned City of Southfield Fire and Police Retirement System vs. Hayward Holdings, Inc., et al., 2:23-cv-04146-WJM-ESK (D.N.J.) (“City of Southfield”). On September 28, 2023, a second, related securities class action complaint was filed in the United States District Court for the District of New Jersey against the Company and certain of its current directors and officers (Kevin Holleran and Eifion Jones) and MSD Partners and CCMP Capital Advisors, LP on behalf of a putative class of stockholders who acquired shares of the Company’s common stock between October 27, 2021 and July 28, 2022. That action is captioned Erie County Employees’ Retirement System vs. Hayward Holdings, Inc., et al., 2:23-cv-04146-WJM-ESK (D.N.J.) (“Erie County”). On December 19, 2023, the Court issued a ruling consolidating the two securities class actions (City of Southfield and Erie County) under the City of Southfield docket (the “Securities Class Action”) and appointing a lead plaintiff. In a consolidated class action complaint filed March 4, 2024, the Securities Class Action alleged on behalf of a putative class of stockholders who acquired shares of our common stock between October 27, 2021 and July 28, 2022, among other things, that the Company and certain of its current directors and officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other things, making materially false or misleading statements regarding inventory, growth, and demand trends and the Company’s financial projections for 2022. The complaints seek unspecified monetary damages on behalf of the putative classes and an award of costs and expenses, including reasonable attorneys’ fees. On October 2, 2024, the Court issued an Opinion and Order dismissing the consolidated class action complaint and granted the lead plaintiff leave to file an amended complaint within 30 days.

On November 27, 2023, a shareholder derivative lawsuit was filed in the United States District Court for the District of New Jersey against current and past directors of the Company captioned Heicklen v. Holleran, et al., 2:23-cv-22649 (D.N.J.) (the “Derivative Action”). The Derivative Action alleges breaches of fiduciary duties to Company stockholders, aiding and

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

abetting breaches of fiduciary duties, unjust enrichment, corporate waste, and violations of Section 10(b) of the Securities Exchange Act of 1934 in connection with the claims in the Securities Class Action. The Derivative Action seeks recovery of unspecified damages and attorney’s fees and costs, as well as improvements to the Company’s corporate governance and internal procedures. The Derivative Action has been stayed pending final decision on a motion to dismiss being filed in the Securities Class Action.

We dispute the allegations of wrongdoing in the Securities Class Action and the Derivative Action and intend to vigorously defend ourselves in these matters. In view of the complexity and ongoing and uncertain nature of the outstanding proceedings and inquiries, at this time we are unable to estimate a reasonably possible financial loss or range of financial loss, if any, that we may incur to resolve or settle the Securities Class Action and the Derivative Action.

Contingencies

In September 2024, certain equipment and inventory of the Company located at a supplier’s facility experienced water damage following Hurricane Helene. The Company is pursuing alternative arrangements and does not expect this to have a material effect on the Company’s operations or financial condition.

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

13. Leases

The Company’s operating and finance lease portfolio is described in Note 15. Leases of Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2023.

Supplemental cash flow information related to leases was as follows (in thousands):


	Nine Months Ended
	September 28, 2024		September 30, 2023




Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	5,507	$	885
Finance leases	843		—

Supplemental balance sheet information related to leases was as follows (in thousands):


	September 28, 2024		December 31, 2023
Operating leases
Other non-current assets	$	57,876	$	58,638
Accrued expenses and other liabilities	9,062		7,828
Other non-current liabilities	56,504		58,642
Total operating lease liabilities	65,566		66,470

Finance leases
Property, plant and equipment	9,712		10,858
Accumulated depreciation	(2,891)		(2,415)
Property, plant and equipment, net	6,821		8,443

Current maturities of long-term debt	1,878		2,121
Long-term debt	922		2,608
Total finance lease liabilities	$	2,800	$	4,729

14. Stockholders’ Equity

Preferred Stock

The Company’s Second Restated Certificate of Incorporation authorizes the Company to issue up to 100,000,000 shares of preferred stock, $0.001 value per share, all of which is undesignated.

Common Stock

The Company’s Second Restated Certificate of Incorporation authorizes the Company to issue up to 750,000,000 shares of Common Stock, $0.001 value per share. Each share of Common Stock is entitled to one vote on all matters submitted to a vote of the Company’s stockholders. The holders of Common Stock are entitled to receive dividends, if any, as may be declared by the Board of Directors.

Dividends paid

For the three and nine months ended September 28, 2024 and September 30, 2023, no dividends were declared or paid to the Company’s common stockholders.

Share Repurchase Program

The Board of Directors authorized the Company’s share repurchase program (the “Share Repurchase Program”) such that the Company is authorized to repurchase from time to time up to an aggregate of $450 million of its outstanding shares of common stock, which authorization expires on July 26, 2025. The Company had no repurchases of its common stock in the quarter ended September 28, 2024 under the Share Repurchase Program. As of September 28, 2024, $400.0 million remained available for additional share repurchases under the program.

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

15. Stock-based Compensation

Stock-based compensation expense recorded in the unaudited condensed consolidated statements of operations for equity-classified stock-based awards for the three and nine months ended September 28, 2024 was $2.7 million and $7.3 million, respectively, and $2.6 million and $6.7 million, respectively, for the three and nine months ended September 30, 2023.

The Company has established two equity incentive plans, the 2021 Equity Incentive Plan and the 2017 Equity Incentive Plan. The Company no longer grants awards under the 2017 Equity Incentive Plan.

2021 Equity Incentive Plan

In March 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”). Under the 2021 Plan, up to 13,737,500 shares of common stock may be granted to employees, directors and consultants in the form of stock options, restricted stock units and other stock-based awards. The terms of awards granted under the 2021 Plan are determined by the Compensation Committee of the Board of Directors, subject to the provisions of the 2021 Plan.

Options granted under the 2021 Plan expire no later than ten years from the date of grant. Options and time-based restricted stock units granted under the 2021 Plan generally vest ratably over a three-year period and performance-based restricted stock units vest at the end of three years subject to the performance criteria.

During the nine months ended September 28, 2024, the Company granted 781,719 time-based restricted stock units and 304,518 performance-based restricted stock units (at the target performance level) under the 2021 Plan with a weighted-average grant-date fair value per share of $14.01 and $14.17, respectively.

16. Acquisitions and Restructuring

Acquisition and restructuring related expense, net consists of the following (in thousands):


	Three Months Ended				Nine Months Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Business restructuring costs	$	444	$	3,348	$	1,232	$	5,426
Acquisition transaction and integration costs	701		—		1,256		794
Total	$	1,145	$	3,348	$	2,488	$	6,220

During the third quarter of 2023, the Company initiated programs to centralize and consolidate operations and professional services in Europe. For the three and nine months ended September 28, 2024, the Company incurred zero and $0.7 million, respectively, of expense related to the programs, which include severance and employee benefit costs, as well as other direct separation benefit costs. The impacted employees must remain with the Company through their planned exit date to receive each of the severance and retention amounts. Such costs are accounted for in accordance with ASC 420, Exit or Disposal Cost Obligations.

During the three months ended September 28, 2024, the Company incurred $0.4 million of costs to finalize actions initiated in prior years.

The following tables summarize the status of the Company’s restructuring related expense and related liability balances (in thousands):


			2024 Activity
	Liability as of December 31, 2023		Costs Recognized		Cash Payments		Non-cash charges		Liability as of September 28, 2024
One-time termination benefits	$	2,353	$	488	$	(2,101)	$	—	$	740
Facility-related	—		182		(182)		—		—
Other	6		562		(456)		67		179
Total	$	2,359	$	1,232	$	(2,739)	$	67	$	919

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements


			2023 Activity
	Liability as of December 31, 2022		Costs Recognized		Cash Payments		Liability as of September 30, 2023
One-time termination benefits	$	2,422	$	4,894	$	(3,731)	$	3,585

Other	—		532		(470)		62
Total	$	2,422	$	5,426	$	(4,201)	$	3,647

Restructuring costs are included within acquisition and restructuring related costs on the Company’s unaudited condensed consolidated statements of operations, while the restructuring liability is included as a component of accrued expenses and other liabilities on the Company’s unaudited condensed consolidated balance sheets.

Acquisitions

On June 26, 2024, the Company acquired the equity interests of ChlorKing HoldCo, LLC and related entities (“ChlorKing”). The acquired business includes pool saline chlorinators and UV disinfection systems serving the commercial pools and water treatment market segments. The acquisition broadens the Company’s commercial portfolio of products and expands the market of commercial customers while furthering the Company's commitment to sustainable and energy-efficient technology for both commercial and residential pools. The acquisition is included in our North America segment.

The consideration paid net of cash acquired was $61.6 million. The purchase price was funded with cash on hand. For the three and nine months ended September 28, 2024, transaction expenses recognized for the acquisition were $0.7 million and $1.3 million, respectively. These expenses are included within acquisition and restructuring related costs on the Company’s unaudited condensed consolidated statements of operations.

The purchase price allocation is preliminary and subject to change as the Company finalizes the valuation of goodwill, intangible assets, inventory and leases, in addition to identifying and recording all other assets and liabilities and contingencies. Preliminary estimates will be finalized within one year of the date of acquisition. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed, including measurement period adjustments recorded through September 28, 2024 (in thousands):


	Preliminary Allocation		Measurement Period Adjustments		Preliminary Allocation
	As of June 26, 2024				As of September 28, 2024
Cash and cash equivalents	$	3,898	$	134	$	4,032
Receivables	3,701		(730)		2,971
Inventory	8,978		582		9,560
Prepaid expenses and other current assets	269		830		1,099
Property, plant and equipment	37		—		37
Other assets	2,565		—		2,565
Net Investment in Lease	1,867		5,449		7,316
Intangible assets	31,550		(3,075)		28,475
Accounts payable and accrued liabilities	(4,302)		(3,046)		(7,348)
Deferred tax liabilities	—		(1,810)		(1,810)
Total identifiable net assets acquired	48,563		(1,666)		46,897
Goodwill	17,835		936		18,771
Preliminary purchase price	$	66,398	$	(730)	$	65,668

Hayward Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

The estimated preliminary fair value and useful lives of the identifiable intangible assets are as follows:


	Estimated Useful Lives	Estimated Amounts
	(in years)	(in thousands)
Finite lived intangible assets
Tradename	15	$	2,600
Customer relationships	15	21,200
Developed technology	10	4,600
Noncompete agreements	5	75

Total		$	28,475

Goodwill is a result of the expected synergies and cross-selling opportunities this acquisition is expected to bring, as well as the expected growth potential from the integration of the ChlorKing products into Hayward’s existing commercial business. Any changes in the estimated fair values of the assets acquired and liabilities assumed in the acquisition may change the amount of the purchase consideration allocated to goodwill. The goodwill balance has been recorded to the North America reportable segment and is deductible for tax purposes.

Pro forma results of operations including ChlorKing have not been presented as the impact of ChlorKing on the Company's consolidated financial results is not material.

17. Related-Party Transactions

During the three and nine months ended September 28, 2024 and September 30, 2023, the Company did not incur any significant related-party transactions.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion and analysis includes forward-looking statements that reflect our plans, estimates and beliefs and involve risks and uncertainties. As a result of many factors, including those set forth in the section “Special Note Regarding Forward-looking Statements” in this Quarterly Report on Form 10-Q, our actual results may differ materially from those contained in or implied by any forward-looking statements. The results of operations for the three and nine months ended September 28, 2024 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2024.

Our Company

The Company is a leading global designer and manufacturer of pool and outdoor living technology. With the pool as the centerpiece of the growing outdoor living space, the pool industry has attractive market characteristics, including significant aftermarket requirements (such as the ongoing repair, replacement, remodeling and upgrading of equipment for existing pools), innovation-led growth opportunities, and a favorable industry structure. We are a leader in this market with a highly-recognized brand, one of the largest installed bases of pool equipment in the world, decades-long relationships with our key channel partners and trade customers and a history of technological innovation. Our engineered products, which include various energy efficient and more environmentally sustainable offerings, enhance the pool owner’s outdoor living lifestyle while also delivering high quality water, pleasant ambiance and ease of use for the ultimate backyard experience. Aftermarket replacements and upgrades to higher value Internet of Things and energy efficient models are a primary growth driver for our business.

We have an estimated North American residential pool market share of approximately 34%. We believe that we are well-positioned for future growth. On average, we have 20+ year relationships with our top 20 customers. We estimate that historically aftermarket sales have represented approximately 80% of net sales and are generally recurring in nature since these products are critical to the ongoing operation of pools given requirements for water quality and sanitization. Our product replacement cycle of approximately 8 to 11 years drives multiple replacement opportunities over the typical life of a pool, creating opportunities to generate aftermarket product sales as pool owners repair, remodel and upgrade their pools. We estimate aftermarket sales based upon feedback from certain representative customers and management’s interpretation of available industry and government data, and not upon our GAAP net sales results.

The Company has seven manufacturing facilities worldwide, which are located in North Carolina, Georgia, Tennessee, Rhode Island, Spain (two) and China, and other facilities in the United States, Canada, France and Australia.

Segments

Our business is organized into two reportable segments: North America (“NAM”) and Europe & Rest of World (“E&RW”). The Company determined its reportable segments based on how the Chief Operating Decision Maker (“CODM”) reviews the Company’s operating results in assessing performance and allocating resources.

The NAM segment manufactures and sells a complete line of residential and commercial swimming pool equipment and supplies in the United States, Canada and Mexico, and manufactures and sells flow control products.

The E&RW segment manufactures and sells residential and commercial swimming pool equipment and supplies in Europe, Central and South America, the Middle East, Australia and other Asia Pacific countries.

NAM accounted for 86% and 84% of total net sales for the three months ended September 28, 2024 and September 30, 2023, respectively, and E&RW accounted for 14% and 16% of total net sales for the three months ended September 28, 2024 and September 30, 2023, respectively.

NAM accounted for 84% and 82% of total net sales for the nine months ended September 28, 2024 and September 30, 2023, respectively, and E&RW accounted for 16% and 18% of total net sales for the nine months ended September 28, 2024 and September 30, 2023, respectively.

Factors Affecting the Comparability of our Results of Operations

Our results of operations for the three and nine months ended September 28, 2024 and the three and nine months ended September 30, 2023 have been affected by the following, among other events, which must be understood to assess the comparability of our period-to-period financial performance and condition.

Our fiscal quarters end on the Saturday closest to the calendar quarter end, with the exception of year end which ends on December 31 of each fiscal year. The interim closing date for the first, second and third quarters of 2024 are March 30, June 29, and September 28, compared to the respective April 1, July 1, and September 30, 2023 date. This resulted in no difference in working days for the three and nine months ended September 28, 2024 compared to the respective 2023 periods. Throughout this discussion we may refer to the three months ended September 28, 2024 and the three months ended September 30, 2023 as the “Third Quarter” and “Comparable Quarter,” respectively.

Seasonality

Our business is seasonal, with sales typically higher in the second and fourth quarters. During the second quarter, sales are higher in anticipation of the start of the summer pool season, and in the fourth quarter, we incentivize trade customers to buy and stock in preparation for next year’s pool season under an “Early Buy” program, which features a price discount and extended payment terms. Shipments for the 2024 Early Buy program began in the late third quarter and will continue through approximately the first quarter of 2025. The favorable payment terms extended as part of the Early Buy program generally do not exceed 180 days. We aim to keep our manufacturing plants running at a constant level throughout the year and consequently we typically build inventory in the first and third quarters, and inventory is sold-down in the second and fourth quarters. Our accounts receivable balance increases from September to April as a result of the Early Buy extended terms. Also, because the majority of our sales are to distributors whose inventory of our products may vary, including due to reasons beyond our control, such as end-user demand, supply chain lead times and macroeconomic factors, our revenue may fluctuate from period to period.

Geopolitical Events

Geopolitical conflicts around the world have created substantial uncertainty in the global economy, including as a result of sanctions and penalties imposed in response to these conflicts. In particular, armed conflicts in the Middle East and in Ukraine and Russia have adversely affected market demand in the Middle East and Asia, which has negatively impacted our results in our E&RW segment. See “—Segment—Europe & Rest of World (“E&RW”),” below. Given the nature of our business and global operations, if these or other geopolitical conflicts continue or worsen, our business and results of operations may be adversely affected.

Key Measures We Use to Evaluate Our Business

We consider a variety of financial and operating measures in assessing the performance of our business. The key GAAP measures we use are net sales, gross profit and gross profit margin, selling, general, and administrative expense (“SG&A”), research, development, and engineering expense (“RD&E”), operating income and operating income margin. The key non-GAAP measures we use are EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted segment income, and adjusted segment income margin.

For information about our use of Non-GAAP measures and a reconciliation of these metrics to the most relevant GAAP measure see “—Non-GAAP Reconciliation.”

Results of Operations

Consolidated

The following tables summarize key components of our results of operations for the periods indicated. We derived the consolidated statements of operations for the three and nine months ended September 28, 2024 and September 30, 2023 from our unaudited condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following table summarizes our results of operations:


(In thousands)	Three Months Ended				Nine Months Ended
	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Net sales	$	227,569	$	220,304	$	724,531	$	713,983
Cost of sales	114,474		114,893		361,770		374,171
Gross profit	113,095		105,411		362,761		339,812
Selling, general and administrative expense	64,509		59,454		187,678		172,057
Research, development and engineering expense	6,449		6,177		18,870		19,027
Acquisition and restructuring related expense	1,145		3,348		2,488		6,220
Amortization of intangible assets	7,576		7,523		21,425		22,777
Operating income	33,416		28,909		132,300		119,731
Interest expense, net	13,209		17,448		48,600		55,939
Loss on debt extinguishment	—		—		4,926		—
Other (income) expense, net	(705)		1,932		(1,989)		1,798
Total other expense	12,504		19,380		51,537		57,737
Income from operations before income taxes	20,912		9,529		80,763		61,994
Provision (benefit) for income taxes	4,411		(2,259)		16,841		12,343
Net income	$	16,501	$	11,788	$	63,922	$	49,651
Adjusted EBITDA (a)	$	51,093	$	47,211	$	178,748	$	171,618

(a) See “—Non-GAAP Reconciliation.”

Net sales

Net sales increased to $227.6 million for the three months ended September 28, 2024 from $220.3 million for the three months ended September 30, 2023, an increase of $7.3 million, or 3.3%. See the segment discussion below for further information.

Net sales increased to $724.5 million for the nine months ended September 28, 2024 from $714.0 million for the nine months ended September 30, 2023, an increase of $10.5 million, or 1.5%. See the segment discussion below for further information.

The year-over-year net sales increase was driven by the following:


	Three Months Ended		Nine Months Ended
	September 28, 2024		September 28, 2024
Volume	(4.7)	%	(2.0)	%
Price, net of discounts and allowances	5.6	%	2.8	%
Acquisitions	2.5	%	0.8	%
Currency and other	(0.1)	%	(0.1)	%
Total	3.3	%	1.5	%

The net sales increase for the three and nine months ended September 28, 2024 was driven by an increase in net price and the favorable impact from acquisitions, partially offset by a decline in volume.

The net sales increase for the three months ended September 28, 2024 was driven by positive net price including normalized allowances and discounts and the positive impact from acquisitions, partially offset by reduced volumes. The decrease in volume resulted from market declines in the Middle East and Asia and lower new construction and remodel activity in the U.S..

The net sales increase for the nine months ended September 28, 2024 was driven by positive net price and the positive impact from acquisitions, partially offset by reduced volumes. The decrease in volume resulted from market declines in the Middle East and Asia and lower new construction and remodel activity in the U.S.

Gross profit and gross profit margin

Gross profit increased to $113.1 million for the three months ended September 28, 2024 from $105.4 million for the three months ended September 30, 2023, an increase of $7.7 million, or 7.3%.

Gross profit margin increased to 49.7% for the three months ended September 28, 2024 compared to 47.8% for the three months ended September 30, 2023, an increase of 190 basis points, driven by operational efficiencies in our manufacturing facilities and net price increases including normalized allowances and discounts, partially offset by a non-cash increase to cost of goods sold resulting from the fair value inventory step-up adjustment recognized as part of the purchase accounting for the acquisition of ChlorKing HoldCo, LLC and related entities ("ChlorKing") and a discrete inventory adjustment in Europe.

Gross profit increased to $362.8 million for the nine months ended September 28, 2024 from $339.8 million for the nine months ended September 30, 2023, an increase of $23.0 million, or 6.8%.

Gross profit margin increased to 50.1% for the nine months ended September 28, 2024 compared to 47.6% for the nine months ended September 30, 2023, an increase of 250 basis points, primarily due to operational efficiencies, net price increases and management of our manufacturing costs.

Selling, general, and administrative expense

Selling, general, and administrative expense (SG&A) increased to $64.5 million for the three months ended September 28, 2024 from $59.5 million for the three months ended September 30, 2023, an increase of $5.0 million, or 8.5%, primarily due to higher salary costs driven by wage inflation and investments in our customer care and selling teams, discrete legal expenses, and increased professional service costs.

As a percentage of net sales, SG&A increased to 28.3% for the three months ended September 28, 2024 as compared to 27.0% for the three months ended September 30, 2023, an increase of 130 basis points, driven by the factors discussed above.

SG&A increased to $187.7 million for the nine months ended September 28, 2024 from $172.1 million for the nine months ended September 30, 2023, an increase of $15.6 million, or 9.1%, driven by higher incentive compensation, higher salary costs driven by wage inflation and investments in our customer care and selling teams, discrete legal expenses, partially offset by decreased warranty costs.

As a percentage of net sales, SG&A increased to 25.9% for the nine months ended September 28, 2024 as compared to 24.1% for nine months ended September 30, 2023, an increase of 180 basis points, due to the factors discussed above.

Research, development, and engineering expense

Research, development, and engineering expense (RD&E) increased to $6.4 million for the three months ended September 28, 2024 from $6.2 million for the three months ended September 30, 2023, primarily as a result of timing of projects compared to the three months ended September 30, 2023. RD&E spend continues to be focused on new product development.

As a percentage of net sales, RD&E was 2.8% for the three months ended September 28, 2024, which was unchanged compared to 2.8% for the three months ended September 30, 2023.

RD&E remained relatively consistent at $18.9 million for the nine months ended September 28, 2024 compared with $19.0 million for the nine months ended September 30, 2023. As a percentage of net sales, RD&E was 2.6% for the nine months ended September 28, 2024 compared to 2.7% for the nine months ended September 30, 2023, a decrease of 10 basis points.

Acquisition and restructuring related expense

For the three months ended September 28, 2024, we incurred $1.1 million of acquisition and restructuring related expense as compared to $3.3 million of expense for the three months ended September 30, 2023. The expense in the Third Quarter was primarily driven by costs associated with the acquisition of the ChlorKing business, compared to the Comparable Quarter

which was primarily related to severance and retention costs associated with the centralization and consolidation of operations in Europe, along with the relocation of the corporate headquarters from New Jersey to North Carolina.

For the nine months ended September 28, 2024, we incurred $2.5 million of acquisition and restructuring related expense as compared to $6.2 million of expense for the nine months ended September 30, 2023. The nine months ended September 28, 2024 primarily included costs associated with the centralization and consolidation of operations in Europe and costs related to the acquisition of the ChlorKing business. The acquisition and restructuring related expenses in the nine months ended September 30, 2023 primarily included severance and employee benefit costs as part of the corporate headquarters relocation and costs associated with the centralization and consolidation of operations in Europe.

See Note 16. Acquisitions and Restructuring.

Amortization of intangible assets

For the three months ended September 28, 2024, amortization of intangible assets increased by $0.1 million compared to the three months ended September 30, 2023 due to the amortization of the intangible assets acquired as part of the acquisition of ChlorKing.

For the nine months ended September 28, 2024, amortization of intangible assets decreased $1.4 million compared to the nine months ended September 30, 2023 due to the amortization pattern of certain intangible asset classes based on the declining balance method.

Operating income

For the three and nine months ended September 28, 2024, operating income increased $4.5 million and $12.6 million, respectively, due to the aggregated effect of the items described above.

Interest expense, net

Interest expense, net, decreased to $13.2 million for the three months ended September 28, 2024 from $17.4 million for the three months ended September 30, 2023.

Interest expense, net, for the three months ended September 28, 2024 consisted of $15.9 million of interest expense on the outstanding debt and $1.0 million of amortization of deferred financing fees, partially offset by $3.7 million of interest income on cash deposits. The effective interest rate on our borrowings, including the impact of an interest rate hedge, was 6.78% for the three months ended September 28, 2024.

Interest expense, net, for the three months ended September 30, 2023 consisted of $19.2 million of interest expense on the outstanding debt and $1.2 million of amortization of deferred financing fees, partially offset by $3.0 million of interest income on cash deposits. The effective interest rate on our borrowings, including the impact of an interest rate hedge, was 7.34% for the three months ended September 30, 2023.

Interest expense, net, decreased by $4.2 million for the Third Quarter compared to the Comparable Quarter, primarily due to the repayment of the Incremental Term Loan B principal balance in April 2024 and higher interest income on cash investment balances.

For the nine months ended September 28, 2024, interest expense, net, decreased to $48.6 million from $55.9 million for the nine months ended September 30, 2023.

Interest expense, net, for the nine months ended September 28, 2024 consisted of $52.3 million of interest on the outstanding debt and $3.2 million of amortization of deferred financing fees, partially offset by $6.9 million of interest income. The effective interest rate on our borrowings, including the impact of an interest rate hedge, was 7.00% for the nine months ended September 28, 2024.

Interest expense, net, for the nine months ended September 30, 2023 consisted of $56.5 million of interest on the outstanding debt and $3.5 million of amortization of deferred financing fees, partially offset by $4.1 million of interest income. The effective interest rate on our borrowings, including the impact of an interest rate hedge, was 7.02% for the nine months ended September 30, 2023.

Interest expense, net, decreased by $7.3 million for the nine months ended September 28, 2024 compared to the prior year period primarily due to the repayment of the Incremental Term Loan B principal balance and interest income on cash investment balances.

Loss on extinguishment of debt

The $4.9 million loss on extinguishment of debt for the nine months ended September 28, 2024 was incurred as a result of the voluntary repayment of the Incremental Term Loan B principal balance in April 2024. There was no loss on extinguishment of debt for the three and nine months ended September 30, 2023.

Provision for income taxes

We incurred income tax expense of $4.4 million for the three months ended September 28, 2024 compared to an income tax benefit of $2.3 million for the three months ended September 30, 2023, an increase of $6.7 million, or 295.3%.

The increase in the Company’s effective tax rate from (23.7)% for the three months ended September 30, 2023 to 21.1% for the three months ended September 28, 2024 was primarily due to the exercise of stock options, the release of the valuation allowance against foreign tax credit carryovers and return-to-provision adjustments during the Comparable Quarter.

We incurred income tax expense of $16.8 million for the nine months ended September 28, 2024 compared to income tax expense of $12.3 million for the nine months ended September 30, 2023, an increase of $4.5 million, or 36.4%.

The increase in the Company’s effective tax rate from 19.9% for the nine months ended September 30, 2023 to 20.9% for the nine months ended September 28, 2024 was primarily due to a decrease in excess tax benefit from stock compensation and the release of the valuation allowance against foreign tax credit carryovers in the prior year period, partially offset with the change to the Company's permanent reinvestment assertion for one jurisdiction in the prior-year period.

Net income and net income margin

As a result of the foregoing, net income increased $4.7 million and $14.3 million for the three and nine months ended September 28, 2024, respectively.

Net income margin increased to 7.3% for the three months ended September 28, 2024 compared to 5.4% for the three months ended September 30, 2023, an increase of 190 basis points.

Net income margin increased to 8.8% for the nine months ended September 28, 2024 compared to 7.0% for the nine months ended September 30, 2023, an increase of 180 basis points.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA increased to $51.1 million for the three months ended September 28, 2024 from $47.2 million for the three months ended September 30, 2023, an increase of $3.9 million, or 8.2%, driven primarily by increased net sales and higher gross profit, partially offset by an increase in SG&A expense.

Adjusted EBITDA margin increased to 22.5% for the three months ended September 28, 2024 compared to 21.4% for the three months ended September 30, 2023, an increase of 110 basis points.

Adjusted EBITDA increased to $178.7 million for the nine months ended September 28, 2024 from $171.6 million for the nine months ended September 30, 2023, an increase of $7.1 million or 4.2%, driven primarily by increased net sales and higher gross profit, partially offset by an increase in SG&A expense.

Adjusted EBITDA margin increased to 24.7% for the nine months ended September 28, 2024 compared to 24.0% for the nine months ended September 30, 2023, an increase of 70 basis points, due to the factors described above.

See “— Non-GAAP Reconciliation” for a reconciliation of adjusted EBITDA and adjusted EBITDA margin to the most directly comparable GAAP metric.

Segment

The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of NAM and E&RW. We evaluate performance based on net sales, gross profit, segment income and adjusted segment income, and we use gross profit margin, segment income margin and adjusted segment income margin as comparable performance measures for our reporting segments.

Segment income represents segment net sales less cost of sales, segment SG&A and RD&E, excluding acquisition and restructuring related expense as well as amortization of intangible assets. A reconciliation of segment income to our operating income is detailed below. Adjusted segment income represents segment income adjusted for the impact of depreciation, amortization of intangible assets recorded within cost of sales, stock-based compensation and certain non-cash, nonrecurring or other items that are included in segment income that we do not consider indicative of the ongoing segment operating performance. See “—Non-GAAP Reconciliation” for a reconciliation of these metrics to the most directly comparable GAAP metric.

North America (“NAM”)


(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
Net sales	$	194,968		$	185,070		$	609,510		$	585,126
Gross profit	$	101,877		$	91,456		$	319,184		$	288,911
Gross profit margin %	52.3		%	49.4		%	52.4		%	49.4		%
Segment income	$	51,569		$	40,108		$	166,646		$	144,346
Segment income margin %	26.4		%	21.7		%	27.3		%	24.7		%
Adjusted segment income (a)	$	59,461		$	46,063		$	186,038		$	162,244
Adjusted segment income margin % (a)	30.5		%	24.9		%	30.5		%	27.7		%

(a) See “—Non-GAAP Reconciliation.”

Net sales

Net sales increased to $195.0 million for the three months ended September 28, 2024 from $185.1 million for the three months ended September 30, 2023, an increase of $9.9 million, or 5.3%.

Net sales increased to $609.5 million for the nine months ended September 28, 2024 from $585.1 million for the nine months ended September 30, 2023, an increase of $24.4 million, or 4.2%.

The year-over-year net sales increase was driven by the following factors:


	Three Months Ended		Nine Months Ended
	September 28, 2024		September 28, 2024
Volume	(3.8)	%	0.2	%
Price, net of allowances and discounts	6.3	%	3.1	%
Acquisitions	3.0	%	1.0	%
Currency and other	(0.2)	%	(0.1)	%
Total	5.3	%	4.2	%

The net sales increase for the three months ended September 28, 2024 was driven by positive net price including normalized allowances and discounts, the positive impact from acquisitions and volume growth in Canada, partially offset by a decline in volume in the US due to lower new construction and remodels.

The net sales increase for the nine months ended September 28, 2024 was driven primarily by increases in price and acquisitions.

Gross profit and gross profit margin

Gross profit increased to $101.9 million for the three months ended September 28, 2024 from $91.5 million for the three months ended September 30, 2023, an increase of $10.4 million, or 11.4%.

Gross profit margin increased to 52.3% for the three months ended September 28, 2024 from 49.4% for the three months ended September 30, 2023, an increase of 290 basis points. Gross margin increased due to operational efficiencies in our manufacturing facilities and normalized allowances and discounts, partially offset by a non-cash increase to cost of goods sold resulting from the fair value inventory step-up adjustment recognized as part of the purchase accounting for the acquisition of the ChlorKing business.

Gross profit increased to $319.2 million for the nine months ended September 28, 2024 from $288.9 million for the nine months ended September 30, 2023, an increase of $30.3 million, or 10.5%.

Gross profit margin increased to 52.4% for the nine months ended September 28, 2024 from 49.4% for the nine months ended September 30, 2023, an increase of 300 basis points. Gross margin increased due to operational efficiencies in our manufacturing facilities and net price increases including normalized allowances and discounts, partially offset by a non-cash increase to cost of goods sold resulting from the fair value inventory step-up adjustment recognized as part of the purchase accounting for the acquisition of the ChlorKing business.

Segment income and segment income margin

Segment income increased to $51.6 million for the three months ended September 28, 2024 from $40.1 million for the three months ended September 30, 2023, an increase of $11.5 million, or 28.6%. This was primarily driven by an increase in sales and gross profit as discussed above.

Segment income margin increased to 26.4% for the three months ended September 28, 2024 from 21.7% for the three months ended September 30, 2023, an increase of 470 basis points. The increase was driven by the increase in net sales and gross profit as discussed above.

Segment income increased to $166.6 million for the nine months ended September 28, 2024 from $144.3 million for the nine months ended September 30, 2023, an increase of $22.3 million, or 15.4%. This was primarily attributable to the increase in net sales and gross profit as discussed above, partially offset by higher SG&A expense due to increased administrative costs and investments in our customer care and selling teams.

Segment income margin increased to 27.3% for the nine months ended September 28, 2024 from 24.7% for the nine months ended September 30, 2023, an increase of 260 basis points, primarily resulting from higher gross profit as discussed above.

Adjusted segment income and Adjusted segment income margin

Adjusted segment income increased to $59.5 million for the three months ended September 28, 2024 from $46.1 million for the three months ended September 30, 2023, an increase of $13.4 million, or 29.1%. This was driven by the increase in segment income as discussed above, after adjusting for the non-cash and specified costs discussed below in “— Non-GAAP Reconciliation.”

Adjusted segment income margin increased to 30.5% for the three months ended September 28, 2024 from 24.9% for the three months ended September 30, 2023, an increase of 560 basis points.

Adjusted segment income increased to $186.0 million for the nine months ended September 28, 2024 from $162.2 million for the nine months ended September 30, 2023, an increase of $23.8 million or 14.7%. This was driven by the increased segment income as discussed above, after adjusting for the non-cash and specified costs discussed below in “— Non-GAAP Reconciliation.”

Adjusted segment income margin increased to 30.5% for the nine months ended September 28, 2024 from 27.7% for the nine months ended September 30, 2023, an increase of 280 basis points.

Refer to “—Non-GAAP Reconciliation” for a reconciliation of segment income to adjusted segment income.

Europe & Rest of World (“E&RW”)


(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
Net sales	$	32,601		$	35,234		$	115,021		$	128,857
Gross profit	$	11,218		$	13,955		$	43,577		$	50,901
Gross profit margin %	34.4		%	39.6		%	37.9		%	39.5		%
Segment income	$	2,475		$	6,413		$	16,800		$	25,647
Segment income margin %	7.6		%	18.2		%	14.6		%	19.9		%
Adjusted segment income (a)	$	2,746		$	6,670		$	17,601		$	26,375
Adjusted segment income margin % (a)	8.4		%	18.9		%	15.3		%	20.5		%

(a) See “—Non-GAAP Reconciliation.”

Net sales

Net sales decreased to $32.6 million for the three months ended September 28, 2024 from $35.2 million for the three months ended September 30, 2023, a decrease of $2.6 million, or 7.5%.

Net sales decreased to $115.0 million for the nine months ended September 28, 2024 from $128.9 million for the nine months ended September 30, 2023, a decrease of $13.9 million, or 10.7%.

The year-over-year net sales decrease was driven by the following:


	Three Months Ended		Nine Months Ended
	September 28, 2024		September 28, 2024
Volume	(9.6)	%	(11.8)	%
Price, net of allowances and discounts	1.8	%	1.2	%
Currency and other	0.3	%	(0.1)	%
Total	(7.5)	%	(10.7)	%

The decrease for the three and nine months ended September 28, 2024 in net sales was primarily due to a decline in volume, partially offset by the favorable impact of net price. The decline in volume in the three and nine months ended September 28, 2024 is driven primarily by market declines in the Middle East and Asia.

Gross profit and Gross profit margin

Gross profit decreased to $11.2 million for the three months ended September 28, 2024 from $14.0 million for the three months ended September 30, 2023, a decrease of $2.8 million, or 19.6%.

Gross profit margin decreased to 34.4% for the three months ended September 28, 2024 from 39.6% for the three months ended September 30, 2023, a decrease of 520 basis points, primarily driven by lower operating leverage on lower volumes, a discrete inventory adjustment and unfavorable mix, partially offset by higher net price.

Gross profit decreased to $43.6 million for the nine months ended September 28, 2024 from $50.9 million for the nine months ended September 30, 2023, a decrease of $7.3 million, or 14.4%.

Gross profit margin decreased to 37.9% for the nine months ended September 28, 2024 from 39.5% for the nine months ended September 30, 2023, a decrease of 160 basis points, primarily driven by lower operating leverage and unfavorable mix due to the geopolitical conflicts in the Middle East.

Segment income and Segment income margin

Segment income decreased to $2.5 million for the three months ended September 28, 2024 from $6.4 million for the three months ended September 30, 2023, a decrease of $3.9 million, or 61.4%. This was primarily driven by a decrease in sales and gross profit as discussed above.

Segment income margin decreased by 1,060 basis points from 18.2% for the three months ended September 30, 2023 to 7.6% for the three months ended September 28, 2024, resulting from lower operating expense leverage and unfavorable mix.

Segment income decreased to $16.8 million for the nine months ended September 28, 2024 from $25.6 million for the nine months ended September 30, 2023, a decrease of $8.8 million, or 34.5%. This was driven by the factors discussed above.

Segment income margin decreased by 530 basis points, to 14.6% for the nine months ended September 28, 2024 as compared to 19.9% for the same period year over year.

Adjusted segment income and Adjusted segment income margin

Adjusted segment income decreased to $2.7 million for the three months ended September 28, 2024 from $6.7 million for the three months ended September 30, 2023, a decrease of $4.0 million or 58.8%. This was primarily driven by the decreased sales after adjusting for the non-cash and specified costs described in “—Non-GAAP Reconciliation” below.

Adjusted segment income margin decreased to 8.4% for the three months ended September 28, 2024 from 18.9% for the three months ended September 30, 2023, a decrease of 1,050 basis points. Refer to “—Non-GAAP Reconciliation” for a reconciliation of segment income to adjusted segment income.

Adjusted segment income decreased to $17.6 million for the nine months ended September 28, 2024 from $26.4 million for the nine months ended September 30, 2023, a decrease of $8.8 million or 33.3%. This was primarily driven by the decreased sales after adjusting for the non-cash and specified costs described in “—Non-GAAP Reconciliation” below.

Adjusted segment income margin decreased to 15.3% for the nine months ended September 28, 2024 from 20.5% for the nine months ended September 30, 2023, a decrease of 520 basis points. Refer to “—Non-GAAP Reconciliation” for a reconciliation of segment income to adjusted segment income.

Non-GAAP Reconciliation

The Company uses EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies. These metrics are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

EBITDA is defined as earnings before interest (including amortization of debt costs), income taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA adjusted for the impact of restructuring related income or expenses, stock-based compensation, currency exchange items, and certain non-cash, nonrecurring, or other items that are included in net income and EBITDA that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net sales. Adjusted segment income is defined as segment income adjusted for the impact of depreciation, amortization of intangible assets recorded within cost of sales, stock-based compensation and certain non-cash, nonrecurring or other items that are included in segment income that we do not consider indicative of the ongoing segment operating performance. Adjusted segment income margin is defined as adjusted segment income divided by segment net sales.

EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin are not recognized measures of financial performance under GAAP. We believe these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of our business and assist these parties in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our 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. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP.

EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. EBITDA, adjusted EBITDA, adjusted segment income should not be construed as indicators of a company’s operating performance in isolation from, or as a substitute for, net income (loss) and segment income which are prepared in accordance with GAAP. We have presented EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. In the future we may incur expenses such as those added back to calculate adjusted EBITDA. Our presentation of adjusted EBITDA and adjusted segment income should not be construed as an inference that our future results will be unaffected by these items.

Net Income to Adjusted EBITDA and Adjusted EBITDA Margin

Following is a reconciliation from net income to adjusted EBITDA and adjusted EBITDA margin for the three and nine months ended September 28, 2024 and September 30, 2023:


(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
Net income	$	16,501		$	11,788		$	63,922		$	49,651
Depreciation	4,862			4,428			13,929			13,018
Amortization	9,253			9,260			26,299			27,803
Interest expense, net	13,209			17,448			48,600			55,939
Income taxes	4,411			(2,259)			16,841			12,343
Loss on debt extinguishment	—			—			4,926			—
EBITDA	48,236			40,665			174,517			158,754
Stock-based compensation (a)	136			269			556			1,001

Currency exchange items (b)	(344)			145			(470)			1,276
Acquisition and restructuring related expense, net (c)	1,145			3,348			2,488			6,220
Other (d)	1,920			2,784			1,657			4,367
Total Adjustments	2,857			6,546			4,231			12,864
Adjusted EBITDA	$	51,093		$	47,211		$	178,748		$	171,618

Net income margin	7.3		%	5.4		%	8.8		%	7.0		%
Adjusted EBITDA margin	22.5		%	21.4		%	24.7		%	24.0		%


(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 Hayward’s initial public offering (the “IPO”).

(b)						Represents unrealized non-cash (gains) losses on foreign denominated monetary assets and liabilities and foreign currency contracts.
(c)						Adjustments in the three months ended September 28, 2024 are primarily driven by $0.7 million of transaction and integration costs associated with the acquisition of the ChlorKing business and $0.4 million of costs to finalize actions initiated in prior years. Adjustments in the three months ended September 30, 2023 are primarily driven by $1.9 million of separation costs associated with the centralization and consolidation of operations in Europe and $1.5 million of costs associated with the relocation of the corporate headquarters. Adjustments in the nine months ended September 28, 2024 are primarily driven by $1.3 million of transaction and integration costs associated with the acquisition of ChlorKing, $0.7 million of separation and other costs associated with the centralization and consolidation of operations in Europe and $0.4 million of costs to finalize actions initiated in prior years. 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 and consolidation 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.
(d)						Adjustments in the three months ended September 28, 2024 are primarily driven by a $1.6 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 acquisition of the ChlorKing business and $0.3 million of costs incurred related to litigation. 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 and consolidation 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 nine months ended September 28, 2024 are primarily driven by a $1.6 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 acquisition of the ChlorKing business and $0.5 million of costs incurred related to litigation, partially offset by $0.5 million of gains on the sale of assets. 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.

Following is a reconciliation from segment income to adjusted segment income for NAM for the three and nine months ended September 28, 2024 and September 30, 2023 (dollars in thousands):


NAM	Three Months Ended						Nine Months Ended
	September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
Segment income	$	51,569		$	40,108		$	166,646		$	144,346
Depreciation	4,404			4,027			12,619			11,952
Amortization	1,677			1,738			4,874			5,026
Stock-based compensation	107			75			176			417


Other (a)	1,704			115			1,723			503
Total adjustments	7,892			5,955			19,392			17,898
Adjusted segment income	$	59,461		$	46,063		$	186,038		$	162,244

Segment income margin	26.4		%	21.7		%	27.3		%	24.7		%
Adjusted segment income margin	30.5		%	24.9		%	30.5		%	27.7		%


(a)						The three months ended September 28, 2024 primarily includes a $1.6 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 acquisition of the ChlorKing business. The three months ended September 30, 2023 includes miscellaneous items the Company believes are not representative of its ongoing business operations.

						The nine months ended September 28, 2024 primarily includes a $1.6 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 acquisition of the ChlorKing business. The nine months ended September 30, 2023 includes miscellaneous items the Company believes are not representative of its ongoing business operations.

Following is a reconciliation from segment income to adjusted segment income for E&RW for the three and nine months ended September 28, 2024 and September 30, 2023 (dollars in thousands):


E&RW	Three Months Ended						Nine Months Ended
	September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
Segment income	$	2,475		$	6,413		$	16,800		$	25,647
Depreciation	271			246			791			694
Amortization	—			—			—			—
Stock-based compensation	—			11			10			34



Total Adjustments	271			257			801			728
Adjusted segment income	$	2,746		$	6,670		$	17,601		$	26,375

Segment income margin	7.6		%	18.2		%	14.6		%	19.9		%
Adjusted segment income margin	8.4		%	18.9		%	15.3		%	20.5		%

Liquidity and Capital Resources

Our primary sources of liquidity are net cash provided by operating activities and availability under the ABL Revolving Credit Facility (“ABL Facility”).

Primary working capital requirements are for raw materials, component and certain finished goods inventories and supplies, payroll, manufacturing, freight and distribution, facility, and other operating expenses. Cash flow from operations and working capital requirements fluctuate during the year, driven primarily by the seasonal demand for our products, an Early Buy program, the timing of inventory purchases and receipt of customer payments, and as such, the utilization of the ABL Facility fluctuates during the year.

Unrestricted cash and cash equivalents totaled $274.2 million as of September 28, 2024, which is an increase of $96.1 million from $178.1 million at December 31, 2023.

We focus on increasing cash flow, solidifying the liquidity position through working capital initiatives, and paying our debt obligations, while continuing to fund business growth initiatives and return of capital to shareholders. We believe that net cash provided by operating activities and availability under the ABL Facility will be adequate to finance our working capital requirements, inclusive of capital expenditures, and debt service over the next 12 months.

Accounts Receivable Sales

On July 3, 2024, we entered into a Receivables Purchase Agreement under which we may offer to sell eligible accounts receivable. The agreement is uncommitted and the eligible accounts receivable to be sold under the agreement consist of up to $125 million in accounts receivable generated by sales to specified customers of the Company. The Company will be paid a discounted purchase price for each receivable sold. The discount rate used to determine the purchase price for the subject receivables is based upon an annual interest rate equal to the forward-looking term rate based on the secured overnight financing rate for the period of time between payment to the Company and the due date for the receivable plus a buffer period specific to the obligor, plus a margin applicable to the specified obligor.

Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the unaudited condensed consolidated balance sheets at the time of the sales transaction. For ease of administration, the Company collects customer payments related to the receivables sold and remits those payments to the purchaser. Proceeds received from the sales of accounts receivable are classified as operating cash flows and collections of previously sold accounts receivable not yet submitted to the financial institution are classified as financing cash flows in the unaudited condensed consolidated statements of cash flows. We record the discount in the “Other expense, net” line in the unaudited condensed consolidated statements of operations. During the three months ended September 28, 2024, there were immaterial proceeds from the sale of receivables under the Receivables Purchase Agreement.

Credit Facilities

The First Lien Term Facility and ABL Facility (collectively “Credit Facilities”) contain various restrictions, covenants and collateral requirements. Refer to Note 7. Long-Term Debt of notes to our unaudited condensed consolidated financial statements for further information on the terms of the Credit Facilities. We also have a revolving credit facility for our Spain subsidiary in the amount of €0.5 million as a local source of liquidity. As of September 28, 2024, the Spain revolving facility balance was zero with a borrowing availability of €0.5 million.

Long-term debt consisted of the following (in thousands):


	September 28, 2024		December 31, 2023
First Lien Term Facility, due May 28, 2028	$	970,000	$	975,000
Incremental B First Lien Term Facility, due May 28, 2028	—		123,438
ABL Revolving Credit Facility	—		—
Other bank debt	11,267		8,775
Finance lease obligations	2,800		4,729
Subtotal	984,067		1,111,942
Less: Current portion of the long-term debt	(14,079)		(15,088)
Less: Unamortized debt issuance costs	(10,082)		(17,574)
Total	$	959,906	$	1,079,280

ABL Facility

The ABL Facility provides for an aggregate amount of borrowings up to $425.0 million, with a peak season commitment of $475.0 million, subject to a borrowing base calculation based on available eligible receivables, eligible inventory, and qualified cash in North America. Accounts receivable for customers whose receivables are eligible for purchase under the Receivables Purchase Agreement, regardless of whether any amount of outstanding accounts receivable with those specific customers have been sold under the Receivables Purchase Agreement, are not eligible accounts receivable under the ABL Facility. An amount of up to 30% (or up to 40% with agent consent) of the then-outstanding commitments under the ABL Facility is available to our Canada and Spain subsidiaries. A portion of the ABL Facility not to exceed $50 million is available for the issuance of letters of credit in U.S. Dollars, of which $20.0 million is available for the issuance of letters of credit in Canadian dollars. The ABL Facility also includes a $50.0 million swingline loan facility and a $21.9 million First-In, Last-Out Sublimit (“FILO Sublimit”). The maturity of the facility is June 1, 2026.

The borrowings under the ABL Facility bear interest at a rate equal to the Secured Overnight Financing Rate (“Term SOFR”) plus a 0.10% credit spread adjustment and a margin of between 1.25% to 1.75%, or at a base rate plus a margin of 0.25% to 0.75% with no credit spread adjustment, while the FILO Sublimit borrowings bear interest at a rate equal to Term SOFR or a base rate plus a margin of between 2.25% to 2.75% or 1.25% to 1.75%, respectively.

For the three months ended September 28, 2024, the average borrowing base under the ABL Facility was $109.2 million and the average loan balance outstanding was zero. As of September 28, 2024, the loan balance was zero with a borrowing availability of $113.7 million.

For the nine months ended September 28, 2024, the average borrowing base under the ABL Facility was $237.4 million and the average loan balance outstanding was zero.

First Lien Term Facilities

On May 22, 2023, the Company entered into the Fifth Amendment to the Company's First Lien Credit Agreement (the “First Lien Term Facility” and, together with the ABL Facility, the “Credit Facilities”) to replace the LIBOR based reference rate with an adjusted term Secured Overnight Financing Rate (“SOFR”). The First Lien Term Facility bears interest at a rate equal to a base rate or SOFR, plus, in either case, an applicable margin. In the case of SOFR tranches, the applicable margin is 2.75% per annum with a 0.50% floor, with a stepdown to 2.50% per annum with a 0.50% floor when net secured leverage as defined by the First Lien Credit Agreement is less than 2.5x. The loan under the First Lien Term Facility amortizes quarterly at a rate of 0.25% of the original principal amount and requires a $2.5 million repayment of principal on the last business day of each March, June, September and December. For a portion of the Comparable Quarter and the nine months ended September 30, 2023, the borrowings under the First Lien Term Facility bore interest at a rate equal to LIBOR or a base rate plus an applicable margin of 2.75% per annum with a 0.50% floor, with a stepdown to 2.50% per annum with a 0.50% floor when net secured leverage ratio is less than 2.5x.

The First Lien Term Facility also included an incremental term loan in an aggregate original principal amount of $125 million (the “Incremental Term Loan B”). The Incremental Term Loan B bore interest at an annual floating rate based on a forward-looking rate of the Secured Overnight Financing Rate (with a 0.50% floor) plus 3.25% and a 0.10% credit spread adjustment. In April 2024, the Company used $123.1 million of cash on hand to fund voluntary principal prepayments of the Incremental Term Loan B. As a result of these prepayments, the Company had zero aggregate principal outstanding on the Incremental Term Loan B as of September 28, 2024.

Under the agreement governing the First Lien Credit Facility (the “First Lien Credit Agreement”), the Company must make an annual mandatory prepayment of principal for between 0% and 50% of the excess cash and subject to permitted deductions, as defined in the First Lien Credit Agreement, generated in the prior calendar year. The amount due varies with the First Lien Leverage Ratio as defined in the First Lien Credit Agreement, from zero if the First Lien Leverage Ratio is less than or equal to 2.5x, to fifty percent if the First Lien Leverage Ratio is greater than 3.0x, in each case as of December 31 of the prior year. The First Lien Term Facility matures on May 28, 2028.

As of September 28, 2024, the balance outstanding under the First Lien Term Facility was $970.0 million.

For the three months ended September 28, 2024, the effective interest rate on borrowings under the First Lien Term Facility, including the impact of an interest rate hedge, was 6.51%. The effective interest rate is comprised of 8.01% for interest and 0.29% for financing costs, partially offset by 1.78% for interest income on the interest rate swaps.

For the nine months ended September 28, 2024, the effective interest rate on borrowings under the First Lien Term Facility, including the impact of an interest rate hedge, was 6.76%. The effective interest rate is comprised of 8.10% for interest and 0.34% for financing costs, partially offset by 1.68% for interest income on the interest rate swaps.

Covenant Compliance

The Credit Facilities contain various restrictions, covenants and collateral requirements. As of September 28, 2024, we were in compliance with all covenants under the Credit Facilities.

Sources and Uses of Cash

Following is a summary of our cash flows from operating, investing, and financing activities:


(Dollars in thousands)	Nine Months Ended
	September 28, 2024		September 30, 2023
Net cash provided by operating activities	$	275,762	$	216,937
Net cash used in investing activities	(53,877)		(22,610)
Net cash used in financing activities	(125,848)		(5,198)
Effect of exchange rate changes on cash and cash equivalents	50		(1,061)
Change in cash and cash equivalents	$	96,087	$	188,068

Net cash provided by operating activities

Net cash provided by operating activities increased to $275.8 million for the nine months ended September 28, 2024 from $216.9 million for the nine months ended September 30, 2023, an increase of $58.9 million, or 27.1%. The increase in cash provided was primarily driven by greater cash generated by working capital compared to the prior-year period and due to an increase in net income.

Net cash used in investing activities

Net cash used in investing activities was $53.9 million for the nine months ended September 28, 2024 compared to net cash used in investing activities of $22.6 million for the nine months ended September 30, 2023, a change of $31.3 million, or 138.3%. The increase in cash used in investing activities is driven by the acquisition of the ChlorKing business, partially offset by the proceeds of certificates of deposit investments.

Net cash used in financing activities

Net cash used in financing activities was $125.8 million for the nine months ended September 28, 2024 compared to net cash used in financing activities of $5.2 million for the nine months ended September 30, 2023, a change of $120.6 million, or 2321.1%. The increase in cash used was primarily driven by the prepayment of the Incremental Term Loan B.

Off-Balance Sheet Arrangements

We had $4.3 million of outstanding letters of credit on our ABL Revolving Credit Facility as of each of September 28, 2024 and December 31, 2023.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The estimates that require management’s most difficult, subjective or complex judgments are described in Part II, Item 7, under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2023 (our “Annual Report on Form 10-K”), which section is incorporated herein by reference, and remain unchanged through the first nine months of 2024.

Recently Issued Accounting Standards

See Note 2. Significant Accounting Policies of notes to our unaudited condensed consolidated financial statements for additional information.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. We are exposed to various market risks, including changes in interest rates and foreign currency rates. Periodically, we use derivative financial instruments to manage or reduce the impact of changes in interest rates and foreign currency rates. Counterparties to all derivative contracts are major financial institutions. All instruments are entered into for other than trading purposes.

There have been no material changes in the interest rate risk during the nine months ended September 28, 2024 from what we reported in our Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the three months ended September 28, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of our “Legal Proceedings,” refer to Note 12. Commitments and Contingencies of notes to our unaudited condensed consolidated financial statements, which discussion is incorporated by reference herein.

In addition to the matters discussed in this report and in the notes to our unaudited condensed consolidated financial statements, we are from time to time subject to, and are presently involved in, other litigation and legal proceedings arising in the ordinary course of business. These proceedings could relate to commercial or contractual disputes with suppliers, customers or parties to acquisitions and divestitures, intellectual property matters, product liability, the use or installation of our products, consumer matters, employment and labor matters, and environmental, safety and health matters, including claims based on alleged exposure to asbestos-containing product components. We believe that the outcome of such other litigation and legal proceedings will not have a material adverse effect on our business, financial condition, results of operations and cash flows.

On August 2, 2023, a securities class action complaint was filed in the United States District Court for the District of New Jersey against the Company and certain of its current directors and officers (Kevin Holleran and Eifion Jones) and MSD Partners and CCMP Capital Advisors, LP on behalf of a putative class of stockholders who acquired shares of our common stock between March 2, 2022 and July 27, 2022. That action is captioned City of Southfield Fire and Police Retirement System vs. Hayward Holdings, Inc., et al., 2:23-cv-04146-WJM-ESK (D.N.J.) (“City of Southfield”). On September 28, 2023, a second, related securities class action complaint was filed in the United States District Court for the District of New Jersey against the Company and certain of its current directors and officers (Kevin Holleran and Eifion Jones) and MSD Partners and CCMP Capital Advisors, LP on behalf of a putative class of stockholders who acquired shares of our common stock between October 27, 2021 and July 28, 2022. That action is captioned Erie County Employees’ Retirement System vs. Hayward Holdings, Inc., et al., 2:23-cv-04146-WJM-ESK (D.N.J.) (“Erie County”). On December 19, 2023, the Court issued a ruling consolidating the two securities class actions (City of Southfield and Erie County) under the City of Southfield docket (the “Securities Class Action”) and appointing a lead plaintiff. In a consolidated class action complaint filed March 4, 2024, the Securities Class Action alleged on behalf of a putative class of stockholders who acquired shares of our common stock between October 27, 2021 and July 28, 2022, among other things, that the Company and certain of its current directors and officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other things, making materially false or misleading statements regarding inventory, growth, and demand trends and the Company’s financial projections for 2022. The Securities Class Action seeks unspecified monetary damages on behalf of the putative classes and an award of costs and expenses, including reasonable attorneys’ fees. On October 2, 2024, the Court issued an Opinion and Order dismissing the consolidated class action complaint and granted the lead plaintiff leave to file an amended complaint within 30 days.

On November 27, 2023, a shareholder derivative lawsuit was filed in the United States District Court for the District of New Jersey against current and past officers and directors of the Company captioned Heicklen v. Holleran, et al., 2:23-cv-22649 (D.N.J.) (the “Derivative Action”). The Derivative Action alleges breaches of fiduciary duties to Company stockholders, aiding and abetting breaches of fiduciary duties, unjust enrichment, corporate waste, and violations of Section 10(b) of the Securities Exchange Act of 1934 in connection with the claims in the Securities Class Action. The Company’s Amended and Restated Bylaws and pre-existing agreements between the Company and these current and former directors provide for the Company, to the fullest extent permitted by applicable law, to indemnify, defend and hold harmless any action, suit or proceeding any person, by reason of the fact that he or she is or was a director of the Company, against all liability and loss suffered. The Derivative Action seeks recovery of unspecified damages and attorney’s fees and costs, as well as improvements to the Company’s corporate governance and internal procedures. The Derivative Action has been stayed pending final decision on a motion to dismiss being filed in the Securities Class Action.

ITEM 1A. RISK FACTORS

An investment in our common stock involves risks. For a detailed discussion of the risks that affect our business please refer to the section titled “Risk Factors” in our Annual Report on Form 10-K. Other than as noted below, there have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K.

We rely on information technology systems to support our business operations. A significant disturbance or breach of our technological infrastructure, or those of our vendors or others with which we do business, could adversely affect our financial condition and results of operations. Additionally, failure to maintain the security of confidential information could damage our reputation and expose us to litigation.

We rely upon information technology systems and networks in connection with a variety of business activities, some of which are managed by third parties, whose products, services and systems are beyond our control. We expect our reliance on information technology systems to increase as we continue to develop IoT-enabled products, such as our Omni mobile app, and implement new technologies to facilitate our operations, such as our ERP system and human resources information system, which are in the process of being implemented. As a result, our ability to operate effectively on a day-to-day basis and accurately report our results depends on a reliable technological infrastructure, which is inherently susceptible to internal and external threats, including malicious code embedded in open-source software, or misconfigurations, “bugs” or other vulnerabilities in commercial software that is integrated into our (or our suppliers’ or service providers’) information technology systems and networks, products or services. We are vulnerable to interruption and breakdown by system downtime or failure, fire, natural disaster, power loss, telecommunication failures, internet failures, security breaches and other catastrophic events.

We are subject to known and unknown vulnerabilities in our software and systems and those of third parties. We and certain of our third-party service providers have in the past experienced, and we expect in the future will continue to experience, cybersecurity attacks and other incidents that threaten the confidentiality, integrity and availability of information technology systems and networks and confidential information, including personal information, that we or third parties collect, maintain and/or process. We periodically evaluate and test the adequacy of our systems, measures, controls and procedures and perform third-party risk assessments. However, such threats have increased in frequency, scope, and potential impact in recent years. Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until after they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We prioritize the remediation of identified security vulnerabilities based on known and anticipated risks, and we aim to patch vulnerabilities within reasonable timeframes. However, we are unable to comprehensively identify all vulnerabilities (particularly as related to third-party software and systems), apply patches or confirm that mitigating measures are in place, or ensure that any patches will be applied by us or third parties before exploitation by a threat actor. If attackers are able to exploit vulnerabilities before patches are installed or mitigating measures are implemented, significant compromises could impact our systems and data.

The development of artificial intelligence technologies may exacerbate these cybersecurity risks and pose new or unknown cybersecurity risks and challenges. As a result, we may be unable to detect, investigate, remediate or recover from future attacks or incidents, or to avoid a material adverse impact to our information technology systems and networks, confidential information or business. The accidental or willful security breaches or other unauthorized access by third parties to our information technology systems or facilities, or those of our vendors and/or others with which we do business, or the existence of computer viruses, such as ransomware or other malware, in our or their data or software, and/or any other failure of our or their information technology systems could expose us to a risk of information loss, the misappropriation of proprietary and confidential information, work stoppages, reputational damage, regulatory investigations and enforcement actions, regulatory fines or penalties, litigation by affected parties, possible financial obligations for liabilities and damages related to the theft or misuse of this information and/or the defective manufacture or defective design of our products, which could expose us to liability, and/or significant incident response, system restoration or remediation and future compliance costs. In addition, while we currently maintain insurance coverage that, subject to its terms and conditions, is intended to address costs associated with certain aspects of cybersecurity incidents and information systems failures, this insurance coverage may not, depending on the specific facts and circumstances surrounding an incident, cover all losses or all types of claims that arise from an incident, or the damage to our reputation that may result from an incident. The occurrence of any of these events could have an adverse effect on our business, financial condition, results of operations and reputation. There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully implemented, complied with or effective in protecting our information technology systems and confidential information.

Establishing and maintaining systems and processes to address these threats may increase our costs and may be mandated by regulation. For example, the California Internet of Things Security Law, which became effective in 2020, requires us to implement reasonable security measures for IoT devices, and failure to do so could expose us to penalties.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company had no repurchases of its common stock, par value $0.001 per share, in the quarter ended September 28, 2024. On July 26, 2022, the Board of Directors renewed the initial authorization of its share repurchase program (the “Share Repurchase Program”) such that the Company is authorized, commencing at that time, to repurchase from time to time up to an aggregate of $450.0 million of its common stock with such authority expiring on July 26, 2025.

Under the Share Repurchase Program, the Company may purchase shares of its common stock on a discretionary basis from time to time and may be conducted through privately negotiated transactions, including with our significant stockholders, as well as through open market repurchases or other means, including through Rule 10b5-1(c) trading plans or through the use of other techniques such as accelerated share repurchases. The amount and timing of future repurchases may vary depending on market conditions and the level of operating, financing and other investing activities.

As of September 28, 2024, $400.0 million remained available under the current authorization for additional share repurchases. The Company did not make purchases of its common stock under the Share Repurchase Program for the three months ended September 28, 2024.


Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Program	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Program
June 30 – August 3, 2024	—	$	—	—	$	400,000,000
August 4 – August 31, 2024	—	—		—	400,000,000
September 1 – September 28, 2024	—	—		—	400,000,000
Total	—	$	—	—	$	400,000,000

ITEM 5. OTHER INFORMATION

Securities Trading Plans of Directors and Executive Officers

During the three months ended September 28, 2024, certain of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) entered into contracts, instructions, or written plans for the purchase or sale of our securities that are intended to satisfy the conditions specified in Rule 10b5-1(c) under the Exchange Act for an affirmative defense against liability for trading in securities on the basis of material nonpublic information. We refer to these contracts, instructions, and written plans as “Rule 10b5-1 Trading Plans” and each one as a “Rule 10b5-1 Trading Plan.”

We describe the material terms of all such trading plans below.

Kevin Holleran, President, Chief Executive Officer

On August 9, 2024, Kevin Holleran, our President and Chief Executive Officer, entered into a Rule 10b5-1 Trading Plan that provides that Mr. Holleran, acting through a broker, may sell up to an aggregate of 600,000 shares of our common stock. Sales of shares under the plan may only occur from November 11, 2024, to June 13, 2025. The plan is scheduled to terminate on June 13, 2025, subject to earlier termination upon the sale of all shares subject to the plan, upon termination by Mr. Holleran or the broker, or as otherwise provided in the plan.

Eifion Jones, Chief Financial Officer

On August 9, 2024, Eifion Jones, our Senior Vice President, Chief Financial Officer, entered into a Rule 10b5-1 Trading Plan that provides that Mr. Jones, acting through a broker, may sell up to an aggregate of 100,000 shares of our common stock. Sales of shares under the plan may only occur from November 8, 2024, to May 30, 2025. The plan is scheduled to terminate on May 30, 2025, subject to earlier termination upon the sale of all shares subject to the plan, upon termination by Mr. Jones or the broker, or as otherwise provided in the plan.

ITEM 6. EXHIBITS

Exhibit No.

Description

10.1

Receivables Purchase Agreement, dated July 3, 2024, between Hayward Industries, Inc. and Wells Fargo Bank, N.A. (previously filed as Exhibit 10.1 to the Form 8-K filed on July 9, 2024 and incorporated herein by reference).

31.1

Certification of Chief Executive Officer of Hayward Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer of Hayward Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer of Hayward Holdings, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer of Hayward Holdings, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Presentation Linkbase Document.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted as Exhibits 101.*)

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this day of October 29, 2024.


			HAYWARD HOLDINGS, INC.

			By:			/s/ Eifion Jones
			Name:			Eifion Jones
			Title:			Senior Vice President & Chief Financial Officer

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Date	Price Target	Rating	Analyst
1/11/2024	$15.00 → $14.00	Buy → Hold	Jefferies
12/20/2023	$13.00 → $13.50	Buy → Hold	Stifel
8/3/2023	$14.00 → $16.50	Hold → Buy	Stifel
2/6/2023	$11.00 → $13.00	Buy → Hold	Stifel
1/4/2023	$9.50 → $15.00	Hold → Buy	Jefferies
12/13/2022	$11.00	Buy	Stifel
10/18/2022	$14.00 → $8.00	Neutral → Underperform	BofA Securities
10/14/2022	$18.00 → $9.00	Outperform → Neutral	Credit Suisse

SEC Form 10-Q filed by Hayward Holdings Inc.

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