10-Q 1 hayw-20220402.htm 10-Q hayw-20220402
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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 April 2, 2022

OR
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
hayw-20220402_g1.jpg
Hayward Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
400 Connell Drive
Suite 6100
Berkeley Heights, NJ
(Address of Principal Executive
Offices)
82-2060643
(I.R.S. Employer Identification No.)

07922
(Zip Code)
(908) 351-5400
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $.001 per shareHAYWNew 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 filerAccelerated filer
Non-accelerated filerSmaller 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 226,478,065 shares of common stock as of April 27, 2022.



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Hayward Holdings, Inc. ("Holdings," 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 that 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. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.
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; growth and expansion opportunities; operating results; and working capital and liquidity. 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. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. 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 the forward-looking statements, including such 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 ability to execute on our growth strategies and expansion opportunities;
• our ability to maintain favorable relationships with suppliers and manage disruptions to our global supply chain and the availability of raw materials, including as a result of the COVID-19 pandemic;
• our relationships with and the performance of distributors, builders, buying groups, retailers and servicers who sell our products to pool owners;
• competition from national and global companies, as well as lower cost manufacturers;
• impacts on our business from the sensitivity of our business to seasonality and unfavorable economic and business conditions;
• our ability to identify emerging technological and other trends in our target end markets;
• our ability to develop, manufacture and effectively and profitably market and sell our new planned and future products;
• failure of markets to accept new product introductions and enhancements;
• the ability to successfully identify, finance, complete and integrate acquisitions;
• our ability to attract and retain senior management and other qualified personnel;
• regulatory changes and developments affecting our current and future products;
• volatility in currency exchange rates;
• our ability to service our existing indebtedness and obtain additional capital to finance operations and our growth opportunities;
• 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 establish and maintain 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;
• the impact of changes in laws, regulations and administrative policy, including those that limit U.S. tax benefits or impact trade agreements and tariffs;
• the outcome of litigation and governmental proceedings;
• impacts on our business from the COVID-19 pandemic; 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, 2021         
These forward-looking statements involve known and unknown risks, inherent uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Actual results and the timing of certain events may differ materially from those contained in these forward-looking statements.
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.



TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Hayward Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
April 2, 2022December 31, 2021
Assets
Current assets
Cash and cash equivalents$118,157 $265,796 
Accounts receivable, net of allowances of $5,054 and $2,003, respectively
349,024 208,112 
Inventories, net260,714 233,449 
Prepaid expenses10,322 12,459 
Other current assets19,978 30,705 
Total current assets758,195 750,521 
Property, plant, and equipment, net of accumulated depreciation of $70,664 and $67,366, respectively
149,209 146,754 
Goodwill924,086 924,264 
Trademark736,000 736,000 
Customer relationships, net236,506 242,854 
Other intangibles, net100,485 103,192 
Other non-current assets95,026 74,885 
Total assets$2,999,507 $2,978,470 
Liabilities and Stockholders' Equity
Current liabilities
Current portion of the long-term debt$12,096 $12,155 
Accounts payable95,056 87,445 
Accrued expenses and other liabilities181,963 190,378 
Income taxes payable30,649 13,886 
Total current liabilities319,764 303,864 
Long-term debt, net970,872 973,124 
Deferred tax liabilities, net260,416 262,378 
Other non-current liabilities75,535 69,591 
Total liabilities1,626,587 1,608,957 
Commitments and contingencies (Note 12)
Stockholders' equity
Preferred stock, $0.001 par value, 100,000,000 authorized, no shares issued or outstanding as of April 2, 2022 and December 31, 2021
  
Common stock $0.001 par value, 750,000,000 authorized; 238,835,374 issued and 229,379,957 outstanding at April 2, 2022; 238,432,216 issued and 233,056,799 outstanding at December 31, 2021
239 238 
Additional paid-in capital1,060,792 1,058,724 
Common stock in treasury; 9,455,417 and 5,375,417 at April 2, 2022 and December 31, 2021, respectively
(94,873)(14,066)
Retained earnings394,907 320,875 
Accumulated other comprehensive income11,855 3,742 
Total stockholders' equity1,372,920 1,369,513 
Total liabilities, redeemable stock, and stockholders' equity$2,999,507 $2,978,470 



See accompanying notes to the unaudited condensed consolidated financial statements.
1

Hayward Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
(Dollars in thousands, except per share data)

Three Months Ended
April 2, 2022April 3, 2021
Net sales$410,460 $334,363 
Cost of sales220,066 174,459 
Gross profit190,394 159,904 
Selling, general, and administrative expense68,857 66,520 
Research, development, and engineering expense5,236 4,820 
Acquisition and restructuring related expense2,271 33 
Amortization of intangible assets7,610 8,830 
Operating income106,420 79,701 
Interest expense, net9,562 18,272 
Loss on debt extinguishment 5,810 
Other (income) expense, net(514)3,568 
Total other expense9,048 27,650 
Income from operations before income taxes97,372 52,051 
Provision for income taxes23,340 15,184 
Net income$74,032 $36,867 
Comprehensive income, net of tax
Net income$74,032 $36,867 
Foreign currency translation adjustments, net of tax expense of zero and $1,123, respectively
(360)1,844 
Change in fair value of derivatives, net of tax expense of $2,824, and $626, respectively
8,473 1,806 
Comprehensive income$82,145 $40,517 
Earnings per share
Basic$0.32 $(0.85)
Diluted$0.30 $(0.85)
Weighted average common shares outstanding
Basic232,271,68457,377,822 
Diluted243,143,14957,377,822 











See accompanying notes to the unaudited condensed consolidated financial statements.

2

Hayward Holdings, Inc.
Unaudited Condensed Consolidated Statements of Changes in Redeemable Stock and Stockholders' Equity
(Dollars in thousands)

Common StockAdditional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
SharesAmount
Balance as of December 31, 2021233,056,799 $238 $1,058,724 $(14,066)$320,875 $3,742 $1,369,513 
Net income— — — — 74,032 — 74,032 
Stock-based compensation— — 1,641 — — — 1,641 
Issuance of Common Stock for compensation plans403,158 1 427 — — — 428 
Repurchase of stock(4,080,000)— — (80,784)— — (80,784)
Treasury stock purchase for tax withholdings on stock exercises— — — (23)— — (23)
Other comprehensive income— — — — — 8,113 8,113 
Balance as of April 2, 2022229,379,957$239 $1,060,792 $(94,873)$394,907 $11,855 $1,372,920 

Redeemable
Class A and C Stock
Common StockAdditional Paid-in CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
SharesAmountSharesAmount
Balance as of December 31, 2020869,923 $594,500 2,772,900 $3 $10,297 $(3,686)$202,997 $(350)$209,261 
Net income— — — — — — 36,867 — 36,867 
Conversion to common stock upon IPO(869,923)(594,500)206,147,857 206 680,041 — (85,541)— 594,706 
Issuance of common stock— — 22,200,000 22 351,553 — — — 351,575 
Issuance of Class A stock186 — — — 221 — — — 221 
Stock-based compensation— — — — 10,634 — — — 10,634 
Cash distributions— — — — — — (41)— (41)
Repurchase of stock(186)— — — — (214)— — (214)
Other comprehensive income— — — — — — — 3,650 3,650 
Balance as of April 3, 2021 $ 231,120,757$231 $1,052,746 $(3,900)$154,282 $3,300 $1,206,659 

See accompanying notes to the unaudited condensed consolidated financial statements.

3

Hayward Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
Three Months Ended
April 2, 2022April 3, 2021
Cash flows from operating activities
Net income$74,032 $36,867 
Adjustments to reconcile net income to net cash used by operating activities
Depreciation4,840 4,748 
Amortization of intangible assets9,097 10,392 
Amortization of deferred debt issuance fees825 1,379 
Stock-based compensation1,641 10,634 
Deferred income taxes(4,722)(346)
Allowance for bad debts3,051 39 
Loss on debt extinguishment 5,810 
Loss on sale of property, plant and equipment53  
Changes in operating assets and liabilities
Accounts receivable(144,045)(209,992)
Inventories(28,131)(15,357)
Other current and non-current assets10,234 (265)
Accounts payable8,015 6,053 
Accrued expenses and other liabilities8,170 18,394 
Net cash used by operating activities(56,940)(131,644)
Cash flows from investing activities
Purchases of property, plant, and equipment(7,329)(4,797)
Purchases of intangibles (239)
Acquisitions, net of cash acquired(177) 
Proceeds from settlements of investment currency hedge 445 
Net cash used in investing activities(7,506)(4,591)
Cash flows from financing activities
Proceeds from issuance of common stock - Initial Public Offering 377,400 
Costs associated with Initial Public Offering (25,812)
Purchase of common stock for treasury(80,927)(170)
Payments of long-term debt(2,500)(364,594)
Net change in revolving credit facility 48,761 
Other, net421 73 
Net cash (used in) provided by financing activities(83,006)35,658 
Effect of exchange rate changes on cash and cash equivalents and restricted cash(187)(365)
Change in cash and cash equivalents and restricted cash(147,639)(100,942)
Cash and cash equivalents and restricted cash, beginning of period265,796 115,294 
Cash and cash equivalents and restricted cash, end of period$118,157 $14,352 
Supplemental disclosures of cash flow information
Cash paid-interest$8,477 $16,875 
Cash paid-income taxes9,713 51 

See accompanying notes to the unaudited condensed consolidated financial statements.

4

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, manufacturer, and marketer of a broad portfolio of pool equipment and associated automation systems. The Company has eight manufacturing facilities worldwide, which are located in North Carolina, Tennessee, Rhode Island, Florida, Spain (three) 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 dates for the first, second and third quarters of 2022 are April 2, July 2, and October 1, compared to the respective April 3, July 3, and October 2, 2021 dates. We had one fewer working day in the first quarter of 2022 and will have one fewer working day in the second quarter of 2022 than in the respective 2021 periods.

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, 2021. The results of operations for the three months ended April 2, 2022 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2022.
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.
In the third quarter of the prior year, the Company changed its presentation from millions to thousands and, as a result, any necessary rounding adjustments have been made to prior-year disclosed amounts. Certain prior period amounts have been reclassified for comparative purposes to conform to the current presentation.
Recent Accounting Pronouncements Not Yet Adopted
Reference Rate Reform
In March 2020, the FASB issued guidance that provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by the transition away from reference rates expected to be discontinued to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company is currently evaluating the potential effects of the adoption of this guidance.
5

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Recently Adopted Accounting Standards
Accounting for Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (“Topic 842” or the “new standard”), and issued subsequent amendments to the initial guidance thereafter. The standard became effective for the Company on December 31, 2021 because the Company ceased to be an Emerging Growth Company ("EGC") under applicable rules of the Securities and Exchange Commission as of December 31, 2021, and the Company retrospectively adopted the standard as of January 1, 2021. The impact upon adoption as of January 1, 2021 resulted in the initial recognition of lease liabilities based on the present value of the remaining minimum rental payments for existing operating leases of approximately $48.6 million and corresponding right-of-use ("ROU") assets of approximately $43.9 million on the consolidated balance sheets. The ROU assets are net of $4.7 million of liabilities for deferred rent and unamortized landlord lease incentives that were previously recorded as other noncurrent liabilities. The adoption did not have a material impact on the unaudited condensed consolidated statements of operations and comprehensive income or unaudited condensed consolidated statement of cash flows.

3. Revenue
The following table disaggregates net sales between product groups and geographic regions, respectively (in thousands):
Three Months Ended
April 2, 2022April 3, 2021
Product groups
Residential pool$389,632 $316,086 
Commercial pool9,154 7,008 
Industrial flow control11,674 11,269 
Total$410,460 $334,363 
Geographic
United States$299,064 $239,752 
Canada47,232 31,717 
Europe44,841 48,983 
Rest of World19,323 13,911 
Total international revenue$111,396 $94,611 
Total$410,460 $334,363 

4. Inventories
Inventories, net, consist of the following (in thousands):
April 2, 2022December 31, 2021
Raw materials$131,594 $124,545 
Work in progress20,380 22,669 
Finished goods108,740 86,235 
Total$260,714 $233,449 

6

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

5. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
April 2, 2022December 31, 2021
Selling, promotional and advertising$32,030 $41,975 
Employee compensation and benefits25,220 49,552 
Warranty reserve27,188 24,174 
Inventory purchases45,026 18,606 
Insurance reserve9,671 8,842 
Deferred income8,292 8,074 
Operating lease liability - short term7,584 7,546 
Business restructuring costs1,274 1,397 
Professional fees2,837 2,027 
Payroll taxes4,292 4,522 
Other accrued liabilities18,549 23,663 
Total$181,963 $190,378 

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

Balance at December 31, 2021
$24,174 
Accrual for warranties issued during the period 9,413 
Payments(6,399)
Balance at April 2, 2022
$27,188 

Balance at December 31, 2020
$16,412 
Accrual for warranties issued during the period 10,109 
Payments(4,644)
Balance at April 3, 2021
$21,877 

Warranty expenses for the three months ended April 2, 2022 and April 3, 2021 were $9.4 million and $10.1 million, respectively.

6. Income Taxes
The Company's effective tax rate for the three months ended April 2, 2022 and three months ended April 3, 2021 was 24.0% and 29.2% respectively. The change in the Company’s effective tax rate was primarily due to an additional benefit for foreign derived intangible income ("FDII"), a reduction in global intangible low tax income ("GILTI") inclusion, and a discrete tax benefit for the exercise of stock options.
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 April 2, 2022 or April 3, 2021.
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,
7

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, Net
Long-term debt, net, consists of the following (in thousands):
April 2, 2022December 31, 2021
First Lien Term Facility, due May 8, 2028$992,500 $995,000 
ABL Revolving Credit Facility  
Finance lease obligations7,280 7,780 
Subtotal999,780 1,002,780 
Less: Current portion of the long-term debt(12,096)(12,155)
Less: Unamortized debt issuance costs(16,812)(17,501)
Total$970,872 $973,124 

The First Lien Term Facility and ABL 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. Per 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. All outstanding principal is due at maturity on May 28, 2028. As of April 2, 2022, the Company was in compliance with all covenants under the Credit Facilities.


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 its 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 (loss), net of tax. Other comprehensive income or loss is reclassified into current period income when the hedged interest expense affects earnings.
In the First Quarter, the Company entered into interest rate swap agreements that effectively convert an initial notional amount of $500.0 million of its variable-rate debt obligations to fixed-rate debt. As of April 2, 2022 and April 3, 2021, the Company was a party to interest rate swap agreements of a notional amount of $500.0 million and $550.0 million, respectively.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to manage risks associated with foreign currency transactions and future variability of intercompany cash flows arising from those 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 April 2, 2022 and April 3, 2021, we recognized $1.1 million of income and $0.4 million of expense, respectively, in Other (income) expense related to foreign exchange contracts.
Net Investment Hedges
The Company uses net investment hedges to minimize its exposure to variability in the foreign currency translation of its net investment in one of its international subsidiaries. The effective portion of changes in the fair value of the hedging
8

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

instrument is recognized in accumulated other comprehensive income (loss) consistent with the related translation gains and losses of the hedged net investment.
There were no outstanding net investment hedges as of April 2, 2022 or December 31, 2021.
The following table summarizes the gross fair values and location of the significant derivative instruments within Company's unaudited condensed consolidated balance sheets (in thousands):
Other current assetsOther non-current assetsAccrued Expenses and Other LiabilitiesOther current assets
April 2, 2022December 31, 2021
Interest rate swaps$ $11,298 $ $ 
Foreign exchange contracts1,558  156 410 
Total$1,558 $11,298 $156 $410 
The following tables present the effects of derivative instruments by contract type in accumulated other comprehensive income in the Company's unaudited condensed consolidated statements of operations and comprehensive income (in thousands):
Gain (Loss) Recognized in AOCIGain (Loss) Reclassified From AOCI to EarningsLocation of Gain (Loss) Reclassified from AOCI into Earnings
Three Months EndedThree Months Ended
April 2, 2022April 3, 2021April 2, 2022April 3, 2021
Interest rate swaps (1)
$8,473 $1,806 $(575)$2,085 Interest Expense
Net investment hedge 2,476   N/A
Total$8,473 $4,282 $(575)$2,085 
(1) The Company estimates that $1.5 million of unrealized losses will be reclassified from accumulated other comprehensive income (loss) into earnings in the next twelve months.
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 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, foreign exchange contracts, and net investment hedges are measured in the financial statements at fair value on a recurring basis. The fair values of the interest rate swaps are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves. The fair value of net investment hedges and foreign exchanges contracts are estimated using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. These instruments are customary, over-the-counter contracts with various bank counterparties that are not traded in active markets. Accordingly, the fair value measurements of the interest rate swaps, foreign exchange contracts and net investment hedges are categorized as Level 2.
As of April 2, 2022, the Company’s long-term debt instruments had a carrying value of $992.5 million (excluding finance leases) and a fair value of approximately $992.5 million. As of December 31, 2021, the Company’s long-term debt instruments had a carrying value of $995.0 million and a fair value of approximately $991.9 million. The estimated fair value of the long-term debt is based on observable quoted prices in active markets for similar liabilities and is classified as a Level 2 input.

9

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

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 and Europe & Rest of World. 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 gross profit less sales, general, and administrative expenses ("SG&A") and research, development, and engineering expense ("RD&E"). 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. This segment is composed of three reporting units.
The Europe & Rest of World segment manufactures and sells residential and commercial swimming pool equipment and supplies. This segment is composed of two reporting units.
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 EndedThree Months Ended
April 2, 2022April 3, 2021
North AmericaEurope & Rest of WorldTotalNorth AmericaEurope & Rest of WorldTotal
External net sales$346,296 $64,164 $410,460 $271,465 $62,898 $334,363 
Segment income108,611 16,969 125,580 85,815 14,879 100,694 
Capital expenditures (1)
5,586 962 6,548 4,745 57 4,802 
Depreciation (1)
4,334 169 4,503 4,291 367 4,658 
Intersegment sales13,124 172 13,296 8,383 92 8,475 

(1) Capital expenditures and depreciation associated with Corporate are 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
April 2, 2022April 3, 2021
Total segment income$125,580 $100,694 
Corporate expense, net9,279 12,130 
Acquisition and restructuring related expense2,271 33 
Amortization of intangible assets7,610 8,830 
Operating income106,420 79,701 
Interest expense, net9,562 18,272 
Loss on debt extinguishment 5,810 
Other (income) expense, net(514)3,568 
Total other expense9,048 27,650 
Income from operations before income taxes$97,372 $52,051 







10

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
April 2, 2022April 3, 2021
Net income$74,032 $36,867 
Deemed Dividend - Class A stock redemption(a)
 (85,541)
Dividends paid to Class C stockholders (41)
Net income attributable to Class A and common stockholders, basic(b)
74,032 (48,715)
Net income attributable to Class A holders, basic  
Net income attributable to common stockholders, basic$74,032 $(48,715)
Net income attributable to Class A holders, diluted $ 
Net income attributable to common stockholders, diluted$74,032 $(48,715)
Weighted average number of common shares outstanding, basic232,271,684 57,377,822 
Effect of dilutive securities(c)
10,871,465  
Weighted average number of common shares outstanding, diluted243,143,149 57,377,822 
Earnings per share attributable to common stockholders, basic$0.32 $(0.85)
Earnings per share attributable to common stockholders, diluted$0.30 $(0.85)
(a) For the three months ended April 3, 2021, the non-cash deemed dividend represents the beneficial conversion feature related to the redemption of Class A shares for common shares as a consequence of the IPO.
(b) Net income attributable to Class A stockholders is impacted by the total shares of participating securities, basic and diluted, on an as converted basis.
(c) For the three months ended April 2, 2022 and April 3, 2021, there were potential common shares totaling approximately 1.6 million and 8.6 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. As of April 2, 2022, the Company does not have any significant pending litigation.
Yuncos, Spain Fire
In June 2021, an accidental fire destroyed a portion of the Company’s manufacturing and administrative facilities in Yuncos, Spain. The Company has established alternative, temporary facilities for administrative personnel affected by the fire. The disruption to the manufacturing operations was minimal.
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, 2021.
Supplemental cash flow information related to leases was as follows (in thousands):
Three Months Ended
April 2, 2022April 3, 2021
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$8,385 $465 
Finance leases  
11

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Supplemental balance sheet information related to leases was as follows (in thousands):
April 2, 2022December 31, 2021
Operating leases
Other non-current assets$70,109 $63,611 
Accrued expenses and other liabilities7,584 7,546 
Other non-current liabilities67,983 61,565 
Total operating lease liabilities75,567 69,111 
Finance leases
Property, plant and equipment9,276 9,280 
Accumulated depreciation(1,435)(1,262)
Property, plant and equipment, net7,841 8,017 
Current maturities of long-term debt2,096 2,155 
Long-term debt5,184 5,625 
Total finance lease liabilities$7,280 $7,780 

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 months ended April 2, 2022, no dividend was declared nor paid to the Company's common stockholders.
Share Repurchases
As part of the Company’s previously announced $450 million share repurchase program, on January 24, 2022 the Company agreed to repurchase 4.08 million shares of common stock from certain affiliates of one of the Company’s controlling stockholders, Capital Advisors, LP ("CCMP"), at a price per share of $19.80, for an aggregate consideration of approximately $81 million. The price per share was approved by an independent committee of the board of the directors and is the same price at which the certain affiliates of the Company's controlling stockholders (collectively, the "Sponsors"), sold their shares in a block trade in compliance with Rule 144. Closing of this share repurchase occurred on March 11, 2022. As of April 2, 2022, $369.2 million remained available for additional share repurchases under the program.

15. Stock-based Compensation
Stock-based compensation expense recorded in the unaudited condensed consolidated statements of operations and comprehensive income for equity-classified stock-based awards was $1.6 million and $10.6 million for the three months ended April 2, 2022 and April 3, 2021, respectively.
The Company has established two equity incentive plans, the 2021 Equity Incentive Plan and the 2017 Equity Incentive Plan. The Company no longer issues 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,
12

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

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. The vesting period of stock options and restricted stock units granted under the 2021 Plan is three years from the date of grant.
In 2022, the Company began utilizing performance-based stock units (“PSUs”) as part of its equity awards program for certain senior management and executive officers. The vesting of the PSUs will be tied to organic net revenue growth and adjusted EBITDA margin, each with a relative weighting of 50%. The PSUs will be measured over 3-year performance period with a minimum of 50% of the target awarded PSUs to be earned for threshold performance and a maximum of 200% of the target awarded PSUs to be earned for maximum performance.
During the three months ended April 2, 2022, the Company granted 1,078,899 options, 140,580 restricted stock units and 94,888 performance-based stock units under the 2021 Plan with a weighted-average grant-date fair value per share of $5.51, $17.10 and $17.10, respectively.
The Company determined the fair value of granted stock options at the date of grant using the Black-Scholes option-pricing model. The principal assumptions used in the Black-Scholes option-pricing model for the stock options granted were as follows:
Risk-free interest rate1.78 %
Expected life in years6
Expected dividend yield %
Expected volatility29.61 %
The risk-free interest rate was based on the U.S. Treasury yield curve at date of grant over the expected term of these stock options. The expected volatility was based upon comparable public company historical volatility. The expected life was based on the average of the weighted-average vesting period and the contractual term of the stock option awards by utilizing the “simplified method”, as prescribed in the SEC's Staff Accounting Bulletin (SAB) No. 107, as the Company does not have sufficient available historical data to estimate the expected term of these stock option awards.

13

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

16. Acquisition and Restructuring Related Expense
On March 29, 2021, we announced the relocation of our corporate office functions to Charlotte, North Carolina from Berkeley Heights, New Jersey. We are currently in the process of moving our senior leadership team, corporate human resources, US sales leadership, corporate finance and other corporate functions to Charlotte.
The relocation began in the summer of 2021 and is expected to be largely complete by early summer 2022. The estimated severance and retention costs pertaining to this relocation are approximately $5.9 million. 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. The Company incurred approximately $2.2 million of expense related to the relocation during the three months ended April 2, 2022.
The following tables summarize the status of the Company's restructuring related expense and related liability balances (in thousands):
2022 Activity
Liability as of December 31, 2021
Costs RecognizedCash PaymentsNon-cash charges
Liability as of April 2, 2022
One-time termination benefits$1,035 $554 $(677)$ $912 
Facility-related27 35 (62)  
Other4,374 1,682 (3,568) 2,488 
Total$5,436 $2,271 $(4,307)$ $3,400 
'Other' restructuring related expense primarily consists of expenses pertaining to the relocation of the corporate headquarters.
As of April 3, 2021, there was $33 thousand of expense and no unrecognized accruals related to acquisition and restructuring activities.
Restructuring costs are included within acquisition and restructuring related costs on the Company’s unaudited condensed consolidated statements of operations and comprehensive income, 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 December 31, 2021, the Company acquired Water Works Technologies Group, LLC (“Water Works”). We did not record any significant measurement-period adjustments during the first quarter of 2022 based on our ongoing valuation and purchase price allocation procedures. The purchase price allocation for the Water Works acquisition is still preliminary and will be finalized within one year of the acquisition date.

17. Related Party Transactions
Other than the stock repurchases described in Note 14. Stockholders’ Equity, the Company did not incur any significant related party transactions for the three months ended April 2, 2022.
Prior to the IPO in March 2021, the Company incurred management fees to certain Sponsors in the amount of $0.2 million for the three months ended April 3, 2021. In addition, $41 thousand in Class C dividends were incurred to one Sponsor in lieu of management fees for three months ended April 3, 2021.

14

Hayward Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

18. Subsequent Events
In addition to the share repurchase made during the First Quarter (refer to Note 14. Stockholders’ Equity), the Company repurchased approximately 3.0 million shares of common stock on the open market at an average price per share of $16.91, for an aggregate consideration of approximately $50.0 million, as part of the Company’s previously announced $450 million share repurchase program.
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
April 3 – April 29, 20222,956,548$16.91 2,956,548$319,216,000 


15


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 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 "Risk Factors" 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 months ended April 2, 2022 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2022.

Our Company
The Company is an industry-leading global designer, manufacturer, and marketer of a broad portfolio of pool equipment and associated automation systems. With the pool as the centerpiece of the growing outdoor living space, the pool industry has attractive market characteristics, including significant aftermarket requirements, 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 IoT 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. Based upon feedback from certain representative customers and our interpretation of available industry and government data in the United States, we estimate that aftermarket sales represented approximately 80% of net sales. Aftermarket sales are not based upon our GAAP net sales results. We believe aftermarket sales 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.
The Company has eight manufacturing facilities worldwide, which are located in North Carolina, Tennessee, Rhode Island, Florida, Spain (three) 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 operating 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 and Canada and manufactures and sells flow control products globally.
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 84% and 81% of total net sales for the three months ended April 2, 2022 and April 3, 2021, respectively, and E&RW accounted for 16% and 19% of total net sales for the three months ended April 2, 2022 and April 3, 2021, respectively.

Factors Affecting the Comparability of our Results of Operations
Our results of operations for the three months ended April 2, 2022 and the three months ended April 3, 2021 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.

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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 dates for the first, second and third quarters of 2022 are April 2, July 2, and October 1, compared to the respective April 3, July 3, and October 2, 2021 dates. This resulted in one fewer day in the three months ended April 2, 2022 compared to the three months ended April 3, 2021. Throughout this discussion we may refer to the three months ended April 2, 2022 and the three months ended April 3, 2021 as the "First Quarter" and "Comparable Quarter," respectively.
Impact of COVID-19
Residential pool equipment sales have increased during the COVID-19 pandemic. This increase in demand has broadly been across all of our product lines as consumers have refocused attention on improving the quality of the homeowner’s outdoor living experience. We believe that the pandemic has only reinforced existing pool industry growth trends.
Recently, cost inflation stemming from the COVID-19 pandemic has caused prices to increase across various sectors of the economy and we have been impacted by increases in the prices of our raw materials and other associated manufacturing costs, as discussed in further detail below.
Materials and other cost increases
We have experienced increases in the cost of raw materials and commodities. We strive for productivity improvements, and implement price increases to help mitigate this impact. We expect to see continuing price volatility (metals, resins, and electronic sub-assemblies) and import duty charges (motors, electronics, valves and cleaner products) for some of our raw materials. We are uncertain as to the timing and impact of these market changes, but have mitigation activities in place to minimize the impact on costs.
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, SG&A expense, RD&E expense, 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."

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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 months ended April 2, 2022 and April 3, 2021 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:
Three Months Ended April 2, 2022 Compared to Three Months Ended April 3, 2021
(Dollars in thousands)Three Months Ended
April 2, 2022April 3, 2021
Net sales$410,460