Hayward Holdings, Inc.

Previous wording

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.

Current wording

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 months ended March 29, 2025 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2025.

Previous wording

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.

Current wording

We have an estimated North American residential pool market share of approximately 33%. We believe that we are well-positioned for future growth. 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.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

NAM accounted for 82% of total net sales for the three months ended March 29, 2025 and March 30, 2024, and E&RW accounted for 18% of total net sales for the three months ended March 29, 2025 and March 30, 2024.

Previous wording

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.

Current wording

Our results of operations for the three months ended March 29, 2025 and the three months ended March 30, 2024 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.

Previous wording

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 inno 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.

Current wording

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 2025 are March 29, June 28, and September 27, compared to the respective March 30, June 29, and September 28, 2024 date. This resulted inthree less working days for the three months ended March 29, 2025 compared to the respective 2024 period. Throughout this discussion we may refer to the three months ended March 29, 2025 and the three months ended March 30, 2024 as the “First Quarter” and “Comparable Quarter,” respectively.

Previous wording

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.

Current wording

The imposition of, and threat of imposition of, tariffs and other trade restrictions by the United States government in 2025, and tariffs announced by foreign governments in response to these actions, have created substantial uncertainty in the global economy. This uncertainty, as well as the direct impact of these tariffs and other trade restrictions, may adversely affect the Company’s business by reducing market demand for the Company’s products, increasing the Company’s supply costs that cannot be passed on to customers and/or adversely affecting the competitiveness of the Company’s products against those of manufacturers not subject to such tariffs and trade restrictions. Geopolitical conflicts around the world have also 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.

Previous wording

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:

Current wording

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 March 29, 2025 and March 30, 2024 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:

Previous wording

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.

Current wording

Net sales increased to $228.8 million for the three months ended March 29, 2025 from $212.6 million for the three months ended March 30, 2024, an increase of $16.2 million, or 7.7%. See the segment discussion below for further information.

Previous wording

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.

Current wording

The net sales increase for the three months ended March 29, 2025 was driven by an increase in volume, the favorable impact from acquisitions and net price, partially offset by the unfavorable impact of foreign currency translation. The growth in volume was driven by the U.S. and Europe and the favorable timing of orders.

Previous wording

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.

Current wording

Gross profit margin increased to 49.5% for the three months ended March 29, 2025 compared to 49.2% for the three months ended March 30, 2024, an increase of 30 basis points, due to positive net price.

Previous wording

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.

Current wording

Selling, general, and administrative expense (SG&A) increased to $65.1 million for the three months ended March 29, 2025 from $60.0 million for the three months ended March 30, 2024, an increase of $5.1 million, or 8.5%, primarily due to normalized incentive compensation and investments in our customer care and selling teams.

Previous wording

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.

Current wording

As a percentage of net sales, SG&A increased to 28.5% for the three months ended March 29, 2025 as compared to 28.2% for the three months ended March 30, 2024, an increase of 30 basis points, driven by the factors discussed above.

Previous wording

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.

Current wording

Research, development, and engineering expense (RD&E) decreased to $6.0 million for the three months ended March 29, 2025 from $6.3 million for the three months ended March 30, 2024, primarily as a result of timing of projects compared to the three months ended March 30, 2024. RD&E spend continues to be focused on new product development and new product quality.

Previous wording

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.

Current wording

As a percentage of net sales, RD&E was 2.6% for the three months ended March 29, 2025, compared to 3.0% for the three months ended March 30, 2024.

Previous wording

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.

Current wording

For the three months ended March 29, 2025, we incurred $1.9 million of acquisition and restructuring related expense as compared to $0.5 million of expense for the three months ended March 30, 2024. The expense in the First Quarter was primarily driven by costs associated with the acquisition of ChlorKing HoldCo, LLC and related entities (“ChlorKing”), including the deferred purchase price treated as compensation cost over the twelve-month service period from the date of acquisition, compared to the Comparable Quarter which was primarily related to severance and other costs associated with the centralization and consolidation of operations in Europe.

Previous wording

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.

Current wording

For the three months ended March 29, 2025, amortization of intangible assets decreased by $0.1 million compared to the three months ended March 30, 2024 due to the amortization pattern of certain intangible asset classes based on the declining balance method.

Previous wording

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.

Current wording

For the three months ended March 29, 2025, operating income increased $2.7 million due to the aggregated effect of the items described above.

Previous wording

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.

Current wording

Interest expense, net, for the three months ended March 29, 2025 consisted of $14.3 million of interest expense on the outstanding debt and $0.9 million of amortization of deferred financing fees, partially offset by $1.5 million of interest income on cash deposits. The effective interest rate on our borrowings, including the impact of an interest rate hedge, was 6.31% for the three months ended March 29, 2025.

Previous wording

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.

Current wording

Interest expense, net, for the three months ended March 30, 2024 consisted of $19.1 million of interest expense on the outstanding debt and $1.2 million of amortization of deferred financing fees, partially offset by $1.7 million of interest income on cash deposits. The effective interest rate on our borrowings, including the impact of an interest rate hedge, was 7.28% for the three months ended March 30, 2024.

Previous wording

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.

Current wording

Interest expense, net, decreased by $4.9 million for the First Quarter compared to the Comparable Quarter, primarily due to reduced debt as a result of the repayment of the Incremental Term Loan B principal balance in April 2024 and lower interest rates.

Previous wording

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%.

Current wording

We incurred income tax expense of $4.3 million for the three months ended March 29, 2025 compared to income tax expense of $3.1 million for the three months ended March 30, 2024, an increase of $1.2 million, or 41.9%.

Previous wording

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.

Current wording

The decrease in the Company’s effective tax rate from 23.8% for the three months ended March 30, 2024 to 23.3% for the three months ended March 29, 2025 was primarily due to a reduction in the foreign rate differential.

Previous wording

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.

Current wording

As a result of the foregoing, net income increased $4.5 million for the three months ended March 29, 2025.

Previous wording

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.

Current wording

Adjusted EBITDA increased to $49.1 million for the three months ended March 29, 2025 from $45.0 million for the three months ended March 30, 2024, an increase of $4.1 million, or 9.0%, driven primarily by increased net sales and higher gross profit, partially offset by an increase in SG&A expense.

Previous wording

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.

Current wording

Segment income increased to $43.5 million for the three months ended March 29, 2025 from $39.7 million for the three months ended March 30, 2024, an increase of $3.8 million, or 9.3%. This was primarily driven by an increase in sales and gross profit as discussed above, partially offset by an increase in SG&A due to normalized incentive compensation.

Previous wording

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.

Current wording

Segment income margin increased to 23.2% for the three months ended March 29, 2025 from 22.9% for the three months ended March 30, 2024, an increase of 30 basis points. The increase was driven by the same factors discussed above in segment income.

Previous wording

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.”

Current wording

Adjusted segment income increased to $50.7 million for the three months ended March 29, 2025 from $45.3 million for the three months ended March 30, 2024, an increase of $5.4 million, or 11.8%. 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.”

Previous wording

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%.

Current wording

Gross profit decreased to $14.6 million for the three months ended March 29, 2025 from $14.7 million for the three months ended March 30, 2024, a decrease of $0.1 million, or 0.4%.

Previous wording

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.

Current wording

Gross profit margin decreased to 35.0% for the three months ended March 29, 2025 from 37.6% for the three months ended March 30, 2024, a decrease of 260 basis points, primarily driven by underutilization in our Europe manufacturing facilities and unfavorable mix, partially offset by higher net price.

Previous wording

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.

Current wording

Segment income margin increased by 30 basis points from 15.4% for the three months ended March 30, 2024 to 15.7% for the three months ended March 29, 2025, resulting from higher net sales.

Previous wording

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.

Current wording

Adjusted segment income increased to $7.0 million for the three months ended March 29, 2025 from $6.3 million for the three months ended March 30, 2024, an increase of $0.7 million or 10.3%. This was primarily driven by the increased sales after adjusting for the non-cash and specified costs described in “—Non-GAAP Reconciliation” below.

Previous wording

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:

Current wording

Following is a reconciliation from net income to adjusted EBITDA and adjusted EBITDA margin for the three months ended March 29, 2025 and March 30, 2024:

Previous wording

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):

Current wording

Following is a reconciliation from segment income to adjusted segment income for NAM for the three months ended March 29, 2025 and March 30, 2024 (dollars in thousands):

Previous wording

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):

Current wording

Following is a reconciliation from segment income to adjusted segment income for E&RW for the three months ended March 29, 2025 and March 30, 2024 (dollars in thousands):

Previous wording

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.

Current wording

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 may fluctuate during the year.

Previous wording

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.

Current wording

Unrestricted cash and cash equivalents totaled $181.3 million as of March 29, 2025, which is a decrease of $15.3 million from $196.6 million at December 31, 2024.

Previous wording

Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the unaudited condensed consolidated balance sheetsat 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.

Current wording

Transactions under this agreement are accounted for as sales of accounts receivable, and the receivables sold are removed from the unaudited condensed consolidated balance sheetsat 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.

Previous wording

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.

Current wording

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 $13.1 million First-In, Last-Out Sublimit (“FILO Sublimit”). The maturity of the facility is June 1, 2026.

Previous wording

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.

Current wording

For the three months ended March 29, 2025, the average borrowing base under the ABL Facility was $190.9 million and the average loan balance outstanding was zero. As of March 29, 2025, the loan balance was zero with a borrowing availability of $216.2 million.