Hayward Holdings Announces Second Quarter Fiscal Year 2023 Financial Results

SECOND QUARTER FISCAL 2023 SUMMARY

  • Net Sales of $283.5 million
  • Net Income of $29.5 million
  • Adjusted EBITDA* of $79.5 million
  • Diluted EPS of $0.13 and adjusted diluted EPS* of $0.19
  • Strong year-to-date cash flow from operations of $166.5 million

Hayward Holdings, Inc. (NYSE: HAYW) (“Hayward” or the “Company”), a global designer, manufacturer and marketer of a broad portfolio of pool equipment and outdoor living technology, today announced financial results for the second quarter ended July 1, 2023 of its fiscal year 2023. Comparisons are to financial results for the prior-year second fiscal quarter.

CEO COMMENTS

“I am pleased to report another quarter of strong execution, margin expansion, and cash flow generation,” said Kevin Holleran, Hayward’s President and Chief Executive Officer. “Our team is performing remarkably well and driving structural improvements in the business during a challenging operating environment. Channel sell through exceeded our sales into the channel as expected, resulting in further normalization of distributor inventory. We achieved record gross profit margins and solid cash flow growth in the quarter through operational excellence, necessary pricing to offset inflation, and effective working capital management. With progressively leaner channel inventory positions, we are well positioned for growth. We continue to invest in the business to advance our technology leadership, support our customers and drive shareholder value.”

SECOND QUARTER FISCAL 2023 CONSOLIDATED RESULTS

Net sales decreased by 29% to $283.5 million for the second quarter of fiscal 2023. The decline in net sales during the quarter was the result of lower volumes, partially offset by favorable pricing and acquisitions. The decline in volume was primarily the result of distribution channel destocking and the moderation of end-market demand due to macroeconomic factors.

Gross profit decreased by 28% to $136.5 million for the second quarter of fiscal 2023. Gross profit margin increased 70 basis points to 48.1%. The increase in gross margin was principally due to net price increases to offset inflation and the reduction in spending, specifically in freight and overhead, as the prior-year period experienced increased costs resulting from escalated and expedited production activity.

Selling, general, and administrative expenses (“SG&A”) decreased by 16% to $57.7 million for the second quarter of fiscal 2023. The decrease in SG&A was driven by cost reductions and lower compensation-related expenses associated with the reduction in headcount from the enterprise cost-reduction program implemented during 2022 and the absence of a non-recurring one-time expense in the prior-year period. As a percentage of net sales, SG&A increased 310 basis points to 20.4%, compared to the prior-year period of 17.3%. Research, development, and engineering expenses were $6.9 million for the second quarter of fiscal 2023, or 2% of net sales, as compared to $5.0 million for the prior-year period, or 1% of net sales.

Operating income decreased by 39% to $63.0 million for the second quarter of fiscal 2023. The decrease in operating income was driven by lower sales. Operating income as a percentage of net sales (“operating margin”) was 22.2% for the second quarter of fiscal 2023, a 350 basis point reduction from the 25.7% operating margin in the second quarter of fiscal 2022.

Interest expense, net, increased by approximately 65% to $19.1 million for the second quarter of fiscal 2023 primarily as a result of variable rate increases on the term loan, partially offset by net interest income on the Company’s interest rate swaps.

Income tax expense for the second quarter of fiscal 2023 was $13.8 million for an effective tax rate of 31.9%, compared to $21.1 million at an effective tax rate of 24.1% for the prior-year period. The decrease in income tax expense was primarily due to the decrease in income from operations. The increase in the effective tax rate was driven by a discrete tax expense related to a change in the indefinite reinvestment assertion for one jurisdiction.

Net income decreased by 56% to $29.5 million for the second quarter of fiscal 2023.

Adjusted EBITDA* decreased by 38% to $79.5 million for the second quarter of fiscal 2023. Adjusted EBITDA margin* decreased 400 basis points to 28.0%.

Diluted EPS decreased by 54% to $0.13 for the second quarter of fiscal 2023. Adjusted diluted EPS* decreased by 48% to $0.19 for the second quarter of fiscal 2023.

SECOND QUARTER FISCAL 2023 SEGMENT RESULTS

North America

Net sales decreased by 31% to $237.4 million for the second quarter of fiscal 2023. The decrease was primarily the result of a decline in volume, partially offset by increases in price and the favorable impact of acquisitions. The decline in volume was primarily the result of distribution channel destocking and the moderation of end-market demand due to macroeconomic factors.

Segment income decreased by 36% to $71.0 million for the second quarter of fiscal 2023. Adjusted segment income* decreased by 37% to $76.9 million.

Europe & Rest of World

Net sales decreased by 19% to $46.2 million for the second quarter of fiscal 2023. The decrease was primarily due to a decline in volume as a result of distribution channel destocking, geopolitical factors, and macroeconomic uncertainty, partially offset by net price increases and the favorable impact of foreign currency translation.

Segment income decreased by 29% to $9.4 million for the second quarter of fiscal 2023. Adjusted segment income* decreased by 26% to $9.6 million.

BALANCE SHEET AND CASH FLOW

As of July 1, 2023, Hayward had cash and cash equivalents of $205.0 million and approximately $231.7 million available for future borrowings under its revolving credit facilities. Cash flow provided by operations for the six months ended July 1, 2023 of approximately $167 million was an increase of approximately $103 million from the prior-year period primarily as a result of cash generated by working capital compared to cash used for working capital during the prior-year period, partially offset by a decrease in net income.

OUTLOOK

Our outlook for channel sell through is unchanged. Hayward is refining its full year 2023 guidance to reflect incremental reductions in channel inventory levels and better than expected margins. For the full fiscal year 2023, Hayward expects net sales to decrease 20% to 23% and Adjusted EBITDA* of $265 million to $280 million.

We remain positive about the health of the pool industry, particularly the strength of the ever-increasing aftermarket, representing approximately 80% of the business. The industry continues to benefit from secular demand tailwinds, including outdoor living, sunbelt migration, smart home technology adoption, and environmentally sustainable products. Hayward is confident in its ability to successfully execute in an evolving environment in the near-term and its long-term outlook for robust growth and cash flow generation, driven by new product innovation, expanding commercial relationships, and operational excellence.

Please see the Forward-Looking Statements section of this release for a discussion of certain risks relevant to Hayward’s outlook.

CONFERENCE CALL INFORMATION

Hayward will hold a conference call to discuss the results today, August 2, 2023 at 9:00 a.m. (ET).

Interested investors and other parties can listen to a webcast of the live conference call by logging onto the Investor Relations section of the company’s website at https://investor.hayward.com/events-and-presentations/default.aspx. An earnings presentation will be posted to the Investor Relations section of the company’s website prior to the conference call.

The conference call can also be accessed by dialing (888) 886-7786 or (416) 764-8658.

For those unable to listen to the live conference call, a replay will be available approximately two hours after the call through the archived webcast on the Hayward website or by dialing (844) 512-2921 or (412) 317-6671. The access code for the replay is 63731594. The replay will be available until 11:59 p.m. Eastern Time on August 16, 2023.

ABOUT HAYWARD HOLDINGS, INC.

Hayward Holdings, Inc. (NYSE: HAYW) is a leading global designer and manufacturer of pool and outdoor living technology. With a mission to deliver exceptional products, outstanding service and innovative solutions to transform the experience of water, Hayward offers a full line of energy-efficient and sustainable residential and commercial pool equipment including pumps, filters, heaters, cleaners, sanitizers, LED lighting, and water features all digitally connected through Hayward’s intuitive IoT-enabled SmartPad™.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This press release contains certain statements that are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (the “Act”) and releases issued by the Securities and Exchange Commission (the “SEC”). Such forward-looking statements relating to Hayward are based on the beliefs of Hayward’s management as well as assumptions made by, and information currently available to it. These forward-looking statements include, but are not limited to, statements about Hayward’s strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements contained in or incorporated by reference in this earnings release that are not historical facts. When used in this document, words such as “guidance,” “may,” “will,” “should,” “could,” “intend,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “target,” “predict,” “project,” “seek” and similar expressions as they relate to Hayward are intended to identify forward-looking statements. Hayward believes that it is important to communicate its future expectations to its stockholders, and it therefore makes forward-looking statements in reliance upon the safe harbor provisions of the Act. However, there may be events in the future that Hayward is not able to accurately predict or control, and actual results may differ materially from the expectations it describes in its forward-looking statements.

Examples of forward-looking statements include, among others, statements Hayward makes regarding: Hayward’s 2023 guidance; business plans and objectives; general economic and industry trends; business prospects; future product development and acquisition strategies; future channel stocking levels; and growth and expansion opportunities. The forward-looking statements in this earnings release are only predictions. Hayward may not achieve the plans, intentions or expectations disclosed in Hayward’s forward-looking statements, and you should not place significant reliance on its forward-looking statements. Hayward has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its business, financial condition and results of operations. Moreover, neither Hayward nor any other person assumes responsibility for the accuracy and completeness of forward-looking statements taken from third-party industry and market reports.

Important factors that could affect Hayward’s future results and could cause those results or other outcomes to differ materially from those indicated in its forward-looking statements include the following: its relationships with and the performance of distributors, builders, buying groups, retailers and servicers who sell Hayward’s products to pool owners; impacts on Hayward’s business from the sensitivity of its business to seasonality and unfavorable economic business and weather conditions; competition from national and global companies, as well as lower-cost manufacturers; Hayward’s ability to develop, manufacture and effectively and profitably market and sell its new planned and future products; its ability to execute on its growth strategies and expansion opportunities; impacts on Hayward’s business from political, regulatory, economic, trade, and other risks associated with operating foreign businesses, including risks associated with geopolitical conflict; its ability to maintain favorable relationships with suppliers and manage disruptions to its global supply chain and the availability of raw materials; Hayward’s ability to identify emerging technological and other trends in its target end markets; failure of markets to accept new product introductions and enhancements; the ability to successfully identify, finance, complete and integrate acquisitions; its reliance on information technology systems and susceptibility to threats to those systems, including cybersecurity threats, and risks arising from its collection and use of personal information data; regulatory changes and developments affecting Hayward’s current and future products; volatility in currency exchange rates and interest rates; Hayward’s ability to service its existing indebtedness and obtain additional capital to finance operations and its growth opportunities; Hayward’s ability to establish and maintain intellectual property protection for its products, as well as its ability to operate its business without infringing, misappropriating or otherwise violating the intellectual property rights of others; the impact of material cost and other inflation; Hayward’s ability to attract and retain senior management and other qualified personnel; the impact of changes in laws, regulations and administrative policy, including those that limit U.S. tax benefits, impact trade agreements and tariffs, or address the impacts of climate change; the outcome of litigation and governmental proceedings; impacts on Hayward’s product manufacturing disruptions, including as a result of catastrophic and other events beyond its control, including risks associated with geopolitical conflict; uncertainties affecting the pace of distribution channel destocking and its impact on sales volumes; Hayward’s ability to realize cost savings from restructuring activities; Hayward’s and its customers’ ability to manage product inventory in an effective and efficient manner; and other factors set forth in “Risk Factors” in Hayward’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q.

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

*NON-GAAP FINANCIAL MEASURES

This earnings release includes certain financial measures not presented in accordance with the generally accepted accounting principles in the United States (“GAAP”) including adjusted net income, adjusted basic EPS, adjusted diluted EPS, EBITDA, adjusted EBITDA, adjusted EBITDA margin, total segment income, adjusted total segment income, adjusted total segment income margin, adjusted segment income and adjusted segment income margin. These financial measures are not measures of financial performance in accordance with GAAP and may exclude items that are significant in understanding and assessing the Company’s financial results. Hayward believes these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of its business and assist these parties in analyzing the company’s performance across reporting periods on a consistent basis by excluding items that it does not believe are indicative of its core operating performance, which allows for a better comparison against historical results and expectations for future performance. Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short and long-term operating planning, employee incentive compensation, and debt compliance. Therefore, these measures should not be considered in isolation or as an alternative to net income (loss), segment income or other measures of profitability, performance or financial condition under GAAP. You should be aware that the Company’s presentation of these measures may not be comparable to similarly titled measures used by other companies, which may be defined and calculated differently. See the appendix for a reconciliation of historical non-GAAP measures to the most directly comparable GAAP measures.

Reconciliation of full fiscal year 2023 adjusted EBITDA outlook to the comparable GAAP measure is not being provided, as Hayward does not currently have sufficient data to accurately estimate the variables and individual adjustments for such reconciliation.

 

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share data)

 
 

 

 

July 1, 2023

 

December 31, 2022

Assets

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

205,002

 

 

$

56,177

 

Accounts receivable, net of allowances of $3,082 and $3,937, respectively

 

 

147,353

 

 

 

209,109

 

Inventories, net

 

 

234,478

 

 

 

283,658

 

Prepaid expenses

 

 

12,491

 

 

 

14,981

 

Income tax receivable

 

 

17,056

 

 

 

27,173

 

Other current assets

 

 

17,330

 

 

 

21,186

 

Total current assets

 

 

633,710

 

 

 

612,284

 

Property, plant, and equipment, net of accumulated depreciation of $92,420 and $84,119, respectively

 

 

155,869

 

 

 

149,828

 

Goodwill

 

 

934,404

 

 

 

932,396

 

Trademark

 

 

736,000

 

 

 

736,000

 

Customer relationships, net

 

 

218,580

 

 

 

230,503

 

Other intangibles, net

 

 

100,682

 

 

 

106,673

 

Other non-current assets

 

 

104,409

 

 

 

107,329

 

Total assets

 

$

2,883,654

 

 

$

2,875,013

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

Current liabilities

 

 

 

 

Current portion of the long-term debt

 

$

14,695

 

 

$

14,531

 

Accounts payable

 

 

53,683

 

 

 

54,022

 

Accrued expenses and other liabilities

 

 

133,660

 

 

 

163,283

 

Income taxes payable

 

 

 

 

 

574

 

Total current liabilities

 

 

202,038

 

 

 

232,410

 

Long-term debt, net

 

 

1,081,444

 

 

 

1,085,055

 

Deferred tax liabilities, net

 

 

262,655

 

 

 

264,111

 

Other non-current liabilities

 

 

67,696

 

 

 

70,403

 

Total liabilities

 

 

1,613,833

 

 

 

1,651,979

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

Preferred stock, $0.001 par value, 100,000,000 authorized, no shares issued or outstanding as of July 1, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock $0.001 par value, 750,000,000 authorized; 241,672,792 issued and 213,006,423 outstanding at July 1, 2023; 240,529,150 issued and 211,862,781 outstanding at December 31, 2022

 

 

242

 

 

 

241

 

Additional paid-in capital

 

 

1,074,749

 

 

 

1,069,878

 

Common stock in treasury; 28,666,369 and 28,666,369 at July 1, 2023 and December 31, 2022, respectively

 

 

(357,424

)

 

 

(357,415

)

Retained earnings

 

 

538,085

 

 

 

500,222

 

Accumulated other comprehensive income

 

 

14,169

 

 

 

10,108

 

Total stockholders’ equity

 

 

1,269,821

 

 

 

1,223,034

 

Total liabilities, redeemable stock, and stockholders’ equity

 

$

2,883,654

 

 

$

2,875,013

 

 

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

July 1, 2023

 

July 2, 2022

 

July 1, 2023

 

July 2, 2022

Net sales

 

$

283,543

 

$

399,442

 

$

493,679

 

 

$

809,902

Cost of sales

 

 

147,033

 

 

210,077

 

 

259,278

 

 

 

430,143

Gross profit

 

 

136,510

 

 

189,365

 

 

234,401

 

 

 

379,759

Selling, general, and administrative expense

 

 

57,716

 

 

68,947

 

 

112,603

 

 

 

137,804

Research, development, and engineering expense

 

 

6,873

 

 

5,033

 

 

12,850

 

 

 

10,269

Acquisition and restructuring related expense

 

 

1,309

 

 

4,940

 

 

2,872

 

 

 

7,211

Amortization of intangible assets

 

 

7,637

 

 

7,697

 

 

15,254

 

 

 

15,307

Operating income

 

 

62,975

 

 

102,748

 

 

90,822

 

 

 

209,168

Interest expense, net

 

 

19,130

 

 

11,605

 

 

38,491

 

 

 

21,167

Other (income) expense, net

 

 

625

 

 

3,804

 

 

(134

)

 

 

3,290

Total other expense

 

 

19,755

 

 

15,409

 

 

38,357

 

 

 

24,457

Income from operations before income taxes

 

 

43,220

 

 

87,339

 

 

52,465

 

 

 

184,711

Provision for income taxes

 

 

13,767

 

 

21,079

 

 

14,602

 

 

 

44,419

Net income

 

$

29,453

 

$

66,260

 

$

37,863

 

 

$

140,292

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

$

0.30

 

$

0.18

 

 

$

0.62

Diluted

 

$

0.13

 

$

0.29

 

$

0.17

 

 

$

0.59

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

212,861,564

 

 

218,401,182

 

 

212,692,393

 

 

 

225,358,529

Diluted

 

 

220,503,544

 

 

228,642,982

 

 

220,506,921

 

 

 

235,943,099

 
 

Hayward Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

Six Months Ended

 

July 1, 2023

 

July 2, 2022

Cash flows from operating activities

 

 

 

 

Net income

 

$

37,863

 

 

$

140,292

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

Depreciation

 

 

8,590

 

 

 

9,598

 

Amortization of intangible assets

 

 

18,543

 

 

 

18,188

 

Amortization of deferred debt issuance fees

 

 

2,242

 

 

 

1,478

 

Stock-based compensation

 

 

4,146

 

 

 

3,632

 

Deferred income taxes

 

 

(1,673

)

 

 

(9,423

)

Allowance for bad debts

 

 

(879

)

 

 

1,232

 

Loss on disposal of property, plant and equipment

 

 

137

 

 

 

5,359

 

Changes in operating assets and liabilities

 

 

 

 

Accounts receivable

 

 

63,801

 

 

 

(40,727

)

Inventories

 

 

50,234

 

 

 

(67,946

)

Other current and non-current assets

 

 

15,225

 

 

 

5,918

 

Accounts payable

 

 

(427

)

 

 

5,982

 

Accrued expenses and other liabilities

 

 

(31,286

)

 

 

(9,907

)

Net cash provided by operating activities

 

 

166,516

 

 

 

63,676

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchases of property, plant, and equipment

 

 

(15,703

)

 

 

(15,855

)

Acquisitions, net of cash acquired

 

 

 

 

 

(61,337

)

Proceeds from sale of property, plant, and equipment

 

 

5

 

 

 

4

 

Net cash used by investing activities

 

 

(15,698

)

 

 

(77,188

)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from revolving credit facility

 

 

144,100

 

 

 

150,000

 

Payments on revolving credit facility

 

 

(144,100

)

 

 

 

Proceeds from issuance of long-term debt

 

 

1,827

 

 

 

 

Payments of long-term debt

 

 

(6,153

)

 

 

(5,000

)

Proceeds from issuance of short-term notes payable

 

 

5,347

 

 

 

6,979

 

Payments of short-term notes payable

 

 

(3,542

)

 

 

(642

)

Purchase of common stock for treasury

 

 

(9

)

 

 

(293,159

)

Other, net

 

 

(351

)

 

 

721

 

Net cash used by financing activities

 

 

(2,881

)

 

 

(141,101

)

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents and restricted cash

 

 

888

 

 

 

(2,218

)

Change in cash and cash equivalents and restricted cash

 

 

148,825

 

 

 

(156,831

)

Cash and cash equivalents and restricted cash, beginning of period

 

 

56,177

 

 

 

265,796

 

Cash and cash equivalents and restricted cash, end of period

 

$

205,002

 

 

$

108,965

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

Cash paid-interest

 

$

37,223

 

 

$

19,358

 

Cash paid-income taxes

 

 

6,779

 

 

 

67,286

 

Equipment financed under finance leases

 

 

 

 

 

1,531

 

 

Reconciliations

Consolidated Reconciliations

Adjusted EBITDA and Adjusted EBITDA Margin Reconciliations (Non-GAAP)

(Dollars in thousands)

 

Three Months Ended

 

Six Months Ended

 

 

July 1, 2023

 

July 2, 2022

 

July 1, 2023

 

July 2, 2022

Net income

 

$

29,453

 

 

$

66,260

 

 

$

37,863

 

 

$

140,292

 

Depreciation

 

 

4,228

 

 

 

4,758

 

 

 

8,590

 

 

 

9,598

 

Amortization

 

 

9,289

 

 

 

9,091

 

 

 

18,543

 

 

 

18,188

 

Interest expense

 

 

19,130

 

 

 

11,605

 

 

 

38,491

 

 

 

21,167

 

Income taxes

 

 

13,767

 

 

 

21,079

 

 

 

14,602

 

 

 

44,419

 

EBITDA

 

 

75,867

 

 

 

112,793

 

 

 

118,089

 

 

 

233,664

 

Stock-based compensation (a)

 

 

375

 

 

 

315

 

 

 

732

 

 

 

1,252

 

Currency exchange items (b)

 

 

1,205

 

 

 

3,453

 

 

 

1,131

 

 

 

2,724

 

Acquisition and restructuring related expense, net (c)

 

 

1,309

 

 

 

4,940

 

 

 

2,872

 

 

 

7,211

 

Other (d)

 

 

722

 

 

 

6,136

 

 

 

1,583

 

 

 

9,035

 

Total Adjustments

 

 

3,611

 

 

 

14,844

 

 

 

6,318

 

 

 

20,222

 

Adjusted EBITDA

 

$

79,478

 

 

$

127,637

 

 

$

124,407

 

 

$

253,886

 

Adjusted EBITDA margin

 

 

28.0

%

 

 

32.0

%

 

 

25.2

%

 

 

31.3

%

(a)

 

Represents non-cash stock-based compensation expense related to equity awards issued to management, employees, and directors. The adjustment includes only expense related to awards issued under the 2017 Equity Incentive Plan, which were awards granted prior to the effective date of Hayward’s initial public offering (the “IPO”).

(b)

 

Represents unrealized non-cash losses on foreign denominated monetary assets and liabilities and foreign currency contracts.

(c)

 

Adjustments in the three months ended July 1, 2023 are primarily driven by $0.5 million of separation costs associated with the enterprise cost-reduction program initiated in 2022, $0.5 million of integration costs from prior acquisitions and $0.3 million of costs associated with the relocation of the corporate headquarters. Adjustments in the three months ended July 2, 2022 primarily include $3.1 million of costs associated with the acquisition of the specialty lighting business of Halco Technologies, LLC (the “Specialty Lighting Business”), $1.2 million of costs associated with the relocation of the corporate headquarters and other immaterial items.

 

 

Adjustments in the six months ended July 1, 2023 are primarily driven by $1.3 million of separation costs associated with the enterprise cost-reduction program initiated in 2022, $0.8 million of integration costs from prior acquisitions and $0.6 million of costs associated with the relocation of the corporate headquarters. Adjustments in the six months ended July 2, 2022 are primarily driven by $3.3 million of costs associated with the relocation of the corporate headquarters, $3.2 million of transaction costs associated with the acquisition of the Specialty Lighting Business and other immaterial items.

(d)

 

Adjustments in the three months ended July 1, 2023 primarily include $0.3 million of costs incurred related to the selling stockholder offering of shares in May 2023, which are reported in SG&A in the unaudited condensed consolidated statement of operations, and other miscellaneous items the Company believes are not representative of its ongoing business operations. Adjustments in the three months ended July 2, 2022 are primarily driven by a one-time $5.5 million expense associated with the discontinuation of a product joint development agreement, $0.9 million of costs associated with follow-on equity offerings, $0.7 million of transitional expenses incurred to enable go-forward public company regulatory compliance, and other miscellaneous items partially offset by $1.1 million of gains resulting from an insurance policy reimbursement related to the fire incident in Yuncos, Spain.

 

 

Adjustments in the six months ended July 1, 2023 primarily includes $0.6 million of costs associated with follow-on equity offerings, $0.4 million of transitional expenses incurred to enable go-forward public company regulatory compliance and other miscellaneous items the Company believes are not representative of its ongoing business operations. Adjustments in the six months ended July 2, 2022 are primarily driven by a one-time $5.5 million expense associated with the discontinuation of a product joint development agreement, $1.0 million of transitional expenses incurred to enable go-forward public company regulatory compliance, $0.9 million of costs associated with follow-on equity offerings, $0.9 million of expenses related to the corporate headquarters transition, $0.7 million of bad debt reserves related to certain customers impacted by the conflict between Russia and Ukraine, net of subsequent collections, and other immaterial items, partially offset by $1.1 million of gains resulting from an insurance policy reimbursement related to the fire incident in Yuncos, Spain.

 

Following is a reconciliation from net income to adjusted EBITDA:

Following is a reconciliation from net income to adjusted EBITDA for the last twelve months:

(Dollars in thousands)

 

Last Twelve

Months(e)

 

Fiscal Year

 

 

July 1, 2023

 

December 31, 2022

Net income

 

$

76,918

 

 

$

179,347

 

Depreciation

 

 

18,238

 

 

 

19,246

 

Amortization

 

 

38,748

 

 

 

38,393

 

Interest expense

 

 

68,711

 

 

 

51,387

 

Income taxes

 

 

25,073

 

 

 

54,890

 

EBITDA

 

 

227,688

 

 

 

343,263

 

Stock-based compensation (a)

 

 

1,082

 

 

 

1,602

 

Currency exchange items (b)

 

 

(667

)

 

 

926

 

Acquisition and restructuring related expense, net (c)

 

 

3,823

 

 

 

8,162

 

Other (d)

 

 

6,170

 

 

 

13,622

 

Total Adjustments

 

 

10,408

 

 

 

24,312

 

Adjusted EBITDA

 

$

238,096

 

 

$

367,575

 

Adjusted EBITDA margin

 

 

23.9

%

 

 

28.0

%

(a)

 

Represents non-cash stock-based compensation expense related to equity awards issued to management, employees, and directors. The adjustment includes only expense related to awards issued under the 2017 Equity Incentive Plan, which were awards granted prior to the effective date of the IPO.

(b)

 

Represents unrealized non-cash losses on foreign denominated monetary assets and liabilities and foreign currency contracts.

(c)

 

Adjustments in the last twelve months ended July 1, 2023 include $4.2 million separation costs associated with a reduction-in-force from the enterprise cost-reduction program, $2.3 million of costs associated with the relocation of the corporate headquarters, $0.8 million of integration costs from prior acquisitions and other immaterial items, partially offset by a $2.4 million gain resulting from the release of certain reserves associated with the exit of an early-stage product line discontinued in 2021 and a $1.3 million purchase-price adjustment related to the acquisition of the Specialty Lighting Business.

 

 

Adjustments in the year ended December 31, 2022 primarily include $5.0 million of costs associated with the relocation of the corporate headquarters, $2.9 million separation costs associated with a reduction-in-force, and $1.9 million transaction costs associated with the acquisition of the Specialty Lighting Business, partially offset by a $2.4 million gain resulting from the release of certain reserves associated with the exit of an early-stage product line discontinued in 2021.

(d)

 

Adjustments in the last twelve months ended July 1, 2023 include $3.3 million non-cash increase in cost of goods sold resulting from the fair value inventory step-up adjustment recognized as part of the purchase accounting for the Specialty Lighting Business, $1.6 million of transitional expenses incurred to enable go-forward public company regulatory compliance, $1.1 million of costs incurred related to registered share offerings by selling stockholders, which are reported in SG&A in the consolidated statements of operations, $0.2 million of gains on the sale of fixed assets, and other immaterial items, partially offset by $0.5 million of subsequent collections against bad debt reserves taken in response to the conflict between Russia and Ukraine.

 

 

Adjustments in the year ended December 31, 2022 include $5.5 million of expenses associated with the discontinuation of a product joint development agreement, a $3.3 million non-cash increase in cost of goods sold resulting from the fair value inventory step-up adjustment recognized as part of the purchase accounting for the Specialty Lighting Business, $2.3 million of transitional expenses incurred to enable go-forward public company regulatory compliance, $1.4 million of costs incurred related to the selling stockholder offering of shares in May 2022, which are reported in SG&A in the consolidated statements of operations, $0.9 million of expenses related to the corporate headquarters transition, $0.2 million bad debt reserves related to certain customers impacted by the conflict between Russia and Ukraine, and other immaterial items, partially offset by subsequent collections and $1.1 million of gains resulting from an insurance policy reimbursement related to the fire incident in the manufacturing and administrative facilities in Yuncos, Spain.

(e)

 

Items for the last twelve months ended July 1, 2023 are calculated by adding the items for the six months ended July 1, 2023 plus fiscal year ended December 31, 2022 and subtracting the items for the six months ended July 2, 2022.

 

Adjusted Net Income and Adjusted EPS Reconciliation (Non-GAAP)

Following is a reconciliation of net income to adjusted net income and earnings per share to adjusted earnings per share:

(Dollars in thousands)

 

Three Months Ended

 

Six Months Ended

 

 

July 1, 2023

 

July 2, 2022

 

July 1, 2023

 

July 2, 2022

Net income

 

$

29,453

 

 

$

66,260

 

 

$

37,863

 

 

$

140,292

 

Tax adjustments (a)

 

 

3,046

 

 

 

(250

)

 

 

1,498

 

 

 

(250

)

Other adjustments and amortization:

 

 

 

 

 

 

 

 

Stock-based compensation (b)

 

 

375

 

 

 

315

 

 

 

732

 

 

 

1,252

 

Currency exchange items (c)

 

 

1,205

 

 

 

3,453

 

 

 

1,131

 

 

 

2,724

 

Acquisition and restructuring related expense, net (d)

 

 

1,309

 

 

 

4,940

 

 

 

2,872

 

 

 

7,211

 

Other (e)

 

 

722

 

 

 

6,136

 

 

 

1,583

 

 

 

9,035

 

Total other adjustments

 

 

3,611

 

 

 

14,844

 

 

 

6,318

 

 

 

20,222

 

Amortization

 

 

9,289

 

 

 

9,091

 

 

 

18,543

 

 

 

18,188

 

Tax effect (f)

 

 

(3,200

)

 

 

(5,845

)

 

 

(6,284

)

 

 

(9,315

)

 

 

 

 

 

 

 

 

 

Certain transaction-related adjustments (g):

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

 

849

 

 

 

 

 

 

2,291

 

Tax effect (f)

 

 

 

 

 

(207

)

 

 

 

 

 

(553

)

Adjusted net income

 

$

42,199

 

 

$

84,742

 

 

$

57,938

 

 

$

170,875

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic

 

 

212,861,564

 

 

 

218,401,182

 

 

 

212,692,393

 

 

 

225,358,529

 

Weighted average number of common shares outstanding, diluted

 

 

220,503,544

 

 

 

228,642,982

 

 

 

220,506,921

 

 

 

235,943,099

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

$

0.14

 

 

$

0.30

 

 

$

0.18

 

 

$

0.62

 

Diluted EPS

 

$

0.13

 

 

$

0.29

 

 

$

0.17

 

 

$

0.59

 

 

 

 

 

 

 

 

 

 

Adjusted basic EPS

 

$

0.20

 

 

$

0.39

 

 

$

0.27

 

 

$

0.76

 

Adjusted diluted EPS

 

$

0.19

 

 

$

0.37

 

 

$

0.26

 

 

$

0.72

 

(a)

 

Tax adjustments for the three and six months ended July 1, 2023 reflect a normalized tax rate of 24.8% and 25.0% compared to the Company’s effective tax rate of 31.9% and 27.8%. The Company’s effective tax rate for the three and six months ended July 1, 2023 includes the impact of a discrete tax expense related to a change in the indefinite reinvestment assertion for one jurisdiction, partially offset by a tax benefit resulting from the exercise of stock options. Tax adjustments for the three and six months ended July 2, 2022 reflect a normalized tax rate of 24.4% and 24.2% compared to the effective tax rates of 24.1% and 24.0%, respectively. The Company’s effective tax rate for the three and six months ended July 2, 2022 includes the tax benefit resulting from the exercise of stock options. All non-tax adjustments are effected at the normalized rate.

(b)

 

Represents non-cash stock-based compensation expense related to equity awards issued to management, employees, and directors. The adjustment includes only expense related to awards issued under the 2017 Equity Incentive Plan, which were awards granted prior to the effective date of the IPO.

(c)

 

Represents unrealized non-cash losses on foreign denominated monetary assets and liabilities and foreign currency contracts.

(d)

 

Adjustments in the three months ended July 1, 2023 are primarily driven by $0.5 million of separation costs associated with the enterprise cost-reduction program initiated in 2022, $0.5 million of integration costs from prior acquisitions and $0.3 million of costs associated with the relocation of the corporate headquarters. Adjustments in the three months ended July 2, 2022 primarily include $3.1 million of costs associated with the acquisition of the specialty lighting business of Halco Technologies, LLC (the “Specialty Lighting Business”), $1.2 million of costs associated with the relocation of the corporate headquarters and other immaterial items.

 

 

Adjustments in the six months ended July 1, 2023 are primarily driven by $1.3 million of separation costs associated with the enterprise cost-reduction program initiated in 2022, $0.8 million of integration costs from prior acquisitions and $0.6 million of costs associated with the relocation of the corporate headquarters. Adjustments in the six months ended July 2, 2022 are primarily driven by $3.3 million of costs associated with the relocation of the corporate headquarters, $3.2 million of transaction costs associated with the acquisition of the Specialty Lighting Business and other immaterial items.

(e)

 

Adjustments in the three months ended July 1, 2023 primarily include $0.3 million of costs incurred related to the selling stockholder offering of shares in May 2023, which are reported in SG&A in the unaudited condensed consolidated statement of operations, and other miscellaneous items the Company believes are not representative of its ongoing business operations. Adjustments in the three months ended July 2, 2022 are primarily driven by a one-time $5.5 million expense associated with the discontinuation of a product joint development agreement, $0.9 million of costs associated with follow-on equity offerings, $0.7 million of transitional expenses incurred to enable go-forward public company regulatory compliance, and other miscellaneous items partially offset by $1.1 million of gains resulting from an insurance policy reimbursement related to the fire incident in Yuncos, Spain.

 

 

Adjustments in the six months ended July 1, 2023 primarily includes $0.6 million of costs associated with follow-on equity offerings, $0.4 million of transitional expenses incurred to enable go-forward public company regulatory compliance and other miscellaneous items the Company believes are not representative of its ongoing business operations. Adjustments in the six months ended July 2, 2022 are primarily driven by a one-time $5.5 million expense associated with the discontinuation of a product joint development agreement, $1.0 million of transitional expenses incurred to enable go-forward public company regulatory compliance, $0.9 million of costs associated with follow-on equity offerings, $0.9 million of expenses related to the corporate headquarters transition, $0.7 million of bad debt reserves related to certain customers impacted by the conflict between Russia and Ukraine, net of subsequent collections, and other immaterial items, partially offset by $1.1 million of gains resulting from an insurance policy reimbursement related to the fire incident in Yuncos, Spain.

(f)

 

The tax effect represents the immediately preceding adjustments at the normalized tax rates as discussed in footnote (a) above.

(g)

 

The adjustments for the three and six months ended July 2, 2022 represent adjustments related to the acquisition of the Specialty Lighting Business as if the acquisition had occurred at the beginning of the period.

 

Segment Reconciliations

Following is a reconciliation from segment income to adjusted segment income for the North America (“NAM”) and Europe & Rest of World (“E&RW”) segments:

(Dollars in thousands)

 

Three Months Ended

 

Three Months Ended

 

 

July 1, 2023

 

July 2, 2022

 

 

Total

 

NAM

 

E&RW

 

Total

 

NAM

 

E&RW

Net sales

 

$

283,543

 

 

$

237,352

 

 

$

46,191

 

 

$

399,442

 

 

$

342,080

 

 

$

57,362

 

Gross profit

 

$

136,510

 

 

$

118,442

 

 

$

18,068

 

 

$

189,365

 

 

$

166,818

 

 

$

22,547

 

Gross profit margin %

 

 

48.1

%

 

 

49.9

%

 

 

39.1

%

 

 

47.4

%

 

 

48.8

%

 

 

39.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations before income taxes

 

$

43,220

 

 

 

 

 

 

$

87,339

 

 

 

 

 

Expenses not allocated to segments

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expense, net

 

 

8,425

 

 

 

 

 

 

 

8,386

 

 

 

 

 

Acquisition and restructuring related expense

 

 

1,309

 

 

 

 

 

 

 

4,940

 

 

 

 

 

Amortization of intangible assets

 

 

7,637

 

 

 

 

 

 

 

7,697

 

 

 

 

 

Interest expense, net

 

 

19,130

 

 

 

 

 

 

 

11,605

 

 

 

 

 

Other (income) expense, net

 

 

625

 

 

 

 

 

 

 

3,804

 

 

 

 

 

Segment income

 

$

80,346

 

 

$

70,962

 

 

$

9,384

 

 

$

123,771

 

 

$

110,539

 

 

$

13,232

 

Segment income margin %

 

 

28.3

%

 

 

29.9

%

 

 

20.3

%

 

 

31.0

%

 

 

32.3

%

 

 

23.1

%

Depreciation

 

$

4,068

 

 

$

3,837

 

 

$

231

 

 

$

4,454

 

 

$

4,248

 

 

$

206

 

Amortization

 

 

1,651

 

 

 

1,651

 

 

 

 

 

 

1,394

 

 

 

1,394

 

 

 

 

Stock-based compensation

 

 

192

 

 

 

180

 

 

 

12

 

 

 

829

 

 

 

765

 

 

 

64

 

Other (a)

 

 

290

 

 

 

290

 

 

 

 

 

 

5,040

 

 

 

5,538

 

 

 

(498

)

Total adjustments

 

 

6,201

 

 

 

5,958

 

 

 

243

 

 

 

11,717

 

 

 

11,945

 

 

 

(228

)

Adjusted segment income

 

$

86,547

 

 

$

76,920

 

 

$

9,627

 

 

$

135,488

 

 

$

122,484

 

 

$

13,004

 

Adjusted segment income margin %

 

 

30.5

%

 

 

32.4

%

 

 

20.8

%

 

 

33.9

%

 

 

35.8

%

 

 

22.7

%

(a)

 

The three months ended July 1, 2023 for NAM includes miscellaneous items the Company believes are not representative of its ongoing business operations. The three months ended July 2, 2022 includes a one-time $5.5 million expense associated with the discontinuation of a product joint development agreement.

 

 

 

 

 

The three months ended July 2, 2022 for E&RW includes $0.5 million of collections associated with previous bad debt write-offs related to certain customers impacted by the conflict between Russia and Ukraine.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Six Months Ended

 

Six Months Ended

 

 

July 1, 2023

 

July 2, 2022

 

 

Total

 

NAM

 

E&RW

 

Total

 

NAM

 

E&RW

Net sales

 

$

493,679

 

 

$

400,056

 

 

$

93,623

 

 

$

809,902

 

 

$

688,377

 

 

$

121,525

 

Gross profit

 

$

234,401

 

 

$

197,455

 

 

$

36,946

 

 

$

379,759

 

 

$

329,875

 

 

$

49,884

 

Gross profit margin %

 

 

47.5

%

 

 

49.4

%

 

 

39.5

%

 

 

46.9

%

 

 

47.9

%

 

 

41.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations before income taxes

 

$

52,465

 

 

 

 

 

 

$

184,711

 

 

 

 

 

Expenses not allocated to segments

 

 

 

 

 

 

 

 

 

 

 

 

Corporate expense, net

 

 

14,524

 

 

 

 

 

 

 

17,665

 

 

 

 

 

Acquisition and restructuring related expense

 

 

2,872

 

 

 

 

 

 

 

7,211

 

 

 

 

 

Amortization of intangible assets

 

 

15,254

 

 

 

 

 

 

 

15,307

 

 

 

 

 

Interest expense, net

 

 

38,491

 

 

 

 

 

 

 

21,167

 

 

 

 

 

Other (income) expense, net

 

 

(134

)

 

 

 

 

 

 

3,290

 

 

 

 

 

Segment income

 

$

123,472

 

 

$

104,238

 

 

$

19,234

 

 

$

249,351

 

 

$

219,150

 

 

$

30,201

 

Segment income margin %

 

 

25.0

%

 

 

26.1

%

 

 

20.5

%

 

 

30.8

%

 

 

31.8

%

 

 

24.9

%

Depreciation

 

$

8,373

 

 

$

7,925

 

 

$

448

 

 

$

8,957

 

 

$

8,582

 

 

$

375

 

Amortization

 

 

3,288

 

 

 

3,288

 

 

 

 

 

 

2,881

 

 

 

2,881

 

 

 

 

Stock-based compensation

 

 

365

 

 

 

342

 

 

 

23

 

 

 

459

 

 

 

356

 

 

 

103

 

Other (a)

 

 

388

 

 

 

388

 

 

 

 

 

 

6,450

 

 

 

5,738

 

 

 

712

 

Total adjustments

 

 

12,414

 

 

 

11,943

 

 

 

471

 

 

 

18,747

 

 

 

17,557

 

 

 

1,190

 

Adjusted segment income

 

$

135,886

 

 

$

116,181

 

 

$

19,705

 

 

$

268,098

 

 

$

236,707

 

 

$

31,391

 

Adjusted segment income margin %

 

 

27.5

%

 

 

29.0

%

 

 

21.0

%

 

 

33.1

%

 

 

34.4

%

 

 

25.8

%

(a)

 

The six months ended July 1, 2023 for NAM includes miscellaneous items the Company believes are not representative of its ongoing business operations. The six months ended July 2, 2022 includes a one-time $5.5 million expense associated with the discontinuation of a product joint development agreement and other immaterial miscellaneous items the Company believes are not representative of its ongoing business operations.

 

 

 

 

 

The six months ended July 2, 2022 for E&RW represents $0.7 million of bad debt reserves related to certain customers impacted by the conflict between Russia and Ukraine, partially offset by subsequent collections.

 

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