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What changed in Hayward Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Hayward Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+339 added−354 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-28)

Top changes in Hayward Holdings, Inc.'s 2023 10-K

339 paragraphs added · 354 removed · 285 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeDistributors are responsible for ordering, stocking, training, delivering and taking on credit responsibility from their trade customers. Many distributors also sell our products to online retailers. Builders, Retailers and Servicers (Direct Sales) : We sell to several major builders and retailers. These customers are large in scale and are capable of managing their own demand planning and inventory.
Biggest changeWe have long-standing relationships with these trade customers and we have contractual agreements to support our continued net sales of our products through this channel. Distributors are responsible for ordering, stocking, training, delivering and taking on credit responsibility from their trade customers. Many distributors also sell our products to online retailers.
We also sell UV, Ozone, and Salt Chlorinator and related products that are regulated under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”), which primarily relates to testing, use, reporting, sale, distribution, licensing and market verification of these products. Moreover, the U.S.
We also sell UV, Ozone, Salt Chlorinator and related products that are regulated under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”), which primarily relates to testing, use, reporting, sale, distribution, licensing and market verification of these products. Moreover, the U.S.
An inclusive and diverse workforce enables different perspectives to be shared and supports a collaborative and engaged company culture. We believe that bringing diverse individuals together allows us to more effectively address the challenges that may face our organization.
An inclusive and diverse workforce enables different perspectives to be shared and supports a collaborative and engaged company culture. We believe bringing diverse individuals together allows us to more effectively address the challenges that may face our organization.
U.S. federal environmental, health and safety regulations that apply to operations at one or more of our United States facilities include, without limitation, regulations promulgated under the Resource Conservation and Recovery Act, the Environmental Planning and Community Right-To-Know Act, the National Pollutant Discharge Elimination System Act, the Spill Prevention, Control and Countermeasures requirements and the Comprehensive Environmental Response, Compensation and Liability Act.
U.S. federal environmental, health and safety regulations that apply to operations at one or more of our United States facilities 10 include, without limitation, regulations promulgated under the Resource Conservation and Recovery Act, the Environmental Planning and Community Right-To-Know Act, the National Pollutant Discharge Elimination System Act, the Spill Prevention, Control and Countermeasures requirements and the Comprehensive Environmental Response, Compensation and Liability Act.
Recent product development has targeted key pool industry trends such as energy efficiency, advanced sanitization, reduced chemical usage, water conservation and enhanced IoT-driven pool experiences. Customers We sell our products through a variety of channels to a diverse global trade customer base.
Recent product development has targeted key pool industry trends such as energy efficiency, advanced sanitization, reduced chemical usage, water conservation and enhanced IoT-driven pool experiences. 7 Customers We sell our products through a variety of channels to a diverse global trade customer base.
We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”) concerning employee health and safety matters. In addition, we and certain of our affiliates store certain types of hazardous materials and chemicals at various locations and the storage of these items 10 is strictly regulated by local fire codes.
We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”) concerning employee health and safety matters. In addition, we and certain of our affiliates store certain types of hazardous materials and chemicals at various locations and the storage of these items is strictly regulated by local fire codes.
We typically perform an audit on any new suppliers, and periodically evaluate our existing supplier base to ensure maximum service and quality. Our supplier base is “sticky” as suppliers must invest to receive certain approvals, creating an economic incentive to maintain a long and productive relationship.
We typically perform an audit on any new suppliers, and periodically evaluate our existing supplier base to enable maximum service and quality. Our supplier base is “sticky” as suppliers must invest to receive certain approvals, creating an economic incentive to maintain a long and productive relationship.
For discussion regarding the effects seasonality had on our results of operations in Fiscal Year 2022, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties Regarding Our Existing Business.” Competition The markets for our products are geographically diverse and highly competitive.
For discussion regarding the effects seasonality had on our results of operations in Fiscal Year 2023, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties Regarding Our Existing Business.” Competition The markets for our products are geographically diverse and highly competitive.
In Europe, the sales channel is more direct than in the United States as approximately 70% of sales are through distributors and 30% are through direct sales. Across regions, the market is based on a “prescriber model.” The purchasing decisions of the end consumer (i.e., pool owners) are strongly influenced by pool builders and pool servicers.
In Europe, the sales channel is more direct than in the United States as approximately 74% of sales are through distributors and 26% are through direct sales. Across regions, the market is based on a “prescriber model.” The purchasing decisions of the end consumer (i.e., pool owners) are strongly influenced by pool builders and pool servicers.
NAM and E&RW accounted for approximately 84% and 16% and 83% and 17% of total net sales for Fiscal Year 2022 and the fiscal year ended December 31, 2021 (“Fiscal Year 2021”), respectively. For financial information with respect to our business segments, see Item 7 .
NAM and E&RW accounted for approximately 83% and 17% and 84% and 16% of total net sales for Fiscal Year 2023 and the fiscal year ended December 31, 2022 (“Fiscal Year 2022”), respectively. For financial information with respect to our business segments, see Item 7 .
For example, we maintain an updated website privacy policy that explains our online information collection and use practices and applicable rights of European Union and California residents under the GDPR and CCPA, respectively. We also take reasonable efforts to implement and maintain security controls to align with industry standards.
For example, we maintain an updated website privacy policy that explains our online information collection and use practices and applicable rights of European Union and California residents under the GDPR and CCPA, respectively. We also make reasonable efforts to implement and maintain security controls to align with industry standards. See Item 1C.
Compliance with, or liabilities under, such laws and regulations in the future could prove to be costly and could affect various aspects of the business. Environmental, Social, and Governance (ESG) As a leading provider of environmentally friendly and energy efficient products, Hayward strives to promote sustainability throughout our business operations.
Compliance with, or liabilities under, such laws and regulations in the future could prove to be costly and could affect various aspects of the business. Sustainability As a leading provider of environmentally friendly and energy efficient products, Hayward strives to promote sustainability throughout our business operations and within our culture.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 12 . “Segments and Related Information” of Notes to Consolidated Financial Statements in this Form 10-K. Item 7 contains information about sales and profits for each segment, and Note 12 .
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 12 . “Segments and Related Information” of Notes to Consolidated Financial Statements in 6 this Form 10-K. Item 7 contains information about sales and profits for each segment, and Note 12 . “Segments and Related Information” contains information about each segment’s sales, capital expenditures, depreciation, and amortization.
As of December 31, 2022, we held approximately 209 issued U.S. patents and 231 issued foreign patents relating to our technologies, such as pumps, filters, heaters, drains and white goods, robotic cleaners, in-floor cleaning systems, lights, automation and controls, sanitization, valves and flow control, and IoT and other technologies, as well as approximately 135 U.S. trademark registrations and 714 foreign trademark registrations covering our marks, brands and products.
As of December 31, 2023, we held approximately 207 issued U.S. patents and 241 issued foreign patents relating to our technologies, such as pumps, filters, heaters, drains and white goods, robotic cleaners, in-floor cleaning systems, lights, automation and controls, sanitization, valves and flow control, and IoT and other technologies, as well as approximately 134 U.S. trademark registrations and 711 foreign trademark registrations covering our marks, brands and products.
(“MSD Partners” and together with CCMP, the “Sponsors”) and Alberta Investment Management Corporation, as well as members of management and our board of directors, of our underlying business, which was founded in 1925. We completed our initial public offering of common stock in March 2021. We maintain an Internet website at global.hayward.com.
(“MSD Partners” and together with CCMP, the “Sponsors”) and Alberta Investment Management Corporation, as well as members of management and our board of directors, of our underlying business, which was founded in 1925. We completed our initial public offering of common stock in March 2021.
We ship directly to member locations. According to management estimates, in Fiscal Year 2022 approximately 75% of residential pool equipment in the United States is sold through specialty distributors such as Pool Corporation, Heritage Pool Supply Group, and Baystate Pool Supplies. Approximately 18% was sold directly to retailers, and approximately 7% was sold to builders.
According to management estimates, in Fiscal Year 2023 approximately 80% of residential pool equipment in the United States is sold through specialty distributors such as Pool Corporation, Heritage Pool Supply Group, and Baystate Pool Supplies. Approximately 13% was sold directly to retailers, and approximately 7% was sold to builders.
We mainly purchase assembled components such as motors, metal parts, cables and extrusions from our suppliers. We also purchase raw materials, such as resins (ABS, PP, HDPE, PVC), metals (copper, steel, aluminum, titanium, ruthenium) and liner board (packaging), which expose us to changes in commodity pricing and the availability of materials within the global supply chain.
We also purchase raw materials, such as resins (ABS, PP, HDPE, PVC), metals (copper, steel, aluminum, titanium, ruthenium) and liner board (packaging), which expose us to changes in commodity pricing and the availability of materials within the global supply chain.
As of December 31, 2022, we also held approximately 59 pending U.S. patent applications, 78 pending foreign patent applications, 9 pending U.S. trademark applications and 41 pending foreign trademark applications. We also license patents to certain technologies used in our products, such as our pool cleaner and lighting products.
As of December 31, 2023, we also held approximately 50 pending U.S. patent applications, 68 pending foreign patent applications, 14 pending U.S. trademark applications and 42 pending foreign trademark applications. We also license patents to certain technologies used in our products, such as our pool cleaner and lighting products.
Builders and retailers who buy directly from us typically cross geographies beyond what many wholesalers can serve. Buying Groups : We sell to several major buying groups, which are composed of members who are independent businesses. Buying groups receive competitive pricing and special incentives. Members can place orders with the group’s corporate headquarters or order from us directly.
Buying Groups : We sell to several major buying groups, which are composed of members who are independent businesses. Buying groups receive competitive pricing and special incentives. Members can place orders with the group’s corporate headquarters or order from us directly. We ship directly to member locations.
Consequently, we typically build inventory in the first and third quarters and inventory is typically sold-down in the second and fourth quarters. Our accounts receivable balance increases from October to April as a result of the early-buy extended terms and remains elevated through June due to higher sales in the second quarter.
Our accounts receivable balance increases from October to April as a result of the early-buy extended terms and remains elevated through June due to higher sales in the second quarter.
Information Systems We believe that our website and information technology systems are equipped to support the operation of our business and use commercially reasonable efforts to maintain and protect our information technology systems.
Information Systems We believe that our website and information technology systems are equipped to support the operation of our business and use commercially reasonable efforts to maintain and protect our information technology systems. See Item 1C. “Cybersecurity” for information about the Company’s management of risks related to our information technology systems.
Environmental, Health and Safety Matters Our operations are subject to various laws and governmental regulations concerning environmental, health and safety matters, including employee health and safety, in the United States and other countries.
“Cybersecurity” for information about the Company’s management of risks related to our information technology systems. Environmental, Health and Safety Matters Our operations are subject to various laws and governmental regulations concerning environmental, health and safety matters, including employee health and safety, in the United States and other countries.
Aftermarket replacements and upgrades to higher value Internet of Things (“IoT”) and energy efficient models are a primary growth driver for our business, as we estimate that aftermarket sales represented approximately 80% of net sales in the year ended December 31, 2022 (“Fiscal Year 2022”).
Aftermarket replacements and upgrades to higher value Internet of Things (“IoT”) and energy efficient models are a primary growth driver for our business, as historically aftermarket sales have represented approximately 80% of net sales.
In the fourth quarter, we incentivize trade customers to buy and stock up in preparation for next year’s pool season under an “early buy” program that offers a price discount and extended payment terms.
In the fourth quarter, we 8 incentivize trade customers to buy and stock up in preparation for next year’s pool season under an “Early Buy” program that features a price discount and extended payment terms. Shipments for the 2023 Early Buy program began in late third quarter and will continue through approximately the first quarter of 2024.
We have had an average relationship of over 15 years across our top 30 suppliers. We have had a 40+ year relationship with our top vendor and 10+ year relationships with 8 out of our top 10 suppliers, with an average of 16 years of supply continuity. Sales Channels The pool equipment market is served through several sales channels.
We have had an average relationship of over 15 years across our top 30 suppliers. We have had a more than 40 year relationship with our top vendor and over 10 year relationships with 7 out of our top 10 suppliers, with an average of 18 years of supply continuity.
We schedule performance discussions for all employees each year, and establish clearly defined goals and incentive programs to drive employee performance. In addition, we have implemented a coordinated approach in managing our overall compensation structure and regularly conduct full evaluations of our compensation and incentive programs to ensure we are competitive in these areas.
In addition, we have implemented a coordinated approach in managing our overall compensation structure and regularly conduct full evaluations of our compensation and incentive programs to be competitive in these areas.
Our largest customer, Pool Corporation, 7 represented approximately 35% of our net sales in Fiscal Year 2022, but no other customer represented more than 10% of our net sales in Fiscal Year 2022. Raw Materials and Suppliers We maintain longstanding relationships with approximately 700 suppliers.
Our largest customer represented approximately 36% of our net sales in Fiscal Year 2023, but no other customer represented more than 10% of our net sales in Fiscal Year 2023. Raw Materials and Suppliers We maintain longstanding relationships with approximately 700 suppliers. We mainly purchase assembled components such as motors, metal parts, cables and extrusions from our suppliers.
We take our responsibility for environmental stewardship seriously and believe as a global designer and manufacturer, we play a constructive role in helping to address environmental challenges.
We take our responsibility for environmental stewardship seriously and believe as a global designer and manufacturer, we play a constructive role in helping to address environmental challenges. Our Sustainability framework, established following our inaugural assessment in 2021, sets the foundation for our principle-based approach to integrating these values across our business.
From time to time, we initiate litigation on these matters as a means to enforce our rights. We do not regard our business as being materially dependent upon any single patent or proprietary technology.
From time to time, we initiate litigation on these matters to enforce our rights. 9 We do not regard our business as being materially dependent upon any single patent or proprietary technology. Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise.
Championing our core environmental, social, and governance (ESG) values, we are committed to providing innovative and environmentally sustainable products, upholding responsible manufacturing practices, fostering a safe and inclusive workplace, and maintaining strong governance and compliance practices. We recognize the risks and challenges that are associated with climate change.
We believe that a healthy environment is necessary for the well-being of our people and our businesses and is the foundation for a sustainable and strong economy. Championing our core sustainability values (“Sustainability”), we are committed to providing innovative and environmentally sustainable products, upholding responsible manufacturing practices, fostering a safe and inclusive workplace and maintaining strong governance and compliance practices.
As part of our first steps towards sustainability reporting, we published an inaugural ESG Tearsheet and enhanced our communication on our ESG webpage. Hayward respects, values and celebrates the unique attributes, characteristics and perspectives that make each person who they are, and we believe that the success of our employees determines the success of our business.
This effort was furthered with an updated data sheet in 2023, and we are consistently improving the information available on our Sustainability webpage. Hayward respects, values and celebrates the unique attributes, characteristics and perspectives that make each person who they are, and we believe that the success of our employees determines the success of our business.
We build upon Hayward’s objectives by seeking to attract, retain, develop and reward behaviors to ensure our long-term sustainability as a company. We continue to advance our efforts to develop a performance culture by strengthening performance management processes through management training and the development and implementation of consistent documentation and methodologies designed to ensure a robust process for all employees.
We continue to advance our efforts to develop a performance culture by strengthening performance management processes through management training and the development and implementation of consistent documentation and methodologies designed to facilitate a robust process for all employees. We schedule performance discussions for all employees each year and establish clearly defined goals and incentive programs to drive employee performance.
Products and Services Since our founding in 1925, we have been delivering a growing portfolio of pool equipment that is differentiated by innovative features and high quality. Our broad portfolio of pool equipment and associated automation systems are connected through built-in IoT capabilities, many of which form part of the SmartPad™ platform of advanced IoT enabled products.
Products are consolidated into containers and shipped to global locations from the United States. Products and Services Since our founding in 1925, we have been delivering a growing portfolio of pool equipment that is differentiated by innovative features and high quality.
“Segments and Related Information” contains information about each segment’s sales, capital expenditures, and depreciation. 6 North America Our North American business segment consists of the United States and Canada. We have residential and commercial field based teams selling directly to specialized pool distributors, large retailers, major builders and specialized online resellers.
North America Our North American business segment consists of the United States and Canada. We have residential and commercial field-based teams selling directly to specialized pool distributors, large retailers, major builders and specialized online resellers. U.S. trade customer shipments are fulfilled from either our East Coast or West Coast distribution centers depending on the customer’s location.
Distributors : The majority of our net sales comes from an authorized network of regional and national distributors who service the pool trade (i.e., builders, retailers and servicers). We have long-standing relationships with these trade customers and we have contractual agreements to support our continued net sales of our products through this channel.
Sales Channels The pool equipment market is served through several sales channels. Distributors : The majority of our net sales come from an authorized network of regional and national distributors who service the pool trade (i.e., builders, retailers and servicers).
U.S. trade customer shipments are fulfilled from either our East Coast or West Coast distribution centers depending on the customer’s location. Canadian trade customers are served through our distribution center in Oakville, Ontario. Europe and Rest of World Our Europe and Rest of World business segment consists of all countries outside of the United States and Canada.
Canadian trade customers are served through our distribution center in Oakville, Ontario. Europe and Rest of World Our Europe and Rest of World business segment consists of all countries outside of the United States and Canada. Europe and Australia make up a sizable portion of this business segment. Europe and Australia have similar sales structures to the United States.
As of December 31, 2022, none of our employees were represented by a union in the United States and we have relationships with works councils in Spain and France. As part of our human capital resource objectives, we seek to attract, retain, develop and reward our employees through a variety of mechanisms.
Our employees are primarily located in the United States, with about 26% employed at our international locations in Canada, Spain, France, Australia and China. As of December 31, 2023, none of our employees were represented by a union in the United States and we have relationships with works councils in Spain and France.
The other 20+ countries in this segment are predominantly served through U.S.-based regional managers who in turn deal through established distributors in each of the markets. Products are consolidated into containers and shipped to global locations from the United States.
Customer shipments in Europe are fulfilled through our France or Spain distribution centers and Australia has its own smaller regional distribution hubs. The other more than 20 countries in this segment are predominantly served through U.S.-based regional managers who in turn deal through established distributors in each of the markets.
Our total number of temporary and contract workers fluctuates due to business cycles during the year. We believe our ability to maintain a flexible, modular workforce enhances our manufacturing capabilities. Our employees are primarily located in the United States, with about 25% employed at our international locations in Canada, Spain, France, Australia and China.
Human Capital Resources As of December 31, 2023, we had approximately 1,875 total full-time equivalent employees of whom approximately 3% are temporary or contract workers. Our total number of temporary and contract workers fluctuates due to business cycles during the year. We believe our ability to maintain a flexible, modular workforce enhances our manufacturing capabilities.
The average wholesale price of equipment per pool typically ranges from $1,800 for entry-level pools to well above $12,000 for premium pools, but equipment is only a fraction of the total pool cost. Approximately 50% of our net sales is derived from non-discretionary products that are essential to operating a residential or commercial pool.
Approximately 50% of our net sales are derived from non-discretionary products that are essential to operating a residential or commercial pool.
Our ESG Steering Committee comprises members of the senior leadership team and meets on a monthly cadence to oversee our ESG efforts.
Our committee in charge of Sustainability comprises members of the senior leadership team and meets on a monthly cadence to oversee our Sustainability efforts. We are committed to transparency and communications to our stakeholders. We maintain a Sustainability section of our website (https://investor.hayward.com) to provide detailed information to interested groups.
Our products perform various core and auxiliary functions to deliver the holistic pool experience for pool owners.
Our broad portfolio of pool equipment and associated automation systems are connected through built-in IoT capabilities, many of which form part of the SmartPad™ platform of advanced IoT enabled products. Our products perform various core and auxiliary functions to deliver the holistic pool experience for pool owners.
Under the early-buy program in 2022, we generally shipped products from October through March and receive payments for these shipments from February through July 2023. 8 Our aim is to keep our manufacturing plants running at a consistent level throughout the year.
We expect to receive payments for most of these shipments during the second quarter of 2024. Our aim is to keep our manufacturing plants running at a consistent level throughout the year. Consequently, we typically build inventory in the first and third quarters and inventory is typically sold-down in the second and fourth quarters.
Our people are fundamental to our long-term business success. We strive to attract, retain, develop and reward our employees by continuously enhancing various employee-focused initiatives while incorporating diversity and inclusivity into our hiring practices. We pride ourselves on our robust and comprehensive OSHA-aligned safety standards and go a step further to create an open feedback culture.
We strive to attract, retain, develop and reward our employees by continuously enhancing various employee-focused initiatives, while incorporating diversity and inclusivity into our hiring practices. Our employee development programs include a variety of skill trainings for our employees to advance in their careers and cultivate leadership from within the Company.
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Europe and Australia make up a sizable portion of this business segment. Europe and Australia have similar sales structures to the United States. Customer shipments in Europe are fulfilled through our France or Spain distribution centers and Australia has its own smaller regional distribution hubs.
Added
As a result of a series of sales of our common stock by certain of the Sponsors, the Sponsors no longer hold a majority of the outstanding shares of our common stock. As a result, we are no longer a “controlled company” within the meaning of the New York Stock Exchange’s corporate governance standards.
Removed
Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise. 9 Human Capital Resources As of December 31, 2022, we had approximately 2,000 total full-time equivalent employees of whom approximately 1% are temporary or contract workers.
Added
In general, there is a base cost of pool equipment for an entry level pool, and equipment on premium pools can exceed 10 times the equipment cost of an entry level pool. Typically, equipment cost is only a fraction of the total pool cost.
Removed
We believe that a healthy environment is necessary for the well-being of our people and our businesses and is the foundation for a sustainable and strong economy.
Added
Builders, Retailers and Servicers (Direct Sales) : We sell to several major builders and retailers. These customers are large in scale and are capable of managing their own demand planning and inventory. Builders and retailers who buy directly from us typically cross geographies beyond what many wholesalers can serve.
Removed
As a leading provider of environmentally friendly and energy efficient products in our industry, we are committed to upholding a mission of sustainability throughout our operations and within our culture. We strive to provide environmentally friendly, innovative, and energy efficient products without compromising our planet, our people, and our principles.
Added
As part of our human capital resource objectives, we seek to attract, retain, develop and reward our employees through a variety of mechanisms, creating a foundation for long-term sustainability as a company.
Removed
In 2022, we established four pillars to guide our approach to ESG based on the results of our assessment of the ESG priorities that are important to our stakeholders: Products, People, Planet, and Principles. We are working to assess our current ESG performance in order to set goals that will guide our continued efforts and progress.
Added
Guiding our strategy and the implementation of Sustainability initiatives are our four pillars: Products, Planet, People and Principles. To enhance our Sustainability performance, we are undertaking an evaluation to set clear, actionable goals for future progress. In our initial steps towards comprehensive sustainability reporting, we published our first data sheet on Sustainability in 2022.
Removed
We are committed to building a community where we all share a common purpose and a collective responsibility to ensure the well-being of individuals and the Company through mutual respect and mutual learning. Hayward has created a global diversity and inclusion platform and strategy focused on creating awareness and to enable our management accountability.
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Our commitment lies in cultivating a community bonded by our shared values: Care, Respect, Lead and Grow, and collective responsibility fostering the well-being of both individuals and the Company through mutual respect and learning. Our people are fundamental to our long-term business success.
Removed
During the twelve months ended December 31, 2022, over 550 employees’ suggestions for improvements have been implemented and we conduct regular town hall meetings. We also are proud of our employee development programs, which include a variety of skill trainings for our employees to advance in their careers and develop leaders from within the Company.
Added
Our regular and transparent performance discussions with all employees also play a pivotal role in maintaining the competitiveness of our compensation and incentive programs, contributing to the sustainable growth for our business. 11 We take pride in our robust, comprehensive OSHA-aligned safety standards and go a step further to create an open feedback culture.
Removed
Our regular and transparent performance discussions with all employees also serve to ensure our compensation and incentive programs remain competitive and ensure sustainable growth for our business. To enable good governance, Hayward’s ESG strategy is governed by our Board of Directors through the Nominating and Corporate Governance Committee.
Added
During the twelve months ended December 31, 2023, we implemented over 680 employees’ suggestions for improvements and regularly hold global town hall meetings. To enable good governance, our Sustainability strategy is governed by our Board of Directors through the Nominating and Corporate Governance Committee.
Removed
In 2022, the Committee on Policy Review and Approvals, revised, adopted and published several key ESG policies, including a management revised 11 Environmental Policy, a revised Supplier Code of Conduct, a revised Human Rights Policy and a new Conflict Minerals Policy. We are committed to transparency and communications to our stakeholders.
Removed
We maintain an ESG section of our website (https://investor.hayward.com/ESG/default.aspx) to provide detailed information to interested groups.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe cannot provide any assurance that we will not incur material costs to comply with such laws and regulations in the future. 21 Our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, uncertain or inconsistent interpretation and enforcement of legal requirements or differing views of personal privacy rights, which may have a material adverse effect on our reputation, business, financial condition and results of operations.
Biggest changeOur handling of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, which may have a material adverse effect on our reputation, business, financial condition and results of operations. We collect, use, store, transmit and otherwise process data that is sensitive to the Company and its employees, customers, dealers and suppliers.
Pool owners are increasingly demanding “smart home” technology, automation and environmentally friendly, sustainable and ethical product features to enhance their pools, and staying at the forefront of product innovation and consumer demand is important to our future success.
Pool owners are increasingly demanding “smart home” technology, automation and environmentally friendly, sustainable and ethical product features to enhance their pools. Staying at the forefront of product innovation and consumer demand is important to our future success.
The outcome of such legal proceedings cannot be predicted with certainty and some may be disposed of unfavorably to us. Regardless of outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
The outcome of such legal proceedings cannot be predicted with certainty, and some may be disposed of unfavorably to us. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
This provision does not apply to claims brought to enforce a duty or liability created by the Exchange Act. Our certificate of incorporation further provides 28 that the federal district courts of the United States of America are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
This provision does not apply to claims brought to enforce a duty or liability created by the Exchange Act. Our certificate of incorporation further provides that the 28 federal district courts of the United States of America are the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
Acquisitions involve numerous other risks, including: • diversion of management time and attention from daily operations; 16 • difficulties integrating acquired businesses, technologies and personnel into our business; • difficulties in obtaining and verifying the financial statements and other data of acquired businesses; • inability to obtain required regulatory approvals; • cybersecurity risk related to the integration of acquired information technology systems; • potential loss of key employees, contractual relationships or customers of acquired companies or of ours; • assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including risks relating to anti-corruption laws such as the FCPA and privacy laws, including the GDPR; and • the incurrence of indebtedness or the dilution of interests of holders of our shares through the issuance of equity securities or equity-linked securities.
Acquisitions involve numerous other risks, including: • diversion of management time and attention from daily operations; • difficulties integrating acquired businesses, technologies and personnel into our business; • difficulties in obtaining and verifying the financial statements and other data of acquired businesses; • inability to obtain required regulatory approvals; • cybersecurity risk related to the integration of acquired information technology systems; • potential loss of key employees, contractual relationships or customers of acquired companies or of ours; • assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including risks relating to anti-corruption laws such as the FCPA and privacy laws, including the GDPR; and • the incurrence of indebtedness or the dilution of interests of holders of our shares through the issuance of equity securities or equity-linked securities.
The prices of these commodity materials 20 are a function of, among other things, manufacturing capacity and demand. While we have generally passed through raw material price increases to our consumers, we may not always be able to do so. We purchase most of our key parts and components primarily from large suppliers in the United States, Mexico and China.
The prices of these commodity materials are a function of, among other things, manufacturing capacity and demand. While we have generally passed through raw material price increases to our consumers, we may not always be able to do so. We purchase most of our key parts and components primarily from large suppliers in the United States, Mexico and China.
Pending and future patent applications may not result in patents being issued that protect our products or which effectively prevent others from commercializing competitive technologies and products. Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Even once issued, the issuance, scope, validity, enforceability, and commercial value of patent rights are uncertain.
Pending and future patent applications may not result in patents being issued that protect our products or which effectively prevent others from commercializing competitive technologies and products. Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Even once issued, the scope, validity, enforceability and commercial value of patent rights are uncertain.
We compete based on brand recognition with pool owners, strong relationships with our distributors and resellers, and the loyalty of our builders and servicers with whom we have built a large installed base. In addition, we compete based on our technical innovation, intellectual property, reputation for providing quality and reliable products, competitive pricing and contractual terms.
We compete based on brand recognition with pool owners, strong relationships with our distributors and resellers, and the loyalty of our builders and servicers with whom we have built a large installed 13 base. In addition, we compete based on our technical innovation, intellectual property, reputation for providing quality and reliable products, competitive pricing and contractual terms.
However, these actions may not be successful in managing our costs or increasing our productivity. Continued cost inflation or failure of our initiatives to generate cost savings or improve productivity could have a material adverse effect on our business, financial condition, results of operations and cash flows.
However, these actions may not be successful in managing our costs or increasing our productivity. Continued cost inflation or the failure of our initiatives to generate cost savings or improve productivity could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Further, any patents that we hold or in-license may be challenged, narrowed, circumvented, or invalidated by third parties, and this could allow others to commercialize our technology or products and compete directly with us or result in our inability to manufacture or commercialize products without infringing third-party rights.
Further, any patents that we hold or in-license may be challenged, narrowed, circumvented or invalidated by third parties, and this could allow others to commercialize our 24 technology or products and compete directly with us or result in our inability to manufacture or commercialize products without infringing third-party rights.
Taxation and tax policy changes, tax rate changes, new tax laws, revised tax law interpretations, and changes in accounting standards and guidance related to tax matters may cause fluctuations in our effective tax rate. Our effective tax rate may also be impacted by changes in the geographic mix of our earnings. We may experience cost and other inflation.
Taxation and tax policy changes, tax rate changes, new tax laws, revised tax law interpretations and changes in accounting standards and guidance related to tax matters may cause fluctuations in our effective tax rate. In addition, our effective tax rate may also be impacted by changes in the geographic mix of our earnings. We may experience cost and other inflation.
If we are unable to attract, hire and retain qualified personnel, our operating results could be adversely affected. 18 Disruptions in the financial markets could adversely affect us, our customers, consumers and suppliers by increasing funding costs or reducing availability of credit.
If we are unable to attract, hire and retain qualified personnel, our operating results could be adversely affected. Disruptions in the financial markets could adversely affect us, our customers, consumers and suppliers by increasing funding costs or reducing the availability of credit.
Payments to us by our subsidiaries will be contingent upon our subsidiaries’ earnings and other business considerations and may be subject to statutory or contractual restrictions. We do not currently expect to declare or pay dividends on our common stock for the foreseeable future.
Payments to us by our subsidiaries will be contingent upon our subsidiaries’ earnings and other business considerations and may be subject 27 to statutory or contractual restrictions. We do not currently expect to declare or pay dividends on our common stock for the foreseeable future.
As such, our future success depends in large part on our ability to attract, train, retain, and motivate qualified personnel. For example, during periods of unexpected demand for our products, we may need to hire additional personnel to maintain sufficient inventory levels.
As such, our future success depends in large part on our ability to attract, train, retain, and motivate qualified personnel. For example, 18 during periods of unexpected demand for our products, we may need to hire additional personnel to maintain sufficient inventory levels.
Furthermore, disputes with our licensors, or future negotiations with respect to such licenses, may result in the termination or modification of such license agreements, which could eliminate our ability to exclusively develop and commercialize products covered by these license agreements or at all.
Furthermore, disputes with our licensors, or 25 future negotiations with respect to such licenses, may result in the termination or modification of such license agreements, which could eliminate our ability to exclusively develop and commercialize products covered by these license agreements or at all.
We operate in markets with high levels of competition, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products. 13 The markets for our products are geographically diverse and highly competitive.
We operate in markets with high levels of competition, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products. The markets for our products are geographically diverse and highly competitive.
If we are not able to identify alternate sources of supply for the components, we might need to modify our product to use substitute components, which could cause delays in shipments, increase design and manufacturing costs and increase prices for our products.
If we are not able to identify alternate sources of supply for the 20 components, we might need to modify our product to use substitute components, which could cause delays in shipments, increase design and manufacturing costs and increase prices for our products.
We may not be able to identify suitable acquisition candidates, obtain financing or have sufficient cash necessary for acquisitions in the future. Acquisitions may involve significant cash expenditures, debt incurrences, equity issuances, operating losses and expenses.
We may not be able to identify suitable acquisition candidates, obtain financing or have sufficient 16 cash necessary for acquisitions in the future. Acquisitions may involve significant cash expenditures, debt incurrences, equity issuances, operating losses and expenses.
These risks include: • adverse changes in general economic and political conditions in countries where we operate, particularly in emerging markets; • the imposition of tariffs, duties, exchange controls, licensing requirements and restrictions or other trade restrictions; • geopolitical conflicts, including sanctions imposed in response to geopolitical conflicts; • changes in tax treaties, laws or rulings that could have a material adverse impact on our effective tax rate; • the difficulty of enforcing agreements and collecting receivables through non-U.S. legal systems; • the difficulty of communicating and monitoring evolving standards and directives across our product lines, services, and global facilities; • the threat of nationalization and expropriation and limitations on repatriation of earnings or other regionally-imposed capital requirements; • difficulty in staffing and managing widespread operations in non-U.S. labor markets; • the difficulty of protecting intellectual property and other proprietary rights in non-U.S. countries; and • changes in and required compliance with a variety of non-U.S. laws and regulations.
These risks include: • adverse changes in general economic and political conditions in countries where we operate, particularly in emerging markets; • the imposition of tariffs, duties, exchange controls, licensing requirements and restrictions or other trade restrictions; • geopolitical conflicts, including sanctions imposed in response to geopolitical conflicts, may be unpredictable; • changes in tax treaties, laws or rulings that could have a material adverse impact on our effective tax rate; • the difficulty of enforcing agreements and collecting receivables through non-U.S. legal systems; • the difficulty of communicating and monitoring evolving standards and directives across our product lines, services, and global facilities; • the threat of nationalization and expropriation and limitations on repatriation of earnings or other regionally-imposed capital requirements; • difficulty in staffing and managing widespread operations in non-U.S. labor markets; • the difficulty of protecting intellectual property and other proprietary rights in non-U.S. countries; and • changes in and required compliance with a variety of non-U.S. laws and regulations.
Our certificate of incorporation, as currently amended (“our certificate of incorporation”), provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware is, to the fullest extent permitted by applicable law, the sole and exclusive forum for certain types of claims, including any derivative claim brought in the right of the Company, any claim asserting a breach of a fiduciary duty to the Company or the Company’s stockholders owed by any current or former director, officer or other employee or stockholder of the Company, any claim against the Company arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), our certificate of incorporation or our amended and restated bylaws, any claim to interpret, apply, enforce or determine the validity of our certificate of incorporation or our amended and restated bylaws, any claim against the Company governed by the internal affairs doctrine, and any other claim, not subject to exclusive federal jurisdiction and not asserting a cause of action arising under the Securities Act of 1933, as amended.
Our certificate of incorporation, as currently amended (our “certificate of incorporation”), provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware is, to the fullest extent permitted by applicable law, the sole and exclusive forum for certain types of claims, including any derivative claim brought in the right of the Company, any claim asserting a breach of a fiduciary duty to the Company or the Company’s stockholders owed by any current or former director, officer or other employee or stockholder of the Company, any claim against the Company arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our amended and restated bylaws, any claim to interpret, apply, enforce or determine the validity of our certificate of incorporation or our amended and restated bylaws, any claim against the Company governed by the internal affairs doctrine, and any other claim, not subject to exclusive federal jurisdiction and not asserting a cause of action arising under the Securities Act of 1933, as amended.
The agreements governing our outstanding indebtedness contain a number of restrictive covenants that impose operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including, among other things, restrictions on our ability to: • incur additional indebtedness; 26 • create liens on assets; • declare or pay certain dividends and other distributions; • make certain investments, loans, guarantees or advances; • consolidate, amalgamate, merge, sell or otherwise dispose of all or substantially all of our assets; and • enter into certain transactions with our affiliates; In addition, the ABL Facility contains a financial covenant requiring us to maintain specified fixed charge coverage ratio during the specified periods described therein.
The agreements governing our outstanding indebtedness contain several restrictive covenants that impose operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including, among other things, restrictions on our ability to: • incur additional indebtedness; • create liens on assets; • declare or pay certain dividends and other distributions; • make certain investments, loans, guarantees or advances; • consolidate, amalgamate, merge, sell or otherwise dispose of all or substantially all of our assets; and • enter into certain transactions with our affiliates; In addition, the ABL Facility contains a financial covenant requiring us to maintain a specified fixed charge coverage ratio during the specified periods described therein.
Our ability to satisfy product demand driven by our sales and marketing efforts will be largely dependent on the ability to maintain a commercially viable manufacturing process that is compliant with regulatory standards. Failure to manufacture, market and sell our planned or future products could have a material adverse effect on our business, financial condition, and results of operations.
Further, our ability to satisfy product demand driven by our sales and marketing efforts will be largely dependent on our ability to maintain a commercially viable manufacturing process that is compliant with regulatory standards. Failure to manufacture, market and sell our planned or future products could have a material adverse effect on our business, financial condition, and results of operations.
Historically, we have experienced substantial sales growth through organic market share gains, geographic expansion, technological innovation, new product offerings, increased demand for outdoor living products and acquisitions that have increased our size, scope, and geographic footprint. In particular, residential pool equipment sales increased during the first two years of the COVID-19 pandemic.
Historically, we have experienced substantial sales growth through organic market share gains, geographic expansion, technological innovation, new product offerings, increased demand for outdoor living products and acquisitions that have increased our size, scope and geographic footprint. During the first two years of the COVID-19 pandemic, residential pool equipment sales increased.
While we have manufacturing and supply agreements with the most strategic and critical of our suppliers, for most of our suppliers we place purchase orders on an as-needed basis. Our suppliers could discontinue the manufacturing or supply of these components at any time. We carry safety stocks within our inventory, but these may not suffice to meet our needs.
Although we have manufacturing and supply agreements with the most strategic and critical of our suppliers, for most of our suppliers we place purchase orders on an as-needed basis. Our suppliers could discontinue the manufacturing or supply of these components at any time. We carry safety stocks within our inventory, but these may not suffice to meet our needs.
A substantial majority of our outstanding accounts receivables are not covered by collateral, third-party bank support or financing arrangements, or credit insurance, and a significant portion of our accounts receivables are typically concentrated within a relatively small number of distributors, builders, buying groups, retailers and servicers.
A substantial majority of our outstanding accounts receivables are not covered by collateral, third- 15 party bank support or financing arrangements, or credit insurance. Further, a significant portion of our accounts receivables are typically concentrated within a relatively small number of distributors, builders, buying groups, retailers and servicers.
We are in the process of implementing a new ERP system for a majority of our business as part of our ongoing efforts to improve and strengthen our operational and financial processes and our reporting systems. In addition, we are implementing a human resources information system, which is designed to improve the efficiency of our global HR process.
We are in the process of implementing a new ERP system for most of our business as part of our ongoing efforts to improve and strengthen our operational and financial processes and our reporting systems. In addition, we are implementing a human resources information system, which is designed to improve the efficiency of our global HR process.
We have been, and in the future may be, made a party to litigation arising in the ordinary course of our business, including those relating to commercial or contractual disputes with suppliers, customers or parties to acquisitions and divestitures, intellectual property matters, product liability, the use or installation of our products, consumer matters, employment and labor matters, and environmental, health and safety matters, including claims based on alleged exposure to asbestos-containing product components.
We have been, and in the future may be, made a party to litigation arising in the ordinary course of our business, including those relating to commercial or contractual disputes with suppliers, customers or parties to acquisitions and divestitures, intellectual property matters, product liability, the use or installation of our products, consumer matters, employment and labor matters, violations of securities laws and environmental, health and safety matters, including claims based on alleged exposure to asbestos-containing product components.
In addition, seasonal effects in our business may vary from year to year and be impacted by weather patterns, particularly by temperature, heavy flooding and droughts, which patterns may become less predictable as a result of climate change.
In addition, seasonal effects in our business may vary from year to year and be impacted by weather patterns, particularly by temperature, heavy flooding and droughts, which patterns may become less predictable and more extreme as a result of climate change.
In the past, we have experienced material cost and other inflation in a number of our businesses. 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.
In the past, we have experienced material cost and other inflation in several of our businesses. 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.
There is growing concern that a gradual increase in global average temperatures as a result of increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters.
There is growing concern that a gradual increase in global average temperatures as a result of increased concentration of greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters.
For the Fiscal Year 2022, approximately 20% of our net sales were made by our international operating locations that use a functional currency other than the U.S. dollar. These sales were primarily transacted in Euros as well as Canadian dollars. Consequently, we are exposed to the impact of exchange rate volatility between the U.S. dollar and these currencies.
For the Fiscal Year 2023, approximately 17% of our net sales were made by our international operating locations that use a functional currency other than the U.S. dollar. These sales were primarily transacted in Euros as well as Canadian dollars. Consequently, we are exposed to the impact of exchange rate volatility between the U.S. dollar and these currencies.
If operations at any of our manufacturing facilities were to be disrupted as a result of significant equipment failures, natural or man-made disasters, earthquakes, power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes, public health epidemics (such as the COVID-19 pandemic) or other catastrophic events or events outside of our control, we may be unable to fill customer orders and otherwise meet customer demand for our products.
If operations at any of our manufacturing facilities were to be disrupted as a result of significant equipment failures, natural or man-made disasters, earthquakes, power outages, fires, explosions, terrorism, adverse weather conditions, labor disputes, public health epidemics or other catastrophic events or events outside of our control, we may be unable to fill customer orders and otherwise meet customer demand for our products.
We have invested and intend to continue to invest in programs designed to enhance sales to distributors, builders, buying groups, retailers and servicers, including through volume rebates with key distributors. However, these programs may not be successful in retaining or increasing product purchases by these customers.
We have invested and intend to continue to invest in programs designed to enhance sales to distributors, builders, buying groups, retailers and servicers, including through volume rebates with key distributors. However, these programs may not be successful in retaining or increasing product purchases by these customers or in maintaining or increasing our net income.
We are exposed to political, regulatory, economic, trade, and other risks that arise from our international business operations, including the risks associated with geopolitical conflicts. Sales outside of the United States for Fiscal Year 2022 accounted for approximately 25% of our net sales.
We are exposed to political, regulatory, economic, trade and other risks that arise from our international business operations, including the risks associated with geopolitical conflicts. Sales outside of the United States for Fiscal Year 2023 accounted for approximately 23% of our net sales.
Even in generally favorable economic conditions, severe and/or prolonged downturns in the housing market could have a material adverse impact on our financial performance. In addition, we believe that homeowners’ access to consumer credit is a critical factor enabling the purchase of new pools and related products. In response to increasing inflation, the U.S.
Even in generally favorable economic conditions, severe and/or prolonged downturns in the housing market could have a material adverse impact on our financial performance. In addition, we believe that homeowners’ access to consumer credit is a critical factor enabling the purchase of new pools and related products.
We cannot assure that these and other factors will not have a material adverse effect on our international operations or on our business as a whole. We may not be able to identify, finance and complete suitable acquisitions, and any completed acquisitions may be unsuccessful or consume significant resources. Our business strategy includes acquiring businesses that complement our existing businesses.
We cannot provide assurance that these and other factors will not have a material adverse effect on our international operations or on our business. We may not be able to identify, finance and complete suitable acquisitions, and any completed acquisitions may be unsuccessful or consume significant resources. Our business strategy includes acquiring businesses that complement our existing businesses.
While we have procedures to monitor and limit exposure to credit risk on our accounts receivable, there can be no assurance such procedures will 15 effectively limit our credit risk and avoid losses.
Although we have procedures to monitor and limit exposure to credit risk on our accounts receivable, there can be no assurance such procedures will effectively limit our credit risk and avoid losses.
A significant disturbance or breach of our technological infrastructure, or those of our vendors or others with which we do business, could adversely affect our financial condition and results of operations. Additionally, failure to maintain the security of confidential information could damage our reputation and expose us to litigation.
We rely on information technology systems to support our business operations. A significant disturbance or breach of our technological infrastructure, or those of our vendors or others with which we do business, could adversely affect our financial condition and results of operations. Additionally, failure to maintain the security of confidential information could damage our reputation and expose us to litigation.
In addition to our Sponsors’ beneficial ownership of a substantial percentage of our common stock, provisions in our certificate of incorporation and bylaws and Delaware law could make it harder for a third party to acquire us, even if doing so might be beneficial to our stockholders, and could also make it difficult for stockholders to elect directors that are not nominated by the current members of our Board of Directors or take other corporate actions, including effecting changes in our management.
Provisions in our certificate of incorporation and bylaws and Delaware law could make it harder for a third party to acquire us, even if doing so might be beneficial to our stockholders, and could also make it difficult for stockholders to elect directors that are not nominated by the current members of our Board of Directors or take other corporate actions, including effecting changes in our management.
These systems may not provide the benefits anticipated, could add costs and complications to ongoing operations, and may impact our ability to process transactions efficiently, all of which may have a material adverse effect on our business and results of operations. We rely on information technology systems to support our business operations.
These systems may not provide the benefits anticipated, could add costs and complications to ongoing operations, and may impact our ability to process transactions efficiently, all of which may have a material adverse effect on our business and results of operations.
If we increase our total indebtedness, our debt service obligations, and our exposure to the risks described above, will increase. As of December 31, 2022, we had approximately $208.4 million of undrawn lines of credit available under the ABL Facility, subject to certain conditions, including compliance with certain financial covenants.
If we increase our total indebtedness, our debt service obligations, and our exposure to the risks described above, will increase. As of December 31, 2023, we had approximately $256.5 million of undrawn lines of credit available under the ABL Facility, subject to certain conditions, including compliance with certain financial covenants.
A weak economy may also cause pool owners to defer replacement and refurbishment activity or upgrades to new pool equipment, including newer technologies, or to purchase less expensive brands, and historically our aftermarket product sales have comprised a majority of our net sales.
A weak economy may also cause pool owners to defer replacement and refurbishment activity or upgrades to new pool equipment, or to purchase less expensive brands, and historically our aftermarket product sales have comprised most of our net sales.
This increase in demand occurred broadly across all of our product lines as consumers refocused attention on improving the quality of the homeowner’s outdoor living experience. In addition, because of channel customer expectations with respect to increased lead- 14 times during the COVID-19 pandemic resulting from supply chain shortages, demand for our products was partially accelerated.
This increase in demand was experienced broadly across all of our product lines as consumers refocused their attention on improving the quality of the homeowner’s outdoor living experience. In addition, because of channel customer expectations with respect to increased lead- 14 times during the COVID-19 pandemic, demand for our products was partially accelerated.
As of December 31, 2022, our largest customer represented approximately 30% of our accounts receivable. Furthermore, our exposure to credit and collectability risk on our accounts receivable is higher in certain international markets and our ability to mitigate such risks are limited.
As of December 31, 2023, our largest customer represented approximately 38% of our accounts receivable. In addition, our exposure to credit and collectability risk on our accounts receivable is higher in certain international markets and our ability to mitigate such risks are limited.
Our certificate of incorporation will also impose some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock other than our Sponsors.
Our certificate of incorporation also imposes certain restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock other than our Sponsors.
Our suppliers (and those they depend upon for materials and services) are subject to risks, including labor disputes or constraints, union organizing activities, financial liquidity, inclement weather, public health epidemics (such as the COVID-19 pandemic), natural disasters, significant public health and safety events, supply constraints, and general economic and political conditions that could limit their ability to provide us with materials.
Our suppliers (and those they depend upon for materials and services) are subject to risks, including labor disputes or constraints, union organizing activities, financial liquidity, inclement weather, public health epidemics, natural disasters, significant public health and safety events, supply constraints, and general economic and political conditions that could limit their ability to provide us with materials at acceptable prices or at all.
As of December 31, 2022, we held approximately 209 issued U.S. patents and 231 issued foreign patents relating to our technologies, such as pumps, filters, heaters, drains and white goods, robotic cleaners, in-floor cleaning systems, lights, automation and controls, sanitization, valves and flow control, and IoT and other technologies, as well as approximately 135 U.S. trademark registrations and 714 foreign trademark registrations covering our marks, brands and products.
As of December 31, 2023, we held approximately 207 issued U.S. patents and 241 issued foreign patents relating to our technologies, such as pumps, filters, heaters, drains and white goods, robotic cleaners, in-floor cleaning systems, lights, automation and controls, sanitization, valves and flow control, and IoT and other technologies, as well as approximately 134 U.S. trademark registrations and 711 foreign trademark registrations covering our marks, brands and products.
Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information.
The CCPA, for example, requires covered companies to provide certain disclosures to California consumers and provide such consumers data protection and privacy rights, including the ability to opt-out of certain sales of personal information.
Since the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until after they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until after they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. The development of artificial intelligence technologies may exacerbate these risks.
Any of the above factors, individually or in the aggregate, or a significant or sustained downturn in a specific end market or geographic region could reduce demand for our products, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Any of the above factors, individually or in the aggregate, could reduce demand for our products, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
As of December 31, 2022, we also held approximately 59 pending U.S. patent applications, 78 pending foreign patent applications, 9 pending U.S. trademark applications and 41 pending foreign trademark applications. See “Business—Intellectual Property.” In addition, we have in-licensed patents and patent applications to certain technologies incorporated in our products.
As of December 31, 2023, we also held approximately 50 pending U.S. patent applications, 68 pending foreign patent applications, 14 pending U.S. trademark applications and 42 pending foreign trademark applications. See “Business—Intellectual Property.” In addition, we have in-licensed patents and patent applications to certain technologies incorporated in our products.
Declines in value could result in future goodwill and intangible asset impairment charges. 17 Exchange rate fluctuations could adversely affect our financial condition, results of operations and cash flows. We incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the local currency of the transacting entity.
Exchange rate fluctuations could adversely affect our financial condition, results of operations and cash flows. We incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the local currency of the transacting entity.
Violations of these laws may require costly investigations, self-disclosure to government agencies and result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.
Violations of these laws may require costly investigations, self-disclosure to government agencies and result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, financial condition, results of operations and cash flows. 23 Our failure to satisfy international trade compliance regulations, and changes in U.S. government sanctions, could have a material adverse effect on us.
If our remediation of these material weaknesses is not effective, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately or timely report our financial condition or results of operations or prevent fraud, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
Increasingly, strict restrictions and limitations have resulted in higher costs for us and it is possible that the costs of compliance with such laws and regulations will continue to increase.
Increasingly, strict restrictions and limitations have resulted in higher costs for us and it is possible that the costs of compliance with such laws and regulations will continue to increase. We cannot provide any assurance that we will not incur material costs to comply with such laws and regulations in the future.
Our future success depends on developing, manufacturing and attaining market adoption of new products. Even if we are able to attain significant market acceptance of our planned or future products, the commercial success of these products is not guaranteed.
Our future success depends on developing, manufacturing and attaining market adoption of new products. Even if we attain significant market acceptance of our planned or future products, the commercial success of these products is not guaranteed. Our future financial success will depend substantially on our ability to develop, manufacture and effectively and profitably market and sell our future new products.
Our policy mandates strict compliance with U.S. and non-U.S. trade laws applicable to our products, including investigating allegations of improper activity and, if warranted, reporting our findings to the relevant governmental authorities.
From time to time, we obtain or receive information alleging improper activity in connection with imports or exports. Our policy mandates strict compliance with U.S. and non-U.S. trade laws applicable to our products, including investigating allegations of improper activity and, if warranted, reporting our findings to the relevant governmental authorities.
Although the terms of the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, such restrictions are subject to a number of important exceptions and indebtedness incurred in compliance with such restrictions could be substantial. If we and our restricted subsidiaries incur significant additional indebtedness, the related risks that we face could increase.
Although the terms of the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, such restrictions are subject to a number of important exceptions and indebtedness incurred 26 in compliance with such restrictions could be substantial.
A majority of our net sales is generated from sales to distributors, including our largest customer, Pool Corporation, who represented approximately 35% of our net sales in Fiscal Year 2022 and approximately 30% of our accounts receivable on December 31, 2022.
Most of our net sales are generated from sales to distributors, including our largest customer, Pool Corporation, who represented approximately 36% of our net sales in Fiscal Year 2023 and approximately 38% of our accounts receivable on December 31, 2023.
Also, because the majority of our sales are to distributors whose inventory of our products may vary due to reasons beyond our control, such as end-user demand, supply chain lead times and macroeconomic factors, our revenue may fluctuate from period-to-period.
In addition, cash flow is higher in the second quarter as the seasonality of our business peaks and payments are received. Also, because most of our sales are to distributors whose inventory of our products may vary due to reasons beyond our control, such as end-user demand, supply chain lead times and macroeconomic factors, our revenue may fluctuate from period-to-period.
The impacts of climate change and legal or regulatory initiatives to address climate change could have a long-term adverse impact on our business and results of operations. 23 Risks Related to Intellectual Property Matters If we are unable to adequately obtain and maintain our intellectual property and proprietary rights or if we are accused of infringing on, misappropriating or otherwise violating the intellectual property of others, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.
Risks Related to Intellectual Property Matters If we are unable to adequately obtain and maintain our intellectual property and proprietary rights or if we are accused of infringing on, misappropriating or otherwise violating the intellectual property of others, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.
As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.
For example, our results of operations have been negatively impacted, and in the future may continue to be negatively impacted, by distributors reducing inventory levels. As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.
While we do not have any other customers that accounted for 10% or more of our net sales in Fiscal Year 2022, we have other customers that are key to the success of our business. Our top five customers accounted for approximately 55% of our net sales in Fiscal Year 2022.
Although we do not have any other customers that accounted for 10% or more of our net sales in Fiscal Year 2023, we have a customer with approximately 10% of our accounts receivable in Fiscal Year 2023, and we have other customers that are key to the success of our business.
Misconduct by these parties could include intentional, reckless, or negligent conduct that violates the rules of the applicable regulatory bodies, manufacturing standards, data privacy laws, or laws that require the complete and accurate reporting of financial information or data. 22 It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations.
It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations.
Department of the Interior may be forced to impose restrictions on water usage in the affected region, which may be severe. In addition, increased energy or compliance costs and expenses as a result of increased legal or regulatory requirements may cause disruptions in, or an increase in the costs associated with, the manufacturing and distribution of our products.
In addition, increased energy or compliance costs and expenses as a result of increased legal or regulatory requirements may cause disruptions in, or an increase in the costs associated with, the manufacturing and distribution of our products.
However, the financial condition of these resellers could weaken, they could stop distributing our products or reduce sales of our products and prefer others, or uncertainty regarding demand for some or all of our products could cause them to reduce their ordering and marketing of our products, and as a result our business, financial condition, results of operations and cash flows could be materially impacted.
Further, uncertainty regarding demand for our products could cause them to reduce their ordering and marketing of our products. As a result, our business, financial condition, results of operations and cash flows could be materially impacted.
Our concentration of sales to a relatively small number of larger customers makes our relationship with each of these customers important to our business. Our success is dependent on retaining these customers, which requires us to successfully manage relationships and anticipate the needs of our customers in the channels in which we sell our products.
Our success is dependent on retaining these customers, which requires us to successfully manage relationships and anticipate the needs of our customers in the channels in which we sell our products.
Consumer spending is impacted by factors outside of our control, including general economic conditions, rising interest rates, the residential housing market, unemployment rates and wage levels, inflation, disposable income levels, consumer confidence, and access to credit.
Consumer spending is impacted by factors outside of our control, including general economic and geopolitical conditions, interest rates, the residential housing market, unemployment rates and wage levels, inflation, disposable income levels, consumer confidence, and access to credit. In economic downturns, the demand for swimming pool equipment products and the growth rate of pool-eligible households and swimming pool construction may decline.
For example, the California Internet of Things Security Law, effective January 1, 2020, requires us to implement reasonable security measures for IoT devices, and failure to do so could expose us to investigation by the California Attorney General. 19 Risks Related to the Manufacturing, Supply and Distribution of Our Products We depend on suppliers, including single-source suppliers and, in a few cases, sole-source suppliers, to consistently supply us with components for our products, and any failure to procure such components could have a material adverse effect on our business, product inventories, sales and profit margins.
Risks Related to the Manufacturing, Supply and Distribution of Our Products We depend on suppliers, including single-source suppliers and, in a few cases, sole-source suppliers, to consistently supply us with components for our products, and any failure to procure such components could have a material adverse effect on our business, product inventories, sales and profit margins.
In the fourth quarter, we incentivize trade customers to buy and stock up in preparation for next year’s pool season under an “early buy” program, which offers a price discount and extended payment terms. Under the 2022 early buy program, we generally ship products from October through March and receive payments for these shipments from February through July 2023.
In the fourth quarter, we incentivize trade customers to buy and stock up in preparation for next year’s pool season under an “Early Buy” program, which features a price discount and extended payment terms.
For example, although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer.
For example, although we take measures to prevent our employees, consultants and advisors from using the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property of others.
We test goodwill and other indefinite-lived intangible assets for impairment on at least an annual basis, and more frequently if circumstances warrant. As of December 31, 2022, our goodwill and intangible assets were $2,005.6 million and represented approximately 70% of our total assets.
We test goodwill and other indefinite-lived intangible assets for impairment on at least an annual basis, and more frequently if circumstances warrant. As of December 31, 2023, our goodwill and intangible assets were 17 $1,971.4 million and represented approximately 67% of our total assets. Declines in value could result in future goodwill and intangible asset impairment charges.
The GDPR’s requirements for using and sharing personal information may be operationally costly, and fines of up to 20 million Euros or up to 4% of the annual global revenues of the infringer, whichever is greater, can be imposed for violations. Within the United States, many states are considering adopting, or have already adopted, privacy regulations, including the CCPA.
The GDPR’s requirements for using and sharing personal information may be operationally costly, and fines of up to 20 million Euros or up to 4% of the annual global revenues of the infringer, whichever is greater, can be imposed for 22 violations. Similarly, the regulations of many U.S. states may impose obligations and potential liability on us.
In addition, under our asset-based lending facility (the “ABL Facility”), we have revolving loan commitments of up to $425.0 million, with a peak season commitment of $475.0 million. As of December 31, 2022, the loan balance on the ABL Facility was zero.
In addition, under our asset-based lending facility (the “ABL Facility”), we may borrow up to an additional $425.0 million, and up to $475.0 million under certain circumstances. As of December 31, 2023, the loan balance on the ABL Facility was zero.
As of December 31, 2022, the Company’s indebtedness totaled approximately $1,121.0 million, including $1,109.7 million under our first lien term loan facility, $6.7 million of finance lease obligations, and $4.6 million of other long-term debt.
Risks Related to Our Indebtedness Our indebtedness could adversely affect our financial condition. As of December 31, 2023, the Company’s indebtedness totaled approximately $1,111.9 million, including $1,098.4 million under our first lien term loan facility, $4.7 million of finance lease obligations and $8.8 million of other long-term debt.
Unfavorable changes in the ratings that rating agencies assign to our debt may ultimately negatively impact our access to the debt capital markets and increase the costs we incur to borrow funds. 27 Risks Related to our Corporate Structure Our Sponsors have significant influence over us.
Unfavorable changes in the ratings that rating agencies assign to our debt may ultimately negatively impact our access to the debt capital markets and increase the costs we incur to borrow funds. Risks Related to our Corporate Structure Provisions in our charter documents and Delaware law may deter takeover efforts that stockholders may believe to be beneficial to stockholder value.
Consumer purchasing behavior may also shift by product mix in the market or result in a shift to new distribution channels, including e-commerce, which is a rapidly developing area.
For example, our results of operations have been negatively impacted, and in the future may continue to be negatively impacted, by customer decisions to reduce inventory levels. Consumer purchasing behavior may also shift by product mix in the market or result in a shift to new distribution channels, including e-commerce, which is a rapidly developing area.
Failure to obtain the right to use third-party intellectual property could force us to develop alternative approaches that do not violate such intellectual property rights or preclude us from making use of some of the affected products. 24 If we fail to successfully enforce our intellectual property rights or register new patents, our competitive position could suffer, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If we fail to successfully enforce our intellectual property rights or register new patents, our competitive position could suffer, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Consequently, we may not be able to prevent third parties from utilizing our patented technologies outside the United States or exporting otherwise infringing products to territories where we have patent protection and competing with our products. 25 Risks Related to Our Indebtedness Our indebtedness could adversely affect our financial condition.
For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from utilizing our patented technologies outside the United States or exporting otherwise infringing products to territories where we have patent protection and competing with our products.
Federal Reserve began to raise interest rates in March 2022 and signaled it expects additional rate increases in the future. Rising interest rates and tightening of credit markets limits the ability of home owners to access financing for new swimming pools and related supplies, and consequently, replacement, repair and operation of equipment, which could negatively impact our product sales.
High interest rates and tightened credit markets limit the ability of homeowners to access financing for new swimming pools and related supplies, and consequently, replacement, repair and operation of equipment, which could negatively impact our product sales.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES The Company’s corporate headquarters is located on leased premises in Charlotte, North Carolina. As part of the relocation of the corporate headquarters, the Company also has leased premises in Berkeley Heights, New Jersey. We own four of our seven global manufacturing facilities and two of our eleven global distribution facilities.
Biggest changeITEM 2. PROPERTIES The Company’s corporate headquarters is located on leased premises in Charlotte, North Carolina. We own four of our six global manufacturing facilities and one of our eight global distribution facilities. All the other facilities are leased, except for two locations operated by third-party logistics providers, which are provided under service agreements.
We do not believe that any single lease is material to our operations. 31 The following is a summary of our principal properties as of December 31, 2022, including manufacturing, distribution, warehouse, and corporate offices: No. of Facilities Location Manufacturing Distribution Warehouse Corporate Headquarters North America Arizona 0 1 0 0 North Carolina 1 1 4 1 Rhode Island 1 1 1 0 Tennessee 1 1 3 0 Canada 0 1 0 0 Europe and Rest of World Australia 0 4 0 0 China 1 0 0 0 France 0 1 0 0 Spain 3 1 0 0 We believe that our facilities as well as the related machinery and equipment, are well maintained and suitable for their purpose and are adequate to support our businesses.
The following is a summary of our principal properties as of December 31, 2023, including manufacturing, distribution, warehouse, and corporate offices: No. of Facilities Location Manufacturing Distribution Warehouse Corporate Headquarters North America Arizona 0 1 0 0 North Carolina 1 1 1 1 Rhode Island 1 0 1 0 Tennessee 1 0 3 0 Canada 0 1 0 0 Europe and Rest of World Australia 0 4 0 0 China 1 0 0 0 France 0 1 0 0 Spain 2 0 1 0 31 We believe that our facilities as well as the related machinery and equipment, are well maintained and suitable for their purpose and are adequate to support our business.
All of the other facilities are leased, except for three locations operated by third-party logistics providers, which are provided under service agreements. Most of our leases contain renewal options, some of which involve rent increases. In addition to minimum rental payments, which are set at competitive rates, certain leases require reimbursement for taxes, maintenance and insurance.
Most of our leases contain renewal options, some of which involve rent increases. In addition to minimum rental payments, which are set at competitive rates, certain leases require reimbursement for taxes, maintenance and insurance. We do not believe that any single lease is material to our operations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe believe that the outcome of such other litigation and legal proceedings will not have a material adverse effect on our financial condition, results of operations and cash flows.
Biggest changeWe believe that the outcome of such other litigation and legal proceedings will not have a material adverse effect on our business, financial condition, results of operations and cash flows.
Added
These proceedings could relate to commercial or contractual disputes with suppliers, customers or parties to acquisitions and divestitures, intellectual property matters, product liability, the use or installation of our products, consumer matters, employment and labor matters, and environmental, safety and health matters, including claims based on alleged exposure to asbestos-containing product components.
Added
On August 2, 2023, a securities class action complaint was filed in the United States District Court for the District of New Jersey against the Company and certain of our current directors and officers (Kevin Holleran and Eifion Jones) and MSD Partners and CCMP Capital Advisors, LP on behalf of a putative class of stockholders who acquired shares of our common stock between March 2, 2022 and July 27, 2022.
Added
That action is captioned City of Southfield Fire and Police Retirement System vs. Hayward Holdings, Inc., et al., 2:23-cv-04146-WJM-ESK (D.N.J.) (“City of Southfield”).
Added
On September 28, 2023, a second, related securities class action complaint was filed in the United States District Court for the District of New Jersey against the Company and certain of our current directors and officers (Kevin Holleran and Eifion Jones) and MSD Partners and CCMP Capital Advisors, LP on behalf of a putative class of stockholders who acquired shares of our common stock between October 27, 2021 and July 28, 2022.
Added
That action is captioned Erie County Employees’ Retirement System vs. Hayward Holdings, Inc., et al., 2:23-cv-04146-WJM-ESK (D.N.J.) (“Erie County”). On December 19, 2023, the Court issued a ruling consolidating the two securities class actions (City of Southfield and Erie County) under the City of Southfield docket (the “Securities Class Action”) and appointing a lead plaintiff.
Added
The Securities Class Action alleges, among other things, that the Company and certain of our current directors and officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other things, making materially false or misleading statements regarding growth and demand trends following our initial public offering in March 2021.
Added
The Securities Class Action seeks unspecified monetary damages on behalf of a putative class and an award of costs and expenses, including reasonable attorneys’ fees. On November 27, 2023, a shareholder derivative lawsuit was filed in the United States District Court for the District of New Jersey against current and past officers and directors of the Company captioned Heicklen v.
Added
Holleran, et al., 2:23-cv-22649 (D.N.J.) (the “Derivative Action”). The Derivative Action alleges breaches of fiduciary duties to Company stockholders, aiding and abetting breaches of fiduciary duties, unjust enrichment, corporate waste, and violations of Section 10(b) of the Securities Exchange Act of 1934 in connection with the claims in the Securities Class Action.
Added
The Derivative Action seeks recovery of unspecified damages and attorney’s fees and costs, as well as improvements to the Company’s corporate governance and internal procedures. We dispute the allegations of wrongdoing in the Securities Class Action and the Derivative Action and intend to vigorously defend ourselves in these matters.
Added
In view of the complexity and ongoing and uncertain nature of the outstanding proceedings and inquiries, at this time we are unable to estimate a reasonably possible financial loss or range of financial loss, if any, that we may incur to resolve or settle the Securities Class Action and the Derivative Action.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeCollins served in several leadership roles with Textron, including plant manager; director of sourcing; Vice President, Integrated Supply Chain; Vice President, Parts & Services and Vice President, Consumer Business. Rick Roetken has served as President, North America since August 2018. From 2015 until he joined Hayward, Mr.
Biggest changeCollins served in several leadership roles with Textron, including plant manager; director of sourcing; Vice President, Integrated Supply Chain; Vice President, Parts & Services and Vice President, Consumer Business. Susan Canning has served as Senior Vice President, Chief Legal Officer and Corporate Secretary since joining the Company in June 2021. From 2018, until she joined Hayward, Ms.
Collins spent twenty years at Textron Specialized Vehicles, where he served in roles of progressively increasing responsibility, and most recently as the Senior Vice President and General Manager of E-Z-GO. In this role, from 2020 to 2022, John led product management and global sales for Textron’s E-Z-GO and Cushman vehicle lines. Prior to 2020, Mr.
Collins spent twenty years at Textron Specialized Vehicles, where he served in roles of progressively increasing responsibility, and most recently as the Senior Vice President and General Manager of E-Z-GO. In this role, from 2020 to 2022, Mr. Collins led product management and global sales for Textron’s E-Z-GO and Cushman vehicle lines. Prior to 2020, Mr.
Prior to joining Hayward, beginning in 2017, Mr. Holleran served as President and Chief Executive Officer of 32 the Industrial Segment within Textron, Inc. (“Textron”). Textron’s Industrial Segment is composed of Textron Specialized Vehicles, Inc.
Prior to joining Hayward, beginning in 2017, Mr. Holleran served as President and Chief Executive Officer of the Industrial Segment within Textron, Inc. (“Textron”). Textron’s Industrial Segment is composed of Textron Specialized Vehicles, Inc.
He began his financial career with Courtaulds Plc in their European fibers businesses prior to its sale to Akzo Nobel N.V. John Collins has served since May 2022 as the Company’s Senior Vice President, Chief Supply Chain Officer. Prior to joining Hayward, Mr.
He began his financial career with Courtaulds Plc in their European fibers businesses prior to its sale to Akzo Nobel N.V. John Collins has served as Senior Vice President and Chief Commercial Officer since December 2023. Previously he served as the Company’s Senior Vice President, Chief Supply Chain Officer. Prior to joining Hayward, Mr.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS Information concerning our executive officers is set forth below: Name Age Position Kevin Holleran 55 President, Chief Executive Officer and Director Eifion Jones 55 Senior Vice President, Chief Financial Officer John Collins 46 Senior Vice President, Chief Supply Chain Officer Rick Roetken 57 President, North America Susan Canning 53 Senior Vice President, Chief Legal Officer and Corporate Secretary Fernando Blasco 48 Vice President, General Manager, Europe & Rest of World Kevin Holleran has served as President, Chief Executive Officer, and Director of the Company since August 2019.
MINE SAFETY DISCLOSURES None. 32 INFORMATION ABOUT OUR EXECUTIVE OFFICERS Information concerning our executive officers is set forth below: Name Age Position Kevin Holleran 56 President, Chief Executive Officer and Director Eifion Jones 56 Senior Vice President, Chief Financial Officer John Collins 47 Senior Vice President, Chief Commercial Officer Susan Canning 54 Senior Vice President, Chief Legal Officer and Corporate Secretary Fernando Blasco 49 Vice President, General Manager, Europe & Rest of World Kevin Holleran has served as President, Chief Executive Officer, and Director of the Company since August 2019.
Removed
Roetken worked as an independent consultant, focusing on M&A, commercial strategies and operational efficiency for building products. Prior to that, from 2010 to 2015, Mr. Roetken served as President of multiple divisions of Masco Corporation (“Masco”), including Masco Cabinetry and Liberty Hardware. Mr. Roetken also served as Vice President of Marketing for Masco’s Delta Faucet business from 2007 to 2010.
Removed
For nineteen years, prior to joining Masco, he was employed with United Technologies, serving in various operations and marketing roles. Susan Canning has served as Senior Vice President, Chief Legal Officer and Corporate Secretary since joining the Company in June 2021. From 2018, until she joined Hayward, Ms.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe graph plots the respective values beginning on March 12 and continuing through December 31, 2022. The closing per-share price of Hayward Holdings, Inc. on March 12, 2021 and December 31, 2022 was $17.00 and $9.40, respectively. Past performance is not necessarily indicative of future performance.
Biggest changeThe graph plots the respective values beginning on March 12 and continuing through December 31, 2023. Past performance is not necessarily indicative of future performance. March 12, 2021 December 31, 2021 December 31, 2022 December 31, 2023 Hayward Holdings, Inc. $100.00 $154.29 $55.29 $80.00 Russell 1000 Stock Index $100.00 $119.96 $97.19 $121.94 S&P 500 Index $100.00 $122.15 $99.95 $126.13
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 (1) (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Program October 2 - November 5, 2022 — — — 400,000,000 November 6 - December 3, 2022 — — — 400,000,000 December 4 - December 31, 2022 — — — 400,000,000 Total — — — 400,000,000 (1) On July 28, 2022, the Company announced that its board of directors renewed the initial authorization of the Share Repurchase Program on July 26, 2022 such that the Company is authorized commencing at that time to repurchase from time to time up to an aggregate of $450 million of its outstanding shares of common stock, with such authorization expiring on July 26, 2025.
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 (1) (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Program October 1 – November 4, 2023 — — — $ 400,000,000 November 5 – December 2, 2023 — — — 400,000,000 December 3 – December 31, 2023 — — — 400,000,000 Total — — — $ 400,000,000 (1) On July 28, 2022, the Company announced that the Board renewed the initial authorization of the Share Repurchase Program on July 26, 2022, such that the Company is authorized commencing at that time to repurchase from time to time up to an aggregate of $450 million of its outstanding shares of common stock, with such authorization expiring on July 26, 2025.
Under the Share Repurchase Program, the Company may purchase shares of its common stock on a discretionary basis from time to time and may be conducted through privately negotiated transactions, including with the Sponsors, as well as through open market repurchase or other means, including through Rule 10b5-1(c) trading plans or through the use of other techniques such as accelerated share repurchases.
Under the Share Repurchase Program, the Company may purchase shares of its common stock on a discretionary basis from time to time, which may be conducted through privately negotiated transactions, including with the Sponsors, as well as through open market repurchase or other means, including through Rule 10b5-1(c) trading plans or through the use of other techniques such as accelerated share repurchases.
The following table sets forth all purchases made by us or on our behalf or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act, of shares of our common stock during each month in the quarter ended December 31, 2022.
The following table sets forth all purchases made by us or on our behalf or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act, of shares of our common stock during each month in the quarter ended December 31, 2023.
The Share Repurchase Program does not obligate the Company to acquire any number of shares in any specific period or at all and may be amended, suspended or discontinued at any time at our discretion.
The Share Repurchase Program does not require the Company to acquire any number of shares in any specific period or at all and may be amended, suspended or discontinued at any time at our discretion.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the symbol “HAYW.” As of December 31, 2022, there were 27 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the symbol “HAYW.” As of February 27, 2024, there were 310 holders of record of our common stock.
Subsequent to the end of the fourth quarter 2022, the Company repurchased zero shares of common stock. CUMULATIVE TOTAL RETURN PERFORMANCE GRAPH Set forth below is a line graph showing the change in the cumulative total shareholder return for our common stock as compared to similar returns for the S&P 500® Index and the Russell 1000® Stock Index.
During Fiscal Year 2023, the Company did not repurchase any shares of common stock. CUMULATIVE TOTAL RETURN PERFORMANCE GRAPH Set forth below is a line graph showing the change in the cumulative total shareholder return for our common stock as compared to similar returns for the S&P 500® Index and the Russell 1000® Stock Index.
We do not currently expect to declare or pay dividends on our common stock for the foreseeable future.
The actual number of stockholders is greater than the number of record holders, and includes stockholders who are beneficial owners, whose shares are held of record by banks, brokers and other financial institutions. We do not currently expect to declare or pay dividends on our common stock for the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(e) 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 our 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 in 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 our manufacturing and administrative facilities in Yuncos, Spain.
Biggest changeAdjustments in the year ended December 31, 2022 primarily 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 our 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 in 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 our manufacturing and administrative facilities in Yuncos, Spain. 46 Following is a reconciliation from income from operations before income taxes to total segment income and adjusted segment income (dollars in thousands): Years Ended December 31, 2023 2022 Income from operations before income taxes $ 101,087 $ 234,237 Expenses not allocated to segments Corporate expense, net 30,147 30,151 Acquisition and restructuring related expense 13,213 8,162 Amortization of intangible assets 30,361 32,129 Interest expense, net 73,584 51,387 Other (income) expense, net 551 (51) Segment income 248,943 356,015 Depreciation 15,550 17,815 Amortization 6,718 6,265 Stock-based compensation (a) 482 (434) Other (b) 503 9,534 Total Adjustments 23,253 33,180 Adjusted segment income $ 272,196 $ 389,195 Adjusted segment income margin 27.4 % 29.6 % (a) Represents non-cash stock-based compensation expense related to equity awards issued to management, employees, and directors.
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.
Segments Our business is organized into two reportable segments: North America (“NAM”) and Europe & Rest of World (“E&RW”). The Company determined its reportable segments based on how the Chief Operating Decision Maker (“CODM”) reviews the Company’s operating results in assessing performance and allocating resources.
Beginning in the three months ended July 2, 2022, 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, whereas in prior periods, the adjustment included stock-based compensation expense for all equity awards.
Beginning in the three months ended July 2, 2022, 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, whereas in prior periods, the adjustment included stock-based compensation expense for all equity awards.
Beginning in the three months ended July 2, 2022, 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, whereas in prior periods, the adjustment included stock-based compensation expense for all equity awards.
Beginning in the three months ended July 2, 2022, 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, whereas in prior periods, the adjustment included stock-based compensation expense for all equity awards.
Adjusted EBITDA is defined as EBITDA further adjusted for the impact of restructuring related income or expenses, stock-based compensation, currency exchange items and certain non-cash, nonrecurring, or other items that are included in net income that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net sales.
Adjusted EBITDA is defined as EBITDA adjusted for the impact of restructuring related income or expenses, stock-based compensation, currency exchange items and certain non-cash, nonrecurring, or other items that are included in net income and EBITDA that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net sales.
For more information, see “—Key Factors and Measures We Use to Evaluate Our Business—Net Sales.’’ We aim to keep our manufacturing plants running at a constant level throughout the year and consequently we build inventory in the first and third quarters and inventory is sold-down in the second and fourth quarters.
For more information, see “—Key Factors and Measures We Use to Evaluate Our Business—Net Sales.’’ We aim to keep our manufacturing plants running at a constant level throughout the year and consequently we generally build inventory in the first and third quarters and inventory is sold-down in the second and fourth quarters.
If the qualitative assessment indicates it is more likely than not that the reporting unit’s fair value is no greater than its 52 carrying value, we must perform a quantitative impairment assessment. If it is determined a quantitative assessment is necessary, we would compare the fair value of the reporting unit to the respective carrying value, which includes goodwill.
If the qualitative assessment indicates it is more likely than not that the reporting unit’s fair value is no greater than its carrying value, we must perform a quantitative impairment assessment. If it is determined a quantitative assessment is necessary, we would compare the fair value of the reporting unit to the respective carrying value, which includes goodwill.
We have an estimated North American seasonal 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 have an estimated North American seasonal residential pool market share of approximately 34%. We believe that we are well-positioned for future growth. On average, we have over 20 year relationships with our top 20 customers.
(d) 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.
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, $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.
In the United States, our primary market, the record construction of pools from 1999 to 2005 is manifesting itself in the aftermarket repair, replace, and remodel cycle given that the average age of this pool cohort is over 20 years. Residential pool equipment sales increased during the COVID-19 pandemic.
In the United States, our primary market, the record construction of pools from 1999 to 2005 is manifesting itself in the aftermarket repair, replace, and remodel cycle given that the average age of this pool cohort is over 20 years. Residential pool equipment sales increased during the first two years of the COVID-19 pandemic.
In addition to historical financial information, this discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. We define the year ended December 31, 2022 as Fiscal Year 2022 and the year ended December 31, 2021 as Fiscal Year 2021.
In addition to historical financial information, this discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. We define the year ended December 31, 2023 as Fiscal Year 2023 and the year ended December 31, 2022 as Fiscal Year 2022.
We have presented EBITDA, adjusted EBITDA, adjusted EBITDA margin, consolidated segment income, adjusted segment income and adjusted segment income margin solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. In the future we may incur expenses such as those added back to calculate adjusted EBITDA.
We have presented EBITDA, adjusted EBITDA, adjusted EBITDA margin, total segment income, adjusted segment income and adjusted segment income margin solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. In the future we may incur expenses such as those added back to calculate adjusted EBITDA.
EBITDA, adjusted EBITDA, adjusted EBITDA margin, consolidated segment income, adjusted segment income and adjusted segment income margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
EBITDA, adjusted EBITDA, adjusted EBITDA margin, total segment income, adjusted segment income and adjusted segment income margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.
This increase in demand occurred broadly across all of our product lines as consumers refocused attention on improving the quality of the homeowner’s outdoor living experience. We believe that during this period, the pandemic reinforced existing pool industry growth trends, as well as partially accelerated demand due to the impact of longer lead times that resulted from supply chain shortages.
This increase in demand was experienced broadly across all our product lines as consumers refocused attention on improving the quality of the homeowner’s outdoor living experience. We believe that during this period, the pandemic reinforced existing pool industry growth trends, as well as partially accelerated demand due to the impact of longer lead times that resulted from supply chain shortages.
We then compare the resulting accruals with present spending rates to assess whether the balances are adequate to meet expected future obligations. Based on this data, we update the estimates as necessary. Inventory Valuation Inventories consist of merchandise held for sale and are stated at the lower of cost or net realizable value.
We then compare the resulting accruals with present spending rates, among other factors, to assess whether the balances are adequate to meet expected future obligations. Based on this data, we update the estimates as necessary. Inventory Valuation Inventories consist of merchandise held for sale and are stated at the lower of cost or net realizable value.
EBITDA, adjusted EBITDA, consolidated segment income and adjusted segment income should not be construed as indicators of a company’s operating performance in isolation from, or as a substitute for, net income (loss), operating income and segment income, which are prepared in accordance with GAAP.
EBITDA, adjusted EBITDA, total segment income and adjusted segment income should not be construed as indicators of a company’s operating performance in isolation from, or as a substitute for, net income (loss), operating income and segment income, which are prepared in accordance with GAAP.
Under the historical presentation, the stock-based compensation adjustment for the year ended December 31, 2022 would have been an expense of $0.2 million. (b) Adjustments in the year ended December 31, 2022 for E&RW include $0.2 million bad debt reserves related to certain customers impacted by the conflict in Russia and Ukraine partially offset by subsequent collections.
Under the current presentation, the stock-based compensation adjustment for the year ended December 31, 2022 would have been an expense of $0.1 million. (b) Adjustments in the year ended December 31, 2022 for E&RW include $0.2 million bad debt reserves related to certain customers impacted by the conflict in Russia and Ukraine partially offset by subsequent collections.
We derived the consolidated statements of operations for the Fiscal Years 2022 and 2021 from our audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future.
We derived the consolidated statements of operations for the Fiscal Years 2023 and 2022 from our audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future.
NAM and E&RW accounted for approximately 84% and 16% and 83% and 17% of total net sales for Fiscal Year 2022 and Fiscal Year 2021, respectively. 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.
NAM and E&RW accounted for approximately 83% and 17% and 84% and 16% of total net sales for Fiscal Year 2023 and Fiscal Year 2022, respectively. 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.
Our accounts receivable balance increases from October to April as a result of the early buy extended terms and increases through June due to higher sales in the second quarter.
Our accounts receivable balance increases from September to April as a result of the Early Buy extended terms and increases through June due to higher sales in the second quarter.
Acquisition and restructuring related costs (or income) The Company records costs or expenses incurred related to business combinations, organizational restructuring, or gains or losses attributable to any sales or dispositions of assets to acquisition and restructuring related expense, net.
Acquisition and restructuring related costs (or income) The Company records costs or expenses incurred related to business combinations, organizational restructuring, or gains or losses attributable to any sales or dispositions of assets, including impairments, to acquisition and restructuring related expense, net.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020 is included under “Part II, Item 7.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2022, compared to the year ended December 31, 2021, is included under “Part II, Item 7.
Non-GAAP Reconciliation The Company uses EBITDA, adjusted EBITDA, adjusted EBITDA margin, consolidated segment income, adjusted segment income and adjusted segment income margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies.
Non-GAAP Reconciliation The Company uses EBITDA, adjusted EBITDA, adjusted EBITDA margin, total segment income, adjusted segment income and adjusted segment income margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies.
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. We manufacture our products at seven facilities worldwide, which are located in North Carolina, Tennessee, Rhode Island, Spain (three) and China.
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. We manufacture our products at six facilities worldwide, which are located in North Carolina, Tennessee, Rhode Island, Spain (two) and China.
During the second quarter, sales are higher in anticipation of the start of the summer pool season and in the fourth quarter, we incent trade customers to buy and stock in readiness for next year’s pool season under an “early buy” program which offers a price discount and extended payment terms.
During the second quarter, sales are higher in anticipation of the start of the summer pool season and in the fourth quarter, we incent trade customers to buy and stock in preparation for next year’s pool season under an “Early Buy” program, which features a price discount and extended payment terms.
Use of the terms EBITDA, adjusted EBITDA, adjusted EBITDA margin, consolidated segment income, adjusted segment income and adjusted segment income margin may differ from similar measures reported by other companies.
Use of the terms EBITDA, adjusted EBITDA, adjusted EBITDA margin, total segment income, adjusted segment income and adjusted segment income margin may differ from similar measures reported by other companies.
Also, because the majority of our sales are to distributors whose inventory of our products may vary due to reasons beyond our control, such as end-user demand, supply chain lead times and macroeconomic factors, our revenue may fluctuate from period to period. • Targeted expansion efforts.
Also, because most of our sales are to distributors whose inventory of our products may vary, including due to reasons beyond our control, such as end-user demand, supply chain lead times and macroeconomic factors, our revenue may fluctuate from period to period. • Targeted expansion efforts.
For the year ended December 31, 2022, net cash used by financing activities was primarily driven by share repurchases, partially offset by the proceeds from the issuance of long-term debt.
For the year ended December 31, 2023, net cash used by financing activities was primarily driven by payments on long-term debt. For the year ended December 31, 2022, net cash used by financing activities was primarily driven by share repurchases, partially offset by the proceeds from the issuance of long-term debt.
Off-Balance Sheet Arrangements We had $4.5 million of outstanding letters of credit on our ABL Facility as of December 31, 2022 and December 31, 2021. Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance with GAAP.
Off-Balance Sheet Arrangements We had $4.3 million and $4.5 million of outstanding letters of credit on our ABL Facility as of December 31, 2023 and December 31, 2022, respectively. Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance with GAAP.
For further information on the terms of the Credit Facilities, please see Note 9 , “Long-Term Debt” of Notes to the Consolidated Financial Statements in this Form 10-K.
Refer to Note 9 , “Long-Term Debt” of Notes to the Consolidated Financial Statements in this Form 10-K for further information on the terms of the Credit Facilities.
In the case of LIBOR tranches, the applicable margin is 2.75% per annum with a 0.50% floor, with a stepdown to 2.50% per annum with a 0.50% floor when net secured leverage as defined by the credit 50 agreement is less than 2.5x.
In the case of SOFR tranches, the applicable margin is 2.75% per annum with a 0.50% floor, with a stepdown to 2.50% per annum with a 0.50% floor when net secured leverage as defined by the First Lien Credit Agreement is less than 2.5x.
This was primarily driven by the decreased sales and operating leverage adjusted for additional non-cash or non-recurring charges. Adjusted segment income margin decreased to 23.6% in Fiscal Year 2022 from 25.4% in Fiscal Year 2021, a decrease of 177 basis points.
This was primarily driven by the decreased sales and operating leverage adjusted for additional non-cash or non-recurring charges. Adjusted segment income margin decreased to 20.4% in Fiscal Year 2023 from 23.6% in Fiscal Year 2022, a decrease of 320 basis points.
Pool owners are increasingly demanding new technologies, such as IoT-enabled and more energy efficient products, as they replace or upgrade their existing pool equipment. In Fiscal Year 2022, new products launched in the last three years contributed approximately 16% of net sales.
Pool owners are increasingly demanding new technologies, such as IoT-enabled and more energy efficient products, as they replace or upgrade their existing pool equipment. In Fiscal Year 2023, new products launched in the last three years contributed approximately 14% of gross sales.
Customer Rebates Many of our major customer agreements provide for rebates upon achievement of various performance targets. We account for customer rebates as a reduction of gross sales with a corresponding offset to accounts receivable. We estimate the rebates based on our latest projection of customer performance.
Customer Rebates Many of our major customer agreements provide for rebates upon achievement of various performance targets. We account for customer rebates as a reduction of gross sales with either a corresponding offset to accounts receivable or recognition of an accrued liability. We estimate the rebates based on our latest projection of customer performance.
The decrease in net sales was primarily due to a decline in volume as a result of a high level of channel inventory and geopolitical factors and macroeconomic uncertainty, and unfavorable impact of foreign currency translation, partially offset by the favorable impact of price increases.
The decrease in net sales was primarily due to a decline in volume as a result of distribution channel destocking and geopolitical factors and macroeconomic uncertainty, partially offset by the favorable impact of price increases and the favorable impact of foreign currency translation.
A reconciliation of segment income to our operating income is detailed below. Adjusted segment income represents segment income adjusted for the impact of depreciation, amortization of certain intangible assets, stock-based compensation and certain non-cash, nonrecurring or other items that are included in segment income that we do not consider indicative of the ongoing segment operating performance.
Adjusted segment income represents segment income adjusted for the impact of depreciation, amortization of certain intangible assets, stock-based compensation and certain non-cash, nonrecurring or other items that are included in segment income that we do not consider indicative of the ongoing segment operating performance.
We record actual forfeitures in the period in which the forfeiture occurs. We use the Black-Scholes option pricing model to estimate the fair value of option awards. Warranties We provide base warranties on the products we sell for specific periods of time, which vary depending upon the type of product and the geographic location of its sale.
We use the Black-Scholes option pricing model to estimate the fair value of option awards. Warranties We provide base warranties on the products we sell for specific periods of time, which vary depending upon the type of product and the geographic location of its sale.
The $8.2 million expense in Fiscal Year 2022 was primarily driven by restructuring expenses related to the relocation of the corporate headquarters to Charlotte, North Carolina and the Company’s enterprise cost reduction program, as well as acquisition transaction and integration costs associated with the purchase of the Specialty Lighting Business, partially offset by a gain resulting from the release of certain reserves associated with the exit of an early-stage product line discontinued in 2021.
The $8.2 million expense in Fiscal Year 2022 was primarily driven by restructuring expenses related to the relocation of the corporate headquarters to Charlotte, North Carolina and the Company’s enterprise cost reduction 40 program, as well as acquisition transaction and integration costs associated with the purchase of the specialty lighting business of Halco Lighting Technologies, LLC, which includes the brands J&J Electronics and Sollos (the “Specialty Lighting Business”), partially offset by a gain resulting from the release of certain reserves associated with the exit of an early-stage product line discontinued in 2021.
At December 31, 2022, goodwill and indefinite lived intangible assets were $932.4 million and $736.0 million respectively. For goodwill, we may first make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value.
As of December 31, 2023, goodwill and indefinite lived intangible assets were $935.0 million and $736.0 million, respectively. 52 For goodwill, we may first make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 9, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 28, 2023.
These new products offer higher energy efficiency, automation capabilities and enhanced water care solutions, and we expect will become primary drivers of our sales growth. Staying at the forefront of technological innovation and introducing new product offerings with new features will continue to be critical in growing our market share and revenue. • Materials and other cost increases.
These new products offer higher energy efficiency, automation capabilities and enhanced water care solutions, and we expect will become primary drivers of our sales growth. Staying at the forefront of technological innovation and introducing new product offerings with new features will continue to be critical in growing our market share and revenue. • Macroeconomic Factors on Variable Rate Indebtedness.
Sales are impacted by product and geographic segment mix, as well as promotional and competitive activities. Growth of our sales is primarily driven by market demand, expansion of our trade customers and product offering. Revenue is recognized upon shipment and recorded net of related discounts, allowances, returns, and sales tax. Customers are offered volume discounts and other promotional benefits.
Growth of our sales is primarily driven by market demand, expansion of our trade customers and product offering. Revenue is recognized upon shipment and recorded net of related discounts, allowances, returns, and sales tax. Customers are offered volume discounts and other promotional benefits.
The estimates have calculations that require us to make assumptions based on the current rate of sales, age, salability of inventory, and profitability of inventory, all of which may be affected by changes in merchandising mix and consumer preferences. We review and update these reserves on a quarterly basis.
The estimates have calculations that require us to make assumptions based on the current rate of sales, age, salability of inventory, and profitability of inventory, all of which may be affected by changes in merchandising mix and consumer preferences.
Adjusted segment income is defined as segment income adjusted for the impact of depreciation and amortization, stock-based compensation, and certain non-cash, nonrecurring, or other items that are included in segment income that we do not consider indicative of the ongoing segment operating performance. Adjusted segment income margin is defined as adjusted segment income divided by segment net sales.
Adjusted segment income is defined as segment income adjusted for the impact of depreciation, amortization of intangible assets recorded within cost of sales, stock-based compensation, and certain non-cash, nonrecurring or other items that are included in segment income that we do not consider indicative of the ongoing segment operating performance.
The borrowings under the ABL Facility bear interest at a rate equal to SOFR or a base rate plus a margin of between 1.25% to 1.75% or 0.25% to 0.75%, respectively, while the FILO Sublimit borrowings bear interest at a rate equal to SOFR or a base rate plus a margin of between 2.25% to 2.75% or 1.25% to 1.75%, respectively.
The borrowings under the ABL Facility bear interest at a rate equal to an adjusted term of the Secured Overnight Financing Rate (“SOFR”) or a base rate plus a margin of between 1.25% to 1.75% or 0.25% to 0.75%, respectively, while the FILO Sublimit borrowings bear interest at a rate equal to SOFR or a base rate plus a margin of between 2.25% to 2.75% or 1.25% to 1.75%, respectively.
Fair value of the reportable unit is estimated using a discounted six-year projected cash flow analyses and a terminal value calculation at the end of the six-year period. As of December 31, 2022 we performed a qualitative analysis and determined that the fair values of the reporting units were more likely than not greater than the carrying amounts.
Fair value of the reportable unit is estimated using a discounted six-year projected cash flow analyses and a terminal value calculation at the end of the six-year period. In 2023, the Company performed a quantitative analysis and determined that the fair values of the reporting units were more likely than not greater than the carrying amounts.
This was primarily driven by a decrease in sales and gross profit as discussed above, and higher SG&A expense partially attributable to a one-time expense associated with the discontinuation of a product joint development agreement, partially offset by lower volume-based incentive expenses.
This was primarily driven by a decrease in sales and gross profit as discussed above, partially offset by the absence of a one-time expense in SG&A associated with the discontinuation of a product joint development agreement.
We estimate that aftermarket sales represent 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.
Historically aftermarket sales represented 80% of our 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.
In 2022 and 2021, the Company did not need to proceed beyond the qualitative analysis, and no goodwill impairments were recorded.
In 2022, the Company did not proceed beyond the qualitative analysis, and no goodwill impairments were recorded in either year.
See segment discussion below for further information. 2022 Volume (19.8) % Price, net of discounts and allowances 13.4 % Acquisitions 1.6 % Currency and other (1.5) % Total (6.3) % The Fiscal Year 2022 decrease in net sales was primarily the result of a decline in volume, partially offset by increases in price and the favorable impact of acquisitions.
See segment discussion below for further information. 2023 Volume (27.7) % Price, net of discounts and allowances 2.6 % Acquisitions 0.7 % Currency and other (0.1) % Total (24.5) % The Fiscal Year 2023 decrease in net sales was primarily the result of a decline in volume, partially offset by increases in price and the favorable impact of acquisitions.
Operating income and operating income margin Operating income decreased to $285.6 million in Fiscal Year 2022 from $318.0 million in Fiscal Year 2021, a decrease of $32.4 million or 10.2% due to the accumulated effect of the items described above.
Operating income and operating income margin Operating income decreased to $175.2 million in Fiscal Year 2023 from $285.6 million in Fiscal Year 2022, a decrease of $110.4 million or 38.6% due to the accumulated effect of the items described above.
Provision for income taxes We incurred income tax expense of $54.9 million for Fiscal Year 2022 and $56.4 million for Fiscal Year 2021, a decrease of $1.5 million or 2.7%. This decrease in tax expense was primarily due to decreased income from operations.
Provision for income taxes We incurred income tax expense of $20.4 million for Fiscal Year 2023 and $54.9 million for Fiscal Year 2022, a decrease of $34.5 million or 62.8%. This decrease in tax expense was primarily due to decreased income from operations.
The Incremental Term Loan B bears interest at an annual floating rate based on a forward-looking rate of the Secured Overnight Financing rate (“Term SOFR”) (with a 0.50% floor) plus 3.25%. The incremental loan requires a $0.3 million repayment of principal on the last business day of each March, June, September and December.
The Incremental Term Loan B bears interest at an annual floating rate based on SOFR (with a 0.50% floor) plus 3.25% and a 0.10% credit spread adjustment. The incremental loan requires a $0.3 million repayment of principal on the last business day of each March, June, September and December.
For the year ended December 31, 2022, the average borrowing base under the ABL Facility was $246.5 million and the average loan balance outstanding was $73.1 million. As of December 31, 2022, the loan balance was zero with a borrowing availability of $208.4 million. During the year ended December 31, 2022, the effective interest rate was 6.84%.
As of December 31, 2023, the loan balance was zero with a borrowing availability of $256.5 million. For the year ended December 31, 2022, the average borrowing base under the ABL Facility was $246.5 million and the average loan balance outstanding was $73.1 million.
The decrease was driven by increased cash used for working capital compared to the prior-year period and a decrease in net income.
The increase was driven by 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.
Segment income and Segment income margin Segment income decreased to $47.4 million in Fiscal Year 2022 from $59.2 million in Fiscal Year 2021, a decrease of $11.8 million or 19.9%. This was primarily driven by a decrease in sales and gross profit as discussed 44 above, partially offset by lower SG&A expense.
Segment income and Segment income margin Segment income decreased to $33.5 million in Fiscal Year 2023 from $47.4 million in Fiscal Year 2022, a decrease of $13.9 million or 29.3%. This was primarily driven by a decrease in sales and gross profit as discussed above, partially offset by lower SG&A expense.
First Lien Term Facilities The First Lien Term Facility bears interest at a rate equal to a base rate or LIBOR, plus, in either case, an applicable margin.
The First Lien Term Facility bears interest at a rate equal to a base rate or SOFR (which includes an applicable credit spread adjustment), plus, in either case, an applicable margin.
The decline was primarily attributable to the decreased sales and operating leverage Adjusted segment income and Adjusted segment income margin Adjusted segment income decreased to $48.4 million in Fiscal Year 2022 from $61.1 million in Fiscal Year 2021, a decrease of $12.7 million or 20.7%.
The decline was primarily attributable to the decreased sales and operating leverage. Adjusted segment income and Adjusted segment income margin Adjusted segment income decreased to $34.5 million in Fiscal Year 2023 from $48.4 million in Fiscal Year 2022, a decrease of $13.9 million or 28.7%.
The first quarter 2022 refers to the quarter ended April 2, the second quarter 2022 refers to the quarter ended July 2, the third quarter 2022 refers to the quarter ended October 1, and the fourth quarter 2022 refers to the quarter ended December 31.
The first quarter 2023 refers to the quarter ended April 1, the second quarter 2023 refers to the quarter ended July 1, the third quarter 2023 refers to the quarter ended September 30, and the fourth quarter 2023 refers to the quarter ended December 31.
Operating income Operating income is gross profit less SG&A, RD&E, acquisition and restructuring related expense or income and amortization of intangible assets. Operating income excludes interest expense, income tax expense, and other 38 non-operating expenses, net. We use operating income as well as other indicators as a measure of the profitability of our business.
Operating income Operating income is gross profit less SG&A, RD&E, acquisition and restructuring related expense or income and amortization of intangible assets. Operating income excludes interest expense, income tax expense, and other non-operating expenses, net.
(b) See “—Non-GAAP Reconciliation.” 42 North America (“NAM’’) (Dollars in thousands) Years Ended December 31, 2022 2021 Net sales $ 1,108,859 $ 1,160,850 Gross profit $ 514,855 $ 558,950 Gross profit margin % 46.4 % 48.2 % Segment income $ 308,627 $ 359,886 Segment income margin % 27.8 % 31.0 % Adjusted segment income (a) $ 340,779 $ 396,414 Adjusted segment income margin % (a) 30.7 % 34.1 % (a) See “—Non-GAAP Reconciliation.” Year-over-year net sales decrease was driven by the following: 2022 Volume (20.5) % Price, net of discounts and allowances 14.5 % Acquisitions 1.9 % Currency and other (0.4) % Total (4.5) % Net sales Net sales decreased to $1,108.9 million in Fiscal Year 2022 from $1,160.9 million in Fiscal Year 2021, a decrease of $52.0 million or 4.5%.
(b) See “—Non-GAAP Reconciliation.” 42 North America (“NAM’’) (Dollars in thousands) Years Ended December 31, 2023 2022 Net sales $ 823,276 $ 1,108,859 Gross profit $ 410,641 $ 514,855 Gross profit margin % 49.9 % 46.4 % Segment income $ 215,425 $ 308,627 Segment income margin % 26.2 % 27.8 % Adjusted segment income (a) $ 237,693 $ 340,779 Adjusted segment income margin % (a) 28.9 % 30.7 % (a) See “—Non-GAAP Reconciliation.” Year-over-year net sales decrease was driven by the following: 2023 Volume (28.7) % Price, net of discounts and allowances 2.3 % Acquisitions 0.8 % Currency and other (0.2) % Total (25.8) % Net sales Net sales decreased to $823.3 million in Fiscal Year 2023 from $1,108.9 million in Fiscal Year 2022, a decrease of $285.6 million or 25.8%.
In addition, cash flow is higher in the second quarter as the seasonality of our business peaks and payments are received. Unrestricted cash and cash equivalents totaled $56.2 million as of December 31, 2022, which is a decrease of $209.6 million from $265.8 million at December 31, 2021.
In addition, cash flow is higher in the second quarter as the seasonality of our business peaks and payments are received. Unrestricted cash and cash equivalents totaled $178.1 million as of December 31, 2023, which is an increase of $121.9 million from $56.2 million at December 31, 2022.
Net income As a result of the foregoing, net income decreased to $179.3 million in Fiscal Year 2022 compared to net income of $203.7 million in Fiscal Year 2021, a decrease of $24.4 million or 12.0%.
Net income As a result of the foregoing, net income decreased to $80.7 million in Fiscal Year 2023 compared to net income of $179.3 million in Fiscal Year 2022, a decrease of $98.6 million or 55.0%.
Europe & Rest of World (“E&RW”) (Dollars in thousands) Years Ended December 31, 2022 2021 Net sales $ 205,277 $ 240,944 Gross profit $ 82,180 $ 96,832 Gross profit margin % 40.0 % 40.2 % Segment income $ 47,388 $ 59,195 Segment income margin % 23.1 % 24.6 % Adjusted segment income (a) $ 48,416 $ 61,089 Adjusted segment income margin % (a) 23.6 % 25.4 % (a) See “—Non-GAAP Reconciliation.” Year-over-year net sales decrease was driven by the following: 2022 Volume (16.5) % Price, net of discounts and allowances 8.0 % Currency and other (6.3) % Total (14.8) % Net sales Net sales decreased to $205.3 million in Fiscal Year 2022 from $240.9 million in Fiscal Year 2021, a decrease of $35.6 million or 14.8%.
Europe & Rest of World (“E&RW”) (Dollars in thousands) Years Ended December 31, 2023 2022 Net sales $ 169,176 $ 205,277 Gross profit $ 66,309 $ 82,180 Gross profit margin % 39.2 % 40.0 % Segment income $ 33,518 $ 47,388 Segment income margin % 19.8 % 23.1 % Adjusted segment income (a) $ 34,503 $ 48,416 Adjusted segment income margin % (a) 20.4 % 23.6 % (a) See “—Non-GAAP Reconciliation.” Year-over-year net sales decrease was driven by the following: 2023 Volume (22.0) % Price, net of discounts and allowances 4.0 % Currency and other 0.4 % Total (17.6) % Net sales Net sales decreased to $169.2 million in Fiscal Year 2023 from $205.3 million in Fiscal Year 2022, a decrease of $36.1 million or 17.6%.
The decrease was primarily due to the absence of a loss on debt extinguishment in 2022, which resulted in a $9.4 million expense in the prior year. Interest expense in Fiscal Year 2022 consisted of $48.5 million of interest on the outstanding debt and $3.3 million of amortization of deferred financing fees, partially offset by $0.4 million of interest income.
Interest expense in Fiscal Year 2022 consisted of $48.5 million on the outstanding debt and $3.3 million of amortization of deferred financing fees, partially offset by $0.4 million of interest income.
We evaluate performance based on net sales, gross profit, segment income and adjusted segment income, and use gross profit margin, segment income margin and adjusted segment income margin as comparable performance measures for our reporting segments. Segment income represents net sales less cost of sales, less segment SG&A and RD&E.
The Company’s reportable segments consist of NAM and E&RW. We evaluate performance based on net sales, gross profit, segment income and adjusted segment income, and use gross profit margin, segment income margin and adjusted segment income margin as comparable performance measures for our reporting segments.
As a percentage of segment net sales, SG&A and RD&E expenses increased from 15.7% in the Fiscal Year 2021 to 16.9% as a result of lower net sales as discussed above. Segment income margin decreased to 23.1% in Fiscal Year 2022 from 24.6% in Fiscal Year 2021, a decrease of 148 basis points.
As a percentage of segment net sales, SG&A and RD&E expenses increased from 17.0% in the Fiscal Year 2022 to 19.4% as a result of lower net sales as discussed above. 44 Segment income margin decreased to 19.8% in Fiscal Year 2023 from 23.1% in Fiscal Year 2022, a decrease of 330 basis points.
Interest expense The Company incurs interest expense on its Credit Facilities, as defined herein. The amortization of debt issuance costs and impact of our interest rate hedging instruments are also included in interest expense. Net income Net income is operating income less interest expense, other non-operating items, and provision for income taxes.
We use operating income as well as other indicators as a measure of the profitability of our business. 38 Interest expense, net The Company incurs interest expense on its Credit Facilities, as defined herein. The amortization of debt issuance costs and impact of our interest rate hedging instruments are also included in interest expense.
Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items. 45 Following is a reconciliation from net income to adjusted EBITDA (dollars in thousands): Years Ended December 31, 2022 2021 Net income $ 179,347 $ 203,725 Depreciation 19,246 18,826 Amortization 38,393 38,990 Interest expense 51,387 50,854 Income taxes 54,890 56,416 Loss on extinguishment of debt — 9,418 EBITDA 343,263 378,229 Stock-based compensation (a) 1,602 19,019 Sponsor management fees (b) — 90 Currency exchange items (c) 926 4,485 Acquisition and restructuring related expense, net (d) 8,162 15,030 Other (e) 13,622 4,884 Total Adjustments 24,312 43,508 Adjusted EBITDA $ 367,575 $ 421,737 Adjusted EBITDA margin 28.0 % 30.1 % (a) Represents non-cash stock-based compensation expense related to equity awards issued to management, employees, and directors.
Our presentation of adjusted EBITDA and adjusted segment income should not be construed as an inference that our future results will be unaffected by these items. 45 Following is a reconciliation from net income to adjusted EBITDA (dollars in thousands): Years Ended December 31, 2023 2022 Net income $ 80,687 $ 179,347 Depreciation 15,983 19,246 Amortization 37,079 38,393 Interest expense 73,584 51,387 Income taxes 20,400 54,890 EBITDA 227,733 343,263 Stock-based compensation (a) 1,270 1,602 Currency exchange items (b) 786 926 Acquisition and restructuring related expense, net (c) 13,213 8,162 Other (d) 4,271 13,622 Total Adjustments 19,540 24,312 Adjusted EBITDA $ 247,273 $ 367,575 Adjusted EBITDA margin 24.9 % 28.0 % (a) Represents non-cash stock-based compensation expense related to equity awards issued to management, employees, and directors.
The key non-GAAP measures we use are EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin. Net sales We offer a broad range of pool equipment including pumps, filters, heaters, automatic cleaners, sanitizers, controls, LED lights, as well as industrial thermoplastic valves and process liquid control products.
Net sales We offer a broad range of pool equipment including pumps, filters, heaters, automatic cleaners, sanitizers, controls, LED lights, as well as industrial thermoplastic valves and process liquid control products. Sales are impacted by product and geographic segment mix, as well as promotional and competitive activities.
As of December 31, 2022, the balance outstanding under the First Lien Term Facility was $985.0 million and the balance outstanding under the Incremental Term Loan B was $124.7 million. T he effective interest rate of the First Lien facilities, net of the interest rate hedge, was 4.61%.
As of December 31, 2022, the balance outstanding under the First Lien Term Facility was $985.0 million and the balance outstanding under the Incremental Term Loan B was $124.7 million. The effective interest rate on borrowings, including the impact of an interest rate hedge, was 4.61%. Covenant Compliance The Credit Facilities contain various restrictions, covenants and collateral requirements.
Segment income and Segment income margin Segment income decreased to $308.6 million in Fiscal Year 2022 from $359.9 million in Fiscal Year 2021, a decrease of $51.3 million or 14.2%.
Segment income and Segment income margin Segment income decreased to $215.4 million in Fiscal Year 2023 from $308.6 million in Fiscal Year 2022, a decrease of $93.2 million or 30.2%.
This decrease was primarily the result of a decline in volume, partially offset by increases in price and the favorable impact of acquisitions.
This 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 the moderation of end market demand trends due to macroeconomic factors and distribution channel destocking.
EBITDA, adjusted EBITDA, adjusted EBITDA margin, consolidated segment income, adjusted segment income and adjusted segment income margin are not recognized measures of financial performance under GAAP.
Adjusted segment income margin is defined as adjusted segment income divided by segment net sales. EBITDA, adjusted EBITDA, adjusted EBITDA margin, total segment income, adjusted segment income and adjusted segment income margin are not recognized measures of financial performance under GAAP.
Sources and Uses of Cash Following is a summary of our cash flows from operating, investing, and financing activities (dollars in thousands): Years Ended December 31, 2022 2021 Net cash provided by operating activities $ 115,944 $ 189,387 Net cash used in investing activities (92,573) (48,777) Net cash (used in) provided by financing activities (229,240) 10,957 Effect of exchange rate changes on cash and cash equivalents and restricted cash (3,750) (1,065) Change in cash and cash equivalents and restricted cash $ (209,619) $ 150,502 Net cash provided by operating activities Net cash provided by operating activities decreased to $115.9 million for the year ended December 31, 2022 from $189.4 million for the year ended December 31, 2021, a decrease of $73.5 million, or 38.8%.
Sources and Uses of Cash Following is a summary of our cash flows from operating, investing, and financing activities (dollars in thousands): Years Ended December 31, 2023 2022 Net cash provided by operating activities $ 184,540 $ 115,944 Net cash used in investing activities (55,381) (92,573) Net cash used in financing activities (7,612) (229,240) Effect of exchange rate changes on cash and cash equivalents and restricted cash 373 (3,750) Change in cash and cash equivalents and restricted cash $ 121,920 $ (209,619) Net cash provided by operating activities Net cash provided by operating activities increased to $184.5 million for the year ended December 31, 2023 from $115.9 million for the year ended December 31, 2022, an increase of $68.6 million, or 59.2%.
Adjusted segment income and Adjusted segment income margin Adjusted segment income decreased to $340.8 million in Fiscal Year 2022 from $396.4 million in Fiscal Year 2021, a decrease of $55.6 million or 14.0%. This was driven by the lower segment income as discussed above, adjusted for additional non-cash or non-recurring charges.
This was driven by the lower segment income as discussed above, adjusted for additional non-cash or non-recurring charges. Adjusted segment income margin decreased to 28.9% in Fiscal Year 2023 from 30.7% in Fiscal Year 2022, a decrease of 180 basis points.
In the fourth quarter, we incentivize trade customers to buy and stock up in preparation for next year’s pool season under an “early buy” program that offers a price discount and extended payment terms.
During the end of the year we incentivize trade customers to buy and stock up in preparation for next year’s pool season under an “Early Buy” program that features a price discount and extended payment terms. Shipments under the 2023 Early Buy program began in the late third quarter and will continue through approximately the first quarter of 2024.
Key Factors and Measures We Use to Evaluate Our Business We consider a variety of financial and operating measures in assessing the performance of our business. The key GAAP measures we use are net sales, gross profit and gross profit margin, selling, general, and administrative (“SG&A”) expense, research, development and engineering (“RD&E”) expense, operating income and operating income margin.
The key GAAP measures we use are net sales, gross profit and gross profit margin, selling, general, and administrative (“SG&A”) expense, research, development and engineering (“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.
The grant-date fair value of the award is recognized as compensation expense ratably over the requisite service period, which generally equals the vesting period of the award. We also grant performance-based share units (“PSUs”). The PSUs are recognized as compensation expense once it is probable that the performance condition will be achieved.
The grant-date fair value of the award is recognized as compensation expense ratably over the requisite service period, which generally equals the vesting period of the award. We also grant performance-based restricted share units (“PSUs”). PSU awards are recognized as compensation expense beginning at the grant date and reassessed quarterly for probability.
Adjusted EBITDA and adjusted EBITDA margin Adjusted EBITDA decreased to $367.6 million in Fiscal Year 2022 from $421.7 million in Fiscal Year 2021, a decrease of $54.1 million or 12.8% driven primarily by lower net sales and operating leverage resulting in a decrease in gross profit of $58.8 million, partially offset by a decrease in SG&A expenses of $18.5 million. 41 Adjusted EBITDA margin decreased to 28.0% in Fiscal Year 2022 compared to 30.1% in Fiscal Year 2021, a decrease of 211 basis points.
Adjusted EBITDA and adjusted EBITDA margin Adjusted EBITDA decreased to $247.3 million in Fiscal Year 2023 from $367.6 million in Fiscal Year 2022, a decrease of $120.3 million or 32.7% driven primarily by lower net sales and operating leverage resulting in a decrease in gross profit of $120.1 million, partially offset by a decrease in SG&A expenses of $15.2 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe Company’s transactions that can be affected by foreign currency fluctuations and exchange risks consist primarily of cash and cash equivalents, trade receivables, trade payables, and expenses denominated in currencies other than the functional currency of the operating entity.
Biggest changeThe Company’s transactions, including those arising from intercompany transactions, that can be affected by foreign currency fluctuations and exchange risks consist primarily of cash and cash equivalents, trade receivables, trade payables and expenses denominated in currencies other than the functional currency of the operating entity.
We actively manage the impact of inflation, including import duties, through strong relationships with our diverse supplier base, vendor terms negotiations, and price and promotion management. Historically, we have been able to realize price increases to partially or fully offset cost inflation. We strategically invest through inventory purchases to obtain favorable pricing ahead of vendor price increases.
We actively manage the impact of inflation, including import duties, through strong relationships with our diverse supplier base, vendor 54 terms negotiations, and price and promotion management. Historically, we have been able to realize price increases to partially or fully offset cost inflation. We strategically invest through inventory purchases to obtain favorable pricing ahead of vendor price increases.
Periodically, we use derivative financial instruments to manage or reduce the impact of changes in interest rates and 53 foreign currency rates. Counterparties to all derivative contracts are major financial institutions. All instruments are entered into for other than trading purposes.
Periodically, we use derivative financial instruments to manage or reduce the impact of changes in interest rates and foreign currency rates. Counterparties to all derivative contracts are major financial institutions. All instruments are entered into for other than trading purposes.
For the Fiscal Year 2022, approximately 20% of our net sales were made by our international operating locations that use a functional currency other than the U.S. dollar. These sales were transacted in Euros, Canadian dollars and Australian dollars. Consequently, we are exposed to the impact of exchange rate volatility between the U.S. dollar and these currencies.
For the Fiscal Year 2023, approximately 17% of our net sales were made by our international operating locations that use a functional currency other than the U.S. dollar. These sales were transacted in Euros, Canadian dollars and Australian dollars. Consequently, we are exposed to the impact of exchange rate volatility between the U.S. dollar and these currencies.
As of December 31, 2022 and December 31, 2021, the Company was a party to interest rate swap agreements of a notional amount of $500.0 million and zero, respectively . Impact of Inflation Our results of operations and financial condition are presented based on historical cost.
As of December 31, 2023 and December 31, 2022, the Company was a party to interest rate swap agreements of a notional amount of $600.0 million and $500.0 million, respectively . Impact of Inflation Our results of operations and financial condition are presented based on historical cost.
As a result, we believe we have the ability to mitigate negative impacts of inflation. 54
As a result, we believe we have the ability to mitigate negative impacts of inflation. 55
Based on the Fiscal Year 2022, an aggregate increase or decrease of 10% in the currency exchange rate would have caused a translational increase or decrease of approximately $26 million and $5 million in net sales and net income, respectively. Interest Rate Risk Our results are subject to risk from interest rate fluctuations on borrowings under the Credit Facilities.
Based on the Fiscal Year 2023, an aggregate increase or decrease of 10% in the currency exchange rate would have caused a translational increase or decrease of approximately $17 million and $1 million in net sales and net income, respectively. Interest Rate Risk Our results are subject to risk from interest rate fluctuations on borrowings under the Credit Facilities.
In the first quarter of 2022, 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.
In the first quarter of 2023, the Company entered into interest rate swap agreements that effectively convert an initial notional amount of $100.0 million of its variable-rate debt obligations to fixed-rate debt.
Our borrowings bear interest at a variable rate, therefore, we are exposed to market risks relating to changes in interest rates. As of December 31, 2022, we had $1,109.7 million of outstanding variable rate loans under the First Lien Term Facility.
Our borrowings bear interest at a variable rate, therefore, we are exposed to market risks relating to changes in interest rates. As of December 31, 2023, we had $1,098.4 million of outstanding variable rate loans under the First Lien Term Facility.
Based on our December 31, 2022 variable rate loan balances, an increase or decrease of 1% in the effective interest rate would have caused an increase or decrease in interest cost of approximately $6.1 million, net of interest rate swap settlements.
Based on our December 31, 2023 variable rate loan balances, an increase or decrease of 1% in the effective interest rate would have caused an increase or decrease in interest cost of approximately $5.0 million, net of interest rate swap settlements.

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