Hayward (HAYW)2023-02-28 21:38Sales and Market Segmentation - North America and Europe & Rest of World segments accounted for approximately 84% and 16% of total net sales for Fiscal Year 2022, respectively [27]. - The largest customer, Pool Corporation, represented approximately 35% of net sales in Fiscal Year 2022, with no other customer exceeding 10% [36]. - Approximately 50% of net sales are derived from non-discretionary products essential for pool operation [33]. - The average wholesale price of equipment per pool ranges from 12,000 for premium pools [33]. - In Fiscal Year 2022, approximately 75% of residential pool equipment in the U.S. was sold through specialty distributors, 18% directly to retailers, and 7% to builders [43]. Supplier and Employee Relations - The company maintains relationships with approximately 700 suppliers, with an average relationship of over 15 years across the top 30 suppliers [38]. - The company employs approximately 2,000 full-time equivalent employees, with about 25% located internationally [55]. - In 2022, over 550 employee suggestions for improvements were implemented, reflecting a strong feedback culture [67]. Sustainability and Environmental Impact - The company’s environmentally sustainable products can conserve up to 92% more water than standard sand filters, allowing for higher pricing on key products [32]. - The company is committed to sustainability and has established four ESG pillars: Products, People, Planet, and Principles [65]. - The company maintains an ESG section on its website to provide transparency and detailed information to stakeholders [70]. - The company has been involved in investigation and remediation activities related to environmental contamination, which could lead to material future costs [123]. - The company’s operations may be impacted by climate change and related regulatory responses, potentially disrupting production capabilities and supply chains [133]. Financial Performance and Risks - The company has experienced material cost inflation due to the COVID-19 pandemic, impacting raw material prices and manufacturing costs [106]. - The principal raw materials include resins and metals, which are subject to commodity price fluctuations that could adversely affect the cost of goods sold [118]. - The company expects an increase in sales denominated in non-dollar currencies, which may introduce currency transaction risks [104]. - The company may face significant risks if unable to generate sufficient cash flow from operations to service its debt obligations [147]. - The company may require additional financing for operations or acquisitions, which may not be available on acceptable terms [154]. Debt and Capital Structure - As of December 31, 2022, the company's total indebtedness was approximately 1,109.7 million under the first lien term loan facility [145]. - The company has revolving loan commitments of up to 475.0 million [145]. - The company had approximately $208.4 million of undrawn lines of credit available under the ABL Facility as of December 31, 2022 [153]. - The agreements governing the company's indebtedness impose restrictions that may limit its ability to engage in beneficial actions, including incurring additional debt and making strategic acquisitions [149]. Intellectual Property and Compliance - The company holds approximately 209 issued U.S. patents and 231 issued foreign patents as of December 31, 2022, covering various technologies [52]. - The company has approximately 59 pending U.S. patent applications and 78 pending foreign patent applications, indicating ongoing investment in intellectual property [135]. - The company relies on third-party intellectual property for certain products, which may limit its competitive advantage if licenses are not available on commercially acceptable terms [142]. - The company may be subject to claims regarding the wrongful use of trade secrets or intellectual property, which could lead to ownership disputes and litigation [143]. - The company is subject to various governmental regulations, including those related to environmental protection and product safety, which may increase compliance costs [121]. Internal Controls and Reporting - The company identified material weaknesses in its internal control over financial reporting, which could affect the accuracy and timeliness of financial reporting [162]. - Remediation efforts for the identified material weaknesses include enhancing the internal control environment and implementing IT general controls [166]. - The company has not yet remediated the material weaknesses, and the effectiveness of the remediation plan cannot be guaranteed [168]. - The majority of the voting power in the election of directors is controlled by sponsors, which may limit stockholder protections [161]. - The company has not documented an effective control environment, contributing to the identified material weaknesses [162]. Market and Stock Performance - The stock price has been volatile and may fluctuate significantly due to various uncontrollable factors [173]. - Future sales of common stock may depress the stock price and dilute existing stockholders' rights [171]. - The company may face restricted access to capital markets if it fails to maintain effective internal controls [170].