S-1/A 1 tm2037032-12_s1a.htm S-1/A tm2037032-12_s1a - block - 28.5782743s
As filed with the Securities and Exchange Commission on March 3, 2021.
Registration No. 333-253184
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Hayward Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
5091
82-2060643
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
400 Connell Drive
Suite 6100
Berkeley Heights, NJ 07922
(908) 351-5400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Eifion Jones
Senior Vice President and Chief Financial Officer
400 Connell Drive
Suite 6100
Berkeley Heights, NJ 07922
(908) 351-5400
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
Craig Marcus, Esq.
Rachel Phillips, Esq.
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
(617) 951-7000
Michael Kaplan, Esq.
Roshni Banker Cariello, Esq.
Jeffrey S. Ramsay, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    ☐ Accelerated filer            ☐
Non-accelerated filer     ☒ Smaller reporting company   ☐
Emerging growth company   ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Amount to be
Registered(1)
Proposed
Maximum
Offering Price Per
Share(2)
Proposed Maximum
Aggregate Offering
Price(1)(2)
Amount of
Registration
Fee(3)
Common stock, par value $0.001 per share
46,319,444 $ 19.00 $ 880,069,436 $ 96,015.58
(1)
Includes 6,041,666 shares of common stock that may be sold if the underwriters exercise their option to purchase additional shares of common stock.
(2)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended.
(3)
A portion of this amount totaling $10,910.00 was previously paid in connection with the previous filing of this Registration Statement on February 16, 2021. The remaining portion of $85,105.58 has been paid herewith.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated March 3, 2021.
40,277,778 Shares
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Hayward Holdings, Inc.
Common Stock
This is an initial public offering of 40,277,778 shares of our common stock. We are offering 22,200,000 shares of our common stock. The selling stockholders identified in this prospectus are offering 18,077,778 shares of our common stock. We will not receive any proceeds from the sale of the shares being sold by the selling stockholders.
Prior to this offering, there has been no public market for our common stock. We estimate that the initial public offering price per share will be between $17.00 and $19.00. See “Underwriting” for a discussion of the factors to be considered in determining the initial offering price. We have applied to list our common stock on the New York Stock Exchange under the symbol “HAYW.”
After the completion of this offering, certain affiliates of CCMP, MSD Partners and AIMCo (each as defined herein) will be parties to a stockholders agreement and will beneficially own approximately 78.7% of the combined voting power of our common stock (or 76.0% if the underwriters exercise in full their option to purchase additional shares of common stock). As a result, we will be a “controlled company” within the meaning of the New York Stock Exchange’s corporate governance standards. See “Management — Controlled Company Exemption” and “Principal and Selling Stockholders.”
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), and will be subject to reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”
Investing in shares of our common stock involves significant risks. See “Risk Factors” beginning on page 24.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Per Share
Total
Initial public offering price
$        $       
Underwriting discounts and commissions(1)
$ $
Proceeds before expenses, to us
$ $
Proceeds before expenses, to the selling stockholders
$ $
(1)
We have agreed to reimburse the underwriters for certain expenses. See “Underwriting.”
The selling stockholders have granted the underwriters the option to purchase up to an additional 6,041,666 shares of common stock at the initial public offering price, less the underwriting discounts and commissions.
The underwriters expect to deliver the shares of common stock to purchasers on or about         , 2021.
BofA Securities
Goldman Sachs & Co. LLC Nomura
Credit Suisse Morgan Stanley Baird Guggenheim Securities Jefferies
BMO Capital Markets
KeyBanc Capital Markets
William Blair
Houlihan Lokey
Moelis & Company
The date of this prospectus is          , 2021.

 
TABLE OF CONTENTS
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24
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166
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F-1
 
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Through and including                 , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
ABOUT THIS PROSPECTUS
We, the selling stockholders and the underwriters (and any of our or their affiliates) have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses filed with the Securities and Exchange Commission (the “SEC”). We, the selling stockholders and the underwriters (and any of our or their affiliates) take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
We, the selling stockholders and the underwriters (and any of our or their affiliates) have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who obtain this prospectus must inform themselves about, and observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.
MARKET AND INDUSTRY DATA
This prospectus includes market and industry data and forecasts that we have derived from independent consultants, publicly available information, various industry publications, other published industry sources and our internal data and estimates. Independent consultant reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable.
Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. Although we believe that such information is reliable, we have not had this information verified by any independent sources. Similarly, our internal research is based upon our understanding of industry conditions, and such information has not been verified by any independent sources. Any estimates underlying such market-derived information and other factors could cause actual results to differ materially from those expressed in the independent parties’ estimates and in our estimates.
Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables and charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
TRADEMARKS, TRADENAMES AND SERVICE MARKS
We own or have rights to trademarks or trade names that we use in conjunction with the operation of our business and that appear in this prospectus. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies which, to our knowledge, are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or symbols, but the absence of such symbols does not indicate the registration status of the trademarks and is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to such trademarks and trade names.
NON-GAAP FINANCIAL MEASURES
This prospectus contains “non-GAAP financial measures,” including EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin. These are
 
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financial measures that are not calculated and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). For more information about how we use these non- GAAP financial measures in our business, the limitations of these measures, and a reconciliation of these measures to the most directly comparable GAAP measures, please see the sections titled “Prospectus Summary—Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Reconciliation.”
THE RECLASSIFICATION
On March 2, 2021, we reclassified our Class B common stock into common stock and then effected a 195-for-1 split of our common stock. Prior to the completion of this offering, (i) we will convert each outstanding share of our Class A stock into 195 shares of our common stock plus an additional number of shares determined by dividing (a) the Class A preference amount of such share of Class A stock, or $683.84 per share (the “Class A Preference Amount”), by (b) the initial public offering price of a share of our common stock in this offering, net of the per share underwriting discount, and (ii) we will redeem each outstanding share of our Class C stock for an aggregate price of $1.00. In connection with the conversion of the Class A stock, holders of our Class A stock will receive a cash payment from us in lieu of fractional shares based on the initial public offering price per share of our common stock in this offering, but will not receive any other cash payments in connection with the conversion.
References to the “Reclassification” throughout this prospectus refer to (i) the reclassification of our Class B common stock into our common stock on March 2, 2021, (ii) the 195-for-1 stock split of our common stock on March 2, 2021, (iii) the conversion of our Class A stock into common stock, (iv) the redemption of our Class C stock and (v) the filing and effectiveness of our second restated certificate of incorporation and the adoption of our amended and restated bylaws. Unless otherwise indicated, all share data gives effect to the Reclassification. See “The Reclassification.”
 
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A MESSAGE FROM HAYWARD PRESIDENT AND CEO KEVIN HOLLERAN
With roots that go back nearly a century, Hayward has grown from a small, family-run company to a leading manufacturer of pool equipment and provider of enjoyable outdoor experiences. For all the growth and progress, the people of Hayward have retained the founder’s family values, working as a closely-knit team to develop and deliver superior products, provide exceptional service and build lasting relationships with distributors, builders, buying groups, retailers, servicers and pool owners. As a result, Hayward has one of the largest global installed bases and is the industry’s most recognized and trusted brand in the United States with a loyal customer base. We place a high priority on sustainability, community involvement and a fair living wage and are committed to improving the quality of life of our employees, our neighbors, our trade customers and pool owners.
I joined Hayward in mid-2019 after nearly 30 years of working with great recreational and industrial brands at Textron, Ingersoll-Rand and Terex. I was excited to join such a strong company with a great presence and growth potential in the outdoor living space. I was also delighted to find a deeply rooted and mutually supportive company culture that reaches beyond Hayward employees to a vast network of trade partners, retailers, and dealers, many of whom have had long-lasting relationships with Hayward. That cooperative spirit was never more needed or more evident than when the COVID-19 pandemic struck. I am proud of how the Hayward team rose to the challenges of servicing our trade customers, given our essential business status, while always keeping safety paramount. We worked remotely where we could and implemented appropriate safety measures where we could not. Our factories and distribution centers remained open, enabling our channel partners to satisfy soaring demand as pool owners realized the advantages of recreation in their own backyards. This experience has only reinforced appreciation for outdoor living and home wellness. The recent increase in new pool construction will play to the core strength of our business model for years to come, a model which focuses on the resilient aftermarket demand for repair, replacement and remodeling of existing pool equipment.
At the heart of Hayward’s strength is our position as a full-line supplier of industry-leading products to suit pools of all types—in-ground, above ground and commercial. Our high-quality components are engineered to work together to keep every pool at its best. The energy efficient products we develop and the natural processes we harness for pool sanitization reduce dependency on harsh chemicals. Our innovative spirit has brought breakthrough salt chlorine generators to the mainstream pool market with AquaRite. We continue our leadership today with Omni integrated “smart” home automation to cater to pool owners who increasingly expect to control all pool functions from the palm of their hand. Our reputation for reliability, quality and innovation draws trade customers and pool owners to the Hayward brand.
We engage a large addressable market with a revenue mix diversified by region, channel and product. Hayward’s strong revenue growth and margins have contributed to our financial strength. In 2020, we achieved net sales growth of 19.4%, improved our operating income margin, net income margin and adjusted EBITDA margin from 13.5% to 14.2%, 1.2% to 4.9% and 23.5% to 26.5%, respectively. Our market share has continued to grow as we introduce more energy efficient and more environmentally sustainable relevant products. We expect future growth to come from continued leadership in new and innovative products and further expansion in the United States and Canada as well as international markets where we are under-represented. We expect to achieve growth organically, and through targeted strategic acquisitions, where a disciplined process of integration has helped us in the past to expand markets, add new products and improve our technology.
We invite you to learn more about Hayward, the industry we serve, the strengths of our offerings and our future plans for growth and expansion.
Sincerely,
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Kevin Holleran
President and Chief Executive Officer
 
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus, but it does not contain all of the information that you should consider before deciding to invest in our common stock. You should carefully read the entire prospectus, including the information presented under the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” and the financial statements and the notes thereto, included elsewhere in this prospectus, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Unless otherwise indicated or the context otherwise requires, references in this prospectus to (i) “Hayward Holdings” refers to Hayward Holdings, Inc., (ii) “Hayward Industries” refers to Hayward Industries, Inc., our primary operating subsidiary, and (iii) “we,” “us,” “our,” “Hayward” or the “Company” refer to Hayward Holdings, Inc. and its consolidated subsidiaries, including Hayward Industries.
We define the year ended December 31, 2020 as Fiscal Year 2020 and the year ended December 31, 2019 as Fiscal Year 2019. Our fiscal quarters usually include 13 weeks except the fourth quarter which ends on December 31 of each fiscal year.
Company Overview
We are an industry-leading global designer, manufacturer and marketer of a broad portfolio of pool equipment and associated automation systems. With the pool as the centerpiece of the growing outdoor living space, the pool industry has attractive market characteristics, including significant aftermarket requirements, innovation-led growth opportunities and a favorable industry structure. We are a leader in this market with a highly-recognized brand, one of the largest installed bases of pool equipment in the world, decades-long relationships with our key channel partners and trade customers and a history of technological innovation. Our engineered products, which include various energy efficient and more environmentally sustainable offerings, enhance the pool owner’s outdoor living lifestyle while also delivering high quality water, pleasant ambiance and ease of use for the ultimate backyard experience. Aftermarket replacements and upgrades to higher value Internet-of-Things-enabled (“IoT”) and energy efficient models are a primary growth driver for our business as we estimate that aftermarket sales represented approximately 75% of net sales in Fiscal Year 2020. 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 have an attractive financial profile driven by our market position, product offerings and focus on operational excellence. From 2012 to 2020, our net sales grew at a 6.7% CAGR, our operating income grew at a 4.6% CAGR, our net income declined at a 3.4% CAGR and our adjusted EBITDA grew at a 9.6% CAGR. Our long history of lean manufacturing and supply chain initiatives produced operating income margins of 14.2% and 13.5%, net income margins of 4.9% and 1.2% and adjusted EBITDA margins of 26.5% and 23.5% in Fiscal Years 2020 and 2019, respectively. As a result of our strong financial profile, we believe we have significant flexibility with respect to capital allocation, giving us the ability to drive long-term shareholder value through our operating and financial strategies. Additional information regarding our financial performance and non-GAAP measures, including adjusted EBITDA and adjusted EBITDA margin, together with a reconciliation of non-GAAP measures to their most directly comparable GAAP measures, is included in “— Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Reconciliation.”
 
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The demand for outdoor living products has increased over the past decade as retiring baby boomers are investing in their homes and millennials are showing increased interest in outdoor spaces. Consumer spending has been redirected towards outdoor home improvements as consumers continue migrating to the suburbs and increase time spent at home and in the backyard. Outdoor living repair, replacement and remodeling has grown faster than traditional home repair, replacement and remodeling projects as homeowners choose to make larger outdoor investments. The trend toward healthy outdoor living has helped underpin continued pool industry growth. Homeowners’ response to COVID-19 also helped to reinforce this trend of new pool builds as a safe environment for enjoyment at home, further increasing the installed base of pools globally, which we estimate is over 25 million as of 2020. Our business is primarily driven by reliable aftermarket spending associated with a number of key drivers: a growing installed base, an increasing range of new pool products, a shift to more highly valued energy efficient and more environmentally sustainable products and the development of “smart home” technology to increase connectivity and automation.
We have a leading brand with a reputation for quality, energy efficiency and innovation among both global pool professionals (e.g., retailers, builders, servicers and e-commerce resellers) and pool owners. We are a leading global manufacturer, supported by a large installed base and an estimated North American residential pool market share of approximately 30% that we believe is well-positioned for future growth. We estimate our North American market share based on our extensive knowledge of the markets in which we operate and observations of our direct competitors, which we use to inform analyses of a survey of North American pool construction and aftermarket spending trends prepared by P.K. Data as well as unit share data prepared by a third party market research company. On average, we have 20+ year relationships with our top 20 trade customers. Many of our products are critical to the ongoing operation of pools given requirements for water quality and sanitization. As a result, we believe that many pool owners consider our products essential.
 
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Our products include a broad line of advanced IoT-enabled controls, alternate natural sanitizers to lower chemical usage, energy efficient pumps, LED lights, heaters, automatic cleaners and filters. We remain focused on being at the forefront of product innovation, as we continually expand our product offerings and have proactively brought new products to the market with 59 new products launched in the last three years. As of December 31, 2020, we had approximately 350 issued patents and 135 patent applications pending, including many for current and for future products under development. Consistent with our commitment to providing more environmentally sustainable solutions, over the past three years our products have helped to generate approximately 1.1 billion kWh of energy savings, reduce chlorine usage by approximately 81 million pounds and save approximately 2 billion gallons of chemically treated, heated water. Approximately 89% of our products are designed to be energy efficient, conserve water and/or avoid harsh chemical usage.
As the shift towards connected outdoor living continues, we remain focused on building an industry-leading integrated digital platform for our pool products. Given the strong aftermarket mix of our business, existing product upgrades (e.g., enhanced functions and IoT compatibility) drive our growth. Our proprietary Hayward Omni mobile app and automation platform provides numerous ways to manage essential pool functions from the scheduling of sanitization, filtration and automatic cleaners to enabling landscape light shows with water features to create the ultimate backyard experience. Our branded technology enables pool owners to manage their pools without the need to use broader technology integrators. In addition, the app helps to connect pool owners to the Hayward brand and increase awareness. We believe our focus on developing innovative connected products further enhances pool owner loyalty and enables us to increase our market share.
Our Competitive Strengths
We believe that the following competitive strengths have been key drivers of our success to date, and strategically position us for continued success.
Market Pioneer and Leader in Connected Pool Products Catering to Healthy Outdoor Living
We develop highly engineered outdoor living products. Our market leading brand has helped establish industry standards for generations, pioneering the shift to plastic flow control products and energy efficient heaters. Today we continue that innovation through healthy, more energy efficient and connected pool products. Swimming is one of the most popular recreational activities in the world and water-based exercise is known to improve physical and mental health. Our water care products are composed of salt chlorine
 
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generators that eliminate the need to handle and store corrosive chlorine chemicals. This natural process generates all the chlorine needed for sanitization while maintaining soft water for healthy, irritation free swimming. Our line of UV/Ozone and Advanced Oxidization Process (“AOP”) alternate sanitizers are among the most effective technologies in destroying waterborne bacteria and viruses while reducing the amount of chlorine required by at least 50%. Our pump products now consume only a third of the energy relative to a decade ago. The U.S. Environmental Protection Agency (“USEPA”) and U.S. Department of Energy (“DOE”) awarded us Energy Star Partner of the Year for the last two years as a result of our energy efficient products.
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As the world becomes more digitally focused, pool owners are increasingly demanding “smart” outdoor living solutions. Our proprietary Hayward Omni mobile app and automation platform provides numerous ways to manage every essential pool function. The mobile app manages everything from the scheduling of sanitization, filtration and running of automatic cleaners, to pool light shows with water features that create the ultimate backyard experience. Omni® gives the pool owner the power to access and adjust pool settings from anywhere. Omni easily connects to Amazon Alexa or Google Home for voice command of pool functions or integrates as part of a home automation system (e.g., Crestron and Savant). The emergence of IoT and smart home systems is a growing trend that is led by the U.S. smart home market, which is expected to grow approximately 15% per year, according to a recent report by Statista. Apps or voice controls are the most widely used systems for operating these home systems which complements Omni’s capability to operate pool and spa functions along with other backyard functions such as irrigation and landscape lighting. Omni is the highest rated pool app in both the Apple and Google online stores, with a 93% attach rate, which refers to the percentage of installed Omni-compatible products connected to the app. Our growing app user traffic allows us to better understand how pool owners are using our products and provides invaluable feedback on a real-time basis. Pool owners can also share their app data with their pool servicers and notify them of potential equipment issues to enable proactive service and maintenance. In the future, we expect to execute “in-app” marketing to push relevant offers and promotions to app users.
 
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Large Installed Base with Growing Content and Replacement Needs Creates Recurring Sales Model
Our products are generally non-discretionary and recurring (after initial pool construction and remodels) due to the need to repair and replace equipment for the ongoing operation of pools. Given our estimate of an installed base of approximately 25 million above ground and in-ground pools globally as of 2020 and our leadership position in the market, we estimate that approximately 75% of our net sales in Fiscal Year 2020 was driven by aftermarket repair, replacement, remodel and pool owner-desired upgrades. 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. Our product replacement cycle is approximately 9 to 12 years, driving multiple replacement opportunities over the typical life of a pool. Pool equipment features are of significant importance to the pool owner, and therefore we believe pool owners tend to be less price sensitive to our equipment relative to the pool’s total cost. At the time of replacement, pool owners typically prefer a like-for-like Hayward product or an upgrade to a newer product from our catalog. The replacement cycle drives an ongoing relationship that continues as homeowners upgrade their pools for many years after installation.
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Demand for pool products is also supported by an increasing sales value per pool equipment order. The average wholesale price for equipment per pool typically ranges from $1,500 for entry level pools to well above $10,000 for premium pools, but equipment is only a fraction of the total pool cost. The average amount spent on equipment per pool has more than doubled in the last 10 years as owners increasingly
 
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spend more to incorporate the latest technology. A recent study shows that pool professionals are increasingly recommending and installing upgraded products. In 2020, pool professionals reported they installed premium or upgraded versions of pool products 47% of the time, rather than making a like for like replacement of the broken product. In a similar survey conducted in 2016, pool professionals reported installing upgrades 37% of the time. Examples of recent themes in more advanced products include increased use of controls, apps, home automation systems, variable speed pumps, alternate sanitizers that reduce chemical usage, energy efficient water heaters, automatic cleaners and exciting new technology to increase ambiance and comfort. U.S. and Canadian government regulations, along with the European Ecodesign Directive, also support the transition to the use of energy efficient pumps. These innovative pool products enhance the pool ownership experience and in return drive greater pool satisfaction and pool demand.
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Premium Brand with Highly Engineered Products across Pool Types
We are an industry-leading brand among both global pool professionals (e.g., retailers, builders and servicers) and pool owners. We offer a comprehensive product assortment, consisting of more than 4,000 product SKUs. Our ability to offer a full bundle of products is a critical competitive advantage. We have invested heavily in our brand. Through new product development, rebranding of integrated acquisitions, customer service and operations, we have positioned Hayward as the go-to brand of choice, synonymous with pool product excellence. In the United States, we are the industry’s most recognized and trusted brand among pool owners. We believe that pool professionals consider us the highest quality, most dependable brand and they believe that Hayward is worth paying a premium for.
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Our broad suite of connected products caters to entry, mid-range and premium in-ground residential pools, above ground pools and commercial pools. As pool owners upgrade their pools over time, we believe we can remain a provider of choice at every step along their outdoor living progression. We leverage pool owners’ brand loyalty and our breadth of product offerings to grow across all pool categories.
Highly Flexible, Global Manufacturing and Distribution Platform with Differentiated Capabilities
We have six primary global manufacturing facilities and five primary distribution centers with a network of small locations for final assembly serving over 25 countries. Our production facilities are located in the United States, Spain and China, and leverage cost-efficient automation processes. Products manufactured in the United States have typically accounted for approximately 70% of our net sales. We have a strong commitment to safety, quality and environmental protection. In 2018, we implemented a behavioral safety initiative that has helped reduce recorded incidents by approximately 62% over the last three years. We use approximately 3 million pounds of recycled resin per year — up to 10% of all resin used in our pump and filter manufacturing consists of recycled material. In addition, we operate over 130 molding machines, of which approximately 70% are fully electric or hybrids and can save 20–40% in energy consumption compared to traditional hydraulic machines.
Our lean, vertically-integrated manufacturing and distribution processes allow for low-cost production that results in attractive margins and a high degree of quality control. We have consistently invested in these facilities to ensure that we have a strong and reliable supply chain designed to handle surges in demand and unforeseen logistical disruptions. We have ample manufacturing and distribution capacity, which provides versatility for growth and operating leverage within our existing footprint. We are able to produce customized, customer-differentiated products through our “Centers of Excellence” which are vertically-integrated facilities with flexible manufacturing capabilities. In addition, we have an agile production footprint with variable capacity available to support our anticipated growth over the next decade. The high level of automation in our facilities allows us to extend our work week and increase production velocity with limited additional capacity investments.
Multi-Channel Strategy Provides Multiple Points to Influence Pool Owners
Our go-to-market strategy leverages the professional trade, retail and e-commerce channels. Our trade customers are primarily distributors, major pool builders, buying groups, servicers and specialty on-line resellers, all of which subsequently sell our products to the pool owner. Sales to distributors make up the majority of our net sales, comprising 76% of net sales in Fiscal Year 2020, with remaining revenue from direct major builders, retailers and buying groups. Given our market position, trade customers are very familiar with our products and help to advocate their merits to pool owners. On average, we have 20+ year relationships with our top 20 trade customers and actively invest in these relationships through targeted sales efforts, loyalty programs and other initiatives.
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We deploy a “push-pull” strategy through the Hayward Sales Model. Our sales organization “pushes” distributors to stock and market our products, while simultaneously creating a “pull” from end-user demand by marketing these products to builders, retailers, servicers and pool owners. This combination of forces helps to increase the barrier for competitors to enter the channel.
 
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We manage this coordinated effort with a highly trained sales organization supported by our Salesforce.com customer relationship management (“CRM”) platform. The sales organization is divided into specialized teams: new accounts acquisition, builder, servicer and distribution channel management, commercial pool, e-commerce management and inside sales. These sales teams ensure that we reach our trade customers effectively and deliver our value proposition to the trade channel. Our sales organization compensation strategy is aligned to growing our business as compensation incentives are tied to year-on-year sales growth and are based on a combination of sales into the channel (i.e., sales to distributors) and sales out of the channel (i.e., distributor sales to trade partners). We generate “push” through programs such as volume rebates with key distributors and offer higher growth rebates to partners who achieve agreed upon growth milestones. Given the role of builders, retailers and servicers in the distribution channel, our sales team helps with training, marketing, advertising, promotional events and other tasks.
We create “pull” demand not only through our products’ quality and innovative features but also through loyalty programs. As product satisfaction is usually high, pool owners typically prefer the Hayward brand when looking for a replacement or upgrade of their current Hayward equipment. Pool owners may also choose a like-for-like Hayward product when replacing other manufacturers’ products, at the suggestion of retailers or servicers. This consumer dynamic helps to provide confidence for our trade customers to maintain ample inventory of our products. To further support demand, we motivate and incentivize our builders, retailers and servicers. These programs reward trade customers based on both volume and range of products ordered. Those who support the “Hayward bundle” as part of a one-stop-shop commitment save more on their purchases from the company over time.
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Our ongoing trade partner care intiatives further support our “push-pull” strategy and drive trade customer retention and growth. We have approximately 1,700 Hayward Authorized Service Centers in the United States to assist our trade customers and pool owners. In addition, we provide field-based technical service coordinated by three regional managers and 28 district technical managers covering all regions of the United States. We also operate two centralized call centers. The first provides product technical support to trade partners in the field. The second assists trade partners with order management and other commercial matters or issues.
In recent years, we have taken a market leading e-commerce position. We have implemented a range of policies and special SKUs for the online channel designed to maximize the opportunity for online sales without compromising our growth strategy with our “brick and mortar” customers. Approximately 15% of our products sold in the United States are ultimately purchased online. Our products reach the online sales channel through a combination of direct sales to online resellers and sales to our distributors who in turn sell to online resellers.
 
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Resilient, Strong Financial Performance
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Regardless of the economic conditions, it has been our experience that pool owners will maintain their pools and continue to pursue their pool wellness and recreation activities. Pool owners also are conscious that maintaining a pool typically costs less than repairing pool products that are damaged due to the lack of maintenance. We have delivered net sales growth, expanded margins and executed a disciplined capital expenditure program. From 2012 to 2020, our net sales grew at a 6.7% CAGR, our operating income grew at a 4.6% CAGR, our net income declined at a 3.4% CAGR and our adjusted EBITDA grew at a 9.6% CAGR. Our revenue and profitability metrics all grew over this time period with the exception of net income, which witnessed negative growth as a result of the transition in 2017 from a family-owned business to a sponsor-backed business, which resulted in higher interest expense following the Acquisition (as defined below). In addition, our net sales and adjusted EBITDA grew in every year since 2012 except for Fiscal Year 2019, which was negatively affected by elevated inventory levels in some of our key distribution channels entering the pool season (largely due to significant tariff-driven price increases impacting the industry in 2018), as well as sales volume declines due to cold, wet weather during the first half of 2019 in key markets. Our strong margin profile is supported by our aftermarket mix, continuous improvement initiatives and price inflation of 2–3% per year. In Fiscal Year 2020, we improved our operating income margin, net income margin and adjusted EBITDA margin from 13.5% to 14.2%, 1.2% to 4.9% and 23.5% to 26.5%, respectively. We have steadily reinvested in our business over time, mitigating the need for large capital expenditures on our installed manufacturing base. As a result of our attractive financial profile, we have significant flexibility with respect to capital allocation, giving us the ability to drive long-term shareholder value through various operating and financial strategies. Additional information regarding our financial performance and non-GAAP measures, including adjusted EBITDA and adjusted EBITDA margin, together with a reconciliation of non-GAAP measures to their most directly comparable GAAP measures, is included in “— Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Reconciliation.”
Proven Management Team Focused on Growth
Our strategic vision and culture are directed by our executive management team under the leadership of our President and Chief Executive Officer, Kevin Holleran and Senior Vice President and Chief Financial Officer, Eifion Jones. Mr. Holleran joined us in 2019 and has nearly 30 years of experience in commercial and leadership positions across a number of industrial focused end markets. Most recently, Mr. Holleran served as President and Chief Executive Officer of the $4 billion Industrial Segment within Textron (NYSE: TXT). Mr. Jones joined us in 2020 with over 30 years of experience as a world-class business leader with a strong track record of building and leading global financial organizations. Mr. Holleran and Mr. Jones joined an experienced management team with a track record of innovation and operational excellence at Hayward. Our management team is uniquely capable of executing upon our strategic vision and successfully continuing to create long-term shareholder value.
Our Growth Strategy
We believe our multi-faceted growth strategy positions us to drive profitable, above-market growth in the markets we serve.
 
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Continue to Introduce Thoughtful Innovation That Expands Our Markets
We have a proven track record of developing new products, offering advanced technology, energy-saving efficiency and a high-quality pool owner experience that have expanded our markets. Our strong manufacturing capabilities, detailed consumer research and extensive engineering expertise allow us to rapidly introduce differentiated products. In Fiscal Year 2020, new products launched in the last three years contributed approximately 11% of net sales. Recent product innovation includes: MaxFlo and TriStar VS—advanced energy efficient variable speed pumps for standalone operation or Omni control; HydraPure—an advanced oxidation process combining UV and ozone for water sanitization; OmniPL™ Smart Pool and Control—mobile app-based smart control for all connected pool and spa systems as well as other connected backyard components; AquaRite® 940 Omni—North America’s #1 salt chlorine generator bundled with Omni for smart control; AquaVac® 6 Series—a line of robotic pool cleaners with the technologically advanced, patented SpinTech™ debris separation technology for constant suction power; TriVac® 700—the only pressure cleaner capable of skimming debris from the surface of the water in addition to vacuuming the pool floor, walls and coves; and CAT 6000—a commercial, IoT-enabled water chemistry controller that allows precise sanitization control.
Our smart device apps have been available for our control products since 2010. In 2019, we significantly redesigned our premium Omni control app which first launched in 2015. This highly rated new app is compatible with all past and present Omni-compatible products, affording all users the same enhanced functionality and user experience. Data gathered from the app will help us further tailor our product development, distribution and sales strategies. This year, we plan to launch another exciting round of new products focused on the key categories of sanitization, heating, lighting and IoT-enabled controls. We also expect to introduce a new line of products timed to capitalize on the DOE's 2021 regulatory changes that require replacing many single speed pumps with variable speed pumps in new installations and replacements going forward. We expect these regulatory changes to accelerate the sales growth of variable speed pumps in 2021 and beyond. We believe this regulatory change will be a win-win for both the Company and the pool owner. Due to added product features, variable speed pumps have prices that are up to 2.4 times higher than single speed pumps and present significant revenue and gross margin upside to the Company. Similarly, the efficiency gains afforded by the products provide pool owners a rapid product purchase payback — as quickly as one to two years due to energy savings. We estimate that approximately 70% of North American pools have either no controls or just a simple on/off timeclock, providing us with an opportunity to upgrade these pools with Omni control and automation systems as part of the pump upgrade.
Focus on Key Strategic Sales Initiatives to Strengthen Trade Customer Relationships
We recently embarked on a sales initiative aimed at “Getting Closer to the Customer” in an effort to drive greater market share. We are evolving our sales organization from a generalist unit to a number of focused, channel-specific teams. We are creating national positions for managing e-commerce, large accounts and the commercial segment. Salesforce.com forms the backbone of this new strategy to ensure cross communication between teams in the field along with marketing and customer service. To further enhance our customer capabilities, we utilize a combination of in-person and virtual training programs. We have mobile training vehicles that provide hands-on product training and education in the field. Hayward University, an online portal of training videos and a library of product information available for our trade customers, further supports our training initiative and enables us to operate virtually. We also offer our Totally Hayward loyalty program, an incentive-based program that allows us to better connect with our trade partners.
Grow Additional Share in the International and Commercial Markets
We are a leading global manufacturer with a large installed base and an estimated North American residential pool market share of approximately 30% in Fiscal Year 2020. Based on management’s estimates, we believe that we also have a strong international presence with an estimated #3 share in Europe and #4 in Australia. We continue to focus on expansion as we implement Totally Hayward and leverage our complete product bundle across our international markets. The international market, particularly in Europe, is fragmented and we see significant room to grow our presence via our existing footprint and the introduction of new products that meet local market demands.
 
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We are currently a niche player in the commercial market where we see an opportunity for growth following the expansion of our commercial pool sales team. We believe our significant new product pipeline portfolio, which is a mix of in-house new product development complemented by strategic partnerships with third parties under the Hayward brand, will allow us to continue to drive deeper penetration in these markets. Moreover, we expect the broader adoption of ancillary products, such as sanitization systems, in the commercial market. This trend is expected to provide further growth opportunities in this end market.
Expand Margins and Returns Through Continuous Improvement Initiatives
Our global manufacturing and distribution footprint has enabled us to maintain strong margins and returns. We believe that we can continue to improve our margins through implementing cost improvement programs, including clear cost takeout programs currently in place. We believe our well-invested and predominantly owned manufacturing footprint supports our continuous improvement initiatives. Lean methodologies and Kaizen principles are central to everything we do. Our one-piece flow process, which enables us to assemble, test and package a product in a single work cell, maximizes our efficiency and lowers our manufacturing costs. Our strategic initiatives help us manage the costs of our materials through negotiations and various hedging programs. We believe these and other recent initiatives will enable us to strengthen our penetration in our key markets, expand market share and improve margins.
Execute Strategic Acquisitions That Broaden Our Platform
We generate a significant amount of cash flow and continue to re-invest in the business through organic and inorganic means. Acquisitions add new product technology and national market positions throughout our portfolio. We have completed and integrated more than 10 bolt-on acquisitions in the last 20 years. For example, the 2018 acquisition of Paramount opened a new category of in-floor cleaning, strengthened our position in alternate sanitizers and energy efficient goods. Our 2016 acquisition of Sugar Valley in Spain has both fueled market share growth in the European market and provided new technological product capabilities in sanitization and automatic controls.
We intend to utilize our disciplined process to identify, evaluate, acquire and integrate businesses across the healthy and connected outdoor living space. We actively monitor a pipeline of attractive acquisition opportunities across multiple product categories and geographies. We target opportunities that enhance our technological capabilities, strengthen our global market positions and increase our geographical diversity in our end markets. We also look to identify adjacencies in the outdoor living category that can be integrated into our Omni platform and can benefit from our scale.
Our Industry
Outdoor Living Market
The demand for outdoor living products has increased over the past decade as homeowners seek to create attractive areas in their backyards as an extension of their home space. A recent survey that gauged popularity of certain repair and remodeling categories showed that the top three responses were all related to outdoor living. In addition, outdoor living repair and remodeling spending has outpaced traditional repair and remodeling spending in recent years.
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Key contributors to this growth are retiring baby boomers and discerning millennials. Baby boomers are investing in improvements to their residences as they decide to retire in place. Millennials have shown a greater appreciation for the outdoors than prior generations and want attractive and functional outdoor spaces. Studies show that 70% of U.S. households have outdoor living spaces and those spaces are used at least once per week. Homeowners’ response to the COVID-19 pandemic have also helped reinforce this trend.
The outdoor living market covers several product areas:
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The pool typically serves as the centerpiece of the outdoor living space for homeowners and is one of the most expensive investments in the backyard. Buyer satisfaction with pool ownership is very high and the pool often brings people together outside. New pool products have also greatly increased the ease of maintaining a pool as well as the entertainment and enjoyment of this key backyard centerpiece.
U.S. Pool Market
History & Product Development
Americans have been enamored with swimming pools for many decades. In the 1930s, high-end hotels and local municipalities began using pools as marketing tools. The U.S. residential pool industry started to flourish after World War II as Americans were aided by the GI Bill, which fueled strong growth in new housing and a significant population relocation to Sun Belt and Western states. The pool industry continued to grow over the ensuing decades, including the introduction of new pool types such as the above ground pool. These industry developments helped to expand pool ownership and created a large installed base of pools. The quality and enjoyment of the pool experience has increased significantly over the past two decades as the result of innovative pool product companies such as ourselves.
Today’s pool owners typically demand healthy experiences, ‘green’ products, energy efficiency and a digital experience. Swimming is one of the best forms of exercise available according to the Centers for Disease Control and Prevention, while also being considered essential to wellness. As a result, we have introduced innovative products to satisfy this demand.
We believe the pool equipment market is large, growing and predictable. The industry is characterized by attractive long-term growth dynamics that have driven market growth of approximately 6-8% over the
 
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last five years. This market growth is supported by a growing aftermarket installed base, new construction of pools, product upgrades and industry pricing increases.
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U.S. Residential Aftermarket
The installed base of residential pools is large with approximately nine million pools in the United States as of 2020. As a result, pool equipment market expenditures are driven primarily by aftermarket spend versus new pool construction. Aftermarket equipment sales are driven primarily by the ongoing repair, replacement, remodeling and upgrading of equipment for existing pools. The non-discretionary nature of ongoing pool water treatment to maintain safe, sanitized water has been a key attribute of the industry. The Centers for Disease Control and Prevention (the “CDC”) recommends that swimming pool water chemistry be tested at least twice per day, or more often when the pool is in heavy use, and that water be treated as necessary to protect from germs that cause recreational water illnesses. A pool quickly becomes unusable if not regularly maintained and routine maintenance is less expensive than the cost of failing to maintain a pool, which can range from around $2,000 for chemical treatments to over $10,000 for entire pool decommissioning, according to management estimates. A pool provides a stream of revenue for manufacturers as pool owners require equipment, parts, components and services through the repair, replacement and remodeling cycle of their pools.
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The U.S. installed base of in-ground pools has grown every year since 1970. While the installed based is increasing, so is the average age of these pools, which has risen from an average age of 19 years in
 
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2012 to 22 years in 2019. Management estimates that pumps and filters are replaced in over half of all pool remodel projects and residential in-ground pools are remodeled approximately every 9-12 years, roughly the service life of most pool components. The rising age of pools brings about an increased need for repair, replacement and remodeling work. This continual replacement spend creates a resilient market with a very steady flow of demand for aftermarket sales of our products and services. The average spend per remodel on U.S. in-ground pools has increased by 44% between 2012 and 2019, which we believe was largely driven by this product upgrade dynamic. Aftermarket replacements often utilize newer product technology such as salt chlorine generators, IoT controls and variable speed pumps, which are more expensive than prior generation products but can help reduce chemical and energy spend for pool owners. We believe that these ongoing chemical and energy cost reductions can create a payback for pool owners of less than two years in many cases, providing an incentive for them to install the latest technology.
New U.S. Residential Pool Construction
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Beginning in 2012, the U.S. pool market saw steady growth in new residential in-ground pool construction based on annual pool installments. Since 2012, U.S. new pool construction has grown at over a 7% CAGR through 2020E while the total value of new residential in-ground pool construction has increased twofold, a growth rate that is significantly faster than the volume of new pool construction due to the increasing value of pool equipment. Also during this time, outdoor living expenditures have increased as American homeowners continue to invest in healthy outdoor living experiences. Pool construction weakened slightly in 2019 due to abnormally high rainfall as 2019 was the second wettest year on record for the United States.
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We believe the pool industry is poised for continued growth as industry tailwinds remain in place. The estimated 94,000 pools constructed in 2020 remains well below the long term annual pool construction median of 113,000 pools. While the post-Great Recession recovery of the new pool build market is still ongoing, current demand exceeds the pool construction industry’s ability to supply new pools, leading to a robust backlog and positive outlook for 2021 and beyond. Continued growth in new pool construction is expected to be aided by a strong new housing market, rising home equity levels, migration trends to the Sun Belt and continued growth in outdoor living investment.
 
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International Pool Market
We believe the international pool market outside North America was composed of approximately 15 million pools in 2020. Europe represents the largest portion of this market with approximately 7 million pools in the region and is projected to grow at a CAGR of over 9% between 2020 and 2026 based on expected continued growth in new pool construction and upgrades to new pool equipment technology. The European market remains highly fragmented, partially because various regional product certifications make it easier for market participants to operate locally. The European market is slightly more weighted to the direct channel than the United States as approximately 70% of sales are through distribution and approximately 30% are direct to trade customers. The majority of the European market is concentrated in warmer climates. France and Spain, combined, represent most of the market. Germany, Austria and Switzerland are also sizeable markets. Growth drivers for international pool markets include continued growth in residential and commercial pool construction and upgrades of equipment on existing pools to automated, energy efficient technology.
Recent Developments
On October 28, 2020, we entered into a second incremental amendment to the First Lien Term Facility (as defined herein), which provided for additional first lien term loans in an aggregate principal amount of $150.0 million (the “First Lien Incremental Term Facility”) to bring the aggregate outstanding loan amount under the First Lien Term Facility to approximately $1,108.0 million. The proceeds from the First Lien Incremental Term Facility were used to fund a portion of a special dividend of approximately $275.0 million on the outstanding shares of our Class A stock. For additional information, see “Description of Certain Indebtedness.”
The Reclassification
On March 2, 2021, we reclassified our Class B common stock into common stock and then effected a 195-for-1 split of our common stock. Prior to the completion of this offering, (i) we will convert each outstanding share of our Class A stock into 195 shares of our common stock plus an additional 40.2022 shares (assuming an offering price equal to the midpoint of the estimated offering price range shown on the cover page of this prospectus), which amount will be determined by dividing (a) the Class A preference amount of such share of Class A stock, or $683.84 per share (the “Class A Preference Amount”), by (b) the initial public offering price of a share of our common stock in this offering, net of the per share underwriting discount, and (ii) we will redeem each outstanding share of our Class C stock for an aggregate price of $1.00. In connection with the conversion of the Class A stock, holders of our Class A stock will receive a cash payment from us in lieu of fractional shares based on the initial public offering price per share of our common stock in this offering, but will not receive any other cash payments in connection with the conversion. See “The Reclassification.”
 
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Our Corporate Structure
The following chart illustrates our ownership structure as of January 31, 2021 after giving effect to this offering assuming an initial public offering price of $18.00 per share, the midpoint of the estimated price range set forth on the cover, and the application of the net proceeds therefrom:
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Summary of Material Risks Related to Our Business, Our Industry and This Offering
Investing in our common stock involves substantial risk, and our ability to successfully operate our business is subject to numerous risks. Some of the more significant challenges and risks related to our business include the following:

Our business depends on the performance of distributors, builders, buying groups, retailers and servicers;

The demand for our swimming pool equipment products may be adversely affected by unfavorable economic and business conditions;

We compete 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;

Our future success depends on developing, manufacturing and attaining market adoption of new products, and 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;

A loss of, or material cancellation, reduction, or delay in purchases by, one or more of our largest customers could harm our business;

If we do not manage product inventory in an effective and efficient manner, it could adversely affect profitability;

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;

Product manufacturing disruptions, including as a result of catastrophic and other events beyond our control, could cause us to be unable to meet customer demands or increase our costs;
 
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If we are unable to adequately obtain and maintain our intellectual property rights or if we, our vendors and/or our customers 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;

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and third parties could assert trademark infringement claims against us;

Our substantial indebtedness could adversely affect our financial condition;

Servicing our debt requires a significant amount of cash and our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations;

The terms of our indebtedness restrict our current and future operations, particularly our ability to respond to change or to take certain actions;

Our Sponsors will continue to have significant influence over us after this offering; and

Upon the listing of our common stock on the New York Stock Exchange, we will be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange.
Any of the factors set forth under “Risk Factors” may limit our ability to successfully execute our business strategy. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in our common stock.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in total annual gross revenues during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

reduced disclosure about our executive compensation arrangements;

no non-binding shareholder advisory votes on executive compensation;

exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and

reduced disclosure of financial information in this prospectus, including only two years of audited financial information and two years of selected financial information.
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in total annual gross revenues as of the end of any fiscal year, if we are deemed to be a large accelerated filer under the rules of the SEC or if we issue more than $1 billion of non-convertible debt during a three-year period.
The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies.
 
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Our Principal Stockholders
We were acquired by entities affiliated with CCMP Capital Advisors, LP (“CCMP”), MSD Partners, L.P. (“MSD Partners”) and Alberta Investment Management Corporation (“AIMCo” and, together with CCMP and MSD Partners, the “Sponsors”) and members of management and our board of directors (the “Board of Directors”) in June 2017 (the “Acquisition”). As of January 31, 2021, and after giving effect to the Reclassification but not this offering, entities affiliated with CCMP, MSD Partners, AIMCo, and current and former members of management and our Board of Directors and other investors owned equity securities representing approximately 38.1%, 38.1%, 19.6% and 4.2% respectively, of our voting power. Our Sponsors will continue to have significant influence over us and decisions made by our stockholders upon completion of this offering and may have interests that differ from yours. See “Risk Factors—Risks Related to this Offering and to our Common Stock.”
CCMP is a leading global private equity firm specializing in buyouts and growth equity investments in companies ranging from $250 million to more than $2 billion in size. CCMP has invested over $18 billion since 1984, which includes its founders’ activities at J.P. Morgan Partners, LLC (a private equity division of JPMorgan Chase & Co.) and its predecessor firms. CCMP was formed in August 2006 when the buyout and growth equity investment professionals of J.P. Morgan Partners, LLC separated from JPMorgan Chase & Co. to commence operations as an independent firm. The foundation of CCMP’s investment approach is to leverage the combined strengths of its deep industry expertise and proprietary operating resources to create value by investing in three targeted industries—Consumer, Industrial and Healthcare.
MSD Partners, an SEC-registered investment adviser located in New York, was formed in 2009 by the principals of MSD Capital, L.P. to enable a select group of investors to invest in strategies that were developed by MSD Capital. MSD Capital was established in 1998 to exclusively manage the capital of Michael Dell and his family. MSD Partners utilizes a multi-disciplinary investment strategy focused on maximizing long-term capital appreciation by making investments across the globe in the equities of public and private companies, credit, real estate and other asset classes and securities.
AIMCo is one of Canada’s largest and most diversified institutional investment managers with more than $115 billion of assets under management. AIMCo was established on January 1, 2008 with a mandate to provide superior long-term investment results for its clients. AIMCo operates at arms-length from the Government of Alberta and invests globally on behalf of public pension, public endowment and government funds in the Province of Alberta.
Corporate History and Information
Hayward Holdings, Inc. was incorporated in Delaware in June 2017. Our principal executive offices are located at 400 Connell Drive, Suite 6100, Berkeley Heights, NJ 07922 and our telephone number is (908) 351-5400. Our website is www.hayward-pool.com. Information contained on our website or that can be accessed through our website is not a part of, and is not incorporated by reference in, this prospectus.
 
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The Offering
Common stock offered by us
22,200,000 shares.
Common stock offered by the selling stockholders
18,077,778 shares.
Underwriters’ option to purchase additional shares of common stock
The selling stockholders have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to an aggregate of 6,041,666 additional shares of common stock, less underwriting discounts and commissions.
Common stock outstanding after this offering
229,557,132 shares. For additional information regarding the impact of a change in the initial public offering price on the number of shares outstanding after completion of this offering related to the conversion of our Class A stock, see “The Reclassification.”
Use of proceeds
We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us, will be approximately $368.9 million, assuming an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus). We will not receive any proceeds from the sale of shares of common stock by the selling stockholders named in this prospectus. See “Use of Proceeds.”
We intend to use the net proceeds from the sale of our common stock in this offering to repay approximately $368.9 million in aggregate principal amount of outstanding borrowings under our Credit Facilities (as defined herein). We intend to use the remaining net proceeds from this offering, if any, to repay additional outstanding borrowings under our Credit Facilities. See “Use of Proceeds” for additional information.
Dividend policy
Our Board of Directors does not currently plan to pay dividends on our common stock. The declaration, amount, and payment of any future dividends will be at the sole discretion of our Board of Directors. Our Board of Directors may take into account general economic and business conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions, and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our Credit Facilities and other indebtedness we may incur, and such other factors as our Board of Directors may deem relevant. See “Dividend Policy.”
Reserved share program
At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus for sale to some of our directors, officers, employees and related persons through a reserved share program. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.
Registration rights
Pursuant to a Stockholders Agreement, certain of our existing stockholders will have registration rights with respect to shares of our
 
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common stock following this offering. See “Certain Relationships and Related Party Transactions — Amended and Restated Stockholders Agreement.”
Risk factors
See “Risk Factors” for a discussion of risks you should carefully consider before deciding to invest in our common stock.
Controlled company
After the completion of this offering, we will be a “controlled company” within the meaning of the New York Stock Exchange’s corporate governance standards.
Proposed New York Stock Exchange ticker symbol
“HAYW.”
Except as otherwise indicated, the number of shares of common stock outstanding after this offering is based on 207,357,132 shares outstanding as of December 31, 2020 after giving effect to the Reclassification, assuming an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus). Because the number of shares of our common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would have a corresponding impact on the number of outstanding shares of our common stock presented in this prospectus after giving effect to this offering. See “The Reclassification.” Except as otherwise indicated, the number of shares of our common stock to be outstanding after this offering excludes:

shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2020 under our 2017 Plan (as defined herein) consisting of (i) 2,387,190 vested options with a weighted average exercise price of $0.88, (ii) 6,770,400 options subject to vesting upon achievement of performance conditions with a weighted average exercise price of $1.07 and (iii) 4,379,425 options that will remain subject to time vesting conditions following this offering with a weighted average exercise price of $1.20;

2,812,875 shares of common stock available for future issuance as of December 31, 2020 under our 2017 Plan. No further awards will be made under the 2017 Plan;

13,737,500 shares of common stock that will become available for issuance under our 2021 Plan, which includes 1,151,306 shares of our common stock issuable upon the exercise of options with an exercise price per share equal to the initial public offering price in this offering and 100,836 restricted common stock units, in each case to be granted in connection with this offering under our 2021 Plan and, in each case, determined based on the midpoint of the price range set forth on the cover page of this prospectus. In addition, up to 16,592,727 shares that are subject to awards under our 2017 Plan can be reissued under our 2021 Plan to the extent that they are forfeited, repurchased, settled in cash or otherwise become available for grant under the terms of our 2017 Plan; and

2,700,000 shares of common stock that will become available for issuance under our ESPP.
Except as otherwise noted or the context otherwise requires, all information in this prospectus assumes or gives effect to:

the Reclassification (assuming an initial public offering price equal to the midpoint of the estimated offering price range shown on the cover page of this prospectus);

no exercise of the outstanding stock options described above after December 31, 2020;

no exercise by the underwriters of their option to purchase additional shares;

no purchase of shares of common stock in this offering by directors, officers or existing stockholders.
 
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Summary Consolidated Financial and Other Data
You should read the following summary consolidated financial and other data together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus and our audited consolidated financial statements and the related notes thereto and our unaudited consolidated financial statements and the related notes thereto, each included elsewhere in this prospectus. The summary consolidated statement of operations data, cash flows data and other data for the years ended December 31, 2019 and December 31, 2020 and the summary consolidated balance sheet data as of December 31, 2019 and December 31, 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.
Years Ended December 31,
(dollars in millions, except per share data)
2020
2019
Statement of Operations Data
Net sales
$ 875.4 $ 733.4
Cost of sales
478.4 409.9
Gross profit
397.0 323.5
Selling, general, and administrative expenses
195.2 179.4
Research, development, and engineering
20.0 19.9
Acquisition and restructuring related expense (income)
19.3 (16.3)
Amortization of intangible assets
37.9 41.8
Operating income
124.6 98.7
Interest expense, net
73.6 84.5
Other (income) expense, net
(6.8) 2.1
Total other expense
66.8 86.6
Income from operations before income taxes
57.8 12.1
Provision for income taxes
14.5 3.6
Net income
$ 43.3 $ 8.5
Net income margin
4.9% 1.2%
Cash Flow Data
Net cash provided by operating activities
$ 213.8 $ 94.0
Net cash (used in) provided by investing activities
(13.0) 4.0
Net cash used in financing activities
(135.1) (65.1)
Balance Sheet Data (as of period end)
Cash and cash equivalents
$ 114.9 $ 47.2
Property, plant, and equipment, net
142.3 139.9
Goodwill and intangibles
2,034.5 2,068.7
Total assets
2,607.1 2,603.1
Long term debt
1,300.3 1,147.8
Total liabilities
1,803.4 1,569.6
Redeemable stock
594.5 869.5
Stockholders’ equity
209.2 164.0
Total liabilities, redeemable stock and stockholders’ equity
$ 2,607.1 $ 2,603.1
Non-GAAP Data(1)
Adjusted EBITDA(2)
231.6 172.4
Adjusted EBITDA margin(2)
26.5% 23.5%
 
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Years Ended
December 31,
(dollars in millions, except per share data)
2020
Pro forma:
Pro forma earnings per common share(3)
Basic
$ 0.17
Diluted
$ 0.16
Pro forma weighted average common share(3)
Basic
206,787,935
Diluted
208,628,439
(1)
We use adjusted EBITDA and adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies. These metrics are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. Adjusted EBITDA and adjusted EBITDA margin are not recognized measures of financial performance under GAAP. We believe these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of our business and assist these parties in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, which allows for a better comparison against historical results and expectations for future performance. Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short-and long-term operating planning, employee incentive compensation, and debt compliance. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms EBITDA, adjusted EBITDA and adjusted EBITDA margin may differ from similar measures reported by other companies. Adjusted EBITDA and adjusted EBITDA 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. Adjusted EBITDA should not be construed as an indicator of a company’s operating performance in isolation from, or as a substitute for, net income (loss), which is prepared in accordance with GAAP. We have presented adjusted EBITDA and adjusted EBITDA 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. Our presentation of adjusted EBITDA and adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by these items.
(2)
Adjusted EBITDA is defined as earnings before interest (including amortization of debt costs), income taxes, depreciation, and amortization further adjusted for the impact of restructuring related income, stock-based compensation, currency exchange items, Sponsor management fees 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.
Following is a reconciliation from net income to adjusted EBITDA for Fiscal Years 2020 and 2019.
Fiscal Years
(dollars in millions)
2020
2019
Net income
$ 43.3 $ 8.5
Depreciation
18.8 17.2
Amortization
44.0 46.8
Interest expense
73.6 84.5
Income taxes
14.5 3.6
 
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Fiscal Years
(dollars in millions)
2020
2019
EBITDA
194.2 160.6
Stock-based compensation(a)
1.9 1.6
Sponsor management fees(b)
0.8 0.8
Currency exchange items(c)
(4.7) 4.2
Acquisition and restructuring related expenses, net(d)
32.1 1.4
Other(e)
7.3 3.8
Total Adjustments
$ 37.4 $ 11.8
Adjusted EBITDA
$ 231.6 $ 172.4
Adjusted EBITDA margin
26.5% 23.5%
(a)
Represents non-cash stock-based compensation expense related to equity awards issued.
(b)
Represents discretionary fees paid to our Sponsors for management services rendered pursuant to a management agreement with the Company. These payments will cease as of the effective date of our initial public offering.
(c)
Represents non-cash mark to market gains (losses) on foreign currency contracts.
(d)
Adjustments in 2019 include net one-time costs associated with reorganizations of $20.4 million, net of a gain on the sale of real estate of $16.9 million, and remeasurement of a contingent consideration of $6.0 million, as well as operating losses of $5.3 million related to an early stage product business acquired in 2018 that is being phased out in 2021. Adjustments in 2020 primarily include $19.3 million of business restructuring related costs, $4.2 million of severance and retention costs, and $5.1 million of operating losses related to an early stage product business acquired in 2018 that is being phased out in 2021.
(e)
Includes professional fees, financial fees, $2.0 million for expenses incurred in preparation for our initial public offering, additional health and safety expenses related to COVID-19, and other miscellaneous costs that we believe are not representative of our ongoing business operations.
(3)
Pro forma earnings per share gives effect to: (i) the conversion of Class A stock into common stock based on a price of $18.00, the midpoint of the range set forth on the cover of this prospectus, (ii) $1.0 million of stock compensation expense for the Class A restricted stock awards for which the performance condition will be satisfied upon the completion of this offering, (iii) $0.6 million of stock compensation expense for performance-based restricted stock as all vesting conditions are deemed probable upon completion of this offering, and (iv) $10.3 million of stock compensation expense for performance-based common stock options as all vesting conditions are deemed probable upon completion of this offering.
 
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RISK FACTORS
An investment in our common stock involves risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in shares of our common stock. The risks described below are those that we believe are the material risks that we face. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial also may materially and adversely affect our business, prospects, operating results or financial condition. See “Special Note Regarding Forward-Looking Statements” elsewhere in this prospectus.
Risks Related to Our Business
Our business depends on the performance of distributors, builders, buying groups, retailers and servicers.
We distribute our products through our customers who are distributors, builders, buying groups, retailers and servicers, many of whom sell products of competing manufacturers. We rely on our customers to stock, market and recommend our products to pool owners and our business depends on retaining good relationships with our customers. 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.
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.
The demand for our swimming pool equipment products may be adversely affected by unfavorable economic and business conditions.
We compete in various geographic regions and product markets around the world. Among these, the most significant are residential markets in the United States, Canada, Europe and Australia as well as commercial markets in the United States and Europe. We have experienced, and expect to continue to experience, fluctuations in sales and results of operations due to economic and business cycles. While our products (other than for initial pool construction and remodels) are generally non-discretionary and purchased on a recurring basis due to the need for ongoing operation of pools, consumer spending affects sales of our products for initial pool installation and, more broadly, to our customers, such as distributors, builders, buying groups, retailers and servicers, who sell our products to pool owners and who must account for anticipated changes in consumer demand when they purchase our products from us. Consumer spending is impacted by factors outside of our control, including general economic conditions, the residential housing market, unemployment rates and wage levels, interest rate fluctuations, 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. 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. 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. Unfavorable economic conditions or a downturn in the housing market can result in significant tightening of credit markets, which limits the ability of pool 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.
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.
 
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We compete 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. We compete against large and well-established national and global companies, as well as regional and local niche OEM’s and lower cost manufacturers. Competition may also result from new entrants into the markets we serve, offering products that compete with us. Our competitors offer pool equipment of varied quality and across a wide range of retail price points. 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. Some of our competitors, in particular smaller companies, compete based primarily on price and local relationships, especially with respect to products that do not require significant engineering or technical expertise. In addition, during economic downturns average selling prices tend to decrease as market participants compete more aggressively on price. Moreover, demand for our products, which impacts profit margins, is affected by changes in customer order and consumer purchasing patterns, such as changes in the levels of inventory maintained by customers and the timing of customer and consumer purchases, and changes in customers’ and consumers’ preferences for our products, including the success of products offered by our competitors. 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. If we are unable to continue to differentiate our products or adapt to changes in consumer purchasing behavior or shifts in distribution channels, or if we are forced to cut prices or to incur additional costs to remain competitive, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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 financial success will depend substantially on our ability to develop, manufacture and effectively and profitably market and sell our planned and future new products. Pool owners are increasingly demanding “smart home” technology, automation and other features to enhance their pools and staying at the forefront of product innovation and consumer demand is important to our future success. We must continue to develop and bring to market innovative products, which requires hiring and retaining technical staff, maintaining and upgrading manufacturing facilities and equipment and expanding our intellectual property rights. We must also identify emerging technological and other trends in our target end markets as well as understand and react to potential regulatory changes. The failure to effectively launch competitive products, services, solutions, organization, workforce and sales strategies could have a material adverse effect on our business, financial condition, results of operations and cash flows. Even if we are able to achieve or maintain significant market acceptance, the commercial success of our planned or future products or services is dependent on a number of additional factors. Successful growth of our sales and marketing efforts will depend on the strength of our marketing infrastructure and the effectiveness of our sales and marketing strategies as well as the continued quality, reliability and innovation of our products. 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.
In several geographic markets, such as Europe, many potential consumers prefer local suppliers, in some cases because of existing relationships and in other cases because of local legal restrictions or incentives that favor local businesses. Our success in these markets depends on obtaining and maintaining relationships with channel partners who can effectively sell our products to pool owners in the applicable market. Accordingly, our future success depends upon a number of factors, including our ability to develop or acquire innovative, competitive products and bring them to market quickly and cost effectively as well as develop customer service, solutions, organization, workforce and sales strategies to fit localities throughout the world particularly in high growth emerging markets.
 
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Past growth may not be indicative of future growth.
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. Our various business strategies and initiatives, including our growth initiatives, are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In the future, we may not be able to:

acquire new customers, retain existing customers or grow or maintain our share of the market;

penetrate new markets;

identify and develop new products that meet the demand of rapidly evolving pool owner expectations;

generate sufficient cash flows to support expansion plans and general operating activities;

obtain financing for our growth initiatives, including acquisitions;

identify suitable acquisition candidates and successfully integrate acquired businesses;

maintain favorable supplier and customer arrangements and relationships;

maintain consumer satisfaction and retention; and

identify and divest assets that do not meet our objectives.
If we are not able to continue to compete in our markets and grow our business, our business, financial condition, results of operations and cash flows could be adversely affected.
Our results of operations and cash flows may fluctuate from quarter to quarter for many reasons, including seasonality and weather conditions.
We experience seasonal demand with customers and pool owners and as a result we experience fluctuations in quarterly results. During the second quarter of a fiscal year, sales are higher in anticipation of the start of the summer pool season. 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 early buy program we ship products from October through March and receive payments for these shipments from April through July. As a result, our accounts receivable balance increases from October to June before the early buy payment is received. In addition, cash flow is higher in the second quarter as the seasonality of our business peaks and payments are received.
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. 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. Additionally, while the majority of our sales are driven by aftermarket repair, replacement and remodeling products, adverse weather conditions, such as cold or wet weather, may negatively impact demand for, and sales of, pool equipment as a result of diminished use and reduced construction speed.
A loss of, or material cancellation, reduction, or delay in purchases by, one or more of our largest customers could harm our business.
A majority of our net sales is generated from sales to distributors, including our largest customer, Pool Corporation, who represented approximately 30% of our net sales in Fiscal Year 2020 and 35% of our accounts receivable on December 31, 2020. While we do not have any other customers that accounted for 10% or more of our net sales in Fiscal Year 2020, we have other customers that are key to the success of our business. Our top five customers accounted for approximately 43% of our net sales in Fiscal Year 2020. 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
 
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channels in which we sell our products. We cannot provide assurance that we will be able to retain our largest customers. In addition, some of our customers may shift their purchases to our competitors in the future. The loss of one or more of our largest customers, any material cancellation, reduction, or delay in purchases by these customers, or our inability to successfully develop relationships with additional customers could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are exposed to credit risk on our accounts receivable and this risk is heightened during periods when economic conditions worsen.
We distribute our products through distributors, large pool builders, buying groups, services and specialty online resellers. 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. As of December 31, 2020, our largest customer represented approximately 35% of our accounts receivable and our top five customers represented approximately 54% 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 may be limited. While 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.
We are exposed to political, regulatory, economic, trade, and other risks that arise from our international business operations.
Sales outside of the United States for Fiscal Year 2020 accounted for approximately 29% of our net sales. Furthermore, we obtain some components and raw materials from non-U.S. suppliers and have manufacturing facilities in Europe and China. Accordingly, our business is subject to the political, regulatory, economic, trade, and other risks that are inherent in operating in numerous countries. These risks include:

changes in general economic and political conditions in countries where we operate, particularly in emerging markets;

relatively more severe economic conditions in some international markets than in the United States;

the imposition of tariffs, duties, exchange controls or other trade restrictions, including recently enacted tariffs on manufactured goods imported from China;

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;

trade protection measures and import or export licensing requirements and restrictions;

the possibility of terrorist action affecting us or our operations;

the threat of nationalization and expropriation;

difficulty in staffing and managing widespread operations in non-U.S. labor markets;

limitations on repatriation of earnings or other regionally-imposed capital requirements;

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.
 
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Our success depends in part on our ability to anticipate and effectively manage these and other risks. 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.
Changes in U.S. or foreign government administrative policy, including changes to existing trade agreements, could have a material adverse effect on us.
As a result of changes to U.S. or foreign government administrative policy, there may be changes to existing trade agreements, such as the U.S.-Mexico-Canada Agreement (“USMCA”), which recently replaced the North American Free Trade Agreement. The full impact of the USMCA on manufacturing operations in North America, as well as on economic conditions and markets generally, is currently unknown. Further, during the negotiations leading up to the USMCA, the political and trade relationship between the United States and Mexico was strained, and such relationship may deteriorate. If our ability, the ability of our partners or our contract manufacturer’s ability, to manufacture our products is interrupted as a result, or if our ability to import products or raw materials into the United States is impacted, our business, financial condition, results of operations or cash flows could be adversely affected.
In addition, recently enacted tariffs and potential future increases in tariffs on manufactured goods imported from China could adversely affect our business. Since July 2018, the United States has imposed a series of tariffs, ranging from 5% to 25%, on a variety of imports from China and subsequently implemented tariffs on additional goods imported from China. As trade negotiations between the United States and China continue, it is unclear as to whether or not the U.S. government will take further tariff action or perhaps grant relief to actions already put in place. Inability to reduce acquisition costs or pass through price increases could have an adverse effect on our results of operations and cash flows. Similarly, increases in pricing may have an adverse impact on the competitiveness of the Company’s products relative to other manufacturers with less exposure to the tariff and could also lead to adverse impacts on our results of operations and cash flows.
It remains unclear what the U.S. government or other foreign governments will or will not do with respect to tariffs, USMCA or other international trade agreements and policies. Other governmental action related to tariffs or international trade agreements, including USMCA, changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently manufacture and sell products, and any resulting negative sentiments towards the United States as a result of such changes, could also have a material adverse effect on our business, financial condition, results of operations and cash flows.
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. To date, we have experienced significant growth through acquisitions, completing multiple acquisitions over the past two decades, but we may not be able to successfully integrate an acquired business or technology or to effectively manage the company following an acquisition. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results. In addition, if an acquired business fails to meet our expectations, our business, financial condition, results of operations or cash flows may be negatively affected. We continue to analyze and evaluate the acquisition of strategic businesses or product lines with the potential to strengthen our industry position or enhance our existing set of product offerings. We may not be able to identify suitable acquisition candidates, obtain financing or have sufficient cash necessary for acquisitions or successfully complete acquisitions in the future. Any acquisitions that we complete may not be successful. Acquisitions may involve significant cash expenditures, debt incurrences, equity issuances, operating losses and expenses. 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;
 
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difficulties in obtaining and verifying the financial statements and other business information of acquired businesses;

inability to obtain required regulatory approvals;

potential loss of key employees, key contractual relationships or key 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 U.S. Foreign Corrupt Practices Act (the “FCPA”) and privacy laws, including the General Data Protection Regulation (“GDPR”); and

dilution of interests of holders of our shares through the issuance of equity securities or equity-linked securities.
It may be difficult for us to integrate acquired businesses, products or technology efficiently into our business operations. Any acquisitions or investments may not be successful and may ultimately result in impairment charges and have a material adverse effect on our business, financial condition, results of operations and cash flows.
The COVID-19 pandemic and associated responses could adversely impact our business, operations, financial condition, results of operations or cash flows.
While we believe that the COVID-19 pandemic has only reinforced existing pool industry growth trends and has not had a significant impact to our cost structure, our business, operations, financial condition, results of operations or cash flows could be negatively impacted by the COVID-19 pandemic and associated responses.
Early in the pandemic, certain of our suppliers faced challenges and were not able to timely deliver the quantities of raw materials or components we required. This negatively affected our production capabilities in the second quarter. During the third quarter we secured secondary sources of supply and were able to return production to full capabilities. Continued restrictions and disruption of transportation, including reduced availability of air transport, port closures and increased border controls or closures, have resulted in higher costs and delays, both for obtaining raw materials and components and shipping finished goods to customers, which has had a limited impact on our profitability. However, if the COVID-19 pandemic is prolonged or worsens, we could experience further supply chain disruptions or delays that could have a material impact on our business.
Our North American operations are and have been continuously open since the start of the COVID-19 pandemic as water sanitization has been designated as an essential business in almost all of our markets. As such we have implemented the necessary steps to protect our manufacturing and distribution facilities to ensure we have continuity of production and supply to our customers. While we did experience in the early months of the pandemic partial or full facility closure for cleaning and sanitization, all of our manufacturing and distribution facilities are currently operational. However, a future shutdown or reduction of our manufacturing or distribution facilities as a result of the pandemic could have a negative impact on our operations, inventory, results of operations or cash flows.
The COVID-19 pandemic has caused a global economic slowdown that may last for a potentially extended duration, and it is possible that it could cause a global recession. Deteriorating economic and political conditions caused by the COVID-19 pandemic, such as increased unemployment, decreased capital spending, declines in consumer confidence, or economic slowdowns or recessions, could cause a decrease in demand for our products. In addition, a prolonged or worsened COVID-19 pandemic could lead to the shutdown or material reduction of pool construction and repair, replacement and remodeling activity, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. While we have experienced higher demand in our pool business as pool owners sheltered-in-place and have spent more time at home as a result of the COVID-19 pandemic, such growth may not be sustainable and may not be repeated in future periods. Furthermore, even if growth in demand continues, we may not be able to meet that demand due to production and capacity challenges.
 
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The severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and hard to predict. We may not be able respond to the impacts of the COVID-19 pandemic on a timely basis to prevent near- or long-term adverse impacts to our results of operations. Any negative impact on our business, financial condition, results of operations and cash flows cannot be reasonably estimated at this time, but the COVID-19 pandemic could lead to extended disruption of economic activity and the impact on our business, financial condition, results of operations and cash flows could be material.
Sales of counterfeit versions of our products, as well as unauthorized sales of our products, may adversely affect our reputation, business, financial condition, results of operations and cash flows.
Our products have and may continue to become subject to competition from counterfeit products, which are products sold under the same or very similar brand names and/or having a similar appearance to genuine products, but which are sold without proper licenses or approvals. Such products divert sales from genuine products, often are of lower cost and quality, and have the potential to damage the reputation for quality and effectiveness of the genuine product. Illegal sales of counterfeit products could have an adverse impact on our business, financial condition, results of operations and cash flows. In addition, if illegal sales of counterfeits result in adverse product liability or negative customer experience, we may be associated with any negative publicity resulting from such incidents. Although we seek to monitor the existence of counterfeit products and initiate actions to remove them from sale, we may not be able to prevent third parties from manufacturing, selling or purporting to sell counterfeit products competing with our products. Such sales may also be occurring without our knowledge. The existence and any increase in production or sales of counterfeit products or unauthorized sales could negatively impact our sales, brand reputation, business, financial condition, results of operations and cash flows.
We may be negatively impacted by litigation and other claims, including intellectual property, product liability or warranty claims, and health and safety concerns, including product recalls, could negatively impact our sales and expose us to litigation.
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. For example, we are a defendant in a set of consolidated patent infringement actions brought by Pentair Water Pool and Spa, Inc. and Danfoss Drives A/S (the “Pentair Litigation”). The plaintiffs in the Pentair Litigation have claimed certain of our variable speed pump and controller products infringe seven U.S. patents, and may in the future claim that other Hayward products infringe and/or that we, our vendors and/or our customers infringe other Pentair patents. We have challenged six of the asserted patents at the U.S. Patent and Trademark Office (“USPTO”) in inter partes proceedings and have raised non-infringement and invalidity defenses to each of the seven patents currently asserted against us in the infringement actions, which are currently stayed. See “Business—Legal Proceedings.” 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. In addition, we have agreed to provide indemnification in connection with prior acquisitions or dispositions for certain of these matters, and we cannot assure you that material indemnification claims will not be brought against us in the future.
Product quality issues could negatively impact consumer confidence in our brands and our business. If our products do not meet applicable safety standards or pool owners’ expectations regarding safety or quality, we could experience lost sales and increased costs and be exposed to legal, financial, and reputational risks, as well as governmental enforcement actions. Actual, potential or perceived product safety concerns could expose us to litigation, as well as government enforcement actions, and result in costly product recalls and other liabilities.
We have in the past and may in the future implement a voluntarily recall or market withdrawal or may be required to do so by a regulatory authority. A recall or market withdrawal of one of our products would be costly and would divert management resources. A recall or withdrawal of one of our products, or
 
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a similar product processed by another entity, also could impair sales of our products because of confusion concerning the scope of the recall or withdrawal, or because of the damage to our reputation for quality and safety.
In addition, if our products are, or are alleged to be, defectively designed, manufactured or labeled, contain, or are alleged to contain, defective components or components containing hazardous materials, such as asbestos, or are misused, we may become subject to costly litigation initiated by pool owners. Product liability claims could harm our reputation, divert management’s attention from our core business, be expensive to defend, and may result in sizable damage awards against us. Although we maintain product liability insurance, we may not have sufficient insurance coverage for future product liability claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, harm our reputation, significantly increase our expenses, and reduce product sales. Product liability claims could cause us to incur significant legal fees and deductibles and claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and operating results. In addition, successful product liability claims made against one of our competitors could cause claims to be made against us or expose us to a perception that we are vulnerable to similar claims. Claims against us, regardless of their merit or potential outcome, may also hurt our ability to obtain acceptance of our products or to expand our business.
We have significant goodwill and intangible assets and future impairment of our goodwill and intangible assets could have a material adverse effect on our results of operations.
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, 2020, our goodwill and intangible assets were $2,034.5 million and represented approximately 78% of our total assets. Declines in value could result in future goodwill and intangible asset impairment charges.
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. We conduct business in various locations throughout the world and are subject to market risk due to changes in value of foreign currencies in relation to our reporting currency, the U.S. dollar. Periodically, we use derivative financial instruments to manage these risks. The functional currencies of our foreign operating locations are generally the local currency in the country. We manage these operating activities at the local level and net sales, costs, assets and liabilities are generally denominated in local currencies, thereby mitigating the risk associated with changes in foreign exchange. However, our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.
The Company’s financial instruments that can be affected by foreign currency fluctuations and exchange risks consist primarily of cash and cash equivalents, trade receivables, trade payables, and net sales denominated in currencies other than the U.S. dollar. For the Fiscal Year 2020, approximately 25% of our net sales were denominated in a currency other than our functional U.S. dollar currency. 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. To hedge against this risk, we enter into foreign currency forward exchange contracts to protect our trade receivable positions and forward options to protect highly probable net Euro sales receipts expected from our outstanding contractual price and sales volume commitments.
We expect that the amount of our sales denominated in non-dollar currencies may increase in future periods. Given the volatility of exchange rates, there can be no assurance that we will be able to effectively manage our currency transaction risks or that any volatility in currency exchange rates will not have a material adverse effect on our financial condition or results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk.”
 
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Additionally, because our consolidated financial results are reported in U.S dollars, the translation of sales or earnings generated in other currencies into U.S. dollars can result in a significant increase or decrease in the amount of those sales or earnings in our financial statements, which also affects the comparability of our results of operations and cash flows between financial periods. Further, currency fluctuations may negatively impact our debt service requirements, which are primarily in U.S. dollars.
Changes in our effective tax rate or exposure to additional income tax liabilities could adversely affect our financial results.
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.
In the past, we have experienced material cost and other inflation in a number of our businesses. We strive for productivity improvements and seek to implement increases in selling prices to help mitigate cost increases in raw materials (especially metals and resins), energy and other costs including wages, pension, health care and insurance. We continue to implement operational initiatives designed to mitigate the impacts of this inflation and reduce our costs. 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.
We depend on our ability to attract, develop, and retain highly qualified personnel, including key members of management.
Our future success depends on the continued efforts of the members of our executive management team. If one or more of our executives or other key personnel are unable or unwilling to continue in their present positions, or if we are unable to attract and retain high-quality executives or key personnel in the future, our business may be adversely affected.
In addition, we consider our employees to be the foundation for our growth and success. 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. If we are unable to attract, hire and retain qualified personnel, our operating results could be adversely affected.
We may encounter difficulties in operating or implementing a new enterprise resource planning (“ERP”) system, which may adversely affect our operations and financial reporting.
Over the next 2-3 years, we intend to select and implement 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. The ERP system 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.
Disruptions in the financial markets could adversely affect us, our customers and our suppliers by increasing funding costs or reducing availability of credit.
In the normal course of our business, we may access credit markets for general corporate purposes, which may include refinancing or repayment of indebtedness, acquisitions, additions to working capital, repurchase of shares, capital expenditures and investments in our subsidiaries. Our access to and the cost of capital could be negatively impacted by disruptions in the credit markets, which have occurred in the past and made financing terms for borrowers unattractive or unavailable. These factors may make it more difficult or expensive for us to access credit markets if the need arises. In addition, these factors may make it more difficult for our suppliers to meet demand for their products or for prospective customers to commence new projects, as customers and suppliers may experience increased costs of debt financing or difficulties in
 
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obtaining debt financing. Disruptions in the financial markets have had adverse effects on other areas of the economy and have led to a slowdown in general economic activity that may continue to adversely affect our businesses. One or more of these factors could adversely affect our business, financial condition, results of operations or cash flows.
Our operating results will be harmed if we are unable to effectively manage and sustain growth or scale our operations.
We may not be able to manage our future growth, if any, efficiently or profitably. Our sales and operating margins, or sales and margin growth, may be less than expected. If we are unable to scale our operations efficiently or maintain pricing without significant discounting, we may fail to achieve expected operating margins, which would have a material and adverse effect on our operating results. Growth may also stress our ability to adequately manage our operations, quality of products, safety, and regulatory compliance. If growth significantly decreases, it will negatively impact our cash flows, and it may be necessary to refinance our existing indebtedness or obtain additional financing, which may increase indebtedness or result in dilution to shareholders. Further, we may not be able to obtain additional financing on acceptable terms, if at all.
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.
Information technology supports several aspects of our business, including, among others, supply sourcing, pricing, customer service, transaction processing, financial reporting, collections and cost management. In addition, we expect our reliance on information technology systems to increase as we continue to develop IoT-enabled products, such as our Omni mobile app. As a result, our ability to operate effectively on a day-to-day basis and accurately report our results depends on a solid technological infrastructure, which is inherently susceptible to internal and external threats. We are vulnerable to interruption and breakdown by fire, natural disaster, power loss, telecommunication failures, internet failures, security breaches, and other catastrophic events. Exposure to various types of cyberattacks such as malware, computer viruses, worms, or other malicious acts, as well as human error or malfeasance, could also potentially disrupt our operations or result in a significant interruption in the delivery of our products. Such information technology security threats are increasing in frequency and sophistication and pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of the data we process and maintain.
Advances in computer and software capabilities, encryption technology, and other discoveries increase the complexity of our technological environment, including how each interact with our various software platforms. Such advances could delay or hinder our ability to process transactions or could compromise the integrity of our data, resulting in a material adverse impact on our financial condition and results of operations. The risk of system disruption is increased when significant system changes are undertaken. If we fail to timely integrate and update our information systems and processes, we may fail to realize the cost savings or operational benefits anticipated to be derived from these initiatives. We also may experience occasional system interruptions and delays that make our information systems unavailable or slow to respond, including the interaction of our information systems with those of third parties. A lack of sophistication or reliability of our information systems could adversely impact our operations and consumer service and could require major repairs, replacements or remodelings, resulting in significant costs and foregone sales.
Cybersecurity threats, which include computer viruses, spyware, ransomware and malware, attempts to access information, denial of service attacks, and other electronic security breaches, are persistent and evolve quickly, and we have in the past and may in the future experience such cybersecurity threats. Such threats have increased in frequency, scope, and potential impact in recent years. 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. The accidental or willful security breaches or other
 
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unauthorized access by third parties to our information technology systems or facilities, or those of our vendors and/or others with which we do business, or the existence of computer viruses in our or their data or software, and/or any other failure of our or their information technology systems could expose us to a risk of information loss, the misappropriation of proprietary and confidential information, work stoppages, disruptions, and/or the defective manufacture or defective design of our products, which could expose us to liability. Any theft, misuse, unauthorized or inadvertent disclosure, manipulation or destruction of this information could result in, among other things, unfavorable publicity, damage to our reputation, difficulty in marketing our products, allegations by our customers that we have not performed our contractual obligations, regulatory fines or penalties, litigation by affected parties and possible financial obligations for liabilities and damages related to the theft or misuse of this information, any of which could have an adverse effect on our business, financial condition, results of operations, reputation, and relationships with our customers and suppliers. Further, we could be forced to expend significant financial and operational resources in response to a security breach, including repairing system damage, increasing security protection costs by deploying additional personnel and modifying or enhancing our protection technologies, investigating and remediating any information security vulnerabilities and defending against and resolving legal and regulatory claims, all of which could divert resources and the attention of our management and key personnel away from our business operations and adversely affect our business, financial condition and results of operations.
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.
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, 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. 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 do not carry a significant inventory of these components that could cover every potential supply constraint. Our suppliers may not be able to meet our demand for their products, either because of acts of nature, the nature of our agreements with those manufacturers or our relative importance to them as a customer, and our manufacturers may decide in the future to discontinue or reduce the level of business they conduct with us. We might not be able to identify and obtain additional or replacement suppliers for any of these components quickly or at all or without incurring significant additional costs. We cannot guarantee that we will be able to establish alternative relationships on similar terms, without delay or at all. In addition, we rely on single-source suppliers for certain types of parts in our products, and, in a few cases, on sole-source suppliers. A single-source supplier is a supplier from which we make all purchases of a particular component used in our products even though other suppliers of the component exist. A sole-source supplier is a supplier from which we make all purchases of a particular component used in our product, and the supplier is the only source of that particular component in the market. Establishing additional or replacement suppliers for any of these materials or components, if required, or any supply interruption from our suppliers, could limit our ability to manufacture our products, result in production delays and increased costs and adversely affect our ability to deliver products to our customers on a timely basis or at all. 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. Any such modified product might not be as effective as the predecessor product or might not gain market acceptance. This could lead to customer or consumer dissatisfaction and damage to our reputation and could materially and adversely affect our business, product inventories, sales and profit margins.
Product manufacturing disruptions, including as a result of catastrophic and other events beyond our control, could cause us to be unable to meet customer demands or increase our costs.
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,
 
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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. In addition, these types of events may negatively impact residential, commercial and industrial spending in impacted regions or, depending on the severity, globally. As a result, any of such events could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Interruptions in production, in particular at our manufacturing facilities, could increase our costs and reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures to fill customer orders. While we maintain property damage insurance, as well as business interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by an insured loss, any recovery under our insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer.
Our principal raw materials are resins (ABS, PP, HDPE, PVC), metals (copper, steel, aluminum, titanium, ruthenium) and liner board (packaging), which are commodity materials. 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. We believe that reliable alternate sources of supply are available for all of our raw materials and finished goods. We may not continue to have access to reliable sources of supply. Additionally, significant price fluctuations or shortages in raw materials needed for our products may increase our cost of goods sold and cause our results of operations and financial condition to suffer.
If we do not manage product inventory in an effective and efficient manner, it could adversely affect profitability.
Many factors affect the efficient use and planning of product inventory, such as effectiveness of predicting demand, preparing manufacturing to meet demand, meeting product mix and product demand requirements, and managing product expiration. We build-up product inventory during the third quarter in anticipation of shipments of products purchased through our early buy program in the fourth quarter. However, we may not accurately anticipate the level of customer participation in the early buy program or the amount of products that they may purchase. We may be unable to manage our inventory efficiently, keep inventory within expected budget goals, keep our work-in-process inventory on hand or manage it efficiently, control expired product, or keep sufficient product on hand to meet demand. We may not be able to keep inventory costs within our target levels. Failure to do so may harm our long-term growth prospects.
Risks Related to Government Regulation
The nature of our business subjects us to compliance with, and liabilities under, employment, environmental, health, transportation, safety, and other governmental regulations.
We are subject to foreign, federal, state, and local laws and regulations relating to matters such as product labeling, weights and measures, zoning, land use, environmental protection, local fire codes, and health and safety, including workplace safety, including regulation by the USEPA, the Federal Communications Commission, the Consumer Product Safety Commission, the Occupational Safety and Health Administration (“OSHA”), the National Fire Protection Agency, and the Federal Trade Commission,. Most of these requirements govern the packaging, labeling, handling, transportation, storage, sale and use of our products. 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. In addition, we sell UV, Ozone, and Salt Chlorinator and related products that are regulated under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”), which primarily relate to testing, use, reporting, sale, distribution, licensing and market verification of these products. We are also subject to regulation passed by the DOE relating to the labeling, testing, reporting and certification of new and replacement pumps sold for swimming pools.
 
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Failure to comply with these laws and regulations, or others that we may be subject to in the future, may result in investigations, the assessment of administrative, civil and criminal fines, damages, seizures, disgorgements, penalties, cessation of operations, or the imposition of injunctive relief. Moreover, compliance with such laws and regulations in the future could prove to be costly and affect various aspects of the business. Although we presently do not expect to incur any capital or other expenditures relating to regulatory matters in amounts that may be material to us, we may be required to make such expenditures in the future. These laws and regulations have changed substantially and rapidly in recent years, and we anticipate that there will be continuing changes.
The clear trend in environmental, health, transportation, and safety regulations is to place more restrictions and limitations on activities that impact the environment, such as the use and handling of hazardous materials and chemicals. Under certain environmental laws and regulations, we could be held strictly, jointly and severally liable for costs related to contamination at our currently or formerly owned, leased or operated properties or at third-party sites where we have sent wastes. We could also be liable to third parties for related damages, including property damage or personal injuries. Certain of our properties have had a history of industrial and other uses that have resulted in contamination. In addition, from time to time, we have been involved in investigation and remediation activities, and there can be no assurance that any future costs or liabilities relating to such activities will not be material.
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. Our attempts to anticipate future regulatory requirements that might be imposed and our plans to remain in compliance with changing regulations and to minimize the costs of such compliance may not be as effective as we anticipate. We cannot assure you that we will not incur material costs to comply with such laws and regulations in the future.
Increased information technology security threats and computer crime pose a risk to our systems, networks and products, and we are exposed to potential regulatory, financial and reputational risks relating to the protection of our data.
We rely upon information technology systems and networks in connection with a variety of business activities, some of which are managed by third parties. The secure operation of our information technology systems and networks is critical to our business operations and strategy. Information technology security threats—from user error to attacks designed to gain unauthorized access to our systems, networks and data—are increasing in frequency and sophistication, posing a risk to the security of our systems and networks and the confidentiality, availability and integrity of the data we process and maintain. As our business increasingly interfaces with employees, customers, trade customers and suppliers using information technology systems and networks, we are subject to an increased risk to the secure operation of these systems and networks. We may in the future and have in the past experienced cybersecurity attacks and other unauthorized or inadvertent disclosure of certain confidential information, including personal information. We periodically evaluate and test the adequacy of our systems, measures, controls and procedures and perform third-party risk assessments. In addition, our evolution into offering smart products that can connect to the IoT subjects us to increased cyber and technology risks, including reputational harm if any of our connected products experience data or cybersecurity breaches. Establishing and maintaining systems and processes to address these threats may increase our costs. Additionally, certain laws and regulations may require us to implement security measures to protect our systems and IoT connected devices. 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. The failure of such security measures or of our security systems and processes could expose us, our employees, customers, trade customers and suppliers to the theft of assets, misuse of information or systems, compromise of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions. The occurrence of any of these events could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows. In addition, such breaches in security could result in litigation, regulatory action and potential liability and the costs and operational consequences of implementing further data protection measures.
 
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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.
We collect, use, store, transmit and otherwise process data that is sensitive to the Company and its employees, customers, dealers and suppliers. A variety of state, federal, and foreign laws, regulations and industry standards apply to the collection, use, retention, protection, disclosure, transfer and other processing of certain types of data, including the California Consumer Privacy Act (the “CCPA”), the European Union General Data Protection Regulation (“GDPR”), Canada’s Personal Information Protection and Electronic Documents Act, and Australia’s Privacy Act. Some jurisdictions also are considering or have passed legislation requiring local storage and processing of data, or similar requirements, which could increase the cost and complexity of delivering our products and services. As we seek to expand our business, we are, and may increasingly become subject to various laws, regulations and standards, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. In many cases, these laws and regulations may apply not only to third-party transactions, but also to transfers of information between or among us, our affiliates and other parties with whom we conduct business. These laws, regulations and standards are continuously evolving and may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our reputation, business, financial condition and results of operations.
Many foreign data privacy regulations, including the GDPR, which became effective in the European Union in 2018 and has extraterritorial scope, are more stringent than laws and regulations in the United States. The GDPR has resulted and will continue to result in significantly greater compliance burdens and costs for companies with customers, users, or operations in the European Union. 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. The GDPR imposes several stringent requirements for controllers and processors of personal information and could make it more difficult or more costly for us to use and share personal information. In addition to the GDPR, the European Union also is considering another draft data protection regulation. The proposed regulation, known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive and addresses topics such as unsolicited marketing and cookies. Originally planned to be adopted and implemented at the same time as the GDPR, the ePrivacy Regulation has been delayed. Recent discussions were cancelled due to the COVID-19 pandemic, further delaying enactment of this regulation, the details of which remain in flux. Additional time and effort may need to be spent addressing the new requirements in the potential ePrivacy Regulation as compared to the GDPR. Further, the Court of Justice of the European Union’s July decision in the Schrems II matter may impact our or our service providers ability to transfer personal data from Europe to the United States or other jurisdictions.
Within the United States, many states are considering adopting, or have already adopted, privacy regulations, including the CCPA, which became operational in January 2020 and became enforceable by the California Attorney General in July 2020. The CCPA increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020. 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 provides for civil penalties for violations enforceable by the California Attorney General, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. Additionally, in November 2020, California passed the California Privacy Rights Act (the “CPRA”), which expands the CCPA significantly, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. Many of the CPRA’s provisions will become effective on January 1, 2023. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, and/or result in interruptions or delays in the availability of systems.
 
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Our communications with our customers and email and social media marketing are subject to certain laws and regulations, including the Controlling the Assault of Non-Solicited Pornography and Marketing (“CAN-SPAM”) Act of 2003, the Telephone Consumer Protection Act of 1991 (the “TCPA”), and the Telemarketing Sales Rule and analogous state laws, that could expose us to significant damages awards, fines and other penalties that could materially impact our business. For example, the TCPA imposes various consumer consent requirements and other restrictions in connection with telemarketing activity and other communication with consumers by phone, fax or text message. The CAN-SPAM Act and the Telemarketing Sales Rule and analogous state laws also impose various restrictions on marketing conducted use of email, telephone, fax or text message. As laws and regulations, including FTC enforcement, rapidly evolve to govern the use of these communications and marketing platforms, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties.
In addition, some of these laws may require us to notify governmental authorities and/or affected individuals of data breaches involving certain personal information or other unauthorized or inadvertent access to or disclosure of such information. We have in the past and may in the future notify governmental authorities and affected individuals with respect to such incidents. For example, laws in all 50 U.S. states may require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach may be difficult and costly. We also may be contractually required to notify consumers or other counterparties of a security breach. Regardless of our contractual protections, any actual or perceived security breach or breach of our contractual obligations could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach.
In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards. We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business.
We make public statements about our use and disclosure of personal information through our privacy policies, information provided on our website and press statements. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices.
Our employees, commercial partners, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, commercial partners, and vendors may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless, and/or negligent conduct or disclosure of unauthorized activities to us that violate: (i) the rules of the applicable regulatory bodies; (ii) manufacturing standards; (iii) data privacy laws or other similar non-United States laws; or (iv) laws that require the true, complete and accurate reporting of financial information or data. These laws may impact, among other things, future sales, marketing, and education programs.
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 be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal, and administrative penalties, additional integrity reporting and oversight obligations. Whether or not we are successful in defending against any such actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending
 
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ourselves against any of these claims or investigations, which could have a material adverse effect on our business, financial condition, and results of operations.
Violations of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and other anti-corruption laws outside the United States could have a material adverse effect on us.
The FCPA, U.K. Bribery Act, and other anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC, increased enforcement activity by non-U.S. regulators and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Because many of our customers and consumers are involved in infrastructure construction and energy production, they are often subject to increased scrutiny by regulators. We cannot assure you that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or third-party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may require 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.
Our failure to satisfy international trade compliance regulations, and changes in U.S. government sanctions, could have a material adverse effect on us.
Our global operations require importing and exporting goods and technology across international borders on a regular basis. Certain of the products we manufacture are “dual use” products, which are products that may have both civil and military applications, or may otherwise be involved in weapons proliferation, and may be subject to more stringent export controls. 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. However, even when we are in strict compliance with law and our policies, we may suffer reputational damage if certain of our products are sold through various intermediaries to entities operating in sanctioned countries. When we receive information alleging improper activity, our policy is to investigate that information and respond appropriately, including, if warranted, reporting our findings to relevant governmental authorities. Nonetheless, our policies and procedures may not always protect us from actions that would violate U.S. and/or non-U.S. laws. Any improper actions could subject us to civil or criminal penalties, including material monetary fines, or other adverse actions including denial of import or export privileges, and could damage our reputation and business prospects.
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.
Patents, trademarks and other intellectual property rights are important to our business, and our success depends in part on our ability to obtain and maintain patent and trademark protection in the United States and other countries. As of December 31, 2020, we held approximately 177 issued U.S. patents and 173 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 119 U.S. trademark registrations
 
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and 656 foreign trademark registrations covering our marks, brands and products. As of December 31, 2020, we also held approximately 45 pending U.S. patent applications, 90 pending foreign patent applications, 19 pending U.S. trademark applications and 33 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.
Pending and future patent applications may not result in patents being issued which 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. Any patents that we hold or in-license may be challenged, narrowed, circumvented, or invalidated by third parties, and this could allow such third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party rights. We cannot predict whether the patent or trademark applications we own or in-license will issue at all or in any particular jurisdiction. Even if we obtain intellectual property protection for our products and technology, it may not preclude competitors from developing products similar to ours or from challenging our names, brands or products or provide us a significant competitive advantage.
In addition, if we do not adequately maintain our intellectual property, we may lose our rights. For example, we are required to pay various periodic and renewal fees on registered intellectual property, and our failure to do so could result in the affected intellectual property being partially or completely invalidated. If this were to occur, our competitors may be able to use our technologies, names, brands or the goodwill we have acquired in the marketplace and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability.
Competitors may infringe our intellectual property, or we may be required to defend against claims of infringement or inventorship or priority disputes. To counter or defend against such claims can be expensive and time-consuming, and an adverse result in any proceeding could put our intellectual property rights at risk of being invalidated or narrowed. In addition, our ability to enforce our intellectual property rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. We may not prevail in any disputes that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of dispute.
Participants in our markets may use challenges to intellectual property as a means to compete. Patent and trademark challenges increase our costs to develop, engineer and market our products. We may need to spend significant resources monitoring, enforcing and defending our intellectual property rights, and we may or may not be able to detect infringement by third parties. 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 our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest, and third parties could assert trademark infringement claims against us.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our target markets and our business may be adversely affected. If we are unable to successfully register our trademarks and trade names and establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. In addition, competitors or other third parties have in the past, and may in the future, adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity, possibly leading to market confusion and potentially requiring us to pursue legal action. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, domain names or other similar intellectual property
 
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may be ineffective and could result in substantial costs, diversion of resources and potentially the payment by us of money damages or injunctive relief preventing us from using certain of such intellectual property, each of which could adversely impact our financial condition or results of operations.
We rely on access to intellectual property owned by third parties, so our rights to develop and commercialize certain products are subject to the terms and conditions of licenses granted to us by others.
Some of our products incorporate intellectual property owned by third parties and as a result, we are reliant on licenses from such third parties. For example, we license patents to certain technologies used in our pool cleaner and lighting products. These licenses may not provide us rights (whether exclusive or non-exclusive) to use such intellectual property for all purposes or in all territories that we may wish to commercialize our products, now and in the future. As a result, others may also include such intellectual property in their products, and which may weaken any competitive advantage that our licensed intellectual property may provide us. In addition, if our licensors fail to prosecute, maintain, enforce, and defend such intellectual property or otherwise lose their rights therein, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize any of our products that are subject of such licensed rights could be adversely affected. Furthermore, we could have disagreements with our licensors, including regarding the scope of our licensed rights or the amount of royalty payments owed to them. For example, we are currently undergoing a routine audit pursuant to our license agreement with one of our licensors, and we cannot rule out the possibility that we may owe more royalties than we anticipate. If our licensors conclude that we have materially breached our license agreements, they might therefore terminate the license agreements, thereby removing our ability to develop and commercialize products covered by these license agreements. In addition, we may need to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to receive licenses to a portion of the intellectual property that is subject to our existing licenses.
From time to time, we have been notified that we may be infringing certain patents or other intellectual property rights of third parties. There is no assurance that the necessary licenses can be obtained on commercially reasonable terms or at all. Failure to obtain the right to use third-party intellectual property, or to use such intellectual property on commercially reasonable terms, could force us to develop alternative approaches that do not infringe, misappropriate or otherwise violate such intellectual property rights, preclude us, our vendors, and/or our customers from making, using, selling, offering for sale and/or importing certain products or offering certain features or functionality in those products, or otherwise have a material adverse impact on our financial condition and operating results.
We may be subject to claims that our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. 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. In addition, we may face claims by third parties that our agreements with employees obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such intellectual property. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property or may lose our exclusive rights in such intellectual property. Either outcome could harm our business and competitive position.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our success in part depends on our ability to develop, manufacture, market and sell products using our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual
 
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property rights of others. Although we believe we do not infringe, misappropriate, or otherwise violate any valid third-party intellectual property, third parties have and may sue or otherwise take action against us for infringing, misappropriating or otherwise violating their patents or other intellectual property rights, and we cannot be certain that third-party intellectual property does not exist or will not be issued that would prevent us from commercializing our products. Because of technological changes in our industry, current extensive patent coverage and the rapid rate of issuance of new patents, our current or future products may unknowingly infringe existing or future patents or intellectual property rights of others.
For example, the plaintiffs in the Pentair Litigation have claimed certain of our variable speed pump and controller products infringe seven U.S. patents, and may in the future claim that other Hayward products infringe and/or that we, our vendors and/or our customers infringe other Pentair patents. We have challenged six of these patents at the USPTO in inter partes proceedings and have raised non-infringement and invalidity defenses to each of the seven patents currently asserted against us in the infringement actions, which are currently stayed. See “Business—Legal Proceedings.” If we do not prevail in any dispute regarding intellectual property, in addition to any damages we might have to pay, we could be required to cease the infringing activity or obtain a license requiring us to make royalty payments. It is possible that a required license may not be available to us on commercially acceptable terms, if at all. In addition, a required license may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around any third party’s intellectual property, we may be unable to make use of some of the affected products, which would reduce our sales and revenues.
In addition, intellectual property litigation is costly and time-consuming. The defense costs and settlements for patent infringement lawsuits are not covered by insurance. Patent infringement lawsuits can take years to settle. If we are not successful in our defenses or are not successful in obtaining dismissals of any such lawsuit, legal fees or settlement costs could have a material adverse effect on our results of operations and financial position. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities.
We may not be able to effectively enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not afford intellectual property protection to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. For example, the requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation or other violation of our other intellectual property rights. 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 practicing our inventions in all countries outside the United States. In addition, competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in the major markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
Recent changes in U.S. patent laws may limit our ability to obtain, defend, and/or enforce our patents.
The United States has recently enacted and implemented wide ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of
 
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patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on actions by the U.S. Congress, the U.S. federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions, changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future.
Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our financial condition.
We have a substantial amount of indebtedness, which, as of December 31, 2020, totaled approximately $1,322.7 million, including $958.0 million outstanding under our First Lien Term Loan Facility, $150.0 million outstanding under our First Lien Incremental Term Facility, $205.0 million outstanding under our Second Lien Term Loan Facility and $9.7 million of capital lease obligations. In October 2020, we entered into the First Lien Incremental Term Facility which provided for additional first lien term loans in an aggregate principal amount of $150.0 million, the proceeds of which were used to fund a portion of a special distribution of approximately $275.0 million on the outstanding shares of our Class A stock. We intend to use the net proceeds from this offering primarily to repay a portion of our indebtedness. See “Use of Proceeds.”
Our substantial indebtedness, combined with our other financial obligations and contractual commitments, could have important consequences, including:

requiring us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, selling and marketing efforts, product development and other purposes;

increasing our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to our competitors that have relatively less indebtedness;

limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;

increasing our exposure to rising interest rates because certain of our borrowings are at variable interest rates;

restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; and

limiting our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, product development and other corporate purposes.
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.
Servicing our debt requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations.
Our business may not generate sufficient cash flow from operating activities to service our debt obligations. Our ability to make payments on and to refinance our debt and to fund planned capital
 
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expenditures depends on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.
If we are unable to generate sufficient cash flow from operations to service our debt and meet our other commitments, we may need to refinance all or a portion of our debt, sell material assets or operations, delay capital expenditures, or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.
The terms of our indebtedness restrict our current and future operations, particularly our ability to respond to change or to take certain actions.
The agreements governing our outstanding indebtedness contain a number of restrictive covenants that impose significant 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 specified fixed charge coverage ratio during the specified periods described therein. These restrictions could impede our ability to operate our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities. See “Description of Certain Indebtedness—Certain Covenants and Events of Default.”
Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and maintain these financial tests and ratios. A breach of such covenants could result in an event of default unless we obtain a waiver to avoid such default. If we are unable to obtain a waiver, such a default may allow our creditors to accelerate the related debt and may result in the acceleration of, or default under, any other debt to which a cross-acceleration or cross-default provision applies. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
Because our operations are conducted through our subsidiaries, we are dependent on the receipt of distributions and dividends or other payments from our subsidiaries for cash to fund our operations and expenses, including to make future dividend payments, if any.
Our operations are conducted through our subsidiaries. As a result, our ability to make future dividend payments, if any, is dependent on the earnings of our subsidiaries and the payment of those earnings to us in the form of dividends, loans or advances and through repayment of loans or advances from us. 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. However, to the extent that we determine in the future to pay dividends on our common stock, the ability of Hayward Holdings, Inc.’s operating subsidiaries to pay dividends is restricted by the credit agreements governing Hayward Industries, Inc.’s credit facilities. Under the credit agreements, dividends may only be paid to Hayward Holdings, Inc. for corporate overhead expenses and otherwise pursuant to customary dollar baskets, a “builder” basket in the term loan credit agreements based on 50% of cumulative adjusted “Consolidated Net Income” ​(as defined in the credit agreements) from July 1, 2017 to the applicable date of determination (taken as one accounting period, which was $160.3 million as of December 31, 2020) and equity proceeds among other things, an
 
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unlimited amount under the asset-based revolving credit agreement subject to satisfying minimum availability requirements for borrowings under the credit agreement and the absence of certain defaults, and an unlimited amount under the term loan credit agreements subject to Hayward Industries, Inc.’s total leverage not exceeding certain thresholds on a pro forma basis.
Despite our substantial debt, we may still be able to incur significantly more debt, which would increase the risks described herein. We may also require additional capital, which may not be available on acceptable terms, if at all.
Despite our current indebtedness levels, we may increase our levels of debt in the future to finance our operations or in connection with acquisitions. The agreements relating to our indebtedness limit but do not prohibit our ability to incur additional debt. If we increase our total indebtedness, our debt service obligations will increase. We will become more exposed to the risks arising from our substantial level of indebtedness as described above as we become more leveraged. As of December 31, 2020, we had approximately $87.0 million of undrawn lines of credit available under our ABL Facility, subject to certain conditions, including compliance with certain financial covenants. We regularly consider market conditions and our ability to incur indebtedness to either refinance existing indebtedness or for working capital. If additional debt is added to our current debt levels, the related risks we face could increase.
If our cash flow from operations is less than we anticipate, if our cash requirements are more than we expect, or if we intend to finance acquisitions, we may require more financing. However, debt or equity financing may not be available to us on acceptable terms, if at all. If we incur additional debt or raise equity through the issuance of additional capital shares, the terms of the debt or capital shares issued may give the holders rights, preferences and privileges senior to those of holders of our ordinary shares, particularly in the event of liquidation. The terms of the debt may also impose additional and more stringent restrictions on our operations than we currently have. If we raise funds through the issuance of additional equity, the percentage ownership of existing shareholders in our company would decline. If we are unable to raise additional capital when needed, our financial condition could be adversely affected. 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. If ratings for our debt fall below investment grade, our access to the debt capital markets may become restricted. Additionally, our credit agreements generally include an increase in interest rates if the ratings for our debt are downgraded.
Uncertainty relating to the London interbank offered rate (“LIBOR”) and the potential discontinuation of LIBOR in the future may adversely affect our interest expense.
Borrowings under our Credit Facilities bear interest at a rate equal to an adjusted base rate or LIBOR, plus, in each case, an applicable margin. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. While the ICE Benchmark Administration recently announced its intention to extend the publication of certain LIBOR settings to the end of 2023, there can be no assurance such extension will occur. As a result, it is unclear if LIBOR will cease to exist after 2021 or if new methods of calculating LIBOR will be established such that it continues to exist after that time. The United States Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee composed of large U.S. financial institutions, is considering replacing LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities. The future of LIBOR at this time is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s phaseout could cause LIBOR to perform differently than in the past or cease to exist. If LIBOR ceases to exist, we may need to renegotiate our credit agreements and related agreements, which may result in interest rates and/or payments that do not correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash flow and liquidity.
Risks Related to this Offering and Ownership of Our Common Stock
Our Sponsors will continue to have significant influence over us after this offering.
Following completion of this offering, entities affiliated with (i) CCMP will beneficially own approximately 31.3% of our outstanding common stock (approximately 30.2% if the underwriters exercise
 
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their option to purchase additional shares in full) (ii) MSD Partners will beneficially own approximately 31.3% of our outstanding common stock (approximately 30.2% if the underwriters exercise their option to purchase additional shares in full) and (iii) AIMCo will beneficially own approximately 16.1% of our outstanding common stock (approximately 15.6% if the underwriters exercise their option to purchase additional shares in full), based on shares outstanding as of January 31, 2021 and the shares sold in this offering. For as long as affiliates of our Sponsors continue to beneficially own a substantial percentage of the voting power of our outstanding common stock, they will continue to have significant influence over us. For example, they will be able to strongly influence or effectively control the election of all of the members of our Board of Directors and our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of additional indebtedness, the issuance of any additional shares of common stock or other equity securities, the repurchase or redemption of shares of our common stock and the payment of dividends. This concentration of ownership may have the effect of deterring, delaying, or preventing a change of control of the Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the Company and might ultimately affect the market price of our common stock.
Each of our Sponsors may also have interests that differ from yours. For example, our Sponsors, and the members of our Board of Directors who are affiliated with each respective Sponsor, by the terms of our certificate of incorporation, will not be required to offer us any corporate opportunity of which they become aware and can take any such corporate opportunity for themselves or offer it to other companies in which they have an investment. We, by the terms of our certificate of incorporation, will expressly renounce any interest or expectancy in any such corporate opportunity to the extent permitted under applicable law, even if the opportunity is one that we or our subsidiaries might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so. Our Sponsors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us.
If you purchase shares in this offering, you will suffer immediate and substantial dilution.
If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution in the pro forma net tangible book value (deficit) of your stock of $21.75 per share as of December 31, 2020 based on an assumed initial public offering price of $18.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, because the price that you pay will be substantially greater than the net tangible book value deficiency per share of the shares you acquire. You will experience additional dilution upon the exercise of options to purchase shares of our common stock, including those options currently outstanding and those granted in the future, and the issuance of restricted stock or other equity awards under our stock incentive plans. As of December 31, 2020, options to purchase an aggregate of 2,387,190 shares of our common stock were vested and exercisable and options to purchase an aggregate of 6,770,400 shares of our common stock will vest in the event our stock trades above a certain threshold following the consummation of this offering. To the extent we raise additional capital by issuing equity securities, our stockholders will experience substantial additional dilution. See “Dilution.”
Further, we may need to raise additional funds in the future to finance our operations and/or acquire complementary businesses. If we obtain capital in future offerings on a per-share basis that is less than the initial public offering price per share, the value of the price per share of your common stock will likely be reduced. In addition, if we issue additional equity securities in a future offering and you do not participate in such offering, there will effectively be dilution in your percentage ownership interest in the Company.
We will in the future grant stock options and other awards to our certain current or future officers, directors, employees, and consultants under additional plans or individual agreements. The grant, exercise, vesting, and/or settlement of these awards, as applicable, will have the effect of diluting your ownership interests in the Company. We may also issue additional equity securities in connection with other types of transactions, including shares issued as part of the purchase price for acquisitions of assets or other companies from time to time or in connection with strategic partnerships or joint ventures, or as incentives to management or other providers of resources to us. Such additional issuances are likely to have the same dilutive effect.
 
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Our stock price could be extremely volatile and, as a result, you may not be able to resell your shares at or above the price you paid for them.
Since our inception, there has not been a public market for our common stock, and an active public market for our common stock may not develop or be sustained following completion of this offering. In addition, the stock market in general has been highly volatile. As a result, the market price of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and could lose part or all of their investment. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this prospectus and others such as:

variations in our operating performance and the performance of our competitors;

actual or anticipated fluctuations in our quarterly or annual operating results;

publication of research reports by securities analysts about us, our competitors or our industry;

our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;

additions or departures of key personnel;

strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

the passage of legislation or other regulatory developments affecting us or our industry;

changes in legislation, regulation and government policy as a result of the U.S. presidential and congressional elections;

speculation in the press or investment community;

changes in accounting principles;

terrorist acts, acts of war or periods of widespread civil unrest;

natural disasters and other calamities;

changes in general market and economic conditions; and

the other factors described in this “Risk Factors” section and the section titled “Special Note Regarding Forward-Looking Statements.”
In addition, broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance, and factors beyond our control may cause our stock price to decline rapidly and unexpectedly. We are exposed to the impact of any global or domestic economic disruption. Additionally, in the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
We have identified material weaknesses in our internal control over financial reporting. 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.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. As of December 31, 2020 and December 31, 2019, our management has identified the following material weaknesses:
 
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We did not document the design or operation of an effective control environment commensurate with the financial reporting requirements of an SEC registrant. Specifically, we did not design and maintain adequate formal documentation of certain policies and procedures, controls over the segregation of duties within our financial reporting function and the preparation and review of journal entries.
In addition, this material weakness contributed to the following additional material weaknesses:

We did not design and maintain control activities to adequately address identified risks or evidence of performance, or to operate at a sufficient level of precision that would identify material misstatements to our financial statements.

We did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain:
(i)   program change management controls to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately.
(ii)   user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel.
(iii)   computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored.
(iv)   testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.
These IT deficiencies did not result in a material misstatement to the financial statements, however, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined these deficiencies in the aggregate constitute a material weakness.
None of the above material weaknesses resulted in material misstatements. If we are unable to timely address the weaknesses in our control environment, however, they could result in misstatements of our account balances or disclosures that would result in material misstatements of our annual or interim financial statements that would not be prevented or detected.
Upon identifying the material weaknesses, we began taking steps intended to address the underlying causes of the control deficiencies in order to remediate the material weaknesses. Our efforts to date have focused on: (i) development of a remediation plan to fully address the control deficiencies; (ii) establishment of an internal audit group; (iii) implementation of processes and controls to better identify and manage segregation of duties and (iv) engagement of a third party provider to support in evaluating and documenting the design of our internal controls, assist with the remediation of the deficiencies, and test the operating effectiveness of our internal controls.
While we believe these efforts will improve our internal controls and address the underlying causes of the material weaknesses, such material weaknesses will not be remediated until our remediation plan has been fully implemented and we have concluded that our controls are operating effectively for a sufficient period of time. We cannot be certain that the steps we are taking will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or prevent future material weaknesses or control deficiencies from occurring. While we are working to remediate the material weaknesses as timely and efficiently as possible, at this time we cannot provide an estimate of costs expected to be incurred in connection with the implementation of this remediation plan, nor can we
 
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provide an estimate of the time it will take to complete this remediation plan. We do, however, intend to remediate the identified material weaknesses prior to becoming subject to the reporting requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) at the end of 2022. In addition, we cannot be certain that we have identified all material weaknesses in our internal control over financial reporting, or that in the future we will not have additional material weaknesses in our internal control over financial reporting.
Neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required. Had we or our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified. If we fail to effectively remediate the material weaknesses in our internal control over financial reporting, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls when required to do so in the future, we may be unable to accurately or timely report our financial condition or results of operations. In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, when required, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets, and our stock price could be adversely affected.
Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. Although we will be required to disclose changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until at least our second annual report required to be filed with the SEC.
To comply with the requirements of being a public company, we may need to undertake various actions, to develop, implement and test additional processes and other controls. Testing and maintaining internal controls can divert our management’s attention from other matters related to the operation of our business.
There may be sales of a substantial amount of our common stock after this offering by our current stockholders, and these sales could cause the price of our common stock to fall.
Following completion of this offering, there will be 229,634,661 shares of our common stock outstanding, based on shares outstanding as of January 31, 2021 and the shares sold in this offering. Of our issued and outstanding shares, all of the common stock sold in this offering will be freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. Following completion of this offering, approximately 31.3%, 31.3% and 16.1% of our outstanding common stock (or approximately 30.2%, 30.2% and 15.6% if the underwriters exercise their option to purchase additional shares in full) will be held by affiliates of our Sponsors, respectively.
Each of our executive officers and directors, the selling stockholders and substantially all holders of our common stock have entered into a lock-up agreement with BofA Securities, Inc. and Goldman Sachs & Co. LLC, as representatives of the underwriters, which regulates their sales of our common stock for a period of 180 days after the date of this prospectus, subject to certain exceptions. BofA Securities and Goldman Sachs & Co. LLC may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason. See “Shares Eligible for Future Sale—Lock-Up Agreements.”
Sales of substantial amounts of our common stock in the public market after this offering, the perception that such sales will occur, or early release of these lock-up agreements could adversely affect the market price of our common stock and make it difficult for us to raise funds through securities offerings in the future. Of the shares of our common stock to be outstanding following completion of this offering, the
 
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shares offered by this prospectus will be eligible for immediate sale in the public market without restriction by persons other than our affiliates. Our remaining outstanding shares will become available for resale in the public market as shown in the chart below, subject to the provisions of Rule 144 and Rule 701.
Number of Shares
Date Available for Resale
  5,185,629
On the date of this offering (    , 2021)
184,093,725
180 days after this offering (    , 2021) subject to certain exceptions
Beginning 180 days after this offering, subject to certain exceptions, our Sponsors may require us to register shares of our common stock held by them for resale under the federal securities laws, subject to reduction upon the request of the underwriter of the offering, if any. See “Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement.” Registration of those shares would allow the Sponsors to immediately resell their shares in the public market. Any such sales or anticipation thereof could cause the market price of our common stock to decline.
In addition, following completion of this offering, we intend to register (i) shares of common stock issuable upon the exercise of stock options outstanding under our 2017 Plan, (ii) shares of our common stock that we expect to issue pursuant to our 2021 Plan and (iii) shares of our common stock that will become available for issuance under our ESPP. For more information, see “Shares Eligible for Future Sale—Registration Statements on Form S-8.”
Provisions in our charter documents after this offering and Delaware law may deter takeover efforts that you feel would be beneficial to stockholder value.
In addition to our Sponsors’ beneficial ownership of a substantial percentage of our common stock, provisions in our certificate of incorporation and bylaws after this offering 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 provisions include a classified board of directors and the ability of our Board of Directors to issue preferred stock without stockholder approval that could be used to dilute a potential hostile acquiror. 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. As a result, you may lose your ability to sell your stock for a price in excess of the prevailing market price due to these protective measures, and efforts by stockholders to change the direction or management of the company may be unsuccessful. See “Description of Capital Stock—Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Certain Provisions of Delaware Law.”
Our second restated certificate of incorporation will designate specific courts as the sole and exclusive forum for certain claims or causes of action that may be brought by our stockholders, which could discourage lawsuits against us and our directors and officers.
Our second restated certificate of incorporation will provide that, subject to limited exceptions, the Court of Chancery of the State of Delaware (or, if, and only if, the Court of Chancery of the State of Delaware dismisses a Covered Claim (as defined below) for lack of subject matter jurisdiction, any other state or federal court in the State of Delaware that does have subject matter jurisdiction) will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for the following types of claims: (i) any derivative claim brought in the right of the Company, (ii) 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, (iii) any claim against the Company arising pursuant to any provision of the DGCL, our second restated certificate of incorporation or amended and restated bylaws, (iv) any claim to interpret, apply, enforce or determine the validity of our second restated certificate of incorporation or our amended and restated bylaws, (v) any claim against the Company governed by the internal affairs doctrine, and (vi) any other claim, not subject to exclusive federal jurisdiction and not asserting a cause of action arising under the Securities Act, as amended, brought in any action asserting
 
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one or more of the claims specified in clauses (a)(i) through (v) herein above (each a “Covered Claim”). This provision would not apply to claims brought to enforce a duty or liability created by the Exchange Act.
Our second restated certificate of incorporation will further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. In addition, our second restated certificate of incorporation will provide that any person or entity purchasing or otherwise acquiring any interest in the shares of capital stock of the Company will be deemed to have notice of and consented to these choice-of-forum provisions and waived any argument relating to the inconvenience of the forums in connection with any Covered Claim.
The choice of forum provisions to be contained in our second restated certificate of incorporation may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. While the Delaware courts have determined that such choice of forum provisions are facially valid, it is possible that a court of law in another jurisdiction could rule that the choice of forum provisions to be contained in our second restated certificate of incorporation are inapplicable or unenforceable if they are challenged in a proceeding or otherwise, which could cause us to incur additional costs associated with resolving such action in other jurisdictions.
Upon the listing of our common stock on the New York Stock Exchange, we will be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange. As a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance standards. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
After the completion of this offering, the Sponsors will collectively control a majority of the voting power of shares eligible to vote in the election of our directors. Because more than 50% of the voting power in the election of our directors will be held by an individual, group, or another company, we will be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange. As a controlled company, we may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the date of the listing of our common stock:

a majority of our Board of Directors consists of “independent directors,” as defined under the rules of such exchange;

our Board of Directors has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

our Board of Directors has a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
Following this offering, we intend to utilize these exemptions. As a result, immediately following this offering we do not expect that the majority of our directors will be independent or that any committees of our Board of Directors, other than our audit committee, will be composed of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the New York Stock Exchange.
We are an emerging growth company and cannot be certain if the reduced disclosure requirements applicable to us will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we expect to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not emerging growth companies. In particular, while we are an emerging growth company, we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; we will be exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; we will be subject to reduced disclosure obligations regarding executive compensation
 
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in our periodic reports and proxy statements; and we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.
In addition, while we are an emerging growth company, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period and, as a result, our operating results and financial statements may not be comparable to the operating results and financial statements of companies that have adopted the new or revised accounting standards.
We may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of this offering, though we may cease to be an emerging growth company earlier under certain circumstances, including if (i) we have $1.07 billion or more in annual gross revenue in any fiscal year, (ii) we become a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act; or (iii) we issue more than $1.0 billion of non-convertible debt over a three-year period.
We cannot predict whether investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements contained in or incorporated by reference in this prospectus that are not historical facts. When used in this document, words such as “may,” “will,” “should,” “could,” “intend,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “target,” “predict,” “project,” “seek” and similar expressions as they relate to us are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.
Examples of forward-looking statements include, among others, statements we make regarding: our financial position; business plans and objectives; general economic and industry trends; business prospects; future product development and acquisition strategies; growth and expansion opportunities; operating results; and working capital and liquidity. We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make.
The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, including such statements taken from third-party industry and market reports. See “Market and Industry Data.” In addition to those discussed herein under the caption “Risk Factors,” important factors that could affect our future results and could cause those results or other outcomes to differ materially from those indicated in our forward-looking statements include the following:

our ability to execute on our growth strategies and expansion opportunities;

our ability to maintain favorable relationships with suppliers;

our relationships with and the performance of distributors, builders, buying groups, retailers and servicers who sell our products to pool owners;

competition from national and global companies, as well as lower cost manufacturers;

impacts on our business from the sensitivity of our business to seasonality and unfavorable economic and business conditions;

our ability to identify emerging technological and other trends in our target end markets;

our ability to develop, manufacture and effectively and profitably market and sell our new planned and future products;

failure of markets to accept new product introductions and enhancements;

the ability to successfully identify, finance, complete and integrate acquisitions;

our ability to attract and retain senior management and other qualified personnel;

regulatory changes and developments affecting our current and future products;

volatility in currency exchange rates;

our ability to service our existing indebtedness and obtain additional capital to finance operations and our growth opportunities;

impacts on our business from political, regulatory, economic, trade, and other risks associated with operating foreign businesses;
 
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our ability to establish and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others;

the impact of material cost and other inflation;

the impact of changes in laws, regulations and administrative policy, including those that limit U.S. tax benefits or impact trade agreements and tariffs;

the outcome of litigation and governmental proceedings;

impacts on our business from the COVID-19 pandemic; and

other risks and uncertainties, including those listed in the section titled “Risk Factors.”
These forward-looking statements involve known and unknown risks, inherent uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Actual results and the timing of certain events may differ materially from those contained in these forward-looking statements.
Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this prospectus as anticipated, believed, estimated, expected, intended, planned or projected. We discuss many of these risks in greater detail under the heading “Risk Factors.” The forward-looking statements included in this prospectus are made only as of the date hereof. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
 
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USE OF PROCEEDS
We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us, will be approximately $368.9 million, assuming an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus).
We will not receive any of the proceeds from the selling stockholders named in this prospectus. The selling stockholders will receive approximately $307.5 million of proceeds from this offering (or approximately $410.3 million if the underwriters exercise in full their option to purchase additional shares of common stock).
We intend to use the net proceeds from the sale of our common stock in this offering to repay approximately $368.9 million in aggregate principal amount of outstanding borrowings under our Credit Facilities, out of which approximately (i) $141.7 million will be used to repay borrowings under the First Lien Term Facility, (ii) $22.2 million will be used to repay borrowings under the First Lien Incremental Term Facility and (iii) $205.0 million will be used to repay borrowings under the Second Lien Term Facility. We intend to use the remaining net proceeds from this offering, if any, to repay additional outstanding borrowings under our Credit Facilities.
As of December 31, 2020, there was approximately $1,313.0 million in aggregate principal amount of debt outstanding under our Credit Facilities, consisting of approximately (i) $958.0 million outstanding under the First Lien Term Facility, bearing interest at a rate of 3.65% and maturing on August 4, 2024, (ii) $150.0 million outstanding under the First Lien Incremental Term Facility, bearing interest at a rate of 4.50% and maturing on August 4, 2026, and (iii) $205.0 million outstanding under the Second Lien Term Facility, bearing interest at a rate of 8.40%, and maturing on August 4, 2025. On October 28, 2020, Hayward Industries entered into the First Lien Incremental Term Facility, which provided for additional first lien term loans in an aggregate principal amount of $150.0 million, the proceeds of which were used to fund a portion of a special distribution of approximately $275.0 million on the outstanding shares of our Class A stock. For additional information regarding the Credit Facilities, see “Description of Certain Indebtedness.”
A $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share, based on the midpoint of the estimated offering price range shown on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $21.0 million, assuming the number of shares offered by us, shown on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us for this offering. An increase (decrease) of 1,000,000 shares from the expected number of shares to be sold by us in this offering, assuming no change in the assumed initial public offering price of $18.00 per share, the midpoint of the estimated offering price range shown on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by approximately $17.0 million.
 
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DIVIDEND POLICY
On October 28, 2020, we paid a cash distribution of approximately $275.0 million on the outstanding shares of our Class A stock. Our Board of Directors does not currently plan to pay dividends on our common stock following this offering and currently expects to retain all future earnings for use in the operation and expansion of our business. Following this offering, we may reevaluate our dividend policy. The declaration, amount and payment of any future dividends on our common stock will be at the sole discretion of our Board of Directors, which may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our Credit Facilities and other indebtedness we may incur, and such other factors as our Board of Directors may deem relevant. If we elect to pay such dividends in the future, we may reduce or discontinue entirely the payment of such dividends at any time.
 
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2020:

on an actual basis;

on a pro forma basis to give effect to (i) the Reclassification as described under “The Reclassification,” as if it had occurred on December 31, 2020 and based on an assumed public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus), (ii) $1.0 million of stock compensation expense for the Class A restricted stock awards for which the performance condition will be satisfied upon the completion of this offering, (iii) $0.6 million of stock compensation expense for performance-based restricted stock as all vesting conditions are deemed probable upon completion of this offering, and (iv) $10.3 million of stock compensation expense for performance-based common stock options as all vesting conditions are deemed probable upon completion of this offering; and

on a pro forma as adjusted basis to reflect (i) the issuance and the sale by us of 22,200,000 shares of common stock in this offering at an assumed public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus), after deducting underwriting discounts, commissions and estimated offering expenses, and (ii) the application of the net proceeds therefrom as described in “Use of Proceeds.”
You should read the information in this table in conjunction with our financial statements and the related notes thereto appearing elsewhere in this prospectus, as well as the information under the headings “The Reclassification,” “Use of Proceeds,” “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
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(dollars in millions, except per share data)
Actual
As of December 31,
2020 pro forma
Pro forma
as adjusted
Cash and cash equivalents(1)
$ 114.9 $ 114.9 $ 116.8
Debt:
First Lien Term Facility, due August 4, 2024
958.0 958.0 816.3
First Lien Incremental Term Facility, due August 4, 2026
150.0 150.0 127.8
Second Lien Term Facility, due August 4, 2025
205.0 205.0
ABL Facility
Capital lease obligations
9.7 9.7 9.7
Total debt(2)(3)
1,322.7 1,322.7 953.8
Redeemable stock:
Class A stock, $0.001 par value per share, 1,500,000 shares
authorized, 872,598 shares issued and 869,823 shares
outstanding on an actual basis; no shares authorized,
issued or outstanding on a pro forma and pro forma as
adjusted basis
594.5
Class C stock, $0.001 par value per share; 100 shares
authorized, 100 shares issued and outstanding on an
actual basis; no shares authorized, issued or outstanding
on a pro forma and pro forma as adjusted basis
Stockholders’ equity:
Common stock, $0.001 par value per share; 150,000 shares
authorized, 19,728 shares issued and 14,220 shares
outstanding on an actual basis; 300,000,000 shares
authorized and 207,357,132 shares issued and
outstanding on a pro forma basis; 750,000,000 shares
authorized and 229,557,132 shares issued and
outstanding on a pro forma as adjusted basis(4)
0.2
Preferred stock, $0.001 par value per share, no shares authorized, issued or outstanding on an actual and pro forma basis; 100,000,000 shares authorized, no shares issued or outstanding on a pro forma as adjusted basis
Additional paid-in capital(2)
10.3 616.7 987.3
Treasury stock
(3.7) (3.7) (3.7)
Retained earnings
203.0 191.2 191.2
Accumulated other comprehensive loss
(0.4) (0.4) (0.4)
Total stockholders’ equity(2)
209.2 803.8 1,174.6
Total capitalization(2)
$ 2,126.5 2,126.5 2,128.4
(1)
Pro forma as adjusted increase in cash and cash equivalents reflects the reimbursement from the use of proceeds to the Company of $1.9 million of IPO-related expenses paid in Fiscal Year 2020.
(2)
Each $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share, based on the midpoint of the estimated offering price range shown on the cover page of this prospectus, would decrease (increase) total debt by $21.0 million and increase (decrease) common stock, including paid-in capital, and total stockholders’ equity by $21.0 million, assuming the number of shares offered by us, shown on the cover page of this prospectus remains the same and after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us. We may also increase or decrease the number of shares we are offering in this offering. An increase (decrease) of 1,000,000 shares offered by us from the expected number of shares to be
 
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sold by us in this offering, assuming no change in the assumed initial public offering price of $18.00 per share, the midpoint of the estimated offering price range shown on the cover page of this prospectus, would increase (decrease) total debt by $17.0 million and increase (decrease) common stock, including paid-in capital, and total stockholders’ equity by $17.0 million, after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us for this offering. Because we intend to use any additional proceeds to repay outstanding indebtedness, an increase (decrease) in the assumed initial public offering price of shares offered by us in this offering would not increase (decrease) total capitalization.
(3)
Reflects principal amount before reduction of $19.6 million for unamortized debt issuance costs.
(4)
Because the number of shares of common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would have a corresponding impact on the number of outstanding shares of our common stock presented in this prospectus after giving effect to this offering. See “The Reclassification.”
 
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DILUTION
If you invest in our common stock in this offering, your ownership interest in us will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted net tangible book value (deficit) per share of our common stock after this offering. Dilution results from the fact that the per share offering price of the common stock is substantially in excess of the book value (deficit) per share attributable to the shares of common stock held by our pre-IPO owners.
Our pro forma net tangible book value (deficit) as of December 31, 2020 would have been $(1,230.9) million, or $(5.94) per share of our common stock after giving effect to the Reclassification, assuming the Reclassification had taken place on December 31, 2020 and assuming an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus). Pro forma net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities, after giving effect to the pro forma adjustments described above. Pro forma net tangible book value (deficit) per share represents pro forma net tangible book value (deficit) divided by the number of shares outstanding as of December 31, 2020, after giving effect to the pro forma adjustments described above.
After giving further effect to (i) the issuance and sale by us of 22,200,000 shares of common stock and the sale by the selling stockholders of 18,077,778 shares of common stock in this offering at an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus), after deducting underwriting discounts, commissions and estimated offering expenses paid or payable by us, and (ii) the application of the net proceeds as set forth under “Use of Proceeds,” our as pro forma adjusted net tangible book value (deficit) as of December 31, 2020 would have been $(860.0) million, or $(3.75) per share of our common stock. This represents an immediate decrease in net tangible book value (deficit) of $2.19 per share to existing stockholders and immediate and substantial dilution in net tangible book value (deficit) of $21.75 per share to investors purchasing shares in this offering at the initial public offering price.
The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share
$ 18.00
Pro forma net tangible book value (deficit) per share as of December 31, 2020
$ (5.94)
Increase in pro forma as adjusted net tangible book value (deficit) per share attributable to new investors purchasing common stock in this offering
$ 2.19
Pro forma as adjusted net tangible book value (deficit) per share after this offering
$ (3.75)
Dilution per share to new investors purchasing common stock in this offering
$ 21.75
Dilution is determined by subtracting as adjusted net tangible book value (deficit) per share of common stock after this offering from the initial public offering price per share of common stock.
Each $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share, based on the midpoint of the estimated offering price range shown on the cover page of this prospectus, would decrease (increase) our pro forma as adjusted net tangible book value (deficit) by approximately $21.0 million or by approximately $0.06 per share, assuming the number of shares offered by us, shown on the cover page of this prospectus remains the same and after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us. Because the number of shares of our common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would also have a corresponding impact on our pro forma net tangible book value deficiency per share of our common stock. Our pro forma as adjusted net tangible book value (deficit) per share of our common stock would have been the following at December 31, 2020, assuming the initial public offering prices for our common stock shown below:
Initial public offering price
$ 16.00 $ 17.00 $ 18.00 $ 19.00 $ 20.00 $ 21.00
Pro Forma as adjusted net tangible book value per
share
$ (3.86) $ (3.80) $ (3.75) $ (3.68) $ (3.62) $ (3.55)
 
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The following table summarizes, as of December 31, 2020, the differences between the number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid. The table below is based on an initial public offering price of $18.00 per share for shares of common stock purchased in this offering and excludes underwriting discounts, commissions and estimated offering expenses paid or payable by us:
Shares Purchased
Total Consideration
Avg/Share
(dollars in thousands, except per share amounts)
Number
%
Amount
%
Existing stockholders
207,357,132 90.3% $ 870,319,260 68.5% $ 4.20
New investors
22,200,000 9.7% $ 399,600,000 31.5% $ 18.00
Total
229,557,132 100% $ 1,269,919,260 100%
(1)
The number of shares purchased by existing stockholders is determined as follows:
Class B common shares issued as of December 31, 2020
3,846,960
Less: Class B treasury shares as of December 31, 2020
(1,074,031)
Net Class B common shares outstanding as of December 31, 2020
2,772,929
Converted net Class A shares as of December 31, 2020(a)
205,236,823
Less: converted Class A treasury shares outstanding as of December 31, 2020
(652,620)
Common shares issued as of December 31, 2020
207,357,132
(a)
See “The Reclassification” for a computation of the number of Class B common shares issuable upon conversion of the Class A shares issued and outstanding as of December 31, 2020.
Because the number of shares of our common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would have a corresponding impact on the number of shares purchased by existing stockholders. The number of shares purchased by existing stockholders would have been the following as of December 31, 2020, assuming the initial public offering prices for our common stock shown below:
$16.00
$17.00
$18.00
$19.00
$20.00
$21.00
Shares purchased by existing stockholders
211,728,235 209,414,158 207,357,132 205,516,654 203,860,259 202,361,620
Percent of total shares purchased by existing stockholders
90.5% 90.4% 90.3% 90.3% 90.2% 90.1%
To the extent that outstanding options are exercised or outstanding restricted stock awards settle or we grant options, restricted stock, restricted stock units or other equity-based awards to our employees, executive officers and directors in the future, or other issuances of common stock are made, there will be further dilution to new investors.
The dilution information above is for illustrative purposes only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our shares of common stock and other terms of this offering determined at pricing.
 
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THE RECLASSIFICATION
Prior to this offering, we had three classes of common stock outstanding, Class A stock, Class B common stock and Class C stock. The Class A stock was identical to the Class B common stock, except that the Class A stock was convertible into shares of our Class B common stock as described below, and each share of Class A stock was entitled to a preferential payment upon any liquidating distribution by us to holders of our capital stock, whether by dividend, distribution or otherwise, equal to the Class A Preference Amount for such share. Class C stock had no voting rights or conversion rights, but each share of Class C stock was entitled to receive a special dividend equal to $1.0 million multiplied by the quotient of the (i) number of Class A stock held by such holder divided by (ii) the number of shares of Class A stock owned collectively by the Sponsors, on the terms and conditions set forth in the Special Dividend Side Letter (as defined herein).
On March 2, 2021, we reclassified our Class B common stock into common stock and then effected a 195-for-1 split of our common stock. Prior to the completion of this offering, (i) we will convert each outstanding share of our Class A stock into 195 shares of our common stock plus an additional 40.2022 shares (assuming an offering price equal to the midpoint of the estimated offering price range shown on the cover page of this prospectus), which amount will be determined by dividing (a) the Class A preference amount of such share of Class A stock, or $683.84 per share (the “Class A Preference Amount”), by (b) the initial public offering price of a share of our common stock in this offering, net of the per share underwriting discount, and (ii) we will redeem each outstanding share of our Class C stock for an aggregate price of $1.00. In connection with the conversion of the Class A stock, holders of our Class A stock will receive a cash payment from us in lieu of fractional shares based on the initial public offering price per share of our common stock in this offering, but will not receive any other cash payments in connection with the conversion.
References to the “Reclassification” throughout this prospectus refer to (i) the reclassification of our Class B common stock into our common stock on March 2, 2021, (ii) the 195-for-1 stock split of our common stock on March 2, 2021, (iii) the conversion of our Class A stock into common stock, (iv) the redemption of our Class C stock and (v) the filing and effectiveness of our second restated certificate of incorporation and the adoption of our amended and restated bylaws.
Assuming an initial public offering price of $18.00 per share, which is the midpoint of the estimated offering price range shown on the cover page of this prospectus, 207,357,132 shares of common stock will be outstanding immediately after the Reclassification but before this offering. The actual number of shares of our common stock that will be issued as a result of the Reclassification is subject to change based on the actual initial public offering price.
Because the number of shares of common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would have a corresponding impact on the number of outstanding shares of our common stock presented in this prospectus after giving effect to this offering. The following presents the number of shares of our common stock into which each share of Class A stock will be converted and the number of shares of our common stock that would be outstanding immediately after the Reclassification but before this offering, assuming the initial public offering prices for our common stock shown below.
Assumed Initial Public Offering Price
$16.00
$17.00
$18.00
$19.00
$20.00
$21.00
Shares of common stock per share of Class A stock
240.2275 237.5671 235.2022 233.0863 231.1820 229.4591
Shares outstanding
211,728,235 209,414,158 207,357,132 205,516,654 203,860,259 202,361,620
 
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SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus and our audited consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2019 and December 31, 2020 and the selected consolidated balance sheet data as of December 31, 2019 and December 31, 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.
Years Ended December 31,
(dollars in millions, except per share data)
2020
2019
Statement of Operations Data
Net sales
$ 875.4 $ 733.4
Cost of sales
478.4 409.9
Gross profit
397.0 323.5
Selling, general, and administrative expenses
195.2 179.4
Research, development, and engineering
20.0 19.9
Acquisition and restructuring related expense (income)
19.3 (16.3)
Amortization of intangible assets
37.9 41.8
Operating income
124.6 98.7
Interest expense, net
73.6 84.5
Other (income) expense, net
(6.8) 2.1
Total other expense
66.8 86.6
Income from operations before income taxes
57.8 12.1
Provision for income taxes
14.5 3.6
Net income
$ 43.3 $ 8.5
Cash Flow Data
Net cash provided by operating activities
$ 213.8 $ 94.0
Net cash (used in) provided by investing activities
(13.0) 4.0
Net cash used in financing activities
(135.1) (65.1)
Balance Sheet Data (as of period end)
Cash and cash equivalents
$ 114.9 $ 47.2
Property, plant, and equipment, net
142.3 139.9
Goodwill and intangibles
2,034.5 2,068.7
Total assets
2,607.1 2,603.1
Long term debt
1,300.3 1,147.8
Total liabilities
1,803.4 1,569.6
Redeemable stock
594.5 869.5
Stockholders’ equity
209.2 164.0
Total liabilities, redeemable stock and stockholders’ equity
$ 2,607.1 $ 2,603.1
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our results of operations and financial condition together with “Prospectus Summary—Summary Consolidated and Other Financial Data,” “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “Selected Consolidated Financial Data” and our audited consolidated financial statements and notes thereto, each included elsewhere in this prospectus. 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, 2020 as Fiscal Year 2020 and the year ended December 31, 2019 as Fiscal Year 2019. Our fiscal quarters are 13 weeks except the fourth quarter which ends on December 31 of each fiscal year.
Our Company
We are an industry-leading global designer, manufacturer, and marketer of a broad portfolio of pool equipment and associated automation systems. With the pool as the centerpiece of the growing outdoor living space, the pool industry has attractive market characteristics, including significant aftermarket requirements, innovation-led growth opportunities, and a favorable industry structure. We are a leader in this market with a highly-recognized brand, one of the largest installed bases of pool equipment in the world, decades-long relationships with our key channel partners and trade customers and a history of technological innovation. Our engineered products, which include various energy efficient and more environmentally sustainable offerings, enhance the pool owner’s outdoor living lifestyle while also delivering high quality water, pleasant ambiance and ease of use for the ultimate backyard experience. Aftermarket replacements and upgrades to higher value IoT and energy efficient models are a primary growth driver for our business.
We have an estimated North American residential pool market share of approximately 30%. We believe that we are well-positioned for future growth. On average, we have 20+ year relationships with our top 20 customers. Based upon feedback from certain representative customers and our interpretation of available industry and government data in the United States, we estimate that aftermarket sales represented approximately 75% of net sales. Aftermarket sales are not based upon our GAAP net sales results. We believe aftermarket sales are generally recurring in nature since these products are critical to the ongoing operation of pools given requirements for water quality and sanitization. Our product replacement cycle of approximately 9 to 12 years drives multiple replacement opportunities over the typical life of a pool, creating opportunities to generate aftermarket product sales as pool owners repair and replace equipment and remodel and upgrade their pools.
We manufacture our products at six primary facilities worldwide, which are located in North Carolina, Tennessee, Rhode Island, Spain (two) and China.
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. NAM and E&RW accounted for approximately 81% and 19% and 79% and 21% of total net sales for Fiscal Year 2020 and Fiscal Year 2019, 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.
The E&RW segment manufactures and sells residential and commercial swimming pool equipment and supplies in Europe, Central and South America, the Middle East, Australia and other Asia Pacific countries.
 
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Key Trends and Uncertainties Regarding Our Existing Business
The following trends and uncertainties may affect our financial performance in the future:

Demand related to the aging base of pools and the COVID-19 pandemic.   Irrespective of broader macroeconomic trends, the primary driver for the industry continues to be aftermarket spending on the base of installed pools. 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 have increased during the COVID-19 pandemic. This increase in demand has broadly been across all of our product lines as “stay at home” mandates have refocused attention on improving the quality of the homeowner’s outdoor living experience especially for products such as heaters to extend the pool season. Urban flight along with desire for second homes is also driving residential pool construction as homeowners remodel or upgrade their existing outdoor living spaces. Despite the increase in new pool construction during 2020, it still remains below the pre-2008 construction levels, leading us to expect an increase in the installed base in coming seasons. Demand for commercial pool and industrial flow control products was negatively impacted due to customer project delays, lower commercial activities and reduced use of public pools as a result of “shelter in place” orders and commercial closures during the second and third quarters of 2020.

Seasonality.   Our business is seasonal with sales typically higher in the second and fourth quarters. 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. Under the early buy program, we ship products during October through March and receive payments for these shipments during May through July. Revenue is recognized upon shipment of products, which cannot be returned unless damaged. 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. Our accounts receivable balance increases from October to May as a result of the early buy extended terms and higher sales in the second quarter. However, during the Fiscal Year 2020, we saw a change in historical seasonality as sales in the first and second quarters were lower than the third and fourth quarter, due to the “shelter in place” impact at the onset of the pandemic. Shipments accelerated in the second half of the year as we caught up with pent up demand. See “—Selected Quarterly Results of Operations” below to see how seasonality has affected our quarterly results of operations.

Targeted expansion efforts.   We continue to pursue attractive product and global geographic market opportunities to grow our presence in new markets or markets in which we have less penetration. We believe that our business can effectively address these opportunities through new product development and scalable sales, marketing, and administration. We also have and may in the future pursue acquisitions to opportunistically add product offerings or increase our geographic footprint. If we do not execute this strategic objective, our core net sales growth will likely be limited or may decline.

New product offerings.   Our business is primarily driven by aftermarket spending. 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 2020, new products launched in the last three years contributed approximately 11% of net sales. These new products, for example, a new generation of variable speed pumps, enhanced Omni controls, and advanced robotic cleaners, offer higher energy efficiency, automation capabilities and enhanced water care solutions, and 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.
 
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Materials and other cost increases.   We have experienced increases in the cost of raw materials and commodities. We strive for productivity improvements, and implement price increases to help mitigate this impact. We expect to see continuing price volatility (metals, resins, and electronic sub-assemblies) and import duty charges (motors, electronics, valves and cleaner products) for some of our raw materials. We are uncertain as to the timing and impact of these market changes, but have mitigation activities in place to minimize the impact on costs.

Impact of our initial public offering.   Following our initial public offering, we will incur incremental selling, general, and administrative expenses (“SG&A”) that we did not incur as a private company. Those costs include additional director and officer liability insurance, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal, directors fees, and investor and public relations expenses. We expect such expenses to further increase after we are no longer an emerging growth company. These costs will generally be expensed as SG&A in the consolidated statement of operations.
Factors Affecting the Comparability of our Results of Operations
Our past two years results have been affected by the following, among other events, which must be understood to assess the comparability of our period-to-period financial performance and condition.
Impact of COVID-19
The COVID-19 pandemic has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” mandates, travel restrictions, certain business curtailments, limits on gatherings, and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract pandemic economic impacts. We believe that the pandemic has only reinforced existing pool industry growth trends and has not had a significant impact to our cost structure through the date of this filing. Hayward is classified as an essential business and as such we have implemented the necessary steps to protect our manufacturing and distribution facilities to ensure we have continuity of production and supply to our customers. While in the early months of the pandemic we did experience partial or full facility closure for cleaning and sanitization, all of our manufacturing and distribution facilities are currently operational.
We have taken proactive actions to protect the health and safety of our employees, customers, and suppliers. We have enacted rigorous safety measures, including social distancing protocols, work from home arrangements, suspending business travel, disinfecting workspaces, temperature monitoring at our facilities, and facial coverings where required. We will continue to take all precautions recommended by governmental health departments to protect the health and safety of our employees, customers, and suppliers.
Early in the pandemic, certain suppliers faced challenges and were not able to timely deliver the quantities of raw materials or components we required. This negatively affected our production capabilities in the second quarter. During the third quarter we secured secondary sources of supply and were able to return production to full capabilities.
At the onset of the pandemic the Company immediately reduced discretionary and capital spending and implemented a number of austerity measures in anticipation of a prolonged sales slowdown. Though we continue to monitor the situation, we have reversed most of the austerity measures and capital spending has returned to normal levels. We also benefited from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), obtaining deferral of our employer U.S. Social Security contributions and a permanent reduction of certain cash tax payments in federal, state and international jurisdictions.
Continued restrictions and disruption of transportation, including reduced availability of air transport, port closures and increased border controls or closures, have resulted in higher costs and delays in both obtaining raw materials and components and in shipping finished goods.
 
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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, SG&A expenses, research, development and engineering (“RD&E”), operating income and operating income margin. The key non-GAAP measures we use are 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. 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 inclusive of outbound shipping and handling charges billed to customers and net of related discounts, allowances, returns, and sales tax. Customers are offered volume discounts and other promotional benefits. We estimate these volume discounts, promotional allowance benefits, and returns based upon the terms of the customer contracts and historical experience and record such amounts as a reduction of gross sales with an offsetting adjustment to account receivable. We regularly monitor the adequacy of these allowances.
Gross profit and Gross profit margin
Gross profit is equal to net sales less cost of sales. Cost of sales includes the direct cost of manufacturing, including direct materials, labor and related overhead, as well as inbound and outbound freight and import duties.
Gross profit margin is gross profit as a percentage of net sales. Gross profit margin is impacted by costs of raw material, product mix, salary and wage inflation, production costs, shipping and handling costs, and import duties, all of which can vary.
Selling, general and administrative expenses
Our SG&A includes expenses arising from activities in selling, marketing, technical and customer services, warranty, warehousing, and administrative expenses. Other than warranty and variable compensation, SG&A is generally not directly proportional to net sales, but is expected to increase over time to support the needs of a public company.
Research, development and engineering expenses
The Company conducts RD&E activities in its own facilities. These expenses consist primarily of salaries, supplies and overhead costs related to the active development of new products, enhanced product applications and improved manufacturing and value engineering of existing products.
Generally, RD&E costs are expensed as incurred. Certain RD&E costs applicable to the development of software are capitalized and amortized over the expected life of the product.
Amortization of intangible assets
Customer relationships, patents and other intangible assets arising from business combinations are amortized over their expected useful lives of 10-20 years.
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 related income, net.
 
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Operating income
Operating income is gross profit less SG&A, RD&E, acquisition and restructuring related expense or income and amortization intangible assets. Operating income excludes interest expense, income tax expense, and other expenses, net. We use operating income as well as other indicators as a measure of our profitability of our business.
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.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted segment income, Adjusted segment income margin
Adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin are key metrics used by management and our Board of Directors to assess our financial performance. For information about our use of Non-GAAP measures and a reconciliation of these metrics to the nearest GAAP metric see “—Non-GAAP Reconciliation.”
 
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Results of Operations
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales. We derived the consolidated statements of operations for the Fiscal Years 2020 and 2019 from our audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following table summarizes our results of operations and a comparison of the change between the periods (in millions):
Fiscal Years
2020
% of Net
Sales
2019
% of Net
Sales
Increase
(Decrease)
Percentage
Change
Net sales
$ 875.4 $ 733.4 $ 142.0 19.4%
Cost of sales
478.4 54.6% 409.9 55.9% 68.5 16.7%
Gross profit
397.0 45.4% 323.5 44.1% 73.5 22.7%
Selling, general, and administrative
expenses
195.2 22.3% 179.4 24.5% 15.8 8.8%
Research, development, and engineering
20.0 2.3% 19.9 2.7% 0.1 0.5%
Acquisition and restructuring related expense
(income)
19.3 2.2% (16.3) (2.2)% 35.6 (218.4)%
Amortization of intangible assets
37.9 4.3% 41.8 5.7% (3.9) (9.3)%
Operating income
124.6 14.2% 98.7 13.5% 25.9 26.2%
Interest expense, net
73.6 8.4% 84.5 11.5% (10.9) (12.9)%
Other (income) expense, net
(6.8) (0.8)% 2.1 0.3% (8.9) (423.8)%
Total other expense
66.8 7.6% 86.6 11.8% (19.8) (22.9)%
Income from operations before income taxes
57.8 6.6% 12.1 1.6% 45.7 377.7%
Provision for income taxes
14.5 1.7% 3.6 0.5% 10.9 302.8%
Net income
$ 43.3 4.9% $ 8.5 1.2% $ 34.8 409.4%
Adjusted EBITDA(a)
$ 231.6 26.5% $ 172.4 23.5% $ 59.2 34.3%
(a)
See “— Non-GAAP Reconciliation.”
Fiscal Year 2020 Compared to Fiscal Year 2019
Net sales
Increased to $875.4 million in Fiscal Year 2020 from $733.4 million in Fiscal Year 2019, an increase of $142.0 million or 19.4%. See segment discussion below for further information.
Year-over-year net sales increases were driven by the following:
2020
Volume
18.5%
Price, net of discounts and allowances
0.7%
Currency and other
0.2%
Total
19.4%
The Fiscal Year 2020 increase in net sales was primarily the result of higher volumes, mainly in residential pool equipment sales, a return to normal weather conditions, improved channel inventory buying patterns, an acceleration of outdoor living trends as homeowners “shelter in place”, and a 2% gross price increase which was reduced by higher volume related discounts and allowances resulting in a net 0.7% price impact. While the duration of the COVID-19 pandemic is uncertain, we believe that the pandemic has only reinforced existing pool industry growth trends.
 
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Gross profit and Gross profit margin
Gross profit increased to $397.0 million in Fiscal Year 2020 from $323.5 million in Fiscal Year 2019, an increase of $73.5 million or 22.7%.
Gross profit margin increased to 45.4% in Fiscal Year 2020 compared to 44.1% in Fiscal Year 2019, an increase of 124 basis points primarily resulting from the net price increase discussed above, manufacturing leverage, net cost savings, a favorable mix of higher margin NAM sales partially offset by $6.8 million of additional reserves for obsolete and nonsalable inventory.
Selling, general, and administrative expenses
Increased to $195.2 million in Fiscal Year 2020 from $179.4 million in Fiscal Year 2019, an increase of $15.8 million or 8.8% primarily driven by increased compensation expense of $21.1 million, $2.0 million for expenses incurred in preparation for our initial public offering, and volume related warranty expense of $2.3 million, partially offset by a $2.5 million decrease in advertising expenses and $5.1 million of cost savings related to decreased travel, marketing and other expenses as a result of the pandemic. As a percentage of net sales, SG&A decreased to 22.3% in Fiscal Year 2020 as compared to 24.5% in Fiscal Year 2019, a decrease of 216 basis points.
Research, development, and engineering
Increased to $20.0 million in Fiscal Year 2020 from $19.9 million in Fiscal Year 2019, effectively flat. As a percentage of net sales, RD&E dropped to 2.3% in Fiscal Year 2020 compared to 2.7% in Fiscal Year 2019, a decrease of 43 basis points.
Acquisition and restructuring related expense (income)
In Fiscal Year 2020 we incurred an expense of $19.3 million as compared to income of $16.3 million in Fiscal Year 2019. This is an increased expense of $35.6 million.
The $19.3 million expense in Fiscal Year 2020 was primarily driven by additional costs consequential to the below mentioned cessation of certain manufacturing and distribution operations and the start-up of a new distribution center in the Southwest United States.
In Fiscal Year 2019, we announced the cessation of certain manufacturing and distribution operations and sold the associated real estate with a one year leaseback arrangement to allow for the orderly restructuring of these operations. Net consideration received was $28.4 million, resulting in a gain of $16.9 million. We also incurred certain business restructuring costs of $5.0 million and executive retention accruals of $1.2 million consequential to a 2018 business combination. Additionally, in Fiscal Year 2019 we recognized income of $6.0 million on the reversal of a contingent consideration liability arising from a 2018 acquisition.
See Note 18. Acquisition and Restructuring Related Expense (Income)
Amortization of intangible assets
Decreased to $37.9 million in Fiscal Year 2020 from $41.8 million in Fiscal Year 2019, a decrease of $3.9 million or 9.3%, due to the amortization pattern of certain intangibles based on the declining balance method.
Operating income
Increased to $124.6 million in Fiscal Year 2020 from $98.7 million in Fiscal Year 2019, an increase of $25.9 million or 26.2% due to the accumulated effect of the items described above.
Interest expense, net
Decreased to $73.6 million in Fiscal Year 2020 from $84.5 million in Fiscal Year 2019, a decrease of $10.9 million or 12.9% primarily due to reduced interest rates on our floating rate debt and a reduction in the use of our ABL Facility.
 
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Interest expense for the year ended December 31, 2020 consisted of $68.5 million of interest on the outstanding debt, $5.4 million of amortization of deferred financing fees net of $0.3 million of interest income. The effective interest rate on our borrowings, net of the impact of our interest rate hedge was 5.95% for Fiscal Year 2020.
Interest expense for the year ended December 31, 2019 consisted of $79.3 million on the outstanding debt, $5.3 million of amortization of deferred financing fees net of $0.1 million of interest income. The effective interest rate on our borrowings, net of the impact of the interest rate hedge, was 6.75% for Fiscal Year 2019.
Provision for income taxes
We incurred income tax expense of $14.5 million for Fiscal Year 2020 and $3.6 million for Fiscal Year 2019, an increase of $10.9 million or 302.8%. This was primarily due to increased income from operations.
Our effective income tax rate declined to 25.1% for Fiscal Year 2020 from 29.7% for Fiscal Year 2019 primarily due to a valuation allowance recorded in Fiscal Year 2019 against certain international net operating losses, the absence of a reversal of a distinct contingent consideration that was incurred in Fiscal Year 2019, and an increase in income from operations combined with increased deductible interest expense due to the passage of the CARES Act.
Net income
As a result of the foregoing, net income increased to $43.3 million in Fiscal Year 2020 compared to net income of $8.5 million in Fiscal Year 2019, an increase of $34.8 million or 409.4%.
Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA increased to $231.6 million in Fiscal Year 2020 from $172.4 million in Fiscal Year 2019, an increase of $59.2 million or 34.3% driven primarily by higher net sales and operating leverage resulting in an increase in gross profit of $73.5 million, partially offset by an increase in SG&A expenses of $15.8 million.
Adjusted EBITDA margin increased to 26.5% in Fiscal Year 2020 compared to 23.5% in Fiscal Year 2019, an increase of 295 basis points.
See Non-GAAP reconciliation section for detailed explanations.
Segment Results of Operations
The Company manages its business primarily on a geographic basis. 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.
 
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Segment income represents net sales less cost of sales, less segment SG&A and RD&E. A reconciliation of segment income to our operating income is detailed below (in millions). 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. See “— Non-GAAP Reconciliation” for a reconciliation of these metrics to the most directly comparable GAAP metric (in millions):
Fiscal Year 2020
Fiscal Year 2019
Total
Hayward
NAM
E&RW
Total
Hayward
NAM
E&RW
Net sales
$ 875.4 $ 706.5 $ 168.9 $ 733.4 $ 575.9 $ 157.5
Gross profit
$ 397.0 $ 334.6 $ 62.4 $ 323.5 $ 267.0 $ 56.5
Gross profit margin %
45.4% 47.4% 36.9% 44.1% 46.4% 35.9%
Segment income
$ 202.6 $ 171.8 $ 30.8 $ 132.3 $ 105.9 $ 26.4
Segment income margin %
23.1% 24.3% 18.2% 18.0% 18.4% 16.8%
Adjusted segment income(a)
$ 241.1 $ 206.9 $ 34.2 $ 176.9 $ 146.8 $ 30.1
Adjusted segment income margin %(a)
27.5% 29.3% 20.2% 24.1% 25.5% 19.1%
Expenses not allocated to segments
Corporate expense, net
$ 20.8 $ 8.1
Acquisition and restructuring related expense (income)
$ 19.3 $ (16.3)
Amortization of intangible assets
$ 37.9 $ 41.8
Operating income
$ 124.6 $ 98.7