Hayward Holdings (HAYW) Risk Analysis

Our future financial success will depend substantially on our ability to develop, manufacture, market and sell products that we develop. Consumers are increasingly demanding "smart home" technology, automation and environmentally friendly, sustainable and ethical product features to enhance their pools. Staying at the forefront of product innovation and evolving consumer demand is important to our future success. We must continue to develop and bring to market innovative and technologically advanced products, which require hiring and retaining technical staff, maintaining and upgrading manufacturing facilities and equipment and expanding our intellectual property. We must also identify emerging technological and commercial trends in our target end markets, as well as understand and react to potential regulatory changes. 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. Because we sell our products primarily through distributors, we rely in part on the efforts of third-party sales representatives, who may be required to learn about new features or other aspects of our new products to effectively sell those products, which may prove challenging. Further, our ability to satisfy product demand driven by our sales and marketing efforts will be largely dependent on our ability to maintain a commercially viable manufacturing process that complies with regulatory standards. Negative media reports about us or our products, whether accurate or inaccurate, could damage our reputation and relationships with our customers and suppliers, cause customers and suppliers to terminate their relationship with us, or impair our ability to effectively compete. Our reputation and brand strength are important to our ability to compete effectively and maintain demand for our products. Actual or perceived deficiencies in the quality, reliability, performance or safety of our products, whether arising from design, manufacturing, supplier quality, installation, misuse or other factors, could adversely affect our brand, reputation and customer relationships. Even isolated or limited quality issues, defects, failures or recalls may be widely publicized or amplified through digital media, distributor networks or customer communications and could result in a loss of confidence in our brands. Because we sell our products primarily through distributors, builders and servicers who influence product selections and purchasing decisions, any deterioration in brand perception could reduce their willingness to recommend or stock our products, slow adoption of new products, increase returns, warranty claims or service costs,or shift demand toward competing products. Negative perceptions may persist even after underlying issues are addressed and may impair our ability to introduce new products, maintain pricing, protect market share or achieve anticipated returns on innovation investments. Failure to manufacture, market and sell our newly developed products could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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 U.S. and other jurisdictions. As of December 31, 2025, we held approximately 221 issued U.S. patents and 242 issued foreign patents relating to our technologies, including pumps, filters, heaters, drains and white goods, robotic cleaners, in-floor cleaning systems, lighting, automation and controls, sanitization, valves and flow control, and IoT and other technologies, as well as approximately 139 U.S. trademark registrations and 707 foreign trademark registrations covering our marks, brands and products. As of December 31, 2025, we also held approximately 38 pending U.S. patent applications, 58 pending foreign patent applications, 7 pending U.S. trademark applications and 18 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 that protect our products or effectively prevent others from commercializing competing technologies or products. In addition, the scope of claims in a patent application may be narrowed before a patent is issued. Even after issuance, the scope, validity, enforceability and commercial value of patent rights are uncertain. This uncertainty has been heightened by actions of the U.S. Congress, U.S. federal courts and the U.S. Patent and Trademark Office, which have modified, and in some cases weakened, laws and regulations governing patents. Further, any patents that we own or in-license may be challenged, narrowed, circumvented or invalidated by third parties, which could permit others to commercialize competing technologies or products or could restrict our ability to manufacture or commercialize products without infringing third-party rights. Even where we obtain intellectual property protection, such protection may not prevent competitors from developing similar products or from challenging our names, brands or products. In addition, participants in our markets may use intellectual property challenges as a competitive strategy. If we do not adequately maintain our intellectual property, we may lose our rights. For example, we are required to pay periodic maintenance and renewal fees for certain registered intellectual property, and our failure to do so could result in partial or complete loss of such rights. If this were to occur, competitors could use our technologies, brands or the goodwill we have developed, which could erode or eliminate any competitive advantage. Competitors have infringed, and may in the future infringe, our intellectual property. Defending against such infringement may be expensive and time-consuming, and an adverse outcome could result in our intellectual property rights being narrowed or invalidated. In addition, it may be difficult or impossible to obtain evidence of infringement in a third party's products. We may be required to devote significant resources monitoring, enforcing and defending our intellectual property rights. Competitors that infringe or develop products that imitate ours may reduce demand for our products and otherwise adversely affect our business. We may not prevail in disputes that we initiate, and any remedies obtained may not be commercially meaningful. Moreover, the extensive discovery often required in intellectual property litigation may increase the risk that our confidential or proprietary information could be disclosed. Patent enforcement and defense proceedings in the United States, including actions before federal courts and administrative proceedings before the U.S. Patent and Trademark Office, can be costly, time-consuming and unpredictable. Third parties may seek to invalidate our patents through inter partes review or other post-grant proceedings, which have become increasingly common and may result in patent claims being narrowed or invalidated. Even if we prevail in enforcement actions, the remedies obtained may be limited, delayed or insufficient to adequately protect our competitive position. From time to time, we have received notices alleging that our products infringe patents or other intellectual property rights of third parties. Costs associated with defending infringement claims and any resulting settlements are generally not covered by insurance. If we do not prevail in any such dispute, we could be required to pay damages, cease the challenged activities or obtain licenses requiring royalty payments. Any required license may not be available on commercially reasonable terms, or at all, which could prevent us from continuing to manufacture or commercialize certain products. If we are unable to successfully enforce our intellectual property rights or obtain and maintain new patent or trademark protection, our competitive position could be harmed, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We rely on information technology systems and networks to support a wide range of business activities, some of which are managed or provided by third parties whose products, services and systems are outside our control. Our reliance on information technology systems is expected to increase as we continue to implement new technologies to support our operations, including our new enterprise resource planning (ERP) system and new human resources information system, both of which are currently being implemented. Accordingly, our ability to operate effectively, maintain effective internal controls and accurately report our financial results depends on the reliability and security of our technological infrastructure, which is inherently susceptible to internal and external threats. These threats include malicious code embedded in open-source software, errors, misconfigurations, "bugs" or other vulnerabilities in commercial software integrated into our (or our suppliers' or service providers') systems, as well as system failures, downtime, fires, natural disasters, power outages, telecommunications failures, internet disruptions, security breaches and other catastrophic events. Our software and systems, as well as those of our third-party service providers, are subject to cybersecurity risks and vulnerabilities. We and certain of our third-party service providers have experienced cybersecurity attacks and other incidents in the past, and expect to be subject to such threats in the future. These incidents may compromise the confidentiality, integrity or availability of our information technology systems and networks and the confidential information, including personal information, that we or third parties collect, maintain or process. We periodically evaluate and test the effectiveness of our security measures, controls and procedures and conduct third-party risk assessments. However, such threats have increased in frequency, sophistication and potential impact. The techniques used by threat actors evolve rapidly and are often not detected until after an attack has been launched, which may limit our ability to anticipate, prevent or adequately mitigate such incidents. We prioritize the remediation of identified security vulnerabilities based on known and anticipated risks, and we seek to address vulnerabilities within reasonable timeframes. However, we may not be able to identify all vulnerabilities, particularly those associated with third-party software or systems, or timely implement patches or mitigating measures, and our systems, data or operations could be materially compromised. In addition, the development and use of AI technologies may further exacerbate existing cybersecurity risks and introduce new or previously unknown threats and challenges. We have experienced interruptions, delays and outages in service and availability from time to time, including infrastructure changes, human or software errors, upgrade disruptions and capacity constraints. If we experience a material cybersecurity incident or other failure of our information technology systems or those of our vendors or other third parties, whether as a result of accidental or intentional actions, ransomware, malware or other malicious activity, we could be exposed to data loss, misappropriation of proprietary or confidential information, business interruption, reputational harm, regulatory investigations or enforcement actions, fines or penalties, litigation, and significant incident response, system restoration, remediation and future compliance costs. Such incidents could also result in liabilities related to the theft or misuse of information or the defective design or manufacture of our products. Our insurance coverage may not cover all losses or claims, including any damage to our reputation. Establishing and maintaining systems, controls and processes to address cybersecurity and information technology risks may require significant expenditures and management resources and may be mandated by implicated law and regulations. For example, the California Internet of Things Security Law, which became effective in 2020, requires the implementation of reasonable security measures for certain IoT devices, and failure to comply with such requirements could result in penalties or other adverse consequences.

The U.S. Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act and other anti-corruption laws in jurisdictions outside the U.S. generally prohibit companies and their intermediaries from making improper payments or providing other items of value to government officials or other persons for the purpose of obtaining or retaining business. Our policies require compliance with applicable anti-corruption laws. We operate in multiple jurisdictions that are perceived to present heightened risks of governmental or commercial corruption, and in certain circumstances, compliance with anti-corruption laws may conflict with local customs or business practices. In addition, many of our suppliers, customers and consumers operate in industries that are subject to enhanced regulatory scrutiny, including infrastructure construction and energy-related activities. We cannot provide assurance that our internal controls, policies and procedures will always prevent, detect or mitigate reckless or criminal acts by our employees or third-party intermediaries. Violations of anti-corruption laws could result in costly investigations, potential self-disclosures to governmental authorities, and criminal or civil penalties, any of which could disrupt our business and have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.

The effects of climate change are uncertain and increasingly unpredictable. There is growing concern that rising global average temperatures associated with increased concentrations of greenhouse gases are contributing, and may continue to contribute, to changes in global weather patterns and an increased frequency and severity of natural disasters. Such climate-related events and adverse weather conditions may impair our manufacturing operations, disrupt our supply chain or affect demand for our products. Climate change may also present challenges for water-related products, including potential degradation of water quality and changes in water conservation or efficiency requirements. Certain climate-related events may disrupt our operations or affect demand in certain markets, as changes in climate conditions may influence consumer behavior and purchasing patterns in ways that are difficult to predict, which could adversely affect our business and results of operations In addition, increased public and regulatory focus on climate change may result in additional legal or regulatory requirements intended to limit greenhouse gas emissions or mitigate the effects of climate change. For example, the European Union has enacted the Corporate Sustainability Reporting Directive, which requires certain companies to provide expanded disclosures regarding climate-related risks, impacts, and greenhouse gas emissions, and could apply to us depending on evolving scope criteria and regulatory interpretation. Compliance with such requirements may be costly and time-consuming. Increased energy costs, compliance costs or other expenses from climate-related legal or regulatory initiatives may also disrupt, or increase the costs of, the manufacturing and distribution of our products. The effects of climate change and related legal or regulatory responses could have a long-term adverse impact on our business and results of operations.

We are exposed to the risk that our employees, commercial partners and vendors may engage in fraudulent, illegal or otherwise improper conduct. Such misconduct could include intentional, reckless or negligent actions that violate applicable laws or regulations, including regulatory requirements, manufacturing standards, data privacy laws, or laws that require the complete and accurate reporting of financial information or data. It is not always possible to identify or deter misconduct by our employees or third parties, and the measures we take to detect and prevent such conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations, enforcement actions or litigation arising from alleged noncompliance with applicable laws or regulations. Regardless of the outcome of any such investigations or proceedings, and even if no misconduct ultimately is found to have occurred, we could incur substantial costs, which could have a material adverse effect on our business, financial condition and results of operations.

We distribute our products through our customers who are distributors, builders, buying groups, retailers and servicers, many of whom also sell products of competing manufacturers. In certain circumstances, we also sell our products to customers that may compete with us in one or more product categories or geographic markets. These relationships may present inherent conflicts of interest, including the risk that such customers could use market knowledge, technical insights or other information obtained through their commercial relationship with us to support competing offerings. In addition, a competitor-customer may reduce or discontinue purchases in favor of internally developed or alternative products, which could adversely affect our sales and margins. As our customer base evolves, including through consolidation or expansion into adjacent markets, these risks may increase. We rely on these customers to stock, market and recommend our products to consumers, and our business depends on retaining strong relationships with them. However, the financial condition of these customers could weaken, they could elect to discontinue distributing our products, or they could reduce sales of our products in favor of competitors' offerings. In addition, uncertainty regarding demand for our products could cause these customers to reduce their ordering, inventory levels or marketing efforts related to our products. These events have occurred in the past, and future occurrences could adversely impact our business, financial condition, results of operations and cash flows. In several geographic markets, including 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 local customers that can effectively sell our products to consumers in the applicable markets. We have invested, and intend to continue to invest, in programs designed to enhance sales to distributors, builders, buying groups, retailers and servicers, including volume rebate programs with key distributors. However, these programs may not be successful in retaining or increasing product purchases by these customers or in maintaining or increasing our net income.

The efficient planning and management of product inventory depends on a variety of factors, including the accuracy of demand forecasting, the ability to align manufacturing capacity with anticipated demand, managing product mix and customer requirements, and controlling product expiration and obsolescence. We typically build inventory during the first quarter in anticipation of the upcoming pool season and during the third quarter in anticipation of shipments of products purchased under our Early Buy program in the fourth quarter. However, actual demand during these periods may differ from our expectations, and we may not accurately forecast customer demand. If we are unable to manage our inventory efficiently, including maintaining inventory within targeted budget levels, managing work-in-process inventory, controlling expired or obsolete products, or maintaining sufficient inventory to meet customer demand, our operating efficiency, margins and long-term growth prospects could be adversely affected. Excess inventory may result in increased storage, handling and obsolescence costs, while insufficient inventory could lead to lost sales or strained customer relationships. In addition, we sell our products primarily through distributors, and the inventory levels maintained by our distributors may fluctuate due to changes in market demand, perceptions regarding our ability to meet demand, shifts in customer order patterns, including the timing and quantity of purchases, adoption of new technologies or connected products, changes in customers preferences, or other factors. Because we do not control the inventory levels of our distributors, fluctuations in distributor inventory may impair our ability to forecast demand accurately. Reductions in distributor inventory levels have adversely affected and may in the future adversely affect, our net sales in a given period and our ability to manage our inventory efficiently.

In recent years, we have experienced material cost increases and other inflation across several aspects of our businesses. More recently, inflationary pressures have resulted in increased prices across various sectors of the economy, and we have been affected by higher costs for raw materials and other associated manufacturing inputs. The ongoing volatile market for commodities and impact of immigration policies has the potential to continue to drive price increases in our supply chain. In addition, changes in immigration laws, regulations or enforcement policies in jurisdictions in which we operate may affect the availability and cost of labor within our operations or those of our suppliers, contract manufacturers and customers. Such changes could contribute to higher operating expenses, supply chain disruptions or reduced demand in certain markets. We seek to mitigate the impact of cost inflation through productivity improvements and, where appropriate, by implementing increases in selling prices to offset higher costs for raw materials (particularly metals such as ruthenium and copper), energy and other expenses, including wages, pension, health care and insurance costs. We continue to pursue operational initiatives intended to reduce costs and mitigate the effects of inflation; however, these initiatives may not be successful or sufficient to offset increased costs, and we may not be able to successfully pass on price increases to our customers. Continued cost increases, inflationary pressures and supply cost volatility could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our business is impacted by international or cross-border trade, including the import and export of products and components into and out of the U.S., as well as by trade policies and tensions among nations. The U.S. government has implemented, and may propose or impose additional significant tariffs and other trade restrictions on certain goods, including products and components sourced from China, as well as tariffs on steel and aluminum imports. Because we purchase certain key parts and components from suppliers in China and use steel and aluminum in many of our products, such tariffs and trade restrictions have increased our costs and adversely affected our profitability. In addition, we sell our products in international markets, and other countries have imposed retaliatory tariffs or other trade measures in response to U.S. trade policies, or could do so in the future, which could reduce demand for our products in those markets or otherwise adversely affect our sales. We may be unable to successfully implement strategies to offset increased costs resulting from tariffs. For example, there can be no assurance that we will be able to implement future price increases to offset cost increases, or that customers will accept such price increases. If we are unable to offset adverse impacts resulting from tariffs or other trade restrictions, demand for our products, our margins and financial results could continue to be adversely affected. Global trade policy continues to evolve and the ultimate impact of recent developments with respect to U.S. tariffs is unclear. On February 20, 2026, the United States Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). Following the Supreme Court's decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on our business. Furthermore, the process for potential refunds remains unclear. These and future changes in tariffs, trade policies, trade actions, or retaliatory trade measures in response, have resulted and may continue to result in additional costs and pricing pressures, supply chain disruptions, volatile or unpredictable customer spending patterns, and increased economic or geopolitical risks, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Duty reduction and deferral programs, such as free-trade agreements and duty drawback, are available to reduce our duties and tariffs for qualifying imports and exports. The amount and timing of our receipt of refunds (and whether we will ultimately receive a refund) or whether we may be required to repay refunds previously received is uncertain and subject to our compliance with each program's specific requirements, changes in trade policy and the governing terms of duty reduction and deferral programs. As discussed in Note 14, "Commitments and Contingencies," we recorded a charge related to certain prior-year duty drawback claims that were required to be refunded to U.S. Customs and Border Protection. Our current expectations that no additional refunds will be required may prove to be incorrect, as we continue to assess our obligations. Any additional repayment could adversely affect our financial condition, results of operations and cash flows.