UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

FORM 10-K

Commission File Number: 0-26640

Documents Incorporated by Reference

PART I.

Our industry is highly fragmented, and as such, we believe we add considerable value to the industry by purchasing products from a large number of manufacturers and then efficiently distributing the products to our customer base on conditions that are more favorable than our customers could obtain on their own.

As of December 31, 2017,2023, we operated 351439 sales centers in North America, Europe South America and Australia through our fourfive distribution networks:

We believe that the swimming pool industry is relatively young,will continue to grow with room for continued growth from the increased penetration of new pools. Significantpools into households with the discretionary income and physical capacity to install a swimming pool. We believe significant growth opportunities also reside with pool remodel and pool equipment replacement activities due to the aging of the installed base of swimming pools, technological advancements and the development of environmentally sustainable, energy-efficient and more aesthetically attractive products. Additionally, theThe desire for consumers to enhance their outdoor living spaces with hardscapes, lighting and other outdoor kitchens also promotesliving-related products provides us with additional future growth opportunities in this market area.

The irrigation industry shares many characteristics withOver the pool industry, and we believe that it will realize long‑term growth rates similar to the pool industry. As irrigation system installations and landscaping often occur in tandem with new single-family home construction, we believe the continued trend in increased housing starts also offers significant growth opportunities for the irrigation industry.

We estimate about 60% of consumer spending in the pool industry is for maintenance and minor repair of existing swimming pools.  Maintaining proper chemical balancea safe and consistent water chemistry and the related upkeep and repair of swimming pool equipment, such as pumps, heaters, filters and safety equipment, creates a non-discretionary demand for pool chemicals, equipment and other related parts and supplies.  We also believe cosmetic considerations such as a pool’s appearance and the overall look of backyard environments create an ongoing demand for other maintenance-related goods and certain discretionary products.products that we supply.

 

We believe thatConsistent growth of the installed base of in-ground swimming pools and the recurring nature of the maintenance and repair market has historically helped maintain a relatively consistent rate of industry growth.  This characteristic along with relatively consistent annual inflationary price increases of 1% to 2% on average passed on by manufacturers and distributors, has helped cushion the negative impact on revenues in periods when unfavorable economic conditions and softness in the housing market adversely impacted consumer discretionary spending, including pool construction and major replacement and refurbishmentrenovation activities.

The replacementswimming pool remodel, renovation and refurbishmentupgrade market currently accounts for closean estimated 21% to 25%23% of consumer spending in the pool industry.  The activity in this market, which includes major swimming pool remodeling and upgrading, is driven by the aging of the installed base of pools. Thepools and availability of enhanced feature products such as swimming pool automated controls, variable speed pumps, robotic cleaners and LED pool and hot tub lighting. Many new homeowners with existing pools transform older pools into a modern backyard oasis through upgraded features, finishes and equipment. Among other factors such as the southern population migration and housing shortage trends, the timing of these types of expenditures is more sensitive to economic factors including home values, single-family home sales and consumer confidence that impact consumer spending compared to the maintenance and minor repair market.

NewWe estimate that new swimming pool construction comprises just over 15%approximately 17% to 18% of consumer spending in the pool industry.  The demand for new pools is driven by the perceived benefits of pool ownership including enhanced property value, relaxation, entertainment, family activity, exercise and convenience.  The industry competes for new pool sales against other discretionary consumer purchases such as kitchen and bathroom remodeling, boats, motorcycles, recreational vehicles and vacations.  The industry is also affected by other factors including, but not limited to, consumer preferences or attitudes toward pool and related outdoor living and irrigation products for aesthetic, environmental, safety or other reasons.

The irrigation and landscape maintenance industry shares many characteristics with the pool industry, and we believe that it exhibits similar long-term growth rates. Irrigation system installations often occur in tandem with new single-family home construction making them more susceptible to economic variables that drive new home sales. However, the landscape industry offers similar maintenance-related growth opportunities as the swimming pool industry. Product offerings such as chemicals and fertilizers, power equipment and related repair and maintenance services offer recurring revenue streams in an industry otherwise closely tied to the new housing market. The irrigation and landscape maintenance products distribution business is split betweenserves both residential and commercial markets, with the majority of sales related to the residential market. Irrigation activitiesWithin the United States market, we believe that residential and commercial irrigation products account for approximately 50%30% to 35% of total spending in the irrigation industry, with the remaining 50%65% to 70% of spending related to landscape maintenance products, power equipment, landscapehardscapes and specialty outdoor products and accessories.  As such, our irrigation business is more heavily weighted toward new home construction activities compared to our pool business. Over the last five years, our irrigation business has benefited from the continued slow recovery of single-family home construction as irrigation system installations and landscape projects typically correlate with, but lag, new home construction.

Certain trends in the housing market, the availability of consumer credit and general economic conditions (as commonly measured by Gross Domestic Product or GDP) affect our industry, particularly new pool and irrigation system starts as well as the timing and extent of pool refurbishmentsremodels, equipment replacements, landscaping projects and equipment replacement.  outdoor living space renovations. Consumers typically spend more on new pools, new irrigation systems, renovations and replacement when general economic conditions are strong.

We believe that over the long term, single-family housing turnover and home value appreciation mayand single-family housing turnover correlate with demand for new pool construction, with higher rates of home turnoverappreciation and appreciationturnover having a positive impact on new pool startsinstallations over time. While most new swimming pools are installed in existing homes, there has also been a correlation of new pool construction activity to new home construction activities over time. We also believe that homeowners’ access todiscretionary spending capacity, availability of consumer credit is aand favorable borrowing rates are critical factorfactors enabling the purchase of new swimming pools and irrigation systems. Similar to other discretionary purchases, replacement and refurbishmentrenovation activities are more heavily impacted by economic factors such as consumer confidence, GDP and employment.employment levels. Contractor labor availability has also become an issue in recent years, limiting our customers’ ability to fully meet consumer construction and renovation demand. While existing home turnover slowed in 2023 driven by higher interest rates and homeowners taking advantage of their existing lower rate mortgages, new home construction grew versus a decline in new pool construction, creating more available backyards for swimming pools when economic conditions stabilize.

Over the last five years, we estimate the poolHistorically, annual price inflation averaged 1% to 2% in our industry. We generally pass industry grewprice increases through our supply chain and may make strategic volume inventory purchases ahead of vendor price increases in order to obtain favorable pricing. During 2021 and 2022, supply chain interruptions, production shutdowns and weather-related events resulted in increased inflation as higher costs to produce and transport finished products were passed through to consumers. Our results in 2022 benefited from extraordinary inflationary product cost increases of approximately 10% following a benefit of 7% to 8% in 2021. In 2023, inflationary product cost increases moderated and benefited our sales by approximately 3% to 4%. We believe that results in 2024 will be impacted by inflationary product cost increases of approximately 2% to 4% per year, with favorable weather accelerating growth in any given year and unfavorable weather impeding growth. Our industry is seasonal and weather is one of the principal external factors that affects our business.  Peak industry activity occurs during the warmest months of the year, typically April through September.  Unseasonable warming or cooling trends can accelerate or delay the start or end of the pool and landscape season, impacting our maintenance and repair sales.  These impacts at the shoulders of the season are generally more pronounced in northern markets in the United States and Canada. Weather also impacts our sales of construction and installation products to the extent that above average precipitation, late spring thaws in northern markets and other extreme weather conditions delay, interrupt or cancel current or planned construction and installation activities.3%.

Our mission is to provide exceptional value to our customers and suppliers, creating exceptional return to our shareholders, while providing exceptional opportunities to our employees.  Our three core strategies are as follows:

We promote the growth of our customers’ businesses by offering the broadest product assortment through the largest number of conveniently located market-based sales centers and through comprehensive support programs that include promotional tools and marketing support to help our customers generate increased sales.  OurWe provide in depth product training that allows our customers to expand the scope of their product offerings. We also provide uniquely tailored advertising programs that include such features as digital marketing, customer lead generation, personalized websites, brochures, direct mail, marketing campaigns and business development training.  As a customer service, we also provide certain retail store customers assistance with all aspects of their business, including site selection, store layout and design, product merchandising, business management system implementation, comprehensive product offering selections and efficient ordering and inventory management processes. In addition to these programs, we feature consumer showrooms in over 80100 of our sales centers and host our annual Retail Summit to educate our customers about product offerings and the overall industry. We also actfunction as a day-to-day resource by offering product and market expertise to serve our customers’ unique needs.

In addition to our efforts aimed at promoting industry and customer growth, we strive to operate more effectively by continuously focusing on improvements in our operations, suchwhich we define as capacity creation. We create capacity with business to business development tools and execution aimed at ensuring best-in-class service and value creation for our customers and suppliers. In particular, our Pool360 and Horizon 24/7 internet and mobile platforms help our customers be more productive by allowing them to digitally receive pricing and product sourcing, procurementavailability information, and logistics initiatives, adoption of enhancedenter orders, while leveraging our customer service staff resources, particularly during peak business practicesperiods. These tools offer real-time integration into our enterprise resource planning system, creating efficiencies in our business processes and improved working capital management.  Other key internal growth initiatives include the continued expansion of bothalso provide our product offerings (as describedcustomers graphical catalog presentation in the “Customers and Products” section below) andsame platform. Our BlueStreak mobile ordering platform enables our distribution networks.

We believe that ongoing investments in digital transformation and technology help us provide best-in-class service to our 16 standalone NPT sales centers, we currently have over 80 SCPcustomers by improving the customer experience, enhancing our existing customer relationships and Superior sales centersexpanding our customer base. To that feature consumer showrooms where landscapeend, a part of our growth strategy includes investing in technology that allows us to better serve our customers and swimming pool contractors, as well as homeowners, can view and select pool components including pool tile, decking materials and interior pool finishes in various styles and grades, and serve as stocking locationsusing this information to make better data-driven decisions for our NPT branded products.

We have grown our distribution networks through new sales center openings, acquisitions and the expansion of existing sales centers.  Given the external environment, we have increasedcenters depending on our focus onmarket presence and capacity. For additional information regarding our new sales center openings, complemented by strategic acquisitions and closures/consolidations, depending on our market presence. Since the beginningsee Item 7, “Management’s Discussion and Analysis of 2015, we have opened 11 new sales centers, including 1 new sales centerFinancial Condition and Results of Operations,” and Item 8, Note 2 of “Notes to Consolidated Financial Statements,” included in 2017. We expect to open between 4 and 6 new sales centers in 2018. Since the beginning of 2015, we have completed 9 acquisitions consisting of 24 sales centers (net of sales center consolidations within one year of acquisition). this Form 10-K.

We plan to continue to make strategic acquisitions and open new sales centers to further penetrate existing markets and expand into both new geographic markets and new product categories. For additional discussion of our recent acquisitions, see Note 2 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K.

We serve roughly 120,000125,000 customers. In 2017, sales to our largest 100 customers collectivelyNo single customer accounted for just under 10% or more of our total sales. We estimate that sales to our largest 1,000 customers represented approximately 25% of our total sales in 2017. Notably, 98%2023. Most of our customers are small, family-owned businesses with relatively limited capital resources and generated a large majority of our sales in 2017.resources. Most of these businesses provide labor and technical services to the end consumer and operate as independent contractors and specialty retailers employing no more than ten employees (in many cases, working alone or with a limited crew).  These customers also buy products from other distributors, mass merchants, home stores and certain specialty and internet retailers.

We sell our products primarily to the following types of customers:

We conduct our operations through 351439 sales centers in North America, Europe Australia and South America.Australia. Our primary markets, with the highest concentration of swimming pools, are California, Texas, Florida and Arizona, collectively representing approximately 52%54% of our 20172023 net sales.  In 2017,2023, we generated approximately 94%95% of our sales in North America 5%(including Canada and Mexico), 4% in Europe and 1% in South America and Australia combined.Australia. While we continue to expand both domestically and internationally, we expect this geographic mix to be similar over the next few years. References to product line and product category data throughout this Form 10-K generally reflect data related to the North American swimming pool market, as it is more readily available for analysis and represents the largest component of our operations.

Our goal is to be a trusted resource for both industry professionals, retailers and consumers in the outdoor living industry. We use a combination of local and international sales and marketing personnel to promote the growth of our business and develop and strengthen our customers’ businesses. Our sales and marketing personnel focus on developing customer training programs and promotional activities, creating and enhancing sales management tools and providing product and market expertise.  Our local sales personnel work from our sales centers as trusted resources for our customers and are charged with understanding and meeting our customers’ specific needs. Our sales center personnel help educate our customers on a variety of topics including the newest, most innovative products and solutions that can elevate their businesses.

We offer our customers more than 180,000200,000 manufacturer and Pool Corporation brandedproprietary and exclusive brand products.  We believe that our selection of pool equipment, supplies, chemicals, replacement parts, irrigation and related products and other pool construction and recreational products is the most comprehensive in the industry. We sell the following types of products:

 

GrowthIn 2023, the sale of maintenance and minor repair products (non-discretionary) accounted for approximately 62% of our sales, while approximately 24% of our sales were derived from partially discretionary products used in the replacementremodel, renovation, upgrade of pools and refurbishment market following the Great Recession led to product and customer mix changes, including a shift in consumer spending to higher value, lower margin products such as variable speed pumps, high efficiency heaters, and irrigation and related equipment, which positively contribute toapproximately 14% of our sales were derived from discretionary products used in the construction and gross profit growth but negatively impact our gross margin. We expect continued demand for these products, but believe our efforts in various pricing and sourcing initiatives, including growth in our higher margin private label and exclusive products (PLEX) and our expansioninstallation (equipment, materials, plumbing, electrical, etc.) of building materials product offerings, has helped offset these gross margin declines and will leadswimming pools. These components may vary from year to somewhat flat gross margin trends over the next few years.year.

We distribute swimming pool supplies, equipment and related leisure products domestically through our SCP and Superior sales center networks and internationally through our SCP network. We distribute irrigation and related products through our Horizon network and tile, decking materials and interior pool finish products through our NPT network. We adopted the strategy of operating two distinct distribution networks within the U.S. swimming pool market primarily for two reasons:

Sun Wholesale Supply, which we acquired in December 2021, distributes swimming pool supplies, equipment and related leisure products, primarily servicing independently owned and operated Pinch A Penny, Inc. franchise locations. Since December 2021, we have expanded Pinch A Penny franchise operations through additional locations of Pinch A Penny franchised stores and expect to continue these expansion initiatives. Sun Wholesale Supply also owns and operates a specialty chemical re-packaging plant providing pool chemical products to the Pinch A Penny franchised store network by promoting healthy competition betweenand a portion of the two networks.chemical products sold through our SCP and Superior sales centers.

We evaluate our sales centers based on their performance relative to predetermined standards that include both financial and operational measures.  Our corporate support groups provide our field operations with various services, such as developing and coordinating customer and vendor related programs, services from our real estate support function to find appropriate locations for our sales centers, human resources support, information systems support, support from our logistics and fleet teams, accounting and financial analysis support and expert resources to help them achieve their goals.  We believe our incentive programs and feedback tools, along with the competitive nature of our internal networks,sales center network, stimulate and enhance employee performance.

Our sales centers are located within population centers near customer concentrations, typically in industrial, commercial or mixed‑usemixed-use zones.  Customers may pick up products at any sales center location, or we may deliver products to their premises or job sites via our trucks or third partythird-party carriers. For additional information on our sales centers, see Item 2, “Properties,” of this Form 10-K.

Our sales centers maintain well-stocked inventories to meet our customers’ immediate needs.  We utilize warehouse management technology to optimize receiving, inventory control, picking, packing and shipping functions. For additional information regarding our inventory management, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Inventory Obsolescence,” of this Form 10-K.

We also operate four centralized shipping locations (CSLs) in the United States that redistribute products we purchase in bulk quantities to our sales centers or, in some cases, directly to customers.  Our CSLs are regional locations that carry a wide range of traditional swimming pool, irrigation and related constructionoutdoor living products.  

We believe we enjoy good relationships with our suppliers, who generally offer competitive pricing, return policies and promotional allowances.  It is customary in our industry for certain manufacturers to manage their shipments by offering seasonal terms to qualifying purchasers such as Pool Corporation, which are referred to as early buy purchases.  These early buy purchases typically allow us to place orders in the fall at a modest discount, take delivery of product during the off-season months and pay for these purchases in the spring or early summer. Due to vendor backlogs resulting in product availability constraints, these early buy opportunities were generally not available in 2021 or 2020. Although early buy opportunities were re-established in 2022, they were not widely utilized until 2023 due to higher stocking levels in 2022.

Our preferred vendor program encourages our distribution networks to stock and sell products from a smaller number of vendors offering the best overall terms and service to optimize profitability and shareholder return.  We also work closely with our vendors to develop programs and services to better meet the needs of our customers and to concentrate our inventory investments.  These practices, together with a more comprehensive service offering, have positively impacted our selling margins and our returns on inventory investments. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Vendor Programs,” for additional information.

We regularly evaluate supplier relationships and consider alternate sourcing to assureensure competitive cost, service and quality standards.  Our largest suppliers include Pentair Water Pool and Spa, Inc.,plc, Hayward Pool Products, Inc. and Zodiac Pool Systems, Inc., which accounted for approximately 20%19%, 10% and 8%10%, respectively, of the cost of products we sold in 2017.2023.

We are the largest wholesale distributor of swimming pool and related backyard products (based on industry knowledge and available data) and one of the only truly national wholesale distributordistributors focused on the swimming pool industry in the United States.  We are also one of the top threeleading distributors of irrigation and relatedlandscape maintenance products in the United States.  We face intense competition from many regional and local distributors in our markets and from onethree national wholesale distributordistributors of irrigation and landscape supplies.  We also face competition, both directly and indirectly, from mass market retailers (both store-based and internet) mass market retailers and large pool supply retailers who primarily buy directly from manufacturers.

Some geographic markets we serve, particularly the four largest and higher pool density markets of California, Texas, Florida and Arizona, have a greater concentration of competition than others.  Barriers to entry in our industry are relatively low.  We believe that the principal competitive factors in swimming pool and irrigation and landscape supply distribution are:

We employed approximately 6,000 people at December 31, 2023 and approximately 90% of our employees were located in the U.S. Given the seasonal nature of our business, our peak employment period is the summer season and, depending on expected sales levels, we add 100 to 200 employees to our work force to meet seasonal demand. We believe that we generally compete favorablyhave good relations with respectour employees. None of our employees are currently covered under any collective bargaining agreements.

Our goal is to be an Employer of Choice by focusing on the engagement, development, retention, and health and well‑being of our employees. We believe that our success is a direct result of the contributions and commitment of our employees. We provide competitive pay and benefits, training and continuing education, and professional development and promotional opportunities to engage and reward our team. We have established a set of standard operating procedures to optimize our human capital management function, including recruitment and employee relations policies, training practices and operational instructions. We focus on the following factors in implementing and developing our human capital strategy:

Our commitment to the health, safety and wellness of our employees ranks at the top of our core operating priorities. Our ultimate goal is to send every employee home each night in the same condition in which they came to work that morning. We aim to achieve zero serious injuries through continued investment in, and focus on, our core safety programs and injury-reduction initiatives. This effort begins immediately with new employees and is reinforced each day through a focus on training, safety awareness, risk identification and other essential safety protocols. We closely monitor overall workers’ compensation and auto claims, OSHA recordable incidents, Department of Transportation compliance and other internally established safety prevention elements in an effort to make every workday safe.

Our employees are also involved in a multitude of volunteer efforts that positively impact our communities through support of charitable organizations. We have donated over $3 million through our partnerships with YMCAs across the country to provide free water safety lessons and lifeguard training in underserved communities. Our donations have funded safety around water swimming lessons and lifeguard training scholarships from coast to coast. Our local employees and partners have also donated their time and energy to make these factors.events a success.

For a discussion regarding the effects seasonality and weather had on our results of operations in 2023 and 2022, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Seasonality and Quarterly Fluctuations,” of this Form 10-K.

Our business is subject to regulationa wide variety of regulations, principally under local fire codes and international, federal, state and local environmental and health and safety requirements, including regulation by the Environmental Protection Agency, the Consumer Product Safety Commission, the Department of Transportation, the Occupational Safety and Health Administration, the National Fire Protection Agency and the International Maritime Organization. Most of these requirements govern the packaging, labeling, handling, transportation, storage and sale of chemicals and fertilizers. We store certain types of chemicals and/or fertilizers at each of our sales centers and the storage of these items is strictly regulated by local fire codes. In addition, we sell algaecides and pest control products that are regulated as pesticides under the Federal Insecticide, Fungicide and Rodenticide Act and various state pesticide laws. These laws primarily relate to labeling, annual registration and licensing.

We maintain both domestic and foreign registered trademarks and patents, primarily for our Pool Corporationproprietary and Pool Systems Pty. Ltd. (PSL) brandedexclusive brand products that are important to our current and future business operations. We also own rights to numerous internet domain names.

The table below presents net sales by geographic region, with international sales translated into U.S. dollars at prevailing exchange rates, for the past three fiscal years (in thousands):

Our disclosure and analysis in thisThis report contains forward-looking information that involves risks and uncertainties. Our forward‑lookingforward-looking statements express our current expectations or forecasts of possible future results or events, including projections of earnings and other financial performance measures, statements of management’s expectations regarding our strategic, operational and capital allocation plans and objectives, management’s views on industry, economic, competitive, technological and industry, general economicregulatory conditions and other forecasts of trends and other matters. Forward-looking statements speak only as of the date of this filing, and we undertake no obligation to publicly update or revise such statements to reflect new circumstances or unanticipated events as they occur. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate,” “estimate,” “expect,” “intend,” “believe,” “will, likely result,” “outlook,” “project,” “may,” “can,” “plan,” “target,” “potential,” “should” and other words and expressions of similar meaning.

No assurance can be given that the expected results in any forward-looking statementsstatement will be achieved, and actual results could be affected bymay differ materially due to one or more factors, which could cause them to differ materially.including the risks described below in this Item 1A, below in Item 7 of this Form 10-K and elsewhere in this Form 10-K. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.

Investing in our securities involves multiple risks and uncertainties. Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward‑looking statements includeforward-looking statement are described below. Investors should carefully consider the following:risks described below in addition to the other information set forth in this Annual Report on Form 10-K. The risks discussed below are not the only risks we face. Other risks or uncertainties not presently known to us, or that we currently believe are immaterial, may materially affect our business if they occur. Moreover, new risks emerge from time to time. Further, our business may also be affected by additional factors that generally apply to all companies operating in the U.S. and globally, which we have not included below.

Demand for our products is subject to fluctuations and is difficult to predict, often due to factors outside of our control. Consumer discretionary spending significantly affects our sales and is impacted by factors outsidea variety of our control,factors, including general economic conditions, the residential housing market, unemployment rates, wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and access to credit. In economic downturns or recessions, the demand for swimming pool, irrigation, landscape and related outdoor lifestyleliving products may decline,typically declines, often corresponding with declines in discretionary consumer spending, the growth rate of pool eligible households and swimming pool construction. MaintenanceCurrently over 86% of our net sales are derived from sales of maintenance, repair, replacement and repairrenovation products and certain replacement equipment, which are requirednecessary to maintain existing swimming pools, currently account for approximately 85% of net sales and gross profits related to our swimming pool business; howeverpools. However, the growth ofin this portion of our business depends on the expansion of the installed pool base, andwhich could also be adversely affected by decreases in construction activities, similar to the trends between late 2006 and early 2010.experienced this past year. A weak economy may also cause consumers to defer discretionary replacement and refurbishmentrenovation activity. 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. Such downturns expose us to certain additional risks, including but not limited to the risk of customer closures or bankruptcies, which could shrink our potential customer base and inhibit our ability to collect on those customers’ receivables.

We believe that homeowners’ access to consumer credit at attractive interest rates is a critical factor enabling the purchase of new pools, irrigation systems and outdoor living products. Between late 2006 and early 2010, the unfavorableUnfavorable economic conditions andor a downturn in the housing market resultedcould result in a significant tightening of credit markets, which limitedcan limit the ability of consumers to access financing for new swimming pools and irrigation systems. Although we have seen improvement since 2010, tightening

During 2022 and 2023, interest and inflation rates were higher than the three years prior to 2022, economic uncertainties increased, and consumer credit tightened, which led to a slowdown in new pool permits (signaling a decline in new construction projects). During 2023, the heightened demand for our products during the pandemic moderated as consumers applied less disposable income to pools and other home improvements. These economic events reduced our revenues in 2023 and are expected to similarly impact our revenues in 2024.

Discretionary spending is often adversely affected during times of economic, social or political uncertainty, whether caused by health threats, man-made or natural disasters, or other similar events discussed below in this item 1A. These events could prevent consumers from obtaining financing for pool, irrigationcreate uncertainties that negatively impact our business in ways that we cannot presently predict.

Terrorist attacks, wars, rioting, labor strife, civil disturbances, societal unrest or political instability could negatively impact us directly by interfering with our sales of construction-related products.ability to operate or indirectly by depressing macroeconomic conditions. Our customers could also encounter hardships that negatively impact their ability to make timely payments to us or to continue doing business with us.

WeatherGiven the nature of our business, weather is one of the principal external factors affecting our business. For example, unseasonablybusiness and the effect of seasonality has a significant impact on our results. In 2023, we generated approximately 60% of our net sales and 70% of our operating income in the second and third quarters of the year. These quarters represent the peak months of swimming pool use, pool and irrigation installation and remodeling and repair activities. Unfavorable weather during these quarters in our largest geographic regions can significantly affect our results. Unseasonably late warming trends in the spring or early cooling trends in the fall can shorten the length of the pool season. Also, unseasonably cool weather or extraordinaryexcessive rainfall during the peak season can decreasehave an adverse impact on demand due to decreased swimming pool use, installation and maintenance, as well as decreased irrigation installations and landscape maintenance. These weather conditions adversely affect sales of our products.installations. While warmer weather conditions favorablygenerally impact our sales favorably, global warming trends and other significant climate changes can create more variability in the short term or lead to other unfavorable weather conditions that could adversely impact our sales or operations. Drought conditions or water management initiatives may lead to municipal ordinances related togovernment-imposed water use restrictions. Such restrictions which could result in decreased pool and irrigation system installations andwhich could negatively impact our sales.

For aadditional discussion regarding seasonality and weather, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Seasonality and Quarterly Fluctuations,” of this Form 10-K.

As a distribution company, maintaining favorable relationships with our suppliers is critical to our success. We believe that we add considerable value to the swimming pool and irrigation supply chains by purchasing products from a large number of manufacturers and distributing the products to a highly fragmented customer base on conditions that are more favorable than these customers could obtain on their own. We believe that we currently enjoy good relationships with our suppliers, who generally offer us competitive pricing, return policies and promotional allowances. However, any failure to maintain favorable relationships with our suppliers could have an adverse effect on our business.

Our largest suppliers are Pentair Water Pool and Spa, Inc.,plc, Hayward Pool Products, Inc. and Zodiac Pool Systems, Inc., which accounted for approximately 20%19%, 10% and 8%10%, respectively, of the costs of products we sold in 2017.2023. A decision by our largest suppliers, acting individually or in concert, to sell their products directly to retailers or other end users of their products, bypassing distribution companies like ours, would have an adverse effect on our business. Additionally, if our suppliers experience difficulties or disruptions in their operations, if there is any material interruption in our supply chain (such as the loss ofinterruptions caused by the COVID-19 pandemic and exacerbated by the war in Ukraine) or if we lose a single significant supplier due to financial failure or a decision to sell exclusively to retailers or end-use consumers, we may experience increased supply costs or delays in establishing replacement supply sources that meet our quality and control standards, which may affect our profitability.

We rely on a global network of manufacturers and other suppliers to provide us with the products we distribute. To succeed, we must continue to maintain effective business relationships with qualified suppliers who can timely and efficiently supply us with high quality products. As we increase the number of our proprietary and exclusive brand products. we distribute, our exposure to potential liability claims may increase. Product and service quality issues could negatively impact customer confidence in our brands and our business. If our product and service offerings do not meet applicable safety standards or our customers’ 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, including health-related concerns, could damage our reputation with current or prospective customers, vendors and employees. Product quality or safety issues could also adversely affectexpose us to litigation, as well as government enforcement actions, and result in costly product recalls and other liabilities. Similar concerns impacting our business.competitors could damage the reputation of our industry and indirectly have an unfavorable impact on our operations.

Mass market retailers today carry a limited range of, and devote a limited amount of shelf space to, merchandise and products targeted to our industry. Historically, mass market retailers have generally expanded by adding new stores and product breadth, but their product offering of pool and irrigation related products has remained relatively constant. Should store‑ and internet-based mass market retailers increase their focus on the pool or irrigation industries or increase the breadth of their pool and irrigation and related product offerings, they may become a more significant competitor for our direct customers and end-use consumers, which could have an adverse impact on our business. WeAdditionally, because the internet facilitates competitive entry, price transparency and comparison shopping, increased internet sales by us or our competitors could increase the level of competition we face or reduce our margin. Further, we may face additional competitive pressures if large pool or irrigation supply retailers look to expand their customer base to compete more directly within the distribution channel.

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, retain and motivate qualified personnel. This includes succession planning related to our executive officers and key management personnel. Hiring and retaining such qualified individuals may be adversely impacted by several factors, including (i) uncertainties regarding general economic conditions or our industry, (ii) our failure to offer competitive compensation and (iii) increased competition for qualified individuals. If we are unable to attract and retain key personnel, our operating results could be adversely affected.

Historically, we have experienced substantial sales growth through organic market share gains, new sales center openings, expanded product offerings and acquisitions that have increased our size, scope and geographic distribution. Since the beginningOur various business strategies and initiatives, including our growth initiatives, are subject to business, economic and competitive uncertainties and contingencies, many of 2015, we have opened 11 new sales centers and we have completed 9 acquisitions consisting of 24 sales centers (net of sales center consolidations within one year of acquisition).which are beyond our control. While we contemplate continued growth through internal expansion and acquisitions, no assurance can be made as to our ability to:

If we do not successfully manage these potential difficulties or successfully execute our business strategies and initiatives, our operating results could be adversely affected.

We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times and mitigate potential supply chain constraints against the risk of inventory obsolescence due to changing customer or consumer requirements and fluctuating commodity prices. In order to successfully manage our inventories, we must estimate demand from our customers and purchase products that substantially correspond to consumer demand. If we overestimate demand and purchase too much of a particular product, we face a risk that the price of that product will fall, leaving us with inventory that we cannot sell at normal profit margins. In addition, we may have to write down such inventory if we are unable to sell it for its recorded value. If we underestimate demand and purchase insufficient quantities of products, inventory shortages could result in delayed revenue or loss of sales opportunities altogether as potential customers turn to competitors’ products that are readily available. If we maintain insufficient inventory levels and prices rise for these products, we could be forced to purchase products at higher prices and forego profitability in order to meet customer demand. While always present, these challenges have been heightened over the past couple of years, as the pandemic altered consumer spending trends and caused us to increase our investments in inventory. Our business, is highly seasonal.financial condition and results of operations could be negatively impacted if we are unable to accurately forecast demand for our products.

We are subject to regulation undernumerous federal, state, local and international laws and regulations, many of which are complex and subject to varying interpretations, including regulations related to employment, environmental, health, transportation and safety requirements, which govern such things as packaging, labeling, handling, transportation, storage and sale of chemicals and fertilizers. For example, weThese laws and regulations, and related interpretations and enforcement activity, may change as a result of a variety of factors, including political, economic or social events. Changes in, expanded enforcement of, or adoption of new federal, state, local or international laws and regulations, including those governing minimum wage or living wage requirements, the classification of exempt and non-exempt employees or other wage, labor or workplace regulations, could increase our costs of doing business and adversely impact our results of operations.

We sell algaecides and pest control products that are regulated as pesticides under the Federal Insecticide, Fungicide and Rodenticide Act and various state pesticide laws. These laws primarily relate to labeling, annual registration and licensing.

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 chemicals.chemicals and the discharge of greenhouse gases. Increasingly, strict restrictions and limitations have resulted in higher operating costs for us, and it is possible that the costs of compliance with such laws and regulations will continue to increase. We will attemptOur attempts to anticipate future regulatory requirements that might be imposed and we will plan accordinglyour plans to remain in compliance with changing regulations and to minimize the costs of such compliance.compliance may not be as effective as we anticipate.

We store chemicals and fertilizers, including certain combustibles and oxidizing compounds, at our sales centers. A fire, explosion or flood affecting one of our facilities could give rise to fire, safety and casualty losses and related liability claims. We maintain what we believe is prudent insurance protection. However, we cannot guarantee that our insurance coverage will be adequate to cover future claims that may arise or that we will be able to maintain adequate insurance in the future at rates we consider reasonable. Successful claims for which we are not fully insured may adversely affect our working capital and profitability. In addition, changes in the insurance industry have generally led to higher insurance costs and decreased availability of coverage.

For foreign-sourced products, we may be subject to certain trade restrictions that would prevent us from obtaining products and thereproducts. There is also a greater risk that we may not be able to access products in a timely and efficient manner. Fluctuations in other factors relating to international trade, such as tariffs, transportation costs and inflation are additional risks for our international operations.

We relycannot assure you we will continue periodic dividends on manufacturersour capital stock at the current rates, or at all. Any quarterly dividends on our common stock will be paid from funds legally available for such purpose when, and if, declared by our Board of Directors. Decisions on whether, when and in which amounts to continue making any future dividend distributions will remain at all times entirely at the discretion of our Board of Directors, which reserves the right to change or terminate our dividend practices at any time and for any reason without prior notice. Holders of our common stock should be aware they have no contractual or other supplierslegal right to receive dividends.

We maintain disclosure controls and procedures designed to provide us withreasonable assurances regarding the products we sellaccuracy and distribute. As we increase the number of Pool Corporation and PSL branded products we distribute, our exposure to potential liability claims may increase. The risk of claims may also be greater with respect to products manufactured by third-party suppliers outside the United States, particularly in China. Uncertainties with respect to foreign legal systems may adversely affect us in resolving claims arising from our foreign sourced products. Even if we are successful in defending any claim relating to the products we distribute, claims of this nature could negatively impact customer confidence in our products and our company. 

Our sales centers range in size from approximately 2,000 square feet to 60,00095,000 square feet and generally consist of warehouse, counter, display and office space.  Our centralized shipping locations (CSLs) range in size from approximately 103,000115,000 square feet to 185,000 square feet.

We believe that our facilities are well maintained, suitable for our business and occupy sufficient space to meet our operating needs. As part of our normal business, we regularly evaluate sales center performance and site suitability and may relocate a sales center or consolidate twomultiple locations if a sales center is redundant in a market, underperforming or otherwise deemed unsuitable. We do not believe that any single lease is material to our operations.

From time to time, we are subject to various claims and litigation arising in the ordinary course of business, including product liability, personal injury, commercial, contract and employment matters. While the outcome of any litigation is inherently unpredictable, based on currently available facts, we do not believe that the ultimate resolution of any of these matters will have a material adverse impact on our financial condition, results of operations or cash flows.

We initiated quarterly dividend payments to our shareholders in the second quarter of 2004 and we have continued payments in each subsequent quarter. Our Board of Directors (our Board) has increased the dividend amount twelveeighteen times, including in the fourth quarter of 2004, annually in the second quarters of 2005 through 2008 and in the second quarters of 2011 through 2017.  Future dividend payments will be2023.  Our Board may declare future dividends at theits discretion, of our Board, after considering various factors, including our earnings, capital requirements, financial position, contractual restrictions and other relevant business considerations. For a description of restrictions on dividends in our Credit Facility, Term Facility and Receivables Facility, see Note 5 of “Notes to Consolidated Financial Statements,” included in Item 8 of this Form 10-K. We cannot assure shareholders or potential investors that dividends will be declared or paid any time in the future if our Board determines that there is a better use of our funds.future.

The information included under the caption “Stock Performance Graph” in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 (the 1934 Act) or to the liabilities of Section 18 of the 1934 Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the 1934 Act, except to the extent we specifically incorporate it by reference into such a filing.