- Earnings call transcript Q3 2022

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Operator

Good day, and welcome to the Pool Corporation's Third Quarter 2022 Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. is event this note being recorded. Please now Melanie Hart, would like to to over conference the Chief turn I Financial Officer. Please go ahead.

Melanie Hart

third Welcome our quarter conference earnings to call. XXXX

XX-K. Our Information periods. actual from Actual may may differ could questions management's discussion, cause those results for factors results responses projected discussed and from discussed statements, that today. outlook future differ forward-looking in the results including today and XXXX materially comments and regarding to our include are to variables

we references and call in of and President is make addition, corporate our our Relations comments. release Arvan. our Peter measures website CEO, measures In non-GAAP financial our Investor press section. may to financial posted to our A reconciliation included the I over our to in turn and will description in non-GAAP now

Peter Arvan

good business. in morning, This solid Thank XX% a over business posting to you, period we quarter the sales XX% report at improvement with Melanie, base billion, Net for in including to were and the everyone came $X.X another same on call. XXXX. the improvement, morning pleased a acquisitions

and range. results activity the by solid demand renovation products, continued inflation for and Our XX% new pool were X% activity, strong maintenance to and in construction non-discretionary fueled repair remodel

to that will compared the than year pool XXXX. fairly the to this We construction new season. Now we estimate construction be third XX% new units when closed would are certain XX% activity will previous that have quarter, we down in pool be XXXX less that

of of network, and maintenance pools, installed growth. demand gain a macro of builders and the the smart capacity enabling share adoption our From keep are tapped base the to them into has activity continued inflation, consistent on busy. operating leveraging for pool products, remodel our all free expected, As non-discretionary perspective, of

Now, base what year in provide largest specifics some four business we markets. let on seen our have round me

also quarter. XX% posted revenue up revenue solid up be California XX% expected, XX%, strong As results strong business and the with while Florida with with very for and quarter base Texas Arizona XX% up continues to the results finished respectively.

XX% seasonal markets as grew the northern and round in less usage the impacted and pool year buildable seasonal Our grew markets. the days for favorable X% markets weather quarter,

less markets, demand pleased strong the at rate Retail growth with which reflects seasonal at to report the line pool year-to-date in XX%. markets. for A that total and up channel Looking some up This slightly excluding commercial weather XX% inventory I'm is sales X%, were Penny correction favorable end remains Pinch product sales quarter. with of plus in into

X% shock a of standalone, up Looking the includes through gains lights, at only This bleach are have supply and the category the sales as franchise Chemical used trichlor were swimming results. the A Pinch third year is solid pumps, that stores short shortage XX% quarter. From issues a sales point, the prior pleased which very filters, for product Penny be and sales equipment perspective, to quarter as over the are are inventory posting Hypo, At heaters, period. this automation. abated. growth we to in Cal Retails the liquid up remain continue and pool. chemicals XX% with for

still labor Lastly, in material in reflecting grew demand quarter XX% building solid market. the a constrained

XX% significant our energy economy, our Let XX% the quarter last quarter, make create business growth we total the to reminder basis. our than years This in grew by in to me of growth currency follows quarter. two team in year Europe the base decline weather, saw XX% favorable about to tough the approximately same we Horizon as been in revenue of war well in impacted growth the year, After team as on and on continued perform in headwind solid up combined to now very combined sales spiraling add constant a bringing tremendous Ukraine. some sales less that XX% posted a operations year-to-date quarter, teams the a XX%. for European as This a costs, The a commentary have sales revenue. of is X% where the

to remain continue expand We grow. and in this our to platform ability confident

Turning to gross margins for the quarter.

year-to-date compared margin year. last a incredible with XXX of gross decline a basis the basis which with stability results pleased prior which gross team improvement is From perspective, the overall XX Our solid an XX.X%, expense very delivered XX.X%, we again year. margins to are was of results. Generally, points the our is point over being when

Our slightly acquisitions, growth. new up which perspective, expenses in the with the growth, location operating line given up revenue our is From XX% for X% period. expenses investments business exceeds operating base revenue expectations a the XX% quarter but and were were with in in up

that alike. POOLXXX clearly see team to for continue platforms other our capacity XX%. to the quarter supplier and partners third can grow. our You and POOLXXX continue increased deliver customers' our In creation sales digital activities value

mentioned, the previously phases. are this POOLXXX a rollout As of we version year entering new released

a app percentage in arsenal. As Wrapping our period. area increase solid other up, the expect that will of at XX% bXb quarter XX.X%. This customers POOLXXX expand we more the that revenue a with an year-to-date our and through of an to our our note margin which benefits sales came as previous strong for the the margins $XXX more experience XX.X% income income is Operating at a in over in XX%. is year tools million, are you at operating this using statement, and at came operating improved same

Finally, for per we . for a XXXX full-year updating our year, with the the favorable are and share to behind earnings the full outlook per $XX.XX $XX.XX of guidance share us, balance to quarters three

is to represents Excluding a an year at the tremendous on share. midpoint ASU the top adjustments, This XX% in the range $XX.XX incredible $XX.XX improvement per of XXXX.

invest the jump make little and increasing structural No the in have as deliver compared with replacement both share by very to the inflation and challenging from is in results pool larger, strong North non-discretionary a years to installed last in Clearly installed growth. XXXX may the the the our renovation no environment. time, down not automation depth on our made. inflation is base of of balance The on pools grit that on same features. opportunities technologies the may X% capitalize same and market but is when for to as which and this industry. at manufacturers and us that transformed two, to At previous team, in With of major as as occur. and POOLCORP and a time. those the be gain allowed with Pool see, higher base or the activity dynamic repairs can to life expansive items X% to potential now XX conditions old, industry owners determination, has XX%. size better industry as fact gain content help should or by: the time the at install and those two-and-a-half XX%. raise of new pools larger half the The of despite we have announced have around strong the not new construction the are maintenance bar the to you POOLCORP. inflation the the XXXX was robust needed less technology us activity company for pool new are this with in economic and the As the team structural drive in footprint, too however, in-ground by operating same a positioned continues XXXX, X% of their America is available sheet, in pool much transformative the approximately people our our pools; and construction construction increases been normal sheer only well modern and these years allowed single within market and to one, have upgrade The continue easier year market XXXX industry growing declines the increased efficiencies as range about base a were has been their well This when replacements average Consider equipment equipment swimming from in pads to grow mitigate pool as approximately new the size age that expect built. their driven challenges year

we Additionally, we growth. & we Pool are strategic that thousands serve investments to will Patio proposition that made for that continued the value of acquisition and confident drive our of retailer customers to segments with DIY Porpoise our the retail improve independent the

packaging, with improving year We continue chemical integrated brought applications added leverage us also our year. in us in markets incredible to that business markets platforms technology further gaining in key A This retailers, also gain seven making to Sunbelt in franchise of the entire and customer across more round Penny capabilities grow to Pinch vertically we number margins intend foothold even we for as development independent our our stronger customers capabilities. locations acquisition businesses. strategic and and an franchised locations this year the We next expand more

to We have that dividends. historically leverage year remained our buybacks the this million $XXX of we Xx a share observed. we past maintaining have and in disciplined in ratio form And to the target returned our well shareholders have below capital X.Xx allocation increased

the business. revenue unique somewhat is recurring industry Our given of the high nature

unmatched market track enjoy also leading We expanding record. an capabilities, and a position,

one to no we is rise face certain in can future will the occasion. about be While the will we certain challenges what that we

value Our and heavily spending, best-in-class of service and customers. our mix non-discretionary on most we weighted business is provide for

our not to her partners Thank Officer cost our levels our turn inflation call that across the over Additionally, given would that And to increases the Hart, historic most Melanie as this product we Financial Vice and of for Chief and revert unprecedented be believe absorbed. President do have categories you. not commentary. manufacturer will now sustainable I'll previous

Melanie Hart

Thank you, everyone. morning, Pete, good and

In billion representing approximately over third last finished XXXX to in X% domestic quarter the the cumulative in pricing, quarter increase quarterly on of to growth net growth growth. XX% a of day unfavorable volume XX% with realized full-year selling XX% XX%, the the each we year X% Europe impact quarter. XX%. $X.X in growth was foreign and for on and This saw overall currency, by acquisitions, one two operations, expectations a growth offset for sales, of of XX% XX% Third comparing of record

vendors. delivering creation to of last margin We the benefited as levels of cost disruption resulted during also Hurricane quarterly short-term Gross impact center pass-through prior margins strong sales as in days our net with operating we higher margin Overall, increases Focused as year. level. increases year we during events in expenses XXXX our in capacity our margins pricing points year operating million business weather of closures from over multiple as through mix the to we saw Ian the product the $XX prior business business. third XX.X% XX.X% our expenses margin added below last positive Base initiatives, a basis where in big came XX.X%. efforts XXX continue XX.X%, price margin during supply a saw our quarters. price, strong inflationary XXXX quarter. operating compared the prior efforts, of as manage a during slight all decreased XX and contributed in over had at slightly Historically, year, sales from to subsequent Base impacts some quarter percentage sustaining prior XX.X%. year in-season in decreased the point Acquisitions remained have few basis from at the to third leverage, quarter, ability quarter chain

debt We management. while to increased $X.X quarter the investment focused for being to reflecting acquisitions, buybacks share same Interest expense last we compared on capital. million expense higher disciplined levels year, growth as have and the working strategies invest continue our in in time our

X.X% rate borrowing X.X% Our average higher interest to reflecting increased cost. from

leverage maintain They a to of below quarter range X.XX. continue fourth well leverage are We our ratio to conservative target Xx. of X.Xx trailing

per higher estimate we diluted XXXX, benefit last in we than XX.X% the we million activity, period to year recorded that For quarter our diluted $X.X level for full-year. quarter expire share. quarter benefits that resulting would had in improvement first prior in quarter first year the The the was for slightly quarter the fourth the ASU for ASU quarter, additional XXXX, options recognize share effective same our historically tax either represents of a stock price, Net lower with excluding the in remaining an $X.X quarter or in XXXX. rate benefit. rates $X.X million $X.XX third current per With of a of an quarter compare million. The consistent approximately the $X.XX or or XX.X% income for for $X.XX

X% margin an This revenue the growth, share million gross resulted the X%, and strong reflects ASU Excluding by periods. per $X driven in healthy it a both in ASU improvement continued of excluding execution. or growth earnings

receivable a day quite $X to Moving to into more sales year. to sheet range. flow with and Days compared cash that quarter the balance last finished compared XX XX growth days Inventory outstanding increased in $X.X sales our billion, improvement XX XXXX. discussion. levels QX were Accounts slightly to historical over to when compared increased in at the billion consistent

the was not of have five quarter quarter base wrapped were support million Approximately business, to in seen last relates million to increase XX% added and incremental third acquisitions, third of growth as new from the and We year. up year-over-year year-over-year second $XX decrease we that locations XX% to XX% open inventory a or for $XX U.S. quarter. at inflation, million $XXX

have chain hand X% incremental initiative. and the of from in have on strong will provide we next increases We returns heading range value season. supply as benefits realized cost X% inventory continue seen gross inventory to margin investments into in to the additional And vendor the our

prepare quarter buy terms quarter on inventory to XXXX consistent with XXXX to for season. and first During prior begin XXXX expect receiving fourth and upcoming early the we placed years

balances upon orders of by shipments depending resulting at the of Our will timing those the vary vendors. inventory year-end

evaluated. on However, placed any buys all orders early been have strategically

compared of operations improved from offset by value Year-to-date continue tax we Hurricane $XXX add We result $XXX XX% from million $XXX million working XXXX POs as income that flow was XXXX in net cash the XXXX of level Recall vendors. in reduced increases million million The approximately times quarter deferred a basis lead as from in In increase to by have reflects peak to Ida. XXXX. dollar was flow income of the that both of cash $XX capital. of to also have we payments inventory. from fourth

early expect year's cash the adjusted benefit inventory excluding to around into with our quarter fourth extended number fourth inventory receipts income would payment We will as terms. XXXX. tax buy we this quarter XX% the payment, year to finishing so flows of from of And cash net generate investments expected while anticipate going IDA in the solid include more positioned

of early on before earlier Our inventory timing buy were slightly balance plus the have we range plus opportunity XX% the could we from of the expecting This year-end year in to the at shipment. depending XX% is to vendor ahead early the plus X% evaluate buys.

shareholders, We quarter. increase have year, third paid $XXX million to-date in XX.XX% dividend a to over three last

our of our on Additionally, million we total a of $XXX business at XXX worth capital have to-date during have authorization. $XXX quarter purchased was available while to third million current and the working market Leverage managed of for end quarter million returns under allocation year first shareholders. in open model, investing our shares the X.XXx is dated of and the capital the the well providing within strong and

the range target our below or at at year. be the to expect We end of

fourth sales inflation. and XX% remaining, X% As for expect balance we reflecting range from XX%, the growth with from to year the just our XX% still a of quarter out we from contribution the acquisitions look to

takes impacts year. full-year the fourth fourth approximately may we and impact area for year. same are full-year. place of Weather expecting to extent we of days compared how in to the recover expected year, activity quarter remainder an the close currency. We the to with as Selling project for the foreign the to will the from not out Inflation repair full-year are on be and additional during a X% be that be Europe X% X% that XX% the the last Florida drag the quarter so for

XX% activity on Consistent position currently rising place $XX million during $XXX up allocation and weighted to exposure approximately share to our a participating be share full share repurchase previously not the fourth lapped realized gross to finish the in balance lower by XXX year of in and have debt margin management impact expected quarter compared this points outstanding full-year rate year. last lower debt seasonal further on $XX.X to average we timing, under inflation our we interest program, impact rate quarter rate year and line to capital earned covered quarter to be shares point decline to expect the vendor in the under forecast margins we for interest expected overall repurchase million price in levels year a year. basis our prior negatively reduced vendor is to our quarter $XX We to higher compared quarter debt for mainly future XXXX, overall mitigating fourth the resulting last gross diluted gross we fourth rates. rate of shares an the are basis fixed year. Considering in be full-year of and up estimated increases Any million expect in margin volume-based the year will million QX XXX increases in for on interest that year, resulting conservative margin the currently remaining debt during converts to due improvement of the focus outstanding impacted the million. gross to expected year. And from That activity last incentive The our including market $XX have would XXX from borrowing have fourth in our sequentially time As also and securities. is decline the than swap or significantly the year our with interest year higher expense expense based of agreement. in the fourth below credit from on

$XX.XX, additional during for or our added benefit of quarter. This in earnings year We share third guidance have the to tax the impact represents benefits brings quarter XX% This XX%, the our $X.XX $X.XX year-to-date. the ASU reflected range recorded benefits. earnings to to growth and ASU $XX.XX narrowed of per expected including guidance the excluding ASU range

above, quarter $X.XX mentioned in will As expiring the options provide first impact a benefit. be expected from to

but be unexercised not and in is included guidance timing guidance QX, the will However, as the year-end. considered uncertain any range for of amounts that's in XXXX for

we extremely to work we pool has to grow the the the to we continue industry, and the proud season, another forward look strong. of finishing wrap are done team up As successful year hard

Q&A will now session. We begin our

Operator

you. the Thank begin question-and-answer [Operator Instructions]. now will We session.

first Our Manthey go Baird. David, ahead. question coming please is from David from

David Manthey

said Melanie, in that the be and quarter your prior fourth XX%, would in I the the think just beyond. did gross and holding current gross view about in I confidence margin you you annual First focused that amount. that XX% margin that to on off, annual on gauge just wanted somewhere XXXX the line you're say the

Melanie Hart

Yes.

So and we guidance we February. still guidance, certainly our to hold our that will that long-term reiterate we XXXX when give in

quarterly our look the not customers you quarter-over-quarter, ability within at certainly within just season, are season. of If price -- we historically than as our less of Because the is have impacts margin back typically sensitive. fourth some the quarters quarter the

fourth going to decline third is consistent expected. margin the in we quarter from So would've quarter with historically what

David Manthey

Right.

seen the margins the given past? leverage then to to the margins. Okay. than in higher to follow-up, at inflation Just higher versus point you've this least about think level future margins things margins creation recent out And earnings earnings contribution level. a we in reported model? shake leverage operating this range. teens you've probably in this the year contribution mid years of successful I should had your from the taking typically trying capacity mean, as now Will price understand are how And XX% be upper a in and

Melanie Hart

Yes.

the and those growth. a at our we've growth. sales certainly certainly years, kind that as expense seen we've seen model growth And sales the but seen two of take we as over last on of we've just leverage, than levels our higher So with look operating lower expenses,

And that look than long-term we the we expect grow less would from forward expenses so would to as growth. we standpoint, a continue overall sales always

model, our have on And that that expenses volumes. within and based we so types available do are flexible many believe of

we margins those with grow believe long-term still and to so to that ability to current operating we do continue maintain some have growth. sales And our

Operator

is Our coming Ryan, Blair. Merkel question Ryan next from from William go please ahead.

Ryan Merkel

into signs the is, really First you off, your talk and what any in you quarter seeing about And of weakness just growth volume I'm are through October? anywhere business? driving at can

Peter Arvan

Yes. Good question, Ryan.

base point an pool partially was I as the by decline pent-up is the they're believe when the happy maybe said holding we is because As when construction, I the higher with know, down, seasonal the at there are at that may offsetting what the at elevated XX% grown. we're fact quarter, new range. posted the time look the XX% the installed client the weather level sooner I is bit construction. you for of shoulders up to in be partially that you And that weather. weather construction holding And pretty at would that we in if because A new we off little of in if better said, are this demand renovation. new forecasting at look where some pool historically pool up. I it's a compared I'm the the decline little in it to volumes closes bit most end And affected considering what actually growing that remember that as to volumes are That and have going say be stays buildable. guess of we year, that's

going to off The likely be say to volumes double is least flattish balance, position actually pool that pretty construction we good still that a at are think. on digits. new is So fact

Ryan Merkel

question another here. I we're of kind I follow-up seeing there, comment? backlogs new on agree. right, out that little a there surprised, pool XX%? is, Is I Is I'm so XX% were or down dollars? that in Yes. to that dip units this thought Can And that

Peter Arvan

I have of you dollars your of the I that to the first would really units think the of And -- and -- is -- in on that inflation. apart. take be say to will kind is really question because is, are course it backlogs structural is What higher it

less a in climates got in early we late they all, don't of to know, loop those And got northern the start back. days first builders you on, a season those as So typically had when you pools get ground. So right? slow where the the especially you start,

I that seeing pressure -- in the round shape. there's think the that be tend think are than end you the And they pools -- more we markets in end markets the would are better I seasonal tell lower in better think builders and shape higher year I to pools.

I think that any The pullback will in be the skewed in pools end think are lower I my shape. end mind good pools. to higher

So customer of -- given I plenty plenty think if tell has adequate still exactly but across you work was so out -- it the the builders I year, the have high the as backlog But there think think as that you is there's out look our would off, to minus work of I that there. I almost the no, most a last frenzy many base, how think there, again is the XX. a we economy an there state minus as we're still died go, quarter of we're estimating XX, but it

Ryan Merkel

then that Okay. is ask on high-level I question That's wanted helpful. And a everyone's mind. that to lastly, just

to views a your slowing business We've I got market. got about want high-level each your rates. next think segment We've housing of quarters. couple the over got situation. Really, rising on how we've So Pete, a just

you do this How environment? So trending that in maintenance, new see pools. rental, and upgrade,

Peter Arvan

good question. Yes,

the of and maintenance start you If Historically, move the times, that water, and look week, have the a those you're -- you pools. you're water. happen. -- once or have with seven activities as grown week base two our repair a and to at we've said let's at you it the plus new the it the have the has segment whether using installed inflation pool, water with it a installed many Whether look to base because you if you filter days days know, of using treat

part that, is the continue as So been norm grows. of business, to that that we historically would of which that that installed portion business of the has the the to consider base going grow pools

pool saying new renovation think is this year a remodel was dealers we going that felt have backlog done And said. be that focused on year projects to builders we think new down our as based started to on in people as I construction. So, from construction, there were input pool waiting the we the and we

portion that available well -- held down, think volumes labor that is pool the business benefited new flattish. the of has I from even still evidenced up and construction has think the with as by are I fact

maintenance that. next could the makes and it it that macro the like is I XX% Ryan, to the I is pool business. it construction remodel continues construction that but balance up from year, the XX% of be this new I we So of when tell business. grow. new pool roughly would the down a you not about our repair that, I think year. down certainly XX% And suppose forecasting we're perspective; guess and Renovation could. roughly And we make up mean

another construction you number at. be And would forecasting probably range. inflation, our of well we're in XX%, next renovation that's felt good announced the that's but look XX% pain to let's to revenue. the that's think major the really, this, portfolio of pool certainly XX%, pool XX% X% not said, same if And If new year. fell So falls another broadly new XX% construction so across to the that market say which X% the in already across you an if you total, been guys has on take then I equipment a is And -- if additional look from X%. X% XX%

X% one one up of then net, or a a, the one business, to that the plus look you're on plus plus XX% right? a at Because minus five gives four. right? If minus you X% And you there, a

are a at XX%, to down sales flattish So mean, two I a number. looking still I markets conservative, even with think if XX%, be you're those

Operator

from next please go comes Susan Maklari from Goldman Our question Sachs. Susan, ahead.

Susan Maklari

My first follow-up bit question a the inflation want point. is, about little to I

inflationary forward those Can to for the that to year? think think see relative areas basis X% about the going about you a of them perhaps some comment or talk made that on should items, next other commodities You how how we next X% deflate you sources about relative and we should may year. some that the

Peter Arvan

Good Sure. question.

at which are of chemical that's got but So three given and of items And the of in we terms X% the to very, look is the when another big, very folks, whole the year, from mean, parts supply be biggest of composite small Which different many X%, a we're I biggest of things see part exposure that's major is the that for about in business, to Yes. call associated the commodity together we of assembling that's are a the X% into if next going of could that lot let's really like right? in there So into -- a number equipment not the kind business year. total, I spend. at there's portion would place a up be is that X.X% more total. decline this there of in Pure two mean, X right? some Could be right? the there's commodity think forecast there? on factors do that overall we those those of degree, so There this makes that business. our saw would talking that grand in that chemicals could But just I rebar a could -- not our those like inflation to some our relatively be. -- deflation our on of not additional business, of -- I decline chemical and to it some some see items? pipe for on dollars that, I things that trichlor tariffs we've you've tablets. the would go be your the business, consider with chemicals, because You've chemicals it say really items of the more move X%, And you're are portion category tab next But scheme that. that you coming dollars to a PVC parts conceivable got not inch the put X-ish year, point,

were impact chemicals Hypo be The frankly, XX%, talking those So going are of Cal net next shock, biggest and if you're very decline chlorine small still overall. of So even is your that to right? both part to still short. and XX%,

And make area probably anything, will how fairly in chemicals And don't going high-level that's which be a about make doing pricing in the I solid kind really of see up. we that -- very which there's -- balance. would think then from areas, but that think it. the prices those specialty So I but the that up

Susan Maklari

to next there? opportunities perhaps how macro sort couple the and just we in quarters, in and year? general, move the as you're too, thinking year of dig And about newer into be may work this the very little helpful Can the the Okay. we I how with relative thinking balance That's that environment the that leverage sheet then and end balance into to the talk about bit. wanted through we of of also to a inventory, you as you're get color. ability that next over to sheet

Melanie Hart

Yes.

mentioned, took by skew. standpoint an So location a when individual of we buy on the look as evaluated and early at opportunities, them all I we

knew what orders. we those we placed So buying we were when purchase

we're we early benefits. POs that so on that so XXXX position buys some we've done we've go and executed ourselves as with we to into ensure to the have And very comfortable the margin that

that. with very comfortable So

As have ordinary in quarter, of weeks have would first have fourth more at supply and you into normally on we three hand, we look we quarter the inventory probably kind than that of about when the kind environments. move we

that you period prepare as to And inventory in sales for quarter. for forward kind would of of so typically quarter the second our increases peak the second when we and be the QX end roll the

between would our purchases next on would we projected based quarter over then, now second and next of couple inventory our quarters expect that normalize out as year. so we come And the of

Operator

question Our Carter ahead. coming Andrew, from from go next Stifel. is Andrew please

Andrew Carter

thanks. morning. Good Hey,

margin gross that of the help the help be of case Pete, would would scenario So the In one. be mean, putting the out that different you at than takes would us XX%? down sales you almost you flex kind what decline? mitigate your the on I of through P&L some I are level? Could kind a scenario, us a SG&A the worst appreciate lines and higher that across commentary, of walked almost kind what your business

Melanie Hart

Yes.

that called compensation there. So where than gross more or historical seen be talk specifically about higher item, incentive increases over on the we talked the when last some the already we've out in we've margins again we've will positioned areas as one But expense of in little years growth our be two at look with bit provide to a better color able line as February. to we

are than year X% we normal if that a growth so about moderating areas to line. a X%. to expense to additional -- have additional ability expense the would But at expectations sales outside flex there's just And the we look the lower biggest money that talked on compensation, that. is some people area. But of contributions several our in when really The incentive you from overall really,

and some with we where we the have expenses the that to discretionary this many to that XX% are certainly have some really a when kind to would overtime staffing we've components a delivery sales that there's from items and And so expenses temporary And where time it as well. this growth into the after they as relates of expenses start just year, standpoint are not even we flex added year, then would those you entertainment. as two ability in travel getting natural be XX% and of growing encouraged

at the some good expenses the ability of XXXX our of to discretionary those of to we business. looked in kind kind me take that when is and we out of that think that have the a to just expense I flex do did we expectations model show

Andrew Carter

Thanks.

incentivized thinking this decision on to would there, able terms adjust how want your you Second through they tradeoff just worse there? staffing your How in -- that the transition said and much miss I can and question, don't to Melanie, the that quickly sales branch of about having environment correct too hey, how say, quickly worse and are managers, much, kind they everything. they level network went kind How the whatever, of at the and you mean then make in can make they weigh do too to kind and profits. going to able are local what to of quickly ask I it, I are you between ordering sales, that and of

Peter Arvan

what we very I have would to Andrew, we're Yes. that very cycles. been have say, have fortunate operators experienced many here's through -- we have --

So we've branch experienced, when our very at center the many level really manager experience, the our of our a many, the very, developing all if regional level, team of look been team, down you sales depth way at level to for manager years at level you the the our general manager look degree, it's management experience and some years.

They've a the not this is for thing So them. cycles. new through been

they I is that way way and expenses. incentive the and are I'll the POOLCORP They all wait add a) up. to are basically look company understand don't system, individual the whole measured level. cool. -- way and on Melanie the tradeoffs frankly, operating same experience The have the So total the really them don't is say, if the because frankly, is wait well, way like, down P&L they going if systems They it the they're that to like things typically -- with every

for and sales don't off, for and there be team. not operating them -- for things to and no say, I very sought this is on is opportunity to going to expense a them mean, time a no that incentive carry out, just are by I the executed that capitalize model tested is to flip So incentive incentive them the no wait there is I is, and I incremental well know experienced I'll is that it There need. if cool is wow, late. side

not Frankly, know at going are and that prepared environment the we next But we're year to be bad. occurrence. for, suggesting any don't point. is -- again, if this So, we

it's I we a you levels. would people, to whether were it's Melanie you as as of then, drop perspective, from revenue happen, whether model whether gave are worst If that it, which it areas a followed, benefits, sell would XXXX flex basically the So from those. with back immediately almost to there the -- I were mentioned, see top-line perspective, again, construction we comp, really SG&A to trucks, will off renovations an said, numerous take name is and incentive the model, you if fuel, transportation, kind immediate that case new

Operator

Research. David have from We go now Longbow MacGregor ahead, a question Please from David.

David MacGregor

again, about be? of just SCP taking Europe drag everyone or XXXX, Yes. and thinking how the Good Horizon morning, thanks for I question. much a could guess

Peter Arvan

overall. you of its if Right. that look think we Europe, I business is it the -- at And said X%

David MacGregor

Right.

Peter Arvan

this year. it's year And tough very having a

mean, I to fully which a to to the Horizon, the to sequentially they'll than would important specifically, I in also going obviously in we Blue, again, is -- and slightly Right. I so they're about construction. Horizon think when time, bigger Horizon about in areas again, about slightly working over X%. you're of size, are, not XX%, and to been think be that Horizon, housing it -- economy is, our one And general, housing terms than think So dependent talking consider. worse, so that be business another be the where But couple more we portion and things their given maintenance if building Number get, I folks new of in that they have when that. are footprint repair important their more because things they're is in of and expand -- market the is the it on off

piece, been business total, Now think is, is in less total, more I of I in mitigate still cooling, you're a that going good. business, markets markets clearly in And of in is the moving that a maintenance invested more are be cooling the XX% at those impact number business two, repair to terms is a I about mean, our of important. we've Florida one. to that good. and still than construction we've focused look off new be there going that construction, talking if in when But should it and which new the even to number

housing we've and Florida still invested market the that, are good. in growth So in there, Carolinas the

a there's yes, drag relatively say, meaningful if to there going catastrophic in don't look given and of a So, at it's those small drop terribly mean, total, be their but impact. could I it percentage a I our be areas, think I

David MacGregor

the and how of for about And a guess kind accretion wondering, acquisition around really My is you're year. just it's Thanks Pool I'm Patio, & follow-up Okay. at addressing question level. that. higher thinking Porpoise next I

pool might tight maybe create your they optimism that around pressure, And DIY? that pro If accretion going do stronger a next look does to that sense are economic maintain pool feeling a so having like owners if what the switch from year? of

Peter Arvan

Yes.

I is think something that happen. well very that could

they the for the have part was a Porpoise independents. of in we're that the are yes, network just that strategic about Pool it, the -- if guidance myself. we now the great the leverage this Patio at the Pinch making the slows, that I And take for you thematically frankly, so, operate. on just great acquisition or conceivably, and reason for what, then obviously, is rather that, but that can not year if maintenance capabilities Penny says economy homeowners And repair if are a A so reason on have think of that next that and Now pool providing point, decision well, of tools embedded & franchisees retail I'd some

positioned the to and that every on tank right? market is we forward, maintain best so pool, So is, look that the And part we're I where we are a a so at a to pool. to maintained continue make is is -- country. to share right, needed I with we And gain wants that switch geography positioned frankly, we the quite provide a to the working don't and a it franchisee service there DIY, focused is is are customer to focused franchise Then and or catering a grow and sure of and the on that a better the what think homeowner that. equipment the from perspective So know to from is looking is -- great. we're retailer pool is chemicals on all in from to we the is where if pool want DIY, anybody capitalize way professionally pool do think that -- share to that perspective if supplies what

Operator

from Our Trey you next Stephens, may Trey, question from proceed. coming Inc. is Grooms

Noah Merkousko

is Trey. on Thanks. for Merkousko Noah This actually

So part I for but that's it to small sounds your of wanted growth. question, touch first business, demand. commercial I area still know a that's like my an on

out end over continue look business quarters, next is? that And can the an you you can of you remind that few much market As the show how do to growth? think that's just us

Peter Arvan

total, are in It's I people business that to back went back stopped Yes. tough it's through And people to think a it really remember, in spot during about -- X% traveling. -- They're the X% And COVID, to is range. when vacation. traveling. right,

that amount business, are So at that's bid-and-spec. major there money year. get Those for -- up that being deck the a times XX% project those sales is They're we typically parts many for of we two right, to are remember, construction, There -- So there's is considerable right? a new renovation. in spent The the growth, because as municipal look projects. right? areas larger, our by evidenced project,

So there's of visibility those. a lot to

think fact our anytime of our that ability I continue to it's this I as well. I'm Is a by up but encouraged the much take No, grow to share all and And small when there. it that is the going soon. look upside to reshape it, relatively tremendously future? that the that can of travel and that, using in fact So pipeline healthy don't is And a letting of get -- pipeline year that just and to those I the pools. repair see was that you that tied And good the really the pretty tell maintenance good, that look very at we the market there in the part -- by area. then that's there's at very given travel business, season

Noah Merkousko

does were appetite pretty that for That's if follow-up, pool case then you made demand new place, year just renovation, your And all next M&A? for change Thanks. that if for for at take about and that we helpful. construction my to conservative think

Peter Arvan

No. all, at really. Not

a very we're -- our think I strategic acquirer.

made, also strategic. on have If we that and acquisitions prudent been and you judicious look historically back the very we

is cases, we So for most not frankly, reason markets, those for anything And in asset? am because is, acquisitions, absolutely a I And not. most we're already -- have where don't every an -- answer in the in willing to we overpay the we're there. to because, position for overpay is

it and probably price to that back backside. that become I get memory, additional muscle for would additional will, sit to and So prices you on But the capacity, I an picking to synergy choice need greenfield am to if have some we the we perhaps asset asset some the capabilities be if and really additional then is capacity the up and when a inflated business opportunity say, pay very I don't we acquire because need willing quickly. an inflated,

XX approximately up open new to going greenfields. we're year, this So

from other fit culture we're that the very we a culture and of sense I that teed number greenfields. the year, a to there from that up the there. and at Next had Because my acquisition have an in change a look I some that made similar strategically for when company, that cultural be in that If perspective we're business a things because at acquiring. we what we do was markets might greenfield a a looking greenfield, something good has is to made perspective one of was there is appetite acquisitions if

it. we to an the I certainly appetite. sheet have think do have We So balance

MSA plan strategic area. that a really is We have individual an at done

what greenfield, our sense and success is would makes flip quickly. rate assets that you capacity asset to no move tremendous. it made that acquire, we So if value at available perspective, and needed then we in then would do done can additional relatively that good always forward. an The area, side just we've simply become sense, look was we if do there is absolutely, their greenfield, that if And with it is we and

Operator

a And Bank. Deutsche we Joe. have Please go from Joe question Ahlersmeyer ahead, now from

Peter Arvan

Joe?

Operator

Go ahead, Joe.

Joe Ahlersmeyer

me? hear you Can Yes.

Peter Arvan

Yes, sir.

Joe Ahlersmeyer

Okay.

Yes, that. if for back to go to about I guide I'd could. the Sorry XQ, like gross margin

I think it might [indiscernible]? be helpful

Melanie Hart

sorry. I'm

so You're a bit, question. breaking little hear up can't your I

Joe Ahlersmeyer

Okay. I'll take it off-line.

Peter Arvan

Okay.

Joe Ahlersmeyer

that. Sorry about

Operator

go ahead, Stephen We'll with move on Volkmann from Please Stephen. Okay. Jefferies.

Stephen Volkmann

actually, was little vendor volume-related you hoping of just answered out the could my how assume bit here. And I but rather been than a have they're I maybe of Great. I to rebates questions sort explain -- work. I'm I'm price-related. guess to Hi me guys, trying probably Most figure

of be -- vendor rebates? if had about base we what headwind So how next the sort year, think volumes of should maybe flat case from we would a

Melanie Hart

Yes.

So the our of majority -- the volume-related. of all vast are programs majority

and for they every targets with in And targets. also so reset having do typically, there year growth

purchases had higher in So from our of we've margin. the years kind normal rebate gross and sales than we where typically portion that the growth, benefit will of on vendor

Stephen Volkmann

going. I'm I'm maybe of just we might kind you what assuming Because normalize, going trying guess of as I'm past years to the that be. couple from I that Right. won't and over out figure forward. benefited where that's you headwind

Melanie Hart

what a we think commentary Yes. tied February to and that impact maybe it We be to to be at might our take in more that really going is can some -- year. we sales next as look of -- as provide kind it's at our expectations going look because into

Peter Arvan

Steve, And programs that on right Yes. individual the just an and now. we're process basis, in are negotiated

are can others, think how when is way So that better hard it. our a the than this on the into again, because, But -- it's There is we full-year business that vendor for have individual year. still for But it that some we and and guidance, our us vendor you rest in I flux. long-term provide that would the assured, that which obviously, constructed. the for But and we'll color tell programs programs mean, perspective for depends part in you volume are are years, next revenue to normal to the about guidance ask I more and quantify guided contemplated really really practice haven't from are us. we rebates of

Stephen Volkmann

Understood.

up mentioned growth? the Okay. Thanks. Pete, was but difference. And I driving then XX%. maybe X%, retail big a think like Pinch that pretty Pinch A comments Penny Penny A up you follow-up, quick in was a It's your What's

Peter Arvan

Yes.

-- our think in as retail we mentioned, some certainly traditional the independent we great business. retailers have I

retail perform is they you which, operator. geographic our We have that great to equally Georgia operators if at that primarily it goes start you, tougher Texas, buys the know, on season, where which the But tell similar, correction. right? well. as in think made, Penny as certainly Pinch look retail be at inventory seasonal a you footprint A had late Florida, look hence very up given the operates. compared Penny perspective, Pinch would Louisiana business I I great as from basket, all a some would A the the early also It's and into a comment year my location way large markets, that entire the much a to our

Operator

We have Zener a question ahead. from from Please KeyBanc. go Ken

Ken Zener

guys. you to morning good How are you? Just

Peter Arvan

Good. How are you?

Ken Zener

Well. implied? expense, I Melanie, the said XQ interest million $XX you believe in

Melanie Hart

I'm sorry, finish your ahead go up question.

Ken Zener

million correct, interest -- the Is that my expense, year. The said million fourth No, in If no. $XX the implies The no. $XX that you correct? model for quarter. is roughly

Melanie Hart

Yes, that's correct.

Ken Zener

year? should million $XX next annualize that, And over we so

Melanie Hart

little we'll that. Again, a bit on Two color more things provide that. on

the that we level higher at have for debt carrying full-year of As expect at levels, so be currently. next will not inventory would year are we the we we that same and

Ken Zener

it But even a Okay. pickup. sequentially, obviously, was

think deals your have Could you ability you talked et us sales, to easy you EBITDA if to give et and cetera. you In terms of that valuations valuation greenfields, cetera, about the how space about within of done? parameters some do guys of the would, context in -- Peter, maybe you

Peter Arvan

with the we've of mean participate of valuations the been valuations. paid, last we've would retail capital for crazy range the a business, is not would high, what in -- frenzy X% sorry, X% having I and or that What what distribution to valuations been again, into luxury numbers some year have space consider to multiples seen being Yes. which of range. right? I traditionally seen we industrial we about crazy just Xx have Traditionally, -- talking consider in you the coming in to tell you're in good late industrial X would

case-by-case at on for is greenfield a greenfield basis, us, we from to that. varies traditionally, a for of have below or perspective, what we but Xx a turns couple more Xx So really And least typically it seen. can

Ken Zener

might right, what kind the just that by the doesn't a taking it's valuation, chunk down estimates, which just -- a discretionary will, margins if respond significantly? And if demand broader experience of referring the -- decline that obviously, of of terms to XX%, it's XX%, a to I landscape maintenance Could this it just quite about landscape how do which how of what's the competitive really know gained talked you as at guys be went a kind in much operators expansion was of to new, to -- mean, the investors' lot the But the smaller XX%, XX% out. back good perhaps of can is down gross you you does margin Can as Day, you think we don't seems a versus about your kind the about so I drop. how how other I talk issue -- the XX% to so is you if at smaller recently why Analyst know we of guys, think you job you've in operators XX% what that in -- Melanie, market. you're laid much a terms and versus worst-case valuation, look just the very our mind get dramatic sustainable. is be maybe the And talked over stocks Analyst -- might in you demand that's is outlining a group. a Draconian revenue at did these? the have whether guys perhaps world shift kind margin How Fluidra, understanding -- obviously do But ladder, Day, your it decline -- And Yes. if seem understand of large had I with the but so competitive volumes. at scenario, margin share. you big for companies good I this you of bit your of talk you for lower to mover

Peter Arvan

to again want Draconian go concern down. says, construction happen. the don't up, certainly seems I and to lot -- in it a to And it's when tend big market bigger that to that the take guys to us number a the overplay the issue, could markets, we accustomed of and worth bring were think fact to But conditions smaller would become pool be inventory customer the bigger to provide that the get cash there's think where in operating those is players a the -- to customers construction a the ability service going to challenge. way resources more that when to industry to in wow, becomes again, basically, for the continue And tough bear I your pool then you new maintain pre-pandemic. mentioning Certainly, service what is typically, is And that But Yes. went stronger exceptional the the very have able maintain we structurally that numbers have far new I allowed pick, similar back that we to because has take is larger share. the part now. to

flat structurally new depending or we're minus to and pool well, that, continue or a construction level. couple XX% like up next at is going year of outlined business. or the the that because XX%, not inflation. again, it's to But up Look, So XX% elevated kind consider construction of the of this we means or kind if you for hoping is or same minus what bigger the XX%, new is have we time, on pool minus that at -- even industry

order level your to are to ones to have down, the continue are is they that in the you the reserves going up the the smaller certainly, capital and when have they the provide providing. service of that that expenses first feel ones business And have are pinch. least slowing players Now been

to that be like expectation us would repeat history larger our that like do if would So players were market in your that a better.

Ken Zener

pressure go your similar would see Right. extra where old discounting perhaps, create their And they cash you for inventory? flow industry roofing to they and wouldn't liquidate as

Peter Arvan

Yes.

So --

Ken Zener

margins. down were kind so then, in didn't -- So your your much I stable from It's did in XX.X%, that compress XXXX. back gross you margins fairly of XX.X%. gross mean

Peter Arvan

Right. good point. very And -- very

have needed price flow, that we to wanted drop look that on at particular Absolutely. to we immediate right? players an is a individual these -- some for generate have look, of a everything there a grab would do don't So don't we of large. If are of amount there's out independent very markets, And some we that because in lot that So product can't a and way markets. individual to they price but the none cash in that compete very revenue we to certainly they cash there. could happen? and try long -- the had that compete They product on national finite decided was

So anyway. in all but talking might they discount scheme to the minimis of excess product they with inventory compete if every you're Yes, grand raise in order of some day have it Frankly, about amount day, a that things. cash? de we

all at let's guys, a of discount. at right? if when through the obviously competitors doesn't and margins room change on the operating sustained there they these curve, years and well, we've of the say, double-digit seen operating you basis. isn't not do look our they lot there demand whole And could the really high a It's margins of P&Ls -- a like of to anything it acquisitions, So and frankly, were of lot

Ken Zener

right. Right,

Peter Arvan

inflation is isn't the operating that anything on And high, isn't to cost I'll opportunity frankly checkbook on margins the to -- say, I'll And well, don't there do -- the have it an enough regards over they simply to tight long-term there take chin. just are inventory in that. their

Ken Zener

questioning those of fell X%. about And were competitors the margin about I made this Would about environment today? comments weather They Right. XXXX -- pursuing say with in about mean were in They XXXX ranges consistent are you can't X%. you. margins your about line XXXX, apologize But about the it. you with I to

Peter Arvan

much worse seen tell I Tough than that. answer. can I've question you to

Operator

from Garik, go have ahead. We a from Loop Shmois question Garik Capital.

Garik Shmois

Well, here. for hi, I'll thanks brief me Well, to thanks. try squeezing be in.

bridge trying some this you in on to renovation there good slowed. year? trying you strong when the the some of renovation read with next comment are backlog just Just and made, to sensitivity has Should still earlier were an that that on outlook still quite renovation are maybe the the kind work is as XXXX. of construction side provide into we maybe new contractors the comment I'm construction new into to work more to the switching relative that on

Peter Arvan

Yes. believe, the tell plenty dealers right can you, is have still of as now we is be to from said, I mean right? So going we're information getting they work, new that down. I that I construction

a at seasonal So markets, round if I big the see you you versus are year And difference. can look markets, the as mentioned, volumes see pretty our you frankly, flattish. that

So the growth in those year where we still round very markets, population Sunbelt markets, strong. are people are moving, markets saw where

As is big California, more than XX%, for round we is Arizona; are inflation mentioned, obviously markets Florida was up which up. up, way year. Texas the year the

So our areas. conclusion pools strong those where built, are is being still that in

markets those the and those we're that built down, in demand still pools perspective. is permits Although what renovations there areas revenue are by as evidenced from still strong in a being seeing

Garik Shmois

or Okay. recent bit that haven't that. been there's to Thanks evidence Follow-up yet. seen if all any just to trade-down speak it's little just for that and any we mix can at if -- question a you if is

Peter Arvan

that. think I Yes. don't we've seen

saying up buying going people comes deal. big think trade-down not the really to is entry see larger course really pump we and before to know and not And purchases. not at on see have investment, is, for level, really are component something it's where at it happening In pain is you would if gets because years, I'm more complete. -- not at know component the level. heater, entry a What So I think, level, for the forensics the seeing last such. construction don't at because of count still think right? you're on I trade-down trade-down see The it still over level thing and to component level, a if Where going that that's same the to right? that year I you're think some the X likely year sure to de that the you fact, will, the that to see contraction we I don't is decisions more people, making the is high-efficiency because XX is wrapped when you minimis longer-term not ownership, a I once we -- that I'm longer-term

being I edge whether a it's are of pool, build me or to tap financial not. maybe those of decision was on I do So build If that I probably that it ones healthy. the end pool I broader but brakes continue, made the the the the see -- the sense for value think the just in the being not counts, still those the I projects and economy. talking of think at we're pool upper scale, what happens value still about, But hence think

Operator

conference And for this I closing any session. to now Peter back question-and-answer to concludes the like Thank our Arvan would turn over you. remarks.

Peter Arvan

holiday the We Yes. us results for you our a Thank will for support which XXXX your look provide all on for and quarter at to XXXX full-year much. XX, preliminary and fourth February reviewing joining We time; safe and happy guidance have also season. for you Thank very year. forward you hope we today. all

Operator

for The conference today's presentation. attending has now concluded. Thank you

your phones. You may now disconnect

Pool (POOL) 20 Oct 222022 Q3 Earnings call transcript