Pool Corporation

Good day and welcome to the Poole Corporation fourth quarter 2024 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Melanie Hart. Senior Vice President and Chief Financial Officer. Please go ahead, ma'am.

Thank you, and welcome to our fourth quarter and year-end 2024 earnings conference call. Our discussion, comments, and responses to questions today may include forward-looking statements, including management's outlook for 2025 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ from projected results are discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of our non-GAAP financial measures included in our press release are posted to our corporate website in the Investor Relations section. We have included a presentation on our Investor Relations website to summarize key points from our press release and call comments. Pete Arvan, our president and CEO, will begin our call today.

Thank you, Melanie, and good morning, everyone. This morning, we released our full year and fourth quarter 2024 results, reflecting sales slightly better than our earlier expectations and solid execution by our teams. As construction and remodeling activities remained under pressure, we focused on providing an unmatched customer experience, driving growth in our maintenance business, including double-digit growth in our private label chemical sales and continued development and deployment of our Pool 360 ecosystem and tools. We believe that consumer spending on discretionary, especially that which requires financing, continues to remain a headwind. While still preliminary, we believe new pool construction will land at approximately 61,000 units for 2024, which equates to a 15% decline in new units compared to last year. From the pandemic-driven peak to the most recent data, we have seen new pool construction decline by approximately 50% in units, with declines also observed in renovation and remodel. Considering this, along with the general economic headwinds, we are pleased with our team's ability to gain share in a tough environment. We believe our share position has grown, driven by our best-in-class team, solid execution, unmatched value proposition, and continued investment in a resilient industry. Now, I would like to recap our full year and fourth quarter results. For the full year, we delivered $5.3 billion in revenue, down 4% from 2023, and slightly above our latest guidance driven by a tremendous team effort in creating an unmatched customer value proposition. Our gross margin finished the year at 29.7%, reflecting weaker product mix as higher gross margin construction and remodel related products represented a smaller portion of our total revenues, along with some competitive pressures and customer mix impacts, which Melanie will comment on in her remarks. Generated operating income of $617 million, operating margin of 11.6% in line with our expanded 2020 operating margin, and operating cash flow of $659 million. We consider this a solid achievement while continuing our strategic technology investments, sales center network expansion, and overcoming higher operating cost inflation over this period. We generated diluted EPS of $11.30 a share, including a $0.23 ASU tax benefit. For the fourth quarter, total sales were $988 million, down 2% compared to last year, continuing the year-over-year sequential improvement we demonstrated throughout the year. Gross margins improved 10 bps to 29.4% compared to the same period last year, and we generated operating income of $60.7 million, operating margin of 6.1%, and diluted EPS of 98 cents per share, including a one-cent ASU tax benefit. Breaking sales down by geography for the full year, Florida came in flat while we saw mid-single-digit decline in the other year-round markets. Florida showed resilience throughout the year and in the fourth quarter outperformed our other markets with 12% growth. Repair and replacement activity following Hurricanes Helene and Milton provided some weather-related benefit to Florida's fourth quarter results, but the storms likely delayed some construction and renovation activity. Our remaining year-round markets saw sales decline ranging from 3% to 7% in the quarter. Similar to what we observed throughout the year, maintenance-related sales held up well, while construction-related products saw pressure, particularly in Texas and California. For Horizon, net sales declined 6% for the full year and 4% for the fourth quarter. Stronger commercial irrigation projects, along with maintenance-related sales, offset softness in the residential construction activities. Considering PVC pipe deflation impacts, volumes came in mostly flat for Horizon for the fourth quarter, which we consider an encouraging and improving trend. For Europe, sales declined 9% for the full year and 5% in the fourth quarter. We noted year-over-year sequential improvement during the 2024 swimming pool season in Europe. On to our product categories, chemical sales increased 2% for the year and 8% in the fourth quarter. As mentioned, mid-teens growth in our private label chemical sales supported our ability to grow overall chemicals greater than the increase in the installed base. Fourth quarter sales were lifted by post-storm cleanup efforts in Florida, but continued to show growth across the overall business. At the winter industry shows, we also unveiled our new chemical branding and marketing plans, which will create even more demand for these best-in-class products. Complementing this, we introduced branded test strips that will work with our private label consumer app, which is new for the 2025 season and will allow us to drive additional growth through our dealers for our proprietary products. Building material sales declined 10% for the full year and 8% in the fourth quarter. Considering the estimated 15% decline in new pool units constructed, these results are strong indicators that Our proprietary NPT-branded pool and tile finishes, our expansive outdoor living offering, the power of our model and superior tools and expertise to provide to our builders. Equipment sales, which exclude cleaners, were flat for the year and up 6% in the fourth quarter. As expected, maintenance-related equipment demand remained steady, and the fourth quarter included heightened repair and replacement activity in Florida. Not only during this critical recovery period, but also throughout the year, our supply chain teams worked very closely with our vendors to improve inventory vitality and fill rates while reducing days on hand. We have invested in people, processes, and technology that helped deliver a better customer experience and solidified the confidence that we will effectively deliver needed products when they are needed most. Turning to end markets, our commercial pool product sales continued to grow with 9% growth both for the full year and in the fourth quarter. We continue to invest in capabilities that allow us to take a larger share position in a very technical market. Our recent investments, which include acquisitions, inventory, and talent expansion, will allow us to continue delivering growth in commercial aquatics. Sales to our independent retail customers declined 4% for the full year, but we're up 1% in the fourth quarter. Pinch-a-Penny retail sales, representing our franchisees' sales to their end customers, increased 4% for the year and 15% in the fourth quarter. While the franchisees' sales to end customers have been steady throughout 2024, most pinch stores are concentrated in Florida, where a significant amount of store-related repair and replacement activity occurred. in the fourth quarter. Quarters through our B2B Pool 360 application increased to 12.5% in the fourth quarter compared to 11% at the same time last year. As we introduce new and improved versions of our Pool 360 water test and Pool 360 service tools, we consider this metric and private label chemical product sales to be the most meaningful indicators of success in the early adoption and ongoing utilization of these tools and applications. Also noteworthy, our pool water chemistry test recommended over 1 million product applications to consumers through our dealers in 2024 to balance pool and spa water. Over the long term, we see pool 360 service as a revolutionary opportunity to help our maintenance customers grow their business and create efficiencies and productivities in their operations and in ours. We remain focused on tactically expanding our widespread and fully integrated sales center network. In 2024, we opened 10 new locations and added two more through acquisitions, bringing our total count to almost 450 sales centers. Our Pinch-a-Penny franchise network added 11 new stores, including seven in Texas, for a year-end network total of 295 stores. With the growth of our Pinch-a-Penny network, we have added additional capabilities, and as of the end of 2024, are operating distribution points specific for continued franchise growth in both Dallas and Houston. Pinch-a-Penny will open our first store in the Arizona market in the coming weeks and has developed distribution capabilities to support this market and future expansion in the Western Sun Belt. Now, I'd like to frame up our view of the 2025 market and outlook. Our teams delivered solid results in 2024, executing on our strategic initiatives to grow share in both our steady maintenance-related business and to capture available new pool and remodel work in a weaker discretionary spending environment while investing in our capabilities that further differentiate our customer experience. Our expectations for 2025 are no different under the present macroeconomic conditions. The current industry outlook is not likely to benefit our industry in the near term. Having said this, our dealers continue to communicate inquiries on new pool construction and discretionary remodeled projects are solid. But when financing is involved, we believe consumers tend to remain hesitant. As in 2024, we expect maintenance-related product sales to be steady, offering some growth potential from the 2024 increase in the installed base, modest inflation, and continued market share gains. In the meantime, we remain aggressive in helping our customers grow their business and providing an unmatched customer experience. Breaking down our top-line expectations, we expect total sales growth for 2025 to be relatively flat to up slightly. Growth components include benefits from inflation of 1% to 2%, some maintenance-related product sales growth, and continued market share expansion. Moving to the discretionary portions of our business, currently we expect new pool construction in units to be relatively flat. While around 60,000 units may be close to the bottom, the uncertain economic environment makes it unclear how quickly entry level financing dependent consumers will return to the market. Renovation and remodel activities should be stable in most markets. Over the past two years, remodel projects have been lower in number and scope, indicating separation of projects or a pullback of more highly featured comprehensive project spending. Deferred remodels will likely be a growth opportunity as the economy improves, but we remain cautious at the present time. Taking these factors into consideration, our 2024 guidance for diluted earnings per share is $11.08. to $11.58 per share, including an estimated $0.08 ASU benefit. Melanie will go into more details on the remainder of our P&L assumptions and capital allocation plans in her prepared remarks. Looking out beyond 2025, we're fortunate to operate in an industry that grows upon itself. Each year, new pools go into the ground creating growing demand for the products we sell to maintain and improve those pools every day. Continuing to invest in expanding our sales and our footprint, developing enhanced technological tools that differentiate our value proposition, creating productivity for us and our customers, and introducing new products are instrumental in growing our business. With our intense focus on serving the pool service professional, pool builder, and DIY markets through our incredible dealer base and the pinch penny franchise, we can continue to grow our share through all economic cycles. Additionally, the long-term factors that position outdoor living as a growing industry continue to thrive. Southern migration, the growing millennial and emerging Gen Z home buying population, a housing shortage, and technological advancement support a favorable long-term growth outlook. As I reflect on how we have emerged from our significant growth cycle post-pandemic, I see a company that has strategically expanded its footprint, grown its revenue base by $2 billion, increased margins, accelerated the growth of a franchise network, acquired and increased the utilization of a vertically integrated chemical repackaging plant, and developed technological tools to help both service and retail customers grow and enhance their productivity. Our widespread distribution network combined with our four central shipping locations throughout the U.S. and fully integrated ERP system differentiate us and allow us to efficiently provide our customers with the products they need when they need them along with unmatched expertise to help them grow their business. We are larger and more strategically positioned and integrated than anyone else in the industry. As I wrap up, I want to especially thank the PoolCorp team. Their ability to adapt to their dynamic environment focused on what they can control and propel our growth forward gives me great pride. I also want to thank our vendors. Our commitment to them and the industry is unmatched, and we truly value the partnerships. Lastly, I want to thank our customers for helping homeowners reap the benefits of outdoor living. And I will now turn the call over to Melanie Hart, our Senior Vice President and Chief Financial Officer, for her prepared remarks.