Pool Corporation

Good day and welcome to the Pool Corporation First Quarter 2025 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist 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 telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Melanie Hart, Senior Vice President and CFO. Please go ahead.

Good morning and welcome to our first quarter 2025 earnings conference call. Our discussion, comments, and responses to questions today may include forward-looking statements, including management 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 is included in our press release and posted to our corporate website in the investor relations section. We have also included a presentation on our investor website to summarize key points from our press release and call comments. We will begin today with comments from Peter Arvan, our president and CEO.

Thank you, Melanie, and good morning to everyone on the call. Earlier this morning, we reported our first quarter results and affirmed our full year guidance for 2025. While the first quarter started off with some challenging weather in key markets, we began to see some improvement in conditions in March. Although also meaningful this year, the Easter holiday occurred three weeks later than last year, falling into the second quarter versus the first. As expected, our maintenance product sales performed well during the quarter and so far into the season. The recurring non-discretionary demand of these products is durable in all economic cycles, and we believe we can continue to achieve above-market growth based on our strategic initiatives around customer experience, private label products, Pool 360, and our expanded footprint. At the time of our last call, there appeared to be some signs of macro stability approaching, but we have seen the challenging economic environment continue to weigh on new pool construction and, to a lesser degree, renovation activities. Our dealers are reporting that the uncertainty of the macroeconomic environment and persistently high interest rates is causing a wait-and-see pattern in demand for large discretionary purchases. By and large, they are reporting that inquiries are steady, but time to contract is still protracted. In aggregate, the permit data in the first quarter was softer than 2024, which is somewhat surprising given the more optimistic outlook prior to the recent tariff actions. We are hopeful that as things settle, consumer confidence will help stabilize that. When we compare our new pool construction-related sales to the permit data, almost without exception, we are outperforming the market, which gives us confidence that our overall value proposition to our customers continues to help us gain share in this area. Remodel activity will continue, but there may be some deferrals of discretionary remodel and replacement or reconfiguration of plans to complete projects in phases. Despite these persistent conditions, we are encouraged by improving trends in our top line performance and we expect our initiatives will allow us to perform better than the market in all areas of our business as we push through the transition to a more normal industry environment. Another topic we would like to add some color on prior to discussing the quarter is our exposure to tariffs and how they are affecting the business as of the latest information that we have. Our exposure to direct imports in total is relatively small and would amount to less than 1% of revenue. For clarification, this includes some building material and maintenance products. Chemicals as a category have little exposure because of domestic supply arrangements or exemptions. The biggest tariff impact in our business is being felt in the equipment area where the manufacturers have exposure for whole goods or components that are impacting their costs. Since our last earnings call, our largest equipment vendors announced and implemented an in-season price increase that ranged from 3% to 4% that took effect in April to address the March tariff announcements, and we increased our selling prices accordingly. We observed similar patterns during the pandemic years and those increases passed through the channel with no reversals. Our current thinking is this will be the case this time as well. In addition to that, on Tuesday of this week, an additional 4% increase was announced by Pentair that will take effect on June 2nd of this year. We will, in the normal course, raise our prices accordingly as these and future increases are announced and come into effect. Melanie will add additional color in her remarks and how we see these impacting our results. No doubt we are living in a dynamic market condition, but the team is focused on execution and is very experienced. Next, let me turn to our first quarter results. We reported $1.1 billion in net sales as our teams continue to execute on our strategic priorities. First quarter sales were down 4% versus last year, but down 2% on a same selling day basis, a similar improving trend to what we saw in the end of 2024. After a challenging January and February with tougher weather comps, we saw overall top line growth in March. Maintenance product sales performed well with chemicals showing volume and revenue growth, including double digit growth in our private label chemical products. On new construction and remodel, we saw the continued effects of tight discretionary spending under the current macro backdrop, but this area provided less of a drag on top line than we have seen in recent quarters. Next, I will recap the P&L. Gross margins came in at 29.2% versus the 30.2% in the first quarter of 2024. Recall that last year we realized 110 basis point benefit from an import tax accrual reversal Without that benefit, our prior year gross margin was closer to 29.1, reflecting some year-over-year improvement, largely driven by our pricing optimization and supply chain initiatives. Competitive pricing became more prevalent in the first quarter, similar to what we observed at this time last year and typical for this time of year. However, using price appears to be a more pronounced tactic by our competitors of late. We evaluate these circumstances on a market-by-market basis and respond as we feel appropriate on a market-by-market basis. Both our field and support team managed controllable expenses, and even with inflationary increases and investments in our network expansion, operating expenses increased only 2% during the first quarter. We generated operating income of $77.5 million and operating margin of 7.2%. reflecting structural improvements in the first quarter operating margin as compared to our pre-pandemic first quarter operating margins that range from 5.7 to 6.5%. We generated diluted earnings per share of $1.42, including a $0.10 ASU tax benefit. Covering sales in more detail, by major geographic market sales increased 2% in Arizona, came in flat for California and declined 1% in Florida and 11% in Texas. As we mentioned on our year-end call, we saw challenging weather in January and February in varying markets, which notably impacted sales in Texas and to a lesser extent, some areas in Florida. Again, we did see improvement in March as total company revenues turned positive in contrast to January and February and continues in April. In Europe, net sales declined 4% in local currency and 6% in US dollars. As it continues to work through the macro uncertainties, but is mostly holding the improved trends we began to see in the back half of 2024. While France, our largest presence in Europe, sees pressure from tough market conditions on new construction, we see positive trends in Spain and Portugal signaling a solid setup for the season in those markets. For Horizon, net sales declined 4% in the quarter. While commodity pricing has shown sign of stabilization, deflation impacted Horizon results by 4% on a year-over-year basis, most notably in PVC. Volumes came in flat overall for the period, tempered by weather and a soft macro. Maintenance-related sales are helping offset pressure on both commercial and residential irrigation, but our team remains encouraged by our pipeline of projects heading into the second quarter. Related to our product sales mix, chemical sales were up 1% for the quarter with volume increasing as well as total sales. As we observed last year, market prices declined during the first quarter compared to year end, but we believe pricing will rationalize further as the industry enters the busier selling season. We remain focused on gaining shelf space in dealer stores with our best-in-class chemical programs. Converting dealers chemical lines is a strategic focus area for our business, but it is a longer than normal selling process. Our success so far in this area is encouraging. Building material sales declined 5%, a sequential improvement from what we saw in the fourth quarter and much of last year. The improvement in our NPT branded product finish, pool finish, and tile, particularly in a tight environment, highlights the power of our offering and the unmatched value seen by our customers. Equipment sales, which excludes cleaners, declined 4% during the quarter following spikes from repair activities in much of Florida during the first quarter of 2024. Our inventory is well positioned for the season as our early buy terms allow for delivery from our vendors in the fourth quarter or the first quarter of each year based on manufacturer's capacity. Aftermarket demand remains healthy. Automation and innovation remain top priorities for homeowners and our ability to partner with our vendors and utilize our expansive network to effectively bring those products to market, highlighting the strength and value of our team. Looking at our end markets, our commercial business sales increased 7% in the first quarter. We are pleased with the continued progress in this area as we leverage knowledge gained from recent acquisitions to align with our sales force leverage brand names, and expand our warehouse distribution capabilities and enhance our expertise serving this robust market. Sales to our independent retail customers declined 1% in the first quarter, showing some improvement trends ahead of the peak season. For Pinch-a-Penny franchise, for the Pinch-a-Penny franchisees group representing our franchisee sales to their end customers, sales came in flat for the quarter. showing some impacts from varying Texas and Florida weather patterns and the normalization after hurricane repairs in the fourth quarter. Collectively, these results show the stability of the maintenance market and our progress to expand our capabilities to serve the key do-it-yourself end markets. For Pool 360, orders processed continue to expand and we're close to 13% of total sales for the first quarter of 2020, for the first quarter, growing from 11% in the first quarter of last year. Utilize the opportunities that the first quarter offers through industry shows and retail events to educate our consumers and potential customers on these value-added tools. Along with growth in orders process, we observed double-digit growth in our private label chemical sales, further highlighting our progress from the streamlined abilities of the Pool 360 water test and Pool 360 service to direct our customers to our private label solutions, driving growth and productivity for our dealers and for Pool Corp. We continue to expand our wholesale distribution network, opening two new locations in the first quarter, bringing our total locations to just shy of 450. Our pinch-a-penny franchise network added its first store in Arizona, positioning us to expand into this key do-it-yourself market. With three stores opening this quarter, we are now coming close to 300 pinch-a-penny franchisees. As we enter the industry's seasonally most significant time of year, we confirm our full-year EPS guidance range of $11.10 to $11.60, including an updated $0.10 estimated benefit from ASU. Through our thoughtful and innovative investments, we believe we have positioned ourselves to capture more available demand than anyone else in the industry during the most critical part of the season. Our teams will focus on providing the best customer experience while leaning into advanced Pool 360 offerings to help our customers grow their business. Pools remain highly sought after with continued concentration towards the higher end. Remodeling activity will continue despite some projects being spaced out over multiple projects or longer time spans. Through our robust distribution network, we will continue to focus on best serving both the professional contractors and servicers as well as the retailers to also reach the do-it-yourself pool owner. We will utilize our four domestic central shipping locations to create supply chain efficiencies, and fulfill demand needs better than anyone in the industry. Benefited by our ample cash flows and disciplined capital allocation practices, we will invest in strategic growth and shareholder returns while maintaining a strong balance sheet. With the seasonally significant second quarter underway, our teams will be relentless in providing an industry-leading customer experience and improving on capacity creation through utilizing of our innovative technology solutions best-in-class team, unmatched value proposition, and continued investment in the industry that builds upon itself. Unlike a year ago, this year we have additional in-season price increases that will help offset the slower start to the year on discretionary spending. I would like to thank our Pool Corp team, who I can always count on to operate on our initiatives particularly well in this key time of year. They continue to battle and win in a challenging market and through our teaming with supply partners, creating value for our customers. I look forward to seeing what they will accomplish during the season. I will now turn the call over to Melanie Hart, our Senior Vice President and Chief Financial Officer, for her detailed commentary. Melanie?