Pool Corporation

Good day and welcome to the Poole Corporation fourth 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 a touch-tone phone. 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 Melanie Hart, Senior Vice President in CFL. Please go ahead.

Welcome, everyone, to our fourth quarter and year-end 2025 earnings conference call. During today's call, our discussion, comments, and responses to questions may include forward-looking statements, including management's outlook for 2026 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 discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments. A description and reconciliation of any non-GAAP financial measures included in our press release will be posted to our corporate website in the investor relations section. Additionally, we have provided a presentation summarizing key points from our press release and today's call, which can also be found on our investor relations website. Peter Arvind, our president and CEO, will begin our call today. Pete?

Good morning, everyone, and thank you for joining us. Let me begin with a look back at 2025. This was the year of continued industry developments, shifting demand patterns, persistent customer uncertainty, and evolving customer expectations. We stayed true to our long-term strategy, investing in new capabilities, expanding our exclusive brands, and advancing our digital and distribution platforms. These efforts allowed us to address current market pressures while maintaining a strong foundation for future growth. One important industry theme this year was the ongoing decline in general construction activity, including new pool construction. It's important to note that this trend is not unique to our business, but is felt across the broader construction sector. In 2025, we estimate that just under 60,000 new pools were built in the US amid single digit decline from last year. This is about half of what we saw at the height of the pandemic and 40% lower than in 2022. Even in this environment, we maintained our position and gained share in several important areas driven by our differentiated offering and commitment to service. While new pool construction remains down, maintenance spending proved resilient. also see the likelihood of pent-up demand in the pool industry. Although it's difficult to predict the timing, we do believe that as consumer confidence returns, deferred pool projects and upgrades will come back to the market. This opportunity encourages us, even though it remains difficult to put a timeline on it. Operationally, we took a disciplined approach to 2025. While the broader industry continued to add capacity, we slowed our own facility expansion and focused instead on driving more value from our existing network. While early, we are seeing measurable benefits from our strategic investments, including increased efficiency from our technology upgrades, improved customer experiences through digital platforms, and enhanced profitability from our supply chain initiatives. The progress underscores the effectiveness of our approach and we expect these gains to become even more significant in 2026 as our initiatives continue to scale and evolve. Moving to financial performance, our annual revenue was 5.3 billion, holding steady year over year. This stability was supported by steady maintenance demand with early indications of improvements in some discretionary categories, even with lower new pool starts. In the fourth quarter, our sales totaled 982 million, just 1% below last year's level. a period that, as a reminder, benefited from significant hurricane-related repairs in Florida and thus was a particularly tough comparison. We delivered strong gross margin performance in 2025, reaching 29.7% for the year, up 20 basis points from the prior year when adjusted for one-time items. This reflects the strength of our market leadership, disciplined pricing strategies, and operational excellence through our supply chain. In the fourth quarter, gross margins rose to 30.1%, an improvement of 70 basis points year over year. We delivered our commitment to shareholder returns, distributing $530 million in cash this year, a 10% increase over last year. This includes $341 million in share repurchases and a 4% increase in our quarterly dividend, underscoring our confidence in the business and our disciplined capital allocation. Inventory, as we have done successfully in the past, we acted opportunistically to secure pre-price increase purchases. This proactive investment positions us to protect and expand our gross margins, and we expect to sell through this inventory in the normal course of business. When we look at our performance by region, Florida sales declined 2% for the year and 9% in the fourth quarter, reflecting last year's post-storm activity. However, on a two-year basis, fourth quarter sales in Florida were still up 2%. Texas showed early signs of recovery late in the year. Sales grew 1% in the fourth quarter, which helped offset a 3% decline for the full year. California declined 3% for the full year and 4% for the fourth quarter. Arizona was flat for the full year and down slightly in the fourth quarter. Elsewhere, horizon sales declined 2% for the year. In Europe, we posted local currency growth for the first time in three years, including a 4% increase in the fourth quarter. If we look at our results by product category, chemicals were down 1% for the year, mostly due to price, and 3% in the fourth quarter, driven by tough comps with post-hurricane cleanup. Building materials finished flat for the year and were up 4% in the fourth quarter, driven by demand for our national pool trend products, and our differentiated customer experience. Equipment sales, excluding cleaners, were flat year over year and down 3% in the fourth quarter, cycling against prior year hurricane recovery comps. Commercial pool products rose 3% for the year. Now let me highlight performance in two important channels, independent retail and Pinch-a-Penny Franchise Network. Sales to our independent retail customers decreased 3% for the year and 4% in the fourth quarter. This reflects softer retail demand compared to hurricane-driven surge we saw late in 2024, which created a high benchmark for year-over-year comparisons. Additionally, we did see pressure on chemical pricing, which is why the team is focused on proprietary product differentiation. For Pinch-A-Penny, sales from franchisees to their end customers declined 2% for the full year and 9% in the fourth quarter. It's important to remember most Pinch-a-Penny stores are in Florida, and last year's fourth quarter saw a 15% jump in franchise sales due to the hurricane activity. At year end, our Pinch-a-Penny network grew to just over 300 locations after adding 10 new stores during the year, including five in Texas and one each in Arizona and North Carolina. Our franchisees continue to provide essential services to customers and remain a key growth driver for our business. Turning to the digital side, we continued to make investments in technology. The launch of Pool 360 unlocked a new artificial intelligence features, expanded customer access to our product, and improved their experience across our network. Digital sales reached 13.5% of total revenue in the fourth quarter, up from 12.5% last year, and peaked at a record 17% during the pool season. For the full year, we finished at 15% of sales, which is an all-time high, and we believe this will continue to grow. We also expanded our physical footprint, opening eight new locations and acquiring three, bringing our total to 456 sales centers at the end of the year. Between these investments in digital and our distribution network, we remain well-positioned to support both the professional and the DIY end markets moving forward. Looking ahead to 2026, we anticipate net sales will grow in the low single digit range. This outlook assumes new pool constructions will stay close to the 60,000 units we saw in 2025. Maintenance revenues should remain resilient, and we expect to continue to capture share through exclusive brands, enhanced technology, and differentiated services. We expect our work to drive greater efficiency, especially the network optimization and operational improvements launched at the end of 2025. will produce more meaningful gains in 2026 as those initiatives scale. We will continue our disciplined approach to capital allocation, focusing on investments, focusing investments on opportunities with the highest returns. With all these factors in mind, our diluted EPS range for 2026 is 1085 to 1115. Melanie will provide further details on our financial outlook in just a moment. To summarize our focus in 2026, we'll have three priorities that guide us as we move forward. First, delivering an unmatched customer experience through exceptional service, tailored solutions, and the reliability our customers count on. By raising the bar on customer engagement and satisfaction, we reinforce our position as the partner of choice in the industry. Second, expanding our exclusive brands and deepening our OEM relationships to offer innovative, differentiated products that set us apart in the market. And third, fully leveraging our technology and network investments from Pool 360 to our distribution platform, driving greater efficiency, reach, and agility across our business. We will continue to exercise strict discipline in execution and investment, ensuring we generate strong returns and stay nimble as the market conditions evolve. Feedback on our new products and digital tools have been very encouraging. We look forward to providing more detail on our strategic roadmap and innovation plans at our upcoming Investor Day. Investing in our people remains fundamental to our long-term strategy and culture of excellence. We are relentless in attracting, developing and retaining top talent, empowering our team members to lead, innovate and drive meaningful results. Their expertise and commitment not only fuel our current success, but also ensure we are well positioned to seize future opportunities and shape the next phase of our growth. Before I conclude, I would like to thank our employees, our vendor partners, and our customers for their ongoing commitment and trust. Through another demanding year, we delivered solid results and laid the groundwork for further progress. I am confident that together we are well positioned to drive continued leadership and value creation in the years ahead. I will now turn the call over to Melanie Hart, our Senior Vice President and Chief Financial Officer for Commentary.