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Form 8-K POOL CORP For: Jul 21

July 21, 2022 10:00 AM EDT

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Exhibit 99.1

FOR IMMEDIATE RELEASE
POOL CORPORATION REPORTS RECORD SECOND QUARTER RESULTS
AND UPDATES 2022 EARNINGS GUIDANCE

Highlights

Record net sales of $2.1 billion, up 15% from Q2 2021
Operating income of $418.9 million, up 24% from Q2 2021 with a 150 bps improvement in operating margin
Q2 2022 diluted EPS of $7.63, an increase of 20% from Q2 2021
Increases annual earnings guidance range to $18.38 - $19.13 per diluted share to reflect additional tax benefits
______________________

COVINGTON, LA. (July 21, 2022) – Pool Corporation (Nasdaq/GSM:POOL) today reported record results for the second quarter of 2022 and updated its 2022 earnings guidance.
“Our net sales for the second quarter of 2022 increased 15%, exceeding $2.0 billion for the first time in our company’s history. This accomplishment is even more impressive after considering our strong performance in the second quarter of 2021 when we achieved net sales of $1.8 billion and 40% growth. While we continue to be limited by supply chain and labor constraints, supply chain dynamics are improving. Our results in the second quarter, while challenged by unfavorable weather in certain markets, reflect the positive impact of growth in the installed base of pools, robust demand and heightened consumer interest in enhanced pool customizations. These favorable trends have benefited our industry, and we believe will continue to do so in the long term,” commented Peter D. Arvan, president and CEO.
Second quarter ended June 30, 2022 compared to the second quarter ended June 30, 2021
Net sales increased 15% in the second quarter of 2022 to a record $2.1 billion compared to $1.8 billion in the second quarter of 2021. Base business sales grew 10%. Our results are indicative of healthy demand for our products as maintenance, replacement, refurbishment and construction activity remained strong. Net sales benefited approximately 10% to 11% from elevated price inflation, but were unfavorably impacted 1% from currency exchange rate fluctuations.
Gross profit increased 21% to a record $666.8 million in the second quarter of 2022 from $551.7 million in the same period of 2021. Base business gross profit improved 14% over the second quarter of 2021. Gross margin increased 150 basis points to 32.4% in the second quarter of 2022 compared to 30.9% in the second quarter of 2021, reflecting benefits from our supply chain initiatives, increased pricing and recent acquisitions. Base business gross margin increased 100 basis points.
Selling and administrative expenses (operating expenses) increased 16% to $247.9 million in the second quarter of 2022 compared to $213.1 million in the second quarter of 2021, including a 1% benefit from currency exchange rate fluctuations. As a percentage of net sales, operating expenses increased to 12.1% in the second quarter of 2022 compared to 11.9% in the same period of 2021. Our operating expenses have increased to support our business growth, including recent acquisitions.
Operating income in the second quarter of 2022 increased 24% to $418.9 million compared to $338.6 million in the same period in 2021. Operating margin was 20.4% in the second quarter of 2022 compared to 18.9% in the second quarter of 2021. Base business operating margin was 20.3%, up 130 basis points from the prior year period.
We recorded a $1.6 million, or $0.04 per diluted share, tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, in the quarter ended June 30, 2022, compared to a tax benefit of $7.7 million, or $0.19 per diluted share, realized in the same period of 2021.



Net income increased 18% to $307.3 million in the second quarter of 2022 compared to $259.7 million in the second quarter of 2021. Earnings per diluted share increased 20% to $7.63 in the second quarter of 2022 compared to $6.37 in the same period of 2021. Without the impact from ASU 2016-09 in both periods, earnings per diluted share increased 23% to $7.59 in the second quarter of 2022 compared to $6.18 in the second quarter of 2021. See the reconciliation of GAAP to non-GAAP measures in the addendum of this release.
Six months ended June 30, 2022 compared to the six months ended June 30, 2021
Net sales for the six months ended June 30, 2022 increased 22% to a record $3.5 billion from $2.8 billion in the six months ended June 30, 2021. Base business sales increased 16% for the period. Gross margin improved 220 basis points to 32.1% from 29.9% in the same period last year. Base business gross margin increased 160 basis points.
Operating expenses for the six months ended June 30, 2022 increased 19% compared to the first six months of 2021. Operating income for the six months ended June 30, 2022 increased 40% to a record $654.6 million compared to $467.6 million in the same period last year. Operating margin for the six months ended June 30, 2022 was 18.9% compared to 16.4% for the six months ended June 30, 2021, while base business operating margin increased 240 basis points.
We recorded a $8.9 million, or $0.22 per diluted share, tax benefit from ASU 2016-09 in the six months ended June 30, 2022 compared to a $11.7 million, or $0.29 per diluted share, tax benefit in the same period of 2021.
Net income for the six months ended June 30, 2022 increased 36% to a record $486.5 million compared to $358.4 million for the six months ended June 30, 2021. Earnings per diluted share increased 37% to $12.03 in the first six months of 2022 compared to $8.78 in the same period of 2021. Without the impact from ASU 2016-09 in both periods, earnings per diluted share was $11.81 in the first six months of 2022 compared to $8.49 in the same period of 2021.
Balance Sheet and Liquidity
On the balance sheet at June 30, 2022, total net receivables, including pledged receivables, increased 29% compared to June 30, 2021, driven by our sales growth and recent acquisitions. Inventory levels increased 77% to $1.6 billion compared to June 30, 2021. We increased our purchasing beginning in the second half of 2021 to improve our customer experience and minimize the impact of longer lead times from our vendors. Our inventory balance also reflects impacts from inflation and recent acquisitions. Total debt outstanding was $1.6 billion at June 30, 2022. Our debt balance has increased between periods as we have utilized debt proceeds to fund investments in working capital and recent acquisitions.
Net cash provided by operations was $28.7 million in the first six months of 2022 compared to $187.2 million in the first six months of 2021. The decrease in our operating cash flows was driven by federal tax payments of $79.5 million in 2022, which were allowed to be deferred and included in accrued expenses and other liabilities at December 31, 2021. Additional impacts relate to growth-driven working capital outflows, including increased inventory purchases, which were partially offset by an increase in net income. Adjusted EBITDA (as defined in the addendum to this release) increased 39% to $681.5 million for the six months ended June 30, 2022 compared to $489.6 million in the same period of the prior year.
Outlook
“We expect continued growth in the second half of the year, on top of the substantial growth that we experienced last year. We remain confident in the long-term stability of our business as 80% of our net sales activity is driven by the installed base of pools. Utilizing our industry-leading position, focusing on our operating priorities, and leveraging our well-established network will allow us to deliver solid growth for the year. We are updating our annual earnings guidance range to include the $0.04 tax benefit from ASU 2016-09 recognized in the second quarter of 2022. We expect our annual earnings guidance to be in the range of $18.38 to $19.13 per diluted share, including the impact of year-to-date tax benefits of $0.22,” said Arvan.
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About Pool Corporation
POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products. POOLCORP operates 416 sales centers in North America, Europe and Australia, through which it distributes more than 200,000 national brand and private label products to roughly 120,000 wholesale customers. For more information, please visit www.poolcorp.com.
Forward-Looking Statements
This news release includes “forward-looking” statements that involve risks and uncertainties that are generally identifiable through the use of words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “should” and similar expressions and include projections of earnings. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. Actual results may differ materially due to a variety of factors, including impacts on our business from the COVID-19 pandemic and the extent to which home-centric trends will continue, accelerate or reverse; the sensitivity of our business to weather conditions; changes in the economy, consumer discretionary spending, the housing market or inflation rates; our ability to maintain favorable relationships with suppliers and manufacturers; competition from other leisure product alternatives or mass merchants; our ability to continue to execute our growth strategies; excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in POOLCORP’s 2021 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other reports and filings filed with the Securities and Exchange Commission (SEC) as updated by POOLCORP's subsequent filings with the SEC.

CONTACT:
Curtis J. Scheel
Director of Investor Relations
985.801.5341
curtis.scheel@poolcorp.com
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POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three Months EndedSix Months Ended
June 30,June 30,
 2022202120222021
Net sales$2,055,818 $1,787,833 $3,468,468 $2,848,579 
Cost of sales1,389,014 1,236,148 2,354,474 1,995,762 
Gross profit666,804 551,685 1,113,994 852,817 
Percent32.4 %30.9 %32.1 %29.9 %
Selling and administrative expenses247,916 213,099 459,382 385,200 
Operating income418,888 338,586 654,612 467,617 
Percent20.4 %18.9 %18.9 %16.4 %
Interest and other non-operating expenses, net8,523 1,963 13,722 4,545 
Income before income taxes and equity in earnings410,365 336,623 640,890 463,072 
Provision for income taxes103,160 76,985 154,482 104,854 
Equity in earnings of unconsolidated investments, net78 57 136 132 
Net income $307,283 $259,695 $486,544 $358,350 
Earnings per share attributable to common stockholders: (1)
    
Basic$7.71 $6.47 $12.16 $8.92 
Diluted$7.63 $6.37 $12.03 $8.78 
Weighted average common shares outstanding:    
Basic39,660 40,125 39,795 40,169 
Diluted40,064 40,745 40,231 40,800 
Cash dividends declared per common share$1.00 $0.80 $1.80 $1.38 

(1)    Earnings per share under the two-class method is calculated using net income attributable to common stockholders (net income reduced by earnings allocated to participating securities), which was $305.6 million and $483.8 million for the three and six months ended June 30, 2022, respectively. Participating securities excluded from weighted average common shares outstanding were 218 thousand and 229 thousand for the three and six months ended June 30, 2022, respectively.
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POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
June 30,June 30,
Change
20222021
$
%
Assets
Current assets:
Cash and cash equivalents
$
91,481 
$
58,465 
$
33,01656
%
Receivables, net (1)
239,639 210,318 29,32114
Receivables pledged under receivables facility
516,946 375,248 141,69838
Product inventories, net (2)
1,579,101 894,654 684,44777
Prepaid expenses and other current assets
43,317 18,716 24,601131
Total current assets
2,470,484 1,557,401 913,08359
Property and equipment, net
183,480 111,661 71,81964
Goodwill
692,972 283,284 409,688145
Other intangible assets, net
309,375 12,350 297,0252,405
Equity interest investments
1,179 1,293 (114)(9)
Operating lease assets
259,571 221,068 38,50317
Other assets
45,044 26,978 18,06667
Total assets
$
3,962,105 
$
2,214,035 
$
1,748,07079
%
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
604,225 
$
439,453 
$
164,77237
%
Accrued expenses and other current liabilities
195,529 184,437 11,0926
Short-term borrowings and current portion of long-term debt
19,731 10,058 9,67396
Current operating lease liabilities
71,550 63,786 7,76412
Total current liabilities
891,035 697,734 193,30128
Deferred income taxes
42,380 30,440 11,94039
Long-term debt, net
1,575,667 413,058 1,162,609281
Other long-term liabilities
32,109 38,079 (5,970)(16)
Non-current operating lease liabilities
191,856 159,976 31,88020
Total liabilities
2,733,047 1,339,287 1,393,760104
Total stockholders’ equity
1,229,058 874,748 354,31041
Total liabilities and stockholders’ equity
$
3,962,105 
$
2,214,035 
$
1,748,07079
%

(1)The allowance for doubtful accounts was $6.5 million at June 30, 2022 and $5.4 million at June 30, 2021.
(2)The inventory reserve was $20.9 million at June 30, 2022 and $15.2 million at June 30, 2021.
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POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
June 30,
20222021Change
Operating activities
Net income$486,544 $358,350 $128,194 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation15,376 13,884 1,492 
Amortization4,358 723 3,635 
Share-based compensation7,571 7,549 22 
Equity in earnings of unconsolidated investments, net(136)(132)(4)
Other7,185 4,812 2,373 
Changes in operating assets and liabilities, net of effects of acquisitions:
Receivables(384,245)(295,342)(88,903)
Product inventories(251,090)(114,792)(136,298)
Prepaid expenses and other assets(20,573)(16,865)(3,708)
Accounts payable208,017 170,368 37,649 
Accrued expenses and other current liabilities(44,276)58,673 (102,949)
Net cash provided by operating activities28,731 187,228 (158,497)
Investing activities
Acquisition of businesses, net of cash acquired(7,629)(15,162)7,533 
Purchases of property and equipment, net of sale proceeds(19,802)(17,333)(2,469)
Net cash used in investing activities(27,431)(32,495)5,064 
Financing activities
Proceeds from revolving line of credit1,122,186 549,008 573,178 
Payments on revolving line of credit(1,128,902)(505,636)(623,266)
Proceeds from term loan under credit facility250,000 — 250,000 
Proceeds from asset-backed financing215,000 260,000 (45,000)
Payments on asset-backed financing(50,000)(290,000)240,000 
Payments on term facility(4,625)(4,625)— 
Proceeds from short-term borrowings and current portion of long-term debt24,767 4,466 20,301 
Payments on short-term borrowings and current portion of long-term debt(16,808)(6,277)(10,531)
Payments of deferred and contingent acquisition consideration(1,374)(362)(1,012)
Proceeds from stock issued under share-based compensation plans5,107 7,918 (2,811)
Payments of cash dividends(72,028)(55,418)(16,610)
Purchases of treasury stock(278,680)(90,135)(188,545)
Net cash provided by (used in) financing activities64,643 (131,061)195,704 
Effect of exchange rate changes on cash and cash equivalents1,217 665 552 
Change in cash and cash equivalents67,160 24,337 42,823 
Cash and cash equivalents at beginning of period24,321 34,128 (9,807)
Cash and cash equivalents at end of period$91,481 $58,465 $33,016 


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ADDENDUM

Base Business

The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):
(Unaudited)Base BusinessExcludedTotal
(in thousands)Three Months EndedThree Months EndedThree Months Ended
 June 30,June 30,June 30,
 202220212022202120222021
Net sales$1,963,974 $1,782,894 $91,844 $4,939 $2,055,818 $1,787,833 
Gross profit625,843 550,509 40,961 1,176 666,804 551,685 
Gross margin31.9 %30.9 %44.6 %23.8 %32.4 %30.9 %
Operating expenses226,728 212,425 21,188 674 247,916 213,099 
Expenses as a % of net sales11.5 %11.9 %23.1 %13.6 %12.1 %11.9 %
Operating income399,115 338,084 19,773 502 418,888 338,586 
Operating margin20.3 %19.0 %21.5 %10.2 %20.4 %18.9 %


(Unaudited)Base BusinessExcludedTotal
(in thousands)Six Months EndedSix Months EndedSix Months Ended
 June 30,June 30,June 30,
 202220212022202120222021
Net sales$3,292,100 $2,840,676 $176,368 $7,903 $3,468,468 $2,848,579 
Gross profit1,039,122 850,948 74,872 1,869 1,113,994 852,817 
Gross margin31.6 %30.0 %42.5 %23.6 %32.1 %29.9 %
Operating expenses420,655 383,710 38,727 1,490 459,382 385,200 
Expenses as a % of net sales12.8 %13.5 %22.0 %18.9 %13.2 %13.5 %
Operating income618,467 467,238 36,145 379 654,612 467,617 
Operating margin18.8 %16.4 %20.5 %4.8 %18.9 %16.4 %

We have excluded the following acquisitions from our base business results for the periods identified:


Acquired

Acquisition
Date
Net
Sales Centers
Acquired

Periods
Excluded
Tri-State Pool DistributorsApril 20221May - June 2022
Porpoise Pool & Patio, Inc.December 20211January - June 2022
Wingate Supply, Inc.December 20211January - June 2022
Vak Pak Builders Supply, Inc. June 20211January - June 2022 and June 2021
Pool Source, LLCApril 20211January - June 2022 and April - June 2021
TWC Distributors, Inc.December 202010January - February 2022 and January - February 2021

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When calculating our base business results, we exclude sales centers that are acquired, closed or opened in new markets for a period of 15 months. We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that are consolidated with acquired sales centers.
We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.
The table below summarizes the changes in our sales center count in the first six months of 2022.

December 31, 2021410 
Acquired locations
New locations
June 30, 2022416

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Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest and other non-operating expenses, income taxes, depreciation, amortization, share-based compensation, goodwill and other impairments (recoveries) and equity in earnings or loss in unconsolidated investments.  Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

Adjusted EBITDA is not a measure of performance as determined by generally accepted accounting principles (GAAP). We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, net cash flows provided by or used in operating, investing and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP.

We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental performance measure. We believe that Adjusted EBITDA, when viewed with our GAAP results and the accompanying reconciliations, provides an additional measure that enables management and investors to monitor factors and trends affecting our ability to service debt, pay taxes and fund capital expenditures.
The table below presents a reconciliation of net income to Adjusted EBITDA.

(Unaudited)Three Months EndedSix Months Ended
(in thousands)June 30,June 30,
2022202120222021
Net income$307,283 $259,695 $486,544 $358,350 
Add:
Interest and other non-operating expenses (1)
8,523 1,963 13,722 4,545 
Provision for income taxes103,160 76,985 154,482 104,854 
Share-based compensation3,914 3,712 7,571 7,549 
Equity in earnings of unconsolidated investments, net(78)(57)(136)(132)
Depreciation7,713 7,000 15,376 13,884 
Amortization (2)
1,951 221 3,928 561 
Adjusted EBITDA$432,466 $349,519 $681,487 $489,611 
(1)Shown net of losses (gains) on foreign currency transactions of $190 thousand and $(96) thousand for the three months ended June 30, 2022 and June 30, 2021, respectively, and $114 thousand and $(109) thousand for the six months ended June 30, 2022 and June 30, 2021, respectively, and includes amortization of deferred financing costs as discussed in Note 2 below.
(2)Excludes amortization of deferred financing costs of $215 thousand and $81 thousand for the three months ended June 30, 2022 and June 30, 2021, respectively, and $430 thousand and $162 thousand for the six months ended June 30, 2022 and June 30, 2021, respectively. This non-cash expense is included in Interest and other non-operating expenses, net on the Consolidated Statements of Income.

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Adjusted Diluted EPS

We have included adjusted diluted EPS, a non-GAAP financial measure, in this press release as a supplemental disclosure, because we believe this measure is useful to investors and others in assessing our period-to-period operating performance.

Adjusted diluted EPS is a key measure used by management to demonstrate the impact of tax benefits from ASU 2016-09 on our diluted EPS and to provide investors and others with additional information about our potential future operating performance to supplement GAAP measures.

We believe this measure should be considered in addition to, not as a substitute for, diluted EPS presented in accordance with GAAP, and in the context of our other disclosures in this press release. Other companies may calculate this non-GAAP financial measure differently than we do, which may limit its usefulness as a comparative measure.
The table below presents a reconciliation of diluted EPS to adjusted diluted EPS.
(Unaudited)Three Months EndedSix Months Ended
June 30,June 30,
2022202120222021
Diluted EPS$7.63 $6.37 $12.03 $8.78 
ASU 2016-09 tax benefit(0.04)(0.19)(0.22)(0.29)
Adjusted diluted EPS$7.59 $6.18 $11.81 $8.49 

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