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Pool Corporation Reports Record 2019 Results and Provides 2020 Earnings Guidance

February 13, 2020 7:00 AM

Highlights include:

COVINGTON, La., Feb. 13, 2020 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ/GSM: POOL) today announced fourth quarter and full year 2019 results.

“2019 was an exciting year for POOLCORP as we achieved record sales, operating margin and earnings per share. We also achieved a record return on invested capital of 29.3%. Our focus on market share gains and capacity creation allowed us to capitalize on our competitive advantages and deliver solid results, particularly considering the impact of weather on our results in the first half of the year,” commented Peter D. Arvan, president and CEO.

Net sales increased 7% to a record high of $3.2 billion for the year ended December 31, 2019 compared to $3.0 billion in 2018. Base business sales increased 5% driven by our continued expansion in commercial and building material products and healthy demand for discretionary products, such as construction materials and products used in the remodel and replacement of in-ground pools. We achieved these favorable results despite inclement weather throughout much of the first half of the year.

Gross profit reached a record $924.9 million for the year ended December 31, 2019, a 6% increase over gross profit of $870.2 million in 2018. Gross margin was relatively flat year over year at 28.9% in 2019 compared to 29.0% in 2018, with base business gross margin at 29.0% in both years.

Selling and administrative expenses (operating expenses) increased 5% to $583.7 million in 2019, up from $556.3 million in 2018, with base business operating expenses up 3% over 2018. The increase in base business operating expenses was primarily attributable to higher growth-driven labor and freight expenses, as well as greater facility-related costs.

Operating income for the year increased 9% to $341.2 million, up from $313.9 million in 2018. Operating margin increased to 10.7% in 2019 compared to 10.5% in 2018, while base business operating margin improved 40 basis points to 10.9% in 2019.

We recorded a $23.5 million, or $0.57 per diluted share, benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, for the year ended December 31, 2019 compared to a benefit of $15.3 million, or $0.36 per diluted share, realized in 2018.

Net income increased 12% to a record $261.6 million in 2019 compared to $234.5 million in 2018. Earnings per share increased 14% to a record $6.40 per diluted share compared to $5.62 per diluted share in 2018. Excluding the impact from ASU 2016-09 in both periods, earnings per diluted share increased 11% to $5.83 in 2019 compared to $5.26 in 2018. Adjusted EBITDA (as defined in the addendum to this release) increased 8% to $382.2 million in 2019 compared to $353.4 million in 2018 and was 11.9% of net sales in 2019 compared to 11.8% of net sales in 2018.

On the balance sheet at December 31, 2019, total net receivables, including pledged receivables, increased 9% compared to 2018, driven by our December sales growth. Inventory levels grew 4% to $702.3 million compared to $672.6 million in 2018, reflecting inventory from acquired businesses of $10.3 million and normal business growth. Total debt outstanding decreased $155.4 million, or 23%, compared to last year’s balance.

Cash provided by operations was $298.8 million in 2019, compared to $118.7 million in 2018, an improvement of $180.1 million. The strategic inventory purchases that we made in the latter half of 2018 negatively impacted our 2018 cash flows due to timing differences that reversed in 2019. Our return on invested capital (as defined in the addendum to this release) for 2019 was 29.3% compared to 27.7% in 2018.

Net sales increased 7% to $582.2 million in the fourth quarter of 2019 compared to $543.1 million in the fourth quarter of 2018. Gross margin decreased 170 basis points to 27.8% in the fourth quarter of 2019 compared to the fourth quarter of 2018. Gross margin in the fourth quarter of 2018 reflected benefits from strategic inventory purchases ahead of vendor price increases resulting in a comparative decline in the fourth quarter of 2019. Operating income in the fourth quarter of 2019 decreased 1% to $25.8 million compared to $26.0 million in the same period of 2018. Operating margin decreased 40 basis points in the fourth quarter, including a 10 basis point decrease in base business operating margin. We recorded a $2.4 million benefit from ASU 2016-09 in the fourth quarter of 2019 compared to a benefit of $1.4 million realized in the fourth quarter of 2018. Net income in the fourth quarter of 2019 was $18.0 million compared to $16.8 million in the comparable 2018 period. Earnings per diluted share was $0.44 in the fourth quarter of 2019, or $0.38 excluding the $0.06 per diluted share impact from ASU 2016-09, compared to $0.41, or $0.37 excluding the $0.04 impact from ASU 2016-09, for the same period in 2018.

“In 2020, we will continue to focus on our operating priorities and making strategic investments that benefit our customers, employees and shareholders. We believe that our competitive advantages continue to grow and underlying demand throughout our industry remains strong. Based on these factors, we expect earnings for 2020 will be in the range of $6.47 to $6.77 per diluted share, including an estimated $0.06 favorable impact from ASU 2016-09,” said Arvan.

2020 Guidance Range
2019 Floor Ceiling
Diluted EPS$6.40 $6.47 $6.77
Less: tax benefit0.57 0.06 0.06
Diluted EPS, excluding tax benefit$5.83 $6.41 $6.71
Year-over-year growth 10% 15%

Based on our December 31, 2019 stock price, we estimate that we have approximately $2.3 million in unrealized excess tax benefits related to stock options that will expire and restricted stock awards that will vest in the first quarter of 2020, adding $0.06 in diluted earnings per share in that period. We have included the estimated first quarter benefit in our annual earnings guidance; however, additional tax benefits could be recognized related to stock option exercises in 2020 from grants that expire in years after 2020, for which we have not included any expected benefits.

POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products. As of December 31, 2019, POOLCORP operates 373 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.

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,” “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 the sensitivity of our business to weather conditions, changes in the economy and the housing market, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants, excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in POOLCORP’s 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) as updated by POOLCORP’s subsequent filings with the SEC.

Curtis J. ScheelDirector of Investor Relations985.801.5341[email protected]

POOL CORPORATIONConsolidated Statements of Income (In thousands, except per share data)

Three Months Ended Year Ended
December 31, December 31,
2019 2018 2019 2018 (1)
Net sales$582,234 $543,082 $3,199,517 $2,998,097
Cost of sales420,184 382,640 2,274,592 2,127,924
Gross profit162,050 160,442 924,925 870,173
Percent27.8 %29.5 %28.9 %29.0 %
Selling and administrative expenses136,252 134,472 583,679 556,284
Operating income25,798 25,970 341,246 313,889
Percent4.4 %4.8 %10.7 %10.5 %
Interest and other non-operating expenses, net5,234 6,448 23,772 20,896
Income before income taxes and equity earnings20,564 19,522 317,474 292,993
Provision for income taxes2,592 2,786 56,161 58,774
Equity earnings in unconsolidated investments, net52 75 262 242
Net income$18,024 $16,811 $261,575 $234,461
Earnings per share:
Basic$0.45 $0.42 $6.57 $5.82
Diluted$0.44 $0.41 $6.40 $5.62
Weighted average shares outstanding:
Basic40,047 40,002 39,833 40,311
Diluted40,952 41,274 40,865 41,693
Cash dividends declared per common share$0.55 $0.45 $2.10 $1.72

(1) Derived from audited financial statements.

POOL CORPORATIONCondensed Consolidated Balance Sheets(In thousands)

December 31, December 31, Change
2019 2018 (1) $%
Assets
Current assets:
Cash and cash equivalents$28,583 $16,358 $12,225 75 %
Receivables, net (2)76,648 69,493 7,155 10
Receivables pledged under receivables facility149,891 138,308 11,583 8
Product inventories, net (3)702,274 672,579 29,695 4
Prepaid expenses and other current assets (6)16,172 18,506 (2,334)(13)
Total current assets973,568 915,244 58,324 6
Property and equipment, net112,246 106,964 5,282 5
Goodwill188,596 188,472 124 —
Other intangible assets, net11,038 12,004 (966)(8)
Equity interest investments1,227 1,213 14 1
Operating lease assets (4), (5), (6)176,689 — 176,689 100
Other assets19,902 16,974 2,928 17
Total assets$1,483,266 $1,240,871 $242,395 20 %
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable (5)$261,963 $237,835 $24,128 10 %
Accrued expenses and other current liabilities60,813 58,607 2,206 4
Short-term borrowings and current portion of long-term debt11,745 9,168 2,577 28
Current operating lease liabilities (4)56,325 — 56,325 100
Total current liabilities390,846 305,610 85,236 28
Deferred income taxes32,598 29,399 3,199 11
Long-term debt, net499,662 657,593 (157,931)(24)
Other long-term liabilities27,970 24,679 3,291 13
Non-current operating lease liabilities (4)122,010 — 122,010 100
Total liabilities1,073,086 1,017,281 55,805 5
Total stockholders’ equity410,180 223,590 186,590 83
Total liabilities and stockholders' equity$1,483,266 $1,240,871 $242,395 20 %

(1)Derived from audited financial statements.
(2)The allowance for doubtful accounts was $5.5 million at December 31, 2019 and $6.2 million at December 31, 2018.
(3)The inventory reserve was $9.0 million at December 31, 2019 and $7.7 million at December 31, 2018.
(4)We adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019. Upon adoption, we recorded operating lease assets and operating lease liabilities based on the present value of future lease obligations. We applied the practical expedient available in this guidance, which does not require the restatement of prior year balances.
(5)Due to ASU 2016-02, our straight-line rent liability of $5.1 million, reported in Accounts payable under previous accounting guidance, offsets our Operating lease assets.
(6)As of December 31, 2019, we presented pre-paid rent of $4.8 million in Operating lease assets as required under the new guidance (presented in Prepaid expenses and other current assets as of December 31, 2018).

POOL CORPORATIONCondensed Consolidated Statements of Cash Flows(In thousands)

Year Ended
December 31,
2019 2018 (1) Change
Operating activities
Net income$261,575 $234,461 $27,114
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation27,885 26,122 1,763
Amortization1,389 1,793 (404)
Share-based compensation13,472 12,874 598
Equity earnings in unconsolidated investments, net(262) (242) (20)
Net losses on foreign currency transactions1,347 560 787
Other7,551 8,928 (1,377)
Changes in operating assets and liabilities, net of effects of acquisitions:
Receivables(15,691) (14,371) (1,320)
Product inventories(14,165) (142,170) 128,005
Prepaid expenses and other assets(4,218) 1,018 (5,236)
Accounts payable16,860 (6,567) 23,427
Accrued expenses and other current liabilities3,033 (3,750) 6,783
Net cash provided by operating activities298,776 118,656 180,120
Investing activities
Acquisition of businesses, net of cash acquired(8,901) (2,578) (6,323)
Purchase of property and equipment, net of sale proceeds(33,362) (31,580) (1,782)
Net cash used in investing activities(42,263) (34,158) (8,105)
Financing activities
Proceeds from revolving line of credit1,066,529 1,138,195 (71,666)
Payments on revolving line of credit(1,415,988) (998,503) (417,485)
Proceeds from asset-backed financing189,000 198,400 (9,400)
Payments on asset-backed financing(182,500) (189,900) 7,400
Proceeds from term facility185,000 — 185,000
Proceeds from short-term borrowings and current portion of long-term debt30,863 17,127 13,736
Payments on short-term borrowings and current portion of long-term debt(28,286) (18,793) (9,493)
Payments of deferred acquisition consideration(312) (661) 349
Payments of deferred financing costs(406) (106) (300)
Proceeds from stock issued under share-based compensation plans18,574 13,569 5,005
Payments of cash dividends(83,772) (69,430) (14,342)
Purchases of treasury stock(23,188) (187,469) 164,281
Net cash used in financing activities(244,486) (97,571) (146,915)
Effect of exchange rate changes on cash and cash equivalents198 (509) 707
Change in cash and cash equivalents12,225 (13,582) 25,807
Cash and cash equivalents at beginning of period16,358 29,940 (13,582)
Cash and cash equivalents at end of period$28,583 $16,358 $12,225

(1) Derived from audited financial statements.

ADDENDUM

Base Business

The following tables break out our consolidated results into the base business component and the excluded components (sales centers excluded from base business):

(Unaudited)Base Business Excluded Total
(in thousands)Three Months Ended Three Months Ended Three Months Ended
December 31, December 31, December 31,
2019 2018 2019 2018 2019 2018
Net sales$575,791 $538,555 $6,443 $4,527 $582,234 $543,082
Gross profit160,721 159,537 1,329 905 162,050 160,442
Gross margin27.9% 29.6% 20.6 % 20.0 % 27.8% 29.5%
Operating expenses133,369 133,178 2,883 1,294 136,252 134,472
Expenses as a % of net sales23.2% 24.7% 44.7 % 28.6 % 23.4% 24.8%
Operating income (loss)27,352 26,359 (1,554) (389) 25,798 25,970
Operating margin4.8% 4.9% (24.1)% (8.6)% 4.4% 4.8%

(Unaudited)Base Business Excluded Total
(in thousands)Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2019 2018 2019 2018 2019 2018
Net sales$3,152,253 $2,987,937 $47,264 $10,160 $3,199,517 $2,998,097
Gross profit912,680 867,980 12,245 2,193 924,925 870,173
Gross margin29.0% 29.0% 25.9 % 21.6 % 28.9% 29.0%
Operating expenses569,458 552,841 14,221 3,443 583,679 556,284
Expenses as a % of net sales18.1% 18.5% 30.1 % 33.9 % 18.2% 18.6%
Operating income (loss)343,222 315,139 (1,976) (1,250) 341,246 313,889
Operating margin10.9% 10.5% (4.2)% (12.3)% 10.7% 10.5%

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

Acquired AcquisitionDate Net Sales Centers Acquired PeriodsExcluded
W.W. Adcock, Inc. (1) January 2019 4 January - December 2019
Turf & Garden, Inc. (1) November 2018 4 January - December 2019 and November - December 2018
Tore Pty. Ltd. (Pool Power) (1) January 2018 1 January - April 2019 and January - April 2018
Chem Quip, Inc. (1) December 2017 5 January - March 2019 and January - March 2018
Intermark December 2017 1 January - February 2019 and January - February 2018

(1) We acquired certain distribution assets of each of these companies.

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 centers during 2019.

December 31, 2018364
Acquired locations4
New locations9
Closed/consolidated locations(4)
December 31, 2019373

Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization, share-based compensation, goodwill and other non-cash impairments and equity earnings or losses in unconsolidated investments. Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (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 liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.

We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, 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. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by operating activities. Please see page 6 for our Condensed Consolidated Statements of Cash Flows.

(Unaudited)Year Ended December 31,
(in thousands)2019 2018
Adjusted EBITDA$382,212 $353,427
Add:
Interest and other non-operating expenses, net of interest income (1)(21,992) (19,645)
Provision for income taxes(56,161) (58,774)
Net losses on foreign currency transactions1,347 560
Other7,551 8,928
Change in operating assets and liabilities(14,181) (165,840)
Net cash provided by operating activities$298,776 $118,656

(1) Shown net of losses on foreign currency transactions.

The table below presents a reconciliation of net income to Adjusted EBITDA.

(Unaudited)Year Ended December 31,
(in thousands)2019 2018
Net income$261,575 $234,461
Add:
Interest and other non-operating expenses (1)22,425 20,336
Provision for income taxes56,161 58,774
Share-based compensation13,472 12,874
Equity earnings in unconsolidated investments, net(262) (242)
Depreciation27,885 26,122
Amortization (2)956 1,102
Adjusted EBITDA$382,212 $353,427

(1)Shown net of interest income and net of losses on foreign currency transactions and includes amortization of deferred financing costs as discussed below.
(2)Excludes amortization of deferred financing costs of $433 for 2019 and $691 for 2018. This non-cash expense is included in Interest and other non-operating expenses, net on the Consolidated Statements of Income.

Return on Invested Capital

We calculate Return on Invested Capital (ROIC) using trailing four quarter results. We define ROIC as Net income adjusted for Interest and other non-operating expenses, net (net of taxes at the effective tax rate), divided by the sum of average Long-term debt, net, average Short-term borrowings and the current portion of long-term debt and average Total stockholders’ equity from our financial statements as filed with the SEC. We have included ROIC as a supplemental disclosure because we believe that it may be used by our investors, industry analysts and others as a measure of the efficiency and effectiveness of our use of capital.

ROIC is not a measure of financial performance under GAAP. We believe ROIC should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement, balance sheet or cash flow statement line items reported in accordance with GAAP. Other companies may calculate ROIC differently than we do, which may limit its usefulness as a comparative measure.

The table below presents our calculation of ROIC at December 31, 2019 and 2018.

(Unaudited)Year Ended December 31,
(in thousands)2019 2018
Numerator (trailing four quarters total):
Net income$261,575 $234,461
Interest and other non-operating expenses, net23,772 20,896
Less: taxes on Interest and other non-operating expenses, net at 17.7% and 20.1%, respectively(4,208) (4,200)
$281,139 $251,157
Denominator (average of trailing four quarters):
Long-term debt, net$595,247 $602,984
Short-term borrowings and current portion of long-term debt17,323 15,190
Total stockholders’ equity346,049 289,979
$958,619 $908,153
Return on invested capital29.3 % 27.7 %

POOLCORPLogo.jpg

Source: Pool Corporation

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