Market Overview

Pool Corporation Reports Record First Quarter Results

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Highlights

  • Net sales growth of 7% for Q1 2018 with 5% growth in base business sales
  • Q1 2018 diluted EPS increase of 44% to $0.75, including tax benefits
  • Updates 2018 earnings guidance range to $5.45 - $5.70 per diluted share from $5.36 - $5.61 to reflect $0.09 of additional tax benefit from ASU 2016-09

COVINGTON, La., April 19, 2018 (GLOBE NEWSWIRE) -- Pool Corporation (NASDAQ:POOL) today reported record results for the first quarter of 2018.

"Following a strong finish to 2017, we are poised for continued solid growth in 2018 as consumer demand for outdoor living products remains high.  We generated record sales and income in the first quarter of 2018 despite inclement weather in Texas and seasonal markets, which resulted in a slower than expected start to the 2018 swimming pool season.  Pools are opening later than in 2017 in seasonal markets, and remodeling and new pool construction activity has been delayed.  We believe that the industry has a strong backlog due to pool owner demand for pool upgrades and remodeling, and we expect deferred sales related to pool openings to shift to the second quarter," said Manuel Perez de la Mesa, President and CEO. 

Net sales increased 7% to a record $585.9 million in the first quarter of 2018 compared to $546.4 million in the first quarter of 2017, with base business sales up 5%.  Strong demand in our year-round markets for discretionary products, like heaters and lighting, led our sales growth in the first quarter of 2018.  We estimate unfavorable weather conditions impacted our first quarter net sales by approximately $10 million.

Gross profit increased 8% to a record $166.1 million in the first quarter of 2018 from $153.6 million in the same period of 2017.  Base business gross profit improved 6% over the first quarter of last year.  Gross profit as a percentage of net sales (gross margin) was 28.3% for the first quarter of 2018 compared to 28.1% for the first quarter of 2017, reflecting minor product mix differences.  

Selling and administrative expenses (operating expenses) increased approximately 8% to $132.5 million in the first quarter of 2018 compared to the first quarter of 2017, with base business operating expenses up 5% over the comparable 2017 period.  Higher labor, technology, freight and employee-related insurance costs, partially offset by lower performance-based compensation expenses, contributed to this increase with operating expenses related to acquisitions being a larger than normal factor in the quarter.

Operating income for the first quarter increased 8% to a record $33.5 million compared to the same period in 2017.  Operating income as a percentage of net sales (operating margin) was 5.7% for both the first quarters of 2018 and 2017.  Base business operating income increased 11% and base business operating margin improved 40 basis points compared to the first quarter of 2017.  Acquired businesses contributed a $1.3 million seasonal operating loss in the quarter.

Both Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, which we adopted on January 1, 2017, and U.S. tax reform enacted in December 2017 impacted our income tax provision for the first quarter of 2018.  We recorded a $9.0 million benefit from ASU 2016-09 for the three months ended March 31, 2018, which was $3.6 million or $0.09 per diluted share more than we had previously expected, and also up compared to $5.5 million realized in the same period last year.  Our effective tax rate was (4.3)% and 18.7% for the first quarters of 2018 and 2017, respectively, and 25.7% and 38.8%, excluding the benefit from ASU 2016-09.  Going forward, primarily due to the impact of tax reform, we expect our annual effective tax rate (excluding the benefit from ASU 2016-09) to approximate 25.5%, which is a reduction compared to our historical rate of approximately 38.5%. 

Net income attributable to Pool Corporation was $31.3 million in the first quarter of 2018 compared to $22.3 million for the first quarter of 2017.  Earnings per share increased 44% to a record $0.75 per diluted share for the three months ended March 31, 2018 versus $0.52 per diluted share for the same period in 2017.  The benefit from ASU 2016-09 increased diluted earnings per share by $0.22 in the first quarter of 2018 and $0.12 in the first quarter of 2017.  Excluding the impact from ASU 2016-09, earnings per diluted share increased 33% to a record $0.53 for the first quarter of 2018 compared to $0.40 for the first quarter of 2017.  Acquired businesses contributed a seasonal $0.03 loss per diluted share in the quarter.   

On the balance sheet at March 31, 2018, total net receivables, including pledged receivables, increased 8% while inventory levels grew 9% compared to March 31, 2017.  Total debt outstanding at March 31, 2018 was $568.1 million, a $77.9 million increase from total debt at March 31, 2017.

Cash used in operations was $44.1 million for the first three months of 2018 compared to $32.4 million for the first three months of 2017, with the greater cash usage reflecting earlier payment of certain inventory purchases.  Adjusted EBITDA (as defined in the addendum to this release) was $43.4 million and $39.8 million for the first quarters of 2018 and 2017, respectively.

"As a result of the additional tax benefits realized from ASU 2016-09 in the first quarter, we are updating our earnings guidance range to $5.45 to $5.70 from $5.36 to $5.61 per diluted share.  Other than the additional $0.09 per diluted share tax benefit, our earnings expectations for 2018 remain unchanged.  We are fortunate to participate in a great industry with strong long-term growth characteristics and our team is ready to serve our customers to help them realize success in making outdoor living come to life," said Perez de la Mesa.

We have not projected any additional tax benefit for ASU 2016-09 in our earnings guidance range for the remainder of the year.  Our current earnings guidance range for 2018 includes only the benefit realized as of March 31, 2018.

POOLCORP is the world's largest wholesale distributor of swimming pool and related backyard products.  As of March 31, 2018, POOLCORP operated 354 sales centers in North America, Europe, South America and Australia, through which it distributes more than 180,000 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 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission.  In addition, this press release includes forward-looking statements and estimates regarding the effects of the Tax Cuts and Jobs Act, which are based on our current interpretation of this legislation and on reasonable estimates and may change as a result of new guidance issued by regulators or changes in our estimates.

CONTACT:
Curtis J. Scheel
Director of Investor Relations
985.801.5341
curtis.scheel@poolcorp.com


POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
 
     
  Three Months Ended  
  March 31,  
  2018   2017  
Net sales $ 585,900     $ 546,441    
Cost of sales 419,827     392,820    
Gross profit 166,073     153,621    
Percent 28.3 %   28.1 %  
         
Selling and administrative expenses 132,532     122,623    
Operating income 33,541     30,998    
Percent 5.7 %   5.7 %  
         
Interest and other non-operating expenses, net 3,527     3,647    
Income before income taxes and equity earnings 30,014     27,351    
(Benefit) provision for income taxes (1,279 )   5,119    
Equity earnings in unconsolidated investments, net 46     38    
Net income 31,339     22,270    
Net loss attributable to noncontrolling interest     11    
Net income attributable to Pool Corporation $ 31,339     $ 22,281    
         
Earnings per share:        
Basic $ 0.78     $ 0.54    
Diluted $ 0.75     $ 0.52    
Weighted average shares outstanding:        
Basic 40,370     41,192    
Diluted 41,862     42,877    
         
Cash dividends declared per common share $ 0.37     $ 0.31    



POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
                     
      March 31,     March 31,     Change  
      2018     2017     $   %  
                         
Assets                      
Current assets:                      
  Cash and cash equivalents $ 8,803     $ 13,409     $ (4,606 )   (34 ) %
  Receivables, net (1)   75,889       61,264       14,625     24    
  Receivables pledged under receivables facility   238,707       228,755       9,952     4    
  Product inventories, net (2)   703,793       647,884       55,909     9    
  Prepaid expenses and other current assets   23,714       15,740       7,974     51    
Total current assets   1,050,906       967,052       83,854     9    
                         
Property and equipment, net   109,310       97,140       12,170     13    
Goodwill   189,759       185,062       4,697     3    
Other intangible assets, net   12,926       13,172       (246 )   (2 )  
Equity interest investments   1,150       1,174       (24 )   (2 )  
Other assets   15,615       17,269       (1,654 )   (10 )  
Total assets $ 1,379,666     $ 1,280,869     $ 98,797     8   %
                         
Liabilities, redeemable noncontrolling interest and stockholders' equity                      
Current liabilities:                      
  Accounts payable $ 467,795     $ 465,928     $ 1,867       %
  Accrued expenses and other current liabilities   45,504       48,982       (3,478 )   (7 )  
  Short-term borrowings and current portion of long-term debt   20,786       9,775       11,011     113    
Total current liabilities   534,085       524,685       9,400     2    
                         
Deferred income taxes   24,947       29,234       (4,287 )   (15 )  
Long-term debt, net   547,324       480,442       66,882     14    
Other long-term liabilities   23,525       21,430       2,095     10    
Total liabilities   1,129,881       1,055,791       74,090     7    
Redeemable noncontrolling interest         2,424       (2,424 )   (100 )  
Total stockholders' equity   249,785       222,654       27,131     12    
Total liabilities, redeemable noncontrolling interest and stockholders' equity $ 1,379,666     $ 1,280,869     $ 98,797     8   %

(1)  The allowance for doubtful accounts was $4.0 million at March 31, 2018 and $4.2 million at March 31, 2017.
(2)  The inventory reserve was $7.4 million at March 31, 2018 and $7.3 million at March 31, 2017.


POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
             
    Three Months Ended        
    March 31,        
    2018     2017     Change  
Operating activities                  
Net income $ 31,339     $ 22,270     $ 9,069    
Adjustments to reconcile net income to cash used in operating activities:                  
  Depreciation   6,299       5,557       742    
  Amortization   470       365       105    
  Share-based compensation   3,321       3,003       318    
  Equity earnings in unconsolidated investments, net   (46 )     (38 )     (8 )  
  Other   681       1,847       (1,166 )  
Changes in operating assets and liabilities, net of effects of acquisitions:                  
  Receivables   (117,377 )     (123,515 )     6,138    
  Product inventories   (168,518 )     (161,668 )     (6,850 )  
  Prepaid expenses and other assets   (3,843 )     (2,617 )     (1,226 )  
  Accounts payable   222,285       234,581       (12,296 )  
  Accrued expenses and other current liabilities   (18,760 )     (12,209 )     (6,551 )  
Net cash used in operating activities   (44,149 )     (32,424 )     (11,725 )  
                   
Investing activities                  
Acquisition of businesses, net of cash acquired   (578 )           (578 )  
Purchases of property and equipment, net of sale proceeds   (14,639 )     (19,121 )     4,482    
Other investments, net         2       (2 )  
Net cash used in investing activities   (15,217 )     (19,119 )     3,902    
                   
Financing activities                  
Proceeds from revolving line of credit   148,335       213,189       (64,854 )  
Payments on revolving line of credit   (170,012 )     (206,319 )     36,307    
Proceeds from asset-backed financing   80,000       55,000       25,000    
Payments on asset-backed financing   (20,000 )     (18,500 )     (1,500 )  
Proceeds from short-term borrowings and current portion of long-term debt   10,798       11,441       (643 )  
Payments on short-term borrowings and current portion of long-term debt   (848 )     (2,771 )     1,923    
Payments of deferred financing costs   (8 )           (8 )  
Payments of deferred and contingent acquisition consideration   (265 )     (199 )     (66 )  
Proceeds from stock issued under share-based compensation plans   7,808       6,149       1,659    
Payments of cash dividends   (15,011 )     (12,799 )     (2,212 )  
Purchases of treasury stock   (2,592 )     (2,725 )     133    
Net cash provided by financing activities   38,205       42,466       (4,261 )  
Effect of exchange rate changes on cash and cash equivalents   24       530       (506 )  
Change in cash and cash equivalents   (21,137 )     (8,547 )     (12,590 )  
Cash and cash equivalents at beginning of period   29,940       21,956       7,984    
Cash and cash equivalents at end of period $ 8,803     $ 13,409     $ (4,606 )  

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 Business Excluded Total
(in thousands) Three Months Ended Three Months Ended Three Months Ended
  March 31, March 31, March 31,
  2018   2017   2018   2017   2018   2017
Net sales $ 575,110     $ 545,484     $ 10,790     $ 957     $ 585,900     $ 546,441  
                       
Gross profit 162,975     153,416     3,098     205     166,073     153,621  
Gross margin 28.3 %   28.1 %   28.7 %   21.4 %   28.3 %   28.1 %
                       
Operating expenses 128,123     122,084     4,409     539     132,532     122,623  
Expenses as a % of net sales 22.3 %   22.4 %   40.9 %   56.3 %   22.6 %   22.4 %
                       
Operating income (loss) 34,852     31,332     (1,311 )   (334 )   33,541     30,998  
Operating margin 6.1 %   5.7 %   (12.2 )%   (34.9 )%   5.7 %   5.7 %

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

Acquired   Acquisition
Date
  Net
Sales Centers
Acquired
  Periods
Excluded
Tore Pty. Ltd. (Pool Power) (1)   January 2018   1   January - March 2018
Chem Quip, Inc. (1)   December 2017   5   January - March 2018
Intermark   December 2017   1   January - March 2018
E-Grupa   October 2017   1   January - March 2018
New Star Holdings Pty. Ltd. (Newline)   July 2017   1   January - March 2018
Lincoln Aquatics (1)   April 2017   1   January - March 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 center count in the first three months of 2018.

    December 31, 2017           351    
    Acquired location           1    
    New locations           3    
    Consolidated location           (1 )  
    March 31, 2018           354    

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 loss 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 net income to Adjusted EBITDA.

(Unaudited)   Three Months Ended  
(In thousands)   March 31,  
      2018     2017  
Net income $ 31,339     $ 22,270    
  Add:            
  Interest and other non-operating expenses (1)   3,527       3,647    
  (Benefit) provision for income taxes   (1,279 )     5,119    
  Share-based compensation   3,321       3,003    
  Equity earnings in unconsolidated investments   (46 )     (38 )  
  Depreciation   6,299       5,557    
  Amortization (2)   276       229    
Adjusted EBITDA $ 43,437     $ 39,787    

(1)       Shown net of interest income and includes amortization of deferred financing costs as discussed below.
(2)       Excludes amortization of deferred financing costs of $194 and $136 for the three months ended March 31, 2018 and March 31, 2017.

The table below presents a reconciliation of Adjusted EBITDA to net cash used in operating activities.  Please see page 5 for our Condensed Consolidated Statements of Cash Flows.

(Unaudited)   Three Months Ended  
(In thousands)   March 31,  
      2018     2017  
Adjusted EBITDA $ 43,437     $ 39,787    
  Add:            
  Interest and other non-operating expenses, net of interest income   (3,333 )     (3,511 )  
  (Benefit) provision for income taxes   1,279       (5,119 )  
  Other   681       1,847    
  Change in operating assets and liabilities   (86,213 )     (65,428 )  
Net cash used in operating activities $ (44,149 )   $ (32,424 )  

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