EX-99.1
2
pool-q32020xer.htm
POOL Q3 2020 EARNINGS RELEASE
Document
Exhibit 99.1
FOR IMMEDIATE RELEASE
POOL CORPORATION REPORTS RECORD THIRD QUARTER RESULTS
Highlights
•Record net sales for Q3 2020 with both overall and base business sales growth of 27%
•Q3 2020 diluted EPS increase of 50% to a record $2.92, or excluding tax benefits in both periods, an increase of 47% to $2.71
•Record cash provided by operations of $388.9 million, an increase of $145.7 million from the first nine months of 2019
•2020 earnings guidance increased to $8.05 - $8.35 per diluted share or $8.20 - $8.50, excluding non-cash impairments recorded in Q1 2020, from previous $6.90 - $7.30 range or $7.05 - $7.45, excluding impairments
______________________
COVINGTON, LA. (October 22, 2020) – Pool Corporation (Nasdaq/GSM:POOL) today reported record results for the third quarter of 2020.
“I could not be happier with the truly outstanding results that we reported for the third quarter. Consumer spending on outdoor living products remained strong, and our team continued to execute at a very high level, which resulted in stellar results this quarter across a broad range of operating metrics,” said Peter D. Arvan, president and CEO. “In addition, as part of our strategic growth initiatives, we further expanded our network through two acquisitions, Northeastern Swimming Pool Distributors, Inc., which closed on September 11, 2020, and Jet Line Products, Inc., which closed on October 1, 2020. These businesses bring solid teams that have excelled at building exceptional customer relationships, and we are excited to have them join the POOLCORP family.”
In the third quarter of 2020, net sales increased 27% to a record $1.14 billion compared to $898.5 million in the third quarter of 2019. Our sales benefited from continued elevated demand for residential pool products, driven by home-centric trends influenced by the COVID-19 pandemic, as working from home becomes routine and families create and enjoy safe social and entertainment alternatives in their own backyards. We realized broad sales gains across many product categories, as maintenance, replacement, refurbishment and construction activities across most geographies were strong.
Gross profit increased 27% to a record $328.7 million in the third quarter of 2020 from $257.9 million in the same period of 2019. Gross margin increased 20 basis points to 28.9% in the third quarter of 2020 compared to 28.7% in the third quarter of 2019, with increased purchase volumes driving improvements in supply chain management.
Selling and administrative expenses (operating expenses) increased 18% to $180.5 million in the third quarter of 2020 compared to $153.4 million in the third quarter of 2019, primarily reflecting a $20.1 million increase in performance-based compensation. Excluding performance-based compensation in both periods, operating expenses increased 5% due to growth-driven freight expenses and greater facility-related costs. As a percentage of net sales, operating expenses decreased to 15.8% in the third quarter of 2020 compared to 17.1% in the same period of 2019 as we continued to realize benefits from discretionary spending controls implemented earlier in the year.
Operating income in the third quarter of 2020 increased 42% to $148.2 million compared to $104.5 million in the same period in 2019. Operating margin was 13.0% in the third quarter of 2020 compared to 11.6% in the third quarter of 2019.
We recorded an $8.5 million, or $0.21 per diluted share, tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, in the quarter ended September 30, 2020, compared to a tax benefit of $4.5 million, or $0.11 per diluted share, realized in the same period of 2019.
Net income increased 50% to $119.1 million in the third quarter of 2020 compared to $79.5 million in the third quarter of 2019. Earnings per share increased 50% to $2.92 per diluted share in the third quarter of 2020 compared to $1.95 in the same period of 2019. Excluding the impact from ASU 2016-09 in both periods, earnings per diluted share increased 47% to $2.71 in the third quarter of 2020 compared to $1.84 in the third quarter of 2019.
Net sales for the nine months ended September 30, 2020 increased 18% to a record $3.10 billion from $2.62 billion in the nine months ended September 30, 2019. Gross margin declined 30 basis points to 28.8% compared to 29.1% in the same period last year, primarily due to sales of lower margin, big-ticket items, such as in-ground and above-ground pools and pool equipment, which comprised a larger portion of our product mix in the nine months ended September 30, 2020 compared to the first nine months of 2019.
Operating expenses for the nine months ended September 30, 2020 increased 12% compared to the first nine months of 2019. In the first quarter of 2020, we recorded impairment charges of $6.9 million, which included $2.5 million from a long-term note, as collectability was impacted by the COVID-19 pandemic, and non-cash goodwill and intangibles impairment charges of $4.4 million, equal to the total goodwill and intangibles carrying amounts of our Australian reporting units. Excluding impairment charges, operating expenses were up 11%, reflecting a $32.1 million increase in performance-based compensation, in addition to growth-driven freight expenses and greater facility-related costs.
Operating income for the first nine months of 2020 increased 24% to a record $389.7 million compared to $315.4 million in the same period last year. Adjusted operating income, excluding non-cash impairments, for the first nine months of 2020 increased 26% from the prior year to $396.6 million. See the reconciliation of GAAP to non-GAAP measures in the addendum of this release. Operating margin for the nine months ended September 30, 2020 was 12.6% compared to 12.1% for the nine months ended September 30, 2019.
We recorded a $22.6 million, or $0.55 per diluted share, tax benefit from ASU 2016-09 in the nine months ended September 30, 2020 compared to a $21.1 million, or $0.52 per diluted share, tax benefit in the same period of 2019.
Net income for the nine months ended September 30, 2020 increased 26% to a record $307.6 million compared to $243.6 million for the nine months ended September 30, 2019. Adjusted net income for the first nine months of 2020, excluding the $6.3 million, or $0.15 per diluted share, impact of non-cash impairments, net of tax, increased 29% to $313.9 million. Earnings per share for the first nine months of 2020 increased 26% to $7.53 per diluted share versus $5.97 in the first nine months of 2019. Excluding the impact of non-cash impairments, net of tax, adjusted diluted EPS increased 29% over 2019.
On the balance sheet at September 30, 2020, total net receivables, including pledged receivables, increased 19% compared to September 30, 2019, driven by our September sales growth and partially offset by improved collections. Inventory levels decreased 1% compared to September 30, 2019, reflecting the strong pace of sales in the third quarter of 2020. Total debt outstanding was $339.9 million at September 30, 2020, a $207.6 million decrease from total debt at September 30, 2019, as we have utilized our operating cash flows to decrease debt balances.
Cash provided by operations was $388.9 million in the first nine months of 2020 compared to $243.3 million in the first nine months of 2019, an improvement of $145.7 million. The improvement in cash provided by operations primarily reflects an increase in net income, a decline in inventory balances between periods and improvements in working capital management. Adjusted EBITDA (as defined in the addendum to this release) was $429.4 million and $347.1 million for the nine months ended September 30, 2020, and September 30, 2019, respectively. Interest expense decreased compared to last year primarily due to lower average debt levels and lower average interest rates.
“Our success is a direct result of the contributions and achievements of the POOLCORP team who have continued supporting our customers through these difficult and uncertain times. As we move forward into the fourth quarter, we believe that demand for our products remains strong, and our teams are committed to sustaining our track record of operational excellence. Based on our results to date and expectations for the remainder of the year, we are increasing and narrowing our annual earnings guidance to $8.05 to $8.35 per diluted share, including the impact of year-to-date tax benefits of $0.55 and the $0.15 impact of non-cash impairments recorded in the first quarter of 2020,” commented Arvan. “Excluding the impact of non-cash impairments, we expect 2020 adjusted diluted EPS of $8.20 to $8.50. Our previous 2020 earnings guidance range disclosed in our July 23, 2020 earnings release was $6.90 to $7.30 per diluted share or $7.05 to $7.45, excluding the impact of non-cash impairments.” See the reconciliation of GAAP to non-GAAP measures in the addendum of this release.
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POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products. POOLCORP operates 381 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,” “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, 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 2019 Annual Report on Form 10-K, 2020 Quarterly Reports on Form 10-Q and other reports and filings filed with the Securities and Exchange Commission (SEC).
CONTACT:
Curtis J. Scheel
Director of Investor Relations
985.801.5341
curtis.scheel@poolcorp.com
3
POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2020
2019
2020
2019
Net sales
$
1,139,229
$
898,500
$
3,097,362
$
2,617,283
Cost of sales
810,531
640,569
2,205,555
1,854,408
Gross profit
328,698
257,931
891,807
762,875
Percent
28.9
%
28.7
%
28.8
%
29.1
%
Selling and administrative expenses
180,465
153,391
495,186
447,427
Impairment of goodwill and other assets
—
—
6,944
—
Operating income
148,233
104,540
389,677
315,448
Percent
13.0
%
11.6
%
12.6
%
12.1
%
Interest and other non-operating expenses, net
1,861
5,498
9,292
18,538
Income before income taxes and equity earnings
146,372
99,042
380,385
296,910
Provision for income taxes
27,360
19,593
73,068
53,569
Equity earnings in unconsolidated investments, net
86
76
248
210
Net income
$
119,098
$
79,525
$
307,565
$
243,551
Earnings per share:
Basic
$
2.97
$
1.99
$
7.68
$
6.13
Diluted
$
2.92
$
1.95
$
7.53
$
5.97
Weighted average shares outstanding:
Basic
40,123
39,933
40,073
39,750
Diluted
40,839
40,865
40,849
40,811
Cash dividends declared per common share
$
0.58
$
0.55
$
1.71
$
1.55
4
POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
September 30,
September 30,
Change
2020
2019
$
%
Assets
Current assets:
Cash and cash equivalents
$
74,749
$
36,693
$
38,056
104
%
Receivables, net (1)
135,555
95,971
39,584
41
Receivables pledged under receivables facility
230,857
211,827
19,030
9
Product inventories, net (2)
612,824
616,217
(3,393)
(1)
Prepaid expenses and other current assets
12,696
12,384
312
3
Total current assets
1,066,681
973,092
93,589
10
Property and equipment, net
109,086
112,816
(3,730)
(3)
Goodwill
199,360
188,133
11,227
6
Other intangible assets, net
10,522
11,235
(713)
(6)
Equity interest investments
1,314
1,237
77
6
Operating lease assets
180,230
175,878
4,352
2
Other assets
20,396
19,017
1,379
7
Total assets
$
1,587,589
$
1,481,408
$
106,181
7
%
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$
268,412
$
214,309
$
54,103
25
%
Accrued expenses and other current liabilities
145,420
81,459
63,961
79
Short-term borrowings and current portion of long-term debt
11,709
11,840
(131)
(1)
Current operating lease liabilities
56,977
56,025
952
2
Total current liabilities
482,518
363,633
118,885
33
Deferred income taxes
29,476
27,951
1,525
5
Long-term debt, net
328,225
535,720
(207,495)
(39)
Other long-term liabilities
32,846
26,737
6,109
23
Non-current operating lease liabilities
125,023
121,397
3,626
3
Total liabilities
998,088
1,075,438
(77,350)
(7)
Total stockholders’ equity
589,501
405,970
183,531
45
Total liabilities and stockholders’ equity
$
1,587,589
$
1,481,408
$
106,181
7
%
(1)The allowance for doubtful accounts was $5.3 million at September 30, 2020 and $6.2 million at September 30, 2019.
(2)The inventory reserve was $11.4 million at September 30, 2020 and $9.9 million at September 30, 2019.
5
POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
2020
2019
Change
Operating activities
Net income
$
307,565
$
243,551
$
64,014
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
20,979
20,648
331
Amortization
975
1,049
(74)
Share-based compensation
11,095
10,243
852
Equity earnings in unconsolidated investments, net
(248)
(210)
(38)
Impairment of goodwill and other assets
6,944
—
6,944
Other
1,092
5,334
(4,242)
Changes in operating assets and liabilities, net of effects of acquisitions:
Receivables
(135,129)
(98,538)
(36,591)
Product inventories
99,767
68,827
30,940
Prepaid expenses and other assets
311
1,231
(920)
Accounts payable
3,385
(29,782)
33,167
Accrued expenses and other current liabilities
72,178
20,900
51,278
Net cash provided by operating activities
388,914
243,253
145,661
Investing activities
Acquisition of businesses, net of cash acquired
(24,655)
(8,913)
(15,742)
Purchases of property and equipment, net of sale proceeds
(16,897)
(26,926)
10,029
Net cash used in investing activities
(41,552)
(35,839)
(5,713)
Financing activities
Proceeds from revolving line of credit
749,840
836,534
(86,694)
Payments on revolving line of credit
(909,637)
(1,011,430)
101,793
Proceeds from asset-backed financing
261,700
189,000
72,700
Payments on asset-backed financing
(266,700)
(136,300)
(130,400)
Payments on term facility
(6,938)
—
(6,938)
Proceeds from short-term borrowings and current portion of long-term debt
13,255
27,633
(14,378)
Payments on short-term borrowings and current portion of long-term debt
(13,291)
(24,962)
11,671
Payments of deferred financing costs
(12)
—
(12)
Payments of deferred and contingent acquisition consideration
(281)
(311)
30
Proceeds from stock issued under share-based compensation plans
16,696
17,042
(346)
Payments of cash dividends
(68,599)
(61,752)
(6,847)
Purchases of treasury stock
(76,194)
(23,188)
(53,006)
Net cash used in financing activities
(300,161)
(187,734)
(112,427)
Effect of exchange rate changes on cash and cash equivalents
(1,035)
655
(1,690)
Change in cash and cash equivalents
46,166
20,335
25,831
Cash and cash equivalents at beginning of period
28,583
16,358
12,225
Cash and cash equivalents at end of period
$
74,749
$
36,693
$
38,056
6
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
September 30,
September 30,
September 30,
2020
2019
2020
2019
2020
2019
Net sales
$
1,133,608
$
895,489
$
5,621
$
3,011
$
1,139,229
$
898,500
Gross profit
326,692
257,525
2,006
406
328,698
257,931
Gross margin
28.8
%
28.8
%
35.7
%
13.5
%
28.9
%
28.7
%
Operating expenses
178,773
152,630
1,692
761
180,465
153,391
Expenses as a % of net sales
15.8
%
17.0
%
30.1
%
25.3
%
15.8
%
17.1
%
Operating income (loss)
147,919
104,895
314
(355)
148,233
104,540
Operating margin
13.0
%
11.7
%
5.6
%
(11.8)
%
13.0
%
11.6
%
(Unaudited)
Base Business
Excluded
Total
(in thousands)
Nine Months Ended
Nine Months Ended
Nine Months Ended
September 30,
September 30,
September 30,
2020
2019
2020
2019
2020
2019
Net sales
$
3,078,463
$
2,601,801
$
18,899
$
15,482
$
3,097,362
$
2,617,283
Gross profit
885,002
759,858
6,805
3,017
891,807
762,875
Gross margin
28.7
%
29.2
%
36.0
%
19.5
%
28.8
%
29.1
%
Operating expenses (1)
495,710
443,107
6,420
4,320
502,130
447,427
Expenses as a % of net sales
16.1
%
17.0
%
34.0
%
27.9
%
16.2
%
17.1
%
Operating income (loss) (1)
389,292
316,751
385
(1,303)
389,677
315,448
Operating margin
12.6
%
12.2
%
2.0
%
(8.4)
%
12.6
%
12.1
%
(1)Base business and total include $6.9 million of impairment from goodwill and other assets.
7
We have excluded the following acquisitions from base business for the periods identified:
Acquired
Acquisition
Date
Net Sales Centers Acquired
Periods
Excluded
Northeastern Swimming Pool Distributors, Inc. (1)
September 2020
3
September 2020
Master Tile Network LLC (1)
February 2020
4
February - September 2020
W.W. Adcock, Inc. (1)
January 2019
4
January - March 2020 and January - March 2019
Turf & Garden, Inc. (1)
November 2018
4
January 2020 and January 2019
(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 nine months of 2020.
December 31, 2019
373
Acquired locations
7
New locations
3
Closed/consolidated locations
(2)
September 30, 2020
381
8
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 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, repurchase shares 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)
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
September 30,
2020
2019
2020
2019
Adjusted EBITDA
$
159,310
$
115,508
$
429,360
$
347,065
Add:
Interest and other non-operating expenses, net of interest income
(1,758)
(5,390)
(8,982)
(18,215)
Provision for income taxes
(27,360)
(19,593)
(73,068)
(53,569)
Other
(2,079)
2,776
1,092
5,334
Change in operating assets and liabilities
39,601
52,511
40,512
(37,362)
Net cash provided by operating activities
$
167,714
$
145,812
$
388,914
$
243,253
9
The table below presents a reconciliation of net income to Adjusted EBITDA.
(Unaudited)
Three Months Ended
Nine Months Ended
(in thousands)
September 30,
September 30,
2020
2019
2020
2019
Net income
$
119,098
$
79,525
$
307,565
$
243,551
Add:
Interest and other non-operating expenses (1)
1,861
5,498
9,292
18,538
Provision for income taxes
27,360
19,593
73,068
53,569
Share-based compensation
3,874
3,649
11,095
10,243
Equity earnings in unconsolidated investments
(86)
(76)
(248)
(210)
Impairment of goodwill and other assets
—
—
6,944
—
Depreciation
6,986
7,090
20,979
20,648
Amortization (2)
217
229
665
726
Adjusted EBITDA
$
159,310
$
115,508
$
429,360
$
347,065
(1)Shown net of interest income and includes gains and losses on foreign currency transactions and amortization of deferred financing costs as discussed below.
(2)Excludes amortization of deferred financing costs of $103 and $108 for the three months ended September 30, 2020 and September 30, 2019, respectively, and $310 and $323 for the nine months ended September 30, 2020 and September 30, 2019, respectively. This non-cash expense is included in Interest and other non-operating expenses, net on the Consolidated Statements of Income.
2020 Diluted EPS Guidance
We have included adjusted projected 2020 diluted EPS, a non-GAAP financial measure, in this press release as a supplemental disclosure to demonstrate the impact of our non-cash impairment charge recorded in the first quarter of 2020 on our projected 2020 diluted EPS and provide investors and others with additional information about our potential future operating performance. We believe adjusted projected 2020 diluted EPS should be considered in addition to, not as a substitute for, our projected 2020 diluted EPS presented in accordance with GAAP, and in the context of our other forward-looking and cautionary statements in this press release.
The table below presents a reconciliation of projected 2020 diluted EPS to adjusted projected 2020 diluted EPS.
(Unaudited)
2020 Guidance Range
Floor
Ceiling
Diluted EPS (1)
$
8.05
$
8.35
After-tax non-cash impairment charges
0.15
0.15
Adjusted Diluted EPS (1)
$
8.20
$
8.50
(1)Includes 2020 year-to-date ASU 2016-09 tax benefit of $0.55 per diluted share and does not include potential additional tax benefits.
10
Adjusted Income Statement Information
We have included adjusted operating income, adjusted net income and adjusted diluted EPS, which are non-GAAP financial measures, in this press release as supplemental disclosures because we believe these measures are useful to investors and others in assessing our year-over-year operating performance. We believe these measures should be considered in addition to, not as a substitute for, operating income, net income, and diluted EPS presented in accordance with GAAP, respectively, and in the context of our other disclosures in this press release. Other companies may calculate these non-GAAP financial measures differently than we do, which may limit their usefulness as comparative measures.
The table below presents a reconciliation of operating income to adjusted operating income.
(Unaudited)
Nine Months Ended
(in thousands)
September 30,
2020
Operating income
$
389,677
Impairment of goodwill and other assets
6,944
Adjusted operating income
$
396,621
The table below presents a reconciliation of net income to adjusted net income.
(Unaudited)
Nine Months Ended
(in thousands)
September 30,
2020
Net income
$
307,565
Impairment of goodwill and other assets
6,944
Tax impact on impairment of long-term note (1)
(654)
Adjusted net income
$
313,855
(1)As described in our April 23, 2020 earnings release, our effective tax rate at March 31, 2020 was a 0.1% benefit. Excluding impairment from goodwill and intangibles and tax benefits from ASU 2016-19 recorded in the first quarter of 2020, our effective tax rate for the first quarter of 2020 was 25.4%, which we used to calculate the tax impact related to the $2.5 million long-term note impairment.
The table below presents a reconciliation of diluted EPS to adjusted diluted EPS.
