Q4 2019 Earnings Call

actual results

Differ materially from those discussed today information regarding the factors and variables that could cause actual results to differ materially from projected results is discussed in our 10-K. The latest edition of which will be filed at the end of this month. In addition. We may make references to non-gaap financial measures in our comments a description and Reconciliation of our non-gaap financial Majors is included in our press release and posted to our corporate website in our investor relations section now, I'll turn the call over to our president and CEO event.

Thank you, Mark and good morning to everyone on the call 2019 was another solid year for poolcorp overall demand remains healthy and our dealer base optimistic off while the weather cause some challenges early in the year. The team's focus on execution capacity creation and organic growth drove record sales and profitability while helping our customers be more productive as well for 2019. Total sales came in at three point two billion dollars this represents a $200 or 7% increase over 2018 in the fourth quarter Revenue also increased by 7% which was on top of the 6% overall growth. We saw in the fourth quarter of 2018 and the 15% growth that we saw a 2017 from a base business perspective sales increased 7% in the fourth quarter bringing the total year based business increased to 5% which is a nice recovery from birth.

for reference

We reported a 1% based business sales growth in the first quarter and a four percent in the second quarter. So through the first-half. We had posted a 3% gain which highlights the significance of the 5% based business growth for the full year 2019 looking at just the year round markets the base business grew by 6% for the quarter and on a full year basis. We saw revenues up five-per-cent again poor weather in the first and seasonally significant second quarter weed heavily on the total year particularly in California and Texas where it was colder and wetter than

Went on our dealers are reporting a very solid backlog for 2020 season, which is yet another positive sign of the overall market conditions moving on to a few notes in markets. We continue to gain Traction in the commercial pool area as we saw Revenue growth of 8% for the year and 6% for the quarter. This was on top of the very strong performance in 2018 where we posted a thirteen percent gain in the fourth quarter and 11% overall looking at Major product categories equipment sales and building materials posted and other strong quarter buoyed by a strong demand and favorable weather in the quarter in the back half of the year. We saw nine percent growth and equipment sales for the quarter which resulted in 7% growth for the full year building materials sales phone now with 9% growth for the quarter. And for the Year. This is encouraging and further evidence of a healthy Market.

Retail and chemical sales which are part of our non-discretionary demand. We're both up 4% for the year. Overall. This is encouraging as Demand with skewed and delayed until the back half of the year average schools open later than normal because of the colder and wetter weather in Key markets for the fourth quarter chemical seals were up 1% while retail sales overall grew by 4%

In Europe, we saw Revenue growth 4% in the fourth quarter bringing the full-year growth rate to 12% in local currency. The largest markets in Europe, France, Spain Germany and Portugal all remained very sick, and we continue to grow and improve our business there the base business in Horizon saw Revenue grew 9% in the fourth quarter and 5% for the full-year demand in key markets for education and building materials. Remain solid while we continue to drive integration between our two platforms. The year-to-date number was impacted Again by the weather season in Texas in California.

Switching to gross profit for the quarter. We saw total gross profit dollars increase 1% and 6% on a year-to-date basis gross margin in the quarter compressed by a monthly basis points in both are based business and in total with the major driver being the cost advantage on price increase products that we enjoyed last year and certain vendor incentive program has also affected by that by for the year gross margins remain stable and in line with our long-term Outlook Mark will provide more color on this and other Financial Topics in his commentary month. Now, let me provide commentary on some of the growth and capacity creation activities that the team has been focused on in 2019. We open 9:00 new locations after opening 9 in 2018 and continue to build our Pipeline and we expect at a similar number in twenty-twenty our pool 360 sales app and website continue to gain traction as we ended the year off.

29%

This tool now accounts for 12% of our total revenue. We continue to implement our capacity creation plan that includes many facets such as open merchandising and proof point-of-sale technology truck off and other supply chain initiatives the programs help us achieve our expense management targets and provide exceptional customer experience further differentiating our value proposition from the competition am moving on the operating margin for the year. We are pleased to report a 20 basis-point improvement in our overall operating margin to 10.7% considering the poor weather that persists this for almost the entire first half in most of our key markets. I'm very proud of what the team did to support our customers and get as much work done as possible in the very compressed season as for the fourth quarter. It turned out largely as we expected given the tough comps from last year looking specifically at our base business. We are very pleased with the 40 basis point Improvement in operating margin ending the year at 10.9% a good Testament to our club.

so the creation active

And disciplined expense management this helped Propel our return on invested Capital to 29.3% for 2019 from 27.7 in 2018. I'm looking at has a 2020 we are anticipating a solid year as noted overall demand is good and contractor backlogs are healthy, but persistent capacity constraints inherent to the industry. I'm considering this and in line with previous guidance. We anticipate six to eight percent based business Revenue growth stable, gross margins and a twenty to forty percent Improvement in operating margin for the year long. We anticipate opening 8 to 10 additional locations in key markets and continuing our focus on execution across the business. We expect our diluted earnings per share range to be between $6.46 and $6.77 per share including a 6% tax benefit related to the ASU 2016 which equates to 10 to 5 a.m.

80% growth excluding that

Finally before I turn the call over to mark for his commentary. I'd like to thank our customers are suppliers and our employees for the tremendous support and dedication. Our team works very much every day to be the best channel to Market and our supply and best channel to market for our suppliers and to provide exceptional service and value to our entire customer base. We are very fortunate to have the best team in the industry and we seem to be the employer of choice. I will now turn the call over to Mark Joslin Chief Financial Officer for his commentary. I'm happy to say that with 2019 on our rear view mirror. We met the majority of the expectations. We communicated to you for both the quarter and the year overall. I'll recap a few of those expectations here.

First our reported EPS for the year, excluding tax methods was in the middle of the range. We provided on our Q3 earnings call and down only 3% from the middle of the range wage provided at the start of the Year. Despite the impact from the weather in the first half of the year at feed mentioned looking out from our mid-year results. This was a very good outcome.

We said throughout the year that are gross margin would be relatively flat on a full year basis, which was the case flat for base business and top and down ten basis points in total with our acquisition Thursday. We had a tough growth smart and cop in the fourth quarter and because of this said that are on our third quarter call that our fourth quarter operating income would be down year-over-year thought it was but only slightly is very good expense management with flat based business operating expenses mitigated the gross. Margin hit in the quarter for the year. We targeted based business operating a fast growth of 60% of the rates of gross profit growth and we're right on target with that objective. This allowed us to post based business operating margin Improvement for the year of Ford basis points, which was at the high end of our expected to twenty to forty basis points of based business operating margin Improvement.

One final p&l metric. Quote is our base business contribution margin for the year, which was 17.1% This is the ratio of the incremental operating income generated by our incremental revenue and shows The Leverage we achieved on our sales growth compared to our 10.9% based business operating. Margin. This is also a good educator at the continued operating margin growth opportunity we have in the future.

Moving over to the balance sheet and cash flow a highlight a couple of things first on the balance sheet are working capital excluding the lease accounting change grew 4.8% for Life compared to our 6.7% sales growth. So we had a positive contribution from working capitals who are returns.

As you can see on our statement of cash flows, we generated $299 million of cash flow from operations for the year, which was 114% of our net income and a hundred and eighty million births in our 2018 cash flow from operations.

Although we had a little help here from our 2018 inventory pull forward. This was a good outcome for us as always working Capital Management and cash generation will continue to be a focus for 9:20.

Give them both a solid growth in our earnings and our positive working Capital Management. We're able to increase our return on invested Capital to a record 29.3% for the year, which was a 160 basis points from our 2018 roic of 27.7%

Roic includes the benefit from the ASU tax games that excluding those in both years. We still gained 90 beta basis points of our oh I see an improvement. So a very good result here.

I should note that our earnings per share in 2019 as well as our guidance for 2020 largely excludes benefit from share repurchases.

In 2019, we were purchased only a hundred and forty nine thousand shares at an average price of $148 a share which which used just twenty 1 million in cash as a consequence excess cash was used to pay down debt, which was 25% lower at the end of the year from the end of 2018 our leverage which is measured on a trailing 12-month debt-to-ebitda basis finish a year at one point six one which is approaching the lower end of our preferred 1 and 1/2 to 2 times.

our belief is

That rather than competing with investors for our shares which are up 43% for the year. It makes sense to be patience and save our debt capacity for the time being until external factors create an opportunity for us to buy in more robust weights. As you are refining your models for 20 20. Let me give you some perspectives to keep in mind off as Pete said we are expecting 68% based business growth for the year, assuming normal weather with greater growth in the first half of the year and particularly in the first quarter given last year's tepid first half results and it did lower growth in the back half of the year.

The first quarter may also pull forward some sales from the second quarter as early indicators are that the normal spring early buys may move up from last year resulting in rough life ten to Fifteen million dollars in lower-margin sales moving from Q2 into q1.

On gross. Margin we looked at once again the relatively flat for the year overall with the decline and the first half and more significantly in the first quarter while the back half of the year should be modestly pause. I should note that in 2019. There were a couple of forces driving our gross margin comparisons to 2018 both as a result of the price increase purchases in 2018 One impact of this was on selling price which provided us with a customer pricing benefit in the first half of the year off. It was a drag on our margin comparison in the second half of the year due to the Tough Cop from 2018 recall that our q1 2019 based business gross margin was 90 basis points and was at 30 basis points in Q2.

The other impact was for vendor pricings were volume-related purchase incentives help to help. Gross margin in the back half of 2018. But her our gross margin throughout 2019 long as we were without the benefit of the purchase volumes moved into 2018 as we return to normal purchase volumes in twenty-twenty. We expect these vendor incentives to help offset. The first half margin challenges leaving us with relatively flat base business gross margin for the year.

On operating expenses we continue to aim for base business expense growth at 60% of the rates of gross profit growth and although that may not happen. Every quarter. We think that's a reasonable but stretch targets for the year having said that we had a couple of benefits on expenses in 2019, which may not recur in 2028 was the impact of the stronger US dollar which positively impacted our expense line by three million dollars spread throughout the first nine months of the year note that there is an offsetting decline in sales in New Jersey from currency. So only a modest negative impact on operating income for the year.

The other positive expense impact was three million dollars in lower incentive-based pay in Q4 as a result of our flat operating income compared to Q4 am so we had a six million in positive 2019 expense results, which we aren't counting on in 2020.

another

That could impact or 20/20 expense performance is a ramp up in technology Investments of roughly an additional 1 million dollars per quarter for a number of projects for these reasons have labeled are 60% of GDP growth spending goal is stretched Target this year but one which we aim to achieve.

Moving down to p&l. We have three million and higher interest in other non-operating income for the year, which includes the impact of higher debt and interest rates for most of the year as interest rates have faith in our debt balances have come down. This could provide a bit of a Tailwind for us in 2020.

One other noteworthy comment on our 2019 results was the impact of closing our branch in Columbia where we pulled the plug out year-end after five years of effort to bring up that market. The impact from disclosure was a two million dollar loss with about half of this hit in operating income and the other half a currency hits included in the three million dollars of just calling on our interests Line This created a $0.05 EPS head for the year and $0.04 of this was in the fourth quarter.

Finally, we sent a year with an effective income tax rate, excluding the impact of the ASU benefit of 25.1% and we expect this to inch up slightly to about twenty five and half percent for 20 20.

As I look at Southside numbers for 2020 the biggest disconnect from our 2020 guidance appears to be on the tax line and the estimate of our ASU impact.

That concludes my prepared remarks prepared remarks. I'll turn the call back over to our operator to begin our question-and-answer session. Thank you to ask a question. You may press start off on your touch tone phone. If you are using a speakerphone, we ask you to please pick up your handset before pressing the keys to enjoy your question, please press stars and to at this time. We will pause moments need to assemble our roster.

And today's first question comes from David Baird, please go ahead. All right. Hi. Good morning guys. Good morning. First off. Can you discuss any strategic by programs entering this year that you may have participated in and I guess you gave us the implications for our quarterly gross. Margin Trends. It doesn't sound like there's much of anything. But with with the gross margin for the year being stable last year expected to be stable this year. Can you broadly outline the biggest moving Parts there in terms of what's pushing it up? What's pushing it down to lead you to this net-zero area? Sure. Sure. Let me let me get the let me handle that day. So first of all in terms of strategic by, you know, you really probably referring to what we did in 2018 and and the pre price increase purchases dead.

and it

2018 as a 2019 we also do our normal seasonal by in with vendors Thursday. We commit to purchases in the fall for delivery at the vendors convenience throughout the fall and into the spring and then we pay for those in the in the late spring and summer so for 2019, you know inflation. I'm sorry for 2020 inflation expectations where you know a return to normal and and that's what we've seen and so we did our normal kind of Fall by that we've done, you know in years past and nothing unusual format perspective in terms of gross margins and you know comment about them being flat for the year provided some kind of highlights in my cock.

. But just to recap

Those going back to 2019 first quarter. We had the benefit of the pre price increase inventory that we had purchased selling prices increased at the start of the year for all of our customers. And so we're able to sell that lower price inventory in the first quarter and a little bit into the second quarter which gave us a margin benefit which was 90 basis points in the first quarter last year and thirty basis points twenty to Thirty in the second quarter at the same time because those purchases that we did were in 2018 instead of 2019 that is that affected the vendor and suck is that we received and those were higher in 2018 and a little bit lower and 2019.

And so that impacted our margins overall for 2019 and left us with a flat margins back in 2019 considering the big difficulty. We had in the fourth quarter. So 20/20 we have Thursday and q1 and Q2 will benefit from getting back to normal vendor incentives which gives us that flat expectation for the year. So a lot of background there. So if you have any follow-up on that Dave, let me know, but that's that's how it lays out.

Yes.

Helpful. Thanks Mark. Could you also talk about about product mix and customer mix and and where you're seeing the strength? I think you mentioned some of the renovation and Construction Products. You've got commercial moving up the curve any puts and takes there as it relates to to the gross margin for the company may be offset by the the core day-to-day maintenance and minor repair products.

Sure, Dave, I'll I'll take that when I look at our our product groups that are growing if you consider that building material for us has been an area of strength over time. It continues to build. So we had a very good year with building materials last year. As I said in my commentary it was up 9% the margin on building materials as good. Of course your cost to handle the building materials. Sometimes can be a little bit more expensive than the lighter boxes commercial is another area that we continue to gain Traction in and Commercial margin profiling commercial is going to be a little bit lighter on the very large projects. So that is an area that we are we're continuing to grow and that has a huge impact on our overall margin mix, you know, if I think about the chemical portion of our business, um the uh, that's a more the discretion. Yep.

are non-discretionary part of our business that

Will follow the weather and you know, how often when the pool opens and how often it gets used and if I think about the the inflation that we're looking at this year on chemicals if we have a normal weather year inflation is normal. So from a from a mixed perspective, I don't look for any overall impact and Equipment back, you know this year from a margin profiles of equipment follows, obviously the the maintenance and repair in and do construction last year construction. We think was down year-over-year. I'm sorry the the month. Yeah new pool construction. We think was down about 3% Although the numbers are still preliminary this year, assuming a normal year and without having a benefit of price increases on equipment. I think our margin profile on that returned back to normal.

All right. Appreciate the color guys. Thank you. Thank you.

I don't know question today custom Ryan William Blair, please. Go ahead.

Hey.

Thanks. So a couple of questions first off sticking with the gross margins in the fourth quarter of the decline of 170 basis points. How much of that was the price cost goodness not repeating and how much was lower rebates. I think that's what you said.

You know Ryan like I can't break that out precisely or I won't break it up precisely but it was it was a probably eighty percent is was the tough competition and a smaller piece of it was the centerpiece maybe nineteen eighty-five, you know, so it's most significantly was just the tub from New York before. Okay, that's really what I was getting at. So that kind of gets me there and then you know, I want to get a little more specific on Gross margins in 1 Q 20 if we can I just get a sense of you know, what should the decline be your viewers down a hundred basis points or the right range from you know, you've got the price cost issue again, and then you mentioned earlier by may move into one Q. So I'm just trying to think about those two two pieces. Yeah. I mean that's that's reasonable expectation. So the 90 basis points from last year plus the early by maybe birth.

down another

And 20 basis points. So you're in the year and the neighborhood they're okay. So the early by is not that impactful 10:20 bibs.

Yeah, that sounds about right. Okay. Okay, and then I realize I'm getting a little picky with this question. But 2020 the guidance for ten to fifteen percent wage growth. That's a little below your goal for mid-teens. I'm just trying to figure out what what's really the difference. Is it somebody investment Mark that you talked about and then I think you mentioned a number of some sg&a Tailwinds just like what's different and why isn't it 15% or better? Cuz it sounds like you know an easy weather, and the markets healthy.

Yeah, well, you know one difference. First of all Ryan is share repurchases which have been stock and trade for us for a number of years and add generally, you know, a couple of percent to earnings per share and we're uh, you know, we we really didn't have any to speak of in 2019. So no benefit their moving into twenty-twenty from 2019 purchases and at this point were not anticipating the Del happened. We don't generally reflect those in our guidance in any case so that that's probably the bigger impact are wage a little bit of caution on expenses given some investment and non-recurring that we had, you know, not occurring benefit do we have last year? So, you know generally Thursday we have constraints on industry labor. So we think we have good opportunity from Adam and standpoint, but we have to wait and see how well the Dead.

Deal with that given the labor constraints that we and other buildings industry participants hats so, okay great. That's helpful. Pass it on. Thanks. All righty Anthony levinsky company you please go ahead.

Yes, good morning. And thank you for taking the questions. So just wondering so with the higher capacity that you have just just wondering are there any potential new product categories that you guys could get into or do you think twenty-twenty sales growth will be more or less kind of more from the same types of product categories that you're in the ready?

Yeah, good morning. I'll I'll take that one. So when I think about new categories, I wouldn't characterize it as new categories as we said during our investor day long presentation. There is there's an opportunity with automation. So instead of instead of you know, a a Time Clock mechanical time clock to happen, you know iot type products that you so you can control your pool from your phone. We think there's an opportunity to continue to move from the single-speed pumps to be able speed pumps. We think that there's some there's some new product opportunities as it relates to some of the green products in the if you think about UV systems on pools which contribute to a wage, you know healthier pool and uh less chemicals, so I wouldn't say that there is a lot of new categories. What I would say is that there's a big opportunity with automation because of the dog

Five and a half million in-ground pools over three million of them essentially have no automation.

So what we see in the in the market is as as those pools need to be repaired and maintained that the dealers are starting to offer the Autumn page instead of just a one-for-one replacement or instead of changing out the halogen light like for like, you know talking to the homeowner about moving that to an LED bulb, you know, so I think it's new categories. I just think it is, um, uh a switched towards higher technology products and if you look at our building material products you offer continuing to see growth in in outdoor lighting and some of our other hardscapes which you know our newer for us certainly as compared to the Legacy Pool Products. So I think that's what you're going to see Drake.

Okay. Well, thank you for that color. So so what's the margin profile of the products that you that you just mentioned? Whether it's automation or LED? Can you give us a new color of yeah, I think it's I think it's similar overall. I think the margin profile on on the lighting is very similar. You know what I think about palms for instance single speed to variable speeds probably a little bit lighter on the variable speed than a than a single speed pump, but that's nothing unusual that we haven't seen them that Trend growing over time. And then when I look at the overall automation margin profile on that very similar to the items that it would be replacing.

Got it. Okay, so so so next.

Some new regulations taking effect that that requires variable speed pumps. Is there any other new regulation that you are aware of that could impact you guys?

No, I don't think so. And that one on the variable speed pump replacement for all single speed. Remember that takes effect next year mid July of 2021, Um and honestly manufacturers are all trying to figure out which pumps they have that could hit the Zooey specification. Some of the manufacturers think that they can do it with single speed pumps others are saying no and we'll have to be switched to variable speed and then of course you have it happens later in the season anyway or Midway through the year and then by the time inventories are are Thursday through I really see that as a 2022 play. They'll be limited impact in twenty Twenty-One. I see it taking effect more in 2022, but honestly, I think we'll have a better view of the impact on that as the manufacturers sort through their product portfolio and figure out what they're going to do to meet those regulations.

Got it, okay.

As far as new sales centers, what's kind of the break now? You guys are thinking for blue versus green for this year?

I think it will be a similar number this year. We had one in 2018. We had one new green center. We had one in Canada blue one in Europe. And then the rest were in US blue. I would think it's probably going to be a similar profile going into the 2020 season. Okay. Thank you and best of luck. Thank you with KeyBank, please. Go ahead Thursday morning all hey. Good morning.

Glad you're not charging more for those mix-up products. Is that potential customer of yours only for you?

So

Given your comments about 1 Q gross margins cuz of prebiotics etcetera and 18 since you were addressing the gross margin Mark. Could you talk to if you expect the base operating leverage to degrade by the amount you said in gross margin, just so no one's surprised.

Yeah, for sure. There will be a reduction in operating leverage in the first quarter. Would the eBay changed be similar to the gross margin change?

I will let you model that out. But it's you want to say fifty-fifty just so we can understand the sg&a, you know actions you'll be taking off but I'm not going to I'm not going to comment kind of I'd have to pull out my model and and go through. Oh boy, I think you can you can you can figure that out. Well, there's no reason that's operating leverage would change at all just cuz of the gross margins swinging around right? I mean into our for the year now, we we expect the similar kind of performance is we've had and as I said, you know, we look for a 20 to 40 basis points of operating margin improvements that our contribution to the last year was 17% So that's well above our operating margin and and you know provides a healthy ramp opportunity for us to continue age.

Americans over time. All right general question Peter about the backlog comments. I mean with new sales down last year.

I mean, is there anything really changing? I mean you keep breaking up labor constraints but there's no view the contribution or the level of backlog page comments thinking today seems to be very similar to where we were last year which is supporting your 68% based growth. I mean, is that a simple way to assess it or is it stronger than I would tell you that the the the backlog is good. I just attended a bunch of uh industry shows and and dealer meetings in the last month and I will tell you that my offenses is that optimism is very very high with the dealers and I mean and and from just my my take on it is everybody is everybody is upbeat and there is a fair amount of our good backlog that everybody is sitting on right now. So having financing people talking about, you know, when you're out there with the dealers are dead.

Folks, I mean, just give us a call.

Tax for how much is paid out of cash as opposed to Borrowed and is there any easing of credit that you know at any commentary you picked up there? Yeah. I mean, I don't see any significant shift and financing cat is still you know banks are skewed towards Better Credit worthy borrowers off and lower end of the credit spectrum is more challenged. So if you look at it from a industry standpoint, you know, we had a a big middle of business, you know years ago that really never came back after the recession and that that really hasn't changed.

Then the last area BuyBacks.

If you're not buying back and you're not going to necessarily tell us when you're buying back. Can you give us some more thinking? I mean you talked about opportunity. Can you can you just expand on that is a little bit of it. I want to say it's shift. But I mean you guys have pulled back a little used to be a very steady Cadence, right you're going to invest in the business you're going to do dividends and the rest is coming back to shareholders. It seems like it's eased up a little bit. Please clarify if that interpretation is wrong. And what does an opportunity look like? I guess. I mean if you should spend on that a little bit.

Yeah, I mean really?

And there's no change in our long-term capital allocation strategy always, you know, very very very consistent over time, which is invest everything off business make Acquisitions would we have done and we will continue to do and and we think by the way, there's good opportunities in this market wage for for Acquisitions. Uh, so that'll get some attention. Uh, and then, you know dividend program which which should grow with our earnings overtime and then excess cash going to share repurchases, It just so happens in the short-term, you know with 43% run up in stock price last year and where we sit today. We think that saving some capacity for a time when we're not competing with shareholders is is is going to be good for us, but that's not going to be you know, two or three years down the road dead.

that that

In the foreseeable future. So that's about as specific as I want to get but it's really no change in in long-term strategy. You just how we're actually all right.

Thank you very much. You bet.

Next question today some Blake horstmann of Stevens, please. Go ahead.

Yeah, good morning guys morning first off, but then the top-line outlook for 2020 curious to hear how you're thinking about the relative growth between new pool construction. Could you mention I think you said it was down most likely in 2019. If you expect that to come back kind of versus the large and small R&R work.

Yeah, good questions. Like the as I said I said preliminary numbers show that the new pool construction year-over-year is probably going to be down to 3% and they're still buttoning that up. So that's why I coughed up with a preliminary comment. Um, I think that is almost 100% driven by weather and consider that there's only a certain number of buildable day's wage, um during the year as we're we're weather permits and we lost many of those days in the first half of last year and then there's only a certain amount of Labor that can be applied to those projects. So I say that demand is very solid for New Pools. I see nothing nothing that would indicate that there's any softening of demand in wage for New Pools and new construction or remodel. So when I think about the mix, I think it returns to, you know, our normal, you know, if you look at us our new age

construction probably makes up

Fifteen sixteen percent of our total business and Renault is another twenty-five and then you've got the maintenance and repair back on discretionary part makes up the balance and I think that from a mixed perspective 20/20 is probably going to look an awful lot like that. I don't see people saying I'm not going to do remodel I'm going to do this or that I think it should be I think there's General pent-up demand for both and I don't see any of the dealers changing their profile of work.

Got it, and then I could have missed it. But did you guys say what the what the top top for market growth looks like versus the seasonal markets or anything along those lines off. Yeah, when we look at the overall, I think the top four markets. We had relative strength in Florida. Florida was very good. Arizona had a tough. So above above the total business. Arizona was lighter simply because of a very poor first-half back half of Arizona was strong Texas was probably about in line with the business. But again much skewed towards the back half of the year and month California stronger in the back half than the first half because they were very cold and wet but in California, the fourth quarter was specifically in Southern California. They got a fair amount of rain, which club

dampen things out so they were

See below the total.

Got it. And then just lastly on m&a. Are you guys still pretty focused on green Commercial International or those kind of some of the bigger spots that you're looking to exchange? Well, yeah and you know domestic blue as well. So we look you know, it across all aspects of the business and and we see, you know, fairly active market. We've been in a ten years of economic growth. So if there's someone out there looking to sell their business now's probably not a bad time for them and their minds and so so we'll see what happens but we think there'll be some good opportunities for us.

Got it. Thanks a lot. I'll get back in queue.

Thank you. Next question today comes from Alex. Marick of berenberg, please. Go ahead. Hey, good morning guys. So I'm looking at the commercial business right now. And you said the past that it typically grows around 4% a year. So, how are you beating that Market at the moment? I think we've invested in in sales people. We've invested in inventory. I mean and the commercial business you you have to have it's a it's a different expertise because it's a largely a bid inspect job for a portion of it on the new construction. And then when it comes to maintenance and repair when you have competition pools, you have to have it in stock. So if there's a competition pool that has a pump go down or a heater go down. It's not a question of well, who's the best price it really is a question of hey, do you have it in stock? So we've invested in Regional inventory to make sure that we have, you know, kind of all the important inventory within a reasonable wage.

lead time to where the

Concentration of pools are and like I said, we've invested in Talent. Um, and I think we've gotten a lot smarter and a lot better in in tackling that business. So I think it's it's just it's chair game based on our investments in people and products.

Got it, just to follow up on that given that it's about 5% of total sales currently how much larger you think that could get in the future?

Well, I think our overall market share on Commercial pool. We're in the 10% range. And if you look at what our overall market share is on the rest of the business that implies that there's no amount of room for us to grow. So but there's also a portion of that business that we don't participate in that has to do with bulk chemicals. So off of what we consider the addressable Market, I think we could we could easily double the business that we have.

Okay, and then second question for me is I'm just looking at the inventory number from eighteen and nineteen around 22% is the percentage of fact, they're trying to think of free cash flow for 2020. Do you see that inventory number dropping anywhere near the historic twenty or so percent range anytime soon?

Um, yeah in terms of the percent I'm not as uh, I would say that the inventory growth should be modest this year may have an opportunity to to grow that a little bit less than we have last couple of years. We've we've had an impact from Acquisitions. Of course, we had an impact this year year-end from vendors who shipped a bit more on early buys than they normally do know those were on drugs. So so it didn't impact cash flow. But but that helped pushed up inventory growth a little bit and then we had the the the big inflation on inventory home from 2018 and a 2019. So, you know, add 4% to the to the inventory levels for inflation which which puts off.

so, uh

Given all those factors and and really focus on our part to look at making sure that we're managing that well, I don't expect to see the same, probably getting back closer to the historic levels that you're talking about.

All right, great. Thanks a lot guys. Thanks. Ladies and gentlemen, as a reminder. If you'd like to ask a question, please press one at this time. Today is next question comes from show me show me Capital, please. Go ahead. Hey, this is Jeff Stevenson on for garak. And yeah, my first question is just on the 68% based business forecast off to call out on the differences between the blue and green businesses as far as expectations for next year.

Yeah, good question Jeff, I think about growth opportunities for both businesses a little bit differently. The green business is has a big irrigation component irrigation is tied to new construction and new construction has been you know, relatively strong and continues to continues to look that way. So from from a base business growth probably the the green business growth profile in that area is a little bit better than Bloomberg but not not significantly different.

Got it. Now that that makes sense. And then your investor day. You mentioned that cost inflation will be more modest and twenty twenty and that kind of one to 2% range just wage. Is that a still a good way to look at it and have there been any changes that you would call out that are more or less than original expectations?

Yeah. No, I think that's a that's still the way we're viewing Things based on the feedback from suppliers and the increases that were announced it looks to be a much more than a normal year in that regard.

Got it. And one last one. I know you only called out on the first quarter ASU tax benefit. Just when you look at twenty twenty. Is there anything you could call out? Do you think it could be months or front half loaded or anything as far as steady Cadence or to help with modeling purposes?

well

We gave some guidance, you know, if you parse our comments, I think we gave some guidance throughout the p&l starting with the top line and the revenue growth expectations greater in the first quarter due to the easier comps. We had really first quarter first task with less growth in the in the exact after some early buy from a customer standpoint moving from Q2 and the q1 gave quite a bit of color on margins on expenses. Thursday is um didn't really provide a lot of modeling color or the other than overall for the years. So I think Thursday and we could give it about as much more more more than we normally do in terms of yes kind of how the year's looks like. It's going to shape up at this point. So I'll leave it at Birth.

I think

All right. Thank you.

It wasn't elements includes the question and answer session. I'd like to turn the call back over to mr. Van for any closing remarks.

Yes, thank you. Hey, thank you all for joining our call today. Our next call will be scheduled for April 30th. We will discuss the first quarter results for 2020. Have a great day.

Thank you. This is listed as conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

understood. Thanks and best of luck.