Q1 2022 Pool Corp Earnings Call
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Yeah.
Good day and welcome to the Pool Corporation first quarter 2022 conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Miss Melanie Hart, Vice President and Chief Financial Officer. Please go ahead ma'am.
Welcome everyone to our first quarter 2022 earnings conference call, our discussion comments and responses to questions. Today may include forward looking statements, including management's outlook for 2022 and future periods actual results may differ materially from those discussed today.
[noise] formation regarding the factors and variables that could cause actual results to differ from predicted results are discussed in our 10-K. In addition, we may make references to non-GAAP financial measures in our comments a description and reconciliation of any non-GAAP financial measures will be included in our press release and posted to our corporate website in our.
The relations section.
Now I'll turn the call every car president and CEO , Peter Arden Pete.
Thank you Melanie and good morning to everyone on the call earlier today, we released our first quarter 2022 results and they were nothing short of spectacular revenue grew by 33% in the quarter ending at one 4 billion. This marks our fifth consecutive quarter with sales over $1 billion and is the second biggest quarter.
Ever for <unk>.
This is even more notable is that this tremendous growth compares to a very strong first quarter in 2021, when we posted growth of 57%.
We're living it remains a priority with homeowners across North America, which continues to keep demand for our products strong new pool construction backlogs are solid and we will keep builders busy for much of this year.
Families continue to invest in their backyards and enjoy the benefits of a healthy outdoor living lifestyle pent up demand for renovation continues on the installed base of pools and hardscape fueled by a tight housing market and rising home values that maintenance and repair business is strong with most maintenance companies, commenting that the tight labor market isn't allowing them.
To expand as fast as the market opportunities will allow.
Fortunately, we have seen some improvements in the supply chain issues that plagued the industry last year, our investment in inventory infrastructure and relentless focus on execution when combined with our vendors capacity investments have eased some shortages and allowed us to provide a better customer experience than a year ago.
Yeah graphically, we continued to see strength in our four major sunbelt markets as well as our seasonal markets. Despite some adverse weather in the Midwest and northeast markets during this quarter.
Arizona showed the strongest growth rate with base business sales, increasing 33% followed by California, where we saw base business increased 31%.
Florida was also very strong with 30% base business increase growth in Texas, which had an extremely tough comp due to the freeze event last year posted a 7% gain in base business. As a reminder, we believe this event last year added approximately $20 million of revenue to our first quarter in 2020.
One with that in mind, we are quite pleased with the Texas results demand was also robust in our seasonal markets as we saw base business grow by 28% overall, we view the weather in the first quarter of 2022 as much less favorable than we saw in the same period of last year.
When we reported full year 2021 results, we said that we believed new pool construction in 2021 was approximately 120000 units.
PK data has released their final number for 2021 and confirmed a number of in ground pools constructed 117000 units, which equates to a 22% growth rate over 2020.
With nine months left in the year, we think it is a bit premature to call. The 2022 number given the many unknowns, which include weather labor availability in other economic indicators, but we remain very encouraged by what we're seeing so far this year.
Most of our builder and remodeled customers are reporting strong backlogs for new pools, and a growing backlog of remodel projects created by builders focusing on new construction more on new construction and remodel during the last couple of years clear.
Clearly the southern migration, where the attachment rate of swimming pools as much higher de urbanization. The continuation of the work from home trends and a tight housing market are all complaining to fuel the industry's growth.
It is important to remind you that new pool construction, albeit very important to us and the industry represents the smallest portion of our business at less than 20% with maintenance and repair and renovation and remodel representing approximately 60% and 20% respectively. We believe this is a very healthy balance and continue to invest in the margin accretive.
Maintenance and repair portion of our business that provides consistent growth with attractive margin for preschool and patio represents the latest and most significant investment in this area.
Turning to end markets commercial pool revenues were also very healthy as we saw sales increased 34% in the quarter. This compares with the 26% growth that we saw in the fourth quarter and 24% growth that we saw for the full year of 2021.
This market is healthy with maintenance and repair demand growing at a healthy backlog of construction and renovation projects in the pipeline.
Our base business sales to independent retailers buoyed by strong demand in the year round markets and strong early buy activity grew by 28% in the quarter results from pinch opinion were very similar and quite encouraging.
As we closed the first quarter, we cross the first 100 day Mark of our ownership of this strategic acquisition store traffic is brisk and demand is solid across the platform pitch of any added two new franchise locations in the quarter and have a robust development pipeline, we have combined resources on.
Both sourcing and product management and have begun packaging some products for our independent pool stores under the proprietary full court, France. The operations teams have begun prioritizing the many synergies that we have identified we are quite pleased with this investment as we believe it significantly strengthens our value proposition and extends our reach in the non <unk>.
Progression rate part of the market, serving the DIY pool owner, an estimated $3 billion market opportunity.
Next let me provide some context on our base business product sales equipment, which includes heaters pumps filters lighting and automation grew by 18%.
Considering the impact of the Texas freeze we are very pleased with these results by and large the supply chain issues that continue to improve.
Where would these products with some exceptions that I will comment on shortly chemicals grew by 58%, which was driven by much better supply coupled with solid demand.
Finally building material sales, which is being fueled by strong demand in new construction and renovation activity grew by 29% as follows 20% growth in the fourth quarter and 28% growth for the full year in 2021 further supporting the theme that demand remains strong.
Looking across all products. It is easy to see the strength in our business and how our unique value proposition allows us to leverage growth opportunities by providing unparalleled service to our customers, while being the best channel to market for our supplier partners.
Switching continents now I'd like to provide some comments on our European business for the quarter Europe grew by 5%, which compares to a very strong first quarter in 2021, where we saw sales increase by 115% the weather situation in Europe , when compared to last year same period was clearly a challenge and product availability.
<unk> was also impacted by logistical slowdowns in southern Europe .
The war in Eastern Europe is also having an effect on <unk> as consumers are grappling with higher energy cost and the overall uncertainty in the east we expect that as the weather warms demand will increase however, our seasoned team remains focused on execution and vigilant of market conditions. As a reminder, in 2021 this business represented approximately.
<unk>, 5% of our overall revenue and 4% of our profit. So the impact is small and is contemplated in our guidance.
Horizon continues to perform very well overall the base business in horizon grew by 32% for the quarter, which compares to 22% growth in the fourth quarter and 24% growth for the same quarter. In 2021, we are very pleased with our sustained progress on this growth path growth platform and continue to invest in it.
Expanding the business overall demand for housing commercial construction and renovation of outdoor living spaces continues to grow and remains strong across all geographies and all products.
Working down the income statement I'll discuss gross margins for the quarter, we reported gross margins of 31, 7%, a 330 basis point improvement over the same period last year, our supply chain initiatives pricing.
Corpus pool, the purposeful and patio acquisition, all combined to drive the increase Melanie will add more color on this topic in her prepared remarks operating expenses as a percent of sales came in at an impressive 15% as compared to 16, 2% for the same period last year, our relentless focus on <unk>.
<unk> the creation and execution continue to pay dividends for us and help offset the inflation that we're seeing on operating costs with.
360 utilization, which is a cornerstone of our capacity creation activity grew by 28%, which shows how much customers value the convenience and time saving and functionality that it provides.
Completing my comments on the income statement, we proudly reported operating income of $236 million and 83% improvement over the first quarter of 2021 now.
Not only is this another record first quarter profit. It is also the second most profitable quarter in our company's history.
To do that in the first quarter of the year. It makes it even more impressive operating margins came in at 16, 7%, a 450 basis point improvement over the first quarter of 2021 diluted earnings per share for the quarter totaled $4 41, and 82% increase over the same period last year.
Moving to the balance sheet, we significantly expanded our inventories during the quarter compared to the first quarter last year as supply chain issues ease and we bought ahead to ensure adequate supplies.
To meet the strong demand of the early buy season.
We are in a very strong inventory position heading into our peak selling season to include chemicals, where supply has been extremely tight in 2021, we expect that this will enable us to continue to gain market share utilizing our capital strength and sales Center network, our leverage to meet the continued strong customer demand Elliott.
Elliot will give more specific details on the balance sheet and cash flow in her comments.
Before I provide comments around our updated guidance I'd like to add some color on a few topics that I am sure are on everyone's mind inflation material availability in the near term outlook. When we discuss the full year 2021 results. We mentioned that we believed inflation would be in the 9% to 10% range for the 2022 season.
And that we would expect that to pass through the channel as is normally the case.
So far this year. This has generally played out as we expected on both accounts inflation is higher in the first part of the year, but because of the timing of increases we expect that it will end the year between 10 and 11% because this inflation traditionally passes through the channel. We made a strategic decision last year to invest incremental capital and inventory to address the supply chain.
Uncertainties and improve our ability to fulfill elevated demand. In addition in some cases it provided us an opportunity to buy ahead of some anticipated price increases. This has and continues to provide benefit to our customers and our suppliers by bringing valuable inventory into the most expansive network of sales centers and the <unk>.
As of now we have 414 locations up from 410 at the end of the year with an additional six to eight planned for the balance of the year to date. This inflation has yet to dampen demand as many of the current projects are part of a robust backlog that the industry carried into 2022 at this.
Point Eric.
Very few cancellations or customer driven delays are being reported so we expect 2022 to be a very solid year.
As you would expect this inflation along with the rising cost of labor and other costs have increased the average price of an in ground pool, PK data and well known source for information on the swimming pool industry. Just released their 2021 report and they show that the average price of an in ground swimming pool in 2021 to be approximately 56.
$2000, a 17% increase over 2020, given this year's inflation, we would expect that to climb again in 2022.
Many of our built this report that $100000 plus pools are becoming more and more common and a focus area for many of our customers our customers tell us that they remain focused on the bigger projects planning to catch up on smaller opportunities as time and labor allow the pool remodel market continues to have strong demand and a growing back.
Log with many builders and remodelers focusing on new construction for the last couple of years as demand group. Most builders are reporting that they have sufficient demand to carry them through the 2022 season. Those same customers are reporting that the backlog for renovation and remodel is healthy and we will provide growth opportunities going forward, especially when you consider the <unk>.
<unk> installed base and the new construction focus that we have seen for the last two seasons.
As it relates to maintenance and repair part of our business, which let me remind you is the largest portion of our business, making up approximately 60% of our revenues.
And is essentially non discretionary and continues to grow with the installed base.
Okay.
New products.
Also are helping this category grow as many customers or consumers are opting for smart and energy efficient technology when repair replacements are needed.
Availability continues to improve capacity investments by our manufacturing partners when combined with the increased investment in inventory are allowing us to provide better service to our customers when compared to a year ago.
Our chemical inventory Tricolore in particular is in much better shape than a year ago. This is driven by strategic sourcing activities, along with the porpoise pool and patio chemical packaging operation capabilities of Suncoast chemical.
Equipment inventories are also much improved this year, enabling us to start to season in much better position than we did a year ago and not having to contend with the shock demand that the weather event of the Texas freeze triggered last year lighting.
Lighting automation and some variable speed pumps and motors are still suffering from the global chip shortage, but other products like heaters and valves are improved we have seen some signs that products like above ground pools, and even spas may have peaked and are showing some weakness when compared to the elevated COVID-19 demand, but in total these products represent.
Less than 2% of our revenue overtime.
Over time <unk> has consistently demonstrated that our execution and strategic investments have enabled us to deliver solid results in a variety of economic environments. We expect to continue building upon our stellar track record.
Considering all of this information and reflecting our confidence in the remainder of the year. We are pleased to update and raise our guidance for the full year 2022 to $18 34.
To $19 <unk> per share, including the 18th ASU tax benefit in the first quarter from.
From the previous 17 19 to $17 94, which included 1919 ASU tax benefit.
Lastly, and before I turn the call over to Melanie for her comments, we would like to thank the team here at <unk>, our customers and our supplier partners for their collective and tireless effort to help bring outdoor living to life, we could not be prouder of the team and we're thankful for our customers and more appreciative of the partnerships with our manufacturers I will now turn the call over to mentally Hart, our Chief Financial Officer.
Her commentary.
Thank you Pete and good morning, everyone first quarter 2022 continued with record sales and earnings results. We remain focused on having the right products and the right locations to provide for the best possible customer experience as we all collectively continue to navigate supply chain challenges.
Activity in the first quarter benefited from inflation between 10% to 12% compared to the first quarter 2021, as our vendors had multiple price increases throughout the year. In 2021, we also realized a 7% to 8% increase from acquisitions and an estimated 5% growth in the quarter from an additional selling day in <unk>.
Early buy activity from our customers.
Total gross margins increased 330 basis points to 31, 7% base business gross margin increased 270 basis points to 31, 1%, resulting in an increase in base business gross profit dollars or 38%.
Our inventory levels, reflecting some quantities on hand received prior to the most recent vendor price increases provided some margin benefits during the quarter. However, there are other key component to our margin changes year over year. Our recent corporate form patio acquisition increased our consolidated margin. We also had favorable product mix.
During the quarter as Steve mentioned chemical sales were up more than 50% for the quarter and we have more access to supply than we did a year ago. We also saw sales increases in construction materials and performing at a higher rate than overall growth for the quarter.
In addition, we noted continued positive impact to our gross margins from our ongoing pricing efforts, our purchasing and supply chain improvements. We've implemented in 2020 in 2021, we will continue to provide benefits as we go forward.
We have seen historically, our margins and margin improvements will vary from quarter to quarter as a result of product and customer mix.
Operating expenses grew 23% during the quarter and includes approximately $18 million in additional expenses from recent acquisitions higher compensation and employee related expenses are the most significant significant growth contributor we increased head count to support our recent acquisitions and our ongoing sales growth and we aligned our <unk>.
<unk> rewards program with company performance and market rate higher.
Higher expenses for building rent freight and other operating costs reflect recent increases in rental rate renewals in insulation.
Continued investments in our ongoing digital transformation activities generated higher technology related expenses in the quarter.
The four Greenfields, we opened also added to our operating expenses in Q1.
Operating income increased 83% from first quarter of 2020, our continued ability to manage higher volumes of sales activity through our existing infrastructure and locations, while adding greenfield and strategic acquisitions and the highest growth markets has generated significant operating margin leverage our capacity creation efforts.
To improve customer experience reduce customer wait times and provide efficient technology solutions has also contributed to strong operating margin growth or scale and operating processes has positioned us to be able to continue to provide significant operating leverage in the future.
We continue to maintain a conservative leverage of one six times, our average interest rate was one 5% for the quarter based on average outstanding debt of $1 3 billion compared to $397 million at the end of first quarter 2020 one.
We expect to see higher interest expense throughout the year as our average debt levels will remain higher than in 2021, and we will see higher borrowing cost and today's increasing rate environment.
We recorded an ASU benefit of $7 3 million or <unk> 18 per diluted share. This was slightly less than the 19% included in our guidance for first quarter as the stock price in effect at the time of restricted stock vesting and option exercises impacts of the tax benefits realized.
System with prior periods, our updated guidance range only reflects the amounts we have realized to date.
Moving to our balance sheet and cash flows we made significant increased investments in working capital to support our robust sales growth of 33%.
Receivables increased 39% related to our sales growth, including sales from recent acquisition.
Days sales outstanding improved to $26 four days from $26 six days in 2021, highlighting our continued strong collections and positive aging trends.
Investments in inventory, we began in the second half of 2021 and discuss it year and supported a higher sales growth. During a time characterized by significant supply chain challenges and we are now well prepared with the appropriate inventory levels for the upcoming fall season, our inventory dollars at $1 6 billion at March 31.
<unk> are up 68% from Q1 2021 on a consolidated basis and are up 62% excluding inventory from acquisition.
Seasonal inventory increases.
From year end levels are consistent with our prior practices as we built $302 million in first quarter 2022, compared to $196 million in 2021, our inventory turn days at 116 are consistent with historical norms at the start of the season.
The additional inventory that we have strategically placed throughout our 414 locations will allow us to meet customer needs and continued to gain share. We believe this level of inventory is appropriate from a current business standpoint, and would not expect to continue to further build inventory levels. We are beginning to see some lead time improvement on certain products.
Which is a positive sign that some of the supply chain challenges, we have effectively managed over the last 12 months maybe easing.
In prior years, we have seen significant uses of cash in the second and third quarters. When amounts became due on vendor sponsored early buy program.
These programs were not offered in a similar manner in 2021, we have paid for our inventory purchases on current term, which negatively impacted our Q1 cash flows, but we will provide a positive influence later in the year.
Compared to 2021, our cash returned to shareholders through dividends increased $8 8 million to $32 million, reflecting the 38% quarterly dividend rate increase that our board of directors authorized last year.
During the quarter, we spent $62 million of the $495 million available to us at the beginning of the year under our authorized share repurchase program in total returning $95 million to shareholders to start off the year.
Reflecting a stellar first quarter, we have increased our EPS guidance for the full year 2022, our new range is $18 34.
The $19 nine.
Including the 18th ASU tax benefit realized to date.
This represents an additional 7% expected increase in earnings for the year on top of the 12% to 17% growth, we projected coming into the year for a total estimated growth of 20% to 25%.
This increase full year performance estimate reflects the positive results for the first quarter and continued confidence in our expectations for the remainder of the year.
We now anticipate for the full year, we would realize sales growth more in line with the high end of our previous net sales guidance range of 17% to 19%.
We expected to have strong growth in Q1 and results came in favorable but largely in line with our expectations. So our revenue growth outlook for the rest of the year remains strong we did realize 10% to 12% inflation in the first quarter and expect full year inflation to be at least 10% contribution from acquisitions for the full year are still expected to provide <unk>.
<unk>, 5% correct.
We had one additional selling day in first quarter that will be offset with one less selling day in third quarter, resulting in the same number of days for the year. We have also begun to see some impact from currency during the quarter, which could negatively impact sales growth by 1% to 2% for the year.
We continue to forecast gross profit margin for the full year in line with a record 35%. We achieved in 2021 as we discussed these will come in higher than the first half of the year and then moderate in third and fourth quarter.
No significant changes were made in our updated range as it relates to operating expenses, we expect that our operating expense growth will come in higher than our historical levels, but still lower than the gross profit growth rate and pleasure inflationary pressures on operating costs will be partially offset by our continued efforts and capacity creation initiatives generating operating leverage.
And so we expect improvements offered a record 15, 7% operating margin realized in 2021 for.
For the year, we are expecting to generate significant cash and our debt levels are projected to decrease by the time. We reached December there has been interest rate increases that have occurred so far in 2022, which pressures our interest expense estimates closer to the higher end of the range previously provided at $28 million.
We're now projecting that our weighted average shares outstanding for 2022 will be approximately $40 6 million chair.
In conjunction with our annual report we introduced our ESG framework highlighting the areas. We are focused on to ensure a safe and sustainable environment for our employees customers vendors and the communities, we live and work and commitment to our sustainability efforts come from the top of the organization with our board of directors, providing oversight as we continue to aside.
Bush, our baseline processes and metrics and incorporate these actions into our everyday practices. We are excited to share with you where we are on our journey.
First quarter 2022 has started off the year strong our proven ability to continue to effectively serve our customers provides us an amazing opportunity to grow earnings in 2022 and in the future.
I'll now turn the call back over to the operator to begin our question and answer session.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two we ask that you. Please limit yourself to one question and one follow up and if you have further questions. You may reenter the question queue and at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Ryan Merkel with William Blair. Please go ahead.
Hey, everyone. Good morning, and congrats on the quarter. Thank.
Thank you.
So I wanted to start off with a high level question. Pete you hit on this a little bit about sustainability of demand.
It sounds like with backlogs and what we're seeing out there today 22 is going to be a great year, but everyone's worried about 'twenty three and I was hoping you can sort of just speak to why you think demand can sustain a 23 Y is pull forward not a big risk like everyone.
<unk>.
Thanks, Brian .
That's a good question and here's the way we think about it.
I have to look at the kind of the underlying factors that are driving demand things like the southern migration. So if you look at the number of people that are moving to Florida, Texas, Arizona and the rest of the southern year round market States. It is significant we don't see that changing.
Don't think that the work from home.
Shifts that happened in the workforce.
<unk> is going to change either.
So when I look at the.
The fact that people are enjoying.
The outdoor living lifestyle from years ago, when Saturday nights. It was a lot of people gathered around the television inside now everybody wants the outdoor.
Whether it's a patio, whether it's an outdoor kitchen or whether it's a swimming pool event I don't think those.
The macro drivers are going to change.
Now when I look at.
The growth that we have seen over the last couple of years.
I think that new pool construction certainly is elevated.
And it grew a lot in 2020 and it grew a lot in 2021.
And we are seeing we're seeing sustained demand into 2022, what I think we're bumping up against is a couple of things and that is capacity. There's only so much capacity in the industry to continue to install to install new pools. However, what I would remind everybody is that new pool construction as I mentioned in my call.
<unk> is very important to the industry and certainly very important to us but for perspective.
About 80% of our revenue comes from pools already in the ground.
So when I think about the market opportunity that we have and I look at where we have invested to grow where we are where we are putting our capital and where we are strategically focused.
I think the sustainability of the growth is.
Is very likely so too soon for me to call as evidenced by my comments. The 2022 season, let alone to 2023 season because of.
Frankly, so many unknowns with weather probably being at the top of the list.
For everything, but I think unemployment remains very low the housing market is tight we know demand for new houses.
Housing, especially with the millennials entering the the housing market is going to continue to keep the.
Housing market tight and I think that's good for home values. So when I put all of that together I don't foresee a shift that says wow pools are going to fall out of favor rather Ics just continuing to grow, albeit at maybe not quite as fast a rate in the in the latter years I think we mentioned during our during our <unk>.
Mr Day, a month or so ago that we see in the future will be returned back to our normal 6% to 9%.
Both for the company.
That's very helpful. I guess I'd put it into my own words, it sounds like even though we've had supercharged growth. The last two years, you think theres a tail to this demand so while more people invested in the pool and want a pool using debt continues yes.
Of an aftermarket business, yes, the other thing I would mention too that I that I Should've mentioned upfront with your question is the new technology. I also think is playing a part.
In the in the renovation and remodel and frankly, expanding the market opportunity remember.
I haven't seen an updated number, but let's say a year and a half ago over 60% of the pools were running on a mechanical time clock.
Now the percentage has certainly of automation has certainly improved.
Albeit at a very slow rate because the major driver of that improvement is on the <unk>.
See more automation adoption on new pool construction, but the remaining installed base still offers a tremendous tremendous benefit and every time.
A homeowner is replacing a piece of equipment rather than replacing the one is that we meant that was mandated by.
The simple one is a variable speed pump rate. So that's now legislated in it has to happen, but then when you look at the rest of the automation and control that is available to smart pool that everybody wants versus the versus the pool that you had to go around the corner and it switches and valves versus being able to do everything from your phone I think that alone continues to provide.
And increased our market opportunity and expand our ability to grow the business for many years going forward.
Got it.
How do you convince me.
Second question on gross margin I'm curious well I just want to make sure everyone's on the same page. So how should we think about the second quarter can you hold on to the extremely strong rate that we saw in <unk> or should we think about that as the peak and we try to we bleed down gross margin as we go through the year.
Yeah, no consistent with our earlier expectations, we did expect that our margin for first quarter.
If youre looking at it kind of on a year over year comparable.
We'll expect to have higher growth in the first quarter. If you look at kind of absolute margin, we do typically see a little bit higher margins in second quarter, just from the seasonal pricing aspect of it but the growth we would expect to moderate starting in the second quarter.
Okay. So nothing has changed with mid year price increases you've seen from some of the Oes about the second half and.
Being able to hold onto price cost in a bigger way.
Yeah, we're still working through yeah, there was a little bit there was a few announcements that we saw it just kind of late last week and we.
So we're still evaluating those and there's many others that we haven't heard from so our current guidance really doesn't project out any future increases that may come through in the rest of the year.
Ryan the way to think about it said another way is that in.
Inflation in this industry.
As traditionally always pass through the channel and as Melanie mentioned.
We've seen a couple of a couple of notices late last week that we are still working through but.
The gross margin performance of the business, we continue to see a strong.
Perfect. Thanks, so much.
The next question will come from David Manthey with Baird. Please go ahead.
Hi, good morning, everyone. Good morning.
Do you know the mix of your revenues that would be in the sunbelt today versus say 10, or 15 years ago, you've seen outsized growth.
In the south and I would imagine that's tipped the scales a bit could you give us any any estimates as far as what you think that mix is today.
No.
That's a really good question, but I don't know that I have that answer.
Off the top of my head, but I can tell you is logically with with the growth that we have seen in the sunbelt and southern migration I would expect it to be higher but I don't want to quote a number on the phone with you right now because I'd rather get back to you with the actual but just logically given the <unk>.
Given the southern migration and the fact that pool construction in the year round markets is going to be higher than in the seasonal markets I would expect it to be bigger I, just don't want to quote the number off the top of my head too.
Yeah, Yeah, Okay, Yeah, we can follow up.
And as it relates to your renovation with model.
Business, how much of that do you think is non discretionary meaning the consumer has some structural issues that require work.
Versus a homeowner just saying, hey, I'm going to I'm going to choose to upgrade my outdoor living space do you have any thoughts on that.
Yeah, I think that's a it's actually a really good question the way we characterize the renovation and remodel business is semi discretionary because a portion of it is you know what I just don't like that color of tile anymore and I want to go from a brick coping to travertine coping because I want to modernize the pool and I want to add more decking around the <unk>.
Outside of the pool versus you know the the foot and a half of concrete that was there I want to cover the concrete debt a portion of it though is necessary because if you think about the pool all of the elements you have the equipment, which has a life useful life, assuming that you keep your water balance strike because unbalanced water.
Rec, even a brand new set of equipment in in months not years, but if you assume that.
If you adequately take care of your water chemistry to keep it balanced equipment could last lets call it in the.
Depending on the type and how much you use it seven to 10 years, but the surfaces on the inside of a pool of very similar to the surfaces on the outside of your house and that is they are exposed generally to the sun.
The water chemistry and that will.
That will degrade the surface overtime. So some of it is as you mentioned I just don't like the color and I bought I just bought the house its got a pool, which I've always wanted but it looks dated so I want to update it so that it could be as simple as a pile and are re plastering because.
Because I don't like the color, but there'll be a portion of that and probably a really rather significant portion of it is I have to do this because the tile is falling off for the finish is bad.
<unk> is the finishes stained or in the case of the equipment. The equipment is starting to fail and not performing as desired a portion of that too is going to be.
The.
Search for a more energy efficient pool, so going to high efficiency equipment, and led lighting versus halogen lighting high efficiency heaters versus standard gas heaters or heat pumps were adding things like.
UV, which is which has become very popular of late and.
The Ah <unk>.
It was owned for another way to sanitize the water. So there's just there's a lot of new products that come by way of renovation and remodel that are desired and a portion of it is a large portion of it is you really need to do this just like you need to maintain the outside of your house.
Yes that all makes sense. Thanks, a lot Pete yep. Thank you.
The next question will come from Susan Mac, Laurie with Goldman Sachs. Please go ahead.
Thank you good morning, everyone. Good morning. Good morning. My first question is you mentioned in your commentary that chemicals were up about 58% in the quarter can you give us some sense there of how much of that was price versus volume that you are assuming a lot of that was the chlorine situation coming through and then how are you thinking about that going forward.
Yeah.
Yeah on the chemical side I think it was about 40% price and.
20% in volume our chemical supply on the key chemical that everybody is focused in on a year ago from a shortage perspective Tricolore tablet was we were very tied a year ago and I would tell you that through a lot of hard work from our supply chain team and manufacturers are stepping up.
And with the addition of Pinchpenny I think we're in a much much much better.
Position, if you look at from a price perspective, it's not all that different than it was towards the end of the year, but certainly there was a big.
On a year over year basis, it was significantly higher.
Yeah. Okay. That's helpful. My next question as you know you mentioned that you are seeing some improvement in the lead times in some of your products.
We look out and we think about the potential for a more normalized situation in terms of volume as well as price can you talk to one the stickiness of the pricing that youre seeing today the ability to sustain a lot of this is as some of these pressures to ease and then on the volume side as well I think if we kind of parse out the.
Quarter. It seems like volumes were up maybe about 4%, 5% or so.
I guess one is that correct and then two do you think that as you do get these improvements in the supply chain. There is the potential that volumes could improve and maybe come in a bit ahead of where you had been thinking.
Sure.
First I would tell you from a from a volume perspective, we look at the first quarter closer to 10%.
As it regards to regarding your question on.
Pricing sustainability.
Yeah.
Historically in the industry and if I think about major major categories like equipment and such I don't really think that there's going to be a reduction I don't think those prices are going to roll back I think there are certain areas.
There there is a much higher commodity element to the product.
Whether you are talking about PVC or even chemicals to some degree where I think there could be some elasticity in price.
Remember there was a big run up on a big run up on the chemical pricing last year when the chemical plant fire happened in the end of 2020.
So that that brought on a lot of import material and the import material comes with a tariff and also elevated transportation costs.
Demand is still very strong for that product there is a new plant that will be coming online.
I think they are rebuilding and we would expect to see some contribution from that plant to the industry next year, how much we don't know.
But I think when it does come online I suspect that the price for chemicals will will come back a little bit or it could I should say, but I also don't think it's going to go back to anywhere near what it was because I think the input costs on manufacturing. Those chemicals has also has also come up and I don't see I don't see it returning back.
To the let's call it the 2019 levels.
Okay. Okay. That's very helpful color. Thank you and good luck with everything thank you.
The next question will come from Andrew Carter with Stifel. Please go ahead.
Hey, thanks good.
Good morning, first question I wanted to ask kind of returning to the gross margin kind of question. She got the math right here. Your trailing 12 is 31, 2% your guidance would imply the full years 30, and a half first part of that is you've got another nine months, a porpoise, which came in at 40% any reason that comes in at a much lower level and just help us understand.
Why why why youre, not kind of kind of holding on to some of the gross margin gains and anything we should be looking at that were unique tailwind in emerging headwinds over the next nine months. Thanks.
That's all on the margin side.
Does vary quarter over quarter, and if you're looking at it just on the trailing 12, you'll see that the contribution.
We experienced in the first quarter for the Corpus acquisition. When you look at our guidance for the year, it's probably similar for the full year guidance is what we expect to pick up from that.
And so the current the current expectation does not include any additional future inflationary increases from the vendor side, so that could evolve as we move through the rest of the year.
So that's the second question I ask and I don't know if you have great data to quantify this because it's a question we're getting all the time in terms of like the new construction and remodel activity in the pool industry. How much is kind of cash by and how much is kind of refined our refinancings with kind of rates going higher pressure on kind of refinancing.
Locations any color you can give us just that other other other kind of demand indicators, we're looking at right now thanks.
Yeah, that's a great question and I will tell you we've had that discussion with our with our builders and our pool dealers.
For quite some time.
It's probably in the neighborhood of.
I would say.
And it really depends on the area.
But it's probably in the neighborhood of 50 50, maybe 60 40 in in some areas but.
Just talking to one of our very large dealers. This week as a matter of fact and I asked if there has been any any change in.
How people are paying for financing the projects and he said there isn't and I said has there been any.
Difficulty in financing from their perspective, and they said there's been there's been essentially none so all good in that in that vein.
Thanks, I'll pass it on.
<unk>.
The next question will come from Trey Grooms with Stephens. Please go ahead.
Hey, good morning, guys and congrats on the great performance here this quarter. Thank you.
Pete you mentioned.
To continue to gain market share so.
So as we're looking through this year would this be more in line with your historical pace or do you think that.
You can continue to see market share gains at a more elevated level like we've seen over the last few years.
I can tell you.
That's a great question and thank you for it we worked very very very hard on.
Our market share and we do that by focusing on the customer experience and I can tell you and I think you've seen it over the last several years, we have been hyper focused on that and making sure that we are providing the best level of service.
The PK data report just came out so we haven't updated our share but I can tell you that there is no less focus on on gaining customer sharing if you look at the investments that we made whether it's in inventory or whether it's in new sales centers or whether it's in.
Uh huh.
In Japan, our Corpus pool, and Patio Act.
Acquisition, and all of the capabilities that come with that I.
I would tell you that we are relentlessly focused on on share.
Alright, Thanks, Pete and then.
This one is for mounting and it's more kind of housekeeping make sure I had it right, but I am going back to your topline bridge for this year, so topline higher and of the 17% to 19%.
And it sounds like really the only thing thats changed there versus the.
The prior guide was that you bumped up the <unk>.
Inflation expectation.
To at least 10% I think is what I heard so and then I think you said you had acquisitions, 5% and then you mentioned some headwinds of a few basis are 300 basis points as well.
So is it right and trying to back into kind of a five or 6% kind of underlying growth rate this year.
Based on.
What you gave us.
I think that would be a reasonable estimate at this point.
Okay perfect. Thank you.
The next question will come from David Macgregor with Longbow Research. Please go ahead.
Yes, good morning, everyone and congratulations on a great quarter.
I guess.
Going back to maybe Ryans question at the beginning of the call and just thinking about kind of that longer term view of 2023.
Just given the trajectory that youre seeing right now in the maintenance and repair business and the renovation business how much of a decline do you think you could you could incur new pool construction and still withstand earnings per share from going negative year over year.
Oh.
A number that probably wouldn't you wouldn't see happen in terms of a decline because remember if you look at the look at new pool construction, we say it's it's.
Under 20% of our.
Revenue.
So if you take our normal contribution margins and you say, even if new pool construction was the polyps and sell by half which.
Nobody sees nobody sees happening.
The the.
The impact on the business.
Is is I would tell you it's insignificant, but I would tell you that it is minimal when you look when you consider that 80% of our business is derived from the installed base of pools.
Yeah.
Got it.
I guess, just what Youre hearing would be helpful. From your construction customers, new construction customers regarding therefore visibility and downstream labor availability and how much visibility do you think they have to 2023 right now.
So what kind of color you're getting back from them on that.
They don't really have a lot of visibility into 2023 I think.
They have a very good look of what's in the pipeline and how 2022 is going to play out but from 2023 perspective, I don't think they have a lot of visibility with.
With the exception of.
The remodel and renovation business right because they know that they have been focused on that are they've been focused on new pool construction and they realize that with that focus on new pool. Construction. It has meant that the Q. If you will and the pent up demand for renovation and remodel is significant so I don't know that they're forecasting.
Less work or they are looking at 2023, and say I'm going to have a lot less work or any less work I think it's going to be a function of the work may be different they may be building.
Nucor construction may not grow at the same rate that it grew in 2020 in 2021 2022.
But the amount of pent up demand that there is surrounding the.
The installed base of pools is significant and I think that's how that's how they are viewing the world.
Got it thanks and congrats on the progress thank you.
The next question will come from Ken Zenner with Keybanc. Please go ahead.
Good morning, everybody.
Good morning.
What are you guys, obviously held onto a lot of information.
At your analyst day so.
I wonder.
You're obviously well positioned from an industry market.
Sure and I think that's the most important thing notwithstanding.
Anyone's uncertainty about about the growth rate.
Because theres so much inflation in the system right now.
Of the 300 basis point.
Gross margin gain.
And I know.
Most margin SG&A can kind of move around but can you give us a sense of what you.
Half of that pre buy and I'm, sorry, if I missed your.
Your description of this if you've done that so how much was I know you talked about the purpose being a benefit but how much of that is LIFO FIFO pre buy benefit.
Et cetera, just so we can have a sense of how much. This inflationary tailwind is helping you all.
Yeah, we haven't gone through and that much detailing quantified it because it is.
Well, we actually we value our inventory at average cost so even when we're getting products in at the new higher inflationary cost that's averaging out what they are lower and so you know you'll see that that trail may take a little bit longer to move through the channel.
And it's also changing can as as.
It has to do with what's going to happen with future price increases too so for us to kind of forecast.
But the benefit has.
Benefit changes with with a new announced inflation rate for the inventory that we have stock. So we are we are I think wisely invested in inventory.
And I think that will be that will be a benefit in the environment that we're in.
Yep.
And I'm looking at a slide that you guys have market trends increased core content.
Sure. The date I think it's in the spring.
It's this year, but where you basically had product category 21 growth for 2019, I'm sure you're familiar with this so automation controls heaters robotic cleaners.
Stone papers, all up a 100% and this just goes to the question I think that we all have and you guys feel that I wonder if you could just perhaps to answer it differently.
It seems hard to imagine that.
Down volume.
It's not out there somewhere considering we've doubled.
Sales and I know theres recurring revenue and the majority of your business.
I still have a.
No.
Internet based ecosystem myself.
Right.
How old I mean is it just so busy right now it seems to me the factor that separating you from let's say homebuilders or other building product companies is that youre, gaining so much share.
That's really enabling you.
To increase your served market. So if you could just explore that and I know you said you don't have the numbers, yet, but I mean could you give us some.
Sense of why that market share is going to be sustainable versus.
And it was seven when you expanded your branches that actually led to a lot of operating leverage on the downside you obviously haven't done that now but it seems to me what really separates your story from everybody else is that your dramatically gaining share that's sustainable.
Okay.
There's a lot to that question. So let me see if I can.
Dissect it a little bit if you go back to 2007 and you look at the percentage of our business that was tied to new construction.
Pools, it was actually much higher on a much smaller base.
If I look at our business model today, it's very different if I looked at the process that we used to open branches has been refined for.
But.
20 plus years.
Started out 20 plus years for almost 20 years.
From when it was started so I think we've gotten better at strategically placing branches I think we've gotten better with our.
With our opening process and where to open and how to open so that the locations don't become a drag on the business I think when we add branches today, it's because we are adding capacity needed capacity and capabilities because the markets the markets are growing.
When I think about the other additions that we've made strategically and where we have invested in as late as recently as the pinch of any acquisition or a porpoise pool and patio acquisition that adds significant capabilities that we think.
We will add to our ability to provide.
Our value to our independent pool customer pool store customer with tools and.
And product offerings that we couldnt, we couldnt do before so when I look at our focus on the customer I don't think anybody is more focused on the customer.
Then we are when I look at our investments in systems and process I don't think anybody is doing.
What we are doing so when I look at our ability to add value to the customer whether it's the maintenance and repair customer that's using <unk> 360, or some of our other products or just the vast number of branches that we have which is now 414.
Whether it's our technology tools like like Blue streak, which allows them to get in and out of those branches much faster than they could add before.
When I look at our focus at speed at the counter which we.
And we have essentially a time clock that starts every time a customer walks in so we know exactly how long it takes to get them in and out.
I think that we have lots of opportunity to continue to grow share because we're focused we're investing in the right areas. There is a tremendous sense of accountability and as always in pool Corp. There is a.
The focus around execution is unlike anything I've ever seen so I think we're very comfortable that our ability to keep growing share and I think the market too continues to expand because.
As I keep pointing out 80% of our revenue.
Is derived from the pools that are already in the ground and if you look at the technology as you mentioned a minute ago on your own pool. If you look at the technology on most of those.
Most of those pools. It is it is either nonexistent in terms of technology or it is in the very early stages of what is possible. If you look at the millennials that are becoming part of the the homeowner population and what their expectation is around smart technology in a connected pool in a connected backyard it's very.
<unk> than it was 10 years ago.
When you look at all of that together it gives us great comfort that our focus on the customer is going to allow us to continue to grow share because we are adding value and I hope that we earn it.
Think the market continues to get larger in terms of the new products that can be used in retrofitted into the installed base and I think the simple fact that the installed base continues to grow and the majority of our business is non discretionary I think gives us great comfort that the future is bright.
Thank you very much.
Youre welcome.
Again, if you have a question. Please press Star then one our next question will come from Garik <unk> with loop capital. Please go ahead.
Hey, this is Jeff Stevenson on for Gary Thanks for taking my questions today.
Just had two questions on pricing.
Obviously and Polish came on stronger than expected in the first.
First quarter and I was wondering if you could call out any product categories that sop pricing above your prior expectations coming in another year.
No I don't think we saw it as above what we said, we said inflation just because of the nature of how the price increases rolled out last year was going to show is higher at the beginning of the year and taper off as prices came up throughout last year.
Okay got it got it and I'm, sorry, I missed this I apologize, but just on the new at least 10% pricing assumption in your guidance can you talk about how much of this is kind of already been secured versus how much you intend to pass along in the future.
Yes, I mean everything that has been it has been previously announced is out in the market today.
So what I can't account for us with what hasn't what Hasnt been announced yet.
Okay got it.
Thank you.
Oh.
This.
Our question and answer session I would like to turn the conference back over to Mr. Peter Our van for any closing remarks. Please go ahead Sir.
Thank you Hey, listen I just wanted to thank everyone for joining US today, we look forward to speaking with you again on July 20, <unk>, when we will discuss our second quarter results.
We hope you all have an amazing day and thanks, Thanks again for joining us.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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